<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1996
FILE NO. 333-05017
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UIH AUSTRALIA/PACIFIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
COLORADO 4841 84-1341958
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
</TABLE>
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BERNARD G. DVORAK
CHIEF FINANCIAL OFFICER
UIH AUSTRALIA/PACIFIC, INC.
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
GARTH B. JENSEN, ESQ.
HOLME ROBERTS & OWEN LLC
1700 LINCOLN, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
FORM S-4
REGISTRATION STATEMENT
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION
NUMBER DESIGNATION IN FORM S-1 IN PROSPECTUS
------ ----------------------- -------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSAC-
TION
1. Forepart of the Registration
Statement Outside Front Cover
Page of Prospectus............ Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Inside Front and Outside Back Cover
3. Risk Factors, Ratio of Earnings Pages
to Fixed Charges and Other
Information................... Prospectus Summary; Risk Factors
4. Terms of the Transaction....... The Exchange Offer
5. Pro Forma Financial
Information................... Not Applicable
6. Material Contracts with Company
being Acquired................ Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................. Not Applicable
8. Interests of Named Experts and
Counsel....................... Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
B. INFORMATION ABOUT THE REGIS-
TRANT
10. Information with Respect to S-3
Registrants................... Not Applicable
11. Incorporation of Certain
Information by Reference...... Not Applicable
12. Information with Respect to S-2
or S-3 Registrants............ Not Applicable
13. Incorporation of Certain
Information by Reference...... Not Applicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
14. Information with Respect to
Registrants Other than S-3 or
S-2 Registrants............... Outside Front Cover Page; Prospectus
Summary; Risk Factors;
Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Regulation; Corporate
Organizational Structure; Management;
Certain Relationships; Australis
Transaction; Security Ownership;
Description of Other Debt;
Description of Senior Notes
15. Information with Respect to S-3
Companies..................... Not Applicable
16. Information with Respect to S-2
or S-3 Companies.............. Not Applicable
17. Information with Respect to
Companies Other than S-3 or S-
2 Companies................... Not Applicable
D. VOTING AND MANAGEMENT INFORMA-
TION
18. Information if Proxies,
Consents or Authorizations are
to be Solicited............... Not Applicable
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer................ Management; Certain Relationships;
</TABLE> Security
Ownership
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 26, 1996
PROSPECTUS
, 1996
OFFER FOR ALL OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2006, SERIES A IN EXCHANGE FOR
14% SENIOR DISCOUNT NOTES DUE 2006, SERIES B OF
UIH AUSTRALIA/PACIFIC, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED
UIH Australia/Pacific, Inc., a Colorado corporation (the "Issuer"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount at
maturity of up to $443,000,000 of 14% Senior Discount Notes due 2006, Series B
(the "New Notes") of the Issuer for a like principal amount at maturity of the
issued and outstanding 14% Senior Discount Notes due 2006, Series A (the "Old
Notes" and, together with the New Notes, the "Notes") of the Issuer from the
holders (the "Holders") thereof. The terms of the New Notes are identical in
all material respects to the Old Notes, except (i) for certain transfer
restrictions and registration rights relating to the Old Notes and (ii) that,
if the Exchange Offer is not consummated by , 1996, or the Company
fails to comply with certain other registration obligations with respect to the
Old Notes, the Company is required to pay liquidated damages to the Holders of
the Notes in an amount equal to the rate per annum of up to 2.50% of the
Accreted Value (as defined) of the Old Notes (the "Liquidated Damages") from
and including August 13, 1996, until but not including the date of the
consummation of the Exchange Offer or, as the case may be, compliance by the
Company with such other registration obligations. Any Liquidated Damages will
be payable in cash semiannually in arrears each May 15 and November 15,
commencing November 15, 1996.
If the Issuer does not consummate on or prior to May 15, 1997, an issuance of
capital stock resulting in gross proceeds to the Issuer of at least $70.0
million (an "Equity Sale"), then from such date the principal amount of the
Notes will accrete, and from and after May 15, 2001, cash interest will accrue
on the Notes, at an additional 0.75% per annum, until such time as the Issuer
effects an Equity Sale. In addition, if the Issuer does not consummate an
Equity Sale on or prior to November 15, 1997, the then holders of the Notes
will be entitled to receive warrants (the "Warrants") to purchase common stock
of the Issuer or, in certain circumstances, of the immediate parent of the
Issuer ("Parent"). The Notes and Warrants are collectively referred to herein
as the "Securities." See "Description of the Securities" and "Certain U.S.
Income Tax Considerations."
The Notes will mature on May 15, 2006 and will be redeemable at the option of
the Issuer on or after May 15, 2001 at the redemption prices set forth herein,
plus accrued and unpaid interest to the redemption date. In addition, at any
time prior to May 15, 1999, the Issuer may redeem up to 33% of the aggregate
principal amount at maturity of the Notes with the net proceeds of certain
public or private sales of equity interests of the Issuer at a redemption price
equal to 113% of the Accreted Value thereof on the redemption date; provided
that not less than 67% of the principal amount at maturity of the Notes
originally issued are outstanding immediately after giving effect to such
redemption. Upon a Change of Control, each holder of the Notes will have the
right to require the Issuer to purchase such holder's Notes at 101% of the
Accreted Value thereof in the case of any such purchase prior to May 15, 2001
or 101% of the principal amount at maturity thereof, plus accrued and unpaid
interest in the case of any such purchase on or after May 15, 2001. There can
be no assurance that the Issuer will have available funds sufficient to pay for
all of the Notes that might be delivered by holders of the Notes upon a Change
of Control.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR HAS ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR HAS ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. HAS ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
(Continued from previous page)
The Old Notes were issued at a substantial discount from their principal
amount at maturity. Except for any Special Interest, cash interest will not
accrue on the Notes prior to May 15, 2001. Commencing November 15, 2001, cash
interest on the Notes will be payable on May 15 and November 15 of each years
at a rate of 14% per annum. For each Old Note accepted for exchange, the
Holder of such Old Note will receive a New Note having a principal amount at
maturity equal to that of the surrendered Old Note. Original Issue Discount on
the New Notes will accrue from the date of original issuance of the Old Notes.
Holders whose Old Notes are accepted for exchange may, in the limited
circumstances referred to above, have the right to receive, in cash, Special
Interest (if any) thereon.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Rights Agreements (as
defined). Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
third parties, the Issuer believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof (other than any such Holder which is
an "affiliate" of the Issuer within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")), without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
such New Notes. The Issuer acknowledges and each Holder, other than a broker-
dealer, must acknowledge that it is not engaged in, does not intend to engage
in, and has no arrangement or understanding with any person to participate in,
a distribution of the New Notes. If any Holder is an affiliate of the Company,
is engaged in or intends to engage in or has any arrangement with any person
to participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date (as defined) and ending at the close of
business on the 180th day following the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Notes will be senior unsecured obligations of the Issuer and will rank
pari passu in right and priority of payment with all existing and future
indebtedness of the Issuer, other than indebtedness that by its terms is
expressly subordinated in right and priority of payment to the Notes. As of
the date hereof, the Issuer has no significant outstanding indebtedness other
than the Notes. The Issuer conducts all of its business through its
subsidiaries and the Notes will be effectively subordinated to the claims of
creditors of such subsidiaries. As of March 31, 1996, on a pro forma basis
after giving effect to the Offering and the estimated use of proceeds
therefrom, the consolidated liabilities of the Issuer and its subsidiaries
(including trade payables of subsidiaries) would have been approximately
$243.7 million (including $225.1 million with respect to the Notes), all of
which, except for the Notes, would have been obligations of the Issuer's
subsidiaries and structurally senior to the Notes. See "Use of Proceeds."
If issued, each Warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price per share equal to the fair market
value thereof, assuming an equity valuation of the Issuer of $150.0 million.
Upon exercise, the holders of Warrants would be entitled, in the aggregate, to
purchase Common Stock which would represent 3.0% of the Common Stock
determined on a fully diluted basis after giving effect to the exercise of the
Warrants. The Warrants will expire on May 15, 2006. See "Description of the
Securities--Description of the Warrants."
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Issuer terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Issuer will promptly return
the Old Notes to the Holders thereof. See "The Exchange Offer." The Notes have
been approved for trading in the Private Offering, Resale and trading through
Automated Linkages ("PORTAL") market upon issuance.
2
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-4 under the Securities Act, with respect to the securities offered hereby
(the "Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby reference is made to the Registration Statement,
including the exhibits and schedules thereto, which may be inspected at, and
copies thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048.
* * *
The Company intends to furnish holders of the Senior Notes with annual
reports containing audited financial statements and quarterly reports for the
first three quarters of each fiscal year containing unaudited interim
financial information.
* * *
Until (90 days after the date of this Prospectus) all dealers
effecting transactions in the New Notes, whether or not participating in the
Exchange Offer, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context requires, the "Issuer" refers to UIH Australia/Pacific, Inc,
a majority owned subsidiary of United Australasian Communications, Inc.
("UAC"), which is an indirect wholly-owned subsidiary of United International
Holdings, Inc. ("UIH"), and the "Company" refers collectively to the Issuer,
its subsidiaries and non-majority owned affiliates and their respective
predecessors. The Issuer owns, through directly and indirectly held interests,
a combined 94% economic interest in two Australian companies, CTV Pty Ltd.
("CTV") and STV Pty Ltd. ("STV"), which are collectively referred to herein as
"Communications and Entertainment Television" or "CEtv." The "Operating
Companies" refer to CEtv and XYZ, Saturn, Telefenua and United Wireless (each
as defined below). Unless the context requires otherwise, "UIH" includes UIH
and all of its subsidiaries other than the Issuer and its subsidiaries. All
references to "$" or "dollars" are to U.S. dollars. For information regarding
foreign currency amounts translated to U.S. dollars, see "Exchange Rate Data."
THE COMPANY
OVERVIEW
The Company, a leading provider of multi-channel television services in the
Australia and Pacific region, is currently constructing and operating multi-
channel television systems in three markets: (i) Australia, in which the
Company is constructing and operating wireless cable ("MMDS") systems and
marketing a direct-to-home ("DTH") service in its regional franchise areas
which encompass approximately 1.5 million serviceable television homes; (ii)
New Zealand, in which the Company is constructing a wireline cable and
telephony system intended to pass approximately 135,000 homes; and (iii)
Tahiti, in which the Company has completed the initial phase of construction
and is operating an MMDS system which, upon completion, will pass approximately
31,000 homes. In addition, the Company's other assets include a 25% interest in
XYZ Entertainment Pty Ltd. ("XYZ"), a programming company which provides four
channels to the Australian multi-channel television market as part of the eight
channel "Galaxy" package. To date, UIH, the Company's parent, and its partners
have invested significant capital and have devoted substantial management
resources and expertise to establish the infrastructure necessary to implement
a rapid roll-out of the Company's operating systems. As of May 31, 1996, the
Company's multi-channel television systems and operations were capable of
serving over 1.1 million homes of which 170,596 had been marketed and 29,145
were subscribers.
CETV (AUSTRALIA)
The Company believes that Australia, the largest undeveloped English speaking
multi-channel television market in the world, represents an attractive market
for multi-channel television providers. Prior to 1995, subscription television
services were not available on a wide scale basis and, as a result, current
market penetration for such services is less than 3%. However, there exists
strong demand for television programming, as evidenced by high average daily
television viewing, high television and videocassette recorder ("VCR")
penetration and the early success of the multi-channel television industry. In
addition, Australia is a mature economy with a high GDP per capita,
characteristics which the Company believes are favorable to multi-channel
television growth.
The Company owns, directly and indirectly, a combined 94% economic interest
(and has agreed to acquire the remaining 6% economic interest, subject to
certain conditions) in CEtv, which has acquired virtually all of the available
MMDS licenses in an area encompassing approximately 1.5 million serviceable
television homes in Australia. CEtv's franchise areas represent approximately
25% of the Australian market. CEtv has strategically focused on regional areas
located outside of Australia's largest capital cities. CEtv is currently the
only multi-channel television provider in markets representing over 90% of
these serviceable homes and believes
4
<PAGE>
that it has several competitive advantages over any potential competitor in its
markets. Of the serviceable homes in its franchise areas, CEtv believes that
approximately 800,000 homes are in markets which CEtv will serve primarily by
MMDS. CEtv is servicing homes in its MMDS markets that are not reachable by its
MMDS signals with a DTH service which CEtv is marketing in its franchise areas
on an exclusive basis. CEtv launched MMDS service in August 1995 and as of May
31, 1996 had completed construction and launched service in markets that
contained an aggregate of approximately 422,000 homes. As of such date, CEtv
had completed its initial direct marketing program to approximately 148,600 of
these homes, and had 21,412 metropolitan subscribers, representing a 14%
penetration rate of marketed homes. In addition, in March 1996, CEtv began
marketing its programming services via DTH in less densely populated areas
outside its MMDS markets that are more efficiently served by DTH technology.
These DTH service areas contain approximately 700,000 homes, the majority of
which are located within a fifty-kilometer radius of its MMDS markets. As of
May 31, 1996, CEtv has 2,212 DTH subscribers in these markets. CEtv also plans
to construct wireline cable networks in two small regions in its franchise
areas containing an aggregate of approximately 25,700 serviceable homes. CEtv
expects to complete construction and launch service to all of its 1.5 million
potential customers by the end of 1996.
The Company believes that programming is a critical component in building
successful multi-channel television systems. CEtv has entered into franchise
agreements providing it with the right through 2004 (which is extendable at
CEtv's option through 2014) to distribute the eight-channel Galaxy package over
all transmission technologies (MMDS, DTH and wireline cable) in its franchise
areas. See "Business--CEtv (Australia)--Australis Franchise Agreements" and
"Risk Factors--Reliance on Australis and Other Principal Suppliers." The Galaxy
package, the most widely distributed programming package in Australia, was
developed exclusively for the Australian market by several of the world's
leading programming companies including Paramount Pictures Corporation
("Paramount"), Sony Pictures Entertainment Inc. ("Sony"), Universal City
Studios, Inc. ("Universal"), Twentieth Century Fox ("Fox") and Viacom
International, Inc. ("Viacom"). The Galaxy package includes two movie services
(Showtime and Encore), Fox Sports, two general entertainment services (TV-1 and
Arena), Australia's only 24-hour music video service (Red) and two family
programming services (Nickelodeon/Nick at Nite and The Discovery Channel). To
supplement the Galaxy package, CEtv has also secured additional programming on
a non-exclusive basis from providers of both locally-originated and satellite-
delivered programming services including CNN International, Turner Network
Television (TNT), Cartoon Network, Country Music Television (CMT), Asia
Business News (ABN), BBC World News and World Movies, a premium channel which
is currently only available to its MMDS subscribers.
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides four of the eight
channels offered in the Galaxy package. XYZ's channels consist of
Nickelodeon/Nick at Nite, The Discovery Channel, Arena and Red. XYZ has entered
into an agreement that provides for carriage of its four channels by virtually
all existing Australian MMDS and DTH providers, including CEtv, Australis Media
Limited ("Australis") and East Coast Television Pty Limited ("ECT"), as well as
by the largest cable television operator in Australia, Foxtel Management Pty
Limited ("Foxtel"). The Company believes that this agreement, which extends
through 2010 for MMDS and DTH subscribers and 2020 for Foxtel subscribers and
provides for fixed per subscriber prices (and in the case of Foxtel,
substantial minimum subscriber guarantees), will cause XYZ's programming
package to be available to virtually all of Australia's 6.0 million television
households through at least 2010. Foxtel, which owns 50% of XYZ, is a joint
venture between News Corporation Limited and Telstra Corporation Limited
("Telstra"), the Australian government-owned telephone company. The Company's
other partner in XYZ is Century Communications Corp. ("Century"), a large U.S.
multiple system cable operator and the parent of ECT. XYZ launched its channels
in April 1995 and as of May 31, 1996, XYZ provided its channels to
approximately 200,000 subscribers in Australia.
5
<PAGE>
SATURN (NEW ZEALAND)
The Company believes that New Zealand is an attractive market for multi-
channel television providers. New Zealand has a demographic profile similar to
Australia, including high per capita income and strong television and VCR
penetration. In addition, New Zealand permits operators to offer combined
multi-channel television and telephony services over one network. The New
Zealand multi-channel television market is also relatively undeveloped with
only one competitor currently offering a five-channel UHF subscription service.
The Company owns a 100% of Saturn Communications Limited ("Saturn"), which
has begun constructing an integrated wireline cable network that will allow it
to provide multi-channel television services to approximately 135,000 homes in
the Wellington area as well as business and residential telecommunications
services. Wellington is New Zealand's capital and its second largest city.
Saturn expects construction of its Wellington network to be completed in 1997.
In addition, Saturn owns a wireline cable television system on the Kapiti
Coast, north of Wellington, that as of May 31, 1996, passed approximately 6,000
homes, of which approximately 4,500 had been marketed, and serviced
approximately 1,150 subscribers.
TELEFENUA (TAHITI)
The Company believes Tahiti is an attractive multi-channel television market
due to the favorable competitive environment, Tahiti's relatively high income
levels and the Tahitian consumers' high propensity to spend on entertainment.
The Company holds an indirect 90% economic interest in Telefenua S.A.
("Telefenua"), a Tahitian MMDS operator that holds 30-year local franchises,
many of which are exclusive, to provide multi-channel television services to
approximately 31,000 serviceable homes on the islands of Tahiti and Moorea.
Telefenua has completed the initial phase of construction of its MMDS system
and is currently marketing its 14-channel service to approximately 17,500
homes. As of May 31, 1996, Telefenua had approximately 4,400 subscribers
(representing a 25% penetration rate) paying an average monthly rate of
approximately $65. Telefenua is currently expanding its network to reach all
31,000 serviceable homes in its franchise areas. Telefenua's only subscription
television competitor offers a single-channel UHF-delivered service for
approximately the same price as Telefenua's service. See "Regulation--Tahiti."
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
In September 1995, the Company acquired a 100% interest in BellSouth Mobile
Data Australia Pty Limited ("BellSouth Mobile Data"), which was renamed United
Wireless Pty Limited ("United Wireless"), a provider of two-way wireless mobile
data services in Australia. United Wireless is providing wireless data services
on a limited basis in Sydney, Melbourne and Brisbane. The wireless mobile and
fixed data industry is in an early stage of development; services were first
introduced on a limited basis in 1992. In order to meet growing demand for its
services, United Wireless is in the process of expanding and upgrading its
existing networks and deploying additional networks in other capital cities.
6
<PAGE>
COMPANY STRENGTHS
The Company believes that it is well positioned to capitalize on its progress
to date and to establish itself as a leading provider of multi-channel
television and related services in each of its markets. The Company benefits
from the following:
. ATTRACTIVE DEMOGRAPHICS OF TARGET POPULATIONS. Each of the countries in
which the Company operates has demographics and other characteristics
that are favorable to multi-channel television operators. Australia, New
Zealand and Tahiti are all characterized by high per capita incomes and
high television and VCR penetration rates. Television viewers in those
countries, however, have limited over-the-air television options. In
addition, consumers in each of these markets are generally receptive to
new technologies and services, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of the Company's markets, compared to the
comparable statistic for the more mature multi-channel television markets
of the United States and the United Kingdom:
<TABLE>
<CAPTION>
GDP PER YEARS OF TELEVISION SUBSCRIPTION CELLULAR
CAPITA HOMES WITH SUBSCRIPTION HOMES TELEVISION TELEPHONE
IN 1994 TELEVISION TELEVISION WITH VCR PENETRATION PENETRATION
------- ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
United States........... $25,900 99% 40+ 80% 66% 13%
Australia............... 19,544 99 1 85 3 17
New Zealand............. 16,484 99 6 78 17 10
Tahiti.................. 14,340 99 2 66 21 N/A
United Kingdom.......... 15,800 97 12 72 23 10
</TABLE>
. LICENSE RIGHTS/LIMITED COMPETITION. CEtv believes that its exclusive MMDS
licenses, franchise agreements and status as the first entrant in its
markets provide significant competitive advantages in its franchise
areas. CEtv owns virtually all of the available MMDS licenses exclusive
in its franchise areas and is aggressively constructing its systems and
marketing its services. CEtv believes that its early entrance into and
rapid construction throughout its markets will enable it to continue to
build customer loyalty and establish a meaningful subscriber base within
the next twelve months. CEtv believes that the relatively low housing
densities and relatively small size of the individual markets in the
substantial majority of its franchise areas generally do not support the
higher cost of wireline cable construction. In addition, CEtv has entered
into franchise agreements providing it with the exclusive right through
2004 (which is extendable at CEtv's option through 2014) to offer the
Galaxy programming package over all technologies (MMDS, DTH and wireline
cable) in its franchise areas. These franchise agreements provide that
the franchisor will not grant the right to any other person to transmit
the Galaxy package over any transmission technology in CEtv's franchise
areas. See "Business--CEtv (Australia)--Australis Franchise Agreements."
Similarly, Telefenua has secured exclusive MMDS spectrum and 30-year local
franchise rights, the majority of which are exclusive, on the islands of
Tahiti and Moorea. Tahitians have limited television viewing options with
only two free-to-air broadcast channels and one subscription television
service offering a single channel of movies and sports programming at
approximately the same price as Telefenua's 14-channel service.
. SECURED PROGRAMMING RIGHTS. The Company has secured attractive and
diverse programming for each of its markets. In Australia, CEtv has
entered into franchise agreements providing it with the exclusive right
through 2004 (which is extendable at CEtv's option through 2014) to offer
the Galaxy programming package over all technologies (MMDS, DTH and
wireline cable) in all of its franchise areas. See "Business--
CEtv(Australia)--Australis Franchise Agreements." Management believes
that the Galaxy channels represent the premier programming package
available in Australia and that CEtv's right to broadcast the Galaxy
package provides a significant competitive advantage in substantially all
of its franchise areas. CEtv has secured additional satellite-delivered
programming services, including CNBC, TNT, BBC World Service and CMT, to
supplement the Galaxy package to its MMDS customers.
7
<PAGE>
Saturn offers a basic package of 22 channels and is actively seeking to
expand its channel line-up, including the introduction of pay-per-view
services. There are currently only four national broadcast networks in New
Zealand and one multi-channel television provider which offers a five-
channel UHF delivered subscription service. Telefenua provides a basic and
premium package consisting of nine and fourteen channels, all of which,
except for CNN International and ESPN International, are in French (the
primary language spoken in Tahiti). There are currently two national
networks in Tahiti and one competing subscription television operator
which provides a single-channel service for approximately the same price
as Telefenua's 14-channel service.
. SUCCESSFUL SERVICE LAUNCH. CEtv and Telefenua have successfully launched
their respective services and have achieved high penetration rates
through aggressive and focused marketing. As of May 31, 1996, CEtv had
launched MMDS service in markets containing approximately 422,000 homes.
CEtv believes that its operating results to date demonstrate that there
is strong demand for its services. As of May 31, 1996, CEtv had achieved
a penetration rate of 14% of those homes in its franchise areas for which
CEtv had completed its initial direct marketing program. CEtv plans to
complete construction of its MMDS systems and initiate the marketing of
rural DTH services in all of its franchise areas (encompassing
approximately 1.5 million serviceable homes) by the end of 1996.
Telefenua has completed construction of its MMDS system in areas containing
approximately 17,500 homes and expects to complete the construction of its
systems by the end of 1996. As of May 31, 1996, Telefenua completed its
initial marketing to these homes and had already achieved a 25% penetration
rate. XYZ began offering its programming service in April 1995, and as of
May 31, 1996, XYZ's channels were distributed to approximately 200,000
subscribers.
. ABSENCE OF PRICING REGULATION. The Company's systems are generally not
subject to pricing or tiering restrictions and have limited content
requirements. See "Regulation." These regulatory environments will enable
the Company to pursue optimal multi-channel television pricing and
programming structures, including attractive basic rates to maximize
penetration with incremental charges for additional services such as
expanded tiers and premium channels.
. STRONG LOCAL MANAGEMENT. Each of the Company's operating systems are
managed by a team of experienced professionals selected by UIH. These
management teams consist of senior professionals who have participated in
the successful launch and management of multi-channel television
operations in the U.S. and international markets. In addition, UIH
provides management and technical support to each of the Company's multi-
channel television systems under the terms of technical service
agreements (each, a "Technical Service Agreement"). See "Certain
Relationships."
SPONSORSHIP BY UNITED INTERNATIONAL HOLDINGS, INC.
The Issuer is an indirect majority owned subsidiary of UIH, a leading
provider of multi-channel television services outside the United States. UIH
together with its strategic and financial partners, have ownership interests in
multi-channel television systems in operation or under construction in 24
countries in Europe, Latin America, Asia and the Pacific. As of December 31,
1995, UIH's multi-channel television systems had approximately 8.5 million
television homes in their respective service areas, passed approximately 4.7
million homes and had approximately 2.5 million subscribers. Many of these
multi-channel television systems were built by, or are currently in
construction under the direction and management of, UIH. Through May 31, 1996,
UIH and its partners had invested total debt and equity capital of
approximately $142.0 million to fund the initial construction and marketing of
the Operating Companies. In addition, UIH also invested a total of
approximately $50.7 million in cash and preferred stock to acquire an
additional 40% interest in CEtv.
8
<PAGE>
UIH and each of CEtv, Saturn and Telefenua are parties to Technical Service
Agreements, pursuant to which UIH provides its expertise in system design and
engineering, construction, marketing, programming acquisition, subscriber
management and other areas critical for the success of each Operating Company
for a fee based, in part, upon the revenues of such Operating Companies. In
addition, UIH and the Company are parties to a management agreement (the "UIH
Management Agreement"), pursuant to which UIH performs certain administrative,
accounting, financial reporting and other services for the Company for a fee.
See "Certain Relationships."
AUSTRALIS TRANSACTION AND AUSTRALIS SETTLEMENT
On April 19, 1996, a group consisting of Publishing and Broadcasting Limited
("PBL"), Lenfest Communications Inc. ("Lenfest"), UIH, and Guiness Peat Group
PLC ("Guiness Peat") (the "Guarantors") committed (the "Australis Transaction")
to make or procure guarantees for a total of $125.0 million of obligations of
Australis, a principal supplier of CEtv's programming, under a new Australis
bank facility (the "Australis Bank Facility"). The Company understands that
approximately $105 million of the available credit and other cash on hand had
been drawn as of June 15, 1996. Pursuant to the Australis Transaction, UIH
formed a subsidiary ("UIH AML") that guaranteed $10.0 million of the Australis
Bank Facility (the "Australis Guarantee"). UIH contributed $10.0 million in
cash to UIH AML, which cash was used to collateralize the guarantee. The Issuer
acquired UIH AML on May 14, 1996 for $10.0 million in cash. In connection with
the Australis Transaction, UIH AML received warrants to purchase approximately
4.2 million ordinary shares or convertible notes of Australis at an exercise
price of A$0.20 per share (the "Australis Warrants"). UIH AML has agreed to
acquire $4.0 million of ordinary shares of convertible notes of Australis by
converting a portion of the Australis Guarantee or exercising the Australis
Warrants, subject to certain conditions described below. See "Australis
Transaction."
Pursuant to the terms of its franchise agreements with Australis, CEtv was
granted the exclusive license and right to distribute the Galaxy programming
package in its franchise areas. In March 1995, Australis granted Foxtel a
license to distribute the Galaxy package over cable television systems
throughout Australia, including CEtv's franchise areas. The Company believes
that because of such action Australis was in breach of its franchise
agreements. Foxtel is currently distributing Galaxy programming on its cable
television system in the Gold Coast. On June 19, 1996, CEtv and the Company
agreed, subject to certain conditions described below, to settle their dispute
with Australis with respect to this matter (the "Australis Settlement"). As
part of the Australis Settlement, the parties agreed that Australis is entitled
to grant Foxtel the non-exclusive right to distribute Galaxy programming by
cable, but that Foxtel may not sublicense or assign this right without CEtv's
consent. Australis agreed to pay to CEtv an amount equal to the amount
Australis received from Foxtel for programming service for the period from
March 1995 through June 30, 1996, less the amount Australis paid to third party
programming suppliers for such programming with respect to Foxtel subscribers
located in CEtv's franchise areas during such period. In addition, from June
30, 1996 though the term of the franchise agreements, CEtv has the right to in
its sole discretion, to either: (i) sublicense to Foxtel the right to transmit
the services provided to it by Australis (and any other services) by cable
transmission in its franchise areas or (ii) require Australis to pay to it an
amount each month equal to the sum of (a) the greater of A$4.50 per subscriber
and all revenues (less programming costs) per subscriber during such month
received under the agreement between Foxtel and Australis with respect to
Foxtel subscribers located in CEtv's franchise areas and (b) an additional
amount (if any) to put CEtv in the position that it would have been in had it
sublicensed the services provided to it by Australis directly to Foxtel. The
Company believes that, because its programming costs are less than the revenue
to be generated by sublicensing such programming to Foxtel, the benefits to be
gained from this portion of the Australis Settlement will be substantial over
the years. As part of the Australis Settlement, Australis agreed to extend the
term of the franchise agreements by five years to an initial 15-year term and
amended favorably certain financial and strategic terms of the franchise
agreements. Effectiveness of the Australis Settlement is subject to completion
of anticipated financing to Australis of at least $250 million, including at
least $50 million of equity (the "Australis Financing"), which conditions may
be waived by the Company and CEtv. See "Business--CEtv (Australia)--
Competition" and "Risk Factors--Reliance on Australis and Other Principal
Suppliers." In connection with the Australis Settlement, the Company and
Australis have agreed for the Company to purchase Australis' 6% interest in
CEtv for approximately $8.0 million.
OTHER
The Issuer was incorporated in 1994 as a Colorado corporation. The principal
executive office of the Company is located at 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237, and its telephone number is (303) 770-4001.
9
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... Up to $443.0 million principal amount at maturity
of New Notes. The terms of the New Notes and the
Old Notes are identical in all material respects,
except for certain transfer restrictions and reg-
istration rights relating to the Old Notes and
except for certain special interest provisions
relating to the Old Notes summarized below under
"--The New Notes."
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount at maturity of Old Notes.
The issuance of the New Notes is intended to sat-
isfy obligations of the Company contained in the
Registration Rights Agreement (the "Registration
Rights Agreement") dated May 14, 1996, by and
among the Issuer, Donaldson, Lufkin & Jenrette
Securities Corporation and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated as the initial purchasers with respect to
the initial sale of the Old Notes (the "Initial
Purchasers"). For procedures for tendering, see
"The Exchange Offer."
Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1996, or such later
date and time to which it is extended (the "Expi-
ration Date"). Each holder tendering Old Notes
must acknowledge that it is not engaging in, nor
intends to engage in, a distribution of the New
Notes. The tender of the Old Notes pursuant to
the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be re-
turned without expense to the tendering holder
thereof as promptly as practicable after the ex-
piration or termination of the Exchange Offer.
Federal Income Tax
Consequences............... In the opinion of counsel, the exchange of Notes
pursuant to the Exchange Offer should not consti-
tute a taxable exchange for federal income tax
purposes. See the discussion under "Certain U.S.
Federal Income Tax Considerations."
Use of Proceeds............. There will be no proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
Exchange Agent.............. American Bank National Association is serving as
Exchange Agent in connection with the Exchange
Offer.
Shelf Registration
Statement.................. Under certain circumstances, certain holders of
Notes (including holders who may not participate
in the Exchange Offer, or who may not freely re-
sell New Notes received in the Exchange Offer)
may require the Issuer to file, and cause to be-
come effective, a shelf registration statement
under the Securities Act, which would cover re-
sales of Notes by such holders. See "Description
of Notes--Registration Rights."
10
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, Holders of Old Notes (other than any Holder who is an "affiliate"
of the Issuer within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided, that such New Notes are acquired in
the ordinary course of the Holders' business and such Holders, other than
brokers-dealers, are not engaged in do not intend to engage in and have no
arrangement or understanding with any person to participate in, a distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes must acknowledge that such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register thereunder the New Notes prior to offering or selling such New
Notes. The Issuer has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the
New Notes held by broker-dealers for offer or sale under the securities or blue
sky laws of such jurisdictions as any such holder of such New Notes reasonably
requests in writing. Unless the Issuer is so requested the Issuer does not
intend to register or qualify the sale of the New Notes in any such
jurisdictions. If a Holder of Old Notes does not exchange such Old Notes for
New Notes pursuant to the Exchange Offer, such Old Notes will continue to be
subject to provisions of the Indenture regarding transfer and exchange of the
Old Notes and the restrictions on transfer contained in the legend on the Old
Notes. In general, Old Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. See "The Exchange Offer--Consequences of Failure to Exchange" and
"Registration Rights--The Notes."
THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except (i) for certain transfer restrictions and registration rights
relating to the Old Notes and (ii) that, if the Exchange Offer is not
consummated by , 1996, or if the Company fails to comply with certain
other registration obligations with respect to the Old Notes, Liquidated
Damages shall accrue on the Old Notes at a rate of up to 2.50% per annum of the
Accreted Value of the Old Notes. Any Liquidated Damages on the Old Notes will
be payable in cash semiannually in arrears each May 15 and November 15,
commencing November 15, 1996. See "Registration Rights--The Notes."
Securities Offered.......... Up to $443.0 million principal amount at maturity
of 14% Senior Discount Notes Due 2006, Series B.
Maturity.................... May 15, 2006.
Yield and Interest.......... 14% per annum (computed on a semiannual bond
equivalent basis) calculated from May 14, 1996.
Cash interest on the Notes will not accrue prior
to May 15, 2001. Thereafter, cash interest on the
Notes will accrue at a rate of 14% per annum, and
will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. If the
Issuer does not consummate, subsequent to the Is-
sue Date and on or prior to May 15, 1997, an Eq-
uity Sale, then from such date through May 15,
2001 the principal amount of the Notes will
accrete, and, from and after May 15, 2001, cash
interest will accrue on the Notes, at an addi-
tional 0.75% per annum, until such time as the
Issuer effects an Equity Sale.
11
<PAGE>
Contingent Warrants......... If the Issuer does not effect an Equity Sale sub-
sequent to the Issue Date and on or prior to No-
vember 15, 1997, the holders of the Notes will be
entitled to receive Warrants exercisable for 3.0%
of the Common Stock of the Issuer or, in certain
circumstances, of Parent, on a fully diluted ba-
sis as of the date of such issuance after giving
affect to the exercise of such Warrants. See "De-
scription of the Securities--Description of the
Warrants" and "Description of Capital Stock."
Federal Income Tax
Matters.................... The Old Notes were issued on May 14, 1996, at an
issue price of $508.16 per $1,000 principal
amount at maturity. The New Notes will have sub-
stantial "original issue discount" for United
States federal income tax purposes. Thus, al-
though cash interest will not be payable on the
Notes prior to November 15, 2001, original issue
discount will accrue from the issue date of the
Notes and will generally be included as interest
income periodically in a Noteholder's gross in-
come for United States federal income tax
purposes in advance of receipt of the cash pay-
ments to which the income is attributable. See
"Certain U.S. Income Tax Considerations--Taxation
of Original Issue Discount."
Optional Redemption......... The Notes may be redeemed, in whole or in part,
at the option of the Issuer, at any time on or
after May 15, 2001, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, at any time
prior to May 15, 1999, the Issuer may redeem up
to 33% of the aggregate principal amount at matu-
rity of the Notes with the net proceeds of cer-
tain public or private sales of equity interests
of the Issuer at a redemption price equal to 113%
of the Accreted Value thereof on the redemption
date; provided that not less than 67% of the
principal amount at maturity of the Notes origi-
nally issued are outstanding immediately after
giving effect to such redemption. See "Descrip-
tion of the Securities--Description of the
Notes--Redemption."
Ranking..................... The Notes will be senior unsecured obligations of
the Issuer and will rank pari passu in right and
priority of payment with all existing and future
indebtedness of the Issuer, other than indebted-
ness that by its terms is expressly subordinated
in right and priority of payment to the Notes.
The Issuer conducts all of its business through
its subsidiaries and the Notes will be effec-
tively subordinated to the claims of creditors of
such subsidiaries. As of March 31, 1996, after
giving effect to the sale of the Old Notes and
the use of proceeds therefrom, the Issuer and its
subsidiaries would have had an aggregate of ap-
proximately $243.7 million of consolidated lia-
bilities outstanding (including trade payables of
subsidiaries and the Notes) all of which except
for the Notes, would have been obligations of the
Issuer's subsidiaries and effectively rank prior
in right of payment to the Notes. See "Capital-
ization."
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%
12
<PAGE>
of the Accreted Value thereof, in the case of any
such purchase prior to May 15, 2001, or 101% of
the principal amount at maturity thereof, plus
accrued and unpaid interest, if any, in the case
of any such purchase on or after May 15, 2001. A
Change of Control includes the sale by the Issuer
of substantially all of its assets. As what con-
stitutes "substantially all of its assets" has
not been quantified under applicable law, it may
not be possible for the Trustee or a holder of
the Notes to readily determine if a sale by the
Issuer of less than all of its assets constitutes
a Change of Control for purposes of this cove-
nant. See "Description of the Securities--De-
scription of the Notes--Certain Covenants--Change
of Control."
Certain Covenants........... The indenture under which the Notes will be is-
sued (the "Indenture") will contain certain cove-
nants which, among other things, will restrict
the ability of the Issuer and/or its Restricted
Subsidiaries (as defined herein) to (i) incur ad-
ditional indebtedness or issue certain preferred
stock, (ii) pay dividends or make distributions
in respect of the capital stock of the Issuer or
make certain other Restricted Payments, (iii)
conduct a business other than a Related Business
(as defined herein) or transfer certain assets to
certain subsidiaries, (iv) create certain liens,
(v) enter into certain transactions with affili-
ates or other interested persons and (vi) consum-
mate certain asset sales. In addition, the Inden-
ture will limit the ability of the Issuer to con-
solidate, merge or sell all or substantially all
of its assets. These covenants are subject to im-
portant exceptions and qualifications. See "De-
scription of the Notes."
THE WARRANTS
Issuance of Warrants........ If the Issuer does not consummate an Equity Sale
subsequent to the Issue Date and on or prior to
November 15, 1997, the Issuer will be obligated
to issue Warrants to the holders of the Notes. At
the Issuer's option, this obligation may be sat-
isfied by the issuance of Warrants by the Is-
suer's Parent. See "Description of Securities--
Description of Warrants."
Total Number of Warrants.... The Warrants will, if issued, entitle the holders
thereof to acquire initially such number of
shares of Common Stock (the "Warrant Shares")
collectively representing 3.0% of the outstanding
Common Stock of the Issuer or the Parent, as the
case may be, on a fully-diluted basis as of the
date of such issuance after giving effect to the
issuance of such Warrant Shares. See "Description
of Securities--Description of the Warrants." The
Warrants will be issued pursuant to the Warrant
Agreement (as defined).
Expiration Date............. May 15, 2006.
Exercise....................
Each Warrant will entitle the holder thereof to
purchase one share of Common Stock of the Issuer
or the Parent, as the case may be, at an exercise
price equal to (i) $4.5 million, divided by (ii)
the aggre
13
<PAGE>
gate number of Warrant Shares issuable upon exer-
cise of all of the Warrants as of the date the
Warrants are issued. The number of shares of Com-
mon Stock for which a Warrant is exercisable is
subject to adjustment upon the occurrence of cer-
tain events as provided in the Warrant Agreement.
Registration Rights......... If the Warrants are issued, the Issuer will agree
pursuant to the Warrant Agreement to cause a
shelf registration statement (the "Warrant Shelf
Registration Statement") to be filed under the
Securities Act covering the Warrant Shares and,
if required under applicable law, the Warrants
and to use its best efforts to cause the Warrant
Shelf Registration Statement to be declared ef-
fective by the Commission on or prior to the date
the Warrants are issued. If the Issuer does not
comply with its registration obligations under
the Warrant Agreement, it will be required to pay
liquidated damages to holders of the Warrants un-
der certain circumstances. See "Exchange Offer;
Registration Rights."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company and the Securities that should be considered by Holders who tender
their Old Notes in the Exchange Offer.
14
<PAGE>
SUMMARY OPERATING DATA
The following table sets forth certain unaudited financial and operating data
of certain of the Operating Companies. The table reflects aggregate statistics
of the multi-channel television systems and programming venture in which the
Issuer has an ownership interest rather than the Issuer's proportionate
interest in such statistics. See "Business" for a full description of the
Operating Companies and the Issuer's ownership interest therein.
<TABLE>
<CAPTION>
AS OF MAY 31, 1996
------------------------------------------------------------
TELEVISION CUMULATIVE
HOMES IN PENETRATION SHAREHOLDER ECONOMIC
SERVICE HOMES HOMES TO HOMES FUNDING AS OF OWNERSHIP
OPERATING SYSTEM AREA PASSED MARKETED(1) SUBSCRIBERS MARKETED MAY 31, 1996(2) INTEREST(3)
- ------------------------ ---------- --------- ----------- ----------- ----------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CEtv $81,600(4) 94.0%
MMDS(5)................ 800,000 422,000 148,638 21,412 14%
DTH.................... 700,000 700,000 -- 2,212 -- (6)
Saturn.................. 141,000 6,000 4,500 1,129 25% 12,020(7) 100.0%
Telefenua............... 31,000 17,458 17,458 4,392 25% 14,300 90.0%
XYZ..................... N/A(8) N/A N/A 200,000(9) N/A 31,510 25.0%
--------- --------- ------- --------
Total................. 1,672,000 1,145,458 170,596 $139,430(4)
========= ========= ======= ========
</TABLE>
- --------------------
(1) Homes Marketed represent those homes to which the Company has completed its
initial direct marketing program.
(2) Includes all debt and equity funding contributed to the respective
Operating Companies by the Issuer and its partners. Certain amounts
contributed by the Company's partners were contributed in currencies other
than U.S. dollars. Such amounts have been translated to U.S. dollars using
a convenience translation.
(3) The Company holds, directly and indirectly, a combined 94% economic
interest, through a combination of convertible debentures and ordinary
shares, in the two corporations that comprise CEtv. The Company currently
has the right to designate all six directors of each of these entities. In
connection with the Australis Settlement, the Company and Australis have
agreed, subject to certain conditions, for the Company to acquire
Australis' approximate 6% economic interest in CEtv for approximately $8.0
million. See "Corporate Organizational Structure--CEtv" and "Risk Factors--
Compliance with Australian Foreign Ownership Restrictions." The Company's
interest in Telefenua is held through several intermediate partnerships and
holding companies. Generally, the Company is entitled to receive 90%, and
then 75%, of all economic distributions from Telefenua until such time as
it has received a 20% and 40% rate of return on its invested capital,
respectively. Thereafter, the Company is entitled to receive 64% of all
economic distributions. The Company controls 40% of the voting power of
Telefenua's parent company and has the right to designate three of its six
directors. See "Corporate Organizational Structure--Telefenua." The Company
holds a 50% interest in a company that holds a 50% interest in XYZ. See
"Corporate Organizational Structure--XYZ."
(4) Does not include approximately $50.7 million paid by UIH to acquire
additional ownership interests in CEtv. See "Corporate Organizational
Structure--CEtv."
(5) CEtv intends to construct MMDS systems in markets containing approximately
774,000 television homes. Homes in these markets which are out of the line-
of-sight of the MMDS signals will be offered the DTH service which CEtv is
marketing on an exclusive basis. Also includes a wireline cable system with
25,700 homes in the service area.
(6) CEtv initiated DTH marketing efforts in late March 1996. The Company is in
the early stages of marketing these homes, all of which are capable of
receiving service.
(7) In July 1996, the Company acquired its partner's 50% interest in Saturn
(bringing its ownership interest to 100%) in exchange for a 2.6% common
equity interest in the Issuer. The amount does not include the value of
this 2.6% interest.
(8) The Company expects that XYZ's programming package will be marketed to
virtually all of Australia's 6.0 million television households by
Australian multi-channel television providers, including CEtv, Australis,
Foxtel and ECT.
(9) Total estimated subscribers to the eight channel Galaxy package to which
XYZ supplies four channels.
15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summary consolidated financial data for the years ended
December 31, 1994 and 1995, have been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP,
independent public accountants, whose report indicated a reliance on other
auditors relative to certain amounts relating to the Company's interest in
Telefenua and XYZ as of and for the year ended December 31, 1995. The following
summary consolidated financial data for the three months ended March 31, 1995
and 1996, and at March 31, 1996, have been derived from unaudited financial
statements that, in the opinion of the management of the Company, reflect all
adjustments, consisting of normal recurring adjustments, necessary to fairly
present the financial data for such periods and as of such date. The pro forma
statement of operations data for the year ended December 31, 1995 and the three
months ended March 31, 1996 (i) includes the results of operations of CEtv, in
which the Company increased its economic ownership to 90% from 50% in December
1995 (the "CEtv Transaction"), which interest was subsequently increased to 94%
in May 1996, (ii) reflects the sale of a 25% interest in XYZ (reducing the
Issuer's interest to 25% from 50%) in September 1995 (the "XYZ Sale"), (iii)
includes the results of operations of Saturn, in which the Company has
increased its ownership from 50% to 100% in July 1996 (the "Saturn Purchase")
and (iv) includes the eight months of operations of United Wireless (the
"United Wireless Purchase") as if each such transaction had occurred on January
1, 1995. The data set forth below is qualified by reference to and should be
read in conjunction with the audited Consolidated Financial Statements of the
Company and Notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Pro Forma Consolidated Condensed
Financial Information" included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------ -----------------------------------
PRO FORMA PRO FORMA
1994 1995 1995 1995 1996 1996
------- -------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service revenue......... $ -- $ 1,883 $ 2,507 $ 96 $1,934 1,986
Operating expense....... -- (3,230) (5,573) (191) (5,083) (5,335)
General and administra-
tive expense........... (659) (3,402) (11,926) (389) (2,336) (2,775)
Depreciation and amorti-
zation expense......... -- (1,003) (6,253) (85) (2,748) (2,975)
Equity in losses of af-
filiated companies,
net.................... (1,015) (16,379) (7,597) (1,494) (1,033) (632)
Net loss................ (1,674) (17,233) (26,656) (2,012) (8,664) (9,723)
Ratio of earnings to
fixed charges(1)....... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................ $113,181 $323,357
Long-term debt...................................... 1,685 226,800
Total liabilities................................... 39,701 243,702
Total shareholders' equity.......................... 71,586 77,761
</TABLE>
- --------------------
(1) Earnings were inadequate to cover fixed charges in each of the periods
presented. The amount of the coverage deficiencies for the years ended
December 31, 1994 and 1995 and pro forma 1995 and the three months ended
March 31, 1995 and 1996 and pro forma 1996 were $1.1 million, $12.9, $51.7
million, $1.7 million, $8.0 million and $18.1 million respectively. See
"Risk Factors--Leverage; Debt Service." In calculating the ratio of
earnings to fixed charges, earnings consist of (i) net loss before income
tax expense and fixed charges plus (ii) the pro rata share of the losses
recognized in minority owned affiliates.
(2) As adjusted for the Notes Offering and the application of the net proceeds
thereof and the Saturn Purchase. See "Use of Proceeds." Total assets
includes $10.0 million of restricted cash collateralizing the Australis
Guarantee. Long-term debt does not include the $10.0 million Australis
Guarantee. See "Australis Transaction."
16
<PAGE>
RISK FACTORS
Holders should consider carefully the following Risk Factors, as well as the
other information set forth in this Prospectus, before tendering their Old
Notes in the Exchange Offer.
Holding Company Structure; Limitations on Access to Cash Flow. The Issuer is
a holding company with no business operations of its own. The Issuer's assets
consist primarily of its ownership interests in the Operating Companies. The
Notes will be effectively subordinated to all existing and future indebtedness
and other liabilities of such Operating Companies since the Issuer's right to
receive any distribution from any such Operating Company upon its liquidation
or reorganization will be subject to prior satisfaction of the claims of such
Operating Company's creditors (including trade creditors). As of December 31,
1995, (i) CEtv, in which the Issuer has a 94% economic interest, which is
expected to soon be increased to 100%, had $5.4 million of related party
loans, $890,000 of capital lease obligations and $6.5 million of other
liabilities, (ii) XYZ, in which the Issuer has an indirect 25% interest, had
$21.6 million of related party loans and $16.1 million of other liabilities,
(iii) Saturn, in which the Issuer has a 100% interest, had $2.0 million of
related party loans and $793,000 of liabilities, (iv) Telefenua, in which the
Issuer has a 90% economic interest in distributable profits, had $8.6 million
of related party loans and $1.1 million of liabilities, and (v) United
Wireless, which is a wholly-owned subsidiary of the Issuer, had no debt and
$275,000 of liabilities. Some of these liabilities include fees payable under
Technical Service Agreements. See "Certain Relationships." The Operating
Companies are expected to incur additional indebtedness in connection with the
build-out of their systems, working capital requirements and development
costs. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Liquidity and Capital Resources." The Indenture will
limit, but not prohibit, the ability of the Issuer and the Restricted
Subsidiaries to incur additional Indebtedness. As of the date of the
Indenture, only CEtv and Telefenua will be Restricted Subsidiaries under the
Indenture. See "Description of the Notes--Certain Covenants." The indentures
governing UIH's Senior Discount Notes Due 1999 (collectively, the "UIH
Indenture") place restrictions on Saturn's and XYZ's ability to incur debt.
The Issuer's obligations under the Notes will be effectively subordinated to
any such additional indebtedness of its Operating Companies.
The Issuer's ability to access the cash flow of its Operating Companies is
limited by certain contractual, legal and practical limitations. The Issuer
does not own a majority interest in XYZ and, therefore, does not have the
ability to cause XYZ to distribute or advance funds to the Issuer. The ability
of the Issuer to access the cash flow of its Operating Companies is currently
subject to corporate, tax and other laws affecting the ability of such
Operating Companies to make dividends or repatriate earnings freely or without
deduction, and may be in the future limited by restrictions in debt
instruments that are not prohibited by the Indenture. Because Saturn, XYZ and
United Wireless do not constitute Restricted Subsidiaries under the Indenture,
the Indenture will not restrict such Operating Companies from incurring debt
or liens or from entering into agreements which limit the ability of such
Operating Companies to make distributions to the Issuer. While the Issuer
currently owns a majority of the outstanding securities of CEtv presently
entitled to vote for the election of directors and has the right to designate
five of six directors of CEtv, such voting rights may, in certain
circumstances, be limited under the Australian Foreign Acquisitions and
Takeovers Act 1975 (the "FATA") and the Company may not be in a position to
control CEtv in the future. See "--Foreign Acquisition and Takeovers
Act/Investment Company Act Considerations."
Leverage; Debt Service. The Company is highly leveraged. In addition, the
Indenture permits the Company to incur substantial additional indebtedness to
finance the build-out of the multi-channel television systems of its Operating
Companies. See "--Need for Additional Financing." The Issuer's consolidated
earnings and the earnings of each of the Operating Companies have been
inadequate to cover their respective fixed charges since formation. On a pro
forma basis, for the year ended December 31, 1995, assuming that the Offering,
the CEtv Transaction, the XYZ Sale, the Saturn Purchase and the United
Wireless Purchase had been consummated as of January 1, 1995, the Issuer's pro
forma consolidated earnings would have been inadequate to cover its pro forma
fixed charges by $51.7 million. The Company expects that its earnings will be
inadequate to cover its fixed charges in the current fiscal year and for the
foreseeable future. While the Company expects that its EBITDA (as defined
below) will cover its fixed charges upon completion of construction and
initial marketing of its multi-
17
<PAGE>
channel television systems, there can be no assurance that the Company will
generate EBITDA sufficient to cover its fixed charges. (As used herein,
"EBITDA" represents net income (loss), plus net interest expense, income tax
expense, depreciation, amortization, minority interest, currency exchange gains
(losses) and other non-operating income (expense) items. The Company believes
industry analysts generally consider EBITDA to be an appropriate measure of the
performance of multi-channel television operators. EBITDA should not be
considered as an alternative to net income or to cash flows or to any other
measure of performance or liquidity as an indicator of an entity's operating
performance.)
The degree to which the Company is leveraged could have important
consequences to Holders who tender their Old Notes in the Exchange Offer,
including (i) the Company's increased vulnerability to adverse general economic
and industry conditions, (ii) the Company's ability to obtain additional
financing to fund future working capital requirements, capital expenditures,
acquisitions or other general corporate purposes, (iii) the dedication of a
substantial portion of the Company's cash flow from operations to the payment
of principal of and interest on indebtedness, thereby reducing funds available
for operations and future business opportunities, (iv) certain of the Company's
borrowings in the future may be at variable rates of interest which could cause
the Company to be vulnerable to increases in interest rates, (v) the
possibility that all or a substantial portion of the indebtedness of the
Operating Companies may mature prior to the maturity of the Notes and (vi) the
possibility that the Company will not have sufficient funds to pay interest on
the Notes and to repay the Notes at maturity or will not be able to refinance
the indebtedness thereunder at maturity. In addition, the Indenture contains,
and it is likely that agreements governing future indebtedness will contain,
covenants limiting the Company's operating and financial flexibility.
Need for Additional Financing. The Company will require substantial
additional capital to complete the construction and initial marketing of its
Operating Companies' systems. The Issuer is responsible for at least its
proportionate share of the capital requirements of its Operating Companies and
has funded its share to date primarily with capital contributed directly or
indirectly by UIH. The Company anticipates that the proceeds from the sale of
the Old Notes (the "Notes Offering") will not provide sufficient funds to
complete the development of CEtv and Saturn and that, as a result, the Company
will require additional capital in the future. The Company estimates that a
total of approximately $411.3 million will be required to complete the build-
out of its Operating Companies' systems, of which the Company currently
anticipates being required to contribute approximately $391.9 million. The
Company intends to use approximately $174.1 million of the net proceeds of the
Notes Offering, together with the unrestricted cash on hand, to meet a portion
of its commitment, leaving approximately $235.3 million of additional capital
requirements for the Operating Companies, of which the Company would be
required to contribute approximately $216.0 million, assuming the Company
acquires the remaining 6% economic interest in CEtv. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Indenture places limitations
on the Issuer and its Restricted Subsidiaries from incurring debt to finance
the construction of its existing operating systems, and the UIH Indenture
limits the amount of debt that a Restricted Subsidiary or Restricted Affiliate
(as defined in the UIH Indenture) may borrow based upon, among other things,
the greater of (i) 5.0x Consolidated Cash Flow (as defined in the UIH
Indenture) of the particular entity or (ii) 200% of Consolidated Invested
Equity Capital (as defined in the UIH Indenture) of such entity, in both cases
measured at the time of incurrence. The Issuer and Operating Companies are
currently "Restricted" under the UIH Indenture. At May 31, 1996, pro forma for
the Notes Offering and the estimated use of proceeds therefrom, the Issuer
would have been permitted to borrow an additional $106.8 million under such
calculation. In order to meet its total expected remaining commitment of
approximately $216.0 million, the Issuer would have needed to increase its
Consolidated Invested Equity Capital by approximately $36.1 million in order to
increase its borrowing capacity by $72.1 million and provide it with the total
funds necessary to meet its commitments. Consolidated Invested Equity Capital
includes equity commitments by the Issuer's partners in the Operating Companies
which are expected to contribute approximately $19.4 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." As a result, the Issuer does not expect to be
required to raise additional equity capital in order to meet its current
business plan under the UIH Indenture. However, if the funding requirements for
the Operating Companies exceed management's budget or if shareholders of the
Operating Companies other than the Issuer fail to make pro rata capital
contributions, the Issuer may be required
18
<PAGE>
to raise additional capital and would have to raise a portion of such capital
in the form of equity in order to remain in compliance with the UIH Indenture.
See "--Reliance on Australis and Other Principal Suppliers." In any event, it
is the Issuer's current intention to pursue an initial public offering or
private placements of capital stock of its parent corporation in order to
raise additional equity capital to complete the build-out of its systems and
to seek the remainder through capital contributions from its shareholders and
privately negotiated transactions with third parties. The Issuer currently
intends to complete an Equity Sale before May 15, 1997 so that no additional
interest would accrete on the Notes and no Warrants would be issued pursuant
to the terms of the Notes. See "Description of Securities." The Company also
expects to raise additional capital through borrowings by the Issuer or the
Operating Companies. There can be no assurance, however, that the Company will
be able to complete any debt or equity financing on satisfactory terms on a
timely basis. The restrictions imposed by the UIH Indenture will be eliminated
upon the retirement of UIH's Notes at their maturity in November 1999,
although similar restrictions may be imposed if UIH refinances the retirement
of such notes with new indebtedness.
There can be no assurance that the Company will be successful in securing
additional financing or that its estimated remaining commitments will not
substantially exceed anticipated amounts or that new projects requiring
further expenditures, and, accordingly, additional financing, will not be
undertaken.
History of Operating Losses; Negative Cash Flows. The Operating Companies
have experienced net losses since their respective formation. On a pro forma
basis, assuming the CEtv Transaction, the XYZ Sale and the Saturn Purchase had
each occurred as of January 1, 1995, the Company had consolidated net
operating losses of $20.3 million for fiscal 1995. The Issuer and the
Operating Companies expect to incur substantial additional net losses and net
operating losses for the foreseeable future as they pursue the development of
their respective multi-channel television systems and programming ventures and
there can be no assurance that such losses will not continue indefinitely. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, each of the Operating Companies has experienced net
losses, net operating losses and negative cash flows from operations since
formation, as each has been in the early stages of constructing and marketing
its respective operations. In fiscal 1995, net operating losses (translated
using a weighted average rate), for CEtv, Saturn, Telefenua and XYZ were $8.3
million, $2.6 million, $4.2 million and $28.9 million, respectively. From the
Company's acquisition of United Wireless in September 1995 through December
31, 1995, United Wireless had net operating losses of $589,000. Continuing net
losses, net operating losses and negative cash flows could increase the
Company's need for additional capital in the future. See "--Need for
Additional Financing."
Limited Operating History; Uncertainties Associated with a New Industry;
Customer Acceptance and Market Demand. Each of the Operating Companies is in
the initial stages of constructing its multi-channel television and
telecommunication systems and/or marketing its respective services. CEtv's
success will depend largely upon its ability to quickly deploy networks
throughout its franchise areas. The Company expects CEtv to complete the
launch of MMDS and DTH services throughout its franchise areas by the end of
1996. Saturn is in the start-up phase of constructing a full-service network
in its identified markets and its efforts to date have been focused on network
design, equipment procurement, securing pole attachment rights and conducting
market research, as well as servicing a small subscriber base which the
Company acquired from a predecessor company. Saturn does not expect to begin
marketing its services and connecting subscribers beyond its existing base
until late 1996. Telefenua launched its service in March 1995 and is still in
the early stages of marketing its services. The successful implementation of
the Company's operating strategies is subject to factors that may be outside
of the control of the Company and difficult to predict, due primarily to the
limited history of multi-channel television in Australia and Tahiti and of
integrated multi-channel television and telephony services in New Zealand. No
assurance can be given that such factors will not negatively affect the
implementation of such operating strategies and the Company's financial
results.
Subscription television services were not introduced in Australia and Tahiti
until 1995 and 1994, respectively. There can be no assurances that the Company
will experience and sustain the levels of customer acceptance required for the
Company to be successful. While the subscription television and
telecommunications markets in New Zealand have operating histories, there
currently are no fully operational integrated video and
19
<PAGE>
voice networks, such as Saturn is building. As a result, the size of the New
Zealand market for such services, likely rates of penetration of services in
this market, acceptance of projected monthly rates for combined services,
structure of the competitive environment and long-term attractiveness of the
integrated video and voice business in New Zealand is unclear.
Reliance on Australis and Other Principal Suppliers. Timing of the Operating
Companies' delivery of multi-channel television services and, in New Zealand,
telephony services is, in part, dependent upon ample supply of network and
subscriber equipment for use in MMDS, DTH and wireline cable transmission. The
Operating Companies have entered into agreements with their suppliers which
meet management's launch schedule and projected subscriber requirements. There
can be no assurance that these suppliers' timely delivery of the necessary
equipment will continue or that the necessary equipment could be accessed from
other sources in the event such suppliers were unable to, or chose not to
provide the required equipment.
The Galaxy programming package is delivered via the Optus Satellite either
directly to CEtv's customers in the case of DTH or to CEtv's headends for
transmission to CEtv's MMDS customers. Any disruption in service of the Optus
satellite could adversely affect the Company. In addition, since the Optus
satellite is the only satellite until the end of June 1997 permitted to
deliver DTH programming in Australia, CEtv would not currently be permitted to
seek access to any other satellite as an alternate means of delivery for its
DTH network until that time. See "--Government Regulations; License Renewal."
Australis, CEtv's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. To fund working capital to continue to grow its
operations, in May 1996 Australis arranged guarantees of up to $125.0 million
in obligations under the Australis Bank Facility and sold certain equity
securities for a total of $10.0 million. In connection with the Australis
Transaction, $97.0 million of new capital on a short term basis was made
available to Australis. The Company understands that approximately $105
million of the available credit and other cash on hand had been drawn as of
June 15, 1996. Australis has indicated its intention to refinance the
Australis Bank Facility prior to its maturity through the sale of debt and/or
equity securities and/or the sale of assets to existing shareholders (which
include Lenfest, PBL, News Corp., Century, UIH and Guiness Peat) or third
parties. There can be no assurance, however, that Australis will be able to
secure adequate long term financing on satisfactory terms or, if such
financing is secured, how long such financing will satisfy Australis' working
capital needs. See "Australis Transaction." If such financing is not
sufficient, Australis may have difficulty meeting obligations to pay for the
four Galaxy channels distributed directly by Australis, although TCI
International Holdings, Inc. and a significant shareholder of Lenfest have
guaranteed the obligations with respect to the two movie channels. The Company
understands the insolvency of Australis constitutes an event of default under
its program supply agreements for the sports and two movie channels included
in the Galaxy package and would allow the programmers, who are also investors
in these channels, to cancel such agreements. If Australis were to become
insolvent and were unable to raise sufficient financing from shareholders or
third parties, certain of its agreements, including its franchise agreement
with CEtv, could be modified or terminated by a bankruptcy liquidator if
determined to be "unprofitable" and such action is necessary for an orderly
liquidation. The Company believes that if CEtv is no longer able to obtain the
four Galaxy channels provided by Australis on an exclusive basis and it were
required to seek replacement programming, it would have access to the same
programming directly from the suppliers of the four Galaxy channels or
sufficient alternative programming on competitive terms. There can be no
assurance however, that this would be the case and the inability of CEtv to
procure the same or suitable alternative programming at competitive rates and
on an exclusive basis in its service areas could have a material adverse
effect on the Company.
Competitive Industry. The subscription television business in all the
countries in which the Company operates is and will remain competitive and is
subject to rapid change due to regulatory and other factors. CEtv currently
competes in one of its franchise areas with another provider of subscription
television services. This competitor also carries the Galaxy package, which
the Company believes is a breach of CEtv's franchise agreement. CEtv may face
competition as it launches service in other franchise areas. CEtv's existing
competitor has substantial financial resources. There is the prospect that
additional licenses in different spectra than the Company's existing MMDS
licenses may be granted in the future and, after July 1997, there will be no
20
<PAGE>
statutory restriction on the issuance of additional licenses for the delivery
of DTH services throughout Australia. A number of satellites have been
launched recently and a number of additional satellites are anticipated to be
launched in the near future with the capability of delivering DTH services to
Australia. See "Business--CEtv (Australia)--Competition." Saturn expects to
compete with existing providers of multi-channel television and telephony
services in New Zealand, certain of which have substantially more resources
and experience than Saturn. See "Business--Saturn (New Zealand)--Competition."
Telefenua also competes with another provider of subscription television
services in its operating area. See "Business--Telefenua (Tahiti)--
Competition."
Deployment of Network; Access to Infrastructure; Construction Risk. The
construction of each of the Company's networks within management's cost
estimates and respective launch schedules is dependent upon factors outside of
its control. CEtv and Saturn require substantial construction of new systems
and additions to the physical plant of existing systems. Since the Australian
and New Zealand pay television markets are in their early development stages,
access to contractors experienced in the necessary deployment of video
networks in Australia and combined cable television and voice networks in New
Zealand is limited. The Company's continued access to and successful training
of contractors is a key element to meeting management's launch schedules, but
there can be no assurances as to such access. The Company's success will
depend upon its ability to quickly deploy networks throughout its service
areas. No assurance can be given that the Company will succeed with its
development schedule or that the Company's financial performance and results
of operations will not be adversely affected by its inability to do so.
Construction projects are subject to cost overruns and delays not within the
control of the Company or its subcontractors, such as those caused by acts of
governmental entities, financing delays and catastrophic occurrences. Delays
also can arise from design changes and material or equipment shortages or
delays in delivery. Services to buildings passed by the operating systems can
be delayed if easements are not obtained from third parties. Failure to
complete construction on a timely basis could jeopardize such Operating
Company's ability to preempt its competition and could have material adverse
effects on the financial condition and results of operations of one or more of
the Operating Companies.
Adequate transmission sites are necessary for the delivery of subscription
television services via MMDS in Australia and Tahiti. MMDS is a line-of-sight
technology and the Company's access to existing tower infrastructure and
receipt of public rights-of-way, permits, authorizations and environmental and
other approvals and leases or acquisitions of well-located sites to construct
transmission towers or repeaters is necessary for delivery of its services.
Inadequate access to infrastructure and qualified construction personnel could
delay CEtv's construction schedule and have a material adverse effect on
CEtv's or Telefenua's results of operations and financial condition. In order
for Saturn to commence offering local loop telephony services, it must enter
into an interconnect agreement with New Zealand's national telephone company,
either directly or through another telephony provider which has entered into
an interconnect agreement with the national telephone company. No assurance
can be given that Saturn will be able to enter into an interconnect agreement
on terms which are acceptable to its management. Failure to do so could have a
material adverse effect on Saturn's financial performance and results of
operations.
Ability to Procure Additional Programming Services. The Company's success is
largely dependent upon management's ability to procure programming that is
attractive to its customers at reasonable commercial rates. The Company is
dependent upon third parties for the development and delivery of programming
services. These programming suppliers will charge the operating companies for
the right to distribute the channels to its customers. The costs to the
operating companies for additional services will be determined through
negotiations between the operating companies and these programming suppliers.
Management believes that the availability of sufficient programming on a
timely basis will be critical to the Company's future success. There can be no
assurance that the operating companies will have access to additional
programming services or that management can secure rights to such programming
on commercially acceptable terms.
Rapid Technological Changes. The multi-channel television industry is
subject to rapid and significant changes in technology. Although the Company
believes that its operating companies' current and planned
21
<PAGE>
networks have been designed to be sufficiently flexible to permit them to
deliver a variety of existing multi-channel television and, where appropriate,
telecommunications services to their respective customers and advanced,
integrated entertainment, telecommunications and information services as they
become available in the future, the effect of any future technological changes
on the viability or competitiveness of the Company's network and services
cannot be predicted.
Government Regulations; License Renewal. Multi-channel television operations
and programming services are subject to governmental regulation, which may
change from time to time. There can be no assurance that material and adverse
changes in the regulation of the Company's existing operating systems will not
occur in the future. Regulation can take the form of price controls, service
requirements and programming content restrictions, among others. See
"Regulation."
Broadcasting services provided by CEtv are subject to Australian government
regulation under the Radiocommunications Act 1992 (the "Radiocommunications
Act"), which regulates the use of the radio spectrum in Australia; the
Broadcasting Services Act, which, among other things, regulates the delivery
and content of broadcasting services in Australia, including subscription
broadcast services; and the Telecommunications Act 1991 (the
"Telecommunications Act"), which regulates the use of telecommunications
facilities to supply telecommunications services and, among other things,
regulates program suppliers who deliver a subscription broadcast or narrowcast
service using cable or, in some respects, DTH satellite transmission. Changes
in existing regulations or laws or in the interpretation of existing
regulations or laws by the courts or governmental authorities in Australia, as
well as the development of the subscription television industry in Australia
generally, may have a material adverse effect on the ability of XYZ and CEtv
to compete with other forms of entertainment and may also have a material
adverse effect on XYZ's and CEtv's ability to attain their business objectives
or on their results of operations. Matters which could adversely affect the
profitability of XYZ and CEtv and/or the value of their licenses, include
anti-siphoning regulations which have limited and could in the future limit
the Company's access to certain sports programming, the loss by CEtv of
certain of its licenses, the inability of CEtv to acquire additional licenses,
the inability of CEtv to be issued or reissued licenses, the inability of CEtv
to comply with class licenses for the provision of broadcasting services or
eligible services under the Telecommunications Act, the issuance of additional
licenses to competitors of CEtv, changes in the Australian programming content
requirements, changes in the amount or calculation of taxes, fees or charges
payable for licenses, license renewals or conversions, changes in the
conditions attaching to any licenses or any other policies or regulations that
modify the present regulatory environment. Such regulatory changes and
limitations, or the enactment of future limitations, may adversely affect the
ability of XYZ and CEtv to secure additional financing and may also affect the
rights and remedies of holders of the Notes in the event of an insolvency or
liquidation proceedings involving XYZ or CEtv. The recently elected Australian
Federal government has expressed its intent to review certain issues including
Australian program content requirements, provisions governing access to
wireline and wireless networks and limitations on foreign and cross-media
ownership.
CEtv's MMDS licenses issued under the Radiocommunications Act have an
initial term of five years. The terms governing the renewal or conversion of
CEtv's existing MMDS apparatus licenses into spectrum licenses has not been
announced. The failure to renew such licenses or receive appropriate spectrum
licenses upon conversion of existing licenses would have a material adverse
effect on the Company's financial condition and ability to perform its
obligations under the Notes. See "Regulation--Australia--Licenses--Radio-
communications Act."
While New Zealand currently has an extremely unregulated environment in
which to operate multi-channel television and telephony services, there can be
no assurance that the regulatory environment will continue to remain
unregulated. See "Regulation--New Zealand."
Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations. The Company currently holds a majority of the outstanding
securities presently entitled to vote for the election of directors and has
the right to designate five of six directors of CEtv. While the transactions
pursuant to which the Company acquired
22
<PAGE>
such securities and related rights did not require any advance notification or
approval under Australian law, they could in the future be reviewed by the
Treasurer of Australia under provisions of the FATA. If so reviewed and
determined by the Treasurer to have resulted in a change of control of an
Australian person to a foreign person that is against the national interest of
the Commonwealth of Australia, there would be no violation of law, but the
Treasurer could require the parties to restore the voting control of CEtv so
that the Issuer is entitled to appoint directly only three of six directors of
CEtv. While the Company believes a determination under the FATA would not
affect its 94% economic interest in CEtv, there can be no assurances that such
would be the case. See "--Holding Company Structure; Limitations on Access to
Cash Flow," "Regulation--Australia--Foreign Acquisitions and Takeovers Act"
and "Corporate Organizational Structure--CEtv." In addition, if the manner in
which the Issuer designates directors of CEtv is changed as a result of action
by the Treasurer, an issue would be presented under the Investment Company Act
of 1940 (the "1940 Act") as to whether the Issuer would then be an
unregistered investment company. If the Issuer's economic interests in CEtv
did not constitute voting securities or the functional equivalent thereof
under the 1940 Act, and did not otherwise provide the Issuer sufficient
control of CEtv to permit the Issuer to obtain exemptive relief from the SEC,
then there would be a risk that the Issuer would be an unregistered investment
company and as such, that the Issuer would be subject to monetary penalties
and injunctive relief in an action brought by the SEC, that the Issuer would
be unable to enforce contracts with third parties and that third parties could
seek to obtain recission of transactions undertaken during the period it was
established that the Issuer was an unregistered investment company. If the
Treasurer were to review the CEtv Transaction, the Issuer would seek to avoid
any order that could affect its status under the Investment Company Act and,
if any such order were issued, the Issuer would restructure the ownership of
its assets and/or seek a favorable interpretation or order from the SEC. The
Issuer believes there would be a substantive basis on which to request such an
intrepretation or order. If the Issuer were required to register under the
1940 Act, such requirement would constitute a default under the Indenture.
There can be no assurance that the Issuer would have sufficient resources to
satisfy the claims of Noteholders if the maturity of the Notes were
accelerated.
Challenge to Telefenua Authorization. In 1993 and 1994, Telefenua entered
into local franchise agreements to provide cable television services in Tahiti
and subsequently obtained authorizations from the Conseil Superieur de
l'Audiovisuel ("CSA") permitting a holder of a cable television license to
provide subscription broadcast services via MMDS. The authorizations were
based in part on a French government decree of July 22, 1993 (the "Decree").
In response to a legal challenge by the territorial government of Tahiti, the
Conseil d'Etat of France recently canceled part of the Decree authorizing the
issuance of MMDS licenses by the CSA in French Polynesia. The cancellation
provides a legal basis to cancel the required authorization already granted to
Telefenua by the French communications agency. The territorial government of
Tahiti has brought an action in French court seeking such cancellation,
although no such cancellation has yet taken place. A law recently enacted by
the French Parliament gives Telefenua a statutory basis for seeking a new
authorization from the communications agency, should the existing
authorization be nullified. There can be no assurance, however, that if the
existing authorization is nullified a new authorization will be obtained. In
addition, the new authorization would last no more than five years and could
differ in other respects from the previous authorization. The Company believes
that if the existing authorization is nullified and Telefenua is unable to
obtain a new authorization, Telefenua would petition for restitution for the
taking of such authorizations. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Regulation--Tahiti."
Dependence on Key Personnel; Relationship with UIH. Many of the personnel
performing key managerial and executive functions in the Operating Companies
are employees of the Issuer's parent, UIH, over which the Issuer has control.
The services of such personnel are made available to the Operating Companies
under the terms of Technical Service Agreements and the UIH Management
Agreement upon payment by the Operating Companies of certain fees. No
assurance can be given as to the continued availability of such key personnel.
See "Certain Relationships."
As the Company continues the construction and marketing of its operating
systems, its success and growth strategy depends in large part on its ability
to attract and retain local management, marketing and operating
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personnel at the Operating Company level. There can be no assurance that the
Company will be able to attract and retain the qualified personnel needed for
its business.
Risks Inherent in Foreign Investment. The Company has invested its resources
outside of the United States. Risks inherent in foreign operations include
loss of revenue, property and equipment from expropriation, nationalization,
war, insurrection, terrorism and other political risks and risks of increases
in taxes and governmental royalties and fees. The Company is also exposed to
the risk of changes in foreign and domestic laws and policies that govern
operations of foreign-based companies.
Foreign Currency Exchange Rate and Conversion Risks. Although the Operating
Companies have attempted, and will continue to attempt, to match costs and
revenues and borrowings and repayments in terms of their respective local
currencies, payment for a majority of purchased equipment has been, and may
continue to be, required to be made in currencies, including dollars, other
than local currencies. In addition, the value of the Issuer's investment in an
Operating Company is partially a function of the currency exchange rate
between the dollar and the applicable local currency. In general, the Company
does not execute hedge transactions to reduce its exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and
a negative impact on earnings with respect to its holdings solely as a result
of foreign currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. Furthermore, certain of the Operating
Companies have notes payable to UIH that are denominated in a currency other
than their own functional currency. The Company may also experience economic
loss and a negative impact on earnings related to these monetary assets and
liabilities. The countries in which the Operating Companies now conduct
business generally do not restrict the removal or conversion of local or
foreign currency; however, there can be no assurance this situation will
continue. See "Management's Discussion and Analysis of Financial Condition--
Foreign Currency Exchange Rate Risks; Hedging."
Limited Insurance Coverage. The Operating Companies obtain insurance in type
and amount which management believes is appropriate for the property in their
systems. However, they do not insure the entire portion of multi-channel
television systems. Accordingly, any catastrophe affecting a significant
portion of a system's cable could result in substantial uninsured losses.
International Tax Risks. In general, a United States corporation may claim a
foreign tax credit against its federal income tax expense for foreign income
taxes paid or accrued. Because the Company must calculate its foreign tax
credit separately for dividends received from each foreign corporation in
which the Company owns 10% to 50% of the voting stock and because of certain
other limitations, the Company's ability to claim a foreign tax credit may be
limited, particularly with respect to dividends paid out of earnings subject
to a high rate of foreign income tax. This limitation and the inability of the
Company to offset losses in one foreign jurisdiction against income earned in
another foreign jurisdiction could result in a high effective tax rate on the
Company's earnings. The Company has an ownership interest in Telefenua, which
is located in Tahiti, a self-governing territory of France, with which the
United States does not have an income tax treaty. As a result, the Company may
be subject to increased withholding taxes on dividend distributions and other
payments from Telefenua and also may be subject to double taxation with
respect to income generated by Telefenua.
Original Issue Discount Consequences. The Notes will be issued at a
substantial discount from their principal amount. Consequently, the purchasers
of the Notes generally will be required to include amounts in gross income for
federal income tax purposes in advance of receipt of any cash payment on the
Notes to which the income is attributable. See "Certain U.S. Income Tax
Considerations." If a bankruptcy case is commenced by or against the Company
under the United States Bankruptcy Code (the "Bankruptcy Code") after the
issuance of the Notes, the claim of a holder of Notes with respect to the
principal amount thereof may be limited to an amount equal to the sum of (i)
the initial offering price of the Notes and (ii) that portion of the original
issue discount that is not deemed to constitute "unmatured interest" for
purposes of the Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would most likely constitute
"unmatured interest."
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Absence of Public Market for the Securities; Restrictions on Transfers. The
New Notes are being offered to the holders of the Old Notes. The Old Notes are
new issues of securities for which there is no established trading market. If
a trading market does not develop or is not maintained, holders of the
Securities may experience difficulty in reselling the Securities or may be
unable to sell the Securities at all. If a market for the New Notes develops,
any such market may be discontinued at any time. Although the Initial
Purchasers have advised the Issuer that they currently intend to make a market
in the New Notes, they are not obligated to do so and may discontinue such
market making at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be
limited during the pendency of any shelf registration statement. See
"Description of Securities--Registration Rights." Accordingly, there can be no
assurance as to the development or liquidity of any market for the Securities
and, if issued, the Exchange Notes. The Notes are eligible for trading on the
PORTAL market. The Issuer does not intend to apply for listing of the New
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System.
No Dividends. It is not expected that any dividends will be paid on the
Common Stock in the foreseeable future. In addition, the Indenture limits the
Issuer's ability to pay cash dividends. See "Dividend Policy" and "Description
of Securities--Description of Notes--Certain Covenants--Limitation on
Restricted Payments."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1996; provided, however, that if the Issuer, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended, and provided, further, that the
Expiration Date shall not, however, be extended to a date beyond 60 days after
the date of this Prospectus.
As of the date of this Prospectus, $443,000,000 aggregate principal amount
at maturity of the Old Notes was outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about , 1996, to all
Holders of Old Notes known to the Issuer. The Issuer's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "Certain Conditions to the Exchange Offer"
below.
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof; provided that the
Expiration Date shall not, however, be extended to a date beyond 60 days after
the date of this Prospectus. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Issuer. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "Certain Conditions to the Exchange Offer." The
Issuer will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a Holder thereof as set forth below
and the acceptance thereof by the Issuer will constitute a binding agreement
between the tendering Holder and the Issuer upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder (which term, for purposes of
the Exchange Offer, includes any participant in the Book-Entry Transfer
Facility (as defined) system whose name appears on a security position listing
as the holder of such Old Notes) who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to American Bank National Association (the "Exchange
Agent") at the address set forth below under "Exchange Agent" on or prior to
the Expiration Date. In addition, either (i) certificates for such Old Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depositary Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date along with the Letter of Transmittal, or (iii) the Holder must
comply with the guaranteed delivery procedures described below. THE METHOD OF
DELIVERY OF OLD NOTES, LETTERS
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OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUER.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) a registered Holder of the Old Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instruction" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealer, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States or by such
other Eligible Institution within the meaning of Rule 17 (A) (d)-15 of the
Exchange Act, as amended (collectively, "Eligible Institutions"). If Old Notes
are registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer, or exchange,
in satisfactory form as determined by the Issuer in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt and acceptance of Old Notes tendered for exchange will be determined
by the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Issuer or
its counsel, be unlawful. The Issuer also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any Holder who seeks to tender Old Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Issuer shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Issuer
shall determine. Neither the Issuer, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity
with respect to any tender of Old Notes for exchange, nor shall any of them
incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to
so act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Issuer that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, that neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the Holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Issuer. If any Holder is an affiliate of the Issuer is
engaged in or intends to engage in or has any arrangement with any person to
participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holders (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospects delivery requirements of the Securities Act in
connection
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<PAGE>
with any resale transaction. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered, issue the New notes promptly after acceptance of the Old
Notes and cause such New Notes to be authenticated. See "Certain Conditions to
the Exchange Offer" below. For purposes of the Exchange Offer, the Issuer
shall be deemed to have accepted properly tendered Old Notes for exchange
when, as an if the Issuer has given oral or written notice thereof to the
Exchange Agent.
For each Old Note accepted for exchange the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. If the Exchange Offer is not consummated by ,
1996, Liquidated Damages will accrue from and including , 1996. Such
Liquidated Damages will be payable in cash semiannually in arrears each May 15
and November 15, respectively, commencing November 15, 1996, to holders of
record on the immediately preceding May 1 and November 1, respectively, at a
rate per annum equal to 0.50% of the Accreted Value of the Old Notes
(determined daily). The aggregate amount of Liquidated Damages payable
pursuant to the above provisions will in no event exceed 2.50% per annum of
the Accreted Value (determined daily). Upon the consummation of the Exchange
Offer after , 1996, the Liquidated Damages payable on the Old Notes from
the date of such consummation will cease to accrue and all accrued and unpaid
Liquidated Damages as of the consummation of the Exchange Offer shall be paid
promptly thereafter to the holders of record of the Old Notes immediately
prior to the time of such occurrence.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount at
maturity than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchange Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal (or a manually signed
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent"
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis; a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Issuer (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount at maturity of such Old Notes)
and, (where certificates for Old Notes have been transmitted), specify the
name in which such Old Notes are registered, if different from that of the
withdrawing Holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then,
prior to the release of such certificates the withdrawing Holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described
above, the executed notice of withdrawal, guaranteed by an Eligible
Institution, unless such Holder is an Eligible Institution, must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuer,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures
described above such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
29
<PAGE>
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Issuer to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer, or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Issuer might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Issuer, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the SEC referred to on the cover page of
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Issuer and its subsidiaries taken as a whole that, in the
reasonable judgment of the Issuer, is or may be adverse to the Issuer, or
the Issuer shall have become aware of facts that, in the reasonable
judgment of the Issuer, have or may have adverse significance with respect
to the value of the Old Notes or the New Notes;
which, in the reasonable judgment of the Issuer in any case, and regardless of
the circumstances (including any action by the Issuer) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
American Bank National Association has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the address set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
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Delivery To: American Bank National Association, as Exchange Agent
By Mail, By Hand and Overnight Courier: By Facsimile:
American Bank National Association (612) 229-0415
Attention: Frank P. Leslie, III
Assistant Vice President Confirm by Telephone:
101 East Fifth Street Frank P. Leslie, III
St. Paul, MN 55101-1860 (612) 229-2600
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer except for reimbursement of
mailing expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
$ .
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of
any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend on the
Old Notes and as described in the Offering Memorandum dated May 8, 1996
relating to the Old Notes, as a consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will be
required to register the Old Notes under the Securities Act. Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by Holders thereof (other than any such Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holders' business and such Holders,
other than brokers-dealers, are not engaged in, do not intend to engage in and
have no arrangement or understanding with any person to participate in, the
distribution (within the meaning of the Securities Act) of such New Notes. If
any Holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff
of the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdiction or any exemption from registration or qualification is available
and is complied with. The Issuer does not currently intend to register or
qualify the sale of the Notes in any such jurisdictions.
31
<PAGE>
USE OF PROCEEDS
The Issuer will not receive any cash proceeds from the exchange of Old Notes
for the New Notes from the Offering are estimated to be. The Company plans to
use the approximately $216.2 million net proceeds from the Notes Offering (i)
to fund system construction and initial marketing costs and working capital
requirements of the Operating Companies, including approximately $[141.9]
million for CEtv, $[6.8] million for XYZ, $15.0 million for Saturn, $[3.1]
million for Telefenua and $[5.4] million for United Wireless, and (ii) to
acquire the remaining 6% economic interest in CEtv for approximately $8.0
million and (iii) for general corporate purposes. In addition, the Company
used the net proceeds of the Notes Offering to acquire approximately $25.0
million of bridge loans extended by UIH to CEtv and Telefenua and to purchase
UIH AML from UIH for $10.0 million. UIH extended the bridge loans primarily to
fund the construction and initial marketing of CEtv's and Telefenua's systems
in anticipation of the Notes Offering. UIH AML was formed by UIH, which
contributed to it $10.0 million in cash to collateralize the Australis
Guarantee. The amounts for CEtv, Saturn, Telefenua and XYZ are anticipated to
be funded over the next 12 months. The amount for United Wireless is expected
to be funded over the next two years. Pending use of the net proceeds of the
Offering as described above, the Company intends to hold such proceeds in
short-term interest-bearing, investment grade securities, including
governmental obligations and other money market instruments.
The Company will require substantial additional capital to complete the
construction and launch of CEtv's and Saturn's networks and services. The
Company intends to raise such additional funds through issuances of debt by
the Company and/or its Operating Companies or sales of its equity (either
through public offerings, contributions by existing shareholders or
investments by third parties). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Risk Factors--Need for Additional Financing."
DIVIDEND POLICY
Neither the Issuer nor its Parent has ever paid cash dividends on its Common
Stock and currently does not expect to pay any cash dividends on its Common
Stock for the foreseeable future. In addition, the Indenture will limit the
Issuer's ability to pay cash dividends. See "Risk Factors--No Dividends" and
"Description of Securities--Description of Notes--Certain Covenants--
Limitation on Restricted Payments."
EXCHANGE RATE DATA
The Issuer's interests in CEtv, XYZ and United Wireless, companies that
operate in Australia, represent a substantial portion of its total assets. The
following table sets forth, for the periods indicated, certain information
concerning the Noon Buying Rate and the high and low exchange rates for
Australian dollars expressed in United States dollars per A$1.00. On May 31,
1996, the Noon Buying Rate was US$.80 per A$1.00.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,(1) AT AND FOR THE
-------------------------------------------- THREE MONTHS ENDED
1991 1992 1993 1994 1995 MARCH 31, 1996(1)
-------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of
period................. US$0.76 US$0.69 US$0.68 US$0.78 US$0.74 US$0.78
Average exchange rate
during period(2)....... 0.78 0.73 0.68 0.73 0.74 0.73
Highest exchange rate
during period.......... 0.80 0.77 0.72 0.78 0.77 0.78
Lowest exchange rate
during period.......... 0.75 0.68 0.65 0.68 0.71 0.73
</TABLE>
- ---------------------
(1) Source: Federal Reserve Statistical Release H.10(512). Exchange rates have
been rounded to the nearest 1/100th of one dollar.
(2) The average of the Noon Buying Rates on the last day of each month during
the applicable period.
Unless otherwise indicated, foreign currency amounts translated to U.S.
dollars have been converted using exchange rates in effect on December 31,
1995, with respect to the historical financial statements and certain amounts
with respect to Tahiti, and March 1, 1996 with respect to certain amounts for
Australia and New Zealand.
32
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to reflect the issuance of the Notes and the
estimated use of proceeds thereof and the Saturn Purchase. The table should be
read in conjunction with the audited Consolidated Financial Statements of the
Company and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------------
ACTUAL AS ADJUSTED(1)
------------ ----------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C>
Debt:
14% Senior Discount Notes due 2006............. $ -- $ 225,115
Bridge notes(2)................................ 22,527 --
Other debt..................................... 1,685 1,685
------------ ------------
Total debt................................... 24,212 226,800
Minority interest in subsidiaries.............. 1,894 1,894
Parent's equity:
Common Stock ($.01 par value); 1,000 shares
authorized; 500 shares issued................. -- --
Contributed capital............................ 97,649 103,824
Cumulative translation adjustment.............. 1,508 1,508
Accumulated deficit............................ (27,571) (27,571)
------------ ------------
Total parent's equity........................ 71,586 77,761
------------ ------------
Total capitalization..................... $ 97,692 $ 306,455
============ ============
</TABLE>
- ---------------------
(1) As adjusted for the Notes Offering and the estimated use of the net
proceeds thereof and the Saturn Purchase. See "Use of Proceeds." Long-term
debt does not include the $10.0 million Australis Guarantee, which
guarantee is collateralized by cash. See "Australis Transaction."
(2) Represents bridge loans extended by UIH to CEtv and indirectly to
Telefenua through its parent, Societe Francaise des Communications et du
Cable S.A. ("SFCC"), for system construction and initial marketing, which
were acquired with the proceeds from the Notes Offering. Since March 31,
1996, UIH funded additional bridge loans to CEtv. In May 1996, the Issuer
acquired $25.0 million of the CEtv bridge loans and repaid UIH with
proceeds from the Notes Offering. See "Use of Proceeds." In May 1996, the
remaining CEtv bridge loans totalling $25.6 (including accrued interest)
were converted to equity of CEtv and an additional $25.0 million in
capital calls were funded, thereby increasing the Company's interest to
94%. Prior to closing of the Offering, approximately $5.0 million of the
SFCC bridge loans were used to purchase convertible debentures of SFCC,
which are convertible into preferred Stock of SFCC. The remaining SFCC
bridge loans totalling $556,700 (including accrued interest) acquired by
the Issuer will be either (i) repaid by SFCC after which time the Issuer
would invest the proceeds of such repayment as permitted under the
Indenture or (ii) converted by the Issuer into equity of SFCC.
33
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet gives effect to
the consummation of the Note Offering and the Saturn Purchase, as if each had
occurred on March 31, 1996. The following unaudited pro forma consolidated
condensed statement of operations for the year ended December 31, 1995 and the
three months ended March 31, 1996, gives effect to the CEtv Transaction, the
XYZ Sale, the Saturn Purchase and the United Wireless Purchase as if each had
occurred January 1, 1995. The pro forma adjustments are based upon currently
available information and upon certain assumptions that management believes
are reasonable under current circumstances. The unaudited pro forma
consolidated financial information and notes thereto do not purport to
represent what the Company's results of operations would actually have been if
such transactions had in fact occurred on such date. The unaudited pro forma
consolidated financial information and accompanying notes should be read in
conjunction with the audited Consolidated Financial Statements of the Company
and Notes thereto and other financial information pertaining to the Company
included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------------------
THE NOTE SATURN
ACTUAL OFFERING(1) PURCHASE(2) PRO FORMA
-------- ----------- ----------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED BALANCE
SHEET
ASSETS
Cash and cash equivalents..... $ 1,791 $193,753 $ 10 $195,554
Investments in and advances to
affiliated companies......... 4,308 -- (4,308) --
Property, plant and equipment,
net.......................... 44,789 -- 2,345 47,134
License fees, net............. 11,678 -- -- 11,678
Goodwill, net................. 44,703 -- 5,835 50,538
Other assets.................. 5,912 8,835 3,706 18,453
-------- -------- ------ --------
Total assets................ $113,181 $202,588 $7,588 $323,357
======== ======== ====== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable and accrued
liabilities ................. $ 11,482 $ -- $1,413 $ 12,895
Senior notes.................. -- 225,115 -- 225,115
Due to parent................. 26,534 (22,527) -- 4,007
Other liabilities............. 1,685 -- -- 1,685
-------- -------- ------ --------
Total liabilities........... 39,701 202,588 1,413 243,702
Minority interest in
subsidiaries................. 1,894 -- -- 1,894
Shareholders' equity.......... 71,586 -- 6,175 77,761
-------- -------- ------ --------
Total liabilities and
shareholders' equity....... $113,181 $202,588 $7,588 $323,357
======== ======== ====== ========
</TABLE>
- ---------------------
(1) As part of the Note Offering, the Company incurred approximately $8.8
million of deferred offering costs which are capitalized as other assets
and amortized using the effective interest method over the life of the Old
Notes. From the proceeds of the Offering, the Company paid UIH $22.5
million of bridge loans outstanding at March 31, 1996 and $2.5 million in
bridge loans advanced by UIH subsequent to March 31, 1996.
(2) Represents the Company's purchase of the additional 50% interest in Saturn
in exchange for 2.6% of the common stock of the Issuer.
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------
UNITED
CETV XYZ SATURN WIRELESS
ACTUAL TRANSACTION(1) SALE(2) PURCHASE(3) PURCHASE(4) PRO FORMA
-------- -------------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
STATEMENT OF
OPERATIONS:
Service revenue......... $ 1,883 $ 443 $ -- $ 148 $ 33 $ 2,507
Operating expense....... (3,230) (793) -- (863) (687) (5,573)
General and
administrative
expense................ (3,402) (6,681) -- (1,502) (341) (11,926)
Depreciation and
amortization expense... (1,003) (4,259) -- (905) (86) (6,253)
-------- -------- ------- ------- ------- --------
Net operating loss.... (5,752) (11,290) -- (3,122) (1,081) (21,245)
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) $ -- $(1,739) $(1,080) $(26,656)
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
SATURN
ACTUAL CETV(5) PURCHASE(3) PRO FORMA
------------ ---------- -------------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS:
Service revenue........... $ 1,934 $ -- $ 52 $ 1,986
Operating expense......... (5,083) -- (252) (5,335)
General and administrative
expense.................. (2,336) -- (439) (2,775)
Depreciation and
amortization expense..... (2,748) -- (227) (2,975)
------------ ---------- ---------- -------
Net operating loss...... (8,233) -- (866) (9,099)
Equity in losses of
affiliated companies,
net...................... (1,033) -- 401 (632)
Interest, net............. 57 -- -- 57
Other, net................ 545 (635) 41 (49)
------------ ---------- ---------- -------
Net loss................ $(8,664) $ (635) $(424) $(9,723)
============ ========== ========== =======
</TABLE>
- ---------------------
(1) Represents the consolidation of CEtv and the elimination of the previously
recorded equity in losses. Included in depreciation and amortization
expense is $3.0 million of amortization related to the goodwill recorded
in connection with the additional 40% economic interest acquired in
December 1995 which will be amortized over 15 years.
(2) Represents the elimination of the gain on the sale of a 25% interest in
XYZ and the related 25% of the equity in losses recognized.
(3) Represents the consolidation of Saturn and the elimination of the
previously recorded equity in losses. Included in depreciation and
amortization expense is $520,000 and $134,000 of amortization for the year
ended December 31, 1995 and for the three months ended March 31, 1996,
respectively, related to the goodwill recorded in connection with the
purchase of the additional 50% interest in Saturn which will be amortized
over 15 years.
(4) Represents the additional eight months of activity of United Wireless.
(5) Represents the elimination of 10% of the allocated minority interest
losses due to the increase in the economic ownership to 100%.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1994 and 1995, and balance sheet data as of December 31, 1994 and
1995, have been derived from the Company's consolidated financial statements
which have been audited by Arthur Andersen LLP, independent public
accountants, whose report indicated a reliance on other auditors relative to
certain amounts relating to the Company's interests in Telefenua and XYZ as of
and for the year ended December 31, 1995. The Company did not exist prior to
the fiscal year ended December 31, 1994. The following selected consolidated
financial data for the three months ended March 31, 1996, and at March 31,
1996, have been derived from the unaudited consolidated financial statements
of the Company that, in the opinion of management of the Company, reflect all
adjustments, consisting of normal recurring adjustments, necessary to fairly
present the financial data for such periods and as of such date. The data set
forth below are qualified by reference to, and should be read in conjunction
with, the audited Consolidated Financial Statements of the Company and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue....................... $ -- $ 1,883 $ 1,934
Operating expense..................... -- (3,230) (5,083)
General and administrative expense.... (659) (3,402) (2,336)
Equity in losses of affiliated
companies, net....................... (1,015) (16,379) (1,033)
Net loss.............................. (1,674) (17,233) (8,664)
Ratio of earnings to fixed
charges(1)........................... -- -- --
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ -- $ 8,730 $ 1,791
Investments in and advances to
affiliated companies................. 22,296 2,829 4,308
Goodwill, net......................... -- 45,324 44,703
Total assets.......................... 24,084 99,295 113,181
Long-term debt........................ -- 890 1,685
Total liabilities..................... 11 21,714 39,701
Parent's equity....................... 24,073 75,066 71,586
</TABLE>
- ---------------------
(1) Earnings available for fixed charges were inadequate to cover fixed
charges in each of the periods presented. The amount of the coverage
deficiencies for the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1996 were $1.1 million, $12.9 million and $8.0
million respectively. On a pro forma basis, assuming that the Notes
Offering, the CEtv Transaction, the XYZ Sale and the Saturn Purchase had
been consummated as of January 1, 1995, the Company's pro forma earnings
would have been inadequate to cover its pro forma fixed charges for the
year ended December 31, 1995 and the three months ended March 31, 1996, by
$49.8 million and $17.4 million, respectively. See "Risk Factors--
Leverage; Debt Service." In calculating the ratio of earnings to fixed
charges, earnings consist of (i) net loss before income tax expense and
fixed charges plus (ii) the pro rata share of the losses recognized in
minority owned affiliates.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Issuer currently holds a (i) 94% economic interest in CEtv, which it has
agreed to increase to 100%, (ii) 25% interest in XYZ, (iii) 100% interest in
Saturn, (iv) 90% economic interest in Telefenua and (v) 100% interest in
United Wireless. Because the Company accounts for its less than majority owned
Operating Companies on the equity method, prior to September 1995 only the
Company's Tahitian subsidiary, Telefenua, was consolidated. In September 1995,
the Company acquired a 100% interest in United Wireless at which time it began
consolidating its results of operations. In late December 1995, the Company
increased its economic interest in CEtv from 50% to 90% pursuant to the CEtv
Transaction, and in late May 1996, the Company increased its economic interest
in CEtv to 94% when Australis was diluted after having failed to contribute
its pro rata share of a CEtv issued capital call. Prior to the acquisition of
the additional 40% interest in CEtv in December 1995, the Company accounted
for its investment in CEtv on the equity method of accounting. As a result of
the CEtv Transaction, the Company, beginning in fiscal 1996, will consolidate
the results of operations of CEtv. The Company accounts for its interests in
Saturn and XYZ using the equity method of accounting. Following its recent
acquisition of the remaining 50% interest in Saturn, the Company began
consolidating the results of operations of Saturn. The Company's financial
statements have been prepared on a basis of reorganization accounting as
though the Company had performed all foreign development activities, made all
investments in the foreign development activities and made all investments in
the foreign interests in Australia, New Zealand and Tahiti since inception.
The Company reports on the basis of U.S. GAAP and recognizes its proportionate
share of affiliated company income (loss) on the basis of U.S. GAAP results.
The Issuer conducts no operations other than through the Operating Companies
in which it holds varying interests. Because the Operating Companies have,
since inception, been engaged primarily in organizational and start-up
activities, the Company believes that its historical results of operations
discussed herein are not indicative of the results of operations which will
follow the completion of construction and initial marketing of service by the
Operating Companies.
The Issuer has no employees of its own. UIH, the Company's parent, provides
various management, financial reporting, accounting, and other services for
the Company pursuant to the terms of the UIH Management Agreement between UIH
and the Company. CEtv, Saturn and Telefenua are also parties to Technical
Service Agreements with UIH, for which such Operating Companies pay to UIH
fees based, in part, on their respective gross revenues. See "Certain
Relationships."
Impact of CEtv Transaction. In December 1995, the Company acquired an
additional 40% economic interest in CEtv, increasing its total effective
economic interest in both companies to approximately 90%. As a result of the
CEtv Transaction, the Company, beginning on January 1, 1996, consolidates the
results of operations of CEtv. Through December 31, 1995, the Company
accounted for its interest in CEtv on the equity method. By consolidating the
financial results of CEtv, the Company will recognize the full amount of
CEtv's losses or income before allocation of loss or income to the minority
interests until CEtv becomes a wholly owned subsidiary of the Issuer upon
consummation of the Company's planned acquisition of the 6% minority interest
in CEtv. As CEtv is in the early stages of operations and construction of its
multi-channel television systems, CEtv will continue to incur losses for the
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Since commencement of operations, the Company has been financed by capital
contributed by UIH. During the year ended December 31, 1994, UIH contributed
$25.3 million to the Company, $22.8 million of which was used to finance the
Company's investments in CEtv, XYZ and Saturn. Approximately $1.9 million was
used for costs incurred in the acquisition and development of its projects,
the majority of which was for Telefenua. The remainder was used for non-
operating costs.
37
<PAGE>
During the year ended December 31, 1995, UIH contributed capital of $68.4
million to the Company and made bridge loans of $9.9 million to CEtv and
indirectly to Telefenua through its parent, SFCC. The bridge loans were used
to fund the construction and initial marketing of CEtv's and Telefenua's
systems. The Company used approximately $45.1 million of the contributed
capital to acquire an additional 40% effective economic interest in CEtv in
December 1995. Approximately $29.8 million of the contributed capital
consisted of UIH's preferred stock which the Company used as part of the
purchase price for an additional interest in CEtv. The Company used $6.1
million in cash to fund the operations of Telefenua. The Company also made
$22.5 million (not including the bridge loans) in capital contributions to the
Operating Companies during 1995 using the capital contributed to it by UIH.
During the three months ended March 31, 1996, UIH contributed capital of
$3.9 million to the Company and made bridge loans of $12.6 million to CEtv and
Telefenua. The bridge loans were used to fund the construction and initial
marketing of CEtv's and Telefenua's systems. The Company also made $3.5
million in capital contributions to Saturn and XYZ during the three months
ended March 31, 1996 using the capital contributed to it by UIH. Approximately
$17.8 million of the loans and capital contributed was used for the purchase
of property, plant and equipment by CEtv and Telefenua as these systems are in
the process of building their MMDS and DTH systems. The remainder was used in
operations.
In May 1996, the Company acquired $25.0 million of the CEtv bridge loans and
repaid UIH with proceeds from the Offering. In May 1996, the remaining CEtv
bridge loans totalling $25.6 (including accrued interest) were converted to
equity of CEtv and an additional $25.0 million in capital calls were funded,
thereby increasing the Company's interest to 94%. Prior to the closing of the
Offering, approximately $5.0 million of the SFCC bridge loans were used to
purchase convertible debentures of SFCC, which are convertible into preferred
stock of SFCC. The remaining SFCC bridge loans totaling $556,700 (including
accrued interest) acquired by the Company will be either (i) repaid by SFCC
after which time the Company would invest the proceeds of such repayment as
permitted under the Indenture or (ii) converted by the Company into equity of
SFCC.
The Company has generated negative cash flow from operating activities for
all periods presented as a result of start-up costs associated with its
Operating Companies' constructing and marketing their multi-channel television
and telecommunications services and establishing the organizational
infrastructure required for the operation of their businesses. The Company is
responsible for its proportionate share of the capital requirements of the
Operating Companies and has funded its share to date with capital contributed
by UIH.
The following table sets forth, as of May 31, 1996, assuming the Company's
purchase of the remaining 6% economic interest in CEtv, (i) the total
estimated funding required for the construction and initial marketing of the
Operating Companies' systems in their existing license areas, including any
capital invested to date or to be funded with the proceeds of the Offering,
(ii) the total amount of capital invested in each of the Operating Companies
and the portion funded by the Company, (iii) the amounts the Company expects
to invest in the Operating Companies from unrestricted cash on hand (excluding
amounts held by the Operating Companies), and (iv) the total estimated
additional funding required to complete the construction and marketing of such
Operating Companies' existing license areas and the Company's estimated
portion of such funding, pro forma for the Notes Offering and application of
the net proceeds thereof. To the extent the Operating Companies fund their
construction and other costs through project financing, the Company's portion
of estimated additional funding would be reduced proportionately. To the
extent that the other shareholders of Telefenua or XYZ fail to fund their pro
rata share of the additional shareholder capital for such Operating Companies,
the Company may fund all or a portion of such shortfall, in which case the
other shareholder's ownership interest would be diluted proportionately. To
the extent such additional funding may be required, the Company currently
anticipates seeking additional equity and/or debt funding. The Company has
monthly capital commitments to XYZ that total approximately $6.4 million
through December 31, 1996. To the extent the Company fails to make any capital
contribution to XYZ, it would face significant and punitive dilution.
38
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED TOTAL PRO FORMA
PROJECT FUNDING CAPITAL INVESTED ESTIMATED REQUIRED
REQUIREMENTS AS OF MAY 31, 1996 ADDITIONAL FUNDING(3)
------------------ --------------------- CASH ------------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY TOTAL(1) ON HAND(2) THE COMPANY TOTAL
- ----------------- ----------- ------ ----------- -------- ----------- ------------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CEtv.................... $354.2 $354.2 $ 81.6(4) $ 81.6(4) $119.0 $153.6 $153.6
Saturn(5)............... 86.0 86.0 12.0 12.0 12.7 61.3 61.3
Telefenua............... 17.4 17.4 14.3 14.3 3.1 -- --
XYZ..................... 14.3 57.3 7.9 31.5 6.4 -- 19.4
United Wireless......... 8.2 8.2 2.3 2.3 4.9 1.0 1.0
------ ------ ------ ------ ------ ---------- ----------
Total................. $480.1 $523.2 $118.1(4) $141.7(4) $146.1 $216.0 $235.3
====== ====== ====== ====== ====== ========== ==========
</TABLE>
- ---------------------
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation.
(2) Represents the anticipated application of the Company's unrestricted cash
on hand (excluding amounts held by the Operating Companies) as of May 31,
1996, to fund a portion of the Company's portion of the estimated required
additional funding. See "Use of Proceeds."
(3) Represents the estimated additional funding required to complete the
construction and marketing of the operating systems of the Company's
subsidiaries and to fund the capital requirements of XYZ, pro forma for
the Offering and the estimated application of the net proceeds therefrom.
(4) Does not include the $50.7 million used by the Company to increase its
economic ownership interest in CEtv to approximately 90%.
(5) In July 1996, the Company acquired its partner's 50% interest in Saturn
bringing its ownership interest to 100% in exchange for a 2.6% common
equity interest in the Issuer, which, if the Issuer's parent has an
initial public offering, may be exchanged for an amount of stock of its
parent corporation with an equivalent value. The amount does not include
the value of this 2.6% interest.
The Company also used $10.0 million of the net proceeds of the Offering to
fund the acquisition of UIH AML from UIH. UIH AML was formed by UIH to provide
guarantees of $10.0 million in borrowings under the Australis Bank Facility.
UIH contributed $10.0 million in cash to UIH AML, which cash will be
restricted for as long as UIH AML is guaranteeing borrowings under the
Australis Bank Facility. Such restricted cash would be released at such time
that UIH AML is released from its obligation under the Australis Guarantee
unless the cash was used to refinance a portion of the Australis Bank
Facility. To the extent that Australis was unable to repay borrowings under
the Australis Bank Facility, however, each of the Guarantors would be
responsible for funding its pro rata share of the repayment shortfall up to
its total guarantee, which in the case of UIH AML is $10.0 million. To the
extent amounts are paid pursuant to the guarantees, each Guarantor may elect
to have its pro rata portion of such amounts converted, at the rate of A$0.545
per note or share, into ordinary shares or convertible notes of Australis. In
addition, at any time during the term of such guarantees, any Guarantor may
elect to refinance a portion of the Australis Bank Facility by converting all
or a portion of the amount of its guarantee into ordinary shares or
convertible notes on the same terms. In connection with the Australis
Transaction, UIH AML received warrants to purchase approximately 4.2 million
ordinary shares or convertible notes of Australis at an exercise price of
A$0.20 per share. UIH AML has agreed, subject to certain conditions, to
acquire $4.0 million of ordinary shares or convertible notes of Australis by
converting a portion of the Australis Guarantee or exercising the Australis
Warrants. Australis has informed the Company that Australis believes it will
be able to refinance borrowings under the Australis Bank Facility through debt
and/or equity financings as well as potential asset sales. There can be no
assurance, however, that Australis will be able to refinance the Australis
Bank Facility. See "Risk Factors--Reliance on Australis and Other Principal
Suppliers" and "Australis Transaction."
Pro forma for use of the proceeds of the Offering and unrestricted cash on
hand, the Company believes that it will be required to additionally fund a
total of approximately $216.0 million (assuming the Company acquires the
remaining 6% economic interest in CEtv) to build-out its existing projects
over the next four years. The Company expects to raise this additional capital
through a combination of sales of its equity, either through public offerings
or additional investments by its shareholders or third parties, and borrowings
by the Company. See "Risk Factors--Need for Additional Financing."
The Indenture and the UIH Indenture place restrictions on the Issuer and its
Restricted Subsidiaries with respect to incurring additional debt. The Issuer
and all of its Operating Companies are currently "Restricted" under the UIH
Indenture. The UIH Indenture limits the amount of debt that a Restricted
Entity may borrow based upon, among other things, the greater of (i) 5.0x
Consolidated Cash Flow (as defined in the UIH Indenture) of such Restricted
Entity or (ii) 200% of Consolidated Invested Equity Capital (as defined in the
UIH Indenture) of
39
<PAGE>
such entity. At May 31, 1996, pro forma for the estimated use of proceeds from
the Offering, the Issuer would have been permitted to borrow an additional
$106.8 million under such calculation. In order to meet its total expected
remaining commitment of approximately $216.0 million, the Issuer would have
needed to increase its Consolidated Invested Equity Capital by approximately
$36.1 million in order to increase its borrowing capacity by $72.1 million and
provide it with the total funds necessary to meet its commitments.
Consolidated Invested Equity Capital includes equity commitments by
shareholders of the Company's Operating Companies, which are expected to be
approximately $19.4 million as summarized above. As a result, the Issuer does
not expect that it will be required to raise additional equity capital in
order to meet its current business plan. However, if the funding requirements
for the Operating Companies exceed management's budget or in the event
shareholders of the Operating Companies other than the Issuer fail to make pro
rata capital contributions, the Issuer may be required to raise additional
capital and would have to raise a portion of such capital in the form of
equity in order to remain in compliance with the UIH Indenture. In any event,
it is the Issuer's current intention to pursue private placements or an
initial public offering of the capital stock of its parent in order to raise
additional equity capital to complete the build-out of its systems and to seek
the remainder through capital contributions from its shareholders and
privately negotiated transactions with third parties. The Issuer currently
intends to complete an Equity Sale before May 15, 1997 so that no additional
interest would accrete on the Notes and no Warrants would be issued pursuant
to the terms of the Notes. See "Description of Securities." The Company also
expects to raise additional capital through borrowings by the Issuer or the
Operating Companies. The restrictions imposed by the UIH Indenture will be
eliminated upon the retirement of UIH's Notes at their maturity in November
1999.
Under the terms of the respective securityholders' agreements between the
Company and the other primary securityholder of each of CTV and STV, if
securities of CTV and STV are not publicly listed prior to October 1999, UIH
and the other securityholder have the right to offer to sell its respective
interests in STV or CTV to the other at an appraised fair market value. If the
non-offering securityholder does not agree to purchase such securities at such
fair market value from the offering securityholder within 30 days, then the
offering securityholder may elect to require that CTV or STV be sold to a
third party at or above such fair market value. If the other securityholder
offers its interest in CTV or STV to the Company, the Company may choose to
acquire such interests, in which case it may seek necessary funding in order
to make such acquisition. There can be no assurances that the Company will
have, or choose to pursue, the opportunity to increase its interest in CTV and
STV, or that it will have sufficient resources to make such acquisition. See
"Corporate Ownership Structure--CEtv."
RESULTS OF OPERATIONS
The Company has experienced losses since its inception. The Operating
Companies are in the early stages of constructing and marketing their multi-
channel television systems and programming services. The Company does not
currently anticipate that such Operating Companies will generate net income
during future years as they are completing construction of their respective
multi-channel television and telecommunications systems and programming
services.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Service Revenue. The Company acquired a 90% economic interest in Telefenua
in January 1995. The Company recognized service revenues of $1.9 million
during 1995, the majority of which resulted from Telefenua, which launched
service in March 1995. The Company had no service revenues in 1994.
Operating Expense. The Company incurred $3.2 million of operating expenses
in 1995, of which $2.8 million came from Telefenua. The Company incurred no
operating expenses in 1994.
General and Administrative Expense. The Company's general and administrative
expenses for the year ended December 31, 1995 increased to $3.4 million from
$0.7 million in the year ended December 31, 1994, primarily due to acquisition
of Telefenua in March 1995, which accounted for $2.3 million for the year
ended December 31, 1995.
Depreciation and Amortization. The Company had depreciation and amortization
expenses of $1.0 million for the year ended December 31, 1995 due primarily to
the acquisition of Telefenua and the launch of its system which began
depreciating its system in March 1995. The Company had no such expenses in
1994.
40
<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>
CEtv(1).............................................. $ (551) $ (3,212)
Saturn(2)............................................ (365) (1,438)
XYZ(3)............................................... (99) (11,729)
-------- ---------
Total equity in losses of affiliated companies,
net............................................... $ (1,015) $ (16,379)
======== =========
</TABLE>
---------------------
(1) The companies that comprise CEtv were incorporated in mid-1994. The
Issuer acquired an initial interest in these companies in the fall
of 1994 and increased its economic interest in these companies to
90% in late December 1995. CEtv launched its first MMDS system in
August 1995.
(2) The Company acquired a 50% interest in Saturn in July 1994.
Accordingly, the Company recognized equity in losses for Saturn for
only the six months ended December 31, 1994, as compared to the
full twelve months for the year ended December 31, 1995. In
addition, in 1995, Saturn initiated engineering and design work and
started system construction and accordingly incurred more losses in
1995 as compared to 1994.
(3) XYZ was formed in October of 1994 and began distributing its four
channels in April 1995.
Gain on Sale of Investment. In September 1995 the Company sold one half of
its interest in XYZ at cost. As the recognition of equity losses through that
date had reduced the Company's investment to zero, the Company recognized a
gain on the entire amount received of $4.1 million.
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Service Revenue. The Company's service revenue for the three months ended
March 31, 1996 increased $1.8 million (1,915%) compared to the amount for the
corresponding three month period in 1995. The increase is due to revenue of
CEtv ($1.0 million), which launched service in August 1995, and Telefenua
($862,000), which launched service in March 1995.
Operating Expenses. The Company's operating expense for the three months
ended March 31, 1996 increased $4.9 million (2,561%) compared to the amount
for the corresponding three month period in 1995. This increase is due to (i)
the consolidation, effective January 1, 1996, of CEtv ($4.2 million), which
launched service in August 1995, (ii) the consolidation of Telefenua
($572,000), which launched service in March 1995, and (iii) the acquisition of
United Wireless ($288,000) in September 1995, at which time the Company began
consolidating its results.
General and Administrative Expenses. The Company's general and
administrative expenses for the three months ended March 31, 1996 increased
$2.3 million from $389,000 for the corresponding three month period in 1995,
primarily due to (i) the consolidation, effective January 1, 1996, of CEtv
($1.3 million), which launched service in August 1995, (ii) the consolidation
of Telefenua ($606,000), which launched service in March 1995, and (iii) the
acquisition of United Wireless ($143,000) in September 1995, at which time the
Company began consolidating its results.
Depreciation and Amortization. The Company's depreciation and amortization
for the three months ended March 31, 1996 increased $2.7 million (3,133%)
compared to the amount for the corresponding three month period in 1995, due
primarily to the acquisition of CEtv and the launch of CEtv's system in August
1995 and of Telefenua's system in March 1995.
41
<PAGE>
Equity in Losses of Affiliated Companies, Net. The Company recognized equity
in losses of affiliated companies of $1.0 million and $1.5 million for the
three months ended March 31, 1996 and 1995, respectively, as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CEtv(1)............................................. $ 290 $ --
Saturn(2)........................................... 261 401
XYZ Entertainment(3)................................ 943 632
------------- -------------
Total equity in losses of affiliated companies,
net.............................................. $1,494 $1,033
============= =============
</TABLE>
- ---------------------
(1) The Companies that comprise CEtv were incorporated in mid-1994. The
Company acquired an initial interest in these companies in the fall of
1994 and increased its economic interest in these companies to 90% in late
December 1995. CEtv launched its first MMDS system in August 1995.
(2) The Company acquired a 50% interest in Saturn in July 1994. Accordingly,
the Company recognized equity in losses for Saturn for the six months
ended December 31, 1994, as compared to the full twelve months for the
year ended December 31, 1995. In addition, in 1995, Saturn initiated
engineering and design work and started system construction and,
accordingly, incurred greater losses in 1996 as compared to 1995.
(3) XYZ was formed in October 1994 and began distributing its four channels in
April 1995.
FOREIGN CURRENCY EXCHANGE RATE RISKS; HEDGING
The Operating Companies' monetary assets and liabilities are subject to
foreign currency exchange risk as certain equipment purchases and payments for
certain operating expenses, such as programming expenses, are denominated in
currencies other than their own functional currency. In addition, certain of
the Operating Companies have notes payable and notes receivable which are
denominated in a currency other than their own functional currency or
intercompany loans payable linked to the U.S. dollar.
In general, the Issuer and the Operating Companies do not execute hedge
transactions to reduce the Company's exposure to foreign currency exchange
rate risks. Accordingly, the Company may experience economic loss and a
negative impact on earnings with respect to its holdings solely as a result of
foreign currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. The Company may also experience economic loss
and a negative impact on earnings related to these monetary assets and
liabilities. In general, exchange rate risk to the Issuer related to Operating
Companies' commitments for equipment purchases and operating expenses is
generally limited due to the insignificance of the related monetary asset and
liability balances; however, exchange rate risk to the Issuer of these notes
payable and notes receivable and debt linked to the U.S. dollar have and will
continue to impact the Company's reported earnings. Because of the manner in
which the Company accounts for its interests in Saturn and XYZ, any adverse
effects on reported earnings of these companies would impact the Company
through its equity in losses of affiliated companies.
The countries in which the Operating Companies now conduct business
generally do not restrict the removal or conversion of local or foreign
currency; however, there is no assurance this situation will continue. The
Company may also acquire interests in companies that operate in countries
where the removal or conversion of currency is restricted. See "Risk Factors--
Foreign Currency Exchange Rate and Conversion Risks."
42
<PAGE>
BUSINESS
GENERAL
The Company, a leading provider of multi-channel television services in the
Australia and Pacific region, is currently constructing and operating multi-
channel television systems in three markets: (i) Australia, in which the
Company is constructing and operating MMDS systems and marketing a DTH service
in its regional franchise areas which encompass approximately 1.5 million
serviceable television homes; (ii) New Zealand, in which the Company is
constructing a wireline cable and telephony system intended to pass
approximately 135,000 homes; and (iii) Tahiti, in which the Company has
completed the initial phase of construction and is operating an MMDS system
which, upon completion, will pass approximately 31,000 homes. In addition, the
Company's other assets include a 25% interest in XYZ, a programming company
which provides four channels to the Australian multi-channel television market
as part of the eight channel Galaxy package. To date the Company and its
partners have invested significant capital and have devoted substantial
management resources and expertise to establish the infrastructure necessary
to implement a rapid roll-out of the Company's operating systems. As of May
31, 1996, the Company's multi-channel television systems and operations were
capable of serving 1.1 million homes of which 170,596 had been marketed and
29,145 were subscribers.
CEtv (Australia). The Company believes that Australia, the largest
undeveloped English speaking multi-channel television market in the world,
represents an attractive market for multi-channel television providers. Prior
to 1995, subscription television services were not available on a wide scale
basis and, as a result, current market penetration for such services is less
than 3%. However, there exists strong demand for television programming, as
evidenced by high average daily television viewing, high television and VCR
penetration and the early success of the multi-channel television industry. In
addition, Australia is a mature economy with a high GDP per capita,
characteristics which the Company believes are favorable to multi-channel
television growth.
The Company owns, directly and indirectly, a combined 94% economic interest
(and has agreed to acquire the remaining 6% economic interest, subject to
certain conditions) in CEtv, which has acquired virtually all of the available
MMDS licenses in an area encompassing approximately 1.5 million serviceable
television homes in Australia. CEtv's franchise areas represent approximately
25% of the Australian market. CEtv has strategically focused on regional areas
located outside of Australia's largest capital cities. CEtv is currently the
only multi-channel television provider in markets representing over 90% of
these serviceable homes and believes that it has several competitive
advantages over any potential competitor in its markets. Of the serviceable
homes in its franchise areas, CEtv believes that approximately 800,000 homes
are in markets which CEtv will serve primarily by MMDS. CEtv is servicing
homes in its MMDS markets that are not reachable by its MMDS signals with a
DTH service which CEtv is marketing in its franchise areas on an exclusive
basis. CEtv launched MMDS service in August 1995 and as of May 31, 1996, had
completed construction and launched service in markets that contained an
aggregate of approximately 422,000 homes. As of such date, CEtv had completed
its initial direct marketing program to approximately 148,600 of these homes,
and had 21,412 metropolitan subscribers, representing a 14% penetration rate
of marketed homes. In addition, in March 1996, CEtv began marketing its
programming services via DTH in less densely populated areas outside its MMDS
markets that are more efficiently served by DTH technology. These DTH service
areas contain approximately 700,000 homes, the majority of which are located
within a fifty-kilometer radius of its MMDS markets. As of May 31, 1996, CEtv
has 2,212 DTH subscribers in these markets. CEtv also plans to construct
wireline cable networks in two small regions in its franchise areas containing
an aggregate of approximately 25,700 serviceable homes. CEtv expects to
complete construction and launch service to all of its 1.5 million potential
customers by the end of 1996.
The Company believes that programming is a critical component in building
successful multi-channel television systems. CEtv has entered into franchise
agreements providing it with the right through 2004 (which is extendable at
CEtv's option through 2014) to distribute the eight-channel Galaxy package
over all transmission technologies (MMDS, DTH and wireline cable) in its
franchise areas. See "--CEtv (Australia)--Australis Franchise Agreements." The
Galaxy package, the most widely distributed programming package in Australia,
was developed exclusively for the Australian market by several of the world's
leading programming companies including Paramount, Sony, Universal, Fox and
Viacom. The Galaxy package includes two movie
43
<PAGE>
services (Showtime and Encore), Fox Sports, two general entertainment services
(TV-1 and Arena), Australia's only 24-hour music video service (Red) and two
family programming services (Nickelodeon/Nick at Nite and The Discovery
Channel). To supplement the Galaxy package, CEtv has also secured additional
programming on a non-exclusive basis from providers of both locally-originated
and satellite-delivered programming services including CNN International, TNT,
Cartoon Network, CMT, ABN, BBC World News and World Movies, a premium channel
which is currently only available to its MMDS subscribers.
XYZ (Australian Programming). Through its 25% interest in XYZ, the Company
provides four of the eight channels offered in the Galaxy package. XYZ's
channels consist of Nickelodeon/Nick at Nite, The Discovery Channel, Arena and
Red. XYZ has entered into an agreement that provides for carriage of its four
channels by virtually all existing Australian MMDS and DTH providers,
including CEtv, Australis and ECT, as well as by the largest cable television
operator in Australia, Foxtel. The Company believes that this agreement, which
extends through 2010 for MMDS and DTH subscribers and 2020 for Foxtel
subscribers and provides for fixed per subscriber prices (and in the case of
Foxtel, substantial minimum subscriber guarantees), will cause XYZ's
programming package to be available to virtually all of Australia's 6.0
million television households through at least 2010. Foxtel, which owns 50% of
XYZ, is a joint venture between News Corporation Limited and Telstra, the
Australian government-owned telephone company. The Company's other partner in
XYZ is Century, a large U.S. multiple system cable operator and the parent of
ECT. XYZ launched its channels in April 1995 and as of May 31, 1996, XYZ
provided its channels to approximately 200,000 subscribers in Australia.
Saturn (New Zealand). The Company believes that New Zealand is an attractive
market for multi-channel television providers. New Zealand has a demographic
profile similar to Australia, including high per capita income and strong
television and VCR penetration. In addition, New Zealand permits operators to
offer combined multi-channel television and telephony services over one
network. The New Zealand multi-channel television market is also relatively
undeveloped with only one competitor currently offering a five-channel UHF
subscription service.
The Company owns a 100% interest in Saturn, which has begun constructing an
integrated wireline cable network that will allow it to provide multi-channel
television services to approximately 135,000 homes in the Wellington area as
well as business and residential telecommunications services. Wellington is
New Zealand's capital and its second largest city. Saturn expects construction
of its Wellington network to be completed in 1997. In addition, Saturn owns a
wireline cable television system on the Kapiti Coast, north of Wellington,
that as of May 31, 1996, passed approximately 6,000 homes, of which
approximately 4,500 had been marketed, and serviced approximately 1,150
subscribers.
Telefenua (Tahiti). The Company believes Tahiti is an attractive multi-
channel television market due to the favorable competitive environment,
Tahiti's relatively high income levels and the Tahitian consumers' high
propensity to spend on entertainment. The Company holds an indirect 90%
economic interest in Telefenua, a Tahitian MMDS operator that holds 30-year
local franchises, many of which are exclusive, to provide multi-channel
television services to approximately 31,000 serviceable homes on the islands
of Tahiti and Moorea. Telefenua has completed the initial phase of
construction of its MMDS system and is currently marketing its 14-channel
service to approximately 17,500 homes. As of May 31, 1996, Telefenua had
approximately 4,400 subscribers (representing a 25% penetration rate) paying
an average monthly rate of approximately $65. Telefenua is currently expanding
its network to reach all 31,000 serviceable homes in its franchise areas.
Telefenua's only subscription television competitor offers a single-channel
UHF-delivered service for approximately the same price as Telefenua's service.
See "Regulation--Tahiti."
United Wireless (Australian Mobile Data). In September 1995, the Company
acquired a 100% interest in BellSouth Mobile Data, which was renamed United
Wireless, a provider of two-way wireless mobile data services in Australia.
United Wireless is providing wireless data services on a limited basis in
Sydney, Melbourne and Brisbane. The wireless mobile and fixed data industry is
in an early stage of development; services were first introduced on a limited
basis in 1992. In order to meet growing demand for its services, United
Wireless is in the process of expanding and upgrading its existing networks
and deploying additional networks in other capital cities.
44
<PAGE>
COMPANY STRENGTHS
The Company believes that it is well positioned to capitalize on its
progress to date and to establish itself as a leading provider of multi-
channel television and related services in each of its markets. The Company
benefits from the following:
. ATTRACTIVE DEMOGRAPHICS OF TARGET POPULATION. Each of the countries in
which the Company operates has demographics and other characteristics
that are favorable to multi-channel television operators. Australia, New
Zealand and Tahiti are all characterized by high per capita incomes and
high television and VCR penetration rates. Television viewers in those
countries, however, have limited over-the-air television options. In
addition, consumers in each of these markets are generally receptive to
new technologies and services, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of the Company's markets, compared to the
comparable statistic for the more mature multi-channel television markets
of the United States and the United Kingdom:
<TABLE>
<CAPTION>
YEARS OF TELEVISION SUBSCRIPTION CELLULAR
GDP PER HOMES WITH SUBSCRIPTION HOMES TELEVISION TELEPHONE
CAPITA IN 1994(1) TELEVISION(2) TELEVISION WITH VCR(3) PENETRATION(4) PENETRATION(5)
----------------- ------------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
United States........... $25,900 99% 40+ 80% 66% 13%
Australia............... 19,544 99 1 85 3 17
New Zealand............. 16,484 99 6 78 17 10
Tahiti.................. 14,340 99 2 66 21 N/A
United Kingdom.......... 15,800 97 12 72 23 10
</TABLE>
------------
(1) U.S. Department of Commerce; Bank of America World Forecasts; UN
National Accounts Statistics; Zenith Media Worldwide 1995; European
World Year Book 1995.
(2) Zenithmedia Television in Asia Pacific; Zenith European Market 1995.
(3) Zenith European Market 1995; Cablevision's Blue Book; Zenithmedia
Television in Asia Pacific; Bortz & Company.
(4) Cable Television Advertising Bureau; New Media Markets; Company
estimates for Australia, New Zealand and Tahiti.
(5) International Cellular.
. LICENSES RIGHTS/LIMITED COMPETITION. CEtv believes that its exclusive
MMDS licenses, franchise agreements and status as the first entrant in
its markets provide significant competitive advantages in its franchise
areas. CEtv owns virtually all of the available MMDS licenses exclusive
in its franchise areas and is aggressively constructing its systems and
marketing its services. CEtv believes that its early entrance into and
rapid construction throughout its markets will enable it to continue to
build customer loyalty and establish a meaningful subscriber base within
the next twelve months. CEtv believes that the relatively low housing
densities and relatively small size of the individual markets in the
substantial majority of its franchise areas generally do not support the
higher cost of wireline cable construction. In addition, CEtv has entered
into franchise agreements providing it with the exclusive right through
2004 (which is extendable at CEtv's option through 2014) to offer the
Galaxy programming package over all technologies (MMDS, DTH and wireline
cable) in its franchise areas. These franchise agreements provide that
the franchisor will not grant the right to any other person to transmit
the Galaxy package over any transmission technology in CEtv's franchise
areas. See "--CEtv (Australia)--Australis Franchise Agreements."
Similarly, Telefenua has secured exclusive MMDS spectrum and 30-year local
franchise rights, the majority of which are exclusive, on the islands of
Tahiti and Moorea. Tahitians have limited television viewing options with
only two free-to-air broadcast channels and one subscription television
service offering a single channel of movies and sports programming at
approximately the same price as Telefenua's 14-channel service.
. SECURED PROGRAMMING RIGHTS. The Company has secured attractive and
diverse programming for each of its markets. In Australia, CEtv has
entered into franchise agreements providing it with the exclusive right
through 2004 (which is extendable at CEtv's option through 2014) to offer
the Galaxy programming package over all technologies (MMDS, DTH and
wireline cable) in all of its franchise areas. See "--CEtv (Australia)--
Australis Franchise Agreements." Management believes that the Galaxy
channels represent the premier programming package available in Australia
and that CEtv's right to broadcast the Galaxy package provides a
significant competitive advantage in substantially all of its franchise
areas. CEtv has secured
45
<PAGE>
additional satellite-delivered programming services, including CNBC, TNT,
BBC World Service and CMT, to supplement the Galaxy package to its MMDS
customers.
Saturn offers a basic package of 22 channels and is actively seeking to
expand its channel line-up, including the introduction of pay-per-view
services. There are currently only four national broadcast networks in
New Zealand and one multi-channel television provider which offers a
five-channel UHF delivered subscription service. Telefenua provides a
basic and premium package consisting of ten and fourteen channels, all of
which, except for CNN International and ESPN International, are in French
(the primary language spoken in Tahiti). There are currently two national
networks in Tahiti and one competing subscription television operator
which provides a single-channel service for approximately the same price
as Telefenua's 14-channel service.
. SUCCESSFUL SERVICE LAUNCH. CEtv and Telefenua have successfully launched
their respective services and have achieved high penetration rates
through aggressive and focused marketing. As of May 31, 1996, CEtv had
launched MMDS service in markets containing approximately 422,000 homes.
CEtv believes that its operating results to date demonstrate that there
is strong demand for its services. As of May 31, 1996, CEtv had achieved
a penetration rate of 14% of those homes in its franchise areas for which
CEtv had completed its initial direct marketing program. CEtv plans to
complete construction of its MMDS systems and initiate the marketing of
rural DTH services in all of its franchise areas (encompassing
approximately 1.5 million serviceable homes) by the end of 1996.
Telefenua has completed construction of its MMDS system in areas
containing approximately 17,500 homes and expects to complete the
construction of its systems by the end of 1996. As of May 31, 1996,
Telefenua completed its initial marketing to these homes and had already
achieved a 25% penetration rate. XYZ began offering its programming
service in April 1995, and as of May 31, 1996, XYZ's channels were
distributed to approximately 200,000 subscribers.
. ABSENCE OF PRICING REGULATION. The Company's systems are generally not
subject to pricing or tiering restrictions and have limited content
requirements. See "Regulation." These regulatory environments will enable
the Company to pursue optimal multi-channel television pricing and
programming structures, including attractive basic rates to maximize
penetration with incremental charges for additional services such as
expanded tiers and premium channels.
. STRONG LOCAL MANAGEMENT. Each of the Company's operating systems are
managed by a team of experienced professionals selected by UIH. These
management teams consist of senior professionals who have participated in
the successful launch and management of multi-channel television operations
in the U.S. and international markets. In addition, UIH provides management
and technical support to each of the Company's multi-channel television
systems under the terms of Technical Service Agreements. See "Certain
Relationships."
TECHNOLOGIES EMPLOYED BY THE COMPANY
The Company currently uses three principal transmission technologies in the
deployment of its multi-channel television services in Australia, New Zealand
and Tahiti. These technologies are: (i) microwave multipoint distribution
systems ("MMDS" or wireless cable); (ii) direct-to-home ("DTH") satellite
broadcast services; and (iii) wireline cable, or CATV, the technology with
which multi-channel television services are most frequently delivered in the
United States. The Company has carefully evaluated the characteristics of the
markets in which it is currently operating or planning to operate multi-
channel television systems and has chosen what it believes to be the most
appropriate transmission technology for each.
MMDS is a microwave distribution system for which frequency bands are
utilized for transmission of the programming services. MMDS signals originate
from a head-end facility, which receives satellite-delivered programming
services and delivers such programming via an encoded microwave signal from
transmitters located on a tower or on top of a building to a small receiving
antenna located at a subscriber's premises, where the microwave signals are
decoded. MMDS transmission requires a clear line-of-sight because microwave
46
<PAGE>
frequencies will not pass through obstructions; however, many signal blockages
can be overcome through the use of low power signal repeaters which retransmit
an otherwise blocked signal over a limited area. The initial construction
costs of a MMDS system generally are significantly lower than a cable or DTH
system. The Company is using MMDS transmission technology in Australia and
Tahiti, where housing density and topography make MMDS the most cost effective
technology.
DTH transmits encoded signals directly from a satellite to a subscriber's
premises, where it is decoded. Currently in Australia, all DTH subscription
television services are transmitted via the Optus Satellite using High
Performance Beams ("HP Beams") covering certain geographic areas (commonly
referred to as a satellite "footprint"). All of CEtv's franchise areas are
within the Optus Satellite footprint. Since this signal will be transmitted at
a high power level and frequency utilizing MPEG II technology, its reception
can be accomplished with a relatively small (26-35 inch) dish mounted on a
rooftop or in the yard for the households located within the innermost
satellite transmission "footprint" and with a slightly larger (35-47 inch)
dish for the households located outside the innermost footprint. CEtv is using
DTH transmission technology for homes in its MMDS markets that are not
reachable by its MMDS signals as well as for homes in its franchise areas
where household densities do not support the construction of MMDS systems. Due
to satellite coverage limitations, DTH service is currently not available in
New Zealand or Tahiti.
A wireline cable television system is a network of coaxial or fiber-optic
transmission cables through which programming is transmitted to a subscriber's
premises from the system's head-end facility, which receives satellite and
tape-delivered programming. Wireline cable television offers a wide bandwidth
that generally allows the transmission of a larger number of channels than
MMDS. When constructed with a hybrid fiber coaxial network, as the Company
plans to do in New Zealand, the system's infrastructure can be used to deliver
telephony services. The primary disadvantages of a wireline cable network are
the higher costs of construction, especially in areas of low housing density,
and the length of time required to construct the network. The Company is
constructing a wireline cable system in New Zealand and, due to topography and
housing densities, plans to use wireline cable television in at least one
market in Australia.
CETV (AUSTRALIA)
Market Overview. The Company believes that Australia, the largest
undeveloped English speaking multi-channel television market in the world,
represents an attractive market for multi-channel television providers. Prior
to 1995, subscription television services were not available on a wide scale
basis and, as a result, current market penetration for such services is less
than 3%. However, there exists strong demand for television programming, as
evidenced by high average daily television viewing, high television and VCR
penetration and the early success of the multi-channel television industry. In
addition, Australia is a mature economy with a high GDP per capita,
characteristics which the Company believes are favorable to multi-channel
television growth.
Although the Australian television industry was established in 1956 with the
introduction of Channel 9 in Sydney, prior to the enactment of the
Broadcasting Services Act in October 1992, television programming services
were limited to five off-air television networks, while the delivery of
subscription television services to residences was prohibited. The
Broadcasting Services Act modified the existing regulatory structure to
provide, in conjunction with related radiocommunications and
telecommunications legislation, a framework to allow for the delivery of
multi-channel television services to residences over MMDS, DTH and wireline
cable. These changes included the award by auction of licenses to operate
certain radio communication devices and certain related frequencies, the award
by auction of broadcast licenses for a total of ten satellite-delivered
programming channels via DTH on an exclusive basis through July 1997 and the
authorization to construct wireline cable systems. One license to broadcast
four of the ten allocated satellite-delivered programming channels was issued
to Continental Century Pay Television Pty Ltd. (the "A Licenseholder"), to
which programming is being supplied by XYZ. XYZ is 25% owned by the Company.
See "--XYZ (Australian Programming"). Similarly, a license to broadcast four
additional satellite-delivered programming channels was issued to Australis. A
third license to broadcast the two remaining satellite-delivered programming
channels was issued to the Australian Broadcasting Corporation, a government-
owned national broadcaster, which has not yet begun broadcasting its
47
<PAGE>
channels. The Company believes that the Broadcasting Services Act created a
favorable regulatory environment which, in conjunction with excellent
demographics, the existence of well capitalized operators, the availability of
satellite-delivered programming services, and the limited entertainment
alternatives available, will result in the continued rapid development of
multi-channel television services. See "Regulation--Australia."
Background. The Company entered the Australian multi-channel television
market in mid-1994 by acquiring its original interest in CTV, which
subsequently acquired virtually all of the available MMDS licenses in markets
in northern and northeastern Australia representing approximately 752,000
households. These licenses allow for the transmission of up to 19 analog video
channels, are issued for five years and are renewable upon compliance with
government regulations. In October 1994, the Company acquired its original
interest in STV, which subsequently acquired similar MMDS licenses in markets
representing over 823,000 households primarily in southern Australia. Since
1994, the Company has increased to 94% its combined direct and indirect
economic interest in both CTV and STV, which operate on a combined basis under
the name CEtv. The Company has agreed to acquire the remaining 6% economic
interest, subject to certain conditions, for approximately $8.0 million. See
"Corporate Organizational Structure--CEtv."
Because approximately 60% of the Australian population is concentrated in
its six largest cities, the competition for MMDS licenses was most intense and
expensive in these cities. As a result, the Company chose to focus on multi-
channel television system development opportunities outside these six cities.
CEtv has obtained exclusive access to frequencies enabling it to broadcast
subscription television services using MMDS technology in regional markets of
Australia which encompass approximately 1.5 million serviceable television
households or approximately 25% of the television households in Australia. In
the majority of these regions, the housing densities do not justify the
economics of building a wire-line cable system. In addition to its MMDS
frequency exclusivity, CEtv has entered into franchise agreements providing it
with the exclusive right to broadcast the Galaxy programming package over all
distribution technologies (MMDS, DTH and wireline cable) in all of its
franchise areas. Management believes that the Galaxy programming package is
the premier programming package in Australia and that the right to broadcast
the eight Galaxy channels in its franchise areas provides CEtv with a
significant competitive advantage over any potential competitor.
The Company intends to build out its franchise areas using MMDS, DTH and
wireline cable, where appropriate but, due to relatively low housing
densities, plans to deliver services via MMDS and DTH to the majority of its
subscribers. Since MMDS service is less expensive to install than DTH, CEtv
intends to service customers by MMDS whenever possible. Of the serviceable
homes in its franchise areas, CEtv believes that approximately 757,000 homes
are in markets which CEtv will serve primarily by MMDS. CEtv is servicing
homes in its MMDS markets that are not reachable by its MMDS signals with a
DTH service which CEtv is marketing in its franchise areas on an exclusive
basis. In addition, CEtv will market its programming services via DTH in less
densely populated areas outside its MMDS markets that are more effectively
serviced by DTH technology. CEtv expects to market the DTH service in regions
containing approximately 735,000 homes, the majority of which are located
within a fifty-kilometer radius of its MMDS markets. Because local topography
and vegetation make an MMDS system impractical, CEtv plans to build and
operate a wireline cable network in two markets, Darwin and Lismore, which
together represent approximately 52,000 serviceable homes.
The deployment of MMDS networks in combination with DTH allows CEtv to
quickly roll out its service and achieve rapid penetration in its franchise
areas. CEtv believes that the ability to be the first provider of multi-
channel television services in each of its markets will give CEtv a
significant market presence which will further diminish the likelihood of
competitive pressure. CEtv is currently the only provider of multi-channel
television services in substantially all of its franchise area.
CEtv believes it has established the infrastructure required for the rapid
roll-out of service in each of the markets in its franchise areas. As of May
31, 1996, CEtv had launched service in 11 of its MMDS markets representing
422,000 serviceable homes. The early marketing results in each has met or
exceeded management's expectations. As of May 31, 1996, CEtv had achieved
penetration of approximately 14% of those homes for which CEtv had completed
its initial direct marketing program. The following table sets forth the
summary operating statistics in CEtv's first 11 MMDS markets:
48
<PAGE>
<TABLE>
<CAPTION>
AS OF MAY 31, 1996
--------------------------------
LAUNCH HOMES IN HOMES
METROPOLITAN MARKET DATE MARKET MARKETED(1) SUBSCRIBERS
------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Gold Coast...................... Aug.1995 113,942 60,540 8,758
Cairns.......................... Aug.1995 32,715 19,170 2,554
Townsville...................... Nov.1995 37,870 17,687 2,709
Bendigo......................... Nov.1995 27,975 14,916 1,276
Toowoomba....................... Jan.1996 53,811 8,810 1,738
Sunshine Coast.................. Feb.1996 66,201 15,300 1,710
Mount Isa....................... Feb.1996 7,898 -- 870
Wagga Wagga..................... Mar.1996 17,723 2,460 601
Ballarat........................ Mar.1996 30,047 8,775 1,012
Murray Bridge................... Mar.1996 7,049 980 184
Shepparton...................... May 1996 26,500 -- --
------- ------- ------
Total......................... 421,731 148,638 21,412(2)
======= ======= ======
</TABLE>
---------------------
(1) Homes marketed represents those homes to which the Company has
completed its initial direct marketing program.
(2) Does not include 2,212 DTH subscribers in areas outside MMDS
markets.
Operating and Growth Strategy. CEtv believes that the strong initial
penetration rates achieved in its first market launches can be duplicated in
its other markets. CEtv plans to continue its rapid system launch schedule and
systematic marketing and installation efforts to obtain a strong initial
subscriber base which it believes will preempt competition. CEtv currently
anticipates launching service in its remaining MMDS markets by the end of
1996. The following table sets forth CEtv's remaining MMDS market anticipated
launch schedule for the period after May 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF NEW TELEVISION
1996 MONTH MMDS MARKETS HOUSEHOLDS
------------------ ------------- ----------
<S> <C> <C>
June.............. 2 65,858
July.............. 8 155,266
August............ 4 54,153
September......... 4 47,350
October........... 3 19,175
November.......... 3 33,390
December.......... 4 15,721
--- -------
Total........... 28 390,913
=== =======
</TABLE>
CEtv's market launches scheduled for June and July have been accomplished as
scheduled. The Company anticipates launching all of the remaining MMDS markets
by December 1996.
CEtv plans to market MMDS service to each of the over 800,000 serviceable
television households in its MMDS markets, but estimates that approximately
20% of the television households in these markets will be out of the line-of-
sight of its microwave signal. CEtv will service these television households
through the DTH service which it is marketing. In addition CEtv has begun
marketing DTH service to television households in rural Australia outside of
its MMDS markets. CEtv anticipates that it will have initiated marketing to
all of the approximately 700,000 serviceable television households in these
rural markets by July 1996.
To focus the strong local management of its multi-channel television systems
as well as to maximize experience gained in system launches, CEtv has
organized ten regional offices. These regional offices will typically serve
three to five MMDS markets as well as CEtv's DTH customers in the surrounding
areas. CEtv estimates that approximately 70% of its potential DTH customers
are within fifty kilometers of its MMDS service areas. This proximity will
enable CEtv to minimize installation and service costs associated with DTH
service. System launches will be alternated by region so that launches within
a particular region can be sequentially
49
<PAGE>
scheduled to allow adequate time for the management and staff of each regional
office to be able to participate in each launch and use the experience gained
from previous system launches.
CEtv has entered into agreements with three contractors who are
constructing, to CEtv's engineering specifications and on a turn key basis,
all of CEtv's head-end facilities and transmission towers for its MMDS
markets. CEtv believes that using multiple contractors will provide the
flexibility necessary to meet its aggressive launch schedule, while allowing
the Company to realize economies of scale by using a limited number of
contractors.
CEtv has also entered into contracts with a number of service companies to
install the MMDS receivers, DTH satellite dishes and set-top decoders for most
of CEtv's markets. Installers collect the installation fee, install subscriber
equipment and test reception quality. CEtv has trained and established certain
guidelines for all of its third party service company employees who install
CEtv reception equipment. CEtv intends to expend a significant amount of
effort to follow-up on installations to ensure customer satisfaction and, in
the case of DTH equipment installed within its MMDS markets, verify that more
economical MMDS technology could not be used. CEtv's objective is to establish
loyalty among its customers and to resolve any service problems quickly in an
effort to satisfy and retain subscribers.
The primary capital expenditures for CEtv's MMDS systems include fixed costs
consisting of the head-end facility and equipment and transmission towers and
variable per subscriber capital expenditures consisting of MMDS receiver
antennas and set-top converters. The DTH services marketed by CEtv require no
fixed costs and only variable capital expenditures consisting of satellite
reception dishes and set-top converters. CEtv has budgeted approximately $45
million for construction of MMDS head-end and transmission facilities for all
of its operating systems. Variable installation and equipment costs for each
MMDS and DTH subscriber are currently estimated at $450 and $1,000 per
subscriber, respectively. These budgeted amounts are consistent with CEtv's
experience to date. These subscriber costs are partially offset by the
Company's MMDS and DTH installation charges of $15-$75 and $150, respectively.
Pricing. In all MMDS markets excluding the Gold Coast, CEtv is currently
providing the eight channel Galaxy programming package plus three additional
channels of programming as its basic package at a monthly rate ranging from
approximately $31 to $38 with a one-time installation charge ranging from
approximately $37 to $76. CEtv's DTH subscribers currently pay approximately
$31 to $38 for the Galaxy package with an installation rate of approximately
$150. In the Gold Coast, the only market where CEtv currently faces
competition, CEtv is currently providing twelve channels of programming as its
basic package which includes the eight channel Galaxy programming package as
well as four additional channels, at a monthly rate of approximately $23 with
a one-time installation charge of approximately $15. These lower rates are in
response to competitive pressure from Foxtel, which is building a wireline
cable television system in the Gold Coast. Foxtel offers the Galaxy package of
eight channels as well as nine other satellite or locally originated channels.
See "--Competition."
Competition. Approximately 700,000 of CEtv's 1.5 million franchise homes are
in rural regions which generally have densities of less than 25 households per
square kilometer. As a result, the Company believes that these markets can
only be economically served with DTH technology. Existing regulations prohibit
any DTH service, other than the DTH service that is being marketed on an
exclusive basis by CEtv in its franchise areas, from being offered in
Australia prior to June 1997. Although regulations will no longer prohibit
additional DTH services after June 1997, CEtv will retain its exclusive right
to market the Galaxy package in its franchise areas through 2004 (extendable
to 2014 at CEtv's option). In addition, CEtv launched the marketing of its DTH
service in March 1996 and expects to establish a significant presence prior to
June 1997. CEtv believes that its franchise agreements which provide it with
the exclusive right to distribute the Galaxy package and its status as the
first entrant into its markets provide significant competitive advantages in
its franchise areas.
The substantial majority of CEtv's MMDS markets are either small (i.e., less
than 30,000 homes), and/or have relatively low household densities (generally
25 to 75 homes per square kilometer as compared to 100 to 130 homes per square
kilometer in Australia's largest capital cities). As a result, CEtv believes
that its MMDS markets generally do not have sufficient density to justify the
construction of wireline cable systems. While the Company believes household
densities could potentially support wireline cable construction in areas
representing approximately 25% of CEtv's total franchise homes, the relatively
small size of these markets reduces the attractiveness of cable construction.
In addition, the Company believes CEtv's entrance into these markets will
further diminish the economic attractiveness to any potential competitor.
Finally, CEtv, as a licensed subscription television provider, is authorized
to build wireline cable systems in its markets and where appropriate could
deploy this technology. With the exception of the Foxtel cable television
system currently being constructed in CEtv's 114,000-home Gold Coast franchise
area,
50
<PAGE>
CEtv does not currently have any subscription television competitors in its
franchise areas. See "--Australis Franchise Agreements," "Risk Factors--
Reliance on Australis and Other Principal Suppliers."
Management believes that the Galaxy channels represent the premier
programming package available in Australia and that CEtv's right to broadcast
the Galaxy package provides a significant competitive advantage over any
potential competitor. While other programming services may apply for a DTH
license after June 1997 when the Broadcasting Service Act permits additional
satellite service licenses to be granted, CEtv will retain the right under its
franchise agreements until 2004 (which is extendable until 2014 at the option
of CEtv) to market the Galaxy package in its franchise areas. The only current
provider of multi-channel television in Australia that does not offer the
Galaxy package is Optus Vision and the Company does not currently perceive
Optus Vision as a competitive threat because Optus Vision is focusing its
efforts on building cable and telephony networks in the major metropolitan
areas rather than in regional Australia such as CEtv's franchise areas.
Programming. The Company believes that programming is an important component
in building successful multi-channel television systems. Accordingly, CEtv has
secured the right to distribute the Galaxy package of programming in its
service areas pursuant to a franchising agreement with Australis with an
initial term through 2004 (extendable at the option of CEtv through 2014).
CEtv believes that the terms of its franchise agreements with Australis are
favorable to CEtv and that these terms provide CEtv with a programming cost
advantage over potential competitors. See "--Australis Franchise Agreements."
The Galaxy package is the most widely distributed programming package in
Australia and creates the core programming services of CEtv, ECT, Australis
and Foxtel. The channels in the Galaxy package were developed exclusively for
the Australian market by several of the world's leading programming companies,
including Paramount, Sony, Universal, Fox and Viacom. The Galaxy package
consists of the following eight channels:
<TABLE>
<CAPTION>
GALAXY CHANNEL PROGRAMMING GENRE
-------------- -----------------
<S> <C>
Showtime............................. premium feature movies
Encore............................... library movies
Fox Sports........................... sports
TV-1................................. general entertainment
Discovery............................ documentary, adventure, history and
lifestyle
Nickelodeon/Nick at Nite............. children's and family entertainment
Arena................................ general entertainment
Red.................................. music video
</TABLE>
Australis, the franchisor of the Galaxy package, has secured certain
exclusive pay television rights to first run movies from leading providers of
programming including Paramount, Sony and Universal, each of which is also an
equity investor in one or more of the Galaxy channels. The Galaxy package also
provides programming from Liberty Sports Australia Pty Limited (an affiliate
of Telecommunications, Inc.) in conjunction with Fox Sports. See "Risk
Factors--Reliance on Australis and Other Principal Suppliers." Four of
Galaxy's programming channels are supplied by XYZ, which is 25% owned by the
Company. XYZ's program suppliers include Fox, Viacom and Discovery
Communications.
CEtv has secured additional programming on a non-exclusive basis, which it
is distributing to its MMDS customers as part of its basic programming
package. These channels include:
<TABLE>
<CAPTION>
OTHER CHANNELS PROGRAMMING GENRE
-------------- -----------------
<S> <C>
CMT................................................. country music videos
BBC World(1)........................................ world news
CNBC(1)............................................. business news
TNT(2)(3)........................................... library movies
Cartoon Network(2)(3)............................... cartoons
CNN International(2)................................ international
</TABLE>
---------------------
(1)All markets except the Gold Coast.
(2)The Gold Coast only.
(3)TNT and Cartoon Network share one channel.
51
<PAGE>
In March 1996, CEtv began offering its first premium channel to its MMDS
customers, World Movies, which consists primarily of foreign movies and art
films and features. CEtv is charging approximately $5.30 per month for World
Movies and, although it has yet to be formally marketed, demand has been
strong with approximately 2,600 customers as of April 30, 1996.
CEtv intends to further expand the number of programming services available
on its MMDS systems and expects that, upon deregulation of the DTH business in
1997, it will be marketing additional channels of programming via DTH. CEtv
also plans to consider the introduction of digital compression in certain of
its MMDS systems to increase channel capacity when such equipment is
available.
Australis Franchise Agreements. CTV and STV have each entered into a
franchise agreement with Australis. Each franchise agreement is for a term of
ten years (subject to certain conditions, to be amended to 15 years as part of
the Australis Settlement) commencing in October 1994, and CTV and STV have the
option to renew the franchise agreements on identical terms for another ten
years. Under the respective agreements, Australis granted each of CTV and STV
an exclusive license and right to distribute the eight-channel Galaxy package
of programming in its respective franchise areas. These franchise agreements
are exclusive to any delivery system (MMDS, DTH and wireline cable) and
provide that Australis will not grant rights to any other person to transmit
Galaxy in CEtv's franchise areas.
Pursuant to the terms of its franchise agreements, CEtv pays a percentage of
net revenues to Australis for the right to distribute the Galaxy package. For
purposes of the franchise agreements, net revenues equal gross revenues
received from the eight Galaxy channels currently provided less a percentage
of certain agreed costs, including depreciation of subscriber equipment, which
the Company believes results in a favorable programming pricing structure.
In March 1995, Australis granted Foxtel a license to distribute the Galaxy
package over cable television systems throughout Australia, including CEtv's
franchise areas. The Company believes that because of such action Australis
was in breach of its franchise agreements. Foxtel is currently distributing
Galaxy programming on its cable television system in the Gold Coast. On June
19, 1996, CEtv and the Company agreed, subject to certain conditions described
below, to settle their dispute with Australis with respect to this matter. As
part of the Australis Settlement, the parties agreed that Australis is
entitled to grant Foxtel the non-exclusive right to distribute Galaxy
programming by cable, but that Foxtel may not sublicense or assign this right
without CEtv's consent. Australis agreed to pay to CEtv an amount equal to the
amount Australis received from Foxtel for programming service for the period
from March 1995 through June 30, 1996, less the amount Australis paid to third
party programming suppliers for such programming with respect to Foxtel
subscribers located in CEtv's franchise areas during such period. In addition,
from June 30, 1996 though the term of the franchise agreements, CEtv has the
right to in its sole discretion, to either: (i) sublicense to Foxtel the right
to transmit the services provided to it by Australis (and any other services)
by cable transmission in its franchise areas or (ii) require Australis to pay
to it an amount each month equal to the sum of (a) the greater of A$4.50 per
subscriber and all revenues (less programming costs) per subscriber during
such month received under the agreement between Foxtel and Australis with
respect to Foxtel subscribers located in CEtv's franchise areas and (b) an
additional amount (if any) to put CEtv in the position that it would have been
in had it sublicensed the services provided to it by Australis directly to
Foxtel. The Company believes that, because its programming costs are less than
the revenue to be generated by sublicensing such programming to Foxtel, the
benefits to be gained from this portion of the Australis Settlement will be
substantial over the years. As part of the Australis Settlement, Australis
agreed to extend the term of the franchise agreements by five years to an
initial 15-year term and amended favorably certain financial and strategic
terms of the franchise agreements. Effectiveness of the Australis Settlement
is subject to completion of anticipated financing to Australis of at least
$250 million, including at least $50 million of equity (the "Australis
Financing"), which conditions may be waived by the Company and CEtv. See "--
Competition" and "Risk Factors--Reliance on Australis and Other Principal
Suppliers."
Marketing. CEtv has focused its marketing efforts to support its strategy of
rapid system roll-out in an effort to preempt competition in each of its
markets. CEtv's marketing program is based on the traditional multi-channel
television system roll-out marketing efforts that have generally been
successful in the United States, with
52
<PAGE>
a heavy emphasis on door-to-door direct sales by trained sales persons. The
Company believes that this direct sales approach has been successful to date
in CEtv's existing operating systems which, as of May 1996, had resulted in an
approximate 16% subscriber penetration rate for those homes for which the
initial direct marketing program had been completed. The direct sales approach
also allows CEtv to plan its system rollout installation and marketing in an
orderly fashion, allowing CEtv to minimize backlog by regulating demand to
match its installation capacity. As multi-channel television services are new
to Australia, CEtv believes that the direct sales approach is more successful
than more general advertising, although CEtv also engages in print and
broadcast advertising during the first few months of a MMDS system launch. In
addition, CEtv will selectively use print and broadcast advertising to support
the marketing of its DTH service.
Customer Support. CEtv operates a centralized National Customer Operations
Center ("NCOC"), located in the Gold Coast, which currently services all of
CEtv's MMDS and DTH subscribers and has the capacity to service all future
customers. NCOC employees process installation orders, handle customer
inquiries, including programming and technical questions, and implement the
customer retention program, which includes telephone contact with customers
following a cancellation request, as well as making unprompted contact with
customers immediately following installation in an effort to ensure customer
satisfaction. CEtv's customer service representatives undergo a training
program, which provides instruction on all aspects of CEtv's customer service
programs.
CEtv's NCOC has a sophisticated communications system which ensures a high
level of customer service. Incoming calls from all of CEtv's markets are
directed to the NCOC where customer service representatives are available to
provide sales and service information. The NCOC currently handles
approximately 1,300 calls per day but has the capacity to handle 5,000 calls
per day. The NCOC facility currently employs 43 customer service
professionals, which CEtv will grow as it builds out its franchise areas. In
addition, CEtv is exploring the possibility of using the NCOC to outsource
customer service to third parties in similar lines of business where
appropriate.
Properties. CEtv leases office space in Sydney for its administrative
offices and has established several regional offices in leased space in the
areas where it has launched service. CEtv anticipates having a total of ten
regional offices upon completion of system construction. CEtv also plans to
lease locations for smaller local offices in most of its markets to handle
local customer maintenance, marketing and installation. In addition, CEtv
leases or plans to lease facilities to house the head-end facility and
transmitter tower in each of its markets. CEtv's national customer service
center is located in leased facilities in the Gold Coast. Generally, these
CEtv facilities are leased with terms of three to six years, with renewal
options in many instances. CEtv believes that its leased facilities are
sufficient for its foreseeable needs and that it has access to a sufficient
supply of additional facilities in its various markets, should it require more
space.
Management and Employees. In October 1994, UIH executed Technical Service
Agreements with CTV and STV pursuant to which UIH will provide various
management and technical services for a fee equal to 5% of CEtv's total gross
revenue through October 1996, 4% through October 2002, 3% through October 2004
and 2% thereafter, and certain direct costs incurred by UIH, including
employee expenses. UIH has appointed eight of its employees to senior
management positions of CEtv, including managing director, chief operating
officer and marketing director. UIH pays those employees' salaries and
benefits (which in 1996 are estimated to be approximately $2.5 million) and
charges CEtv for these amounts under the Technical Service Agreement. UIH has
historically deferred such payables and credited any amounts owed to it
against capital contributions UIH was required to make to CEtv. In the future,
UIH anticipates collecting such amounts from CEtv on a current basis.
As of December 31, 1995, CEtv had a total of 184 employees. Substantially
all of CEtv's employees are parties to an "award" governing the minimum
conditions of their employment including probationary periods of employment,
rights upon termination, vacation, overtime and dispute resolution. See
"Certain Transactions."
53
<PAGE>
XYZ (AUSTRALIAN PROGRAMMING)
Background. In order to participate in developing the Australian programming
market and enhance program offerings provided by its multi-channel television
systems, the Company and its original partner, Century, founded XYZ in late
1994. In September 1995, UIH and Century sold one-half of their respective
interests to Foxtel, giving Foxtel a 50% ownership interest and leaving each
of the Company and Century with a 25% ownership interest.
XYZ provides four channels (the "XYZ Channels") of the eight channels which
are distributed as the Galaxy package. The XYZ Channels consist of the
following:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<C> <S>
Discovery Channel......... documentary, adventure, history and lifestyle
programming
Nickelodeon/Nick at Nite.. children's educational, entertainment and
cartoons/family oriented drama and
entertainment
Red....................... music video with local presenters
Arena..................... drama, comedy, general entertainment,
programming, library movies
</TABLE>
XYZ provides the XYZ Channels to the A Licenseholder, which in turn,
pursuant to long-term carriage agreements, supplies them as part of the Galaxy
package to Australis and its franchisees and to Foxtel. The Galaxy package
will be available to the majority of Australia's approximately six million
television households, including all households marketed via MMDS and DTH by
Australis and its franchisees, pursuant to a carriage agreement between
Australis and the A Licenseholder that has been warranted to XYZ as having a
term through at least 2010. The XYZ Channels are also distributed to Foxtel,
the largest cable television system operator in Australia, pursuant to a
carriage agreement between Foxtel and the A Licenseholder that has been
warranted to XYZ as having a term through 2020. XYZ's agreement with the A
Licenseholder provides for fixed per subscriber prices. The Company
understands the carriage agreement between the A Licenseholder and Foxtel
provide for substantial minimum subscriber guarantees. XYZ currently receives
monthly revenues of approximately $3.15 per MMDS or DTH subscriber and $4.15
per Foxtel subscriber. ECT, an affiliate of the A Licenseholder, has
guaranteed the performance of all of the A Licenseholder's obligations to XYZ
under this agreement. As of May 31, 1996, the XYZ channels were distributed to
approximately 200,000 multi-channel television subscribers.
Operating and Growth Strategy. XYZ is an independently managed venture which
purchases programming for, edits, packages and transmits the XYZ Channels in
exchange for a monthly fee per subscriber. UIH and Century jointly manage
Arena, Foxtel manages Red, and UIH and Century, together with Nickelodeon
Australia, Inc. ("Nickelodeon") manage the Nickelodeon/Nick at Nite channel.
Each of these three channels reports to a board comprised of UIH, Century and
Foxtel executives. The Discovery Channel is managed by Discovery Asia and
distributed by XYZ.
XYZ is focusing its marketing efforts on creating, building and supporting
channel identification and brand awareness. XYZ's goal is to acquire quality
programming that will engender viewer loyalty. In addition, when restrictions
on multi-channel television advertising expire in mid-1997, XYZ plans to offer
advertising on each of the XYZ Channels. XYZ also plans to create and
distribute two additional channels in 1997. See "Regulation--Australia--
Broadcast Services Act."
Acquisition of Programming. In July 1995, XYZ and Discovery Asia executed a
twelve-year exclusive carriage agreement whereby a localized version of the
Discovery Channel replaced the existing documentary channel developed by XYZ.
The Company believes that, as a result of this arrangement, XYZ will be able
to offer subscribers higher quality programming at a lower cost to XYZ.
In September 1995, XYZ and Nickelodeon, a division of Viacom, executed a
memorandum of understanding, the terms of which provide that, upon receipt of
regulatory approvals prior to July 31, 1996 or
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another agreed date should approvals not be received by such date, Nickelodeon
and XYZ will each acquire a 50% interest in a new company to be established to
produce and distribute an Australian version of Nickelodeon/Nick at Nite,
which XYZ began distributing in October 1995. The memorandum of understanding
contemplates at least a 15-year term for the joint venture. Pending
finalization of the definitive joint venture agreement, Nickelodeon and XYZ
currently are jointly producing Nickelodeon/Nick at Nite for supply to XYZ.
XYZ pays a monthly per subscriber license distribution fee that is shared
equally by Nickelodeon and XYZ.
XYZ acquires, locally-produces interstitials for, packages and distributes
Arena and Red. XYZ has acquired a two to three year supply of programming for
Arena at prices its management considers to be favorable. XYZ is pursuing
supply agreements and potential joint venture arrangements with a number of
other international programming suppliers. XYZ has non-exclusive licenses with
many of the world's largest record companies for music video programming.
Properties. XYZ currently uses a portion of Foxtel's broadcasting facilities
located in Sydney. XYZ is currently negotiating with Foxtel terms of a four-
year lease for this facility. The Company believes this arrangement results in
operational cost savings. XYZ believes its facilities are sufficient for the
foreseeable future.
Employees. As of December 31, 1995, XYZ had 47 employees and the Nickelodeon
joint venture had 20 employees. CUPV had 15 employees that provide management
services to XYZ.
SATURN (NEW ZEALAND)
Market Overview. Management believes that New Zealand is an attractive
market for the development of multi-channel television services. New Zealand
is one of the world's most unregulated telecommunications markets with strong
per capita income, high television viewership and high acceptance of new
technologies. In addition, New Zealand's existing regulatory structure permits
the delivery of pay television and telephony services over a single network
and provides virtually no regulation concerning pricing and only limited
program content regulations.
Multi-channel television has been slow to develop in New Zealand due
primarily to the lack of satellite delivered programming and government
broadcasting regulations. Government broadcasting deregulation in 1988 led to
the auction of UHF frequencies in 1990 and the introduction of TV3, a private
national broadcaster, Sky TV ("Sky"), a pay television operator, and several
private regional broadcasters. The Company believes that as the Australian
multi-channel television market continues to develop, the quality and quantity
of programming available in New Zealand will expand.
Background. Saturn is building an integrated wireline cable and
telecommunications network which will pass approximately 135,000 homes in the
Wellington area. Wellington is New Zealand's capital and second largest city.
Saturn selected Wellington based upon several factors including housing
density, demographic profile and expected construction costs. Saturn entered
the New Zealand market through the purchase of a small multi-channel
subscription television system which passes approximately 6,000 homes on the
Kapiti Coast, north of Wellington and serves approximately 1,150 subscribers.
Prior to the Company's involvement, this system had not been aggressively
marketed and provided only a relatively limited program offering.
Operating and Growth Strategy. Saturn plans to build-out its integrated
network over a two- to three-year period. Saturn has secured pole attachment
agreements with various local utilities and has secured permits necessary to
construct its network in the Wellington area servicing approximately 135,000
television households. Saturn plans to provide both cable television and
telecommunication services at competitive prices. It has secured an attractive
programming offering and plans to negotiate for interconnect agreements that
will allow it to bundle its subscription television and local residential and
business telephone services. By providing both subscription television and
telephony services, Saturn can offer pricing discounts across both services,
which management believes will provide a significant advantage over
competitors that offer only one service. Saturn is currently in
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the preliminary stages of discussions with several telecommunications
providers in the New Zealand market concerning potential strategic partnership
arrangements. There can be no assurances, however, that Saturn will be able to
successfully conclude any such arrangements that it may choose to pursue.
Competition. The New Zealand television market is still dominated by state
free-to-air broadcaster TVNZ, whose two channels account for approximately 80%
of the television audience share. Saturn also competes with one other
nationwide broadcast channel and four recently established regional channels.
In addition to Saturn, there are currently two providers of subscription
television services in New Zealand, Sky and Telecom New Zealand ("Telecom"),
the national telephone company.
The largest provider of subscription television services in New Zealand is
Sky, which operates a five channel scrambled UHF subscription television
service. Although Sky offers a popular sports channel on an exclusive basis,
Sky does not offer the programming diversity or television/telephony bundling
that Saturn plans to offer, which Saturn believes will drive its penetration.
The Company estimates that since its launch in 1990, Sky's subscriber base has
increased to approximately 200,000 with an estimated 800,000 serviceable homes
for a penetration rate of 25%. Sky's shareholders include a number of large
international telecommunications companies with significant resources,
including TCI, Time Warner, Bell Atlantic, Ameritech and TVNZ. Telecom has
announced its intention to rebuild its existing networks using hybrid fiber-
coax technology which will allow it to offer video, data and voice services.
Telecom's multi-channel television offering has to date, however, been limited
to a 600-home trial system in the Auckland area. Telecom has also announced
its intention to construct a similar system in the Wellington area.
The primary competitor to Saturn's planned local loop telephony service will
be Telecom. Telecom is one of New Zealand's largest companies and is 49% owned
by two U.S. regional Bell operating companies, Bell Atlantic and Ameritech.
Telecom remains the largest telecommunications service provider with a 100%
share of local loop revenues, 75% of national and international toll revenues
and 90% of cellular revenues. In addition, Clear Communications, a consortium
consisting of British Telecom, MCI, TVNZ and the Todd Corporation, began
offering long distance services to residential and business customers in 1991
and today controls approximately 25% of the long distance market.
Saturn plans to build a substantial portion of its system by attaching cable
to utility poles pursuant to its pole attachment agreements. Zoning
regulations and technical requirements make it difficult to attach multiple
broadband cable lines to existing utility poles. Management believes that it
will be able to quickly build-out its service area and, because of the first
entrant opportunity afforded by the pole attachment rights as well as zoning
restrictions, a potential competitor may be forced to use slower and more
expensive underground construction.
Programming. The Company believes that Saturn's success will be dependent
upon its ability to secure attractive programming at competitive rates. Saturn
has conducted market research among potential local subscribers and plans to
focus its marketing and programming strategies on variety and choice, local
content and competitive pricing created through bundling multi-channel
television services with telephony services. Saturn, which is currently
offering a single tier of service consisting of twenty-two channels and is
currently negotiating with a number of programming services, including pay-
per-view providers, to upgrade its channel offering. The following is a list
of the programming currently offered by Saturn:
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<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
TV One...................................... general entertainment
TV 2........................................ general entertainment
TV 3........................................ general entertainment
The Community Channel....................... local news, events
CNN International .......................... world news
Asia Business News.......................... Asian business news
Nostalgia................................... general entertainment
Frontiers................................... documentary
Cartoon Network............................. childrens' programming
Country Music Television.................... music video
Much Music.................................. music video
TAB......................................... racing channel
Capital City Television..................... local news, events
Cable Sports Network........................ local sports
Information Channel......................... weather, programming line-up
RFO......................................... French general entertainment
TNT......................................... movies
NHK......................................... Japanese general entertainment
NBC Super Channel........................... general entertainment
Elijah Television........................... religious programming
CNBC........................................ world news
Worldnet.................................... news and science
</TABLE>
Saturn's programming is licensed from various companies that produce
original programming or have the distribution rights to such programming. The
Company believes that the amount of satellite-delivered programming will
increase in the next few years, driven in part by the rapid development of
multi-channel television in Australia. Saturn currently anticipates the
addition of several pay-per-view channels by mid-1996.
Pricing. Saturn plans to introduce a basic service package with a minimum of
22 channels in Wellington at a monthly subscription rate of $30. Sky, Saturn's
primary competitor, charges subscribers a monthly rate of approximately $36
for five channels of programming.
Marketing. Saturn's marketing strategy will utilize promotion techniques
proven in existing subscription television markets such as the United States
and Europe, including direct sales campaigns (door-to-door selling), direct
mail and telemarketing supported by press and radio advertising. Direct sales
has proven to be the most effective technique in other cable television
markets, particularly in areas where multi-channel television is in its
introductory stage. Each of these techniques aims to communicate the selling
points of cable television: expanded choice, high entertainment value and
breadth of programming genre to potential subscribers. In Saturn's case, the
sales strategy is also designed to include an emphasis on telephony services
and to communicate to potential subscribers the cost, quality and customer
service advantages associated with bundled services.
Customer Support. Saturn is establishing a national customer services center
at its corporate headquarters in Wellington. The center will be operational
when Saturn's services are launched in mid-1996. The center will initially
have the capacity to service 1,200 calls per week with an ability to expand to
2,400 over the next 18 months.
Properties. Saturn has constructed a head-end facility on leased property in
Paraparaumn. Saturn leases office and warehouse facilities for its
headquarters in Petone, located north of Wellington, and additional office and
warehouse space in the Kapiti Coast. These leases have six and three year
terms, respectively, with six- and three-year renewal options, respectively.
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Management and Employees. In July 1994, Saturn and UIH executed a Technical
Service Agreement pursuant to which UIH provides technical, administrative and
operational assistance to Saturn encompassing the following areas: (i)
engineering, design, construction, and equipment purchasing, (ii) marketing,
selling and advertising, (iii) selection of programming and public relations,
(iv) accounting, billing and subscriber management systems, and (v) personnel
management and training, for a fee of 5% of Saturn's gross revenue through
July 1999. UIH is also reimbursed for all direct and indirect costs associated
with these services, including employee costs. UIH has appointed three of its
employees to senior management positions, including its chief executive
officer and technical director. UIH pays these employees' salaries and
benefits (which in 1996 are estimated to be approximately $450,000) and
charges Saturn for these amounts. See "Certain Relationships."
As of December 31, 1995, Saturn had 43 employees. Substantially all of
Saturn's employees are parties to a collective employment contract governing
certain conditions of their employment including probationary periods of
employment, termination, redundancy, overtime, holidays, leave and dispute
resolution.
TELEFENUA (TAHITI)
Market Overview. Tahiti and Moorea are the two largest and most populous
islands of French Polynesia, a self-governing territory of the Republic of
France. The French government contributes heavily to French Polynesia's
economy and approximately one-third of Tahiti's population is employed by the
national government. Television viewing alternatives are limited, but demand
for television is strong as demonstrated by the country's high television and
VCR penetration, 99% and 66%, respectively, and television viewing of nearly
four hours per day. Prior to late 1994, television choice was limited to two
government broadcast channels.
Background. In January 1995, UIH acquired a majority economic interest in
Telefenua, which holds 30-year licenses permitting it to build and operate a
multi-channel television system on the islands of Tahiti and Moorea. Telefenua
launched service in March 1995. Telefenua has completed the buildout of its
MMDS system and is currently in the process of marketing its service to
approximately 17,500 homes.
Telefenua is expanding its network by selectively adding beam benders and
repeaters that will allow its signal to reach all 31,000 serviceable homes in
its franchise areas. Telefenua's MMDS service passed approximately 17,500
serviceable homes and had approximately 4,400 subscribers as of May 31, 1996,
representing a 25% penetration rate.
Operating and Growth Strategy. Telefenua is focusing on increasing its
penetration rates through continued direct marketing campaigns, including
door-to-door sales, and expanding its serviceable homes through select
deployment of beam benders and repeaters. Management is actively seeking to
expand its programming offering including the planned introduction of premium
movie services.
Competition. Telefenua's only subscription television competitor is Canal
Plus, which offers a single channel UHF service offering a combination of
sports, movies and general entertainment programming. The Company estimates
Canal Plus has approximately 3,800 subscribers, of which an estimated 1,000
are also customers of Telefenua. The monthly subscription fee for Canal Plus'
service is approximately equal to the subscription fee for Telefenua's 14-
channel expanded tier service. There is no existing competition in Tahiti from
DTH services due to limited satellite coverage in the region and lack of
available satellite delivered French language programming.
Pricing. The subscription fee for Telefenua's basic tier is approximately
$49 per month and the expanded tier monthly rate is approximately $65. To
date, nearly 99% of Telefenua's customers are subscribing to the expanded tier
of service.
Programming. Telefenua offers a combination of French and English language
services. Telefenua's current channel line-up consists of 14 channels
segregated into two tiers of service--a basic service with nine channels and
an expanded tier with an additional five channels. Telefenua's basic tier
offers the two local broadcast channels as well as French language children's,
sports, general entertainment and music channels and
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the English language CNN International channel. Telefenua also offers a
French/Tahitian language program guide and plans to offer a local public
access channel. The expanded tier includes French language movies, cultural,
general entertainment and documentary channels and ESPN International.
With the exception of CNN International, ESPN International, and the two
local broadcast channels, all programming consists of taped French satellite
services. Current French regulations require approval of the national
regulatory authority for all programming. The following is a list of
programming currently offered by Telefenua:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
RFO 1.......................... government broadcast, general entertainment
RFO 2.......................... government broadcast, general entertainment
CNN International.............. world news
ESPN International............. sports
RTL............................ general entertainment
Eurosport...................... sports
Canal J/Canal Jimmy............ adult and childrens'
Serie Club..................... general entertainment
Paris Premiere................. arts, life
MCM............................ music video
Planete........................ documentary
Cine Cinemas................... movies
France Supervision............. sports, movies
Program Guide.................. program guide service
</TABLE>
Marketing. Telefenua utilizes several marketing techniques, proven in the
U.S. multi-channel television industry, including door-to-door, direct mail,
and local media. The Company's customer service center also conducts
telemarketing campaigns and has opened sales boutiques in high traffic areas
throughout Tahiti. Marketing campaigns consist of selected promotions
targeting specific demographic groups throughout the year and new markets as
they are activated.
Customer Support. Telefenua's customer service center is located at its
corporate headquarters. The center handles all customer inquiries, coordinates
installations and manages all maintenance activities.
Properties. Telefenua leases office space in Punaania, Tahiti. This facility
also contains the customer service center and the headend equipment for the
system, including equipment for the receipt of satellite delivered programming
and local broadcasts as well as play-back of taped programming. Telefenua
compiles its 14-channel service at this facility and then transmits from its
MMDS broadcast tower located on the island of Moorea. Telefenua leases its
offices and other facilities.
Management and Employees. In January 1995, UIH and the parent company of
Telefenua executed a Technical Service Agreement whereby UIH has agreed to
provide technical, administrative and operational assistance to the parent
company. The parent company has a similar technical assistance agreement with
Telefenua under which it makes available to Telefenua UIH's services
encompassing the following areas: (i) engineering, design, construction, and
equipment purchasing, (ii) marketing, selling and advertising, (iii)
accounting, billing and subscriber management systems, and (iv) personnel
management and training for a fee equal to 5.5% of Telefenua's gross revenue
through 1996, 3.5% of gross revenue for the following 12 months, and 2.5%
thereafter. The fees payable to UIH under its Technical Service Agreement with
Telefenua's parent company are 5%, 3% and 2% of Telefenua's gross revenues
over the same periods. UIH is also reimbursed for all direct and indirect
costs associated with the services it provides. UIH has appointed two of its
employees to serve as managing director and technical director of Telefenua.
UIH pays these employees' salaries and benefits (which in 1996 are estimated
to be approximately $340,000) and charges Telefenua for these amounts. See
"Certain Relationships." The total amount accrued as of December 31, 1995
payable to UIH under the Technical Service Agreement is $1.2 million. Amounts
accrued before the closing of the Offering will be paid in cash to
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UIH at some time after the Offering. Amounts accruing under the Technical
Assistance Agreement after the closing of the Offering will be paid as
accrued.
As of March 15, 1996, Telefenua had 45 employees.
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
Market Overview. Wireless data networks provide for the two-way transmission
of packet switched data between a customer's terminal and a host computer. The
transmission of wireless data occurs over a network, similar in configuration
to a cellular telephone network, which is constructed and maintained by a
local network carrier, such as United Wireless.
The Australian wireless mobile and fixed data industry is in an early stage
of development. Wireless data services were first introduced in Australia in
1992 by BellSouth Mobile Data, United Wireless' predecessor. Today, there are
two public wireless data carriers in Australia with a total estimated
installed base of 6,000 customer terminals.
Background. In September 1995, the Company acquired a 100% interest in
BellSouth Mobile Data which was renamed United Wireless. United Wireless is in
the second phase of its network deployment in the major metropolitan markets
of Australia. United Wireless' network is based on the "Mobitex" technology,
developed by Ericsson and Swedish Telekom and launched in 1984. Today, there
are 15 operational Mobitex wireless data networks deployed throughout Europe,
North America and the Asia/Pacific region.
Operating and Growth Strategy. United Wireless is aggressively expanding its
network coverage areas to encompass the metropolitan markets of Adelaide,
Brisbane, Canberra, the Gold Coast, Melbourne, Perth and Sydney. The Company
plans on spending approximately $2.8 million for network construction and
working capital needs through the end of 1996 and an additional $3.1 million
in 1997 and 1998.
Competition. United Wireless competes primarily with Telstra Wireless Data,
a subsidiary of Telstra, whose wireless data network was developed by
Motorola. The Company estimates Telstra Wireless Data has an installed base of
approximately 5,250 customer terminals.
The Company believes that the Mobitex network provides certain competitive
advantages over other operating platforms including: (i) superior transmission
quality; (ii) broader redundancy capabilities; (iii) larger base station
coverage areas; (iv) lower maintenance and support requirements; and (v) a
greater array of proven application solutions.
Marketing/Customers. United Wireless' target market includes large companies
with significant potential installed bases, such as utilities, commercial
banks, transport companies, and courier and delivery companies. Management
believes that the most expeditious and economical approach to building an
installed customer terminal base is to target its efforts on securing these
large corporate accounts. Specific applications that will be targeted include:
remote order entry (e.g., sales persons and couriers), credit and debit card
validation, remote meter reading for utilities and vending machine inventory
monitoring.
Revenue/Pricing. The majority of United Wireless' revenues are derived from
monthly access fees charged on a per terminal basis. The average customer pays
a monthly rate of $25 per terminal.
Sales. United Wireless utilizes a network of systems integrators that act as
the primary interface with potential customers. These systems integrators
develop specific customer applications which utilize the Mobitex wireless
network for transmission of data. United Wireless works closely with these
systems integrators providing technical, marketing and other general sales
support.
Properties. United Wireless leases corporate office space in Sydney and has
a leased regional sales office in Melbourne.
Employees. As of December 31, 1995, United Wireless had ten employees.
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EMPLOYEES
The Issuer has no employees. Administrative and other services for the
Company are currently provided by UIH. UIH and the Company are parties to the
UIH Management Agreement pursuant to which UIH will provide all management and
administrative services necessary for the Company. UIH supplies certain
employees to CEtv, Saturn and Telefenua pursuant to the Technical Service
Agreements. See "Certain Relationships."
LEGAL PROCEEDINGS
The Company does not believe that, if resolved adversely to the Company, any
action to which it is a party or is otherwise described herein would have a
material adverse effect on its financial condition or results of operations
and, other than as described herein, the Company is not a party to any other
material legal proceedings, nor is it currently aware of any other threatened
material legal proceedings. From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal
course of its business.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The French Polynesian's challenge to France's
authority to award Telefenua an MMDS license in Tahiti was upheld by the
Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. A law recently enacted by the French
Parliament gives Telefenua a statutory basis for seeking a new authorization
from the communications agency, should the existing authorization be
nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorization. There can be no
assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Risk Factors--Challenge to Telefenua
Authorization."
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REGULATION
AUSTRALIA
Australia is a Federal jurisdiction. The Federal Government of Australia has
exclusive jurisdiction with respect to certain matters enumerated in
Australia's constitution while the States and Territories of Australia have
residual power over all other matters. The provision of subscription
television services is regulated by the Federal government under various
Commonwealth statutes. In addition, State and Territory laws, including
environmental and consumer contract legislation may impact the construction
and maintenance of a transmission system for subscription television services,
and the content of those services, as well as on various aspects of the
subscription television business itself.
The Australian regulatory framework distinguishes between the regulation of
the subscription television services themselves and the regulation of the
facilities used to transmit those services. The Broadcasting Services Act
("BSA"), which is a Federal statute, regulates the provision of subscription
broadcasting and subscription narrowcasting services in Australia, and certain
aspects of the content and satellite transmission of those services. However,
the transmission facilities used to provide these services are principally
regulated by the Radiocommunications Act and the Telecommunications Act.
BROADCASTING SERVICES ACT
Overview. The BSA regulates the ownership and operation of television and
radio services in Australia. It applies to all categories of television and
radio services, whether those services are broadcasting or narrowcasting;
television or radio; national, community, commercial or subscription;
transmitted via cable (fiber-optic or coaxial), DTH, MMDS or any other means
or a combination of those means of transmission. Generally, only the BSA
provisions governing subscription television broadcasting services are
relevant to CEtv.
Subscription Television Broadcasting Services. The BSA regulates
subscription television broadcasting services by requiring each service to
have an individual license. Non-satellite broadcasting licenses are issued by
the Australian Broadcasting Authority ("ABA") on receipt of a written
application and fee and a satisfactory report from the Australian Competition
and Consumer Commission ("ACCC") that the grant of the license would not
substantially lessen competition. In addition, the ABA must also determine
whether the applicant is suitable to hold a subscription television
broadcasting license under the BSA pursuant to certain enumerated factors.
CEtv is not aware of any existing circumstances that would affect its
suitability to be a licensee.
Companies associated with STV and CTV hold approximately 100 non-satellite
subscription television broadcasting licenses. These licenses, together with
CEtv's MMDS licenses, enable CEtv to provide subscription television
broadcasting services by MMDS in its franchise areas.
Each broadcasting license is issued subject to certain conditions,
including: (i) advertisements are prohibited until July 1997; (ii) cigarette
or other tobacco product advertising is prohibited; (iii) subscription fees
must be the predominant source of revenue for the service, even after
advertisements are permitted; (iv) the licensee must remain a "suitable"
licensee under the BSA; (v) if the licensee provides a service devoted
predominantly to drama programs, the licensee must ensure that at least 10% of
its annual programming expenditure relates to new Australian drama programs;
(vi) customers must have the option to rent domestic reception equipment; and
(vii) the licensee must comply with provisions of the BSA relating to anti-
siphoning and the broadcasting of R-rated materials. The ABA may vary or
revoke license conditions or may, by written notice, specify additional
conditions.
The BSA also provides for the issue of three satellite licenses for DTH
service and prohibits the ABA from issuing before July 1997 any other license
for delivery of DTH service. While CEtv has been granted a license and
franchise by Australis to market DTH services for two satellite license
holders and XYZ supplies programming to one satellite license holder, the DTH
services are provided by those satellite license holders and the conditions of
the satellite licenses do not directly apply to either CEtv or XYZ. However,
material non-compliance by a satellite license holder with conditions of its
license could have a material adverse effect on CEtv or XYZ. See "Risk
Factors--Reliance on Australis and Other Principal Suppliers."
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Foreign Ownership. Foreign ownership of "company interests" of subscription
television broadcasting licensees is limited to 20% by a single foreign person
and an aggregate of 35% by all foreign persons. "Company interests" under the
BSA include a beneficial entitlement to, or an interest in, shares of the
company, i.e., exercising control of votes at a shareholders meeting, having a
beneficial entitlement to a dividend, a share of profits under the company's
memorandum and articles of association or shareholder distributions upon
liquidation or otherwise. "Foreign persons" under the BSA include corporations
in which non-Australian citizens hold, directly or indirectly, a majority of
the company interests. Company interests can be traced through a series of
companies in order to determine levels of foreign ownership in accordance with
a formula specified in the BSA. Currently, the Issuer's indirect interests in
the companies that hold the licenses are in the form of debentures and not
company interests under the BSA. See "--Foreign Acquisition and Takeovers Act"
and "Corporate Organizational Structure--CEtv."
Broadcasting Adult Materials. A subscription television broadcasting
licensee may not broadcast R-rated material ("restricted to persons over
eighteen years of age" as determined by the Office of Film Literature
Classification) programming until the ABA has completed an extensive survey on
community standards on taste and decency in relation to classifications for
subscription television and on what levels of violence and depiction of sex
should be allowed, and has recommended, and the Federal Parliament has
approved, the broadcast of programs in the category.
While the ABA has completed its survey and has recommended that R-rated
programming should be available to subscription broadcasting television
subscribers, subject to certain controls, Parliament has not approved the
recommendation. A Senate (upper house) committee issued a unanimous report in
February 1995 recommending an extension of the existing moratorium banning R-
rated movies from subscription television. The Senate committee also
recommended that the Australian Government revise the R-rating system (which
is somewhat different than the R-rating system in the United States), creating
one version for movies and another, censored version for video and
subscription television. The Minister has yet to submit a proposal regarding
the transmission of R-rated programming to Parliament.
The Company is unable to predict the Minister's recommendations or their
likely effect on CEtv or XYZ. A change from the current prohibition on R-rated
material may enable subscription television service providers, such as CEtv,
or programmers, such as XYZ, to provide or produce a broader range of services
than is currently permitted. If Parliament approves the broadcast of R-rated
programs, the BSA also imposes a condition that the licensee must ensure that
access to programs classified as R-rated may be restricted by disabling
devices acceptable to the ABA.
Anti-Siphoning. The BSA prohibits subscription television broadcasting
licensees from obtaining exclusive rights to events of national importance or
cultural significance that have traditionally been shown on free-to-air
television. The prohibition applies to any event that the Minister has
specified on the "anti-siphoning list" unless a national broadcaster or
commercial television broadcasting licensee (whose services cover more than
50% of the Australian population) has the right to broadcast that event. To
date, the anti-siphoning list contains only sports of interest to Australians
including certain Rugby League, Rugby Union and Australian Rules football
matches, cricket matches, the English FA cup final and World Cup soccer
matches, the Australian National Basketball League finals, certain national
and international golfing events and tennis matches, all for a period of ten
years. The Minister may add or remove events from the anti-siphoning list.
Australian Content. The BSA requires any subscription television
broadcasting service predominantly devoted to drama programs to devote at
least 10% of its annual program expenditures to new Australian drama programs.
Based on its discussions with government regulators, CEtv believes the
programming it distributes currently complies with these provisions. The BSA
requires the Minister to conduct a review of Australian content before July
1997, including the feasibility of increasing this percentage to 20%. The new
government has indicated that this review should consider whether Australian
content requirements should be extended to non-drama services.
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LICENSES
Radiocommunications Act. The Radiocommunications Act regulates the use of
the radio spectrum in Australia, including the issue and use of MMDS apparatus
licenses and the grant of spectrum licenses. Apparatus licenses authorize the
licensee (and certain persons authorized by the licensee) to operate specified
radiocommunications devices. The apparatus licenses issued to CEtv authorize
the operation of radiocommunications transmitters at each of CEtv's MMDS
systems and permit the transmission of signals over specified frequencies to
CEtv's subscribers. As of the date hereof, the government has not issued any
spectrum access licenses.
General conditions apply to each MMDS license, including conditions that
apparatus licensees and operators of devices comply with the
Radiocommunications Act and its conditions, and meet all obligations under
that Act. MMDS licenses of the type held by CEtv are further restricted by
conditions including operating on specified frequencies and operating
consistently with the frequency band plan, without the likelihood of
interference. The Spectrum Management Agency ("SMA"), the government agency
established under the Radiocommunications Act to manage the radio frequency
spectrum, may at any time impose new conditions or revoke or vary them with
respect to individual licenses. See "Risk Factors--Government Regulations;
License Renewal."
Each apparatus licensee may, within six months before an apparatus license
is due to expire, apply to the SMA for renewal. Licenses bear the following
notation with respect to renewal:
Issue of the Licenses for a further period is not and cannot be
automatic due to changing community demands on the radio frequency
spectrum. Every reasonable effort will be made to give adequate notice
of any intention not to renew the Licenses or any changes to any
conditions placed on the Licenses. The Minister, the Spectrum
Management Agency, the Commonwealth of Australia or its officers,
servants or agents accept no liability for costs due to refusal to
renew the license or changes to any of the conditions placed on the
license.
If the SMA decides to refuse to renew a license, it must notify the licensee
in writing of its reasons for doing so. That decision is then reviewable by an
administrative appeals body. In deciding whether or not to renew an apparatus
license, the SMA must consider the effect on radiocommunications of the
proposed operation of the radiocommunications devices that would be authorized
under the relevant apparatus license. The SMA may not issue an apparatus
license that is inconsistent with the spectrum plan or any relevant frequency
bank plan. On renewal, an apparatus license will remain in force, unless
canceled or suspended on an earlier date, for the period specified in the
apparatus license, which may be a period of up to five years.
The Radiocommunications Act provides that the SMA may cancel or suspend an
apparatus license if it is satisfied that the licensee or a person authorized
by the licensee to operate a radiocommunications device has violated the terms
of the license or the Radiocommunications Act or any other law. The
Radiocommunications Act does not prohibit the sale of shares in a company that
holds an apparatus license.
The Radiocommunications Act provides for the preparation of plans for the
conversion of existing apparatus licenses into spectrum apparatus licenses.
The SMA is required to prepare conversion plans at the direction of the
Minister, but, as at the date hereof, no conversion plans have yet been
announced. When conversion occurs, spectrum access charges may be payable to
the SMA. In determining the spectrum access charges payable on conversion,
consideration may be given to the basis on which a particular license was
issued, for example, whether it was issued pursuant to a price-based process
(like an auction) or by administrative allocation. The SMA has not made any
declarations or issued any guides setting out the basis for calculation of
spectrum access charges for licenses.
The principal differences between apparatus licenses and spectrum licenses
relate to subject matter, term and renewal/reallocation. Both apparatus and
spectrum licenses are transferable subject to the terms of the
Radiocommunications Act and as may be determined by the SMA. Apparatus
licenses authorize the licensee to
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operate specified radiocommunications devices such as MMDS transmitters and
repeaters. Spectrum licenses are expected to emphasize the ability of a
licensee to use a part of the radiowave spectrum (defined by frequency and
geographic location) rather than operate a specifically identified
radiocommunications device. MMDS spectrum licenses may have a term of up to
ten years, but will not necessarily be reissued to the same licensees.
Instead, MMDS spectrum licenses will be reallocated under a price based tender
process at the end of their term unless the SMA is satisfied that special
circumstances exist as a result of which it is in the public interest for the
same licensees to continue to hold the spectrum licenses or the Minister
determines that it is in the public interest that the MMDS spectrum licenses
be reissued to the same licensees. See "Risk Factors--Government Regulations;
License Renewal."
TELECOMMUNICATIONS ACT
The Telecommunications Act regulates the use of telecommunications
facilities to supply telecommunications services. Telstra and Optus have the
right to install and maintain facilities (for example, wireline cable) and,
therefore, are expected to be the primary providers of cable and satellite-
based facilities and carriage services on these facilities. Non-carriers, such
as CTV and STV, can use carriage services provided by such carriers to provide
telecommunications services to others and can also install and maintain
facilities for the provision of subscription television broadcasting services.
However, non-carriers must comply with the Eligible Service Providers Class
License under the Telecommunications Act, including technical and operational
standards, provision of eligible services, prevention of the supply of
eligible services for illegal purposes and use of telecommunications networks
for unlawful purposes.
The Telecommunications Act permits a provider of subscription television
services, such as CEtv, to install and maintain a wireline cable network for
the purposes of providing multi-channel television services. Other services,
such as telephony, cannot currently be provided over the wireline network, but
this is expected to be allowed after July 1997.
Foxtel and Optus Vision, general carriers, have constructed wireline cable
networks. Under a direction issued by the Minister, Foxtel, Optus Vision and
their associates would be obliged to comply with interconnection and non-
discriminatory access principles similar to those applicable to common
carriers in Australia. However, such direction provides for a limited
exemption from this access regime in relation to connection of subscription
television broadcasting services to their respective networks until July 1997.
The Minister under the Labor Government (in power from 1983 until March 1996)
has stated that this exemption may continue until 1999 if there is
"appropriate competition" in the delivery of subscription television
broadcasting services using cable transmission. However, the new Government's
policy principles issued in January 1996 indicate that they will not grant
this extension.
FOREIGN ACQUISITIONS AND TAKEOVERS ACT
Generally, the FATA prohibits any non-Australian person from entering into
an agreement to acquire a substantial shareholding in an Australian
corporation with assets beyond an A$5 million threshold unless that person has
notified the Treasurer of his intention to enter into that agreement and
either: (a) the Treasurer has advised that the Commonwealth Government has no
objection to the transaction, or (b) at the end of 40 days after the person
gave the notice, the Treasurer has made no order prohibiting the transaction
and the person has received no advice referred to in clause (a) above.
A "foreign person" for purposes of the FATA is generally defined as a person
not ordinarily resident in Australia or any corporation in which a natural
person not ordinarily resident in Australia or a foreign corporation (being a
corporation organized outside Australia) holds a substantial interest or in
which two or more such persons or foreign corporations hold an aggregate
substantial interest. A "substantial interest" for purposes of the FATA is
defined as 15% or more of the voting power or shares of a corporation. An
"aggregate substantial interest" is defined as a total of at least 40% of the
voting power or shares of a corporation held by two or more persons. The
interests of associates are included in determining whether a foreign person
has a substantial interest
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or two or more persons have an aggregate substantial interest. An interest in
a share includes a legal or equitable interest in the share, having entered
into a contract to purchase the share or an option over the share, or an
interest in the share, or having the right to vote the share. Voting power is
determined by reference to the right to vote at an annual general or
extraordinary general meeting of the corporation and not by reference to the
right to appoint or elect directors. The right of a company to nominate and
vote for the election of directors is not voting power expressly limited by
the FATA. See "Corporate Organizational Structure--Australia--CEtv."
The FATA also regulates certain other transactions, such as altering a
constituent document of an Australian corporation or entering into an
arrangement in relation to an Australian business. However, the FATA does not
require compulsory notification of those transactions. If the Treasurer is
satisfied that (a) a transaction falls within the description regulated by the
FATA, (b) the result of the transaction is that one or more foreign persons or
different foreign persons would control the Australian corporation, and (c)
that the result would be contrary to the national interests, then the
Treasurer may make any order to restore the control of the corporation as
closely as possible to the position in which it was immediately prior to
giving effect to the relevant transaction.
While notification of those other transactions is not required, there is a
procedure for voluntarily notifying the Treasurer of those transactions. If
the Treasurer advises that the Commonwealth Government has no objection to the
transaction or does not prohibit the transaction or respond to the
notification within a period of 30 days, then the Treasurer may not make any
orders in relation to that transaction. The Treasurer may extend the 30-day
period by a further 90 days.
The FATA also provides for the "tracing" of interests of a foreign person
through intermediary companies. The FATA tracing formula is not the same as
the formula applied under the BSA. Under the FATA, a holder of a substantial
interest or holders of aggregate substantial interests in a corporation that
is in a position to control any voting power in another corporation or which
holds interest in shares in another corporation is taken to be in a position
to control that voting power in the other corporation or to hold such interest
in the other corporation, as the case may be.
The CEtv Transaction and certain recent amendments to the articles of
association and securityholder agreements of CEtv affected the number of CEtv
directors designated by the Company and the manner in which those directors
are elected. While those matters did not require any advance notification or
approval under Australian law, they could in the future be reviewed by the
Treasurer of Australia under provisions of the FATA. If so reviewed and
determined by the Treasurer to have resulted in a change of control of an
Australian person to a foreign person that is against the national interest of
the Commonwealth of Australia, there would be no violation of law but the
Treasurer could require control of CEtv to be restored to its previous
position. Prior to any change, the Issuer was entitled to appoint directly
three of six directors of CEtv. While the Company believes that it is unlikely
that the Treasurer would reach such a conclusion if it decided to review the
CEtv Transaction, there can be no such assurances. If the Treasurer were to
require control of CEtv to be restored to the maximum extent permitted by the
FATA, the Issuer could appoint only one-half of the directors of CEtv and it
might no longer affirmatively control CEtv. While the Company believes a
determination under the FATA would not affect the Company's 94% economic
interest in CEtv, there can be no assurances that such would be the case. If
the Treasurer were to review matters, the Issuer would seek to minimize the
effect of any required change on its relationship with CEtv through a
restructuring of its ownership interest or arrangements providing for the
designation of independent persons as the directors it does not designate. See
"Risk Factors--Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations" and "Corporate Ownership Structure--CEtv."
TRADE PRACTICES ACT
The Trade Practices Act ("TPA") governs restrictive trade practices and
consumer protection. This may impact on the conduct of a company in developing
a multi-channel television business and the associated transmission
facilities. The restrictive trade practices provisions prohibit, among other
things, agreements that substantially lessen competition, price fixing
agreements, exclusive dealing, price discrimination, resale price maintenance,
third line forcing, and abuse of market power by corporations having a
substantial degree of power in a market. The restrictive trade practices
provisions also prohibit acquisitions of the shares or assets of a corporation
which would substantially lessen competition in a market.
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The ACCC may authorize otherwise prohibited conduct, other than price fixing
agreements (except in special circumstances, price discrimination, and misuse
of market power) if it results in, or is likely to result in, a net benefit to
the public.
As part of changes to the Telecommunications Act and associated regulations
scheduled to take effect in July 1997, changes to the TPA are also
contemplated with respect to providing a framework requiring access to be
available to all network and systems. The newly elected government has
indicated this open access should apply to both wireline cable and wireless
systems. While the detail of the anticipated changes is not known at present,
required access could be relevant to CEtv.
Local Regulation. When CEtv constructs facilities, such as transmitter
towers, it must also comply with local government regulations, such as
planning and zoning requirements, as well as federal environmental laws.
CEtv works with the local government primarily on issues concerning
construction standards. CEtv has established construction standards that CEtv
believes meet or exceed the local regulations.
NEW ZEALAND
The Company believes that the deregulated nature of the New Zealand market
is favorable to providers of multi-channel television and telephony services.
The New Zealand government does not regulate the rates of multi-channel
television or telephony services. There are no programming regulations in New
Zealand other than those regulating programming with sexual or violent
content, or which is likely to offend good taste and decency, the maintenance
of law and order or the privacy of individuals. Unlike the other countries in
which the Company operates, there are at present no quotas on foreign
originated programming.
New Zealand's Telecommunications Act is primarily concerned with technical
and operational issues such as the licensing of certain forms of radio
equipment, and the right in certain circumstances to construct and maintain
telecommunications networks across public and privately owned land without the
owner's consent. These rights to construct and maintain telecommunications
networks are exercisable by "network operators," although they are very
infrequently used, with most lines being built with the consent of the
relevant landowner or local government body. Saturn holds network operator
status, which is granted on a nationwide non-exclusive basis. Construction and
operation of a telecommunications network on privately-owned land with the
consent of the relevant land owner may be done by any person and there is no
legal requirement to hold network operator status.
The New Zealand government does not specifically regulate pricing of multi-
channel television or telecommunications services. However, pricing may be
subject to New Zealand's competition legislation, the Commerce Act 1986, which
prohibits businesses in a dominant position (i.e., possessing a high degree of
monopoly power) in any market from using that position for an anti-competitive
purpose. The Commerce Act also prohibits arrangements or understandings which
have the purpose or effect of substantially reducing competition. In addition,
pursuant to the Commerce Act, the government can impose price controls on any
goods or services, although this power has been used only once and is not
currently in use.
New Zealand has no restrictions on foreign ownership of companies that
provide multi-channel television and telephony services other than a
requirement in certain circumstances for the consent of the Overseas
Investment Commission, which is typically given as a matter of course.
TAHITI
Telefenua's right to operate a multi-channel television service was granted
by the CSA in 1994 for a term expiring on December 31, 2004. The CSA
authorizations were based on the Decree of the French government and decisions
of the Commission Mixte Des Frequences, which controls all radio frequencies
for France and grants ranges to various public and private enterprises.
Telefenua is the first multi-channel operator to be granted approval to
operate a wireless network by the CMDF. Telefenua was granted the right to use
all necessary MMDS microwave frequencies, 2.5 GHz to 2.7 GHz, through the year
2004. The Company expects that the term for the MMDS frequency will be renewed
when the frequency distribution is revised on January 1, 2005, in
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accordance with the 1992 World Administrative Radio Communications Conference.
No fees are payable for use of such frequencies.
Telefenua has local franchise agreements with 16 municipalities (of which 14
are exclusive) on the islands of Tahiti and Moorea. The franchise agreements
provide the Company with 30-year rights to operate MMDS multi-channel
television networks. The franchise agreements require Telefenua to carry
certain services, including local broadcast channels, and to provide local
programming. No fees are payable by Telefenua under these franchise
agreements.
There are currently no government regulations on subscription rates or rate
increases.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The French Polynesian's challenge to France's
authority to award Telefenua an MMDS license in Tahiti was upheld by the
Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. A law recently enacted by the French
Parliament gives Telefenua a statutory basis for seeking a new authorization
from the communications agency, should the existing authorization be
nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorizations. There can be
no assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Risk Factors--Challenge to Telefenua
Authorization."
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CORPORATE ORGANIZATIONAL STRUCTURE
GENERAL
The Company was formed in October 1994 as a wholly-owned subsidiary of UIH
and was recently reorganized to hold UIH's interests in multi-channel
television systems in Australia, New Zealand and Tahiti and UIH's interests in
XYZ and United Wireless. The following chart summarizes the organizational
structure of the Issuer and Operating Companies as well as certain of the
Issuer's parent corporations. Some of the Company's interests in such
Operating Companies are held through various partnerships and holding
companies and the Company's voting rights and rights to participate in
earnings of such entities may differ from the economic interest indicated in
the chart.
-------------------------------------
United International Holdings, Inc.
(Delaware corporation)
-------------------------------------
100%
-------------------------------------
United Australasian
Communications, Inc.
(Delaware corporation)
-------------------------------------
97.4%
=====================================
UIH AUSTRALIA/PACIFIC, INC.
(COLORADO CORPORATION)
"THE ISSUER"
=====================================
88.8% (1) 93.3% (1) 100.0% (2) 90.0% (3) 50.0% (2) 100.0%(2)
--------------------------
Salstel Media
Investments
Pty Limited
--------------------------
5.3% (1)
--------------------------
STV Pty Limited
(Australian corporation)
--------------------------
--------------------------
Salstel Media
Holdings
Pty Limited
--------------------------
1.0% (1)
--------------------------
CTV Pty Limited
(Australian corporation)
--------------------------
- - - - - - - - - - - - -
CEtv
--------------------------
Saturn Communications
Limited
(New Zealand corporation)
--------------------------
--------------------------
UIH-SFCC, L.P.
(Colorado limited
partnership)
--------------------------
--------------------------
Societe Francaise des
Communications et du
Cable S.A.
(French corporation)
--------------------------
--------------------------
Telefenua S.A.
(French Polynesian
corporation)
--------------------------
--------------------------
Century United Programming
Ventures Pty Limited
(Australian corporation)
--------------------------
50.0%
--------------------------
XYZ Entertainment
Pty Limited
(Australian corporation)
--------------------------
--------------------------
United Wireless
Pty Limited
(Australian corporation)
--------------------------
---------------------
(1) The Company holds, directly and indirectly, a combined approximate 94%
economic interest in each of STV and CTV. The Company holds ordinary
shares and convertible debentures of STV and CTV which account for
approximately 1.1% and 87.7%, respectively, of the total economic
interests of STV and account for approximately 0.2% and 93.1%,
respectively, of the total economic interests of CTV. In addition, the
Company holds debentures of two companies that in turn hold ordinary
shares of CTV and STV. Through such debentures the Company has an indirect
additional 5.3% and 1.0%, respectively, economic interest in STV and CTV.
The Company has the right to designate all directors of these companies.
The Company's approximate 6% partner in CTV and STV is Australis. The
Company and Australis have agreed, subject to certain conditions, for the
Company to purchase Australis' interests in CTV and STV for approximately
$8.0 million.
(2) The Company's interests in Saturn, Century United Programming Ventures Pty
Limited ("CUPV") and United Wireless are or will be held by wholly owned
subsidiaries of the Issuer that are each an Unrestricted Subsidiary under
the Indenture and, as such, will not be subject to many covenants under
the Indenture. See "Risk Factors--Holding Company Structure; Limited on
Access to Cash Flow" and "Description of the Notes."
(3) The Company's net economic interest in Telefenua is held through several
intermediate partnerships and holding companies. Generally, the Company
is entitled to receive 90%, and then 75%, of all economic distributions
from the parent company of Telefenua until such time as it has received a
20% and 40% rate of return on its invested capital, respectively.
Thereafter, the Company is entitled to receive 64% of all economic
distributions. The Company controls 40% of the voting power of the parent
company of Telefenua and has the right to appoint three of its six
directors.
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CETV
The Issuer currently holds a combined 94% economic interest in CTV and STV,
which operate together under the name CEtv, through direct and indirect
holdings of convertible debentures and ordinary shares. The Issuer, holds
approximately 15.0% of the ordinary shares of CTV and STV, which accounts for
an approximately 0.5% economic interest in CEtv. The Issuer holds
approximately 94.4% of CTV's and STV's convertible debentures, which accounts
for an approximately 91.0% economic interest in CEtv. In addition, through the
Issuer's holdings of certain debentures of Salstel Media Holdings Pty Limited
("SMH") and Salstel Media Investments Pty Limited ("SMI"), which in turn hold
ordinary shares of CTV and STV, the Issuer has an additional effective 2.6%
economic interest in CEtv. Australis, a publicly held Australian corporation,
owns the remaining 6% economic interest in CTV and STV. In connection with the
Australis Settlement, Australis has agreed to sell and, subject to the
completion of the Australis Financing, the Company has agreed, subject to
certain conditions, to purchase Australis' 6% economic interest in CEtv for
approximately $8.0 million. Although the Company holds debentures and one
share in each of SMH and SMI, it does not control such entities or have
controlling rights as a shareholder of such entities. See "Risk Factors--
Holding Company Structure; Limitations on Access to Cash Flow."
These holdings resulted from three acquisitions and certain capital
contributions made by the Company. In July 1994, as part of the establishment
of CTV, the Company acquired an initial 40% economic interest in CTV, which
was later increased to 50%, and in October 1994, as part of the establishment
of STV, the Company acquired a 50% economic interest in STV. In the CEtv
Transaction in December 1995, the Company acquired an additional 40% economic
interest in CTV and STV from existing shareholders for approximately $15.3
million in cash and 170,513 shares of UIH's convertible preferred stock,
having a liquidation value upon issuance of approximately $29.8 million. As
part of the CEtv Transaction, SMH and SMI, which are Australian companies and
members of the Salisbury Securities Limited Group of companies, acquired 74%
and 75% of the ordinary shares of CTV and STV, respectively. In late May 1996,
the Company increased its economic interest in CEtv to 94% as a result of
capital contributions, including the conversion of bridge loans and accrued
interest, totalling $50.6 million made by the Company to CEtv as to which
Australis, the other principal holder of economic interests in CEtv, did not
contribute its pro rata share.
The Company, CTV, STV, SMI, SMH and Australis are parties to securityholders
agreements, (collectively, the "CTV/STV Securityholders' Agreements") that
contain provisions relating to governance of the companies, transfers by the
securityholders of their respective interests in the companies (including a
change in control), raising additional capital and funding for the companies
and other matters concerning ownership and operation of the companies. Certain
of these provisions are also contained in the Articles of Association of each
of CTV and STV (collectively, the "CTV/STV Articles of Association"). In
connection with the CEtv Transaction, the Company and SMH, with respect to
CTV, and the Company and SMI, with respect to STV, executed agreements (the
"SMH/SMI Agreements") relating to the appointment of directors. SMH and SMI
also executed deeds under Australian law in which they agreed to be bound by
the terms of the CTV/STV Securityholders' Agreements.
Under the CTV/STV Articles of Association and the CTV/STV Securityholders'
Agreements, each of the boards of directors of CTV and STV consist of six
voting directors and one non-voting managing director, and each holder of an
ordinary share or debenture of CTV and STV is entitled to cast one vote for
the election of directors of CTV or STV, respectively, for each share or
debenture held. Each such holder is required to vote its shares and debentures
for those voting directors nominated by the other holders, with each holder of
15% or more of the shares and debentures having the right to nominate one
voting director for each 15% of the shares and debentures held and each holder
of 10% or more but fewer than 15% of the shares and debentures having the
right to nominate one voting director. For the purposes of determining such
rights, the Company and any person nominated by the Company to hold economic
interests in CTV and STV are considered one holder and their economic
interests are aggregated. Thus, the Company and SMH, with respect to CTV, and
the Company and SMI, with respect to STV, are effectively treated as one
holder for the purposes of determining the right to nominate voting directors.
Based on the current economic interests, the Company and SMH together have the
right to nominate all of CTV's six voting directors for election by CTV's
securityholders, the Company and SMI together have the right to nominate all
of STV's six voting directors for election by STV's securityholders.
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While adoption of the securityholders voting and director selection
arrangements for CTV and STV did not require compulsory notification to the
Treasurer under the FATA, they may be determined by the Treasurer to result in
a change of control of CTV and STV that has resulted in a foreign person being
in control who had not previously been in control. If the Treasurer makes such
a determination and concludes that the change of control is against the
national interest, then the Treasurer may require the parties to the CEtv
Transaction to restore the control of CTV and STV to the position it was in
before the CEtv Transaction. Before the CEtv Transaction, directors were not
elected but were appointed directly by securityholders, and the Company had
the right to appoint half of the directors of CTV and STV and the other
securityholders had the right to appoint the other half of the directors of
CTV and STV. While the Company believes an adverse review and determination by
the Treasurer to be unlikely, there can be no assurance that the Treasurer, if
he reviews the transaction, would give effect to the contractual provisions of
the SMH/SMI Agreements. See "Risk Factors--Foreign Acquisitions and Takeovers
Act/Investment Company Act Considerations."
Under the SMH/SMI Agreements, the Company has the right to nominate all
voting directors that the Company and SMH, with respect to CTV's board, and
the Company and SMI, with respect to STV's board, have the right to nominate.
Thus, the Company is currently entitled to designate all of the six voting
directors of each company. The Company and SMH and SMI have agreed that if the
Treasurer issues an order restoring control or indicates the intention to do
so, the Company will have the right to designate three directors of the
relevant company and SMH and SMI will have the right to designate the
remaining directors that the parties are entitled to designate pursuant to the
CTV/STV Articles of Association and CTV/STV Securityholders' Agreements. They
have also agreed that if that arrangement is considered in breach of any law
or prompts such government action, then the Company will have the right to
designate the maximum number of voting directors permitted by law and the
Company and SMH, in the case of CTV, and the Company and SMI, in the case of
STV, will designate as independent directors the remaining number of voting
directors that the parties are entitled to designate pursuant to the CTV/STV
Articles of Association and CTV/STV Securityholders' Agreements. An
independent director is a person agreed on by the Company and SMH or SMI, as
the case may be, but not associated with either the Company or SMH or SMI.
Either the Company or SMH or SMI, as the case may be, will have the right to
remove an independent director.
The CTV/STV Securityholders' Agreements provide that while the day-to-day
running of CTV and STV is handled by the management, certain decisions must be
made by the board. These decisions include, among other things, the following
actions with respect to either company: the adoption or modification of a
business plan; entering into or modifying any material agreement; making
acquisitions, dispositions or capital expenditures exceeding A$50,000; the
negotiation of certain finance facilities and borrowings; the issuance of
additional securities; entering a new line of business or changing a current
line of business; any consolidation or restructuring; the listing of shares on
a securities exchange; changing the management structure of the company;
appointing and compensating the Managing Director; the declaration and payment
of dividends; making loans of the company's funds; and dealing with any
license. CTV and STV's Articles of Association cannot be amended without the
consent of the parties to the CTV/STV Securityholders' Agreements, other than
CTV or STV.
While under Australian corporate law shareholders have relatively little
power with regard to the management of a company (management resting with the
directors), a shareholder vote is required for certain specified actions, such
as reductions in capital, amendments to articles of association, the
restructuring or takeover of a company and share repurchases. The Company
holds 15.0% of the ordinary shares of CTV and STV that may be voted on these
matters at an ordinary meeting of shareholders.
The CTV/STV Securityholders' Agreements provide that a securityholder may
not transfer its securities in CTV or STV, except to or between certain
affiliates or as security to a bank or in other specified situations, until
the securityholder has first offered the securities to the other
securityholders. If the other securityholders do not purchase the offered
securities, then the selling securityholder may, in the six months after
offering the securities to the other securityholders, transfer all or part the
securities to a third party at a price no lower than the price offered to the
other securityholders, subject to approval by the board of directors of CTV or
STV. Such approval is to be granted if the securityholder has followed the
requisite procedures.
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In the event of a "change of control" of a securityholder, the party
experiencing the change of control must offer its securities in CTV or STV to
the other securityholders at the average fair market value of the securities
based on the valuations of two qualified independent persons. A change of
control is deemed to occur when (i) the power to control the composition of
the board or the management of the securityholder passes to a person who did
not possess such power at the date of the CTV/STV Securityholders' Agreements,
(ii) the ability to procure or prevent passing an ordinary resolution at the
general meeting of the securityholder passes to a person who did not possess
that ability at the date of the CTV/STV Securityholders' Agreements, or (iii)
a person becomes beneficially entitled to more than 50% of the ordinary shares
or voting rights of a securityholder or any holding company of a
securityholder and the person was not at the date of the CTV/STV
Securityholders' Agreements beneficially entitled to more than 50% of those
share or voting rights. These "change of control" provisions do not apply to
changes in control of Australis or UIH.
If securities of CTV or STV are not listed on the Australian Stock Exchange,
Nasdaq or other agreed upon exchange by October 1999, then a securityholder
may offer to sell its securities in CTV or STV to the other securityholders at
an appraised fair market value determined in accordance with the CTV/STV
Securityholders' Agreements. If the other securityholders do not purchase all
the shares held by the selling securityholder, then the selling securityholder
may require CTV or STV, as the case may be, be sold to a third party at or
above such fair market value, subject to applicable regulatory requirements
and Australian law.
The CTV/STV Securityholders' Agreements provide that to the extent CTV or
STV cannot finance its requirements from external sources and the Board makes
a capital call, each securityholder may subscribe for further securities in
accordance with that capital call and in proportion to its economic interest.
If a securityholder fails to subscribe for such further securities then such
securityholder's economic interest will be diluted pro rata to the extent it
does not participate in an additional issue.
The Company and the other securityholders party to the CTV/STV
Securityholders' Agreements and their affiliates may not directly or
indirectly carry on or otherwise have an interest in any business similar to
or competitive with the DTH, MMDS and cable television services provided by
CTV and STV in their respective regions unless CTV or STV, as applicable, has
first been offered and has declined the opportunity to be involved in that
business.
XYZ
The Company has an indirect 25% interest in XYZ through its 50% interest in
CUPV, an Australian corporation owned equally by the Company and Century. CUPV
holds a 50% interest in XYZ. The remaining 50% interest in XYZ is held by
Foxtel.
In October 1994, UIH and Century formed XYZ and each acquired an initial 50%
interest. In September 1995, Foxtel purchased a 50% interest in XYZ and the
Company and Century transferred the remaining 50% interest to CUPV. The sale
diluted UIH's indirect interest in XYZ to 25%. UIH received sale proceeds of
approximately $4.1 million from Foxtel for one-half of its initial interest in
XYZ.
Pursuant to a shareholders agreement executed in September 1995 (the "XYZ
Shareholders' Agreement"), each shareholder holding an economic interest of at
least 40% in XYZ may appoint two of the four directors to each of the boards
of directors of XYZ and the companies in which XYZ holds interests. As long as
CUPV and Foxtel hold an economic interest of at least 40% in XYZ, each of them
is entitled to one vote at meetings of each of the XYZ boards and any board
decisions must include an affirmative vote by each of them. A quorum consists
of two directors, of which one must be a representative of CUPV and one must
be a representative of Foxtel, provided that neither CUPV nor Foxtel's
interest is less than 40%. If either CUPV or Foxtel's economic interest is
less than 40%, that party will not be entitled to any representation on any of
the XYZ boards and the other party must appoint further representatives. All
board decisions require unanimous consent. Board approval is required for
actions relating to, among other things: amendments or variations to the
business plan and certain agreements (including the XYZ Shareholders'
Agreement) and articles of any company in which XYZ holds an interest;
admitting new shareholders
72
<PAGE>
or issuing or redeeming any shares of CUPV or Foxtel in XYZ; or requiring
additional capital or other contributions, incurring indebtedness or
expenditures, issuing securities, or approving distributions of property, not
approved in the business plan. Funding required by XYZ must be contributed by
each shareholder in proportion to its economic interest or as otherwise
provided by the XYZ Shareholders' Agreement and if a shareholder fails to do
so within the requisite time period after a call is made, its economic
interest will be diluted accordingly.
The XYZ Shareholders' Agreement provides that a shareholder may not transfer
its interest in XYZ, except in limited circumstances, until the shareholder
has first offered such interest to the other shareholders at fair market value
as determined in accordance with the XYZ Shareholders' Agreement. If the other
shareholders do not purchase the offered securities, then during the six-month
period following such offer, the selling shareholder may transfer all or part
of its XYZ interest to any third party at a price no lower than the price
offered to the other shareholders, subject to such third party's agreeing to
the same transfer restrictions and the terms of the XYZ Shareholders'
Agreement. Century and the Company have granted each other a right of first
refusal to acquire the other's interest in CUPV. If neither the Company nor
Century purchases the other's interest in CUPV, then Foxtel has a right of
first refusal to purchase that interest in CUPV before it may be offered to a
third party.
SATURN
The Company acquired in 1994 a 50% interest in Saturn, a New Zealand
corporation, which recently changed its name from Kiwi Cable Company Ltd. In
July 1996, the Company acquired the remaining 50% interest in Saturn from Todd
International Limited ("Todd"), a company that also owns and operates cable
television systems in the Caribbean. The Company acquired Todd's 50% interest
in Saturn in exchange for a 2.6% common equity interest in the Issuer, which,
if the Issuer's parent has an initial public offering, may be exchanged for an
amount of stock of its parent corporation with an equivalent value.
TELEFENUA
UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership wholly-owned by
the Company, is the general partner of a limited partnership (the
"Partnership") that owns 100% of the preferred stock of Societe Francaise des
Communications et du Cable S.A. ("SFCC"), representing approximately 40% of
the share capital of SFCC. SFCC is the parent company of Telefenua, which owns
and operates the multi-channel television system in Tahiti. As holder of 100%
of the preferred stock of SFCC, the Partnership is entitled to certain
preferential distributions by SFCC. Through its general partner's interest in
the Partnership, UIH-SFCC will receive 90% of distributions made by SFCC until
UIH-SFCC has received a return of its investment plus a 20% cumulative
compounded annual return, 75% of distributions until it has received the
return of its investment plus a 40% cumulative compound annual return and 64%
of distributions thereafter. Once UIH-SFCC's total equity investment exceeds
$10 million, further equity investments would not be entitled to the 90% and
75% distributions. Instead, equity investments above $10 million, to the
extent not matched pro rata by the Company's partners, would increase the 64%
that UIH receives after the preferential distributions are made on the first
$10 million. As of May 31, 1996, UIH-SFCC has also advanced $5.1 million as a
bridge loan to SFCC, approximately $5.0 million of which was used to purchase
convertible debentures of SFCC, which are convertible into preferred stock of
SFCC. UIH-SFCC intends to convert approximately $3.1 million of such
debentures into preferred stock with the same terms as the existing preferred
stock of SFCC, to bring UIH-SFCC's total equity investment to $10.0 million.
UIH-SFCC has also invested $2.3 million in equipment, which has been leased to
Telefenua.
As holder of 100% of the preferred stock of SFCC, the Partnership is
entitled to designate three of the six members of SFCC's board of directors.
In addition, certain actions by SFCC require the approval of at least two
of the directors designated by the Partnership. These decisions include
expenditures exceeding 50,000 French francs, borrowing funds or making loans
or guarantees, transferring material assets, adopting or modifying or
deviating from an annual business plan, investing in any other business or
activity and certain other matters specified in the Articles of Association of
SFCC. As general partner of the Partnership, UIH-SFCC has broad powers to
manage the Partnership's affairs, subject to fiduciary duties.
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<PAGE>
The Articles of Association of SFCC provide that (a) the preferred shares of
SFCC are freely transferable and (b) sales of the common shares are subject to
a right of first refusal in favor of the other shareholders of the Company. In
the case of a sale of common shares, each other shareholder may require the
purchaser to purchase the other shareholders' shares on the same terms. As
general partner of the Partnership, UIH-SFCC may cause the Partnership to sell
the preferred shares of SFCC to third parties. However, if any such sale
occurs before June 1, 1999, then each limited partner will have the right to
receive a distribution of its pro rata portion of the preferred shares before
they are sold to the third party. Sales of interests in the Partnership are
subject to a right of first refusal in favor of the other partners. In the
case of a sale of a general partner's interest, the limited partners may
require the purchaser to purchase their interests on the same terms as the
purchase of the general partner's interests.
UNITED WIRELESS
United Wireless is a wholly owned subsidiary of the Issuer.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages and
positions with the Company are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gene W. Schneider................. 69 Chairman of the Board, Chief Executive
Officer and Director
Michael T. Fries.................. 33 President and Director
Bernard G. Dvorak................. 36 Chief Financial Officer and Director
Donald F. Hagans.................. 49 Vice-President--Australia
Euan F.D. Fannell................. 48 Vice President--South Pacific
Mark L. Schneider................. 41 Director
</TABLE>
GENE W. SCHNEIDER has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since its formation. He has served as
Chairman of the Board of Directors of UIH since May 1989 and UIH's Chief
Executive Officer since October 1995. Mr. Schneider was, until November 1991,
Chairman of United Artists Entertainment Company, the third-largest U.S. cable
television company and the largest theater owner in the world. He was founder
of United Cable Television Corporation ("United Cable") in early 1950s and, as
its Chairman and Chief Executive Officer, built United Cable into the eighth-
largest multiple system operator prior to merging with United Artists in 1989.
He has been active in cable television affairs and has served on numerous
National Cable Television Association committees and special projects since
NCTA's inception in the early 1950s. He also has served on the boards of
directors of several other companies, including Turner Broadcasting
Corporation.
MICHAEL T. FRIES has served as President of the Company since its formation
and is also a Director of the Company and President of UIH Asia/Pacific, Inc.,
UIH's subsidiary responsible for all operating and development activities of
the Company as well as UIH's other business in the Asia/Pacific region. Prior
to assuming that position, Mr. Fries served as Senior Vice President,
Development, of UIH, in which capacity he was responsible for managing UIH's
worldwide acquisitions and new business development activities since 1990,
including UIH's expansion into the Asia/Pacific market. From 1985 to 1990, Mr.
Fries was employed by PaineWebber Incorporated where he spent four years in
the investment banking division, specializing in domestic and international
transactions for companies in the media and communications industry.
BERNARD G. DVORAK is the Chief Financial Officer and a Director of the
Company and has served as Vice President and Treasurer of the Company since
its formation. He has also served as Chief Financial Officer of UIH since June
1992. From June 1989 until June 1992, he was Vice President, Finance of UIH.
He is responsible for the Company's and UIH's financial, accounting and
administrative functions. Prior to joining UIH in June 1989, Mr. Dvorak spent
four years as Controller of United Cable, where he was responsible for the
accounting, financial reporting and financial planning functions as well as
acting as business manager overseeing international investments.
DONALD F. HAGANS has served as Vice President--Australia of the Company
since its formation. Mr. Hagans is a Regional Vice President of UIH
Asia/Pacific Inc., a position he has held since January 1994. Mr. Hagans
serves as chairman of CEtv and oversees UIH's interests in XYZ and UIH's
development activities in Australia. From January 1989 until joining UIH in
January 1994, Mr. Hagans was a principal in the firm, Hagans Ziegler, a
private investment group specializing in domestic and international ventures.
Mr. Hagans also acted as the Legislative Director for Texas Senator Phil
Gramm, participated extensively in the activities of the International Bank
Subcommittee of the U.S. Senate and practiced law as an attorney in a private
practice.
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<PAGE>
EUAN F.D. FANNELL is Vice President--South Pacific of the Company and is
also a Vice President of UIH Asia/Pacific, Inc., a position he has held since
January 1994. Mr. Fannell is responsible for the organization and management
of the Company's development activities in the South Pacific regions and
provides operational support for UIH's interests in New Zealand and Tahiti.
Mr. Fannell has over 14 years of cable television general management,
financial and operations management experience at corporate and operating
levels. From June 1989 until joining UIH in January 1994, Mr. Fannell was the
President and Chief Operating Officer of United Artists Cable of Baltimore.
Prior to assuming his position in Baltimore, Mr. Fannell acted as Director of
Operational Planning for United Cable, a position he assumed in 1985.
MARK L. SCHNEIDER is a Director of the Company. Mr. Schneider is also a
Director of UIH. In May 1996, Mr. Schneider became Chief of Strategic Planning
and Operational Oversight of UIH. He served as President of UIH from July 1992
until March 1995 and was Senior Vice President of UIH from May 1989 until July
1992. At UIH he was responsible for all of its international multi-channel
television system and programming activities. Prior to joining UIH, he served
as Vice President of Corporate Development at United Cable from March 1987
until May 1989. In that position, he was responsible for United Cable's
acquisition and development of international cable television systems and
other businesses.
Gene W. Schneider and Mark L. Schneider are father and son. No other family
relationships exist between any other executive officers or directors of the
Company.
OTHER MANAGEMENT
Senior management of the Company's operating companies include the following
individuals:
Robert G. McRann, Managing Director, CEtv, 61. Mr. McRann has served as
Managing Director of CEtv since joining that company in March 1995. Mr. McRann
is responsible for the management of all aspects of CEtv's MMDS, DTH and cable
television operations including engineering, customer service, marketing and
administrative functions. For the twelve years prior to joining CEtv, Mr.
McRann served as Senior Vice President responsible for Cox Cable's San Diego
system, which had annual revenues in 1995 of $140.0 million and a subscriber
base of over 325,000. Mr. McRann has over 17 years of management experience in
the U.S. multi-channel television industry.
John C. Porter, Chief Operating Officer, CEtv, 38. Mr. Porter has served as
Chief Operating Officer of CEtv since joining that company in April 1995. Mr.
Porter directly manages the technical, operating and administrative aspects of
CEtv's multi-channel systems and is the principal executive in the field
responsible for the launch of MMDS and cable systems, as well as CEtv's DTH
business. Prior to joining CEtv, Mr. Porter spent the last 10 years serving in
various capacities for Time Warner Cable, a subsidiary of Time Warner, Inc.
Most recently, Mr. Porter acted as the Division President, Central Ohio
responsible for all activities of this 170,000 subscriber, 400 employee
division. Mr. Porter has over 15 years of management experience in the U.S.
multi-channel television industry.
Bruce Mann, Sales and Marketing Director, CEtv, 40. Mr. Mann has served as
Sales and Marketing Director of CEtv since joining that company in April 1995.
Mr. Mann is responsible for the development of CEtv's marketing and sales
techniques and has played a critical role in the successful implementation of
these plans throughout CEtv's franchise area. Mr. Mann has been involved in
various marketing capacities of communications and entertainment companies for
the past 15 years including eight years at Time Warner Cable as Director of
Marketing-Brooklyn, Queens. From 1994 until joining CEtv, Mr. Mann served as
President, National Division, of Cross Country Wireless, Inc., a U.S. provider
of wireless multi-channel television services. From 1991 to 1994, Mr. Mann
served as Vice President-Marketing of Washington Redskins/Jack Kent Cooke
Stadium, Inc., specializing in sports and entertainment related promotion,
advertising and marketing.
Jack B. Matthews, Chief Executive Officer, Saturn, 44. Mr. Matthews has
served as Chief Executive Officer of Saturn since joining that company in
January 1995. Mr. Matthews is responsible for all technical, operating and
marketing aspects of the business. Mr. Matthews has served in various general
management capacities with several U.S. multiple system operators including,
Cox Cable Communications and Continental Cablevision. From August 1993 until
joining Saturn, Mr. Matthews was the Vice President-Sales & Marketing of
Arrowsmith Technologies, a cable technology company which develops and
installs advanced field operations
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<PAGE>
management and operations support systems for the cable television industry.
From 1990 to 1993, Mr. Matthews was the President of COMM/ONE, a
entrepreneurial business marketing sophisticated video and voice processing
systems. Mr. Matthews has over 13 years of U.S. multi-channel television
industry experience.
Michel Laurent, Managing Director, Telefenua, 43. Mr. Laurent has served as
Managing Director of Telefenua since May 1995. Since joining Telefenua, Mr.
Laurent has been responsible for the launch of Telefenua's service and rapid
increase in its customer base. From 1991 until joining Telefenua, Mr. Laurent
held various positions with Videotron Ltd., the largest cable television and
telecommunications company in the province of Quebec and the second largest
multiple system operator in Canada. Mr. Laurent most recently served as Vice
President of Operations for Videotron's Montreal division and was responsible
for all technical, operational and marketing aspects of the business. Mr.
Laurent is fluent in French and English.
EXECUTIVE COMPENSATION
All of the officers of the Company are employed by UIH, the majority
stockholder of the Company. The Company pays no separate compensation to these
officers, however, in connection with the formation of the Company, the Company
and UIH will execute the UIH Management Agreement, pursuant to which the
Company will pay UIH a management fee for certain services provided to the
Company. See "Certain Transactions."
Most of the members of senior management of CEtv, Saturn and Telefenua are
U.S. or Canadian expatriates who are employed by UIH and have been seconded to
the respective operating companies. The respective operating companies
reimburse UIH for compensation paid to these employees pursuant to Technical
Service Agreements between UIH and each of CEtv, Saturn and Telefenua. Gene W.
Schneider, the Company's Chairman and Chief Executive Officer, is also the
Chairman and Chief Executive Officer of UIH and spends only a portion of his
time on matters pertaining to the Company and its operations. The President of
the Company, Michael T. Fries, is also an officer and employee of UIH and
spends approximately 75% of his time on matters pertaining to the Company and
its operations. Bernard G. Dvorak, the Company's Chief Financial Officer, is
also an officer and employee of UIH and spends only a portion of his time on
matters pertaining to the Company and its operations. Following this Offering,
the services of Messers. Schneider, Fries and Dvorak will be provided to the
Company pursuant to the UIH Management Agreement. While the Company and its
operating companies do not reimburse UIH directly for a specified portion of
the compensation UIH pays to Messrs. Schneider, Fries or Dvorak, the Company
pays a management fee to UIH under the UIH Management Agreement for certain
services, including those of Messrs. Schneider, Fries and Dvorak, performed on
behalf of the Company. The chart below summarizes the compensation paid during
the fiscal year ended December 31, 1995 to the Company's Chief Executive
Officer and the four most highly compensated executive officers of the Company
and its 50% or greater owned subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#S) COMPENSATION(2)
- --------------------------- ---- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gene W. Schneider(3).... 1995 $ 324,577 $ -- 40,000 $4,620
Chairman and Chief Ex-
ecutive Officer
Michael T. Fries(3)..... 1995 212,769 -- 35,000 4,620
President
Bernard G. Dvorak(3).... 1995 192,769 -- 35,000 4,620
Chief Financial Officer
Donald F. Hagans........ 1995 175,000 -- 12,000 --
Vice President--Austra-
lia
Robert G. McRann(4)..... 1995 161,538 24,279(5) -- 3,836
Managing Director, CEtv
</TABLE>
- ---------------------
(1) Options with respect to shares of Class A Common Stock of UIH granted to
such executives as officers and employees of UIH.
(2) Consists of matching employer contributions made by UIH under UIH's
Employee 401(k) Plan.
(3) Total compensation paid by UIH for duties performed with respect to the
Company and other operations of UIH.
(4) Mr. McRann started employment with CEtv in March 1995.
(5) Consists of additional cash compensation relating to the overseas
assignment of Mr. McRann.
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<PAGE>
UIH and Mr. McRann are parties to a five-year employment agreement. This
employment agreement provides for an annual base salary of $210,000 per year,
to be reviewed annually, with eligibility for an annual bonus of up to 30% of
the base salary, based on the performance of CEtv as well as Mr. McRann's
individual performance. Mr. McRann was also granted an incentive interest
equal to .75% of the residual equity value of CEtv, calculated as (i) ten
times EBITDA from the prior 12 months, less (ii) the sum of CEtv's net
liabilities and an amount equal to the total shareholder investment in CEtv,
plus a 12% compounded annual return on such investment. The incentive interest
vested 20% at the date of Mr. McRann's employment, with the remaining 80%
vesting monthly in equal portions over the following 48 months. In the event
of a change of control of CEtv, the residual equity value will be the greater
of the amount calculated above of the net gross proceeds to the shareholders
from the event that causes the change of control, less an amount equal to the
total shareholder investment in CEtv, plus a 12% compounded annual return on
such investment. The employment agreement also provides for cost of living
differentials, relocation and moving expenses, automobile allowances and
income tax equalization payments, if necessary, to keep Mr. McRann's tax
liability the same as it would be in the United States. CEtv reimbursed UIH
under the Technical Services Agreement for employment costs associated with
Mr. McRann.
Messrs. Schneider, Fries, Dvorak and Hagans, as employees and officers of
UIH, have been granted options to acquire stock of UIH. Mr. McRann has not
been granted any options by UIH. The following table sets forth information
concerning options granted to these executives in the last fiscal year as well
as unexercised options held by such executives as of December 31, 1995. No
such executive has exercised any options during the fiscal year there ended
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------- ---------------------
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider....... 40,000 6.07% $15.75 6/16/05 $ 396,204 $ 1,004,058
Michael T. Fries........ 35,000 5.32 15.75 6/16/05 346,678 878,551
Bernard G. Dvorak....... 35,000 5.32 15.75 6/16/05 346,678 878,551
Donald F. Hagans........ 12,000 1.82 15.75 6/16/05 118,861 301,217
</TABLE>
- ---------------------
(1) The stock options granted during the last fiscal year become exercisable
with respect to 25% of the shares covered thereby after the first
anniversary of the effective date of the grant and with respect to the
remaining 75% in equal monthly increments over the three-year period
thereafter. The initial 25% of all of the options listed in this table
become exercisable on June 16, 1996. Vesting of the options granted is
accelerated upon a change of control of the Company as defined in the
Employee Plan.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Gene W. Schneider........... 90,625/99,375 $475,781/311,719
Michael T. Fries............ 72,500/82,500 441,041/288,958
Bernard G. Dvorak........... 60,417/74,583 317,187/207,813
Donald F. Hagans............ 40,002/51,998 0/0
</TABLE>
COMPENSATION OF DIRECTORS
All of the directors of the Company are also directors or officers of UIH,
the majority stockholder of the Company. They receive no separate compensation
for serving as directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has no separate Compensation Committee as
the Company currently does not have any employees. Directors or executive
officers of the Company may serve on the boards of directors of CEtv, Saturn,
Telefenua and XYZ and as part of their duties may determine the compensation of
those operating companies' employees. None of the employees of such operating
companies, however, are Directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation eliminates the personal liability
of its directors to the Company and its stockholders for monetary damages for
breach of the directors' fiduciary duties in certain circumstances. The
Company's Certificate of Incorporation and Bylaws provide that the Company
shall indemnify its officers and directors to the fullest extent permitted by
law. The Company believes that such indemnification covers at least negligence
and gross negligence on the part of indemnified parties.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Certificate of Incorporation and Bylaws. These agreements require the Company,
among other things, to indemnify the Company's directors and officers for
certain expenses (including attorney's fees), judgments, fines, penalties and
settlement amounts incurred by any such person in certain actions or
proceedings, including actions by or in the right of the Company, arising out
of such person's services as a director or officer of the Company, any
subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these agreements are necessary to attract and retain qualified persons as
directors and officers.
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CERTAIN RELATIONSHIPS
The Issuer is currently an indirect, majority owned subsidiary of UIH and
prior to the Offering, its operations have been funded by UIH. Immediately
prior to the Offering, UIH Australia, Inc., UIH Australia II, Inc. and UIH
Australia III, Inc. (the "UIH Australia Subsidiaries"); UIH New Zealand, Inc.
(the "UIH New Zealand Subsidiary"); UIH-SFCC, Inc. (the "UIH Tahiti
Subsidiary"); and UIH Australia Holding, Inc. were merged with and into Issuer
(the "Merger"). The UIH Australia Subsidiaries held UIH's interest in CEtv,
the UIH New Zealand Subsidiary held UIH's interest in Saturn, the UIH Tahiti
Subsidiary held UIH's interest in Telefenua, UIH Australia Holdings, Inc. held
UIH's interest in United Wireless (the "UIH Wireless Subsidiary") and the
Issuer held UIH's interest in XYZ Entertainment. Each of the UIH Australia
Subsidiaries, the UIH New Zealand Subsidiary, the UIH Tahiti Subsidiary, the
UIH Wireless Subsidiary and the Issuer were initially capitalized with $100
and 100 shares of common stock were issued to UIH, the sole shareholder of
such corporations. During the years ended December 31, 1994 and 1995, UIH
contributed (i) a total of $19.7 million and $50.8 million, respectively, to
the UIH Australia Subsidiaries, which amounts were used to fund the UIH
Australia Subsidiaries' investment in CEtv; (ii) a total of $2.5 million and
none, respectively, to the UIH New Zealand Subsidiary, which amounts were used
to fund the UIH New Zealand Subsidiary's investment in Saturn, (iii) a total
of none and $6.9 million, respectively, to the UIH Tahiti Subsidiary, which
amounts were used to fund the UIH Tahiti Subsidiary's investment in Telefenua;
(iv) a total of none and $911,000, respectively, to the UIH Wireless
Subsidiary, which amounts were used to fund the UIH Wireless Subsidiary's
investment in United Wireless and (v) a total of $629,000 and $5.1 million,
respectively, to the Issuer, which amounts were used to fund the Issuer's
investment in XYZ Entertainment. No additional shares of capital stock were
issued to UIH in connection with these capital contributions. During the years
ended December 31, 1994 and 1995, UIH made bridge loans (i) totaling none and
$5.4 million, respectively, to certain of the UIH Australia Subsidiaries,
which amounts in turn were used to make loans to CEtv; (ii) totaling none and
$2.0 million, respectively, to the UIH New Zealand Subsidiary, which amounts
in turn were used to make loans to Saturn; and (iii) totaling none and $6.8
million, respectively, to the UIH Tahiti Subsidiary, which amounts in turn
were used to make loans to Telefenua. These bridge loans are payable upon
demand and bear interest at rates ranging from 9.25% to 14.0% per annum. At
the time of the Offering, the Company acquired $25 million of these bridge
loans and the remaining portion of the bridge loans were contributed to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
As a result of the Merger, all of the issued and outstanding capital stock
of the UIH Australian Subsidiaries, the UIH New Zealand Subsidiary, the UIH
Tahiti Subsidiary and the UIH Wireless Subsidiary were canceled.
In connection with the Saturn Purchase, the Issuer declared and paid a
dividend of 387 shares of common stock to UIH and issued to the other
shareholder of Saturn 13 shares of common stock, which represented 2.6% of its
issued and outstanding common stock.
In connection with the formation of the Company, the Issuer and UIH have
executed the 10-year UIH Management Agreement, pursuant to which UIH will
continue to perform certain administrative, accounting, financial reporting
and other services for the Issuer, which has no separate employees of its own.
Pursuant to the UIH Management Agreement, UIH will be paid a management fee of
$750,000 for the first year of such agreement, which fees shall increase on
the first anniversary date of the UIH Management Agreement and each
anniversary date thereafter by 8% per year. In addition, the Issuer shall
reimburse UIH for any out-of-pocket expenses incurred by UIH in performance of
its duties under the UIH Management Agreement, including travel, lodging and
entertainment expenses. UIH calculated the management fee for the first year
of the UIH Management Agreement, based upon an estimate of staff hours to
accomplish the various administrative, accounting, financial reporting and
other services to be provided to the Issuer under the UIH Management
Agreement. UIH then calculated the percentage those hours constituted of the
respective employees' annual work hours and multiplied that percentage by the
employment cost for such employees to UIH. The Company believes the fee
payable under the UIH Management Agreement to be comparable for the costs for
such services if obtained from a non-affiliate of UIH.
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UIH and each of CEtv, Saturn and Telefenua are parties to Technical Service
Agreements, pursuant to which UIH provides certain technical assistance in
connection with such Operating Companies' design, development, construction,
marketing and operation of their respective multi-channel television systems.
In addition, pursuant to such agreements, certain members of senior management
of CEtv, Saturn and Telefenua are employees of UIH that have been seconded to
the respective Operating Companies. Fees paid under these technical service
agreements are typically a percentage (currently 4% to 5%, declining to 2% in
future years) of gross revenues generated by the Operating Companies plus
reimbursements for costs associated with such seconded employees. For the year
ended December 31, 1994, CEtv, Saturn and Telefenua had accrued fees to UIH
under their respective Technical Service Agreements of approximately $89,000,
$3,000 and $0, respectively. For the year ended December 31, 1995, CEtv,
Saturn and Telefenua had accrued fees to UIH under their respective Technical
Service Agreements of approximately $1.5 million, $574,000 and $1.2 million
respectively. The fees payable to UIH under each of the Technical Service
Agreements were negotiated between UIH and the respective companies and their
other shareholders at such time as UIH did not hold the majority interest in
such Operating Companies. See "Business--CEtv (Australia), --Saturn (New
Zealand), --Telefenua (Tahiti)" and "Management--Executive Compensation."
The Issuer is included as a member of UIH's consolidated tax return and,
after the Offering, will remain a member of the UIH consolidated group (as
long as non-UIH ownership of the Issuer does not exceed 20%). UIH and the
Issuer are parties to a tax sharing agreement that defines the parties' rights
and obligations with respect to tax liabilities and benefits relating to the
Company and its operations as part of the consolidated group of UIH. In
general, UIH is responsible for filing consolidated tax returns and paying the
associated taxes and the Issuer will reimburse UIH for the portion of the tax
cost relating to the Company and its operations.
AUSTRALIS TRANSACTION
On April 19, 1996, the Guarantors committed to make or procure guarantees of
a total of $125.0 million for an approximately six month period to support the
Australis Bank Facility. Initial funding of the Australis Bank Facility
occured on May 13, 1996. In connection with this transaction, Australis sold
certain of its equity securities, at a price of A$0.545 per share, and
warrants to an investor for approximately $10.0 million. The $125.0 million in
guarantees will guarantee approximately $38.0 million of refinanced
indebtedness as well as provide for $87.0 million of new borrowings under the
Australis Bank Facility, which, together with the $10.0 million of proceeds of
such equity sale, are to be used for working capital and to repay
approximately $25.0 million of existing debt.
As part of the Australis Transaction, UIH AML guaranteed $10.0 million of
the Australis Bank Facility, which guarantee was collateralized by $10.0
million in cash. In connection with the Australis Settlement, the Company has
agreed, subject to certain conditions, to convert $4.0 million of its
guarantees into equity of Australis. See "Business--CEtv (Australia)--
Australis Franchise Agreements."
The term of the guarantees and amounts to be borrowed under the Australis
Bank Facility is approximately six months. Australis will grant the Guarantors
a second priority security interest in all of the assets of Australis and its
subsidiaries with limited exceptions. One of the Guarantors (the "First
Guarantor") that provided $32.0 million of the guarantee of the Australis Bank
Facility will have first rights with respect to this second priority security
interest and thereafter the remaining Guarantors, including UIH AML, will have
rights to the security pari passu among such remaining Guarantors. Amounts
paid under the guarantee will be allocated pro rata among the Guarantors in
proportion to the amount each has guaranteed. However, the First Guarantor is
entitled to first priority of repayment of any amounts repaid with respect to
the guarantees. To the extent amounts are paid pursuant to the guarantees,
each Guarantor may elect to have its pro rata portion of such amount
converted, at a rate of A$0.545 per note or share, into (i) ordinary shares or
convertible notes of Australis of the classes currently listed on the
Australian Stock Exchange or (ii) a new class of convertible notes of
Australis (the "New Australis Notes"). In addition, at any time during the
term of such guarantees, any Guarantor may elect to repay a portion of the
Australis Bank Facility by converting all or a portion of the amount of its
guarantee into ordinary
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shares, convertible notes or New Australis Notes on the same terms. The New
Australis Notes will be unsecured, bear no interest and will be also
convertible prior to maturity into ordinary shares or convertible notes of
Australis on the same terms. The New Australis Notes become due and payable
upon the earlier of December 31, 1998 or such time as Australis becomes
insolvent.
Upon an event of default under the Australis Bank Facility or if certain
conditions imposed by the Guarantors are not satisfied within 60 days after the
effective date of the guarantee, Australis must proceed to sell specified
programming assets, the proceeds of which will be used to repay the Australis
Bank Facility. Australis will grant an affiliate of the First Guarantor a right
of first refusal to acquire such programming assets.
In consideration for the Guarantors agreeing to the Australis Guarantee,
Australis granted warrants to the Guarantors to purchase ordinary shares or
convertible notes of Australis at an exercise price of A$0.20 per share or
note, of which warrants to acquire 4,171,460 ordinary shares or convertible
notes were granted to UIH AML. The number of warrants may be reduced to the
extent required by Australian Stock Exchange regulations.
During the six month term of the guarantees and borrowings under the
Australis Bank Facility, Australis intends to refinance borrowings under the
Australis Bank Facility through debt and/or equity financings as well as
potential asset sales. There can be no assurances, however, that Australis will
be able to secure adequate long term financing on satisfactory terms or, if
such financing is secured, how long such financing will satisfy Australis'
working capital needs. As a consequence, there can be no assurances that (i)
UIH AML's guarantee will not be drawn, (ii) if amounts are drawn on such
guarantee, Australis will be able to repay such amounts or (iii) UIH AML will
be able to realize an amount equal to the amounts paid by it under such
guarantee if UIH AML elects to convert amounts owed it in connection with the
Australis Guarantee into shares or notes of Australis or similarly refinance a
portion of the Australis Bank Facility. See "Risk Factors--Reliance on
Australis and Other Principal Suppliers."
SECURITY OWNERSHIP
UIH, through its wholly owned subsidiary United Australasian Communications,
Inc., owns 487 (97.4%) of the 500 shares of issued and outstanding common stock
of the Issuer. The remaining shares are owned by Kiwi Cable Company BVI, Inc.,
the entity from which the Company acquired the 50% interest in Saturn.
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DESCRIPTION OF THE SECURITIES
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture to be dated as of May 13, 1996
between the Issuer and American National Bank Association, as trustee (the
"Trustee"). A copy of the form of the Indenture is available from the Initial
Purchasers upon request. Upon the issuance of the Exchange Notes, if any, or
the effectiveness of a Shelf Registration Statement, the Indenture will be
subject to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following is a summary of the Indenture. A copy of the Indenture is
filed as an exhibit to the Registration Statement. The definitions of certain
capitalized terms used in the following summary are set forth below under "--
Certain Definitions." Unless the context otherwise requires, references to the
Notes shall include the Exchange Notes.
GENERAL
The Notes will be general unsecured senior obligations of the Issuer,
limited to $443,000,000 aggregate principal amount at maturity (subject to
certain exceptions), and will mature on May 15, 2006. Cash interest will not
accrue on the Notes prior to May 15, 2001. Thereafter, cash interest on the
Notes will be payable, at the Interest Rate then in effect, semi-annually in
arrears on each May 15 and November 15 (each, an "Interest Payment Date"),
commencing November 15, 2001, to the holders of record of Notes at the close
of business on the May 1 and November 1 immediately preceding such Interest
Payment Date. Cash interest will accrue from the most recent Interest Payment
Date to which interest has been paid or duly provided for or, if no interest
has been paid or duly provided for, from May 15, 2001. Cash interest will be
computed on the basis of a 360-day year of twelve 30-day months. If, prior to
May 15, 2001 the Issuer defaults in any payment of principal (including any
accreted original issue discount), whether at maturity, upon redemption or
otherwise, if the payment of cash interest on the Notes is then permitted by
law, cash interest will accrue on the amount in default at the interest rate
borne by the Notes and, if the payment of such cash interest is not permitted
by law, original issue discount will continue to accrete at the rate then in
effect. On or after May 15, 2001, interest on overdue principal and, to the
extent permitted by law, on overdue installments of interest will accrue at
the rate of interest borne by the Notes. The Notes will be issued in the form
of one or more fully registered Notes, without coupons, in global form. Except
in those limited circumstances described below, Notes in definitive form
("Certificated Notes") will not be issued. See "--Book-Entry System; Delivery
and Form."
As discussed under "Exchange Offer; Registration Rights," pursuant to the
Registration Rights Agreement, the Issuer has agreed, at its expense, for the
benefit of the holders of the Notes, to effect the Registered Exchange Offer
under the Securities Act to exchange the Notes for Exchange Notes. If (a) the
Issuer is not permitted to file the Exchange Offer Registration Statement or
to consummate the Exchange Offer because the Exchange Offer is not permitted
by applicable law or Commission policy or (b) any holder of Notes notifies the
Issuer within the specified time period that (i) due to a change in law or
policy it is not entitled to participate in the Exchange Offer, (ii) due to a
change in law or policy it may not resell the Exchange Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (iii) it is a
broker-dealer and owns Notes acquired directly from the Issuer or any
affiliate of the Issuer, the Issuer will file with the Commission the Shelf
Registration Statement to cover resales of the Transfer Restricted Notes (as
defined in "Exchange Offer; Registration Rights") by the holders thereof.
Any Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of securities under the Indenture.
REDEMPTION
Mandatory Redemption. The Issuer will not be required to make any mandatory
sinking fund payments in respect of the Notes. However, (i) upon the
occurrence of a Change of Control, the Issuer will be obligated to make an
offer to purchase all outstanding Notes at a price of 101% of the Accreted
Value thereof (determined at
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the date of purchase), if such purchase is prior to May 15, 2001, or 101% of
the principal amount at maturity thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase, if such purchase is on or after May
15, 2001), and (ii) the Issuer may be obligated to make an offer to purchase
Notes with the Net Cash Proceeds of certain Asset Sales at a price of 100% of
the Accreted Value thereof (determined at the date of purchase). See "--
Certain Covenants--Change of Control" and "--Disposition of Proceeds of Assets
Sales," respectively.
Optional Redemption. The Notes will be redeemable, in whole or in part, at
any time on or after May 15, 2001 at the option of the Issuer, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount at maturity) set forth below, plus accrued and
unpaid interest to the redemption date, if redeemed during the 12-month period
beginning May 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2001.......................................... 107.00%
2002.......................................... 104.67%
2003.......................................... 102.33%
2004 and thereafter........................... 100.00%
</TABLE>
Notwithstanding the foregoing, on or prior to May 15, 1999 the Issuer may,
at its option, use the net cash proceeds of (i) a Public Equity Offering or
(ii) a sale or series of related sales by the Issuer (or any person of which
the Issuer is a direct Subsidiary) of its Capital Stock (other than
Disqualified Capital Stock) to one or more Strategic Equity Investors to
redeem up to an aggregate of 33% of the originally issued principal amount at
maturity of Notes from the holders of Notes, on a pro rata basis (or as nearly
pro rata as practicable), at a redemption price equal to 113% of the Accreted
Value thereof; provided that not less than 67% of the originally issued
principal amount at maturity of Notes are outstanding immediately thereafter;
provided, however, that in the case of a Public Equity Offering by, or an
investment by a Strategic Equity Investor in, a person of which the Issuer is
a direct Subsidiary, such person contributes to the capital of the Issuer net
cash proceeds in an amount sufficient to redeem Notes called for redemption in
accordance with the terms thereof. In order to effect the foregoing redemption
with the net proceeds of a Public Equity Offering or an investment by a
Strategic Equity Investor, the Issuer shall send the redemption notice not
later than 60 days after the consummation thereof.
Selection; Effect of Redemption Notice. In the case of a partial redemption,
selection of the Notes for redemption will be made on a pro rata basis, by lot
or such other method as the Trustee in its sole discretion deems fair and
appropriate or in such manner as complies with the requirements of the
principal national securities exchange, if any, on which the Notes being
redeemed are listed; provided that no Notes of a principal amount at maturity
of $1,000 shall be redeemed in part; provided, further, that any such
redemption pursuant to the provisions relating to a Public Equity Offering or
an investment by a Strategic Equity Investor shall be made on a pro rata basis
or on as nearly a pro rata basis as practicable (subject to the procedures of
The Depository Trust Company). Upon giving of a redemption notice, interest on
Notes called for redemption will cease to accrue from and after the date fixed
for redemption (unless the Issuer defaults in providing the funds for such
redemption) and, upon redemption on such redemption date, such Notes will
cease to be outstanding.
RANKING OF THE NOTES
The indebtedness of Issuer evidenced by the Notes will rank senior in right
of payment to all indebtedness of the Issuer that is expressly subordinated to
the Notes and will rank pari passu in right of payment with all other existing
or future unsubordinated indebtedness of the Issuer. At the Issue Date, it is
expected that there will be no outstanding Indebtedness of the Issuer ranking
junior in right of payment to the Notes. The Notes will be effectively
subordinated in right of payment to all existing and future liabilities,
including trade payables, of any of the Issuer's subsidiaries. See "Risk
Factors--Holding Company Structure; Limitations on Access to Cash Flow."
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CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the Indenture.
Limitation on Additional Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Indenture will provide that (i) the Issuer will not, and
will not permit any Restricted Subsidiary, to create, incur, assume, issue,
guarantee or in any manner become directly or indirectly liable, contingently
or otherwise for or with respect to (in any such case, to "incur"), any
Indebtedness (including any Acquired Indebtedness) and (ii) the Issuer will
not permit any Restricted Subsidiary to issue any Preferred Stock except for,
in each case, Permitted Indebtedness and Preferred Stock; provided that (a)
the Issuer will be permitted to incur Indebtedness (including any Acquired
Indebtedness) and (b) a Restricted Subsidiary will be permitted to incur
Acquired Indebtedness, if, in either case, after giving pro forma effect to
such incurrence (including the application of the net proceeds therefrom), the
ratio of (x) Total Consolidated Indebtedness and Subsidiary Preferred Stock to
(y) Annualized Pro Forma Consolidated Operating Cash Flow for the latest
fiscal quarter for which consolidated financial statements of the Issuer are
available preceding the date of such incurrence or issuance would be less than
or equal to (1) 7.0 to 1.0 if the Indebtedness is incurred prior to May 15,
1998 or (2) 6.5 to 1.0 if the Indebtedness is incurred on or after May 15,
1998.
Limitation on Restricted Payments. The Indenture will provide that the
Issuer will not, and will not permit any Restricted Subsidiary to, make,
directly or indirectly, any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately prior to and after giving effect to such Restricted
Payment, the Issuer would be able to incur $1.00 of Indebtedness under the
proviso of the covenant "Limitation on Additional Indebtedness and
Preferred Stock of Restricted Subsidiaries;" and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date (including any Designation Amount) does not exceed an amount
equal to the sum of (a)(x) the Cumulative Consolidated Operating Cash Flow
determined at the time of such Restricted Payment minus (y) 150% of the
cumulative Consolidated Interest Expense of the Issuer determined for the
period commencing on the Issue Date and ending on the last day of the
latest fiscal quarter for which consolidated financial statements of Issuer
are available preceding the date of such Restricted Payment plus (b) the
aggregate net cash proceeds received by the Issuer either (x) as capital
contributions to the Issuer after the Issue Date or (y) from the issue or
sale (other than to a Restricted Subsidiary of the Issuer) of its Capital
Stock (other than Disqualified Stock) on or after the Issue Date plus (c)
the aggregate net proceeds received by the Issuer from the issuance (other
than to a Restricted Subsidiary of Issuer) on or after the Issue Date of
its Capital Stock (other than Disqualified Stock) upon the conversion of,
or exchange for, Indebtedness of the Issuer or a Restricted Subsidiary plus
(d) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date for cash,
(including upon a Revocation after the Issue Date of any Designation made
after the Issue Date but excluding Investments made pursuant to clauses
(v), (vi) and (viii) of the following paragraph), an amount equal to the
lesser of the return of capital with respect to such Investment and the
cost of such Investment, in either case, reduced by the excess, if any, of
the cost of the disposition of such Investment over the gain, if any,
realized by the Issuer or such Restricted Subsidiary in respect of such
disposition. For purposes of the preceding clauses (b)(y) and (c) and
without duplication, the value of the aggregate net proceeds received by
the Issuer upon the issuance of Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental amount received by the Issuer upon the
conversion, exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments,
cash distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value.
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The provisions of this covenant shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof if, at said date
of declaration, such payment would comply with the foregoing paragraph; (ii)
so long as no Default shall have occurred and be continuing, the purchase,
redemption, retirement or other acquisition of any shares of Capital Stock of
the Issuer (A) in exchange for or conversion into or (B) out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary of the Issuer) of, shares of Capital Stock of the Issuer
(other than Disqualified Stock) provided that any such net cash proceeds
pursuant to the immediately preceding clause (B) are excluded from clause
(iii)(b) of the preceding paragraph; (iii) so long as no Default shall have
occurred and be continuing, the purchase, redemption, retirement, defeasance
or other acquisition of (A) Preferred Stock of any Restricted Subsidiary made
by exchange for or conversion into, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary
of the Issuer) of (x) Capital Stock (other than Disqualified Stock) of the
Issuer provided that any such net cash proceeds pursuant to the immediately
predesignate clause (x) are excluded from clause (iii)(b) of the preceeding
paragraph or (y) other Preferred Stock of any Restricted Subsidiary having an
Average Life to Stated Maturity equal to or greater than the Average Life to
Stated Maturity of the Preferred Stock being purchased, redeemed, retired,
defeased or otherwise acquired or (B) Subordinated Indebtedness made by
exchange for or conversion into, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary
of the Issuer) of (x) Capital Stock (other than Disqualified Stock) of the
Issuer provided that any such net cash proceeds pursuant to the immediately
preceeding clause (x) are excluded from clause (iii)(b) of the preceeding
paragraph or (y) other Subordinated Indebtedness having an Average Life to
Stated Maturity equal to or greater than the Average Life to Stated Maturity
of the Subordinated Indebtedness being purchased, redeemed, retired, defeased
or otherwise acquired; (iv) the purchase by the Issuer on the Issue Date of
$25,000,000 outstanding balance of bridge loans extended by UIH to the
Operating Companies on the terms described under "Use of Proceeds" for an
aggregate purchase price not to exceed $25,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) (it being understood
that following the purchase on the Issue Date of such bridge loans with a
portion of the proceeds of the Notes as described in this clause (iv), the
Issuer will not be permitted to make any other Restricted Payments pursuant to
this clause (iv)); (v) so long as no Default shall have occurred and be
continuing, Investments in Saturn in an amount not to exceed $15,000,000 (or,
to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent thereof)
plus, to the extent any such Investment is repaid to the Issuer or a
Restricted Subsidiary in cash, an amount equal to the lesser of the return of
capital with respect to such Investment and the cost of such Investment, in
either case, reduced by the excess, if any, of the cost of the disposition of
such Investment over the gain, if any, realized by the Issuer or such
Restricted Subsidiary in respect of such disposition; (vi) so long as no
Default shall have occurred and be continuing, Investments in Unrestricted
Subsidiaries and Unrestricted Affiliates that operate principally or have been
formed to operate principally a Related Business in an amount not to exceed
$15,000,000 (or, to the extent non-U.S. dollar denominated, the U.S. Dollar
Equivalent thereof) in the aggregate at any time outstanding, provided that no
more than $8,000,000 in the aggregate of Investments under this clause (vi)
(or to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent
thereof) shall constitute Investments in persons other than XYZ Entertainment
Limited, plus, in the case of the disposition or repayment of any such
Investment for cash (including upon a Revocation after the Issue Date of a
Designation made after the Issue Date), an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, reduced by the excess, if any, of the cost of the
disposition of such Investment over the gain, if any, realized by the Issuer
or such Restricted Subsidiary in respect of such disposition; (vii) the
purchase by the Issuer on the Issue Date of all of the outstanding Capital
Stock of UIH AML for an aggregate purchase price of $10,000,000; (viii) so
long as no Default shall have occurred and be continuing, any Investments in
Unrestricted Subsidiaries and Unrestricted Affiliates principally engaged in
or which will principally engage in a Related Business which is made with the
net cash proceeds of a (1) capital contribution to the Issuer or (2) issue or
sale of Capital Stock (other than Disqualified Stock) of the Issuer, but (to
avoid duplication of the use of such net cash proceeds) only to the extent the
Company has not previously made any Restricted Payment either (x) with such
net cash proceeds pursuant to clauses (ii), (iii) or (viii) of this paragraph
or (y) which the Issuer could not have made without including such net cash
proceeds in clause (iii)(b) of the first paragraph of the preceding paragraph
plus, in the case of the disposition or repayment of any such Investment for
cash (including upon a Revocation after the Issue Date of a Designation made
after the Issue Date), an amount equal to the lesser of the return of capital
with respect to such Investment and the cost of such Investment, in either
case, reduced by the excess, if any, of the cost of the disposition of such
Investment over
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the gain, if any, realized by the Issuer or such Restricted Subsidiary in
respect of such disposition (excluding, in the case of repayment of any such
Investments in XYZ Entertainment, the portion of such repayment which may be
paid as dividends by the Issuer pursuant to clause (x) of this paragraph),
(ix) so long as no Default shall have occurred and be continuing, payments of
dividends (not constituting a return of capital) on Disqualified Stock of the
Issuer issued pursuant to and in compliance with the covenant "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries;" (x)
so long as no Default shall have occurred and be continuing, following
compliance with the provisions of the covenant "Disposition of Proceeds of
Asset Sales" with respect to the sale of the Issuer's direct or indirect
interest in XYZ Entertainment, the payment of dividends by the Issuer in an
amount up to the XYZ Distribution Amount; (xi) so long as no Default shall
have occurred and be continuing, payments pursuant to the Tax Sharing
Agreement, as such agreement is in effect on the Issue Date and (xii) (a) the
acquisition by the Issuer of interests in Saturn not owned (directly or
indirectly) by the Issuer on the Issue Date, provided that the consideration
paid by the Issuer in such acquisition shall consist solely of Capital Stock
(other than Disqualified Capital Stock) of the Issuer and (b) the contribution
of such interests acquired by the Issuer in accordance with subclause (a) of
this clause (xi) to an Unrestricted Subsidiary. In determining the amount of
Restricted Payments permissible under this covenant, amounts expended pursuant
to clauses (i) (net of the amount of dividends declared and previously
included as Restricted Payments), (v), (vi), (vii) and (viii), in each case,
of the immediately preceding sentence, shall be included as Restricted
Payments and amounts expended pursuant to clauses (ii), (iii), (iv), (ix),
(x), (xi) and (xii) shall not be included as Restricted Payments.
Limitation on Liens. The Issuer will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Liens of any kind
(other than Permitted Liens) against or upon any of its property or assets, or
any proceeds therefrom, or upon any income or profits therefrom or assign or
convey any right to receive income therefrom.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Issuer will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise enter into or cause to become effective any consensual encumbrance
or restriction of any kind on the ability of any Restricted Subsidiary to (a)
pay dividends, in cash or otherwise, or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by the Issuer or any Restricted Subsidiary, (b) pay any
Indebtedness owed to the Issuer or a Restricted Subsidiary, (c) make any
Investment in the Issuer or any Restricted Subsidiary or (d) transfer any of
its property or assets to the Issuer or to any Restricted Subsidiary, except
for (i) any such customary encumbrance or restriction contained in a security
document creating a Lien permitted under the Indenture to the extent relating
to the property or asset subject to such Lien following a default in respect
of the applicable secured obligation, (ii) any such encumbrance or restriction
with respect to a Restricted Subsidiary that is not a Restricted Subsidiary on
the Issue Date which encumbrance or restriction is in existence at the time
such person becomes a Restricted Subsidiary but not created in contemplation
thereof, (iii) any such encumbrance or restriction imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, (iv) any encumbrance or restriction existing under any amendment
to, and any agreement which refinances or replaces, an agreement containing a
restriction permitted by clause (ii), provided that any such amendment or
agreement constitutes no greater encumbrance or restriction on the ability of
any Restricted Subsidiary to pay dividends or make distributions, pay
Indebtedness, make Investments or transfer property or assets than those under
or pursuant to the agreement evidencing the Indebtedness or obligations so
amended, refinanced or replaced, and (v) any such encumbrance or restriction
imposed in any agreement governing Senior Bank Financing; provided no such
encumbrance or restriction shall, so long as no default shall exist under such
agreement, prevent the payment of amounts to the Issuer required for it to
meet its operating expenses (including, without limitation, payments under the
Notes and the Indenture).
Business of the Issuer. The Indenture will provide that the Issuer will not,
and will not permit any of its Subsidiaries or controlled Affiliates to, be
principally engaged in any business or activity other than a Related Business.
Limitation on Status as Investment Company. The Indenture will provide that
the Issuer will not, and will not permit any of its Subsidiaries or controlled
Affiliates to, conduct its business in a fashion that would cause
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the Issuer to be required to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended), or otherwise
become subject to regulation under the Investment Company Act of 1940, as
amended.
Limitation on Transactions with Affiliates. The Indenture will provide that,
the Issuer will not, and will not permit, cause, or suffer any of its
Subsidiaries or controlled Affiliates to, conduct any business or enter into
any transaction or series of related transactions with or for the benefit of
any Affiliate of the Issuer, any beneficial holder of 10% or more of any class
of Capital Stock of the Issuer or any officer or director of the Issuer or any
Subsidiary (each an "Affiliate Transaction"), except on terms that are fair
and reasonable to the Issuer, such Subsidiary or such controlled Affiliate, as
the case may be. Each Affiliate Transaction involving aggregate payments or
other Fair Market Value in excess of $1,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) shall be approved by
the Board of the Issuer, such approval to be evidenced by a Board Resolution
(delivered to the Trustee) stating that the Board of the Issuer (including a
majority of the Disinterested Directors) has determined that such transaction
complies with the foregoing provisions. In addition to the foregoing, with
respect to any Affiliate Transaction involving aggregate consideration of
$5,000,000 (or, to the extent non-U.S. dollar denominated, the U.S. Dollar
Equivalent thereof) or more (other than an Investment in an Unrestricted
Subsidiary or Unrestricted Affiliate permitted by the covenant "Limitation on
Restricted Payments."), the Issuer must obtain a written opinion (delivered to
the Trustee) from an Independent Financial Advisor stating that the terms of
such Affiliate Transaction to the Issuer, the Subsidiary or such controlled
Affiliate, as the case may be, are fair from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among the Issuer and/or any of
the Restricted Subsidiaries, (ii) any dividend permitted by the covenant
"Limitation on Restricted Payments," (iii) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries
and bonuses (or other incentive compensation) or legal fees in the ordinary
course of business, (iv) the purchase by the Issuer on the Issue Date of
$25,000,000 outstanding balance of bridge loans extended by UIH to the
Operating Companies on the terms described under "Use of Proceeds" for an
aggregate purchase price not to exceed $25,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof), (v) the purchase by
the Issuer on the Issue Date of all of the outstanding Capital Stock of UIH
AML for an aggregate purchase price of $10,000,000, (vi) transactions pursuant
to the UIH Management Agreement and the Technical Service Agreements, in each
case, as the same may be amended or supplemented, so long as amounts paid or
payable under any amended or replacement agreement do not exceed the amounts
payable under the original agreement as in effect on the Issue Date; provided,
that if a Default shall have occurred and be continuing, amounts paid and
payable under the UIH Management Agreement and the Technical Service
Agreements shall not exceed reimbursement of the reasonable expenses
(including reasonable allocations of salary and overhead) of UIH incurred
pursuant to such agreements and (vii) the issuance of Capital Stock (other
than Disqualified Capital Stock) of the Issuer.
Change of Control. Upon the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Issuer shall notify
the holders of the Notes, in the manner prescribed by the Indenture, of such
occurrence and shall make an offer to purchase (the "Change of Control
Offer"), on a business day (the "Change of Control Payment Date") not later
than 60 days following the Change of Control Date, all Notes then outstanding
at a purchase price equal to 101% of the Accreted Value thereof, if the Change
of Control Payment Date is prior to May 15, 2001 or 101% of the principal
amount at maturity thereof, together with all accrued and unpaid interest
thereon, if the Change of Control Payment Date is on or after May 15, 2001.
Notice of a Change of Control Offer shall be given to holders of Notes, not
less than 28 days nor more than 45 days before the Change of Control Payment
Date. The Change of Control Offer is required to remain open for at least 20
business days and until the close of business on the Change of Control Payment
Date.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer. The Issuer shall not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with
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the requirements applicable to a Change of Control Offer made by the Issuer
and purchases all Notes validly tendered and not withdrawn under such Change
of Control Offer. Restrictions in the Indenture described herein on the
ability of the Issuer and the Restricted Subsidiaries to incur additional
Indebtedness, to grant Liens on its property, to make Restricted Payments and
to make Asset Sales may also make more difficult or discourage a takeover of
the Issuer or any of the Restricted Subsidiaries, whether favored or opposed
by the management of the Issuer or any of the Restricted Subsidiaries. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout
of the Issuer or any of the Subsidiaries by management of the Issuer. While
such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the holders of Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
If the Issuer is required to make a Change of Control Offer, the Issuer will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable United States or foreign securities laws and
regulations and any applicable requirements of any securities exchange on
which the Notes are listed.
Disposition of Proceeds of Asset Sales. The Issuer will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (a) the Issuer
or such Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
shares or assets sold or otherwise disposed of and (b) at least 85% of such
consideration consists of cash or Cash Equivalents (provided that any notes or
other obligations received by the Issuer or such Restricted Subsidiary from
such transferee or purchaser that are immediately sold or transferred (on a
non-recourse basis) for cash or Cash Equivalents shall be deemed cash for
purposes of this provision and be treated as Net Cash Proceeds, subject to
application as hereinafter provided). The Issuer or such Restricted
Subsidiary, as the case may be, may either (i) within 365 days of an Asset
Sale (other than an Asset Sale of the Issuer's direct or indirect interest in
XYZ Entertainment, as to which no such limit would exist) apply the Net Cash
Proceeds of such Asset Sale to permanently repay, and permanently reduce the
commitments under, any Specified Indebtedness, or (ii) apply such Net Cash
Proceeds to an investment in properties and assets ("Replacement Assets") that
(x) in the case of an Asset Sale of the Issuer's direct or indirect interest
in XYZ Entertainment will be used in a Related Business (or in Capital Stock
of any person principally engaged in a Related Business) and (y) in all other
cases will be used in a Related Business (or in Capital Stock of any person
that will become a Restricted Subsidiary as a result of such investment to the
extent such person owns properties and assets that will be used in a Related
Business) of the Issuer or any Restricted Subsidiary located in the same
nation as the assets disposed of in the Asset Sale within 365 days of such
Asset Sale (in the case of clause (y)). Pending the final application of any
such Net Cash Proceeds in accordance with the second sentence of this
paragraph or to an Asset Sale Offer, the Issuer or such Restricted Subsidiary
may invest such Net Cash Proceeds in any manner not prohibited by the
Indenture and may temporarily repay Specified Indebtedness. Any Net Cash
Proceeds from any Asset Sale that are neither used to repay, and permanently
reduce the commitments under, any Specified Indebtedness nor invested in
Replacement Assets in accordance with this paragraph shall constitute "Excess
Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000
(or, to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent
thereof), the Issuer shall make an offer to purchase (an "Asset Sale Offer"),
from all holders of the Notes, Notes having an aggregate purchase price equal
to such Excess Proceeds at a price in cash equal to 100% of the Accreted Value
thereof on any purchase date prior to May 15, 2001 or 100% of the outstanding
principal amount at maturity thereof plus accrued and unpaid interest, if any,
to any purchase date on or after May 15, 2001. Each Asset Sale Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law. Notwithstanding the foregoing, in the event that any Pari
Passu Indebtedness contains provisions requiring that the Issuer or a
Restricted Subsidiary apply any Excess Proceeds from an Asset Sale made by it
to make an offer to purchase or to permanently repay such Pari Passu
Indebtedness, and thereby reduce the commitments for such Pari Passu
Indebtedness, (i) the Issuer will only be
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required to make an offer to purchase Notes having an aggregate purchase
price, determined as set forth above, equal to the Pro Rata Share of the
Excess Proceeds and (ii) the balance of such Excess Proceeds may be used to
offer to purchase or to permanently repay, and reduce the commitments in
respect of, such Pari Passu Indebtedness. To the extent that the aggregate
purchase price for Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds available for such offer, the Issuer and the Restricted
Subsidiaries may use such deficiency (the "Deficiency") for general corporate
purposes permitted under the Indenture. If the aggregate purchase price for
the Notes validly tendered and not withdrawn by holders thereof exceeds the
Excess Proceeds available for such offer, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, (a) up to the XYZ
Distribution Amount of the Net Cash Proceeds from any Asset Sale of the
Issuer's or any Restricted Subsidiary's direct or indirect interest in XYZ
Entertainment need not be applied as provided in the second sentence of the
first paragraph of this covenant and (b) the Issuer and the Restricted
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent (i) at least 85% of the consideration for
such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for
Fair Market Value (with Fair Market Value being determined by an Independent
Financial Advisor as required by the definition of Fair Market Value);
provided that any Net Cash Proceeds received by the Issuer or any of the
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall be subject to the provisions of the two
preceding paragraphs.
If the Issuer is required to make an Asset Sale Offer, the Issuer will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable United States or foreign securities laws and
regulations and any applicable requirements of any securities exchange on
which the Notes are listed.
Issuance of Contingent Warrants. The Indenture will provide that the Issuer
will be obligated to issue to holders of the Notes the Warrants, exercisable
at the Exercise Price for 3.0% of the Common Stock of the Issuer on a fully
diluted basis as of the date of such issuance after giving effect to the
exercise of such Warrants in the event that the Issuer does not effect an
Equity Sale on or prior to November 15, 1997. Such Warrants will be issued
pursuant to the Warrant Agreement. Any Warrants issued shall be issued to the
holders of the outstanding Notes as of November 1, 1997 pro rata, based upon
the aggregate principal amount of the Notes held by such holders as of
November 1, 1997.
Reports. The Indenture will provide that, whether or not the Issuer has a
class of securities registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and after the date on which an Exchange
Offer Registration Statement is required to be effective, the Issuer will file
with the Commission the annual reports, quarterly reports and other documents
required to be filed with the Commission pursuant to Sections 13 and 15 of the
Exchange Act, when such filings would be required to be made under the
Exchange Act. The Issuer will be required to file with the Trustee and provide
to each holder of Notes within 15 days after it files them with the Commission
(or, if any such filing is not permitted under the Exchange Act, 15 days after
the Issuer would have been required to make such filing) copies of such
reports and documents.
Limitation on Unrestricted Subsidiaries and Unrestricted Affiliates. The
Indenture will provide that the Issuer may designate (i) any Subsidiary of the
Issuer as an "Unrestricted Subsidiary" under the Indenture and (ii) any
Restricted Affiliate as an Unrestricted Affiliate (each, a "Designation") only
if:
(a) no Default shall have occurred and be continuing after giving effect
to such Designation; and
(b) the Issuer would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of such Subsidiary or Restricted Affiliate, as the case may
be, on such date.
In the event of any such Designation, the Issuer shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount. If at any time a person designated as a Restricted
Affiliate under the
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Indenture ceases to constitute a Restricted Affiliate for any reason, the
Issuer shall be deemed to have made an Investment constituting a Restricted
Payment pursuant to the covenant "Limitation on Restricted Payments" for all
purposes of the Indenture in an amount equal to the Fair Market Value of such
person at such time. The Indenture will further provide that (i) the Issuer
shall not and shall not permit any Restricted Subsidiary to, at any time (x)
provide credit support for, or a guarantee of, any Indebtedness of any
Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be, or
(z) be directly or indirectly liable for any Indebtedness which provides that
the holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary or Unrestricted Affiliate, as the
case may be (including any right to take enforcement action against such
Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be), except
in the case of clause (x) or (y) to the extent permitted under the covenant
"Limitation on Restricted Payments," and (ii) no Unrestricted Subsidiary or
Unrestricted Affiliate shall at any time guarantee or otherwise provide credit
support for any obligation of the Issuer or any Restricted Subsidiary.
Notwithstanding the foregoing, the Issuer shall be permitted to transfer its
indirect interest in XYZ Entertainment to a Subsidiary and designate such
Subsidiary as an "Unrestricted Subsidiary" under the Indenture without
satisfaction of the foregoing clause (b), and such designation shall not
result in the Issuer having been deemed to have made any Investment
constituting a Restricted Payment under this Indenture.
The Indenture will further provide that the Issuer may (i) revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary or (ii) designate
any Unrestricted Affiliate as a Restricted Affiliate (each, a "Revocation")
if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary or
Unrestricted Affiliate, as the case may be, outstanding immediately
following such Revocation would, if incurred at such time, have been
permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Issuer delivered to the Trustee certifying compliance with the foregoing
provisions.
As of the Issue Date, each of Saturn, XYZ Entertainment and United Wireless
will be owned, directly or indirectly, through one or more Unrestricted
Subsidiaries, and UIH AML will be an Unrestricted Subsidiary.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture will provide that the Issuer will not, in a single transaction
or through a series of transactions, consolidate or combine with or merge with
or into or, directly or indirectly, sell, assign, convey, lease, transfer or
otherwise dispose of all or substantially all of its properties and assets to
any person or persons, and the Issuer will not permit any of its Subsidiaries
to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, lease, transfer or disposition of all or
substantially all of the properties and assets of the Issuer and its
Subsidiaries, taken as a whole, to any person or persons, unless (a) the
Issuer shall be the continuing person or the resulting, surviving or
transferee person (in either case, the "surviving entity") shall be a company
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia; (b) the surviving entity (if other
than the Issuer) shall expressly assume all of the obligations of the Issuer
under the Notes and the Indenture and shall execute a supplemental indenture
to effect such assumption which supplemental indenture shall be delivered to
the Trustee and shall be in form reasonably satisfactory to the Trustee; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Issuer or the surviving entity
(assuming such surviving entity's assumption of the Issuer's obligations under
the Notes and the Indenture), as the case may be, would be able to incur $1.00
of
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Indebtedness under the proviso of the covenant "Limitation on Additional
Indebtedness and Preferred Stock of Restricted Subsidiaries;" (d) immediately
after giving effect to such transaction or series of transactions on a pro
forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default shall have occurred and be
continuing; and (e) the Issuer or the surviving entity, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel stating that such transaction or series of transactions, and, if a
supplemental indenture is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of a person
subject to, and in accordance with, the foregoing, the surviving entity shall
succeed to, and be substituted for, and may exercise every right and power of
the Issuer under the Indenture with the same effect as if such surviving
entity had been named as such; provided that, solely for purposes of computing
Cumulative Adjusted Available Cash Flow for purposes of clause (iii) of the
first paragraph of the covenant "Limitation on Restricted Payments" above, the
Cumulative Adjusted Available Cash Flow of any persons other than the Issuer
and the Restricted Subsidiaries shall only be included for periods subsequent
to the effective time of such merger, consolidation, combination or transfer
of assets.
The Indenture will provide that for all purposes of the Indenture and the
Notes (including the provisions of this covenant and the covenants "Limitation
on Additional Indebtedness and Preferred Stock of Restricted Subsidiaries",
"Limitation on Restricted Payments" and "Limitation on Liens"), Subsidiaries
of any Surviving Entity will, upon such transaction or series of transactions,
become Restricted Subsidiaries or Unrestricted Subsidiaries as provided
pursuant to the covenant "Limitation on Unrestricted Subsidiaries and
Unrestricted Affiliates" and all Indebtedness, and all Liens on property or
assets, of the Issuer and the Restricted Subsidiaries immediately prior to
such transaction or series of transactions will be deemed to have been
incurred upon such transaction or series of transactions.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of interest on the Notes when it becomes due
and payable and continuance of such default for a period of 30 days or
more; or
(ii) default in the payment of the principal of, or premium, if any, on
the Notes when due, at maturity, upon redemption or otherwise (including
pursuant to a Change of Control Offer or an Asset Sale Offer); or
(iii) failure to make a Change of Control Offer or an Asset Sale Offer,
in each case, within the time periods specified in the Indenture or default
in the performance, or breach, of any covenant described under "--
Consolidation, Merger, Sale of Assets, Etc."; or
(iv) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i), (ii) or (iii)
above), and continuance of such default or breach for a period of 30 days
after written notice to the Issuer by the Trustee or to the Issuer and the
Trustee by the holders of at least 25% in aggregate principal amount at
maturity of the outstanding Notes (in each case, when such notice is deemed
received in accordance with the Indenture); or
(v) failure to perform any term, covenant, condition, or provision of one
or more classes or issues of other Indebtedness in an aggregate principal
amount of $5,000,000 (or, to the extent non-U.S. dollar denominated, the
U.S. Dollar Equivalent thereof) or more under which the Issuer or any
Restricted Subsidiary is obligated, and either (a) such Indebtedness is
already due and payable in full or (b) such failure results in the
acceleration of the maturity of such Indebtedness; or
(vi) any holder or encumbrancer of $5,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) or more in
aggregate principal amount of Indebtedness of the Issuer or any Restricted
Subsidiary shall commence judicial proceedings or take any other action to
foreclose upon, have
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a receiver appointed with respect to, or dispose of assets of the Issuer or
any Restricted Subsidiary having an aggregate Fair Market Value,
individually or in the aggregate, of $5,000,000 (or, to the extent non-U.S.
dollar denominated, the U.S. Dollar Equivalent thereof) or more or shall
have exercised any right under applicable law or applicable security
documents to take ownership of any such assets in lieu of foreclosure; or
(vii) one or more judgments, orders or decrees for the payment of money
in the amount of $5,000,000 (or, to the extent non-U.S. dollar denominated,
the U.S. Dollar Equivalent thereof) or more, either individually or in the
aggregate, shall be entered against the Issuer or any Restricted Subsidiary
or any of their respective properties and shall not be discharged and there
shall have been a period of 60 days or more during which a stay of
enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(viii) certain events of bankruptcy, insolvency, reorganization or
administration with respect to the Issuer or any Restricted Subsidiary
shall have occurred; or
(ix) on or before the tenth day following the termination, satisfaction
or release of the Australis Guarantee, failure of (x) UIH AML to distribute
all of its assets to the Issuer, or (y) the Issuer to designate UIH AML as
a Restricted Subsidiary in accordance with the terms of the Indenture.
If an Event of Default (other than an Event of Default specified in clause
(viii) above with respect to the Issuer) occurs and is continuing, then the
Trustee or the holders of at least 25% in principal amount at maturity of the
outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount at maturity of the
outstanding Notes shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Notes to be immediately due and payable
and upon any such declaration such amounts shall become immediately due and
payable. If an Event of Default specified in clause (viii) above with respect
to the Issuer occurs and is continuing, then the Default Amount of, and any
accrued and unpaid interest on, all outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default, other than nonpayment of the Default Amount of, and any accrued and
unpaid interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount at maturity of the outstanding Notes also have the right to
waive past defaults under the Indenture, except a default in the payment of
the Default Amount of, or any interest on, any outstanding Note, or in respect
of a covenant or a provision that cannot be modified or amended without the
consent of all holders of Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount at maturity of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 30 days after receipt of such notice and the Trustee has not
within such 30-day period received directions inconsistent with such written
request by holders of a majority in principal amount at maturity of the
outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
Default Amount of, or any accrued and unpaid interest on, such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, if an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders shall have offered to such Trustee reasonable
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security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in principal amount at maturity of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust, or power conferred on the Trustee.
The Indenture provides that the Trustee will, within 30 days after the
occurrence of any Default, give to the holders of the Notes notice of such
Default known to it, unless such Default shall have been cured or waived;
provided that, except in the case of a Default in payment of principal of or
interest on any Note, the Trustee shall be protected in withholding such
notice if it determines in good faith that the withholding of such notice is
in the interest of such holders.
The Issuer is required to furnish to the Trustee annually a statement as to
compliance with all conditions and covenants under the Indenture.
DEFEASANCE
The Issuer may at any time terminate all of its obligations with respect to
the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes as required by the Indenture and to maintain agencies in
respect of Notes. the Issuer may at any time terminate its obligations under
certain covenants set forth in the Indenture, some of which are described
under "--Certain Covenants" above, and any omission to comply with such
obligations shall not constitute a Default with respect to the Notes
("covenant defeasance"). To exercise either defeasance or covenant defeasance,
the Issuer must irrevocably deposit in trust, for the benefit of the holders
of the Notes, with the Trustee money (in United States dollars) or U.S.
government obligations (denominated in United States dollars), or a
combination thereof, in such amounts as will be sufficient to pay the
principal of, and premium, if any, and interest on the Notes to redemption or
maturity and comply with certain other conditions, including the delivery of a
legal opinion as to certain tax and other matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Notes) as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Issuer and
thereafter repaid to the Issuer or discharged from such trust) have been
delivered to the Trustee for cancellation; or (b)(i) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable by their terms or shall have been called for redemption and the Issuer
has irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount of money sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore delivered to
the Trustee for cancellation or redemption, for the principal amount, premium,
if any, and accrued interest to the date of such deposit; (ii) the Issuer has
paid all other sums payable by it under the Indenture; and (iii) the Issuer
has delivered irrevocable instructions to the Trustee to apply the deposited
money toward the payment of the Notes at maturity or on the redemption date,
as the case may be. In addition, the Issuer must deliver an Officers'
Certificate and an Opinion of Counsel stating that all conditions precedent to
satisfaction and discharge have been complied with.
AMENDMENT AND WAIVERS
From time to time the Issuer, when authorized by resolutions of its Board,
and the Trustee, without the consent of the holders of the Notes, may amend,
waive or supplement the Indenture, the Notes for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act
or making any change that does not adversely affect the rights of any holder.
Other amendments and modifications of the Indenture and the Notes may be made
by
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the Issuer and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount at maturity of the outstanding
Notes; provided that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (i) reduce
the principal amount at maturity of, extend the fixed maturity of, or alter
the redemption provisions of, the Notes or amend or modify the calculation of
the Accreted Value or the Default Amount so as to reduce the amount of the
Accreted Value or the Default Amount, (ii) change the currency in which any
Notes or any premium or the accrued interest thereon is payable, (iii) reduce
the percentage in principal amount at maturity outstanding of Notes who must
consent to an amendment, supplement or waiver or consent to take any action
under the Indenture or the Notes, (iv) impair the right to institute suit for
the enforcement of any payment on or with respect to the Notes, (v) waive a
default in payment with respect to the Notes, (vi) reduce the rate or extend
the time for payment of interest on the Notes, (vii) alter the obligation to
purchase the Notes in accordance with the Indenture following the occurrence
of a Change of Control or an Asset Sale or waive any default in the
performance thereof, or (viii) affect the ranking of the Notes in a manner
adverse to the holder of any Notes.
It is possible that an amendment or modification approved by a majority of
the holders as described above could have adverse tax consequences to the
holders.
REGARDING THE TRUSTEE
American Bank National Association will serve as Trustee under the
Indenture. The Indenture provides that, except during the continuance of an
Event of Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of Issuer, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided that if it acquires any conflicting interest (as
defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture will provide that the Indenture and the Notes will be governed
by and construed in accordance with laws of the State of New York without
giving effect to principles of conflicts of law.
REGISTRATION RIGHTS
Holders of New Notes are not generally entitled to any registration rights
with respect to such New Notes. Pursuant to the Registration Rights Agreement,
the Issuer agreed to file with the Commission the Registration Statement of
which this Prospectus is a part with respect to the Exchange Offer. If (i) the
Issuer is not permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted due to a change in applicable law or Commission policy
or (ii) any holder of Notes notifies the Issuer within a specified time period
that (a) due to a change in law or policy it is not entitled to participate in
the Exchange Offer, (b) due to a change in law or policy it may not resell the
New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and this Prospectus is not appropriate or available
for such resales by such holder or (c) it is a broker-dealer and owns Notes
acquired directly from the Issuer or an affiliate of the Issuer, the Issuer
will file with the Commission the Shelf Registration Statement to cover
resales of the Transfer Restricted Notes (as defined below) by the holders
thereof. The Issuer will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Notes" means
each Note until (i) the date on which such Note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
an Exchange Note, the date on which such Exchange Note is sold to a
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purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) the date on which such Note is distributed to the
public pursuant to, or is eligible for sale to the public without volume or
manner of sale restrictions under Rule 144(k) promulgated under the Securities
Act (or any similar provision then in force, but not Rule 144A under the
Securities Act), (v) such Note shall have been otherwise transferred by the
holder thereof and a new Note, not bearing a legend restricting further
transfer, shall have been delivered by the Issuer and subsequent disposition
of such Note shall not require registration or qualification under the
Securities Act or any similar state law then in force or (vi) such Note ceases
to be outstanding.
Under existing Commission interpretations, the New Notes would, in general,
be freely transferable after the Exchange Offer without further registration
under the Securities Act; provided that in the case of broker-dealers
participating in the Exchange Offer, a prospectus meeting the requirements of
the Securities Act will be delivered upon resale by such broker-dealers in
connection with resales of the New Notes. The Issuer has agreed, for a period
of one year after consummation of the Exchange Offer, to make available a
prospectus meeting the requirements of the Securities Act to any such broker-
dealer for use in connection with any resale of any New Notes acquired in the
Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
The Registration Rights Agreement provides that unless the Exchange Offer
would not be permitted by applicable law or SEC policy, the Company will
commence the Exchange Offer and use its best efforts to issue on or prior to
, 1996, New Notes in exchange for all Old Notes tendered prior thereto in
the Exchange Offer and, if obligated to file the Shelf Registration Statement,
the Company will use its best efforts to file the Shelf Registration Statement
with the SEC as promptly as practicable after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the SEC on or
prior to , 1996. If the Company fails to consummate the Exchange Offer,
or any Shelf Registration Statement required to be filed pursuant to the
Registration Rights Agreement is not declared effective, on or prior to
, (each such event, a "Registration Default"), the Company will pay, as
liquidated damages, and not as a penalty, to each Holder, an additional amount
(the "Liquidated Damages") equal to (A) during the first 90-day period
beginning on, and including, the date of the Registration Default, an amount
equal to 0.5% per annum of the Accreted Value (as defined in the Indenture) of
Transfer Restricted Notes held by such Holder and (B) during each subsequent
90-day period immediately following the final day of the prior 90-day period,
a percentage of the Accreted Value of Transfer Restricted Notes held by such
Holder calculated at the rate per annum applicable in the immediately
preceding 90-day period plus 0.5%, provided that, the rate at which Liquidated
Damages are calculated shall not exceed 2.5% per annum, and, in all cases,
ending on, but excluding the date on which the Exchange Offer is consummated
or the date on which the applicable Registration Statement again becomes
effective, as the case may be.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for any other capitalized terms used herein for which
no definition is provided.
"Accreted Value" means, as of any date of determination prior to May 15,
2001, the sum (rounded to the nearest whole dollar) of (a) $308.6 for each
$1,000 principal amount at maturity of Notes and (b) the portion of the excess
of the principal amount of Notes over $308.6 which shall have been accreted
thereon through such date, such amount to be so accreted on a daily basis at
the Interest Rate then in effect, compounded semi-annually on each May 15 and
November 15 from the date of issuance of the Notes through the date of
determination. It is understood that, in the event the Interest Rate increases
as provided in the proviso to the definition thereof, the principal amount of
the Notes will exceed $1,000 at some point prior to May 15, 2001 and that the
principal amount at maturity will exceed $1,000.
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"Acquired Indebtedness" means Indebtedness of a person existing at the time
such person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by such person and not incurred in connection with, or in
anticipation of, such person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect
common control with, such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of the Issuer are available multiplied by four. For
purposes of calculating "Consolidated Operating Cash Flow" for any fiscal
quarter for purposes of this definition, (i) any Subsidiary of the Issuer that
is a Restricted Subsidiary on the date of the transaction giving rise to the
need to calculate "Annualized Pro Forma Consolidated Operating Cash Flow" (the
"Transaction Date") shall be deemed to have been a Restricted Subsidiary at
all times during such fiscal quarter and (ii) any Subsidiary of the Issuer
that is not a Restricted Subsidiary on the Transaction Date shall be deemed
not to have been a Restricted Subsidiary at any time during such fiscal
quarter. In addition to and without limitation of the foregoing, for purposes
of this definition, "Consolidated Operating Cash Flow" shall be calculated
after giving effect on a pro forma basis for the applicable fiscal quarter to,
without duplication, any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Issuer's or one of the Restricted Subsidiaries'
(including any person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
fiscal quarter to and including the Transaction Date (the "Reference Period"),
as if such Asset Sale or Asset Acquisition occurred on the first day of the
Reference Period.
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Issuer or any
Restricted Subsidiary in any other person, or any acquisition or purchase of
Capital Stock of any other person by the Issuer or any Restricted Subsidiary,
in either case pursuant to which such person shall become a Restricted
Subsidiary or shall be merged with or into the Issuer or any Restricted
Subsidiary, or (ii) any acquisition by the Issuer or any Restricted Subsidiary
of the assets of any person which constitute substantially all of an operating
unit or line of business of such person or which is otherwise outside of the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any person other than
the Issuer or a Restricted Subsidiary, in one transaction or a series of
related transactions, of (i) any Capital Stock of any Restricted Subsidiary
(whether through the sale of outstanding Capital Stock or the issuance of
additional Capital Stock), (ii) any transmission or broadcast license of the
Issuer or any Restricted Subsidiary pertaining to a Related Business (whether
by the sale of Capital Stock or otherwise), (iii) any assets of the Issuer or
any Restricted Subsidiary which constitute substantially all of an operating
unit or line of business of the Issuer and the Restricted Subsidiaries, (iv)
any other property or asset of the Issuer or any Restricted Subsidiary outside
of the ordinary course of business or (v) any direct or indirect interests of
the Issuer in XYZ Entertainment. For the purposes of this definition, the term
"Asset Sale" shall not include (i) any disposition of properties or assets of
the Issuer or one or more of the Restricted Subsidiaries that is governed
under "--Consolidation, Merger, Sale of Assets, Etc." above or (ii) sales of
property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Issuer or
any Restricted Subsidiary, as the case may be. For purposes of the covenant
"Disposition of Proceeds of Asset Sales," the term "Asset Sale" shall not
include (i) any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions, either (x) involving assets with a Fair Market Value not in
excess of $250,000 (or, to the extent non-U.S. dollar denominated, the U.S.
Dollar Equivalent thereof) or (y) as part of a Capitalized Lease Obligation,
or (ii) any sale and leaseback of an
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asset within 180 days after the completion of construction or acquisition of
such asset; provided the lease constitutes a Capitalized Lease Obligation of
the Issuer or any Restricted Subsidiary.
"Australis Guarantee" means the guarantee by UIH AML of the obligations of
Australis Holdings Pty Limited under its bank facility pursuant to the
Guarantee Facility dated as of May 9, 1996, among Publishing and Broadcasting
Limited, Publishing and Broadcasting (Finance) Limited, Lenfest
Communications, Inc., Guinness Peat Group PLC, UIH AML and Toronto Dominion
Australia Limited, substantially as such Guarantee Facility is in effect on
the Issue Date.
"Australis Warrants" means the options to purchase Capital Stock of
Australis issued to UIH AML by Australis in connection with the making of the
Australis Guarantee.
"Average Life to Stated Maturity" means, with respect to any Indebtedness or
Preferred Stock, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal or other return of
capital (including, without limitation, any sinking fund requirements) of such
Indebtedness or Preferred Stock multiplied by (b) the amount of each such
principal or other payment by (ii) the sum of all such principal or other
payments.
"Board" means the Board of Directors of the Issuer.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Issuer, to have been duly adopted by its
respective Board and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) (including share appreciation rights) of,
such Person's capital stock or shares, whether outstanding on the Issue Date
or issued after the Issue Date, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or shares. "Capital
Stock" shall include any convertible notes or debentures or similar
instruments constituting a part of a person's consolidated shareholders'
equity in accordance with U.S. GAAP.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed, immovable or movable) that is
required to be classified and accounted for as a finance lease under U.S. GAAP
and, for the purpose of the Indenture, the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined in
accordance with U.S. GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued or directly and fully guaranteed or insured by the
Commonwealth of Australia or the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
Commonwealth of Australia or the United States of America, as the case may be,
is pledged in support thereof or such Indebtedness constitutes a general
obligation of it); (ii) deposits, certificates of deposit or acceptances with
a maturity of 365 days or less of any institution which is a bank authorized
under the Banking Act 1959 to carry on banking business in Australia or any
financial institution that is a member of the Federal Reserve System, in each
case having combined capital and surplus and undivided profits (or any similar
capital concept) of not less than $250,000,000 or, to the extent non-U.S.
Dollar denominated, the U.S. Dollar Equivalent thereof; (iii) commercial paper
with a maturity of 365 days or less issued by a corporation (other than an
Affiliate of the Issuer) incorporated or organized under the laws of the
Commonwealth of Australia or any jurisdiction thereof or the United States or
any state thereof or the District of Columbia and rated at least "A-1" by S&P
or "P-1" by Moody's or their respective Australian affiliates; and (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the Commonwealth of
Australia or the United States Government or issued by any agency thereof and
backed by the full faith and
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credit of the Australian Federal Government or the United States Government,
respectively, in each case maturing within one year from the date of
acquisition.
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Stock of the Issuer; or (b) the Issuer consolidates with, or merges with or
into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets (as determined
under applicable law) to any person, or any person consolidates with, or
merges with or into, the Issuer, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Issuer is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Issuer is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation and/or (2) cash, securities and other
property in an amount which could be paid by the Issuer as a Restricted
Payment under the Indenture and (ii) no "person" or "group" (excluding
Permitted Holders) owns more than 50% of the total Voting Stock of the Issuer;
or (c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of the Issuer (together with
any new directors whose election by the Board of the Issuer or whose
nomination for election by the stockholders of the Issuer was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason (other than by
action of the Permitted Holders) to constitute a majority of the Board of the
Issuer then in office; provided that to the extent that one or more regulatory
approvals are required for one or more of the events or circumstances
described above to become effective under applicable law, such events or
circumstances shall be deemed to have occurred at the time such approvals have
been obtained and become effective under applicable law. As what constitutes
"substantially all of its assets" has not been quantified under applicable
law, it may not be possible for the Trustee or a holder of the Notes to
readily determine if a sale by the Issuer of less than all of its assets
constitutes a "Change of Control" for purposes of the covenant described under
"Certain Covenants--Change of Control."
"Common Stock" means any Capital Stock other than Preferred Stock.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for corporation, local, foreign and other income taxes of the Issuer
and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with U.S. GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Issuer and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with U.S. GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under any Currency Agreements
and Interest Rate Protection Obligations (including any amortization of
discounts), (c) the interest portion of any deferred payment obligation, (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit, bills of exchange, promissory notes and bankers' acceptance
financing and (e) all accrued interest and (ii) all but the principal
component of Capitalized Lease Obligations paid, accrued and/or scheduled to
be paid or accrued by such person during such period as determined on a
consolidated basis in accordance with U.S. GAAP.
"Consolidated Net Income" means, with respect to any period, the
consolidated net income of the Issuer and the Restricted Subsidiaries for such
period, adjusted, to the extent included in calculating such net income, by
excluding, without duplication, (i) all extraordinary gains or losses (on an
after-tax basis) of such person (net of fees and expenses relating to the
transaction giving rise thereto) for such period, (ii) except to the extent
dividended or otherwise distributed to the Issuer or any Restricted
Subsidiary, income of the Issuer and the Restricted Subsidiaries derived from
or in respect of all Investments in persons other than any Restricted
Subsidiary, (iii) the portion of net income (or loss) of such person allocable
to minority interests in unconsolidated persons for such period, except to the
extent actually received by the Issuer or any Restricted Subsidiary, (iv) net
income (or loss) of any other person combined with such person on a "pooling
of interests" basis attributable to any period prior to the date of
combination, (v) any gain or loss, net of taxes, realized by such person upon
the termination of any employee pension benefit plan during such period, (vi)
gains or losses
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in respect of any Asset Sales (on an after-tax basis and net of fees and
expenses relating to the transaction giving rise thereto) during such period
and (vii) the net income of any Restricted Subsidiary for such period to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary to the Issuer or any Restricted Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of
the terms of its charter or constituent documents or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary.
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of the Issuer and the Restricted Subsidiaries for such
period (a) increased by (to the extent included in computing such Consolidated
Net Income) the sum of (i) the Consolidated Income Tax Expense of the Issuer
and the Restricted Subsidiaries for such period (other than taxes attributable
to extraordinary, unusual or non-recurring gains or losses); (ii) Consolidated
Interest Expense for such period; (iii) depreciation of the Issuer and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with U.S. GAAP; (iv) amortization of the Issuer and the Restricted
Subsidiaries for such period, including, without limitation and without
duplication, amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with U.S. GAAP; and (v)
any other non-cash charges that were deducted in computing Consolidated Net
Income (excluding any non-cash charge which requires an accrual or reserve for
cash charges for any future period) of the Issuer and the Restricted
Subsidiaries for such period in accordance with U.S. GAAP and (b) decreased by
any non-cash gains that were included in computing Consolidated Net Income;
provided that the amounts described in clause (a) above with respect to any
Restricted Subsidiary shall be added to, and the amounts described in clause
(b) above with respect to any Restricted Subsidiary shall be deducted from
such Consolidated Net Income in computing Operating Consolidated Cash Flow
only to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income
of the Issuer and the Restricted Subsidiaries.
"consolidation" means, with respect to the Issuer, the consolidation of the
accounts of the Restricted Subsidiaries with those of the Issuer, all in
accordance with U.S. GAAP; provided that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary or Unrestricted
Affiliate with the accounts of the Issuer. The term "consolidated" has a
correlative meaning to the foregoing.
"Cumulative Consolidated Operating Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow
realized during the period commencing on the Issue Date and ending on the last
day of the most recent fiscal quarter immediately preceding the date of
determination for which consolidated financial information of the Issuer is
available or, if such cumulative Consolidated Operating Cash Flow for such
period is negative, the negative amount by which cumulative Consolidated
Operating Cash Flow is less than zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Default Amount" means (i) as of any date prior to May 15, 2001, the
Accreted Value of the Notes (plus any applicable premium thereon) as of such
date and (ii) as of any date on or after May 15, 2001, 100% of the principal
amount at maturity of the Notes (plus any applicable premium thereon).
"Designation" has the meaning set forth under the covenant "Limitation on
Unrestricted Subsidiaries and Unrestricted Affiliates."
"Disinterested Director" means, with respect to any transaction or series of
transactions, a member of the Board of the Issuer other than a director who
has any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
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"Disqualified Stock" means, with respect to any person, any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, except to the extent exchangeable
at the option of such person subject to the terms of any debt instrument to
which such person is a party), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is exchangeable for Indebtedness, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the final maturity date of
the Notes.
"Equity Sale" means the sale or sales by the Issuer subsequent to the Issue
Date of its Capital Stock (other than Disqualified Capital Stock) for
aggregate gross cash proceeds of at least $70 million.
"Exercise Price" means the number of dollars equal to (x) 4,500,000 divided
by (y) the number of Warrants of the Company or Warrants of Parent as the case
may be, issued as described in "--Certain Covenants--Issuance of Contingent
Warrants."
"Existing Business" means, with respect to any Restricted Subsidiary, (i)
the MMDS, cable television, satellite direct to home or telecommunications
business, as the case may be, of such Restricted Subsidiary existing on the
Issue Date and (ii) any MMDS, cable television, satellite direct to home or
telecommunications business constituting a Replacement Asset received by a
Restricted Subsidiary in consideration for a MMDS, cable television, satellite
direct to home or telecommunications business of such Restricted Subsidiary
constituting a portion of the Existing Business of such Restricted Subsidiary.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the Board acting in
good faith and shall be evidenced by a Board Resolution of the Issuer
delivered to the Trustee; provided that, for purposes of the third paragraph
of the covenant "Disposition of Proceeds of Asset Sales" and the covenant
"Limitation on Transactions with Affiliates," in the case of any transaction
or series of related transactions which involve aggregate consideration of
$10,000,000 (or, to the extent non-U.S. dollar denominated, the U.S. Dollar
Equivalent thereof) or more, Fair Market Value shall also be determined by an
Independent Financial Advisor.
"Final Maturity Date" means May 15, 2006.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Indebtedness" means, with respect to any person, without duplication, (i)
any liability, contingent or otherwise, of such person (A) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), whether as a cash advance, bill,
overdraft or money market facility loan or (B) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or by any book-entry mechanism or (C) for the payment of money
relating to a Capitalized Lease Obligation or other obligation relating to the
deferred purchase price of property, to the extent, in each of clauses (A),
(B) and (C), such liability would appear on a balance sheet of such person
prepared in accordance with U.S. GAAP or (D) in respect of an Interest Rate
Protection Obligation or any foreign exchange contract, currency swap
agreement or other similar agreement; (ii) any liability of others of the kind
described in the preceding clause (i) which the person has guaranteed or which
is otherwise its legal liability; (iii) any obligation secured by a Lien
(other than a Lien on Indebtedness or Capital Stock of an Unrestricted
Subsidiary or Unrestricted Affiliate which represents the sole recourse of the
secured party for any default in respect of the secured obligation) to which
the property or assets of such person are subject, whether or not the
obligations
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secured thereby shall have been assumed by or shall otherwise be such person's
legal liability; (iv) any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any liability
of the kind described in any of the preceding clauses (i), (ii) or (iii); and
(v) the maximum repurchase or redemption price of any Disqualified Stock. In
no event shall "Indebtedness" include trade payables incurred in the ordinary
course of business or convertible debentures or similar instruments of any
Restricted Subsidiary of the Issuer constituting Capital Stock (other than
Disqualified Stock); provided, however, that such convertible debentures or
similar instruments, (x) provide that payments thereon are subordinated in
right of payment to all liabilities of such Restricted Subsidiary, (y) provide
that upon a winding-up or liquidation of such Restricted Subsidiary such
convertible debentures or similar instruments shall only entitle the holder
thereof to a pro rata portion of the distributions available to holders of
Common Stock of such Restricted Subsidiary upon such liquidation or winding-up
and (z) provide that interest thereon shall only be paid if a distribution is
made to holders of the Common Stock of such Restricted Subsidiary and such
interest shall be in an amount that the holder of such convertible debentures
or similar instruments would have received if all of the convertible
debentures or similar instruments of such Restricted Subsidiary had been
converted into shares of Common Stock of such Restricted Subsidiary in
accordance with the terms thereof. For purposes of the covenant "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries," in
determining the principal amount of any Indebtedness (1) to be incurred by the
Issuer or a Restricted Subsidiary or which is outstanding at any date, (x) the
principal amount of any Indebtedness which provides that an amount less than
the principal amount at maturity thereof shall be due upon any declaration of
acceleration thereof shall be the accreted value thereof at the date of
determination and (y) effect shall be given to the impact of any Currency
Agreements with respect to such Indebtedness and (2) outstanding at any time
under any Currency Agreement of the Issuer or any Restricted Subsidiary shall
be the net payment obligation under such Currency Agreement at such time.
"Independent Financial Advisor" means a United States investment or merchant
banking firm or public accounting firm of national standing in the United
States (i) which does not, and whose directors and executive officers and
Affiliates do not, have an investment in the Issuer or any of its Affiliates
and (ii) which, in the judgment of the Board of the Issuer is otherwise
independent with respect to the Issuer and its Affiliates and qualified to
perform the task for which it is to be engaged. A trustee or nominee for the
true parties in interest shall not be excluded from the definition of
"Independent Financial Advisor" solely as a result of such trustee or nominee
status.
"Interest Rate" means, at any time, 14% per annum; provided, that if an
Equity Sale has not been consummated on or prior to May 15, 1997, then from
(and including) such date through (but excluding) the date of the consummation
of an Equity Sale, the "Interest Rate" shall be increased by .75% per annum.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include without limitation, interest rate
swaps, caps, floors, collars, forward interest rate agreements and similar
agreements.
"Investment" means, with respect to any person, any advance, loan, account
receivable (other than an account receivable arising in the ordinary course of
business), or other extension of credit (including, without limitation, by
means of any guarantee) or any capital contribution to (by means of transfers
of property to others, payments for property or services for the account or
use of others, or otherwise), or any purchase of any shares, stocks, bonds,
notes, debentures or other securities of, any other person. In addition, any
foreign exchange contract, currency-swap agreement or other similar agreement
made or entered into by any person shall constitute an Investment by such
person.
"Issue Date" means the original date of issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
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property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all Taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than the
Issuer or any Restricted Subsidiary) owning a beneficial interest in or having
a Lien on the assets subject to the Asset Sale, (iv) other amounts required to
be treated as Net Cash Proceeds pursuant to the covenant "Disposition of
Proceeds of Asset Sales," and (v) appropriate amounts to be provided by the
Issuer or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with U.S. GAAP against any liabilities associated with such
Asset Sale and retained by the Issuer or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension,
superannuation and other post-employment benefit liabilities, liabilities
under any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate of the Issuer delivered to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Issuer which ranks
pari passu in right of payment with the Notes.
"Permitted Holders" means (i) any of United International Holdings, Inc.,
Apollo Cable Partners, L.P., Apollo Advisors, L.P., Albert M. Carollo,
Lawrence J. DeGeorge, Amphenol Corporation (so long as it is controlled by
Lawrence J. DeGeorge), LPL Technologies, Inc. (so long as it is controlled by
Lawrence J. DeGeorge), William J. Elsner, Lawrence Flinn, Jr., L. Flinn Jr.
Family Partnership-I (so long as it is controlled by Lawrence Flinn, Jr.),
Joseph E. Giovanini, Clarice J. Giovanini, Giovanini Investments, Ltd. (so
long as it is controlled by Joseph E. or Clarice J. Giovanini), Curtis
Rochelle, Marian Rochelle, Rochelle Investments, Ltd. (so long as it is
controlled by Curtis or Marian Rochelle), Gene W. Schneider, G. Schneider
Holdings, Co. (so long as it is controlled by Gene W. Schneider), Janet S.
Schneider and Mark L. Schneider and (ii) any Affiliate of the foregoing.
"Permitted Indebtedness and Preferred Stock" means the Indebtedness set
forth in the following clauses (each of which shall be given independent
effect):
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness of the Issuer and/or of any Restricted Subsidiary
outstanding on the Issue Date;
(c) Indebtedness of any Restricted Subsidiary to the extent the proceeds
of such Indebtedness are utilized to finance the construction of the
networks for the Existing Business of such Restricted Subsidiary (including
the purchase of equipment for use in and the installation and construction
costs related to the construction of such networks), in the licensed
service areas of such Restricted Subsidiary existing on the Issue Date or
to support the operations or working capital requirements related to any
such Existing Business; provided that the aggregate principal amount of
Indebtedness incurred after the Issue Date pursuant to this clause (c) and
clause (d) below shall not exceed the sum of (x) $85,000,000 plus (y) 200%
of the sum of (A) cash proceeds of capital contributions to the Issuer
after the Issue Date invested in such Existing Business and (B) cash
proceeds of the issuance of Capital Stock (other than Disqualified Capital
Stock) of Issuer after the Issue Date invested in such Existing Business;
(d) Indebtedness of the Issuer to the extent the proceeds of such
Indebtedness are utilized to finance the construction of the networks for
the Existing Business of a Restricted Subsidiary (including the purchase of
equipment for use in and the installation and construction costs related to
the construction of such networks) in the licensed service areas of such
Restricted Subsidiary existing on the Issue Date or to support the
operations or working capital requirements related to any such Existing
Business; provided, however, that any such Indebtedness (i) shall not
provide for any required payment of principal prior to the Final
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Maturity Date, (ii) shall not provide for any required payment of interest
prior to May 15, 2001 and (iii) shall not be guaranteed by any Restricted
Subsidiary; provided that the aggregate principal amount of Indebtedness
incurred after the Issue Date pursuant to this clause (d) and clause (c)
above shall not exceed the sum of (x) $85,000,000 plus (y) 200% of the sum
of (A) cash proceeds of capital contributions to the Issuer after the Issue
Date invested in such Existing Business and (B) cash proceeds of the
issuance of Capital Stock (other than Disqualified Capital Stock) of Issuer
after the Issue Date invested in such Existing Business;
(e) Indebtedness of the Issuer the proceeds of which are utilized to
finance an Asset Acquisition of a Related Business and Indebtedness of the
Restricted Subsidiary acquired in such Asset Acquisition or which acquired
such Related Business pursuant to such Asset Acquisition the proceeds of
which are utilized to finance the construction of the networks for the
Related Business acquired in such Asset Acquisition (including the purchase
of equipment for use in and the installation and construction costs related
to the construction of such networks) in the licensed service areas of such
Related Business or to support the working capital requirements relating to
any such Related Business; provided, however, that in no event will the
aggregate principal amount of Indebtedness incurred by the Issuer or any
Restricted Subsidiary with respect to any Asset Acquisition of a Related
Business exceed 125% of the sum of (x) cash proceeds of capital
contributions to the Issuer invested in such Related Business and (y) cash
proceeds of issuances of Capital Stock (other than Disqualified Capital
Stock) of the Issuer invested in such Related Business.
(f)(i) Indebtedness or Preferred Stock of any Restricted Subsidiary owed
or issued to and held by the Issuer or a Restricted Subsidiary and (ii)
Indebtedness of the Issuer owed to and held by any Restricted Subsidiary;
provided that a new incurrence of Indebtedness or issuance of Preferred
Stock shall be deemed to have occurred upon (x) any sale or other
disposition of any Indebtedness of the Issuer or a Restricted Subsidiary
referred to in this clause (f) to any person other than the Issuer or a
Restricted Subsidiary, (y) any sale or other disposition of Capital Stock
of a Restricted Subsidiary, or Designation of a Restricted Subsidiary as an
Unrestricted Subsidiary or Unrestricted Affiliate, which holds Indebtedness
of the Issuer or Indebtedness or Preferred Stock of another Restricted
Subsidiary such that such Restricted Subsidiary, in any such case, ceases
to be a Restricted Subsidiary or (z) any Restricted Affiliate which holds
Indebtedness of the Issuer or Indebtedness or Preferred Stock of another
Restricted Subsidiary ceases, for any reason, to constitute a Restricted
Affiliate;
(g) Interest Rate Protection Obligations of the Issuer and/or any
Restricted Subsidiary relating to (i) Indebtedness of the Issuer or any
Restricted Subsidiary (which Indebtedness (x) bears interest at fluctuating
interest rates and (y) is otherwise permitted to be incurred under the
"Limitation on Additional Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant) and/or (ii) Indebtedness for which a lender has
provided a commitment in an amount reasonably anticipated to be incurred by
the Issuer or a Restricted Subsidiary in the following 90 days after such
Interest Rate Protection Obligation has been incurred, but only to the
extent that the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness
(and/or Indebtedness subject to commitments) to which such Interest Rate
Protection Obligations relate; provided in no event shall any Restricted
Subsidiary incur Indebtedness under an Interest Rate Protection Obligation
under this clause (g) relating to Indebtedness of the Issuer;
(h) Indebtedness of the Issuer and/or any Restricted Subsidiary under
Currency Agreements relating to (i) Indebtedness of the Issuer or a
Restricted Subsidiary and/or (ii) obligations to purchase or sell assets,
properties or services or license programming rights, in each case,
incurred in the ordinary course of business of the Issuer or any Restricted
Subsidiary; provided that such Currency Agreements do not increase the
Indebtedness or other obligations of the Issuer and the Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder; provided, further, in no event shall any Restricted
Subsidiary incur Indebtedness under any Currency Agreement under this
clause (h) relating to Indebtedness or obligations of the Issuer;
(i) Indebtedness of the Issuer and/or any Restricted Subsidiary in
respect of performance bonds of the Issuer or any Restricted Subsidiary or
surety bonds provided by the Issuer or any Restricted Subsidiary
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incurred in the ordinary course of business in connection with the
construction or operation of a Related Business (other than with respect to
the production or acquisition of programming);
(j) issuances of Preferred Stock or Indebtedness by a Restricted
Subsidiary (which Indebtedness constitutes Capital Stock of such Restricted
Subsidiary) to the holders (or, other than in the case of the Issuer or any
Restricted Subsidiary that is a holder, the Affiliates) of the common
equity of such Restricted Subsidiary (determined on an economic basis) on a
basis that is substantially proportionate to their common equity interests
to the equivalent thereof (disregarding for this purpose any
disproportionately greater interest issued to the Issuer or any Restricted
Subsidiary); provided, however, that such Indebtedness, (x) provides that
payments thereon are subordinated in right of payment to all liabilities of
such Restricted Subsidiary, (y) provides that upon a winding up or
liquidation of such Restricted Subsidiary such Indebtedness shall only
entitle the holder thereof to a pro rata portion of the distributions
available to holders of Common Stock of such Restricted Subsidiary upon
such liquidation or winding-up and (z) provides that interest thereon shall
only be paid if a distribution is made to holders of the Common Stock of
such Restricted Subsidiary and such interest shall be in an amount that the
holder of such Indebtedness would have received if all of the Indebtedness
of such Restricted Subsidiary issued pursuant to this clause (j) had been
converted into shares of Common Stock of such Restricted Subsidiary in
accordance with the terms thereof;
(k) Indebtedness of the Issuer and/or any Restricted Subsidiary to the
extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Issuer or any Restricted Subsidiary
incurred pursuant to the proviso of the covenant "Limitation on Additional
Indebtedness and Preferred Stock of Restricted Subsidiaries" or clause (a),
(b) (other than Indebtedness which is to be repaid from the net proceeds
from the sale of the Notes as described under "Use of Proceeds") or (c),
(d) or (e) of this definition; provided that (i) Indebtedness of the Issuer
may not be replaced, renewed, refinanced or extended under this clause (k)
with Indebtedness of any Restricted Subsidiary and Indebtedness of a
Restricted Subsidiary may not be replaced, renewed, refinanced or extended
under this clause (k) with Indebtedness of any other Restricted Subsidiary
and (ii) any such replacement, renewal, refinancing or extension (x) shall
not, in the case of Indebtedness of the Issuer, provide for any payments of
principal prior to the Final Maturity Date and (y) shall not exceed the sum
of the principal amount (or, if such Indebtedness provides for a lesser
amount to be due and payable upon a declaration of acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing or
extension and such reasonable fees and expenses incurred in connection
therewith; and
(l) Indebtedness of the Issuer and the Restricted Subsidiaries in
addition to that described in clauses (a) through (k) above so long as the
aggregate principal amount of all such Indebtedness incurred pursuant to
this clause (l) does not exceed $25,000,000 at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
Interest Rate Protection Obligations and Currency Agreements; (d) bonds,
notes, debentures or other securities received as a result of Asset Sales
permitted under the covenant "Disposition of Proceeds of Asset Sales"; (e) any
Investment in another person in exchange for Capital Stock (other than
Disqualified Stock) of the Issuer; (f) loans and advances to employees of the
Issuer or any of the Restricted Subsidiaries in the ordinary course of
business in an aggregate amount not to exceed $1,000,000 (or, to the extent
non-U.S. dollar denominated, the U.S. Dollar Equivalent thereof) at any time
outstanding; (g) any Investment in Capital Stock or obligations of any person
made in settlement of claims by the Issuer or any Restricted Subsidiary
against such person; and (h) any investments in (i) the Australis Warrants or
any securities of Australis received by UIH AML or the Issuer upon exercise of
the Australis Warrants for aggregate consideration not exceeding the aggregate
exercise price of the Australis Warrants as in effect on the Issue Date, and
(ii) securities of Australis received by UIH AML upon the refinancing or
conversion of the Australis Guarantee in accordance with the terms thereof.
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"Permitted Liens" means (a) Liens on assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary, which indebtedness is
incurred pursuant to clause (c), (e), (k) or (l) of the definition of
"Permitted Indebtedness and Preferred Stock"; (b) Liens in favor of the Issuer
or a Restricted Subsidiary; (c) Liens on property of a person existing at the
time such person is merged into or consolidated with the Issuer or any
Restricted Subsidiary; provided that such Liens were in existence prior to the
contemplation by the Issuer of such merger or consolidation and do not extend
to any assets other than those of the person merged into or consolidated with
the Issuer; (d) Liens on property existing at the time of acquisition thereof
by the Issuer or any Restricted Subsidiary provided that such Liens were in
existence prior to the contemplation by the Issuer of such acquisition; (e)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (f) Liens existing on the Issue Date; (g) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
U.S. GAAP shall have been made therefor; and (h) Liens incurred in the
ordinary course of business of the Issuer or any Restricted Subsidiary with
respect to obligations that do not exceed $2,000,000 at any one time
outstanding and that (A) are not incurred in connection with the borrowing of
money or the obtaining of advances of credit (other than trade credit in the
ordinary course of business) and (B) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business by the Issuer or such Restricted Subsidiary.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock or shares whether now outstanding, or
issued after the Issue Date.
"Pro Rata Share" means a fraction, (i) the numerator of which is the
Accreted Value of Notes outstanding on the applicable purchase date and (ii)
the denominator of which is the sum of (x) the aggregate Accreted Value or of
Notes outstanding on such date and (y) if there is Pari Passu Indebtedness
which require that Net Cash Proceeds be used to offer to purchase such Pari
Passu Indebtedness, the outstanding principal amount of such Pari Passu
Indebtedness on such date.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Issuer (or any person of
which the Issuer is a direct subsidiary) which has been registered under the
Securities Act.
"Purchase Money Financing" means Indebtedness of the Issuer or any
Restricted Subsidiary incurred to finance the purchase (other than pursuant to
an Asset Acquisition) of any assets by Issuer (or incurred within 60 days
after such purchase and secured by the assets so purchased) or any Restricted
Subsidiary that will be used in a Related Business to the extent the purchase
cost for such assets is or should be included in "additions to property, plant
and equipment" in accordance with U.S. GAAP.
"Related Business" means any business in which the Issuer or its Restricted
Subsidiaries are engaged, directly or indirectly, (i) that consists primarily
of, or is related to, operating, acquiring, developing and constructing multi-
channel television systems, programming services, wire-based or "wireless"
telephony services and related services, (ii) that uses existing or future
technology for the transmission and delivery of programming, voice or other
data or (iii) that supports or is incidental to any business listed in clause
(i) or (ii).
"Restricted Affiliate" means, with respect to the Issuer, any other person
(i) of which at least 40% of the outstanding Voting Stock shall at the time be
owned, directly or indirectly, by the Issuer, and (ii) which has been
designated in a Board Resolution as a Restricted Affiliate based on a
determination by the Board that the Issuer has, directly or indirectly, the
requisite control over such other person to prevent it from taking any action
at any time in contravention of any of the provisions of the Indenture that
are applicable to Restricted Subsidiaries. The Issuer will be required to
deliver an Officers' Certificate to the Trustee, including a copy of the Board
Resolution, upon designating any person as a Restricted Affiliate.
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"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Issuer or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Issuer (other than dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Issuer or in options, warrants or other rights to purchase Capital
Stock (other than Disqualified Stock) of the Issuer); (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock
of the Issuer (other than any such Capital Stock owned by the Issuer or a
Restricted Subsidiary); (iii) the making of any principal payment on, or the
purchase, redemption, defeasance or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Indebtedness (other than any Subordinated
Indebtedness held by a Restricted Subsidiary); or (iv) the making of any
Investment (other than a Permitted Investment) in any person (other than an
Investment by a Restricted Subsidiary in the Issuer or an Investment by the
Issuer or a Restricted Subsidiary in either (x) a Restricted Subsidiary other
than Saturn or United Wireless or (y) a person that becomes a Restricted
Subsidiary as a result of such Investment).
"Restricted Subsidiary" means (i) any Subsidiary of the Issuer that has not
been designated by the Board of the Issuer, by a Board Resolution delivered to
the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
the covenant "Limitation on Unrestricted Subsidiaries and Unrestricted
Affiliates," and (ii) any Restricted Affiliate.
"Revocation" has the meaning set forth under the covenant "Limitation on
Unrestricted Subsidiaries and Unrestricted Affiliates."
"Senior Bank Financing" means (i) any one or more agreements evidencing one
or more senior credit facilities providing for (A) the issuance of letters of
credit on behalf of the Issuer and/or any Restricted Subsidiary, (B) term
loans (including term loans provided by way of bankers' acceptances, bills of
exchange or endorsements) to the Issuer and/or any Restricted Subsidiary, (C)
revolving loans to the Issuer and/or any Restricted Subsidiary, (D) Currency
Agreements and/or (E) Interest Rate Protection Obligations and (ii) any
agreement evidencing the refinancing, modification, replacement, renewal,
restatement, deferral, extension, substitution, supplement or reissuance
thereof.
"Specified Indebtedness" means any Indebtedness of any Restricted Subsidiary
which is not expressly subordinated to any other Indebtedness of such
Restricted Subsidiary.
"Strategic Equity Investor" means any company which is, or a controlled
Affiliate of any company which is, engaged principally in a cable or
telecommunications business; provided, however, that Strategic Equity Investor
shall not include (x) any Subsidiary of the Issuer, (y) any Permitted Holder
or (z) any Person that is an Affiliate of the Issuer.
"Subordinated Indebtedness" means any Indebtedness of the Issuer which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any person, (i) any corporation of which
the outstanding Voting Stock having at least a majority of the votes entitled
to be cast in the election of directors shall at the time be owned, directly
or indirectly, by such person, or (ii) any other person of which at least a
majority of Voting Stock or Common Stock is at the time, directly or
indirectly, owned by such person.
"Total Consolidated Indebtedness and Subsidiary Preferred Stock" means, at
any date of determination, an amount equal to the aggregate principal amount
of (i) all Indebtedness of the Issuer and the Restricted Subsidiaries
outstanding as of the date of determination and (ii) the aggregate liquidation
preference of all Preferred Stock of Restricted Subsidiaries issued and
outstanding as of the date of determination (other than Indebtedness owing to
and Preferred Stock issued to and held by the Issuer or a Restricted
Subsidiary).
"UIH AML" means UIH AML, Inc., a Colorado corporation that immediately prior
to the Issue Date is a wholly owned, indirect subsidiary of United
International Holdings, Inc.
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"Unrestricted Affiliate" means any controlled Affiliate of the Issuer other
than a Restricted Affiliate.
"Unrestricted Subsidiary" means any Subsidiary of the Issuer designated as
such pursuant to and in compliance with the covenant "Limitation on
Unrestricted Subsidiaries and Unrestricted Affiliates." Any such designation
may be revoked by a Board Resolution of the Issuer delivered to the Trustee,
subject to the provisions of such covenant. The Subsidiaries of the Issuer
that hold the Issuer's interests in Saturn and United Wireless, as well as UIH
AML, shall initially be Unrestricted Subsidiaries under the Indenture. The
Issuer's interest in XYZ Entertainment will be transferred to a Subsidiary to
be designated as an Unrestricted Subsidiary after such transfer.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the U.S. dollar, at any time for the determination
thereof, the amount of U.S. dollars obtained by converting such foreign
currency involved in such computation into U.S. dollars at the spot rate for
the purchase of U.S. dollars with the applicable foreign currency as quoted by
Reuters at approximately 11:00 a.m. (New York time) on the date not more than
two business days prior to such determination. For purposes of determining
whether any Indebtedness can be incurred (including Permitted Indebtedness),
any Investment can be made and any Affiliate Transaction can be undertaken (a
"Tested Transaction"), the "U.S. Dollar Equivalent" of such Indebtedness,
Investment or Affiliate Transaction shall be determined on the date incurred,
made or undertaken and no subsequent change in the U.S. Dollar Equivalent
shall cause such Tested Transaction to have been incurred, made or undertaken
in violation of the Indenture.
"U.S. GAAP" means generally accepted accounting principles and practices in
the United States consistently applied by a corporation or as between
corporations and over time, as in effect from time to time; provided that, for
purposes of determining compliance with the covenants "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries" and
"Limitation on Restricted Payments," U.S. GAAP shall mean such generally
accepted accounting principles and practices as adopted by the Issuer on the
Issue Date and as are consistent with those set forth in this Offering
Memorandum.
"Voting Stock" means, with respect to any person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer or another
Wholly Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of an
Unrestricted Subsidiary.
"Wholly Owned Unrestricted Subsidiary" means any Unrestricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer, a Wholly
Owned Restricted Subsidiary or another Wholly Owned Unrestricted Subsidiary.
For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of an Unrestricted Subsidiary.
"XYZ Distribution Amount" means, with respect to an Asset Sale of the direct
or indirect interest of the Issuer in XYZ Entertainment, the Net Cash Proceeds
of which have been distributed to the Issuer, the sum of (i) with respect to
the first $70,000,000 of such Net Cash Proceeds 100% of the amount by which
the aggregate amount of such Net Cash Proceeds exceeds $35,000,000 and (ii)
75% of the amount by which the aggregate amount of such Net Cash Proceeds
exceeds $70,000,000.
"XYZ Entertainment" means (i) XYZ Entertainment Limited and (ii) any
Replacement Asset received in consideration for the Issuer's direct or
indirect interest in XYZ Entertainment Limited upon an Asset Sale of such
interest and (iii) any Replacement Asset received in consideration of any
Replacement Asset described in the preceding clause (ii) or this clause (iii)
upon an Asset Sale of such Replacement Asset.
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DESCRIPTION OF THE WARRANTS
The Warrants, if any, are to be issued under a Warrant Agreement (the
"Warrant Agreement") between the Issuer and American Bank National
Association, as Warrant Agent (the "Warrant Agent"). The following summaries
of certain provisions of the Warrant Agreement do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Warrants and the Warrant Agreement, including the
definitions therein of certain terms. Copies of the proposed form of Warrant
Agreement will be available to prospective purchasers of the Notes upon
request to the Issuer.
Each Warrant will entitle the registered holder thereof (the "holder"),
subject to and upon compliance with the provisions thereof and of the Warrant
Agreement, at such holder's option, prior to 5:00 p.m., Eastern time, on May
15, 2006, to purchase from the Issuer one share (or such other number as may
result from adjustments as provided in the Warrant Agreement) of Common Stock
at a purchase price per share (the "Exercise Price") equal to the fair market
value thereof. Such fair market value shall be determined assuming that the
aggregate fair market value of the Issuer's equity is $150.0 million.
The Warrants may be exercised by surrendering to the Issuer of the warrant
certificates evidencing the Warrants to be exercised with the accompanying
form of election to purchase properly completed and executed, together with
payment of the Exercise Price. Payment of the Exercise Price may be made (i)
in the form of cash or by certified or official bank check payable to the
order of the issuer or (ii) by tendering Notes having an Accreted Value at the
time of tender equal to the Exercise Price or (iii) by tendering Warrants
having a fair market value equal to the Exercise Price or (iv) any combination
of cash, Notes or Warrants. Upon surrender of the Warrant certificate and
payment of the Exercise Price, the issuer will deliver or cause to be
delivered, to or upon the written order of such holder, stock certificates
representing the number of whole shares of Common Stock to which such holder
is entitled. If less than all of the Warrants evidenced by a warrant
certificate are to be exercised, a new warrant certificate will be issued for
the remaining number of Warrants.
No fractional shares of Common Stock will be issued upon exercise of the
Warrants. The Issuer will pay to the holder of each Warrant at the time of
exercise an amount in cash equal to the current market value of any such
fractional share of Common Stock less a corresponding fraction of the Exercise
Price.
The holders of the Warrants will have no right to vote on matters submitted
to the stockholders of the Issuer and will have no right to receive dividends.
The holders of the Warrants will not be entitled to share in the assets of the
Issuer in the event of liquidation, dissolution or the winding up of the
Issuer. In the event a bankruptcy or reorganization is commenced by or against
the Issuer, a bankruptcy court may hold that unexercised Warrants are
executory contracts which may be subject to rejection by the Issuer with
approval of the bankruptcy court, and the holders of the Warrants may, even if
sufficient funds are available, receive nothing or a lesser amount as a result
of any such bankruptcy case than they would be entitled to if they had
exercised their Warrants prior to the commencement of any such case.
The certificates evidencing the Warrants may be surrendered for exercise or
exchange, and the transfer of Warrant certificates will be registrable, at the
office or agency of the Issuer maintained for such purpose, which initially
will be the corporate trust office of the Warrant Agent. The Warrant
certificates will be issued only in fully registered form in denominations of
whole numbers of Warrants. No service charge will be made for any exercise,
exchange or registration of transfer of Warrant certificates, but the Issuer
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The number of shares of Common Stock purchasable upon exercise of Warrants
and the Exercise Price will be subject to adjustment in certain events
including: (i) the payment by the Issuer of dividends (and other
distributions) on its common stock in common stock, (ii) subdivisions,
combinations and reclassifications of the Common Stock, (iii) the issuance to
all holders of Common Stock of rights, options or warrants entitling them to
subscribe for common stock or securities convertible into, or exchangeable or
exercisable for, Common Stock within sixty (60) days after the record date for
such issuance of rights, options or warrants at an offering price (or with an
initial conversion, exchange or exercise price) which is less than the current
market price per share
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(as defined) of Common Stock, (iv) the distribution to all holders of Common
Stock of any of the Issuer's assets (including cash), debt securities,
preferred stock or any rights or warrants to purchase any such securities
(excluding those rights and warrants referred to in clause (iii) above), (v)
the issuance of shares of Common Stock for a consideration per share less than
the then current market price per share of Common Stock (excluding securities
issued in transactions referred to in clauses (i) through (iv) above), (vi)
the issuance of securities convertible into or exchangeable for Common Stock
for a conversion or exchange price plus consideration received upon issuance
less than the then current market price per share of Common Stock (excluding
securities issued in transactions referred to in clauses (iii) or (iv) above)
and (vii) certain other events that could have the effect of depriving holders
of the Warrants of the benefit of all or a portion of the purchase rights
evidenced by the Warrants. The events described in clauses (v) and (vi) above
are subject to certain exemptions described in the Warrant Agreement
including, without limitation, (A) bona fide public offerings, (B) bona fide
private placements to persons that are not Affiliates of the Issuer and (C)
Common Stock (and options exercisable therefor) issued to the Issuer's
employees, consultants and directors under bona fide benefit plans in an
aggregate amount since the date of the Warrant Agreement not to exceed 10% of
the Common Stock outstanding at the time of issuance.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Exercise Price; provided, however, that any adjustment that is not made will
be carried forward and taken into account in any subsequent adjustment. In
addition, the Issuer may at any time reduce the Exercise Price to any amount
(but not less than the par value of the Common Stock) for any period of time
(but not less than twenty (20) business days) deemed appropriate by the Board
of Directors of the Issuer.
If the Issuer is a party to a consolidation, merger or binding share
exchange, or certain transfers of all or substantially all of its assets
occur, the right to exercise a Warrant for Common Stock may be changed into a
right to receive the same securities, cash or other assets of the Issuer or
another person that a holder of Common Stock is entitled to receive upon such
consolidation, merger, share exchange or transfer (which securities, cash or
other assets may not necessarily be of equal value to the Common Stock).
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment to the number of shares of Common Stock or other
consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain U.S. Income Tax Considerations."
The Warrant Agreement permits, with certain exceptions, the amendment
thereof and the modification of the rights and obligations of the Issuer and
the rights of the holders of Warrants under the Warrant Agreement at any time
by the Issuer and the Warrant Agent with the consent of the holders of a
majority of the then outstanding Warrants.
At the Issuer's option, the obligation of the Issuer to enter into the
Warrant Agreement and to issue Warrants to the holders of the Notes if the
Issuer does not consummate an Equity Sale on or prior to November 15, 1997 may
be satisfied by the issuance of Warrants to purchase Common Stock by the
immediate Parent corporation of the Issuer on comparable terms. In the event
of such issuance by Parent, the Issuer shall be a wholly-owned subsidiary of
the Parent and Parent shall have no other material assets or liabilities. See
"Description of Capital Stock."
REGISTRATION RIGHTS
Subject to applicable federal and state securities laws, the Issuer has
agreed to file the Warrant Shelf Registration Statement under the Securities
Act covering the Warrant Shares and, if required under applicable law, the
Warrants and to use its best efforts to cause the Warrant Shelf Registration
Statement to be declared effective by the Commission on or prior to the date
of issuance of the Warrants (the "Warrant Issue Date").
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The Issuer will be required to pay liquidated damages to the holders of
Warrants under certain circumstances if such registration requirements are not
satisfied on or before the required filing date therefor.
The Issuer will keep the Warrant Shelf Registration Statement with respect
to the Warrant Shares as described in the immediately preceding paragraph
effective through such date as Warrant Shares may be issued thereunder.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein and any Warrants will initially be issued in the form of one or
more global securities (the "Global Securities"). The Global Securities will
be deposited on the date of original issuance thereof with, or on behalf of,
The Depository Trust Company (the "Depositary") and registered in the name of
Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Security Holder").
Securities that were: (i) originally issued to or transferred to
"institutional accredited investors" who are not "qualified institutional
buyers" (as such terms are defined under "Notice to Investors" herein) (the
"Non-Global Purchasers") or (ii) issued as described below under "--
Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Upon the transfer to a qualified
institutional buyer of Certificated Securities initially issued to a Non-
Global Purchaser, such Certificated Securities may, unless such Global
Security has previously been exchanged for Certificated Securities, be
exchanged for an interest in the applicable Global Security representing the
number or principal amount, as applicable, of the applicable Securities being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Issuer expects that pursuant to procedures established by the Depositary
(i) upon deposit of a Global Security, the Depositary will credit the accounts
of Participants designated by the Initial Purchaser with portions of the
Global Security and (ii) ownership of the Securities evidenced by the Global
Security will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect to
the interests of the Depositary's Participants), the Depositary's Participants
and the Depositary's Indirect Participants. Prospective purchasers are advised
that the laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer Securities evidenced by the Global Securities will be
limited to such extent. For certain other restrictions on the transferability
of the Securities, see "Notice to Investors."
So long as the Global Security Holder is the registered owner of any
Securities, the Global Security Holder will be considered the sole owner of
the Securities represented by such Global Security. Beneficial owners of
Securities evidenced by the Global Securities will not be considered the
owners or holders thereof under the Indenture or the Issuer's articles of
incorporation for any purpose, including with respect to the giving of any
directions, instructions or approvals to the applicable agent or trustee
thereunder. As a result, the ability of a person having a beneficial interest
in Securities represented by any Global Security to pledge such interest to
persons or entities that do not participate in the Depositary's system or to
otherwise take actions in respect of such interest may be affected by the lack
of a physical certificate evidencing such interest. Neither the Issuer, the
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Trustee nor the Warrant Agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
Securities by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Securities.
Payments in respect of the Notes registered in the name of the applicable
Global Security Holder on the applicable record date will be payable by the
Trustee to or at the direction of such Global Security Holder in its capacity
as the registered holder of such Notes. Under the terms of the Indenture and
the Warrant Agreement, the Issuer, the Trustee and the Warrant Agent may treat
the persons in whose names Securities, including the Global Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Issuer nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of the Global Note (including
principal, premium, interest and liquidated damages, if any).
The Issuer believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the Securities as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of the Global Securities will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Securities. Subject to certain conditions, any person having a
beneficial interest in any Global Security may, upon request to the Issuer or
the Trustee or Warrant Agent, as applicable, exchange such beneficial interest
for such Securities in the form of Certificated Securities. Upon any such
issuance, the Issuer or Trustee or Warrant Agent, as applicable, is required
to register such Certificated Securities in the name of, and cause the same to
be delivered to, such person or persons (or the nominee of any thereof). All
such Certificated Securities would be subject to the legend requirements
described herein under "Notice to Investors." In addition, if (i) the Issuer
notifies the Trustee or Warrant Agent in writing that the Depositary is no
longer willing or able to act as a depositary and the Issuer is unable to
locate a qualified successor within 90 days or (ii) the Issuer, at its option,
notifies the Trustee or Warrant Agent in writing that it elects to cause the
issuance of the applicable Securities in the form of Certificated Securities,
then, upon surrender by the applicable Global Security Holder of its Global
Security, Securities in such form will be issued to each person that such
Global Security Holder and the Depositary identify as being the beneficial
owner of the related Securities.
Neither the Issuer, the Trustee nor the Warrant Agent will be liable for any
delay by the Global Security Holder or the Depositary in identifying the
beneficial owners of Securities, and the Issuer, the Trustee and the Warrant
Agent may conclusively rely on, and will be protected in relying on,
instructions from the Global Security Holder or the Depositary for all
purposes.
Same-Day Settlement and Payment. The Indenture will require that payments in
respect of the Notes represented by a Global Security (including principal,
premium, interest and liquidated damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the applicable Global
Security Holder. With respect to Certificated Securities, the Issuer will make
all payments in respect of the Notes (including principal, premium, interest
and liquidated damages, if any) by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes of corporate the
issuers is generally settled in clearinghouse or next-day funds. In contrast,
the Notes represented by the Global Securities are expected to be eligible to
trade in the PORTAL Market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Issuer expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Issuer consists of 1,000 shares of
Common Stock, $0.01 par value per share. As of the date of this Offering
Memorandum, 100 shares are issued and outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including
election of directors, and, except as otherwise required by law or provided in
any resolution adopted by the Board of Directors of the Issuer with respect to
any other series or class of capital stock, the holders of such Common Stock
will exclusively possess all voting power. The Issuer's Articles of
Incorporation do not provide for cumulative voting for the election of
directors. The Common Stock is neither redeemable nor convertible, and there
are no sinking fund provisions. The holders of Common Stock are entitled to
dividends when and as declared from time to time by the Board of Directors of
the Issuer from funds legally available therefor. Upon liquidation of the
Issuer, holders of Common Stock are entitled to receive pro rata all assets of
the Issuer legally available for distribution to all holders of Common Stock.
The Issuer does not expect to pay any dividends on the Common Stock in the
forseeable future. See "Dividend Policy."
If Parent issues Warrants, the class of Common Stock of Parent with respect
to which the Warrants may be exercised ("Class A Stock") may be different from
the class of common stock of Parent held by UIH or its affiliates ("Class B
Stock"). The Class A Stock and the Class B Stock will have substantially the
same terms except that Class A Stock may have less votes per share than the
Class B Stock. Each share of Class A Stock and Class B Stock will participate
on an equal basis with respect to cash dividends declared or paid by Parent
and with respect to distributions upon liquidation. In the case of dividends
paid in the form of securities, the classes of securities distributed to
holders of Class A Stock and Class B Stock may have different voting rights.
CERTAIN U.S. INCOME TAX CONSIDERATIONS
In the opinion of Holme Roberts & Owen LLC, counsel to the Company, the
following summarizes the material federal income tax consequences expected to
result to holders of the Old Notes who exchange the Old Notes for New Notes
pursuant to this Offering, subject to the conditions and limitations described
herein. The discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations ("Regulations") and public administrative and judicial
interpretations of the Code and Regulations, all of which are subject to
change, which changes could be applied retroactively. This discussion also is
based on the information included in this registration statement and the
related documents, and on certain representations from the Company as to
factual matters. This discussion includes only the material federal income tax
consequences expected to apply to United States persons (e.g., citizens or
residents of the United States and domestic corporations) who were the initial
purchasers of Old Notes at the initial purchase price and hold the Old Notes,
and will hold the New Notes and any Warrants issued, as capital assets. This
discussion does not cover all aspects of federal taxation that may be relevant
to, or the actual tax effect that any of the matters described herein will
have on, particular holders and does not address state, local and foreign tax
consequences.
The Company has not sought and will not seek any rulings from the Internal
Revenue Service (the "Service") with respect to the Notes. There can be no
assurance that the Service will not take a different position concerning the
tax consequences of the exchange of the Old Notes for New Notes or the
ownership or disposition of the New Notes or that the Service's position would
not be sustained by a court.
The tax treatment of a holder of the Notes may vary depending on his
particular situation or status. Holders subject to special rules under the
Code (including insurance companies, tax-exempt organizations, mutual funds,
retirement plans, financial institutions, dealers in securities or foreign
currency, persons that hold the Notes as part of a "straddle" or as a "hedge"
against currency risk, in connection with a conversion transaction, or that
have a functional currency other than the U.S. dollar, investors in pass-
through entities and foreign entities and individuals) may be subject to
special rules not discussed below.
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THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER IS EXPECTED AND
URGED TO CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
HIM OF EXCHANGING OLD NOTES FOR NEW NOTES AND, HOLDING AND DISPOSING OF THE
NEW 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.
The New Notes will have original issue discount for federal income tax
purposes. As a result, a holder who acquires a New Note generally will be
required to include original issue discount in gross income as it accrues, for
federal income tax purposes. Therefore, inclusion in gross income will take
place in advance of the receipt of cash payments on the New Notes. See
"Taxation of Original Issue Discount" below. NOTEHOLDERS ARE URGED TO CONSULT
THEIR OWN ADVISORS REGARDING THE INCOME TAX CONSEQUENCES OF EXCHANGING OLD
NOTES FOR NEW NOTES AND, HOLDING AND DISPOSING OF THE NEW NOTES.
EXCHANGE OF NOTES
There is no direct authority as to whether the exchange of the Old Notes for
the New Notes will be treated as a taxable exchange for federal income tax
purposes. In the opinion of Holme Roberts & Owen LLC, counsel to the Issuer,
the exchange should not be treated as a taxable exchange and the New Notes
should be considered a continuation of the Old Notes because, in substance,
the exchange is pursuant to the terms of the original Indenture. However, even
though an exchange is pursuant to the terms of the original Indenture the
exchange is not automatic because the Exchange Offer must be accepted by the
holder. The final regulations recently issued by the Treasury Department as to
when the modification of a debt instrument constitutes an "exchange" are
ambiguous as to these types of exchanges and could be interpreted to treat the
exchange of notes under these circumstances as a significant modification and
a taxable exchange. If the exchange of Old Notes for New Notes were a taxable
exchange, there would be several tax consequences to the holders of the Old
Notes including: the holders would recognize gain or loss equal to the
difference between the value of the New Notes (or if the New Notes are not
traded on an established securities market, their imputed principal amount as
determined under applicable Treasury Regulations) and the holders' tax basis
for the Old Notes; there would be a recomputation of the original issue
discount amounts going forward; and the holder would have a new tax basis and
holding period for the New Notes.
TAXATION OF ORIGINAL ISSUE DISCOUNT
The amount of original issue discount with respect to each Note will be the
excess of the "stated redemption price at maturity" of such Note over the
"issue price." The stated redemption price at maturity of each Note will
include any payment, whether denominated as principal or interest, required to
be made thereunder through and including maturity. If the exchange of the Old
Notes for the New Notes is not a taxable exchange, the "issue price" of the
New Notes will be the same as the issue price of the Old Notes (which is the
first price at which a substantial amount of the Old Notes were sold to the
public for money). If the exchange of the Old Notes for the New Notes is a
taxable exchange, the issue price of the New Notes will be their market value
at the time of issue if the New Notes are traded on an established securities
market (and if not so traded, the imputed principal amount as determined under
applicable Treasury Regulations).
Each holder will be required to include in gross income an amount equal to
the sum of the "daily portions" of the original issue discount of the Note for
all days during the taxable year in which such holder holds the Note. The
daily portions of original issue discount will be determined by allocating to
each day during an accrual period a ratable portion of the original issue
discount attributable to that accrual period. The amount of the original issue
discount attributable to each full accrual period is equal to the product of
the "adjusted issue price" of the Note (at the beginning of the accrual
period) and the "yield to maturity" of the Notes (taking into account the
length of the particular accrual period). The accrual period with respect to a
Note may be of any length as long as (i) no accrual period is longer than one
year and (ii) each scheduled payment of interest or
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principal occurs on either the first or final day of an accrual period. A
Noteholder and the Company may select different accrual periods, subject to
the foregoing rules. The adjusted issue price of a Note at the beginning of an
accrual period will be the original issue price of the Note plus the aggregate
amount of original issue discount that has accrued in all prior accrual
periods and less any payments (apparently, other than the Warrants described
below) made on the Note. The yield to maturity is the discount rate that, when
used in computing the present value of all principal and interest payments to
be made on the Note, produces an amount equal to its issue price.
The Company is required to furnish certain information to the Service
regarding the original issue discount amounts. The Company will furnish
annually to record holders of the Notes, information with respect to original
issue discount accruing during the calendar year, as well as interest paid
during that year. This information will be based upon the adjusted issue price
of the debt instrument as if the holder were the original holder of the debt
instrument. The Company will classify the Notes as debt under section 385 of
the Code.
The foregoing does not discuss special rules that may affect the treatment
of purchasers who acquired the Old Notes (or who may acquire the New Notes) at
a price that differs from the adjusted issue price of the Notes at the time of
acquisition, including those provisions of the Code relating to the treatment
of "market discount," "acquisition premium" and "amortizable bond premium."
Noteholders should consult their tax advisors regarding these matters.
CONTINGENT INTEREST
Pursuant to the terms of the Indenture, the Interest Rate on the Notes will
be increased from 14% to 14.75% if an Equity Sale is not consummated on or
before May 15, 1997. If the Equity Sale is subsequently consummated, the
Interest Rate will be reduced to 14%. The Indenture also provides that if the
Issuer does not consummate an Equity Sale prior to November 15, 1997, the
holders of the Notes will be entitled to receive the Warrants. The provision
for an adjustment in the Interest Rate and the contingent right to the
Warrants probably constitute contingent payments for purposes of computing
original issue discount.
The Company believes that the Equity Sale will be timely consummated, either
through a private placement transaction or an initial public offering, and it
is very unlikely that the Equity Sale would not be consummated timely.
Accordingly, the Company intends to treat the contingencies as remote for
purposes of computing original issue discount, and to assume that the
contingencies will not occur. If a contingency does occur (i.e., the Equity
Sale is not completed timely), then the additional interest will be reportable
at that time or there will be adjustments in the computation of original issue
discount on the Notes. Also, if the contingency does occur, the holder may be
subject to special rules with respect to any gain or loss recognized on the
disposition of contingent interest debt instrument.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF NEW NOTES
In general, the holder of a New Note will recognize gain or loss upon the
sale, retirement or other taxable disposition of such debt instrument measured
by the difference between the amount of cash and fair market value of property
received in exchange therefor and the holder's adjusted tax basis for such
debt instrument.
If the exchange of the Old Notes for New Notes is not a taxable exchange,
the holder's initial tax basis in a New Note will generally equal the holder's
tax basis in an Old Note exchanged therefor. If the exchange of the Old Notes
for New Notes is a taxable exchange, the holder's initial tax basis for a New
Note will equal the value of the New Note at the time of issuance, if the New
Notes are traded on an established securities market (and if not so traded,
their imputed principal amount as determined under applicable Treasury
Regulations). The holder's initial tax basis in a New Note will be increased
from time to time by the portion of original issue discount included in gross
income to the date of disposition as adjusted by acquisition premium, if any,
(and increased by the accruals of market discount, if any, that the holder has
previously elected to include in gross
115
<PAGE>
income on an annual basis), and decreased by any payments (apparently, other
than the Warrants described below) received from the Company on the New Note.
Any gain or loss on the sale, retirement or other taxable disposition of a
New Note, measured as described above, will generally be capital gain or loss
(subject to special rules for market discount), provided the New Note was a
capital asset in the hands of the holder. Any capital gain or loss will be
long-term capital gain or loss if the debt instrument has been held for more
than one year at the time of disposition and otherwise will be short-term
capital gain or loss.
With respect to tax matters relating to legal defeasance and covenant
defeasance in certain circumstances, see "Description Of Notes--Defeasance."
LIMITATION ON THE COMPANY'S INTEREST DEDUCTIONS
The New Notes probably will be subject to the "applicable high yield discount
obligation" provisions of the Code. If the yield on the New Notes is at least
five percentage points above the applicable Federal rate, the Company will not
be able to deduct any original issue discount accruing with respect thereto
until such interest is actually paid. In addition, if the yield on the New
Notes is more than six percentage points above the applicable Federal rate,
then (i) a portion of such interest corresponding to the yield in excess of six
percentage points above the applicable Federal rate will not be deductible by
the Company at any time, and (ii) a corporate Holder may be entitled to treat
the portion of the interest that is not deductible by the Company as a
dividend, which may then qualify for the dividends received deduction provided
for by the Code. In such event, corporate holders of New Notes should consult
with their own tax advisors as to the applicability of the dividends received
deduction. Except as described above, treatment of the New Notes as "applicable
high yield discount obligations" will not affect the reporting of the original
issue discount as income by the noteholders.
WARRANTS
Contingent Interest. Although the treatment is not free from doubt, the
contingent right of holders of New Notes to receive Warrants would appear to be
treated for tax purposes as a right to receive a contingent payment of
interest. See the discussion under "Contingent Interest" above. The tax basis
of Warrants received by a holder would equal the fair market value of the
Warrants at the time they are issued.
Exercise of Warrants. Generally, a holder of a Warrant will not recognize any
gain or loss upon exercise of the Warrant. However, the use of a Warrant or
Note as payment of the exercise price of a Warrant probably would result in
recognition of gain or loss with respect to the Warrant or Note so used. The
tax basis of the Common Stock received generally will be equal to the holder's
tax basis, as adjusted, of the Warrant so exercised, plus the exercise price.
Sale or Exchange of Warrants. A holder's basis for federal income tax
purposes of a Warrant will be its fair market value at the time the Warrant is
issued. Upon a sale or exchange of a Warrant, a holder thereof will recognize
long-term or short-term gain or loss, depending upon whether the holding period
is more than one year. Such gain or loss generally will be a capital gain or
loss, provided that the Common Stock issuable upon exercise of the Warrant
would have been a capital asset if acquired by the holder. The amount of gain
or loss will be the difference between the amount realized and the tax basis,
as adjusted, or the Warrant sold. Any loss realized by a holder of a Warrant
due to the failure to exercise prior to its expiration date will be treated as
a capital loss provided that the Common Stock issuable upon exercise of the
Warrant would have been a capital asset if acquired by the holder. Such capital
loss will be long-term if the Warrant was held for more than one year.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax
amount if (a) the payee fails to furnish a taxpayer identification number
("TIN") to the payor, (b) the Service notifies the payor that the TIN
116
<PAGE>
furnished by the payee is incorrect, (c) the payee has failed to report
properly the receipt of a "reportable payment" and the Service has notified the
payor that withholding is required, or (d) there has been a failure of the
payee to certify under the penalty of perjury that a payee is not subject to
withholding under Section 3406 of the Code. If any one of the events discussed
above occurs, the Issuer, its paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any "reportable payment" includes,
among other things, interest actually paid, original issue discount and amounts
paid through brokers in retirement of securities. Any amount withheld from a
payment to a holder under the backup withholding rules will be allowed as a
refund or credit against such holder's federal income tax, provided that the
required information is furnished to the Service. Certain holders (including,
among other, corporations and certain tax-exempt organizations) are not subject
to the backup withholding information reporting requirements.
EMPLOYEE BENEFIT PLANS
Prior to acquiring a Note, a prospective holder who is a fiduciary with
respect to an "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), must
comply with the fiduciary responsibility requirements of ERISA, including the
prudency and diversification requirements, in making a decision to purchase a
Note. In addition, such plans, together with plans described in Section
4975(e)(1) of the Code, must consider the prohibited transaction provisions of
ERISA and the Code and determine that UIH is not a "disqualified person" (as
defined in the Code) or a "party in interest" (as defined in ERISA) with
respect to such plan or that an exemption from the prohibited transaction
provisions of ERISA or the Code is available.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuer acknowledges and each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, does not intend to
engage in, and has no arrangement or understanding with any person to
participate in a distribution of New Notes. The Issuer has agreed that starting
on the Expiration Date and ending on the close of business on the 180th day
following the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Issuer will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit it is an "underwriter"
within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuer has agreed to pay all expenses incident to the
Exchange Offer
117
<PAGE>
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters regarding the securities offered hereby will be passed
upon for the Company by Holme Roberts & Owen LLC, Denver, Colorado.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto. In that report,
that firm states that with respect to the consolidated amounts from the
financial statements of Telefenua S.A. and the equity in losses from XYZ
Entertainment Pty Ltd. as of and for the year ended December 31, 1995, its
report is based on the reports of other auditors, namely Coopers & Lybrand
(with respect to Telefenua S.A.) and Deloitte Touche Tohmatsu (with respect to
XYZ Entertainment Pty Ltd.). The consolidated financial statements and report
referred to above have been included herein upon the authority of said firm as
experts in giving said report.
The consolidated financial statements of CTV Pty Ltd. included in this
Prospectus have been audited by Arthur Andersen, independent public
accountants, as indicated in their report with respect thereto and is included
herein upon the authority of said firm as experts in giving said report.
The consolidated financial statements of STV Pty Ltd. included in this
Prospectus have been audited by Arthur Andersen, independent public
accountants, as indicated in their report with respect thereto, and is included
herein upon the authority of said firm as experts in giving said report.
The financial statements of Saturn Communications Limited (formerly Kiwi
Cable Company Ltd.) included in this Prospectus have been audited by Arthur
Andersen, independent public accountants, as indicated in their report with
respect thereto, and is included herein upon the authority of said firm as
experts in giving said report.
The financial statements of XYZ Entertainment Pty Ltd. as of December 31,
1994 and 1995 and for the years then ended included in this Prospectus have
been audited by Deloitte Touche Tohmatsu, independent auditors, as stated in
their report appearing herein. The financial statements referred to above have
been included herein upon the authority of said firm as experts in giving said
report.
118
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNITED AUSTRALASIAN COMMUNICATIONS, INC.
Report of Independent Public Accountants................................. F- 3
Report of Independent Auditors........................................... F- 4
Report of Independent Auditors........................................... F- 5
Consolidated Balance Sheet as of December 31, 1994 and 1995 and March 31,
1996 (unaudited)... F- 6
Consolidated Statements of Operations for the Years Ended December 31,
1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996
(unaudited)............................................................. F- 7
Consolidated Statements of Stockholder's Equity for the Years Ended De-
cember 31, 1994 and 1995 and for the Three Months Ended March 31, 1996
(unaudited)............................................................. F- 8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996
(unaudited)............................................................. F- 9
Notes to Consolidated Financial Statements............................... F-10
CTV PTY LIMITED
Independent Audit Report................................................. F-24
Balance Sheet as of December 31, 1994 and 1995 and March 31, 1996 (unau-
dited).................................................................. F-25
Profit and Loss Account for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited)...... F-26
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-27
Notes to the Financial Statements........................................ F-28
STV PTY LIMITED
Independent Audit Report................................................. F-38
Balance Sheet as of December 31, 1994 and 1995 and March 31, 1996 (unau-
dited).................................................................. F-39
Profit and Loss Account for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited)...... F-41
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-42
Notes to the Financial Statements........................................ F-43
SATURN COMMUNICATIONS LIMITED (FORMERLY KNOWN AS KIWI CABLE COMPANY
LIMITED)
Auditor's Report......................................................... F-53
Statement of Financial Performance for the Years Ended December 31, 1994
and 1995 and March 31, 1996 (unaudited)................................. F-54
Statement of Movements in Equity for the Years Ended December 31, 1994
and 1995 and the Three Months Ended March 31, 1996 (unaudited).......... F-55
Statement of Financial Position as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited).............................................. F-56
Statement of Cash Flows for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited)...... F-58
Notes to and Forming Part of the Financial Statements.................... F-59
XYZ ENTERTAINMENT PTY LIMITED
Independent Auditors' Report............................................. F-65
Consolidated Statements of Operations for the period from October 17,
1994 (date of inception) to December 31, 1994 and the year ended Decem-
ber 31, 1995 and for the three months ended March 31, 1995 and 1996 (un-
audited)................................................................ F-66
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (unaudited).................................................... F-67
Consolidated Statements of Shareholders' Deficiency for the period from
October 17, 1994 (date of inception) to December 31, 1994 and the year
ended December 31, 1995 and for the three months ended March 31, 1995
and 1996 (unaudited).................................................... F-68
Consolidated Statements of Cash Flows for the period from October 17,
1994 (date of inception) to December 31, 1994 and the year ended Decem-
ber 31, 1995 and for the three months ended March 31, 1995 and 1996 (un-
audited)................................................................ F-69
Notes to the Consolidated Financial Statements........................... F-70
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United International Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of UIH
Australia/Pacific, Inc. (a Colorado corporation and wholly owned subsidiary of
UIH Asia/Pacific, Inc.) and subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of operations, parent's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Telefenua S.A. as of and for the year ended
December 31, 1995, a subsidiary which is consolidated in the accompanying
financial statements. UIH Australia/Pacific, Inc.'s consolidated financial
statements for the year ended December 31, 1995 reflects assets, liabilities,
revenues, expenses and a net loss related to Telefenua S.A. of $10,989,000,
$9,710,000, $1,882,000, $5,806,000 and $3,924,000, respectively. We did not
audit the financial statements of XYZ Entertainment Pty Ltd. ("XYZ") for the
year ended December 31, 1995, an investment which is reflected in the
accompanying financial statements on the equity method of accounting. UIH
Australia/Pacific, Inc.'s consolidated statement of operations reflects equity
in losses related to XYZ of $11,729,000 for the year ended December 31, 1995
and Note 4 to the consolidated financial statements includes summarized
financial data for XYZ. The financial statements of Telefenua S.A. and XYZ as
of and for the year ended December 31, 1995, were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to the summarized financial data for XYZ included in Note 4 to the
consolidated financial statements and to the amounts included in the
accompanying consolidated financial statements for Telefenua S.A. and XYZ, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of UIH Australia/Pacific, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
May 8, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the shareholders of TELEFENUA SA.
We have audited the balance sheet of TELEFENUA SA as of december 31, 1993,
1994 and 1995 and the related statement of income and changes in financial
position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in France, which do not differ substantially from generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of TELEFENUA SA as of december
31, 1993 1994 and 1995 and the results of its operations and changes in its
financial position for the year then ended, in conformity with generally
accepted accounting principles in the United States of America.
The accounting practices of the Company used in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the United States of America, but do not fully conform with accounting
principles generally accepted in France. As a consequence those financial
statements differ from statutory financial statements that will be submitted
to the approval of the company's shareholders in conformity with local
corporate laws.
A description of the significant differences between such principles and
those accounting principles generally accepted in the United States, and the
effect of those differences on net income, total assets and shareholder's
equity are set forth in Note 2.a of the notes to the financial statements.
Coopers & Lybrand
Papeete,
february 16, 1996
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheet of XYZ
Entertainment Pty Ltd as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 1995 and the period from October 17, 1994
(date of inception) to December 31, 1994, which are expressed in Australian
dollars. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Australia which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance as
to whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of XYZ Entertainment Pty Ltd as of December 31, 1995 and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
period from October 17, 1994 (date of inception) to December 31, 1994, in
conformity with accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected amounts reported as stockholders' deficiency
and net loss as at and for the year ended December 31, 1995 and from the
period from October 17, 1994 (date of inception) to December 31, 1994 to the
extent summarized in Note 12 to the financial statements.
Deloitte Touche Tohmatsu
Chartered Accountants
Sydney, Australia
March 15, 1996
F-5
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- ---------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................. $ -- $ 8,730 $ 1,791
Receivables, including related party re-
ceivables of $1,035, $1,623, and $0, re-
spectively................................ -- 2,045 2,187
Investments in and advances to affiliated
companies, accounted for under the equity
method.................................... 22,296 2,829 4,308
Property, plant and equipment, net of accu-
mulated depreciation of $2,863, $1,217 and
$0, respectively.......................... 1 27,125 44,789
Acquisition, transaction and development
costs, net................................ 1,787 -- --
License fees, net of accumulated amortiza-
tion of $442 in 1995...................... -- 10,693 11,678
Goodwill................................... -- 45,324 44,703
Other assets, net.......................... -- 2,549 3,725
------- ------- --------
Total assets............................. $24,084 $99,295 $113,181
======= ======= ========
LIABILITIES AND PARENT'S EQUITY
Accounts payable and accrued liabilities... $ 11 $ 6,407 $ 10,783
Accrued funding obligation................. -- 1,834 699
Due to parent.............................. -- 12,583 26,534
Capital lease obligations.................. -- 890 1,685
------- ------- --------
Total liabilities........................ 11 21,714 39,701
------- ------- --------
Minority interest in subsidiaries............ -- 2,515 1,894
Commitments (Note 7)
Parent's Equity:
Common stock, $.01 par value, 1,000 shares
authorized, 100 issued.................... -- -- --
Contributed capital........................ 25,342 93,782 97,649
Cumulative translation adjustments......... 405 191 1,508
Accumulated deficit........................ (1,674) (18,907) (27,571)
------- ------- --------
Total Parent's equity.................... 24,073 75,066 71,586
------- ------- --------
Total liabilities and Parent's equity.... $24,084 $99,295 $113,181
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-6
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31 MARCH 31,
--------------------- --------------------
(UNAUDITED)
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Service revenue.................. $ -- $ 1,883 $ 96 $ 1,934
Operating expense, including $85
of related party expenses in
1996............................ -- (3,230) (191) (5,083)
General and administrative ex-
pense........................... (659) (3,402) (389) (2,336)
Depreciation and amortization.... -- (1,003) (85) (2,748)
--------- ---------- ------- -----------
Net operating loss............. (659) (5,752) (569) (8,233)
Equity in losses of affiliated
companies....................... (1,015) (16,379) (1,494) (1,033)
Gain on sale of investment in af-
filiated company................ -- 4,132 -- --
Interest income.................. -- 157 -- 57
Interest expense................. -- (30) -- --
Other............................ -- 219 (2) (181)
--------- ---------- ------- -----------
Net loss before minority inter-
est........................... (1,674) (17,653) (2,065) (9,390)
Minority interest in subsidiary.. -- 420 53 726
--------- ---------- ------- -----------
Net loss....................... $ (1,674) $ (17,233) $(2,012) $ (8,664)
========= ========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF PARENT'S EQUITY
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
------------- CONTRIBUTED TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
------ ------ ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1994................... -- $-- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 100 -- -- -- -- --
Capital contributions
from parent............ -- -- 25,342 -- -- 25,342
Cumulative translation
adjustment............. -- -- -- 405 -- 405
Net loss................ -- -- -- -- (1,674) (1,674)
--- ---- ------- ------ -------- --------
Balances, December 31,
1994................... 100 -- 25,342 405 (1,674) 24,073
Capital contributions
from parent............ -- -- 68,440 -- -- 68,440
Change in cumulative
translation
adjustment............. -- -- -- (214) -- (214)
Net loss................ -- -- -- -- (17,233) (17,233)
--- ---- ------- ------ -------- --------
Balances, December 31,
1995................... 100 -- 93,782 191 (18,907) 75,066
Capital contributions
from parent
(unaudited)............ -- -- 3,867 -- -- 3,867
Cumulative translation
adjustment
(unaudited)............ -- -- -- 1,317 -- 1,317
Net loss (unaudited).... -- -- -- -- (8,664) (8,664)
--- ---- ------- ------ -------- --------
Balances, March 31, 1996
(unaudited)............ 100 $-- $97,649 $1,508 $(27,571) $ 71,586
=== ==== ======= ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31 MARCH 31,
--------------------- ----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................ $ (1,674) $ (17,233) $ (2,012) $ (8,664)
Adjustments to reconcile net loss to
net cash flows from operating
activities:
Depreciation and amortization..... -- 1,003 85 2,748
Equity in losses of affiliate com-
panies, net...................... 1,015 16,379 1,494 1,033
Gain on sale of investment in af-
filiated company................. -- (4,132) -- --
Minority interest share of loss-
es............................... -- (420) (53) (726)
Increase in receivables........... -- -- (192) (50)
Increase in goodwill.............. -- -- -- (226)
Increase in other assets.......... -- (1,211) 39 (1,968)
Increase in accounts payable, ac-
crued liabilities and other...... 11 238 (320) 4,874
--------- ---------- ---------- ----------
Net cash flows from operating activ-
ities.............................. (648) (5,376) (959) (2,979)
--------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in and advances to af-
filiated companies and other in-
vestments.......................... (22,841) (22,472) (11,862) (3,538)
Purchase of additional 40% interest
in CEtv, net of cash acquired...... -- (8,017) -- --
Proceeds from sale of investment in
affiliated company................. -- 4,132 -- --
Acquisition, transaction and devel-
opment costs incurred.............. (1,852) (781) (781) --
Purchase of property and equipment.. (1) (7,143) (3,909) (17,762)
--------- ---------- ---------- ----------
Net cash flows from investing activ-
ities.............................. (24,694) (34,281) (16,552) (21,300)
--------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent... 25,342 38,600 18,103 3,867
Borrowings on bridge loan payable to
parent............................. -- 9,927 -- 12,600
Borrowing on other debt............. -- -- -- 725
--------- ---------- ---------- ----------
Net cash flows from financing activ-
ities.............................. 25,342 48,527 18,103 17,192
--------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATES ON CASH.... -- (140) 145 148
--------- ---------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVA-
LENTS.............................. -- 8,730 737 (6,939)
--------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- -- -- 8,730
--------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ -- $ 8,730 $ 737 $ 1,791
========= ========== ========== ==========
NON-CASH INVESTING AND FINANCING AC-
TIVITIES
Non-cash capital contribution of
preferred stock from parent uti-
lized in purchase of additional
40% interest in CEtv............. $ -- $ 29,840 $ 29,840 $ --
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BACKGROUND
UIH Australia/Pacific, Inc. (the "Company"), a wholly-owned subsidiary of
UIH Asia/Pacific, Inc., which is in turn a wholly-owned subsidiary of United
International Holdings, Inc. ("UIHI"), was formed on October 14, 1994. In
connection with a contemplated offering (the "Offering") of senior discount
notes, UIHI merged into the Company UIHI's subsidiaries that hold interests in
certain operating properties and early stage projects in Australia and the
South Pacific. The accompanying financial statements have been prepared on a
basis of reorganization accounting as though the Company had performed all
foreign development activities and made all acquisitions of UIHI's foreign
multi-channel television, programming and mobile data interests in Australia,
Tahiti and New Zealand since inception. The Company reflected all of the
transfers from UIHI as a capital contribution from parent in the accompanying
consolidated financial statements. The accompanying consolidated financial
statements have been prepared as though the Company made investments in the
following entities on the original date UIHI or certain of its wholly-owned
subsidiaries made the investment:
. The Company acquired, through directly and indirectly held interests, an
effective 50.0% economic interest in two companies that form CEtv in
1994. In December 1995, the Company increased its effective economic
interest in CEtv to 90.0%. The companies that comprise CEtv (CTV Pty Ltd.
("CTV") and STV Pty Ltd ("STV")) have acquired Multi-point Microwave
Distribution Systems ("MMDS") licenses to supply subscription television
services to television households in the north, northeastern and southern
regions of Australia outside of the country's largest cities and are
currently constructing multi-channel television systems to service many
of the television homes in their license areas. Those homes that cannot
be served by MMDS will be serviceable by a direct to home satellite
service marketed by CEtv.
. The Company acquired an effective 90.0% economic interest in Telefenua
S.A. ("Telefenua") in January 1995. The Company's economic interest will
decrease to 75.0% and 64.0% once the Company has received a 20.0% and
40.0% internal rate of return on its investment in Telefenua,
respectively. Telefenua operates, since March 1995, the only multi-
channel subscription television system on the islands of Tahiti and
Moorea in French Polynesia.
. In July 1994, the Company acquired a 50.0% interest in Kiwi
Communications Ltd., which recently changed its name to Saturn
Communications Limited ("Saturn"). Saturn is constructing a wireline
multi- channel television system in New Zealand, primarily in the greater
Wellington area.
. XYZ Entertainment Pty Ltd ("XYZ Entertainment") is an Australian
proprietary company incorporated in New South Wales. Century United
Programming Ventures Pty Limited, an Australian corporation ("CUPV"),
owned equally by the Company and Century Communications Corp.
("Century"), holds a 50.0% interest in XYZ Entertainment. In October
1994, the Company acquired an initial 50.0% interest in XYZ
Entertainment. In September 1995, a third party purchased a 50.0%
interest in XYZ Entertainment, thereby diluting the Company's indirect
interest in XYZ Entertainment to 25.0%.
. The Company acquired a 100.0% interest in August 1995 in United Wireless
Pty Limited ("United Wireless"), a provider of wireless mobile data
services in Australia, primarily Sydney and Melbourne, and is the initial
stages of deploying its distribution network and marketing its services.
The Company accounted for its acquisition using the purchase method of
accounting. The Company has granted Microage Australian Pty Limited
("Microage"), an Australian supplier of telecommunications equipment, the
option to acquire a 49.9% interest in United Wireless at a price equal to
the Company's investment in United Wireless plus 10.0%. Microage in
return has granted the Company an option to require Microage to acquire
up to 100.0% of United Wireless at a price equal to the Company's
F-10
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
investment in United Wireless plus 10.0%. These options expire on June 5,
1996. At this time, the Company does not anticipate that either Microage
or the Company will exercise such options.
The Company has no operating activities of its own. The Company has been
funded by capital contributions and loans from UIHI which enabled it to make
its investments in the entities described above. The Company will continue to
be dependent on UIHI for its capital requirements until the completion of the
Offering discussed above. In the event the Offering is not completed, the
Company will require continued financial support from UIHI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries where it exercises majority control. During
the year ended December 31, 1995, the Company consolidated Telefenua, and
subsequent to August 31, 1995, United Wireless. Due to the Company's
acquisition of the majority economic interest in CEtv in late December 1995,
the accompanying December 31, 1995 consolidated balance sheet consolidates the
accounts of CTV and STV as of December 31, 1995. The Company recognized equity
losses from its investments in CTV and STV through December 31, 1995. The
Company will consolidate the operations of CTV and STV beginning January 1,
1996. All significant intercompany accounts and transactions have been
eliminated in consolidation. Exchange rates used are as of December 31, 1995,
unless otherwise noted.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
F-11
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in companies in which the Company's interest is 20% to
50%, or for investments where the Company's interest is less than 20% in which
the Company exerts significant influence through board representation and
management authority, the equity method of accounting is used. Under this
method, the investment, originally recorded at cost, is adjusted to recognize
the Company's proportionate share of net earnings or losses of the affiliates,
limited to the extent of the Company's investment in and advances to the
affiliates, including any debt guarantees or other funding commitments. The
Company's proportionate share of net earnings or losses of affiliates includes
the amortization of the excess of cost over net tangible assets acquired.
Investments in and advances to affiliated companies are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATE COMPANIES AFFILIATE COMPANIES ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Australia (CEtv)........ $19,738 $ (551) $344 $19,531
Saturn.................. 2,539 (365) 60 2,234
XYZ Entertainment....... 629 (99) 1 531
------- -------- ---- -------
$22,906 $(1,015) $405 $22,296
======= ======== ==== =======
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATE COMPANIES AFFILIATE COMPANIES(1) ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Saturn.................. $ 4,520 $ (1,803) $112 $ 2,829
XYZ Entertainment....... 11,718(2) (11,828) 110 --
------- -------- ---- -------
$16,238 $(13,631) $222 $ 2,829
======= ======== ==== =======
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATED COMPANIES AFFILIATE COMPANIES ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Saturn.................. $ 6,290 $ (2,204) $222 $4,308
XYZ Entertainment....... 12,350 (12,460) 110 --
------- -------- ---- -------
$18,640 $(14,664) $332 $4,308
======= ======== ==== =======
</TABLE>
- ---------------------
(1) Does not include cumulative equity in losses for CEtv of $3,763, as CEtv's
balance sheet is consolidated as of December 31, 1995.
(2) Includes $4,132 of proceeds received for the sale of 50% of the Company's
interest. As the Company had recorded equity in losses from XYZ
Entertainment in an amount equal to its invested capital, the Company
recognized a gain of $4,132 on this transaction. In addition, the Company
accrued an additional funding obligation of $1,834 as of December 31,
1995.
The Company recognized $11,729 of equity losses from XYZ Entertainment for
the year ended December 31, 1995, including $1,834 of additional equity losses
associated with the Company's accrued funding obligation to XYZ Entertainment.
The Company does not have a contractual funding obligation to XYZ Entertainment,
however the Company would face significant and punitive dilution if it did not
make the scheduled fundings. Subsequent to year end, the Company funded $1,511
of the funding obligation accrued.
F-12
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost. Additions, replacements and major
improvements are capitalized and costs for normal repair and maintenance of
property, plant and equipment are charged to expense as incurred. Depreciation
expense is computed by the straight-line method over their estimated useful
lives as shown below.
<TABLE>
<CAPTION>
AVERAGE YEARS
-------------
<S> <C>
Cable plant................................... 5-10
Other fixed assets............................ 3-5
Furniture and fixtures........................ 10
Leasehold improvements........................ 6-10
</TABLE>
LEASED ASSETS
Assets acquired under capital leases are included in property, plant and
equipment. The initial amount of the leased asset and corresponding lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.
ACQUISITION, TRANSACTION AND DEVELOPMENT COSTS
The Company capitalizes direct and incremental costs incurred relative to
pursuing potential investments. If an investment is made, these costs are
either reimbursed to the Company by the affiliated company or capitalized as
part of the cost basis of the Company's investment. If the potential
investment is abandoned, these costs are expensed. The majority of the balance
as of December 31, 1994 was related to Telefenua. Upon closing of the
Telefenua acquisition, the Company contributed $2,039 of equipment to
Telefenua (which was included in acquisition, transaction and development
costs as of December 31, 1995).
LICENSE FEES
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses ($8,890), acquired for a 5-year period for Australia,
will be amortized over the remaining license period upon commencement of
operations. They are renewable every 5 years. In Tahiti, the license rights,
totaling $2,225 are amortized over a 10-year period.
GOODWILL
The Company's acquisition of an additional 40% economic interest in CTV and
STV was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
tangible and intangible assets approximated their respective fair values at
that date. Accordingly, goodwill of $44,790 will be amortized over 15 years
beginning January 1, 1996.
RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amount of all tangible and intangible assets are reviewed at
least annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all tangible and intangible assets have been determined
using net cash flows which have not been discounted to their present values.
F-13
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
REVENUE RECOGNITION
Monthly service and installation fees are recognized as revenue in the
period the related services are provided to the subscribers.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax assets and liabilities for
the expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Net deferred tax assets are then reduced by a valuation allowance
for amounts which do not satisfy the realization criteria of SFAS 109.
FOREIGN OPERATIONS
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company. Assets and liabilities
of foreign subsidiaries are translated at the exchange rates in effect at year
end and the statements of operations are translated at the average exchange
rates during the period. Exchange rate fluctuations on translating foreign
currency financial statements into U.S. dollars result in unrealized gains or
losses referred to as translation adjustments. Cumulative translation
adjustments are recorded as a separate component of parent's equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period end translations)
or realized upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported on the Consolidated
Statements of Cash Flows will not agree to changes in the corresponding
balances on the Consolidated Balance Sheets. The effects of exchange rate
changes on cash balances held in foreign currencies is reported as a separate
line below cash flows from financing activities.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") which
is required to be adopted by affected companies for fiscal years beginning
after December 15, 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company has
not adopted the principles of this statement within the accompanying
consolidated financial statements; however, the Company does not believe that
the provisions of SFAS 121 will have a material effect on the Company's
reported results.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") which is required to be adopted by affected companies for fiscal years
beginning after December 15, 1995. The Company does not believe that the
provisions of SFAS 123 will have a material effect on the Company's reported
results.
F-14
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
3. ACQUISITIONS
In January 1995, the Company acquired an initial 90% economic interest in
Telefenua in exchange for a cash contribution into Telefenua of $6,060, the
contribution of a note and accrued interest due UIHI of $817 and equipment
leased to Telefenua totaling $2,039. Details of the net assets acquired are as
follows:
<TABLE>
<CAPTION>
(CONVERTED AT ACQUISITION DATE)
<S> <C>
Tangible assets........... $ 4,213
Intangible assets......... 1,835
Other..................... 107
Cash...................... 6,181
Accounts payable and ac-
crued liabilities........ (783)
Due to affiliate.......... (2,110)
Minority shareholders' in-
terest................... (527)
-------
Total consideration..... $ 8,916
=======
</TABLE>
The purchase price was allocated to the net assets acquired based on
relative fair market values.
The Company's cumulative investment as of December 31, 1995 in Telefenua
includes the cash and notes contributed of $6,877, an equipment lease of
$2,285 and bridge loans in the amount of $4,527. The Company's consolidated
assets, liabilities, revenues, expenses and net loss after intercompany
eliminations related to Telefenua for the year ended December 31, 1995 totaled
$10,989, $9,710, $1,882, $5,806 and $3,924, respectively.
In response to a legal challenge by the President of Tahiti, the Conseil
d'Etat of France recently canceled a decree authorizing MMDS systems in French
Polynesia and similar French territories. The cancellation could provide a
legal basis to cancel a required authorization already granted to Telefenua by
the communications agency, the CEA, because the authorization was based in
part on the decree. A law recently enacted by the French Parliament gives
Telefenua a legal basis to ask for a new authorization from the communications
agency, should the existing authorization be nullified. There can be no
assurance, however, that if the existing authorization is nullified a new
authorization will be obtained or, if a new authorization is obtained, that it
would not differ from the existing authorization.
F-15
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
In December 1995, the Company acquired an additional 40% effective economic
interest in CEtv from other shareholders increasing its effective economic
interest to 90%. The Company paid $15,241 in cash and contributed 170,513
shares of UIHI's convertible preferred stock having an initial liquidation
value and fair value of $29,840 for the additional 40% effective economic
interest. Details of the net assets are as follows:
<TABLE>
<CAPTION>
(CONVERTED AT ACQUISITION DATE)
<S> <C>
Tangible assets.......................... $ 18,268
Intangible assets........................ 8,643
Receivables, prepaids and other.......... 2,704
Cash..................................... 7,222
Accounts payable and accrued liabili-
ties.................................... (6,140)
Other debt............................... (890)
Minority shareholders' interest.......... (2,363)
Net investment prior to acquisition of
40%..................................... (27,153)
--------
291
Goodwill................................. 44,790
--------
Total consideration.................... $ 45,081
========
</TABLE>
The Company's cumulative investment as of December 31, 1995 in CEtv includes
cash invested of $19,903, bridge loans of $5,400, the purchase of a 10%
interest from another shareholder for $5,613 and the purchase of the 40%
interest from another shareholder for $45,081. The Company's equity in losses
from CEtv for the years ended December 31, 1994 and 1995 are $551 and $3,212,
respectively.
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
Investments in and advances to affiliated companies accounted for under the
equity method amount to $22,296 and $2,829 as of December 31, 1994 and 1995,
respectively.
Condensed financial information for the Company's significant equity
investees is presented below.
CTV
In September 1994, the Company began to fund its 40.0% economic interest in
CTV, an Australian company that currently holds MMDS licenses in Australia.
The Company then acquired an additional 10.0% economic interest in CTV from
another shareholder for $5,613. As of December 31, 1994, the Company's paid-in
interest was 37.2%. As noted above, in December 1995, the Company purchased an
additional 40% economic interest in CTV which increased its economic interest
to 90% and accordingly, the Company has consolidated the balance sheet of CTV
as of December 31, 1995.
F-16
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
Condensed financial information for CTV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash.......................................................... $15,023
Property, plant and equipment, net............................ 2,130
Intangible assets, net........................................ 3,896
Other assets.................................................. 577
-------
Total assets................................................ $21,626
=======
Accounts payable and accrued liabilities...................... $ 2,159
Shareholders' equity, including shareholder debentures........ 19,467
-------
Total liabilities and shareholders' equity.................. $21,626
=======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ----------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue........................ $ -- $ 433 $ -- $ 980
Operating, selling, general and
administrative expenses....... (243) (4,804) (301) (3,820)
Depreciation and amortization.. (3) (1,113) (9) (1,343)
-------- ---------- --------- -----------
Net operating loss........... (246) (5,484) (310) (4,183)
Interest, net.................. 246 914 329 (67)
Other.......................... -- 245 -- 324
-------- ---------- --------- -----------
Net loss..................... $ -- $(4,325) $ 19 $(3,926)
======== ========== ========= ===========
</TABLE>
- ---------------------
(1) CTV began operations during 1994.
STV
In October 1994, the Company began to fund its 50.0% economic interest in
STV, an Australian company that holds MMDS licenses in Australia. As of
December 31, 1994, the Company's paid in interest was 10.71%. In December
1995, the Company purchased an additional 40.0% economic interest in STV which
increased its economic interest to 90.0%, and accordingly, the Company has
consolidated the balance sheet of STV as of December 31, 1995.
Condensed financial information for STV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash.......................................................... $7,816
Property, plant and equipment, net............................ 409
Intangible assets, net........................................ 3
Other assets.................................................. 50
------
Total assets................................................ $8,278
======
Accounts payable and accrued liabilities...................... $ 617
Shareholders' equity, including shareholder debentures........ 7,661
------
Total liabilities and shareholders' equity.................. $8,278
======
</TABLE>
F-17
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------- ----------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT DATA
Revenue........................ $ -- $ 10 $ -- $ 89
Operating, selling, general and
administrative expenses....... (197) (2,670) (272) (1,617)
Depreciation and amortization.. (3) (158) (9) (264)
-------- ---------- --------- -----------
Net operating loss........... (200) (2,818) (281) (1,792)
Interest, net.................. 107 315 145 5
-------- ---------- --------- -----------
Net loss..................... $ (93) $(2,503) $ (136) $(1,787)
======== ========== ========= ===========
</TABLE>
- ---------------------
(1) STV began operations during 1994.
XYZ
Condensed financial information for XYZ Entertainment stated in U.S.
dollars, which is derived from financial statements audited by Deloitte Touche
Tohmatsu, is as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
---------------
1994(1) 1995
<S> <C> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash........................................................... $ 520 $ 2,309
Property, plant and equipment, net............................. 45 2,499
Intangible assets, net......................................... -- 1,871
Other assets................................................... 25 1,933
----- -------
Total assets................................................. $ 590 $ 8,612
===== =======
Accounts payable and accrued liabilities....................... $ -- $16,068
Shareholder loans.............................................. 771 21,597
Shareholders' equity........................................... (181) (29,053)
----- -------
Total liabilities and shareholders' equity................... $ 590 $ 8,612
===== =======
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ----------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue....................... $ -- $ 1,266 $ -- $ 1,820
Operating, selling, general
and administrative expenses.. (183) (27,511) (1,911) (4,287)
Depreciation and amortiza-
tion......................... -- (2,662) -- (468)
-------- ----------- ---------- ----------
Net operating loss.......... (183) (28,907) (1,911) (2,935)
Interest, net................. 2 145 10 175
-------- ----------- ---------- ----------
Net loss.................... $(181) $(28,762) $(1,901) $(2,760)
======== =========== ========== ==========
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
F-18
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
SATURN
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------
1994 1995
<S> <C> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash............................................................. $ 469 $ 248
Property, plant and equipment, net............................... 1,278 1,478
Other assets..................................................... 272 303
------ ------
Total assets................................................... $2,019 $2,029
====== ======
Accounts payable and accrued liabilities......................... $ 184 $2,802
Shareholders' equity............................................. 1,835 (773)
------ ------
Total liabilities and shareholders' equity..................... $2,019 $2,029
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- ----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue......................... $ 43 $ 148 $ 21 $ 52
Operating, selling, general and
administrative expenses........ (976) (2,365) (407) (690)
Depreciation and amortization... (351) (385) (90) (92)
--------- --------- ---------- ----------
Net operating loss............ (1,284) (2,602) (476) (730)
Other........................... 69 (55) 1 40
--------- --------- ---------- ----------
Net loss...................... $(1,215) $(2,657) $(475) $(690)
========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
5. PROPERTY, PLANT AND EQUIPMENT AS OF
DECEMBER 31,
------------
1994 1995
<S> <C> <C>
Leasehold improvements............................................ $-- $ 1,582
Plant and equipment............................................... -- 22,683
Capitalized network construction expenditures..................... -- 2,776
Other............................................................. 1 1,301
--- -------
1 28,342
Accumulated depreciation and amortization......................... -- (1,217)
--- -------
Net property, plant and equipment................................. $ 1 $27,125
=== =======
</TABLE>
6. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit
against its federal income tax expense for foreign income taxes paid or
accrued. Because the Company must calculate its foreign tax credit separately
for dividends received from each foreign corporation in which the Company owns
10% to 50% of the voting stock and because of certain other limitations, the
Company's ability to claim a foreign tax credit may be limited, particularly
with respect to dividends paid out of earnings subject to a high rate of
foreign income tax. This limitation and the inability of the Company to offset
losses in one foreign jurisdiction against income earned in another foreign
jurisdiction could result in a high effective tax rate on the Company's
earnings. The Company
F-19
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
has an ownership interest in Telefenua, which is located in Tahiti, a self-
governing territory of France, with which the United States does not have an
income tax treaty. As a result, the Company may be subject to increased
withholding taxes on dividend distributions and other payments from Telefenua
and also may be subject to double taxation with respect to income generated by
Telefenua.
The Company is included as a member of UIHI's consolidated tax return and,
after the Offering, will remain a member of the UIHI consolidated group (as
long as non-UIHI ownership of the Company does not exceed 20%). UIHI and the
Company are parties to a tax sharing agreement that defines the parties'
rights and obligations with respect to tax liability and benefits relating to
the Company and its operations as part of the consolidated group of UIHI . In
general, UIHI is responsible for filing consolidated tax returns and paying
the associated taxes and the Company will reimburse UIHI for the portion of
the tax cost relating to the Company and its operations. For financial
reporting purposes, the Company accounts for income taxes in accordance with
SFAS 109 as if it filed separate income tax returns in accordance with the
fundamental provisions of the tax sharing agreement. The primary differences
between taxable income (loss) and net income (loss) for financial reporting
purposes relate to accounting for equity in income (losses) of affiliated
companies and the non-consolidation of its consolidated subsidiaries for U.S.
tax purposes. Because the Company holds certain of its foreign investments
through affiliates which hold investments, accounted for under the equity
method, in foreign corporations, taxable income (loss) generated does not flow
through to the Company for United States federal and state tax purposes even
though the Company records its allocable share of affiliate income (losses)
for financial reporting purposes. Accordingly, due to the indefinite reversal
of such amounts in future periods, no deferred tax assets have been
established for tax basis in excess of the Company's book basis (approximately
$238 and $5,940 at December 31, 1994 and 1995, respectively) in investments in
affiliated companies who, in turn have equity investments in foreign
corporations.
The Company's United States net operating loss, totaling approximately
$3,049 at December 31, 1995, expires beginning in 2009 through 2011.
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1994 1995
<S> <C> <C>
Company's United States tax net operating loss carryforward... $ 257 $ 1,189
Tax net operating loss carryforward of consolidated foreign
subsidiaries................................................. -- 4,165
----- -------
Deferred tax asset............................................ 257 5,354
Valuation reserve............................................. (257) (5,354)
----- -------
Deferred tax asset, net....................................... $ -- $ --
===== =======
For Australian income tax purposes, the net operating loss carryforward may
be limited in the event of a change in control of CEtv or a change in the
business.
The difference between income tax expense provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
--------------
1994 1995
----- -------
<S> <C> <C>
Expected income tax expense (benefit) at statutory rates...... $ (34) $(3,628)
Tax effect of permanent and other differences:
Other....................................................... -- 39
Amortization of licenses.................................... -- 157
Non-deductible Entertainment................................ 12 222
Effect of net operating losses not recognized............... 22 3,210
----- -------
Total income tax expense (benefit)............................ $ -- $ --
===== =======
</TABLE>
F-20
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
7. COMMITMENTS
CEtv has license fees payable annually as follows:
<TABLE>
<S> <C>
1996............................................................. $ 3,194
1997............................................................. 3,194
1998............................................................. 3,194
1999............................................................. 1,868
2000............................................................. --
-------
$11,450
=======
CEtv has capital lease obligations as follows:
1996............................................................. $ 235
1997............................................................. 261
1998............................................................. 575
1999............................................................. 17
2000............................................................. --
-------
1,088
Future finance charges........................................... (198)
-------
$ 890
=======
CEtv has operating lease obligations as follows:
1996............................................................. $ 474
1997............................................................. 474
1998............................................................. 474
1999............................................................. 475
2000............................................................. 475
After............................................................ 504
-------
$ 2,876
=======
</TABLE>
CEtv entered into franchise agreements with Australis Media Limited
("Australis"). The franchise agreements provide for CEtv to have access to
Australis programming in the franchise area and be the sole Australis
franchisee in the region on all medium, being MMDS, satellite and cable. CEtv
acquires a significant portion of its programming from Australis. (See Note
10)
Under the agreements, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number of
subscribers.
8. RELATED PARTY
In connection with the corporate reorganization discussed in Note 1, the
Company and UIHI will execute a 10-year management services agreement (the
"UIHI Management Agreement"), pursuant to which UIHI will continue to perform
certain administrative, accounting, financial reporting and other services for
the Company, which has no separate employees of its own. For the years ended
December 31, 1994 and 1995, UIHI allocated approximately $659 and $918 to the
Company for such services. Pursuant to the UIHI Management Agreement, UIHI
will be paid a management fee of $750 for the first year of such agreement,
which fees shall increase on the first anniversary date of the UIHI Management
Agreement and each anniversary date thereafter by 8% per year. In addition,
the Company shall reimburse UIHI for any out-of-pocket expenses incurred by
UIHI in
F-21
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
performance of its duties under the UIHI Management Agreement, including
travel, lodging and entertainment expenses.
UIHI has executed technical assistance agreements with CTV and STV pursuant
to which it will provide various management and technical services. Under the
agreements, UIHI receives a management fee equal to 5% of CTV and STV's total
revenue for the first two years, 4% for the next six years, 3% for the
following two years and 2% thereafter. In addition, UIHI is reimbursed for all
direct costs associated with services it provides for CEtv. CEtv's managing
director, chief operating officer and marketing director are employees of UIHI
that have been seconded to CEtv. In addition, UIHI has appointed five other
management personnel and five of six directors.
UIHI and Telefenua have executed a technical services agreement whereby UIHI
has agreed to provide technical, administrative and operational assistance to
Telefenua encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, selling and
advertising, (iii) accounting, billing and subscriber management systems, and
(iv) personnel management and training for a
fee equal to 5.5% of Telefenua's gross revenue through 1996, 3.5% of gross
revenue for the following 12 months, and 2.5% thereafter. The fees payable to
UIHI under its technical service agreement with an indirect majority owned
subsidiary are 5%, 3% and 2% of Telefenua's gross revenues over the same
periods. UIHI is also reimbursed for all direct and indirect costs associated
with the services it provides. UIHI has appointed two of its employees to
serve as managing director and the technical director of Telefenua. UIHI pays
these employee's salaries and benefits.
Saturn and UIHI have executed a technical services agreement pursuant to
which UIHI provides technical, administrative and operational assistance to
Saturn encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, pricing and packaging
of services, (iii) selection of programming and negotiations with suppliers
and (iv) accounting, billing and subscriber management systems. UIHI receives
a management fee equal to 5% of Saturn's gross revenue through July 1999. UIHI
is also reimbursed for all direct and indirect costs associated with these
services. The managing director and construction manager are employees of UIHI
that have been seconded to Saturn pursuant to the terms of the technical
services agreement.
Included in the due to parent payable as of December 31, 1995 is the
following:
<TABLE>
<S> <C>
CTV Bridge loan(1)................................................ $ 5,400
Telefenua Bridge loan, including accrued interest of $231(2)...... 4,527
CEtv technical assistance agreement obligations................... 1,488
Telefenua technical assistance agreement obligations.............. 1,168
-------
$12,583
=======
</TABLE>
- ---------------------
(1) The loan extended to CTV is at an interest rate of 9.25% and has no terms
of repayment. The Company has the option to convert the bridge loan into
equity of CTV.
(2) The loan extended to Telefenua is at an interest rate of 14% and is
compounded annually and has no terms of repayment. The Company has the
option to convert the bridge loan into equity of Telefenua.
Upon completion of the Offering discussed in Note 1, approximately $25,000
of the proceeds will be used to acquire certain bridge loans made by UIHI to
CTV and Telefenua noted above, including $15,073 advanced to CEtv and
Telefenua subsequent to year end.
F-22
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
9. PRO FORMA INFORMATION
The following unaudited pro forma information for the year ended December
31, 1995 gives effect to the acquisitions of the additional 40% economic
interests in CEtv and the disposition of the 25% interest in XYZ Entertainment
as if each had occurred on January 1, 1995. The pro forma financial
information does not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable under current circumstances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------
ACTUAL CETV(1) XYZ(2) PRO FORMA
<S> <C> <C> <C> <C>
Consolidated Condensed Statement of
Operations:
Service revenue................... $ 1,883 $ 443 $ -- $ 2,326
Operating expense................. (3,230) (793) -- (4,023)
General and administrative
expense.......................... (3,402) (6,681) -- (10,083)
Depreciation and amortization
expense.......................... (1,003) (4,259) -- (5,262)
--------- --------- -------- ---------
Net operating loss.............. (5,752) (11,290) -- (17,042)
Equity in losses of affiliated
companies, net................... (16,379) 3,212 4,132 (9,035)
Interest, net..................... 127 1,230 -- 1,357
Other, net........................ 4,771 927 (4,132) 1,566
--------- --------- -------- ---------
Net loss........................ $ (17,233) $ (5,921) $ -- $ (23,154)
========= ========= ======== =========
</TABLE>
- ---------------------
(1) Represents the consolidation of CEtv and the elimination of the previously
recorded equity in losses. Included in depreciation and amortization
expense is $2,987 of amortization related to the goodwill recorded in
connection with the acquisition of an additional 40% effective economic
interest, amortized over 15 years on a straight line basis.
(2) Represents the elimination of the gain on sale of XYZ and 25% of the
equity in losses previously recognized.
10. SUBSEQUENT EVENT
On April 19, 1996, a group of investors, including UIHI, committed to make
or procure guarantees totalling $125,000 under Australis' existing bank
facility to facilitate new bank financing for Australis, a principal supplier
of CEtv's programming. UIHI has agreed that a newly-formed subsidiary will
make or procure a guarantee of $10,000 of the bank financing. UIHI plans to
contribute $10,000 to the new subsidiary, which cash will be used to
collateralize such guarantee. The Company will use $10,000 of the net proceeds
of the Offering to purchase such new subsidiary from UIHI. As consideration,
Australis has granted warrants to acquire 4,171,460 ordinary shares or
convertible notes, at a price of A$0.20 per share or note, to the new
subsidiary, which number is subject to adjustment. The warrants expire on
December 31, 1998. This transaction is subject to execution of final
documentation and other conditions and is scheduled to close by April 30,
1996.
Australis has indicated its intention to refinance its existing bank
facility prior to its maturity through the sale of debt and/or equity
securities and/or the sale of assets to existing shareholders or third
parties. There can be no assurance that Australis will be able to secure
adequate long term financing on satisfactory terms or, if such financing is
secured, how long such financing will satisfy Australis' working capital
needs. The Company believes that if CEtv is no longer able to obtain the
programming provided by Australis on an exclusive basis and it was required to
seek replacement programming, it would have access to the same programming
directly from the suppliers of Australis' programming or sufficient
alternative programming on competitive terms. However, there can be no
assurance that this would be the case and the inability of CEtv to procure the
same or suitable alternative programming at competitive rates and on an
exclusive basis in its service areas could have a material adverse effect on
the Company.
F-23
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of
CTV Pty Limited
We have audited the accompanying consolidated financial statements of CTV
Pty Limited and its subsidiaries for the years ended 31 December 1994 and
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 years
then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-24
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
DECEMBER 31, MARCH 31, 1996
--------------------- ----------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets:
Cash............................ 19,371,145 9,712,936 --
Receivables..................... 3 718,939 4,538,627 3,579,676
Inventory....................... -- 679,628 2,222,668
Other........................... 4 25,582 830,133 235,564
---------- ---------- -----------
Total current assets.......... 20,115,666 15,761,324 6,037,908
---------- ---------- -----------
Non-current assets
Investments..................... 5 2 2 2
Property, plant and equipment... 6 2,746,809 17,955,579 33,019,025
Intangibles..................... 7 5,021,630 7,906,674 8,571,490
---------- ---------- -----------
Total non-current assets...... 7,768,441 25,862,255 41,590,517
---------- ---------- -----------
Total assets................ 27,884,107 41,623,579 47,628,425
---------- ---------- -----------
Current liabilities
Creditors and borrowings........ 8 2,747,734 15,477,769 21,486,121
Provisions...................... -- -- 166,894
---------- ---------- -----------
Total current liabilities..... 2,747,734 15,477,769 21,653,015
---------- ---------- -----------
Non-current liabilities
Creditors and borrowings........ 9 36,165 684,945 6,428,882
Provisions...................... 10 -- 156,267 --
---------- ---------- -----------
Total non-current liabili-
ties......................... 36,165 841,212 6,428,882
---------- ---------- -----------
Total liabilities........... 2,783,899 16,318,981 28,081,897
---------- ---------- -----------
Net assets........................ 25,100,208 25,304,598 19,546,528
========== ========== ===========
Shareholders' equity
Share capital................... 11 42,729 42,729 42,729
Reserves........................ 13 5,116,536 5,116,536 5,116,536
Retained profits/(accumulated
losses)........................ 206 (5,795,404) (11,553,474)
---------- ---------- -----------
5,159,471 (636,139) (6,394,209)
Convertible debentures.......... 12 19,940,737 25,940,737 25,940,737
---------- ---------- -----------
Total shareholders' equity.. 25,100,208 25,304,598 19,546,528
========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-25
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
ECONOMIC ENTITY 1995 1996
-------------------- --------- -----------
1994 1995 (UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C>
Revenue:
Service......................... -- 579,690 -- 1,288,162
-------- ---------- -------- -----------
-- 579,690 -- 1,288,162
-------- ---------- -------- -----------
Expenses:
General and administration...... 321,494 6,406,782 401,123 4,969,915
Depreciation and amortisation... 4,055 1,491,456 12,118 1,769,604
Management fees................. -- 29,651 -- 70,231
-------- ---------- -------- -----------
325,549 7,927,889 413,241 6,809,750
-------- ---------- -------- -----------
Operating loss.................... (325,549) (7,348,199) (413,241) (5,521,588)
-------- ---------- -------- -----------
Non-operating income (expense)
Interest income................. 327,355 1,227,029 439,849 55,197
Interest expense and costs of
finance........................ (1,600) (2,180) (195) (142,679)
Other, net foreign exchange
gains--non-speculative trad-
ing............................ -- 327,740 -- (149,000)
-------- ---------- -------- -----------
325,755 1,552,589 439,654 (236,482)
-------- ---------- -------- -----------
Net profit (loss) before tax...... 206 (5,795,610) 26,413 (5,758,070)
Income tax attributable to net
profit/(loss).................... -- -- -- --
-------- ---------- -------- -----------
Net loss.......................... 206 (5,795,610) 26,413 (5,758,070)
-------- ---------- -------- -----------
Retained profits/(accumulated
losses) at beginning of year..... -- 206 206 (5,795,404)
-------- ---------- -------- -----------
Retained profits/(accumulated
losses) at end of year........... 206 (5,795,404) 26,619 (11,553,474)
======== ========== ======== ===========
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-26
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
ECONOMIC ENTITY 1995 1996
----------------------- ---------- -----------
NOTE 1994 1995 (UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities
Receipts from custom-
ers.................. -- 522,211 -- 2,247,115
Payments to suppliers
and employees........ (297,332) (3,973,333) (22,457) (1,152,927)
Interest received..... 327,355 1,227,029 439,849 55,197
Interest and other
costs of finance
paid................. (1,600) (2,180) (195) (142,679)
---------- ----------- ---------- -----------
Net operating cash
flows................ 28,423 (2,226,273) 417,197 1,006,706
---------- ----------- ---------- -----------
Cash flows from invest-
ing activities
Purchase of
subsidiaries, net of
cash acquired........ (12) (10) -- --
Payments for plant and
equipment............ (55,871) (15,326,279) (87,289) (16,833,050)
Payments for MDS and
broadcast licenses... (5,021,630) (3,437,458) (1,099) (15,646)
Loans granted......... (718,939) (3,768,962) -- --
Payments for invest-
ments................ -- (2) -- --
---------- ----------- ---------- -----------
Net investing cash
flows................ (5,796,452) (22,532,711) (88,388) (16,848,696)
---------- ----------- ---------- -----------
Cash flows from financ-
ing activities
Proceeds from share
issues............... 5,159,265 -- -- --
Proceeds from issue of
convertible
debentures........... 19,940,737 6,000,000 -- --
Proceeds from short
term loans........... 39,781 8,818,202 -- --
Proceeds from loan
from related body
corporate............ -- -- 6,000,000 5,405,405
Repayment of finance
lease principal...... (609) (45,167) -- 338,532
---------- ----------- ---------- -----------
Net financing cash
flows................ 25,139,174 14,773,035 6,000,000 5,743,937
---------- ----------- ---------- -----------
Net increase/(decrease)
in cash held........... 19,371,145 (9,985,949) 6,328,809 (10,098,053)
Cash at beginning of
year................... -- 19,371,145 19,371,145 9,712,986
Effect of different ex-
change rate............ -- 327,740 -- (149,000)
---------- ----------- ---------- -----------
Cash at the end of the
year................... 8, 16 19,371,145 9,712,936 25,699,954 (534,067)
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-27
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, CTV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in
the profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognised in different accounting periods
for book and tax purposes, calculated at the tax rates expected to apply when
the differences reverse.
The benefit arising from estimated carry forward tax losses has not been
recorded in the future income tax benefit account as realisation of such
benefit is considered not to be virtually certain.
LEASED ASSETS
Assets of the economic entity acquired under finance leases are capitalised.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortised over the life of the relevant lease. Lease liabilities are reduced
by the principal component of lease payments. The interest component is
charged against operating profit.
Operating leases are not capitalised and rental payments are charged against
operating profit in the period in which they are incurred.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.
F-28
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
Property, plant and equipment, excluding freehold land, are depreciated or
amortised at rates based upon their expected useful lives using the straight
line method.
<TABLE>
<S> <C>
Leasehold improvements......................................... 6 years
Computer equipment............................................. 3 years
Motor vehicles................................................. 5 years
Furniture and fittings......................................... 10 years
</TABLE>
INTANGIBLES
The acquisition of MDS licenses has been brought to account at cost. The
cost to acquire these licenses, acquired for a 5 year period, will be
amortised over the remaining license period upon commencement of broadcasting
operations. They are renewable every 5 years.
The licenses have been issued for a term of five years, with the license fee
payable annually in advance. The license fee is payable to Spectrum Management
Agency, an agent of the Australian Federal Government.
RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS
The carrying amount of all non-current assets are reviewed at least annually
to determine whether they exceed their recoverable amount. The recoverable
amounts of all non-current assets have been determined using net cash flows
which have not been discounted to their present values.
PROVISION FOR ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
NOTE 2. INCOME TAX
(a) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
1994 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 differences:
--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 account......... -- 2,061,456
------- ----------
Total income tax attributable to operating profit/(loss).. -- --
======= ==========
</TABLE>
F-29
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
(b) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $5,795,404 available to offset against future years' taxable
income. The benefit of these losses of $2,061,456 has not been brought to
account as realisation is not virtually certain. The benefit will only be
obtained if:
(i) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefits from the deductions for the losses
to be realised;
(ii) the company continues to comply with the conditions for
deductibility imposed by the law;
(iii) no changes in tax legislation adversely affect the company in
realising the benefit from the deductions for the losses; and
(iv) any change in the business or control of the company does not affect
the ability to utilise the available losses.
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
----------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Trade debtors............................... -- 57,479 209,124
Less: provision for doubtful debts.......... -- (5,792) (32,302)
------- --------- ---------
-- 51,687 176,822
Related parties:
--United International Holdings Inc....... 95,865 140,217 394,363
--Other................................... -- 712,554 712,554
--Related body corporate--STV Pty Ltd...... 623,074 3,627,044 2,288,162
Other persons............................... -- 7,125 7,775
------- --------- ---------
718,939 4,538,627 3,579,676
======= ========= =========
NOTE 4. OTHER ASSETS (CURRENT):
Prepaid expenses............................ 10,465 787,916 130,107
Security deposits........................... 15,117 42,217 104,957
------- --------- ---------
Total other assets (current)................ 25,582 830,133 235,564
======= ========= =========
NOTE 5. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note
18)........................................ 2 2 2
======= ========= =========
</TABLE>
F-30
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 6. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.............................. -- 151,200 152,934
--Accumulated depreciation............. -- (8,705) (15,122)
--------- ---------- ----------
Total leasehold improvements, net........ -- 142,495 137,812
--------- ---------- ----------
Plant and equipment:
--At cost.............................. 55,881 15,737,143 19,700,289
--Accumulated depreciation............. (4,055) (872,818) (1,446,834)
--------- ---------- ----------
Total plant and equipment, net........... 51,826 14,864,325 18,253,455)
--------- ---------- ----------
Plant and equipment under lease:
--At capitalised cost.................. 44,506 912,820 2,818,854
--Accumulated depreciation............. -- (61,563) (195,882)
--------- ---------- ----------
Total leased plant and equipment, net.... 44,506 851,257 2,122,972
--------- ---------- ----------
Capitalised network construction expendi-
tures:
--At cost.............................. 2,650,477 2,097,502 13,183,386
--Accumulated amortisation............. -- -- (678,600)
--------- ---------- ----------
Total capitalised development expendi-
tures, net:............................. 2,650,477 2,097,502 12,504,786
--------- ---------- ----------
Total property, plant and equipment,
net:.................................... 2,746,809 17,955,579 33,019,025
========= ========== ==========
NOTE 7. INTANGIBLE ASSETS (NON-CURRENT):
MDS licenses:
--At cost.............................. 5,018,215 8,196,618 9,237,130
--Accumulated amortisation............. -- (544,093) (920,344)
--------- ---------- ----------
Total MDS licenses net:.................. 5,018,215 7,652,525 8,316,786
--------- ---------- ----------
Program Rights fees at cost: -- 250,000 250,000
--Accumulated amortisation............. -- (8,333) (8,333)
Other at cost............................ -- -- 1,570
Organisation costs at cost:.............. 3,415 12,482 11,467
--------- ---------- ----------
Total intangible assets, net............. 5,021,630 7,906,674 8,571,490
========= ========== ==========
NOTE 8. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Overdraft.............................. -- -- 534,067
Trade creditors........................ 1,684 5,727,304 9,382,945
Unearned Income........................ -- 29,062 22,117
Accrued Expenses....................... 2,698,537 728,113 1,881,694
Due to related body corporate--United
International Holdings Inc............ 39,781 8,857,983 9,414,564
Secured:
Finance lease liability (Note 15)...... 7,732 135,307 250,734
--------- ---------- ----------
Total current creditors and borrowings... 2,747,734 15,477,769 21,486,121
========= ========== ==========
</TABLE>
F-31
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 9. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
----------------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Unsecured:
Finance lease liability (Note 15).... -- -- 1,023,477
Loan from related body corporate..... -- -- 5,405,405
----------- ----------- -----------
Secured
Finance lease liability (Note 15).... 36,165 684,945 --
----------- ----------- -----------
Total non-current creditors and
borrowings............................ 36,165 684,945 6,428,882
=========== =========== ===========
NOTE 10. PROVISIONS (NON-CURRENT):
Annual leave........................... -- 156,267 166,894
=========== =========== ===========
NOTE 11. SHARE CAPITAL:
Authorised capital:
--100,000,000 ordinary shares of $1
each................................ 100,000,000 100,000,000 100,000,000
----------- ----------- -----------
Total authorised capital as at 31 De-
cember 1995........................... 100,000,000 100,000,000 100,000,000
Issued and paid up capital:
--42,729 ordinary shares of $1 each.. 42,729 42,729 42,729
----------- ----------- -----------
Total issued and paid up capital....... 42,729 42,729 42,729
=========== =========== ===========
</TABLE>
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
1994 1994 1995 1995
<S> <C> <C> <C> <C>
Opening number of shares.............. 3 -- 42,729 --
Issued during the year................ 42,726 13 -- --
Redeemed.............................. -- 13 -- --
------ --- ------ ---
Closing number of shares.............. 42,729 -- 42,729 --
====== === ====== ===
</TABLE>
NOTE 12. CONVERTIBLE DEBENTURES:
During the year, the company issued 162,643 convertible debentures for
$A6,000,000. These debentures confer rights upon the holders as creditors of
the company. They do not confer any right to attend or vote at general
meetings. Interest is payable to the holders equal to the amount of the
distribution that the holder would have received if, as at the date the
entitlement to the distribution was determined, all of the debentures of that
holder and all other holders had been converted into shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would
not result in the breach of any Statute by the debenture holder or any other
person.
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which
would result in a different conversion factor. Debentures may not be redeemed
for cash.
F-32
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
In the event of a winding up of the company, the rights of the debenture
holders against the company in respect of the debentures are postponed until
the claims of all holders of senior indebtedness have been satisfied in full.
Senior indebtedness means secured obligations, unsecured and unsubordinated
obligations of the company, other than debentures and shares.
NOTE 13. RESERVES:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
1994 1995
$A $A
<S> <C> <C>
Share premium opening balance............................... -- 5,116,536
Premium on issues of shares................................. 5,116,536 --
Redemption of preference shares............................. -- --
--------- ---------
Total reserves.............................................. 5,116,536 5,116,536
========= =========
</TABLE>
NOTE 14. EMPLOYEE ENTITLEMENTS:
SUPERANNUATION COMMITMENTS
The economic entity contributes to a defined contribution superannuation
plan for substantially all of its employees. Each participating entity in the
economic entity has a legal obligation to contribute to the schemes, which are
as follows:
(a) Hourly employees and commission employees--Employee Retirement Fund,
a fund administered by MLC. This is a defined contribution fund; and
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by
MLC (contributions 6%). This is a defined contribution fund.
F-33
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 15. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------
1994 1995
$A $A
<S> <C> <C>
(a)Annual licence fees are payable as follows:
Not later than one year................................ 1,212,627 3,068,099
Later than one year but not later than two years....... 1,212,627 3,068,099
Later than two years but not later than five years..... 3,637,881 5,121,828
Later than five years.................................. -- --
--------- ----------
6,063,135 11,258,026
========= ==========
(b)Finance lease expenditure contracted for is payable as
follows:
Not later than one year................................ 12,429 215,798
Later than one year but not later than two years....... 12,429 233,412
Later than two years but not later than five years..... 30,044 553,335
Later than five years.................................. -- --
--------- ----------
54,902 1,002,545
Future finance charges................................. 11,005 182,293
--------- ----------
Net finance lease liability............................ 43,897 820,252
========= ==========
Reconciled to:
Current liability (Note 8)............................. 7,732 135,307
Non-current liability (Note 9)......................... 36,165 684,945
--------- ----------
43,897 820,252
========= ==========
(c)Operating lease expenditure contracted for is payable
as follows:
Not later than one year................................ 137,500 467,767
Later than one year but not later than two years....... 137,500 467,767
Later than two years but not later than five years..... 412,500 1,405,357
Later than five years.................................. -- 529,372
--------- ----------
687,500 2,870,263
========= ==========
</TABLE>
(d) On 24 July 1994, CTV Pty Limited entered into a franchise agreement with
Australis Media Limited. The franchise provides for CTV Pty Limited to
have access to Australis Media Limited programming in the franchise area
and be the sole Australis franchisee in the region on all medium, being
MDS, satellite and cable.
Under the agreement, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number
of subscribers.
F-34
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 16. NOTES TO THE STATEMENT OF CASH FLOWS:
(a)Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash
at the end of the financial year as shown in the Statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
MARCH 31,
ECONOMIC ENTITY 1996
---------------------- -----------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash....................................... 73,377 (261,963) (534,067)
Short term money market deposits........... 19,297,768 9,974,899 --
---------- ---------- ----------
19,371,145 9,712,936 (534,067)
========== ========== ==========
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<CAPTION>
MARCH 31,
ECONOMIC ENTITY 1996
---------------------- -----------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Operating profit (loss) after income tax:.. 206 (5,795,610) (5,758,070)
Adjustments for non-cash income and ex-
pense items:
Depreciation and amortisation expense.... 4,055 1,491,456 1,769,604
Bad debts expense and provision for
doubtful debts.......................... -- 5,792 10,627
Transfers to provisions:
Annual leave............................. -- 156,267 --
Unrealised foreign exchange gain........... -- (327,740) 149,000
Increase in other receivables.............. -- (57,479) 958,953
Increase in trade creditors................ 49,744 3,785,221 4,825,063
Increase in inventory...................... -- (679,628) (1,543,040)
Increase in other assets................... (25,582) (804,552) 594,569
---------- ---------- ----------
Net cash from operating activities......... 28,423 (2,226,273) 1,006,706
========== ========== ==========
</TABLE>
(c)Subsidiaries acquired
The following subsidiaries were acquired by the economic entity for cash
consideration. The fair value of net tangible assets acquired was as
follows:
<TABLE>
<CAPTION>
FAIR VALUE OF
NET TANGIBLE
ASSETS
--------------
1994 1995
ENTITY $A $A
<S> <C> <C>
Jacolyn Pty Limited............................................. 2 --
Yanover Pty Limited............................................. 2 --
Keansburg Pty Limited........................................... 2 --
Orloff Pty Limited.............................................. 2 --
Maxi-Vu Pty Limited............................................. 2 --
Vinatech Pty Limited............................................ 2 --
Palara Vale Pty Limited......................................... -- 2
Auldana Pty Limited............................................. -- 2
Grovern Pty Limited............................................. -- 2
Lystervale Pty Limited.......................................... -- 2
Minorite Pty Limited............................................ -- 2
------ ------
Fair value of net identifiable assets........................... 12 10
Goodwill on acquisition......................................... -- --
------ ------
Total consideration............................................. 12 10
====== ======
</TABLE>
F-35
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
(d) Non-cash financing and investing activities
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A821,522 (1994: $A44,506) by means of finance
leases. These transactions are not reflected in the statement of cashflows.
NOTE 17. SUBSIDIARIES:
The following were subsidiaries at 31 December 1995, and have been included
in the consolidated financial statements. The financial years of all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
BOOK VALUE OF CONTRIBUTION TO
PARENT CONSOLIDATED
ENTITY'S % OF RESULT FOR THE
INVESTMENT SHARES HELD PERIOD
-------------- ------------ ----------------
PLACE OF
NAME OF CONTROLLED INCORPORATION DATE OF TYPE OF 1994 1995 1994 1995 1994 1995
ENTITY FORMATION (A) ACQUISITION SHARES $A $A % % $A $A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacolyn Pty Limited..... Australia 14/6/94 Ordinary 2 100 --
Yanover Pty Limited..... Australia 21/7/94 Ordinary 2 100 --
Keansburg Pty Limited... Australia 14/6/94 Ordinary 2 100 --
Orloff Pty Limited...... Australia 14/6/94 Ordinary 2 100 --
Maxi-Vu Pty Limited..... Australia 4/8/94 Ordinary 2 100 --
Palara Vale Pty Limit-
ed..................... Australia 24/4/95 Ordinary 2 100 --
Auldana Beach Pty Limit-
ed..................... Australia 24/4/95 Ordinary 2 100 --
Grovern Pty Limited..... Australia 24/4/95 Ordinary 2 100 --
Lystervale Pty Limited.. Australia 24/4/95 Ordinary 2 100 --
Vinatech Pty Limited.... Australia 29/7/94 Ordinary 2 100 --
Minorite Pty Limited.... Australia 24/4/95 Ordinary 2 100 --
------ -------
22 --
====== =======
</TABLE>
- ---------------------
(a) All entities operate solely in their place of incorporation/formation.
NOTE 18. ASSOCIATED COMPANIES:
Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>
OWNERSHIP DIVIDENDS
INTEREST RECEIVED
---------- ---------
NAME OF
ASSOCIATED PRINCIPAL ACTIVITY OF BALANCE
COMPANY ASSOCIATED COMPANY 1994 1995 DATE 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Communication & Delivery of subscription
Entertainment television services to
Australia Pty regional Australia. 31
Limited 50% 50% December -- --
Ilona Investments Delivery of subscription
Pty Limited television services to 30
regional Australia 50% 50% June -- --
</TABLE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
Aggregate carrying amount of investments in associated
companies................................................... 2 2
------- -------
Aggregate amount of investments in associated companies, as
determined under the equity method of accounting............ 2 2
======= =======
</TABLE>
F-36
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 19. RELATED PARTY DISCLOSURES:
(a) Other director transactions
Crase Partners, a director-related firm of J. K. Crase, provided general
accounting services to the company during the year. These services were
provided at an arms length basis.
J. K. Crase, a director, purchased equipment from the company during the
year. The purchase was made on an arms length basis.
(b) Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year
with related parties in the wholly owned group:
. loans were advanced to subsidiaries to fund the acquisition of MDS
licenses
These transactions were undertaken on commercial terms and conditions.
(c) Transactions with associated companies
The parent entity entered into certain transactions with associated
companies, being loans advanced and received on an arms length basis.
NOTE 20. US GAAP INFORMATION:
The accounting policies followed in preparation for the consolidated
financial statements differ in one respect to those generally accepted in the
United States of America (US GAAP). For US GAAP purposes, the convertible
debentures would be classified as a non-current liability and not equity.
The calculation of shareholder's equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1994 1995 1996
----------- ----------- -----------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per balance
sheet............................. 25,100,208 25,304,598 19,546,528
Adjustments to reported equity:
Convertible debentures........... (19,940,737) (25,940,737) (25,940,737)
----------- ----------- -----------
Shareholder's equity in accordance
with
US GAAP........................... 5,159,471 (636,139) (6,394,209)
=========== =========== ===========
</TABLE>
F-37
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of STV Pty Limited
We have audited the accompanying consolidated financial statements of STV
Pty Limited and its subsidiaries for the years ended 31 December 1994 and
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 years
then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-38
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------- --------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets
Cash................................ 10,078,250 2,236 1,353,266
Receivables......................... 3 63,934 1,325,563 1,386,056
Prepayments......................... -- 382,866 387,409
---------- ---------- ----------
Total current assets.................. 10,142,184 1,710,665 3,126,731
---------- ---------- ----------
Non-current assets
Investments......................... 4 2 2 2
Property, plant and equipment....... 5 527,373 6,085,042 12,347,647
Intangibles......................... 6 3,562 3,727,654 3,811,775
---------- ---------- ----------
Total non-current assets.............. 530,937 9,812,698 16,159,424
---------- ---------- ----------
Total assets.......................... 10,673,121 11,523,363 19,286,155
---------- ---------- ----------
Current liabilities
Creditors and borrowings............ 7 759,411 4,673,587 14,592,142
---------- ---------- ----------
Total current liabilities............. 759,411 4,673,587 14,592,142
---------- ---------- ----------
Non-current liabilities
Creditors and borrowings............ 8 36,165 313,981 699,016
Provisions.......................... 9 -- 11,495 87,335
---------- ---------- ----------
Total non-current liabilities......... 36,165 325,476 786,351
---------- ---------- ----------
Total liabilities..................... 795,576 4,999,063 15,378,493
---------- ---------- ----------
Net assets............................ 9,877,545 6,524,300 3,907,662
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-39
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
--------------------- --------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Shareholders' equity
Share capital...................... 10 133,296 133,296 133,296
Reserves........................... 12 1,426,959 1,426,959 1,426,959
Accumulated losses................. (122,457) (3,475,702) (6,092,340)
--------- ---------- ----------
1,437,798 (1,915,447) (4,532,085)
Convertible debentures............... 11 8,439,747 8,439,747 8,439,747
--------- ---------- ----------
Total shareholders' equity........... 9,877,545 6,524,300 3,907,662
========= ========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-40
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31,
-------------------- --------------------
NOTE 1994 1995 1995 1996
(UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C> <C>
Revenue:
Service.................... -- 13,819 -- 116,512
-------- ---------- -------- ----------
-- 13,819 -- 116,512
-------- ---------- -------- ----------
Expenses:
General and administra-
tion...................... 258,991 3,576,688 362,736 2,231,580
Depreciation and amortiza-
tion...................... 4,055 212,635 11,974 346,531
Management fees............ -- -- -- 5,825
-------- ---------- -------- ----------
263,046 3,789,323 374,710 2,583,936
-------- ---------- -------- ----------
Operating loss............... (263,046) (3,775,504) (374,710) (2,467,424)
-------- ---------- -------- ----------
Non-operating income (ex-
pense)
Interest income............ 142,189 422,563 193,457 7,204
Interest expense and costs
of finance................ (1,600) (304) (50) (250)
-------- ---------- -------- ----------
140,589 422,259 (181,303) 6,954
-------- ---------- -------- ----------
Other, net foreign exchange
gains (losses).............. -- -- -- (156,169)
Net loss before tax.......... (122,457) (3,353,245) (181,303) (2,616,639)
Income tax attributable to
net loss.................... -- --
-------- ---------- -------- ----------
Net loss..................... (122,457) (3,353,245) (181,303) (2,616,639)
-------- ---------- -------- ----------
Accumulated losses at begin-
ning of year................ -- (122,457) (122,457) (3,475,701)
-------- ---------- -------- ----------
Accumulated losses at end of
year........................ (122,457) (3,475,702) (303,760) (6,092,340)
======== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-41
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31,
------------------------------------- -----------------------
NOTES 1994 1995 1995 1996
$A $A (UNAUDITED)
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS) $A
<S> <C> <C> <C> <C> <C>
Cashflows from operating
activities:
Receipts from
customers............ -- 74,749 -- 56,019
Payments to suppliers
and employees........ (210,202) (3,876,242) (334,157) (2,673,328)
Interest received..... 78,255 422,563 192,653 7,204
Interest and other
costs of finance
paid................. (1,600) (304) (50) (250)
---------- ----------- ---------- -----------
Net operating
cashflows.............. (133,547) (3,379,234) (141,554) (2,610,355)
---------- ----------- ---------- -----------
Cashflows from investing
activities:
Purchase of
subsidiaries, net of
cash acquired........ (2) (12) -- --
Payments for plant,
equipment and
construction in
process.............. (486,922) (5,381,613) (125,109) (6,609,137)
Payments for MDS
licenses............. (3,562) (3,757,962) -- (84,120)
Payments for
investments.......... -- (2) -- --
Loans granted......... -- (1,322,587) -- --
---------- ----------- ---------- -----------
Net investing
cashflows.............. (490,486) (10,462,176) (125,109) (6,693,257)
---------- ----------- ---------- -----------
Cashflows from financing
activities:
Proceeds from issues
of shares............ 1,560,255 -- -- --
Proceeds from short-
term loans........... 702,890 3,787,493 460,402 10,810,810
Proceeds from
debenture issues..... 8,439,747 -- -- --
Repayment of finance
lease principal...... (609) (22,097) (1,087) --
---------- ----------- ---------- -----------
Net financing
cashflows.............. 10,702,283 3,765,396 459,315 10,810,810
---------- ----------- ---------- -----------
Net increase (decrease)
in cash held........... 10,078,250 (10,076,014) 192,652 1,507,198
Cash at the beginning of
the year............... -- 10,078,250 10,078,244 2,236
Effect of different
exchange rate.......... 15(c) -- -- -- (156,168)
---------- ----------- ---------- -----------
Cash at the end of the
year................... 15(a) 10,078,250 2,236 10,270,896 1,353,266
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-42
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, STV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in
the profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognized in different accounting periods
for book and tax purposes, calculated at the tax rates expected to apply when
the differences reverse.
The benefit arising from estimated carry forward tax losses has not been
recorded in the future income tax benefit account as realization of such
benefit is considered not to be virtually certain.
LEASED ASSETS
Assets of the economic entity acquired under finance leases are capitalized.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortized over the life of the relevant lease. Lease liabilities are reduced
by the principal component of lease payments. The interest component is
charged against operating profit.
Operating leases are not capitalized and rental payments are charged against
operating profit in the period in which they are incurred.
F-43
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.
<TABLE>
<S> <C>
Leasehold improvements............................................ 6 years
Computer equipment................................................ 3 years
Motor vehicles.................................................... 5 years
Furnitures and fixtures........................................... 10 years
</TABLE>
Property, plant and equipment, excluding freehold land, are depreciated or
amortized at rates based upon their expected useful lives using the straight
line method.
INTANGIBLES
The acquisition of MDS licenses has been brought to account at cost. The
cost to acquire these licences, acquired for a 5 year period, will be
amortized over the remaining licence period upon commencement of broadcasting
operations. They are renewable every 5 years.
The licenses have been issued for a term of five years, with the license fee
payable annually in advance. The license fee is payable to Spectrum Management
Agency, an agent of the Australian Federal Government.
RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed at least
annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all non-current assets have been determined using net
cashflows which have not been discounted to their present values.
ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
F-44
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
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
--------------------
1994 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 differences
--Timing differences.................................. -- (133,683)
--Entertainment non deductible........................ 1,585 133,397
--Amortisation of licenses............................ -- 12,193
--Effect of losses not brought to account............. 42,500 1,195,261
-------- ----------
Total income tax attributable to operating profit...... -- --
======== ==========
</TABLE>
(b) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $A 3,475,702 available to offset against future years' taxable
income. The benefit of these losses of $A 1,237,761 has not been brought to
account as realization is not virtually certain. The benefit will only be
obtained if:
(a) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefits from the deductions for the losses
to be realized;
(b) the company continues to comply with the conditions for deductibility
imposed by the law;
(c) no changes in tax legislation adversely affect the company in
realizing the benefit from the deductions for the losses; and
(d) any change in the business or control of the company does not affect
the ability to utilize the available losses.
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
MARCH 31,
ECONOMIC ENTITY 1996
---------------- -----------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Accounts Receivable Trade.................... -- 3,004 64,662
--Allowance for Bad Debts................... -- (28) (1,193)
Non-trade amounts owing by:
Related parties
--Wholly owned group....................... -- -- --
--Associated companies..................... -- 1,322,587 1,322,587
Other persons............................... 63,934 -- --
------ --------- ---------
Total current receivables.................... 63,934 1,325,563 1,386,056
====== ========= =========
NOTE 4. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note
17)......................................... 2 2 2
====== ========= =========
</TABLE>
F-45
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1995
------------------ --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.............................. -- 128,274 128,273
--Accumulated amortization............. -- (7,801) (13,268)
------- --------- ----------
Total leasehold improvements, net....... -- 120,473 115,005
------- --------- ----------
Plant and equipment:
--At cost.............................. 55,881 4,093,944 11,166,223
--Accumulated depreciation............. (4,055) (149,677) (446,725)
------- --------- ----------
Total plant and equipment, net.......... 51,826 3,944,267 10,194,498
------- --------- ----------
Plant and equipment under lease:
--At capitalized cost.................. 44,506 408,832 733,650
--Accumulated depreciation............. -- (25,343) (47,616)
------- --------- ----------
Total lease plant and equipment, net.... 44,506 383,489 686,034
------- --------- ----------
Capitalized network construction
expenditures:
--At cost.............................. 431,041 1,636,813 827,109
--Accumulated amortization............. -- -- --
------- --------- ----------
Total capitalized development
expenditures, net...................... 431,041 1,636,813 827,109
------- --------- ----------
Total property, plant and equipment,
net.................................... 527,373 6,085,042 12,347,647
======= ========= ==========
NOTE 6. INTANGIBLE ASSETS (NON-CURRENT):
MDS licences............................ 1,570 3,501,285 3,605,669
--Accumulated Amortization............. -- (25,536) (47,280)
Other licenses.......................... -- 251,570 251,570
--Accumulated Amortization............. -- (8,333) (8,333)
Other................................... 1,992 8,668 10,149
------- --------- ----------
Total intangible assets, net............ 3,562 3,727,654 3,811,775
======= ========= ==========
NOTE 7. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Trade creditors........................ 1,689 120,561 99,925
Accrued expenses....................... 47,100 -- --
Due to associated company--CTV Pty
Limited............................... 623,074 3,627,044 2,288,162
Due to related body corporate--United
International Holdings Inc............ 79,816 863,341 12,023,967
Secured:
Secured:Finance lease liability (Note
14)................................... 7,732 62,641 180,088
------- --------- ----------
759,411 4,673,587 14,592,142
======= ========= ==========
</TABLE>
F-46
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 8. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
----------------------- --------------
1994 1995 (UNAUDITED)
----------- ----------- --------------
$A $A $A
<S> <C> <C> <C>
Secured:
Finance lease liability (Note 14).. 36,165 313,981 699,016
----------- ----------- -----------
Total non-current creditors and
borrowings......................... 36,165 313,981 699,016
=========== =========== ===========
NOTE 9. PROVISIONS (NON-CURRENT):
Annual leave........................ -- 11,495 87,335
NOTE 10. SHARE CAPITAL:
Authorized capital:
--100,000,000 ordinary shares of $1
each.............................. 100,000,000 100,000,000 100,000,000
----------- ----------- -----------
Total authorized capital............ 100,000,000 100,000,000 100,000,000
=========== =========== ===========
Issued and paid up capital:
--133,296 ordinary shares of $1.00
each.............................. 133,296 133,296 133,296
----------- ----------- -----------
Total issued and paid up capital.... 133,296 133,296 133,296
=========== =========== ===========
</TABLE>
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
--------- ---------- --------- ----------
1994 1994 1995 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Opening number of shares.......... -- -- 133,296 --
Issued during the year (a)........ 133,296 2 -- --
Redeemed.......................... -- 2 -- --
------- --- ------- ------
Closing number of shares.......... 133,296 -- 133,296 --
======= === ======= ======
</TABLE>
NOTE 11. CONVERTIBLE DEBENTURES:
During the year, the company had outstanding 986,707 convertible debentures
for $A 8,439,747. These debentures confer rights upon the holders as creditors
of the company. They do not confer any right to attend or vote at general
meetings. Interest is payable to the holders equal to the amount of the
distribution that the holder would have received if, as at the date the
entitlement to the distribution was determined, all of the debentures of that
holder and all other holders had been converted into shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would
not result in the breach of any Statute by the debenture holder or any other
person.
F-47
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which
would result in a different conversion factor. Debentures may not be redeemed
for cash.
In the event of a winding up of the company, the rights of the debenture
holders against the company in respect of the debentures are postponed until
the claims of all holders of senior indebtedness have been satisfied in full.
Senior indebtedness means secured obligations, unsecured and unsubordinated
obligations of the company, other than debentures and shares.
NOTE 12. RESERVES:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
1994 1995
--------- ---------
$A $A
--------- ---------
<S> <C> <C>
Share premium opening balance............................ -- 1,426,959
Premium on issue of shares............................... 1,426,959 --
--------- ---------
Total reserves........................................... 1,426,959 1,426,959
========= =========
</TABLE>
NOTE 13. EMPLOYEE ENTITLEMENTS:
Superannuation commitments
The economic entity contributes to a defined contribution superannuation
plan for substantially all of its employees. Each participating entity in the
economic entity has a legal obligation to contribute to the schemes, which are
as follows:
(a) Hourly employees and commission employees--Employee Retirement Fund,
a fund administered by MLC. This is a defined contribution fund.
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by
MLC (contributions 6%). This is a defined contribution fund.
F-48
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 14. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
(a)Annual licence fees are payable as follows:
Not later than one year.................................... -- 1,227,291
Later than one year but not later than two years........... -- 1,227,291
Later than two years but not later than five years......... -- 1,686,787
Later than five years...................................... -- --
------ ---------
-- 4,141,369
====== =========
(b)Finance lease expenditure contracted for is payable as
follows:
Not later than one year.................................... 12,429 99,657
Later than one year but not later than two years........... 12,429 117,272
Later than two years but not later than five years......... 30,043 243,506
Later than five years...................................... -- --
------ ---------
54,901 460,435
====== =========
Future finance charges....................................... 11,004 83,813
------ ---------
Net finance lease liability.................................. 43,897 376,622
====== =========
Reconciled to:
Current liability (Note 7)................................. 7,732 62,641
Non-current liability (Note 8)............................. 36,165 313,981
------ ---------
43,897 376,622
====== =========
(c)Operating lease expenditure contracted for is payable as
follows
Not later than one year.................................... -- 169,642
Later than one year but not later than two years........... -- 169,642
Later than two years but not later than five years......... -- 510,984
Later than five years...................................... -- 148,112
------ ---------
-- 998,380
====== =========
</TABLE>
(d) On 12 October 1995, STV Pty Ltd entered into a Franchise Agreement with
Australis Media Limited. The franchise provides for STV Pty Ltd to have
access to Australis Media Limited programming in the franchise area and be
the sole Australis franchisee in the region on all mediums, being MDS,
satellite and cable.
Under the agreement, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number
of subscribers.
F-49
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 15. NOTES TO THE STATEMENT OF CASH FLOWS:
(a) Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash at
the end of the financial year as shown in the Statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
---------------- --------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash......................................... 5,994 2,236 1,353,266
Short-term money market deposits............. 10,072,256 -- --
---------- ----- ---------
10,078,250 2,236 1,353,266
========== ===== =========
</TABLE>
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<TABLE>
<CAPTION>
ECONOMIC ENTITY MARCH 31, 1996
-------------------- --------------
1994 1995 (UNAUDITED)
$A $A
<S> <C> <C> <C>
Operating loss after income tax....... (122,457) (3,353,245) (2,616,639)
Adjustments for non-cash income and
expense items:
Depreciation and amortization ex-
pense.............................. 4,055 212,635 346,531
Bad debts expense and provision for
doubtful debts..................... -- 28 1,165
Unrealised foreign exchange gain.... -- -- 156,169
Transfers to provisions:
Annual leave........................ -- 11,495 75,841
Increase in other receivables....... (63,934) 60,930 (60,493)
Increase (decrease) in trade credi-
tors............................... 48,789 71,789 (508,386)
Increase in other assets............ -- (382,866) (4,543)
-------- ---------- ----------
Net cash from operating activities.. (133,547) (3,379,234) (2,610,355)
======== ========== ==========
</TABLE>
(c) Subsidiaries acquired
The following subsidiaries were acquired by the economic entity for cash
consideration. The fair value of net tangible assets acquired was as follows:
<TABLE>
<CAPTION>
FAIR VALUE
OF NET TANGIBLE
ASSETS ACQUIRED
----------------
ENTITY 1994 1995
------ $A $A
<S> <C> <C>
Selectra Pty Limited....................................... 2 --
Vermint Grove Pty Ltd--cash................................ -- 2
Kidilla Pty Limited--cash.................................. -- 2
Dovevale Pty Limited--cash................................. -- 2
Carryton Pty Limited--cash................................. -- 2
Xtek Bay Pty Limited--cash................................. -- 2
Windytide Pty Limited--cash................................ -- 2
------- -------
Fair value of net identifiable assets...................... 2 12
Goodwill on acquisition.................................... -- --
------- -------
Total consideration........................................ 2 12
======= =======
</TABLE>
F-50
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
(d) Non-cash financing and investing activities.
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A 354,822 (1994: $A 44,506) by means of finance
leases. These transactions are not reflected in the Statement of cash flows.
NOTE 16. SUBSIDIARIES:
The following were subsidiaries at 31 December 1995, and have been included
in the consolidated financial statements. The financial years of all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
CONTRIBUTION TO
BOOK VALUE OF CONSOLIDATED
PARENT ENTITY'S % OF RESULT FOR THE
PLACE OF INVESTMENT SHARES HELD YEAR
NAME OF INCORPORATION/ DATE OF TYPE OF ---------------- ------------ ----------------
CONTROLLED ENTITY FORMATION(A) ACQUISITION SHARES 1994 1995 1994 1995 1994 1995
% %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vermint Grove Pty Lim-
ited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Kidilla Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Dovevale Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Carryton Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Xtek Bay Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Selectra Pty Limited Australia 29/7/94 Ordinary 2 2 100 100 -- --
Windytide Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
------- ------- ------- -------
2 14 -- --
======= ======= ======= =======
</TABLE>
- ---------------------
(a) All entities operate solely in their place of incorporation/formation.
NOTE 17. ASSOCIATED COMPANIES:
Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>
OWNERSHIP DIVIDENDS
INTEREST RECEIVED
NAME OF ASSOCIATED PRINCIPAL ACTIVITY OF --------- BALANCE ------------
COMPANY ASSOCIATED COMPANY 1994 1995 DATE 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Communication & Delivery of
Entertainment subscription
Australia Pty television services
Limited to regional
Australia 50% 50% 31 December -- --
Chippawa Pty Limited Delivery of
subscription
television services
to regional
Australia 50% 50% 30 June -- --
----- -----
-- --
===== =====
</TABLE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
Aggregate carrying amount of investments in associated
companies................................................ 2 2
------- -------
Aggregate amount of investment in associated companies, as
determined under the equity method of accounting......... 2 2
======= =======
</TABLE>
F-51
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
NOTE 18. RELATED PARTY DISCLOSURES:
A. Other director transactions
Crase Partners, a director-related firm of J. K. Crase, a director, provided
general accounting services to the company during the period. These services
were provided at an arms length basis.
B. Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year
with related parties in the wholly owned group:
. loans were advanced to subsidiaries to fund the acquisition of MDS
licenses
These transactions were undertaken on commercial terms and conditions.
C. Transactions with associated companies
The parent entity entered into certain transactions with associated
companies, being loans advanced and received on an arms length basis.
NOTE 19. US GAAP INFORMATION
The accounting policies followed in preparation for the consolidated
financial statements differ in one respect to those generally accepted in the
United States of America (US GAAP). For US GAAP purposes, the convertible
debentures would be classified as a non-current liability and not equity.
The calculation of shareholder's equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1994 1995 1996
---------- ---------- ----------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per balance
sheet............................. 9,877,545 6,524,300 3,907,662
Adjustments to reported equity:
Convertible debentures........... (8,439,747) (8,439,747) (8,439,747)
---------- ---------- ----------
Shareholder's equity in accordance
with US GAAP...................... 1,437,798 (1,915,447) (4,532,085)
========== ========== ==========
</TABLE>
F-52
<PAGE>
AUDITORS' REPORT
To the shareholders of Saturn Communications Limited (formerly Kiwi Cable
Company Limited):
We have audited the accompanying financial statements of Saturn
Communications Limited (formerly Kiwi Cable Company Limited) for the year
ended 31 December 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on those financial statements based on our audits.
We conducted our audits in accordance with New Zealand Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of Saturn Communications
Limited as of 31 December 1994 and 1995, and the results of the Company's
operations for the years then ended in accordance with New Zealand Accounting
Standards.
There are certain differences between New Zealand Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these financial statements.
Arthur Andersen
Wellington, New Zealand
20 February 1996
F-53
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS MONTHS ENDED
ENDED 31 DECEMBER 31 MARCH
---------------------- --------------------
NOTE 1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Programming Revenue..... 70,389 169,223 26,064 61,901
Other Revenue........... -- 57,835 7,969 74,615
---------- ---------- -------- ----------
Total Revenue........... 70,389 227,058 34,033 136,516
Expenses
Programming Expenses.... 203,901 448,243 130,732 65,417
Selling, general & ad-
ministration........... 684,811 1,306,969 206,752 578,670
Management fee expense
to related party....... 309,426 17,209 3,560 7,448
Other operating ex-
penses................. 845,791 2,506,326 436,325 504,456
---------- ---------- -------- ----------
Deficit before taxation
for the year........... 2 (1,973,540) (4,051,689) (743,336) (1,019,475)
Income tax expense...... 11 -- -- -- --
---------- ---------- -------- ----------
Net deficit for the
year................... (1,973,540) (4,051,689) (743,336) (1,019,475)
========== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-54
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF MOVEMENTS IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1995
<TABLE>
<CAPTION>
NZ$
----------
<S> <C>
Balance, at December 31, 1993....................................... (2,314,485)
Contributions from owners........................................... 7,155,259
Net deficit......................................................... (1,973,540)
----------
Balance, at December 31, 1994....................................... 2,867,234
Net deficit......................................................... (4,051,689)
----------
Balance, at December 31, 1995....................................... (1,184,455)
Net deficit (unaudited)............................................. (1,019,475)
----------
Balance, at March 31, 1996 (unaudited).............................. (2,203,930)
==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-55
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
---------------------- 31 MARCH,
NOTE 1994 1995 1996
NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C>
OWNER'S EQUITY
Share capital [Shares issued: 347,368
(1994: 347,368)].................... 3 347,368 347,368 347,368
Reserves............................. 3 6,981,575 6,981,575 6,981,575
Retained earnings.................... (4,461,709) (8,513,398) (9,532,873)
---------- ---------- ----------
2,867,234 (1,184,455) (2,203,930)
NON-CURRENT LIABILITIES
Related party loan................... 8 -- 3,076,199 5,687,059
CURRENT LIABILITIES
Accounts Payable & Accruals
Trade creditors.................... 103,584 135,894 2,141,271
Other.............................. 110,868 122,207 11,865
---------- ---------- ----------
214,452 258,101 2,153,136
Employee Entitlements................ 24,554 62,747 63,178
Converter Deposits................... 24,356 -- --
Current-portion finance lease liabil-
ity................................. 9 23,701 14,270 10,878
Related party payables............... 8 -- 879,336 29,998
---------- ---------- ----------
287,063 1,214,454 2,257,190
---------- ---------- ----------
TOTAL LIABILITIES AND EQUITY......... 3,154,297 3,106,198 5,740,319
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-56
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION--(CONTINUED)
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
---------------------- MARCH 31,
NOTE 1994 1995 1996
$ $ $
(UNAUDITED)
<S> <C> <C> <C> <C>
NON-CURRENT ASSETS
Property, plant and equipment
Cost................................ 3,297,551 4,150,307 5,463,293
Accumulated depreciation............ (1,300,597) (1,887,172) (2,021,183)
---------- ---------- ----------
4 1,996,954 2,263,135 3,442,110
Investments--Unlisted Shares.......... -- 5,000 5,000
---------- ---------- ----------
1,996,954 2,268,135 3,447,110
CURRENT ASSETS
Cash.................................. 733,407 379,547 9,842
Accounts receivables
Customers........................... -- 21,746 4,583
Employees........................... 34,472 32,545 32,545
Others.............................. 17,143 21,236 232,256
Provision for doubtful debts........ -- (10,000) (10,000)
---------- ---------- ----------
51,615 77,754 259,384
Inventories........................... 170,709 160,074 1,796,288
Prepayments........................... -- 29,351 24,131
Related party receivables............. 8 201,612 191,337 203,564
---------- ---------- ----------
1,157,343 838,063 2,283,367
---------- ---------- ----------
TOTAL ASSETS.......................... 3,154,297 3,106,198 5,740,319
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-57
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
31 DECEMBER 31 MARCH
---------------------- --------------------
NOTE 1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash was provided from:
Customers................ 22,031 171,749 24,900 130,879
Cash was disbursed to:
Payments to suppliers and
employees............... (1,496,891) (3,624,051) (768,193) (949,120)
---------- ---------- -------- ----------
Net cash flows from operat-
ing activities............ 10 (1,474,860) (3,452,302) (743,293) (818,241)
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash was provided from:
Proceeds from sale of
fixed assets............ 142,306 69,829 -- --
Cash was applied to:
Purchase of fixed as-
sets.................... (726,123) (932,018) (119,441) (1,312,986)
Purchase of investments.. -- (5,000) -- --
---------- ---------- -------- ----------
Net cash flows from invest-
ing activities............ (583,817) (867,189) (119,441) (1,312,986)
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash was provided from:
Share issue.............. 3 7,155,259 -- -- --
Related party loans...... -- 3,965,811 163,956 1,761,552
Cash was applied to:
Related party loan repay-
ment.................... (4,402,250) -- -- --
---------- ---------- -------- ----------
Net cash flow from financ-
ing activities............ 2,753,009 3,965,811 163,956 1,761,552
Net increase/(decrease) in
cash held................. 694,332 (353,680) (698,778) (369,705)
Add opening cash brought
forward................... 39,075 733,407 733,407 379,547
---------- ---------- -------- ----------
Ending cash carried for-
ward...................... 733,407 379,547 34,629 9,842
========== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-58
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
1. STATEMENT OF ACCOUNTING POLICIES
A) The reporting entity changed its name subsequent to year end from Kiwi
Cable Company Limited to Saturn Communications Limited. These financial
statements have been prepared under the requirements of the Companies Act 1955
and the Financial Reporting Act 1993.
The measurement base adopted is that of historical cost.
B) CURRENCY
These financial statements have been prepared in New Zealand dollars.
C) FIXED ASSETS
All fixed assets are recorded at cost. Additions, retirements and major
improvements are capitalized and costs for normal repair and maintenance are
charged to expense as incurred.
D) DEPRECIATION
Depreciation is provided on a straight line basis on all tangible fixed
assets at rates calculated to allocate the assets' cost, less estimated
residual value, over their estimated useful lives.
Major depreciation rates are:
<TABLE>
<S> <C>
Plant and equipment............................................... 10-20%
Leasehold improvements............................................ 20%
Office equipment.................................................. 20%
Motor vehicles.................................................... 20%
</TABLE>
E) INCOME TAX
The income tax expense charged to the statement of financial performance
includes both the current year liability and the income tax effects of timing
differences after allowing for non-assessable income and non-deductible
expenses.
Deferred taxation is calculated using the liability method on a
comprehensive basis. Debit balances in the deferred tax account arising from
net accumulated timing differences and future income tax benefits arising from
income tax losses carried forward are only recognised if realisation is more
likely than not.
F) INVENTORIES
Inventories are valued at lower of actual cost or net realisable value.
G) LEASES
Finance leases, which effectively transfer to the entity substantially all
of the risks and benefits incident to ownership of the leased item, are
capitalised at the lower of the fair value of the leased property, and the
present value of the minimum lease payments. The leased assets and
corresponding liabilities are disclosed and the leased assets are amortised
over the period the entity is expected to benefit from their use.
Operating lease payments, where the lessors effectively retain substantially
all the risks and benefits of ownership of the leased items, are included in
the determination of the operating surplus in equal instalments over the lease
term.
F-59
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
H) EXPENDITURE CARRIED FORWARD
Significant items of expenditure having a benefit or relationship to more
than one period are written off over the period to which they relate.
I) REVENUE RECOGNITION
Monthly service are recognised as revenue in the period the related services
are provided to the subscribers. Installation fees are recognised as revenue
to the extent of direct selling costs.
J) FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the New Zealand rate of
exchange ruling at the date of transaction.
At balance date foreign monetary assets and liabilities are translated at
the closing rate, and exchange variations arising from these translations are
included in the statement of financial performance as operating items.
ADDITIONAL UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES
K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
L) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
M) NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be disposed of" ("SFAS 121") which
is required to be adopted by affected companies for fiscal years beginning
after December 15, 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company has
not adopted the principles of this statement within the accompanying financial
statements; however, the Company does not believe that the provisions of SFAS
121 will have a material effect on the Company's reported results.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123 "Accounting for the Stock-Based
Compensation" ("SFAS 123") which is required to be adopted by affected
companies for fiscal years beginning after December 15, 1995. The Company does
not believe that the provisions of SFAS 123 will have a material effect on the
Company's reported results.
N) CHANGES IN ACCOUNTING POLICIES
There have been no material changes in accounting policies during the year.
All policies have been applied on consistent bases with previous years.
O) INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1996 and 1995 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
F-60
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
2. DEFICIT BEFORE TAXATION
Has been determined
<TABLE>
<CAPTION>
1994 1995
NZ$ NZ$
<S> <C> <C>
After charging:
Audit fees and expenses.................................... 15,080 6,000
Depreciation............................................... 570,904 586,575
Interest................................................... 8,151 82
Rental and leasing costs................................... 71,804 77,489
</TABLE>
3. SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
NZ$ NZ$
<S> <C> <C>
Issued 347,368 ordinary shares of $1.00 each (1994 347,368
shares)
fully paid................................................ 347,368 347,368
------- -------
347,368 347,368
======= =======
</TABLE>
On 8 July 1994 United International Holdings, Inc, (UIH), a publicly listed
company incorporated in the USA, acquired a 50% interest in the company via
the issue of 173,684 shares by the company.
The shares were purchased by UIH at a price of $US 14.39 ($NZ 24.12), giving
rise to a share premium reserve at balance date of $US 2,389,509 ($NZ
4,005,883).
Also on the 8 July 1994 the balance of the Todd International loan account,
being $US 1,775,000 ($NZ 2,975,692) after forgiveness of $US 50,176 ($NZ
84,117) and repayment of $US 900,000 ($NZ 1,508,801), converted to equity.
4. FIXED ASSETS
<TABLE>
<CAPTION>
1994
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
<S> <C> <C> <C>
Leasehold improvements....................... 121,516 (49,341) 72,175
Office Equipment (including Finance Lease As-
sets)....................................... 227,909 (74,638) 153,271
Plant and equipment.......................... 2,895,750 (1,159,362) 1,736,388
Motor vehicles............................... 52,376 (17,256) 35,120
--------- ---------- ---------
3,297,551 (1,300,597) 1,996,954
========= ========== =========
<CAPTION>
1995
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
<S> <C> <C> <C>
Leasehold improvements....................... 127,912 (74,197) 53,715
Office Equipment (including Finance Lease As-
sets)....................................... 445,160 (143,085) 302,075
Plant and equipment.......................... 3,477,675 (1,640,460) 1,837,215
Motor vehicles............................... 99,560 (29,430) 70,130
--------- ---------- ---------
4,150,307 (1,887,172) 2,263,135
========= ========== =========
</TABLE>
F-61
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
MARCH 31, 1996
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............ 156,452 (77,908) 78,544
Office Equipment (including fi-
nance leases).................... 462,653 (162,940) 299,713
Plant and equipment............... 4,686,708 (1,745,928) 2,940,780
Motor vehicles.................... 157,480 (34,407) 123,073
--------- ---------- ---------
5,463,293 (2,021,183) 3,442,110
========= ========== =========
</TABLE>
5. CONTINGENT LIABILITIES
There are no contingent liabilities outstanding at year end (1994: nil).
6. CAPITAL EXPENDITURE COMMITMENTS
Estimated capital expenditure contracted for at balance date but not
provided for NZ$659,235 (1994: nil).
7. OPERATING LEASE COMMITMENTS
At balance date the Company had the following operating lease commitments
for office space and certain vehicles:
<TABLE>
<CAPTION>
1995 1994
NZ$ NZ$
<S> <C> <C>
Payable:
within 1 year............................................ 449,982 84,985
between 1 and 2 years.................................... 457,468 82,535
between 2 and 3 years.................................... 357,915 80,031
between 3 and 4 years.................................... 233,425 52,487
between 4 and 5 years.................................... 233,425 52,487
greater than 5 years..................................... 571,989 393,653
--------- -------
2,304,204 746,178
========= =======
</TABLE>
8. RELATED PARTIES
During the year ended December 31, 1995, Saturn Communications Limited were
involved in the following related party transactions:
<TABLE>
<S> <C>
United International Holdings, Inc (significant
shareholder)
Received funding.............................. NZ$3,910,256 (1994: Nil)
</TABLE>
Funding was provided by United International Holdings for Saturn to meet its
day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand a call will
not be made until Saturn can afford to meet its day to day obligations and pay
back this funding.
<TABLE>
<S> <C>
An affiliate of Todd International Limited
(significant shareholder)
Received funding............................. NZ$45,279 (1994: nil)
Todd provided funding allowing Saturn to meet its day to day obligations.
An affiliate of United International Holdings
Received payment of prior year balance
Cash Received.................................. NZ$22,195 (1994: nil)
Balance Receivable............................. NZ$12,227 (1994: $34,422)
</TABLE>
F-62
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
Saturn also have a receivable balance owing from:
<TABLE>
<S> <C>
Todd International Limited (significant
shareholder) Receivable................ NZ$191,337(1994: NZ$201,613)
The receivable from Todd International is denominated in US dollars and is
on interest free terms.
During the quarter ended March 31, 1996, Saturn Communications Limited were
involved in the following related party transactions:
United International Holdings, Inc
(significant shareholder) Received
funding................................ NZ$1,761,522 (1994: NZ$163,956)
Funding was provided by United International Holdings for Saturn to meet its
day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand a call will
not be made until Saturn can afford to meet its day to day obligations and pay
back this funding.
United International Holdings--Tahiti
(subsidiary of United International
Holdings, Inc) Received payment of prior
year balance
Cash Received........................... NZ$ Nil (1994: $22,195)
Balance Receivable...................... NZ$ 12,227 (1994: $12,227)
Saturn also have the following balances with:
Todd International Limited (significant
shareholder)
Receivable.............................. NZ$191,337(1994: $201,612)
Payable................................. NZ$ 45,279(1994: Nil)
</TABLE>
The receivable from Todd International is denominated in US dollars and is
on interest free terms. The payable is denominated in New Zealand dollars and
is interest free repayable on demand.
9. FINANCE LEASES
At 31 December the following finance lease existed:
<TABLE>
<CAPTION>
ASSET LEASE
VALUE LIABILITY
NZ$ NZ$
<S> <C> <C>
Canon photocopier and fax
1995........................................................ 19,263 14,270
1994........................................................ 24,400 23,701
</TABLE>
The finance lease payment commitments as at balance date were payable:
<TABLE>
<S> <C> <C>
1995 1994
NZ$ NZ$
within 1 year.................................................. 7,752 9,431
between 1 and 2 years.......................................... 6,518 7,752
between 2 and 3 years.......................................... 6,718
------ ------
14,270 23,701
====== ======
</TABLE>
F-63
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
10. RECONCILATION OF NET DEFICIT AFTER TAXATION TO NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ----------------------
1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C>
Net deficit after taxation..... (1,973,540) (4,051,509) (743,336) (1,019,475)
Add non-cash items:
Depreciation................. 570,905 586,575 140,954 134,011
Provision for doubtful
debts....................... -- 10,000 -- --
Add/(less) movements in work-
ing capital items
(Increase) in receivables and
prepayments................. (48,358) (65,489) (9,133) (5,637)
(Increase)/decrease in inven-
tories...................... (170,709) 10,635 26,869 (1,636,214)
Increase/(decrease) in ac-
counts payable and
accruals.................... 134,897 19,293 (158,647) 1,708,643
Increase in employee entitle-
ments....................... 11,945 38,193 -- 431
---------- ---------- --------- -----------
Net cash outflow from
operations................ (1,474,860) (3,452,302) (743,293) (818,241)
========== ========== ========= ===========
</TABLE>
11. INCOME TAXATION
The Company has accumulated tax losses of approximately NZ$7,500,000 (1994:
NZ$3,785,650), tax effect NZ$2,475,000 (1994:NZ$1,249,330), carried forward
and available to offset against future assessable income. The benefit of these
losses has not been brought to account. The ability to utilise these losses
will not expire, subject to the company maintaining continuity of ownership
and meeting other requirements of income tax legislation.
The Company's net deferred tax asset is as follows:
<TABLE>
<CAPTION>
AS AT 31
DECEMBER
1994 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforward......................... 1,249,330 2,475,000
Valuation allowance..................................... (1,249,330) (2,475,000)
---------- ----------
Net deferred tax asset.................................. -- --
========== ==========
</TABLE>
F-64
<PAGE>
XYZ ENTERTAINMENT PTY LTD
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheets of XYZ
Entertainment Pty Ltd as of December 31, 1994 and 1995 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for the period from October 17, 1994 (date of inception) to December 31, 1994
and the financial year ended December 31, 1995, which are expressed in
Australian dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Australia which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance as
to whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of XYZ Entertainment Pty Ltd as of December 31, 1994 and 1995 and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected amounts reported as shareholders' deficiency
and net loss as at and for the period from October 17, 1994 (date of
inception) to December 31, 1994 and the year ended December 31, 1995 to the
extent summarized in Note 12 to the financial statements.
Deloitte Touche Tohmatsu
Chartered Accountants
Sydney, Australia
March 15, 1996
F-65
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1994 1995 1995 1996
NOTE AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Channel supply.............. Nil 1,117,091 Nil 2,117,748
Other....................... Nil 592,149 Nil 459,930
Interest.................... 2,829 196,291 16,815 59,124
------- ---------- --------- ---------
2,829 1,905,531 16,815 2,636,802
------- ---------- --------- ---------
Operating expenses
Cost of services............ Nil 24,677,575 2,646,188 4,534,088
Selling, general and
administrative............. 236,703 12,475,597 140,375 1,132,708
Depreciation and
amortization............... 2 Nil 3,594,737 Nil 619,405
------- ---------- --------- ---------
Cost of operations............ 236,703 40,747,909 2,786,503 6,286,201
------- ---------- --------- ---------
Net loss before income taxes.. 233,874 38,842,378 2,769,748 3,649,399
------- ---------- --------- ---------
Income taxes.................. 3 Nil Nil Nil Nil
------- ---------- --------- ---------
Net loss...................... 2 233,874 38,842,378 2,769,748 3,649,399
------- ---------- --------- ---------
Net loss per share............ 116,937 19,421,189 1,384,874 1,824,700
======= ========== ========= =========
Weighted average number of or-
dinary shares outstanding
during the period............ 2 2 2 2
======= ========== ========= =========
</TABLE>
The accompanying notes form part of these financial statements.
F-66
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
NOTE AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........... 670,754 3,105,803 7,049,820
Receivables......................... 33,000 1,006,241 1,786,861
Amounts due from stockholder........ Nil 21,219 1,708,113
Program material rights (net of ac-
cumulated amortization of
A$1,430,000, A$nil and
A$1,990,289)....................... Nil 2,298,935 4,758,521
-------- ----------- -----------
Total current assets.............. 703,754 6,432,198 15,303,315
-------- ----------- -----------
Non-current assets
Property, plant and equipment....... 4 57,448 3,361,070 3,112,297
Investment in associated company.... 6 Nil 245,518 Nil
Amounts due from related party...... 8 Nil 1,326,578 Nil
Program material rights (net of ac-
cumulated amortization of $A180,000
and A$nil)......................... Nil 217,916 Nil
-------- ----------- -----------
Total non-current assets.......... 57,448 5,151,082 3,112,297
-------- ----------- -----------
Total assets.................... 761,202 11,583,280 18,415,612
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFI-
CIENCY
Current liabilities
Creditors, trade.................... Nil 20,792,868 18,850,866
Other creditors and accruals........ Nil 75,656 4,160,441
-------- ----------- -----------
Total current liabilities......... Nil 20,868,524 23,011,307
-------- ----------- -----------
Non-current liabilities
Creditors, trade.................... Nil 743,086 196,772
Amounts due to stockholders......... 8 995,074 29,047,920 37,933,182
-------- ----------- -----------
Total non-current liabilities..... 995,074 29,791,006 38,129,954
-------- ----------- -----------
Total liabilities............... 995,074 50,659,530 61,141,261
-------- ----------- -----------
Commitments and Contingencies (See
Notes)
Stockholders' deficiency
Redeemable preferences shares, par
value A $1.00 per share:
Authorised 100,000 shares, none is-
sued and outstanding............... Nil Nil Nil
Ordinary shares, par value A$1.00
per share:
Authorised 900,000 shares, 2 issued
and outstanding.................... 9 2 2 2
Accumulated deficit................. (233,874) (39,076,252) (42,725,651)
-------- ----------- -----------
Total stockholders' deficiency.. (233,872) (39,076,250) (42,725,649)
-------- ----------- -----------
Total liabilities and stockhold-
ers' deficiency................ 761,202 11,583,280 18,415,612
======== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-67
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ORDINARY ACCUMULATED TOTAL
AUD $ AUD $ AUD $
<S> <C> <C> <C>
Balance at October 17, 1994.................. Nil
Issue of ordinary shares..................... 2 2
Net loss..................................... (233,874) (233,874)
--- ----------- -----------
Balance at December 31, 1994................. 2 (233,874) (233,872)
--- ----------- -----------
Net loss..................................... (38,842,378) (38,842,378)
--- ----------- -----------
Balance at December 31, 1995................. 2 (39,076,252) (39,076,250)
--- ----------- -----------
Net loss (unaudited)......................... (3,649,399) (3,649,399)
--- ----------- -----------
Balance at March 31, 1996 (unaudited)........ 2 (42,725,651) (42,725,649)
=== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-68
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activ-
ities
Cash receipts in the course of
operations................... Nil 370,348 Nil 1,375,391
Cash payments in the course of
operations................... (269,703) (17,351,047) (1,229,710) (3,883,611)
Interest received............. 2,829 196,291 13,000 59,124
-------- ----------- ---------- ----------
Net cash used in operating ac-
tivities..................... (266,874) (16,784,408) (1,216,710) (2,449,096)
-------- ----------- ---------- ----------
Cash flows from investing activ-
ities
Payments for property, plant
and equipment................ (57,448) (4,999,012) (2,807,786) 10,017
Proceeds from sale of program
material rights.............. Nil 2,304,795 Nil (127,340)
Payment for investment........ Nil (1) Nil Nil
Payments for program material
rights....................... Nil (7,164,583) (1,066,074) (2,044,898)
-------- ----------- ---------- ----------
Net cash used in investing ac-
tivities..................... (57,448) (9,858,801) (3,873,860) (2,162,221)
-------- ----------- ---------- ----------
Cash flows from financing activ-
ities
Proceeds from issues of
shares....................... 2 Nil Nil Nil
Proceeds from stockholder
loans........................ 995,074 29,078,258 7,301,795 8,555,334
-------- ----------- ---------- ----------
Net cash provided by financing
activities................... 995,076 29,078,258 7,301,795 8,555,334
-------- ----------- ---------- ----------
Net increase in cash and cash
equivalents held............... 670,754 2,435,049 2,211,225 3,944,017
Cash and cash equivalents at the
beginning of the period........ Nil 670,754 670,754 3,105,803
-------- ----------- ---------- ----------
Cash and cash equivalents at the
end of the period.............. 670,754 3,105,803 2,881,979 7,049,820
======== =========== ========== ==========
Reconciliation of Net Loss to
Net Cash Used in Operating Ac-
tivities
Net loss...................... (233,874) (38,842,378) (1,623,319) (3,649,399)
Add non-cash items:
Amounts set aside to provi-
sions...................... Nil 1,771,817 Nil 7,238
Depreciation and amortiza-
tion....................... Nil 3,594,737 Nil 619,405
Gain on disposal of program
material rights............ Nil (189,213) Nil (171,667)
Loss on disposal of program
material rights............ Nil 1,511,315 Nil 168,358
Gain on disposal of fixed
assets..................... Nil (168,358) Nil Nil
Loss on disposal of fixed
assets..................... Nil 9,690 Nil Nil
-------- ----------- ---------- ----------
Net cash used in operating
activities before change in
assets and liabilities....... (233,874) (32,312,390) (1,623,319) (3,026,065)
Change in assets and liabili-
ties:
Increase in trade receiv-
ables...................... (33,000) (994,460) Nil (811,008)
(Increase) decrease in other
receivables................ Nil (1,518,255) (956,994) 245,518
Increase in creditors....... Nil 18,040,697 1,363,603 1,142,459
-------- ----------- ---------- ----------
Net cash used in operating
activities............... (266,874) (16,784,408) (1,216,710) (2,449,096)
======== =========== ========== ==========
</TABLE>
The accompanying notes form part of these financial statements.
F-69
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 1--STATEMENT OF ACCOUNTING POLICIES
The significant policies which have been adopted in the preparation of these
consolidated financial statements are:
(A) BASIS OF PREPARATION
This statement of significant accounting policies is given to assist in the
understanding of the consolidated financial statements. For the purposes of
these consolidated financial statements, XYZ Entertainment Pty Ltd (the
"Company") and its controlled entities (subsidiaries) (collectively, "XYZ")
are defined under Australian law as the Economic Entity. This term is used
throughout these Notes to the consolidated financial statements. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Australia (Australian GAAP),
include disclosures required by the United States Securities and Exchange
Commission and are presented in Australian dollars (A$ or AUD). The accounting
principles differ in certain respects from accounting principles generally
accepted in the United States (US GAAP). The significant differences and the
approximate related effect on the consolidated financial statements are set
out in Note 12. Although the company is financially dependent on related
bodies corporate for its ongoing viability, the financial statements have been
prepared on a going concern basis, after considering undertakings by related
bodies corporate to provide ongoing financial support. The financial
statements have been prepared on the basis of historical costs and do not take
into account changing money values. Consistent accounting policies have been
employed in the preparation and presentation of the consolidated financial
statements.
The company was incorporated on October 17, 1994 and commenced trading from
that date. Through its controlled entities, the company provides programming
for four of eight channels of the multi-channel base programming package (the
"Galaxy package") offered and distributed by the Satellite A and B licence
holders in Australia. The Galaxy package is distributed via satellite,
microwave multipoint distribution system and other transmission technologies
by the Satellite B licence holder through distribution facilities in the six
largest capital cities in Australia and regional Western Australia, and by
franchisees to substantially all of the population in Australia.
The Company's programming for the four channels was first aired on April 23,
1995 by the Satellite A and B licence holders. Regional distribution commenced
in New South Wales in August 1995 and in other states in October 1995.
Programming provided by the Company as at the date of this report includes
Red, a music video channel; Arena, a general entertainment channel;
Nickelodeon, a children's/family/classic channel; and Discovery, a documentary
channel.
(B) PRINCIPLES OF CONSOLIDATION
The accounts have been prepared by consolidating the financial statements of
all the entities that comprise the Economic Entity, being the Company (the
chief entity) and its controlled entities. A list of controlled entities
appears in Note 7.
The purchase method of accounting has been used to account for subsidiaries
acquired during the period. The Company undertakes a valuation of the net
assets acquired in purchase transactions in accordance with generally accepted
accounting principles. Accordingly, the Company has stated the net assets
acquired from purchased companies at their estimated fair values at the date
of acquisition. The consolidated accounts include the information and results
of each controlled entity from the date on which the Company obtains control
and until such time as the Company ceases to control such entity.
F-70
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
In preparing the consolidated accounts, the intercompany balances and
transactions, and any unrealised profits arising within the Economic Entity
have been eliminated in full.
(C) REVENUE AND REVENUE RECOGNITION
Sales revenue comprises licence fees earned from a related entity for
development and production of channels of programming for subscription
television broadcasting services. Revenue is recognised at the time
subscription services are provided to customers.
(D) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed to determine
whether they are in excess of their recoverable amount as of the balance sheet
date. If the carrying amount of a non-current asset exceeds the recoverable
amount, the asset is written down to the lower amount. In assessing
recoverable amounts, the relevant net cash inflows arising from the continued
use and subsequent disposal of non-current assets have not been discounted to
their present value unless otherwise indicated.
(E) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are translated to Australian currency at the
rates of exchange existing at the dates of the transactions. Amounts
receivable and payable in foreign currencies at the balance sheet date are
translated at the rates of exchange existing on that date.
Exchange differences relating to amounts payable and receivable in foreign
currencies are recorded in the profit and loss account as exchange gains or
losses in the financial year in which the exchange rates change.
(F) TAXATION
XYZ adopts the liability method of tax effect accounting. The tax effect of
temporary differences which arise from items recorded in different periods for
income tax and accounting purposes, are carried forward on the balance sheet
as deferred tax assets and deferred tax liabilities, as applicable. Deferred
tax assets arising from temporary differences are not recorded unless
realisation of the asset is assured beyond a reasonable doubt. Deferred tax
assets which include tax losses are only recorded when their realisation is
virtually certain.
The recovery of deferred tax assets (both recognised and unrecognised) is
contingent upon sufficient taxable income being earned in future periods,
continuation of the relevant tax laws and each relevant company continuing to
comply with the appropriate legislation.
(G) PLANT AND EQUIPMENT
Acquisition
Items of plant and equipment are recorded at historical cost and depreciated
as outlined below.
Depreciation
Items of plant and equipment are depreciated over their estimated useful
lives on a straight-line basis. The estimated useful lives of such items range
from four to ten years. Items of plant and equipment are depreciated from the
date the asset commences earning revenue.
Leases
Payments made under operating leases are charged against profits in equal
instalments over the accounting periods covered by the lease term, except
where an alternative basis is more representative of the pattern of benefits
to be derived from the leased property.
F-71
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
(H) SUPERANNUATION
XYZ contributes to one defined contribution fund for all employee groups.
Contributions of A$135,675 were made to the fund during the year as a
percentage of salaries based on statutory requirements.
(I) PROGRAM MATERIAL RIGHTS
Program material rights are recognised as an asset and stated at the lower
of unamortized cost and net realisable value. The rights represent the ability
to use television programs over a specified period of time, as set out in the
licence agreements. Program material rights acquired under licence agreements
are recognised when the licence period begins and all of the following
conditions are met:
(i) The cost of each licence fee for each program is known or is
reasonably determinable;
(ii) The program material has been accepted by the licensee in accordance
with the terms of the licence agreement; and,
(iii) The licensor can deliver the program material rights, and the
licensee can exercise the rights.
Amortization of the cost of program material rights is charged to the
statement of operations based on the regular assessment of the benefit of
individual licence agreements, over the term of the agreement. If the benefits
are reasonably determinable through the number of times a particular program
is aired, then costs are charged to the statement of operations accordingly.
An accelerated method of amortization is used when the first broadcast of a
program is estimated to be more valuable than its reruns. Costs are allocated
on a straight-line basis over the period of the agreement if each broadcast is
expected to produce approximately the same amount of revenue.
Program material rights are classified as current assets if they are
expected to be used within one year.
(J) STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, cash and cash equivalents
includes bank overdrafts and all highly liquid investments which are readily
convertible to cash at the Company's option.
(K) LOSS PER SHARE
Loss per share is calculated by dividing net loss by the weighted average
number of issued ordinary shares outstanding during the period.
(L) PROVISIONS
Employee Entitlements
Provision is made for benefits accruing to employees in respect of wages and
salaries, annual leave, long service leave, and sick leave when it is probable
that settlement will be required and are capable of being measured reliably.
Provisions made in respect of wages and salaries, annual leave, sick leave,
and other employee entitlements expected to be settled within twelve months,
are measured at their nominal values.
Provisions made in respect of other employee entitlements which are not
expected to be settled within twelve months are measured as the present value
of the estimated future cash outflows to be made by the economic entity in
respect of services provided by employees up to the reporting date.
(M) DATE OF INCORPORATION
The company was incorporated on October 17, 1994 and accordingly comparative
figures cover the period from inception.
F-72
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31,
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 March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1995 and 1996 include all adjustments necessary for a fair presentation.
Such adjustments were of normal recurring nature.
NOTE 2--EXPENDITURES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 MARCH 31,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Expenses included in the net loss
were:
Depreciation and amortization:
--plant and equipment.............. Nil 828,647 Nil 238,756
--program material rights.......... Nil 2,766,090 Nil 380,649
--- --------- --- --------
Total depreciation and
amortization.................... Nil 3,594,737 Nil 619,405
=== ========= === ========
Amounts set Aside to Provision:
--employee entitlements--annual
leave............................. Nil 75,656 Nil 7,237
--provision for doubtful debts..... Nil 1,696,160 Nil --
--- --------- --- --------
Nil 1,771,816 Nil 7,237
=== ========= === ========
Exchange (gain) loss, net, on foreign
currency transactions:
Exchange gain on foreign currency
transactions...................... Nil (368,670) Nil (767,175)
--- --------- --- --------
Exchange (gain) loss, net.......... Nil (368,670) Nil (767,175)
=== ========= === ========
</TABLE>
F-73
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 3--INCOME TAXES
At December 31, 1995 XYZ had accumulated tax losses carried forward of
approximately A$7,997,055 (1994: A$71,840). The losses may be carried forward
indefinitely under Australian income tax legislation.
The tax effects of temporary differences, at the Australian statutory rate
of 36%, which give rise to significant portions of deferred tax assets or
liabilities and the corresponding valuation allowance at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Deferred tax assets
Tax loss carryforward....................................... 77,978 9,816,188
Accrued expenses and other.................................. Nil 266,479
------ ----------
77,978 10,082,667
Deferred tax liabilities
Depreciation and amortization............................... Nil 1,897,111
------ ----------
Net deferred tax assets..................................... 77,978 8,185,556
Less valuation allowance.................................... 77,978 8,185,556
------ ----------
Nil Nil
====== ==========
</TABLE>
Tax losses of A$1,897,111 (1994: A$nil) have been brought to account and
fully applied against deferred tax liabilities.
XYZ has provided a valuation allowance for the total amount of net deferred
tax assets since realization of these assets is not assured, principally due
to the Economic Entity being in the start-up phase of operations. For US GAAP
purposes as described in Note 12, a valuation allowance for the total amount
of the net deferred tax assets has also been provided.
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C>
Plant and equipment--at cost...................... 57,448 4,026,837 4,019,211
Less: accumulated depreciation.................... Nil (665,767) (906,914)
------ --------- ---------
Total property, plant and equipment............. 57,448 3,361,070 3,112,297
====== ========= =========
</TABLE>
There have been no current valuations included in the above amounts.
F-74
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 5--COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Contracts for Expenditure for Program Material Rights
--Not later than one year....................................... Nil 174,082
--Later than one year but not later than two years.............. Nil Nil
--Later than two years but not later than three years........... Nil Nil
--Later than three years but not later than four years.......... Nil Nil
--Later than four years but not later than five years........... Nil Nil
--Later than five years......................................... Nil Nil
--- -------
Nil 174,082
=== =======
Commitments Under Non-cancellable Operating Leases
--Not later than one year....................................... Nil 11,794
--Later than one year but not later than two years.............. Nil 12,362
--Later than two years but not later than three years........... Nil 10,976
--Later than three years but not later than four years.......... Nil 568
--Later than four years but not later than five years........... Nil Nil
--Later than five years......................................... Nil Nil
--- -------
Nil 35,700
=== =======
</TABLE>
CONTINGENCIES
The Company and its controlled entities are party to matters involving
certain claims which arise in the normal course of business, none of which, in
the opinion of management, is expected to have a materially adverse effect on
the Company's consolidated financial position or results of operation.
REGULATION
Management asserts that no communication of any kind has been received from
the Australian Broadcasting Authority ("ABA"), the Australian Competition and
Consumer Commission of Australia ("ACCC"), or the Foreign Investment Review
Board of Australia ("FIRB"), or any other agency indicating that the Company
and/or its controlled entities is or may be in violation of any law or
regulation of the Commonwealth of Australia or any subdivision or agency
thereof.
NOTE 6--INFORMATION ABOUT INVESTMENTS IN ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
EQUITY-
OWNERSHIP CARRYING ACCOUNTED
INTEREST AMOUNT AMOUNT
--------- ------------- -------------
NAME OF COMPANY PRINCIAL ACTIVITY 1994 1995 1994 1995 1994 1995
PERCENT AUD $ AUD $ AUD $ AUD $
<S> <C> <C> <C> <C> <C> <C> <C>
Nickelodeon Australia Production and
Management Pty Development of the
Limited Nickelodeon Channel N/A 50 Nil 245,518 Nil 245,518
</TABLE>
The balance date of the associate is June 30.
F-75
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
The carrying amount of the investment in the associated company is as
follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Carrying amount of investment in shares in associate company........ 1
Amounts due from associated company at the balance date ............ 1,941,677
Provision for non-recoverability.................................... (1,696,160)
----------
245,518
==========
</TABLE>
The carrying amount of the investment equates to the equity-accounted amount
at December 31 , 1995 as follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Carrying amount of investment in shares in associated company..... 1
XYZ's maximum obligation to contribute to the operating losses of
the associated company........................................... (1,696,160)
----------
(1,696,159)
Amounts due from associated company at the balance date........... 1,941,677
----------
245,518
==========
</TABLE>
NOTE 7--PARTICULARS IN RELATION TO CONTROLLED ENTITIES
<TABLE>
<CAPTION>
BOOK VALUE OF CONTRIBUTION TO
INVESTMENT CONSOLIDATED LOSS
----------------------- ------------------------------
CLASS INTEREST MARCH 31, MARCH 31,
OF HELD 1994 1995 1996 1994 1995 1996
SHARE PERCENT AUD $ AUD $ AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chief Entity
XYZ Entertainment Pty
Ltd.................. 233,874 38,842,378 3,649,399
Corporate Bodies Corpo-
rate
XYZ Programming Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Arena Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Quest Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Max Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Red Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
------- ---------- ---------
Consolidated net
loss................. 233,874 38,842,378 3,649,399
======= ========== =========
</TABLE>
Each of the controlled entities are incorporated in, and carry on business
in, Australia.
NOTE 8--RELATED PARTY DISCLOSURES
OWNERSHIP INTERESTS IN RELATED PARTIES
Information in relation to ownership interests in controlled entities is
provided in Note 7.
F-76
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
REMUNERATION OF DIRECTORS
The directors of the Company during the period were:
D F Hagans (appointed 12/12/94)
A Tow (appointed 11/5/95)
R J Freudenstein (appointed 6/9/95)
R J Birrel (appointed 17/10/94, resigned 11/5/95)
M W Booth (appointed 17/10/94, resigned 12/12/94, reappointed 6/9/95)
D Garry (appointed 17/10/94, resigned 17/10/94)
L M Head (appointed 17/10/94, resigned 17/10/94)
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Total income received, or due and receivable, by directors of
the Company from the Company and any related body corporate,
and by all directors of each entity in the Economic Entity from
corporations of which they are directors, or related bodies
corporate or an entity controlled by the chief entity.......... 52,500 363,786
====== =======
The number of directors of the Company whose total income falls
within the following bands: No No
A$Nil -- A$9,999............................................... 4 7
====== =======
</TABLE>
LOANS TO DIRECTORS
There were no loans in existence at balance date (or at December 31, 1994)
made, guaranteed or secured by the Company to directors of a corporation in
the Economic Entity or a related body corporate, their spouses, relatives or
relatives of spouses.
LOANS FROM DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD $ AUD $
(UNUADITED)
<S> <C> <C> <C> <C> <C>
Loans advanced from
stockholder............ Non-interest Century United D Hagans and
bearing, no set Programming A Tow
terms of repayment Ventures Pty
Limited 14,523,960 18,966,591
Loans advanced from
stockholder............ Non-interest Foxtel Management R Freudenstein
bearing, no set Pty Limited and M Booth
terms of repayment 14,523,960 18,966,591
---------- ----------
29,047,920 37,933,182
========== ==========
</TABLE>
Loans from Director Related Entities at December 31, 1994 amounted to
$995,074. Of this amount, $820,074 had been advanced by UIH Australia
Programming Inc. and $175,000 by Century Programming Ventures Corp., both
being joint and equal stockholders in the Company at that date.
F-77
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31,
1994AND THE YEAR ENDED DECEMBER 31, 1995
LOANS TO DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loans advanced to
stockholder............ Century United D Hagans and
Non-interest Programming A Tow
bearing, no set Ventures Pty 881,633 1,708,113
terms of repayment Limited
======= =========
</TABLE>
There were no loans to Director Related Entities at December 31, 1994.
OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Establishment and
restructuring fees Normal commercial UIH Australia D Hagans
paid................... terms and Programming Inc.
conditions 250,000 --
Establishment and
restructuring fees Normal commercial Century Programming A Tow
paid................... terms and Ventures Corp.
conditions 250,000 --
Establishment, operating
and management fees.... Normal commercial Century United D Hagans and A
terms and Programming Tow
conditions Ventures Pty
Limited 860,444 --
Channel supply licence
fee revenue............ Normal commercial Continental Century
terms and Pay Television Pty
conditions Limited A Tow 943,358 973,816
Cable distribution
licence fee revenue.... Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions 330,753 399,040
</TABLE>
There were no other transactions with Director Related Parties at December
31, 1994.
LOANS TO OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C>
Loans advanced to Non-interest Nickelodeon Australia
associated company bearing, no set Management Pty
terms of repayment Limited 1,941,677 --
Loans advanced to Non-interest Nickelodeon Australia
related party bearing, no set Inc.
terms of repayment 1,326,578 --
</TABLE>
There were no loans to Other Related Entities at December 31, 1994.
F-78
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
OTHER TRANSACTIONS WITH OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
MARCH 31,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C>
Subscriptions payable... Normal commercial Nickelodeon
terms and Australia
conditions Management Pty
Limited 113,219 118,077
</TABLE>
There were no other transactions with other related entities at December 31,
1994.
TRANSACTIONS WITHIN THE WHOLLY-OWNED GROUP
During the financial period, the company provided management services to
other entities in the wholly- owned group at no charge. In addition, the
company paid licence fees and reimbursed certain costs to other entities in
the wholly-owned group in the ordinary course of business and on normal terms
and conditions.
CONTROLLING ENTITIES
The chief (parent) entity in the economic entity is XYZ Entertainment Pty
Ltd.
The ultimate holding company in the wholly-owned group is XYZ Entertainment
Pty Ltd.
The chief entity, at the year end, was jointly controlled by Century United
Programming Ventures Pty Limited ("CUPV") and Foxtel Management Pty Limited.
Both companies are incorporated in Australia.
CUPV is jointly owned by UIH Australia Programming Inc. ("UIH") and Century
Programming Ventures Corp. ("CPVC"). The ultimate parent entity of UIH is
United International Holdings Inc........ The ultimate parent entity of CPVC is
Century Communications Corporation.
Foxtel Management Pty Limited is jointly owned by The News Corporation
Limited and Telstra Corporation Limited.
NOTE 9--SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Authorised Capital
900,000 ordinary shares of A $1.00 each................... 900,000 900,000
100,000 redeemable preference shares of A $1.00 each...... 100,000 100,000
--------- ---------
1,000,000 1,000,000
--------- ---------
Issued and Paid-Up Capital
2 ordinary shares of A $1.00 each......................... 2 2
========= =========
</TABLE>
Upon incorporation the Company issued two fully paid ordinary shares of $1
each.
NOTE 10--FINANCIAL REPORTING BY SEGMENTS
The Company predominantly operates in Australia and in one industry, being
programming for subscription television services.
F-79
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 11--NON-HEDGED FOREIGN CURRENCY BALANCES
The Australian dollar equivalent of foreign currency balances included in
the accounts which are not effectively hedged are as follows:
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
US Dollars
Liabilities
Current.................................................... Nil 1,719,055
Non-current................................................ 995,074 743,085
------- ---------
Total.................................................... 995,074 2,462,140
======= =========
Assets
Current.................................................... Nil 25,729
======= =========
Sterling
Liabilities
Current.................................................... Nil 10,949
======= =========
</TABLE>
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
F-80
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
Economic Entity exercises significant influence, but does not control, are
considered to be associated companies. The ability to exercise significant
influence over the strategic operating, investing and financing policies of a
company may be indicated by, for example, representation on the board of
directors, participation in policy-making processes, material intercompany
transactions, interchange of management personnel or provision of technical
information.
Investments in associated companies are carried at the lower of cost and
recoverable amount. Dividends are recorded in the profit and loss account
after they have been declared by the associated company in a general meeting.
Under US GAAP, the equity method of accounting is used for investments in
which the Company exerts significant influence. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the
Company's share of net earnings or losses of the associates, limited to the
extent of the Company's investment in and advances to the associates,
including any debt guarantees or other contractual funding commitments.
Investments in and advances to associated companies are as follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Investment............................................................ 1
Amounts due from associated company (net of provision for non-
recoverability of $A1,696,160)....................................... 245,517
-------
245,518
=======
</TABLE>
(D) RECONCILIATION OF NET LOSS AND STOCKHOLDERS' DEFICIENCY AS REPORTED UNDER
AUSTRALIAN GAAP TO US GAAP
A reconciliation of net loss and stockholders' deficiency as reported under
Australian GAAP to US GAAP is not required as there is no difference between
the results reported under Australian GAAP and UA GAAP at the balance date.
Fair Value of Other Financial Instruments and Other Disclosures
The carrying amount of the following instruments approximate fair value
because of the short maturity of these instruments--cash at bank, promissory
notes, trade and other receivables, and trade creditors and accruals
(including amounts owing to related entities).
New Accounting Principles
The US Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121")
which is required to be adopted by affected companies for fiscal years
beginning after December 15, 1995. The Company does not believe that the
provisions of SFAS 121 will have a material effect on the Company's reported
results.
F-81
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 13--REPORTING OF SIX MONTH PERIODS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -----------------
AUD $ AUD $
<S> <C> <C>
Revenue
Channel Supply................................ 100,747 1,016,344
Other......................................... Nil 592,149
Interest...................................... 62,587 133,704
---------- ----------
163,334 1,742,197
Operating Expenses
Cost of services.............................. 15,732,400 8,945,175
Selling, general and admininstrative ......... 7,162,916 5,312,681
Depreciation and amortization................. 1,366,875 2,227,862
---------- ----------
24,262,191 16,485,718
NET LOSS........................................ 24,098,857 14,743,521
========== ==========
</TABLE>
F-82
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE ISSUER SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information................................................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 17
The Exchange Offer....................................................... 26
Use of Proceeds.......................................................... 32
Dividend Policy.......................................................... 32
Exchange Rate Data....................................................... 32
Capitalization........................................................... 33
Pro Forma Consolidated Condensed Financial Information................... 34
Selected Consolidated Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 43
Regulation............................................................... 62
Corporate Organizational Structure....................................... 69
Management............................................................... 75
Certain Relationships.................................................... 80
Australis Transaction.................................................... 80
Security Ownership....................................................... 81
Description of the Securities............................................ 82
Description of Capital Stock............................................. 113
Certain U.S. Income Tax Considerations................................... 113
Plan of Distribution..................................................... 117
Legal Matters............................................................ 117
Experts.................................................................. 118
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$443,000,000
UIH
(ART) AUSTRALIA/
PACIFIC, INC.
14% SENIOR DISCOUNT NOTES
DUE 2006, SERIES B
----------------
PROSPECTUS
----------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the prospectus contained in this Registration Statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
3.1* Articles of Incorporation of the Issuer, as amended.
3.2* By-laws of the Issuer.
4.1* Indenture dated as of May 14, 1996, between the Issuer and American
Bank National Association (the "Indenture").
4.2 The form of New Note is included as Exhibit A-2 to the Indenture.
4.3 The Articles of Incorporation, as amended, and By-laws of the Issuer
are included as Exhibits 3.1 and 3.2.
5.1 Opinion of Holme Roberts & Owen llc as to the legality of the New
Notes.
8.1 Opinion of Holme Roberts & Owen llc as to certain other matters.
10.1 The Indenture is included as Exhibit 4.1.
10.2* Registration Rights Agreement dated May 14, 1996, among the Issuer,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch").
10.3* Purchase Agreement dated May 8, 1996, among the Issuer, DLJ and
Merrill Lynch.
10.4* Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement, among United International Holdings,
Inc. ("UIHI"), UIH Australia, Inc. ("UIHA"), Salstel Media Holdings
Pty Limited ("SMH"), Australis Media Limited ("Australis") and CTV
Pty Ltd ("CTV").
10.5* Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement dated October 12, 1994, among UIHI, UIH
Australia II, Inc. ("UIHA II"), Salstel Media Investment Pty Limited
("SMI"), Australis and STV Pty Ltd ("STV").
10.6* Memorandum of Variation dated April 4, 1996 to the CTV
Securityholders Agreement, among UIHI, UIHA, Australis, SMH and CTV.
10.7* Memorandum of Variation dated April 4, 1996 to the STV
Securityholders Agreement, among UIHI, UIHA II, Australis, SMI and
STV.
10.8* Security Purchase Agreement dated December 21, 1995, between Media
International Holdings Limited ("MHL") and UIHA.
10.9* Security Purchase Agreement dated December 21, 1995, between MIHL and
UIHA II.
10.10* Agreement dated December 21, 1995, among UIHI, UIHA and SMH.
10.11* Amending Agreement dated April 4, 1996 to CTV Securityholders
Agreement, among UIHI, UIHA and SMH.
10.12* Agreement dated December 21, 1995, among UIHI, UIHA II and SMI.
10.13* Amending Agreement dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II and SMI.
10.14* Share Acquisition Agreement dated September 9, 1995, between
Australia New System L.P. and United Wireless, Inc. ("UWI").
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.15* Option Agreement dated September 5, 1995, between UWI and Prodelin
Corporation (Australia) Pty Limited.
10.16 XYZ Shareholders Agreement dated September 6, 1995, among Century
United Programming Venturers Pty Limited ("CUPV"), Foxtel
Management Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited
("XYZ"), Century United Programming Ventures ("CPVC") and the
Issuer.
10.17 Shareholders Deed dated June 30, 1995, among Century Communications
Corp., CPVC, UIHI, the Issuer and CUPV.
10.18* Subscription and Investment Agreement dated July 8, 1994, among UIH
New Zealand, Inc. ("UIHNZ"), Todd International Ltd. ("Todd") and
Kiwi Cable Co. Ltd. ("Kiwi").
10.19* Shareholders Agreement dated July 8, 1994, between Todd and UIHNZ.
10.20* UIH-SFCC L.P. Amended and Restated Agreement of Limited Partnership
dated January 6, 1995, among UIH-SFCC Inc. and the limited partners
named therein.
10.21* Master Agreement dated January 11, 1995, between UIH-SFCC, L.P. and
Societe Francaise des Communications et du Cable S.A. ("Societe").
10.22* Shareholders' Agreement dated January 11, 1995, among UIH-SFCC,
L.P. and the shareholders named therein.
10.23 Franchise Agreement dated October 12, 1994, between Australis and
CTV.
10.23A** Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy Communications Pty Limited ("Galaxy") re: CTV Franchise
Agreement.
10.24 Franchise Agreement dated October 12, 1994, between Australis and
STV.
10.24A** Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy re: STV Franchise Agreement.
10.25 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and
East Coast Pay Television Pty Limited ("ECT").
10.26* Technical Assistance Agreement dated October 12, 1994, between CTV
and United International Management, Inc. ("UIMI").
10.27* Technical Assistance Agreement dated October 12, 1994, between STV
and UIMI.
10.28 Stock Purchase Agreement dated July 3, 1996, among Kiwi Cable
Company BVI, Inc., the Issuer and United Australasian
Communications, Inc.
10.29* Technical Assistance Agreement dated July 8, 1994, between Kiwi and
UIHI.
10.30* Technical Assistance Agreement dated July 8, 1994, between Kiwi and
Todd.
10.31* Technical Assistance Agreement dated January 11, 1995, between
Telefenua S.A. and Societe.
10.32* Assignment of Rights and Delegation of Duties under Technical
Assistance Agreement dated January 11, 1995, between Societe and
UIMI.
10.33* Management Agreement dated May 1, 1996, between UIH Management,
Inc. and the Issuer.
10.34* Tax Allocation Agreement dated May 8, 1996, among UIHI, United
Australasian Communications, Inc. and the Issuer.
10.35* Employment Letter Agreement dated February 21, 1995, between UIHI
and Robert G. McRann.
10.36 Securities Purchase Agreement dated June 19, 1996, between
Australis and the Issuer (CTV securities).
10.37 Securities Purchase Agreement dated June 19, 1996, between
Australis and the Issuer (STV securities).
12.1 Statement re: Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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>
---------------------
* Previously filed.
** To be filed by amendment.
(b) Index to Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, 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 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment of 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, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant
II-3
<PAGE>
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the Registration Statement 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.
The Registrant hereby undertakes that:
(1) For the 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.
The Registrant hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act ("Act") in accordance with the rules
and regulations prescribed by the Commission under Section 305(b)(2) of the
Act.
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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
DENVER, STATE OF COLORADO, ON THIS 25TH DAY OF JULY, 1996.
UIH Australia/Pacific, Inc., A
Colorado corporation
By: /s/ Bernard G. Dvorak
-----------------------------------
BERNARD G. DVORAK
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES ON THE DATES INDICATED.
SIGNATURE TITLE POSITION HELD
WITH THE REGISTRANT
DATE
* Chairman of the
- ------------------------------------- Board, Chief July 25, 1996
GENE W. SCHNEIDER Executive Officer
and Director
* President and
- ------------------------------------- Director July 25, 1996
MICHAEL T. FRIES
/s/ Bernard G. Dvorak Chief Financial
- ------------------------------------- Officer and July 25, 1996
BERNARD G. DVORAK Director
* Director
- ------------------------------------- July 25, 1996
MARK L. SCHNEIDER
* Controller
- ------------------------------------- (Principal July 25, 1996
VALERIE L. COVER Accounting Officer
*/s/ Bernard G. Dvorak
- -------------------------------------
BERNARD G. DVORAK
ATTORNEY-IN-FACT
II-5
<PAGE>
FILE NO. 333-05017
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UIH AUSTRALIA/PACIFIC, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1* Articles of Incorporation of the Issuer, as amended.
3.2* By-laws of the Issuer.
4.1* Indenture dated as of May 14, 1996, between the Issuer and American
Bank National Association (the "Indenture").
4.2 The form of New Note is included as Exhibit A-2 to the Indenture.
4.3 The Articles of Incorporation, as amended, and By-laws of the Issuer
are included as Exhibits 3.1 and 3.2.
5.1 Opinion of Holme Roberts & Owen llc as to the legality of the New
Notes.
8.1 Opinion of Holme Roberts & Owen llc as to certain other matters.
10.1 The Indenture is included as Exhibit 4.1.
10.2* Registration Rights Agreement dated May 14, 1996, among the Issuer,
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch").
10.3* Purchase Agreement dated May 8, 1996, among the Issuer, DLJ and
Merrill Lynch.
10.4* Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement, among United International Holdings,
Inc. ("UIHI"), UIH Australia, Inc. ("UIHA"), Salstel Media Holdings
Pty Limited ("SMH"), Australis Media Limited ("Australis") and CTV
Pty Ltd ("CTV").
10.5* Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement dated October 12, 1994, among UIHI,
UIH Australia II, Inc. ("UIHA II"), Salstel Media Investment Pty
Limited ("SMI"), Australis and STV Pty Ltd ("STV").
10.6* Memorandum of Variation dated April 4, 1996 to the CTV
Securityholders Agreement, among UIHI, UIHA, Australis, SMH and CTV.
10.7* Memorandum of Variation dated April 4, 1996 to the STV
Securityholders Agreement, among UIHI, UIHA II, Australis, SMI and
STV.
10.8* Security Purchase Agreement dated December 21, 1995, between Media
International Holdings Limited ("MHL") and UIHA.
10.9* Security Purchase Agreement dated December 21, 1995, between MIHL
and UIHA II.
10.10* Agreement dated December 21, 1995, among UIHI, UIHA and SMH.
10.11* Amending Agreement dated April 4, 1996 to CTV Securityholders
Agreement, among UIHI, UIHA and SMH.
10.12* Agreement dated December 21, 1995, among UIHI, UIHA II and SMI.
10.13* Amending Agreement dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II and SMI.
10.14* Share Acquisition Agreement dated September 9, 1995, between
Australia New System L.P. and United Wireless, Inc. ("UWI").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<C> <S>
10.15* Option Agreement dated September 5, 1995, between UWI and Prodelin
Corporation (Australia) Pty Limited.
10.16 XYZ Shareholders Agreement dated September 6, 1995, among Century
United Programming Venturers Pty Limited ("CUPV"), Foxtel
Management Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited
("XYZ"), Century United Programming Ventures ("CPVC") and the
Issuer.
10.17 Shareholders Deed dated June 30, 1995, among Century Communications
Corp., CPVC, UIHI, the Issuer and CUPV.
10.18* Subscription and Investment Agreement dated July 8, 1994, among UIH
New Zealand, Inc. ("UIHNZ"), Todd International Ltd. ("Todd") and
Kiwi Cable Co. Ltd. ("Kiwi").
10.19* Shareholders Agreement dated July 8, 1994, between Todd and UIHNZ.
10.20* UIH-SFCC L.P. Amended and Restated Agreement of Limited Partnership
dated January 6, 1995, among UIH-SFCC Inc. and the limited partners
named therein.
10.21* Master Agreement dated January 11, 1995, between UIH-SFCC, L.P. and
Societe Francaise des Communications et du Cable S.A. ("Societe").
10.22* Shareholders' Agreement dated January 11, 1995, among UIH-SFCC,
L.P. and the shareholders named therein.
10.23 Franchise Agreement dated October 12, 1994, between Australis and
CTV.
10.23A** Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy Communications Pty Limited ("Galaxy") re: CTV Franchise
Agreement.
10.24 Franchise Agreement dated October 12, 1994, between Australis and
STV.
10.24A** Agreement dated June 19, 1996, between Australis, the Issuer and
Galaxy re: STV Franchise Agreement.
10.25 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and
East Coast Pay Television Pty Limited ("ECT").
10.26* Technical Assistance Agreement dated October 12, 1994, between CTV
and United International Management, Inc. ("UIMI").
10.27* Technical Assistance Agreement dated October 12, 1994, between STV
and UIMI.
10.28 Stock Purchase Agreement dated July , 1996, among Kiwi Cable
Company BVI, Inc., the Issuer and United Australasian
Communications, Inc.
10.29* Technical Assistance Agreement dated July 8, 1994, between Kiwi and
UIHI.
10.30* Technical Assistance Agreement dated July 8, 1994, between Kiwi and
Todd.
10.31* Technical Assistance Agreement dated January 11, 1995, between
Telefenua S.A. and Societe.
10.32* Assignment of Rights and Delegation of Duties under Technical
Assistance Agreement dated January 11, 1995, between Societe and
UIMI.
10.33* Management Agreement dated May 1, 1996, between UIH Management,
Inc. and the Issuer.
10.34* Tax Allocation Agreement dated May 8, 1996, among UIHI, United
Australasian Communications, Inc. and the Issuer.
10.35* Employment Letter Agreement dated February 21, 1995, between UIHI
and Robert G. McRann.
10.36 Securities Purchase Agreement dated June 19, 1996, between
Australis and the Issuer (CTV securities).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.37 Securities Purchase Agreement dated June 19, 1996, between Australis
and the Issuer (STV securities).
12.1 Statement re: Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries.
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
Communications 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>
---------------------
* Previously filed.
** To be filed by amendment.
<PAGE>
EXHIBIT 5.1
July 25, 1996
Board of Directors
UIH Australia/Pacific, Inc.
4643 South Ulster Street, #1300
Denver, Colorado 80237
Re: UIH Australia/Pacific, Inc.
Registration Statement on Form S-4, as amended
(File No. 333-05017)
Ladies and Gentlemen:
As counsel for UIH Australia/Pacific, Inc., a Colorado corporation (the
"Company"), we have examined the above-referenced Registration Statement on Form
S-4 under the Securities Act of 1933, as amended (the "Registration Statement"),
that the Company has filed with respect to the offer to exchange 14% Senior
Discount Notes due 2006, Series B (the "New Notes") for all outstanding 14%
Senior Discount Notes due 2006, Series A (the "Old Notes").
We have examined the Company's Articles of Incorporation, as amended, By-
laws and the record of its corporate proceedings and have made such other
investigation as we have deemed necessary in order to express the opinion set
forth below.
Based on such investigation, it is our opinion that the New Notes, when
exchanged for the Old Notes, will be legally issued and will constitute binding
obligations of the Company.
We hereby consent to all references to us in the Registration Statement and
all amendments to the Registration Statement. We further consent to the use of
this opinion as an exhibit to the Registration Statement.
Holme Roberts & Owen LLC
By: /s/ GARTH B. JENSEN
-----------------------------
Garth B. Jensen, Member
<PAGE>
EXHIBIT 8.1
July 25, 1996
Board of Directors
UIH Australia/Pacific, Inc.
4643 South Ulster Street, Suite 1300
Denver, CO 80237
Re: UIH Australia/Pacific, Inc.
Registration Statement on Form S-4, as amended
(File No. 333-05017)
Gentlemen:
This opinion is given in connection with the proposed offering of 14%
Senior Discount Notes due 2006, Series B, of UIH Australia/Pacific, Inc. (the
"Company"), as described in the prospectus to be filed with the Securities and
Exchange Commission on July 26, 1996, as part of Amendment No. 1 to the
Company's Registration Statement on Form S-4 (the "Prospectus"). Capitalized
terms in this letter have the same meaning as those in the Prospectus.
Our opinion is based on the current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the applicable Treasury Regulations and public
administrative and judicial interpretation of the Code and Treasury Regulations,
all of which are subject to change, which changes could be applied
retroactively. Our opinion also is based on the facts set forth in the
Prospectus and the Note Documents (which we assume set forth the complete
agreement among the parties with respect to the Senior Notes) and on certain
representations from you with respect to certain factual matters (which we have
not independently verified). The "Note Documents" are the documents listed in
the representation letters from you. We assume that all Note Documents have
been or will be properly executed and will be valid and binding when executed.
We have prepared the tax discussion included under the caption "Certain
U.S. Income Tax Considerations" in the Prospectus. It is our opinion that the
discussion under that caption describes the material federal income tax
consequences expected to result to the initial Noteholders (subject to the
conditions and limitations described therein) who acquire the New Notes pursuant
to the offering. The 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
<PAGE>
UIH Australia/Pacific, Inc.
July 25, 1996
Page 2
New Notes and Warrants issued as a capital asset and not for sale to customers
in the ordinary course of a trade or business.
The 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 therein
will have on, particular Noteholders, and it does not address state, local or
foreign tax consequences. The discussion does not cover the tax consequences
that might be applicable to Noteholders 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). The discussion does not address
the federal income tax consequences that may result from a modification of the
New Notes.
Our opinion may change if the applicable law changes, if any of the facts
with respect to the New Notes as included in the Prospectus and Note Documents
and in the representations made by you are inaccurate, incomplete or change, or
if the conduct of the parties is materially inconsistent with the facts
reflected in the Prospectus, Note Documents or representations.
Our opinion represents only our legal judgment based on the current law and
the facts as described above. Our opinion has no binding effect on the IRS or
the courts. The IRS may take a position contrary to our opinion, and, if the
matter is litigated, a court may reach a decision contrary to the opinion.
We hereby consent to the filing of this opinion letter with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
use of our name therein.
Very truly yours,
HOLME ROBERTS & OWEN LLC
By: /s/ Robert J. Welter
--------------------
Robert J. Welter, Member
<PAGE>
EXHIBIT 10.16
XYZ SHAREHOLDERS AGREEMENT
PARTIES
CENTURY UNITED PROGRAMMING VENTURES PTY LIMITED
FOXTEL MANAGEMENT PTY LIMITED as agent
for the Foxtel Partnership
XYZ ENTERTAINMENT PTY LIMITED
CENTURY PROGRAMMING VENTURES CORP.
UIH AUSTRALIA PROGRAMMING INC.
DATED
6 September 1995
TRESS COCKS & MADDOX
Solicitors & Notaries
Level 20
135 King Street
SYDNEY NSW 2000
DX 123 SYDNEY
Tel: (02) 221.2744
Fax: (02) 221.4988
Ref: AJS:951049
<PAGE>
TABLE OF CONTENTS
- ---------------------------------------------------------------------
DEFINITIONS AND INTERPRETATIONS..................................... 1
Interpretation................................................. 4
Accounting Standards........................................... 4
Inconsistency.................................................. 5
INITIAL CONTRIBUTIONS............................................... 5
REPRESENTATIONS AND WARRANTIES...................................... 6
MANAGEMENT OF XYZ GROUP............................................. 9
Board of Directors............................................. 9
Chairman.......................................................10
Decisions to be made by the Board..............................11
Shareholder Obligations........................................13
Execution of Agreements........................................15
XYZ Consultancy Services.......................................15
Wasted Assets..................................................15
MASTER BUSINESS PLANS AND ANNUAL BUDGETS............................15
Master Business Plans..........................................15
Annual Budgets.................................................16
FUNDING PRINCIPLES..................................................17
Variation to Joint Venture Agreement...........................17
Contributions..................................................17
FINANCIAL STATEMENTS AND DISTRIBUTIONS..............................18
Financial Statements...........................................18
US Reporting...................................................18
Distributions..................................................18
INTELLECTUAL PROPERTY...............................................19
RESTRICTIONS ON TRANSFER............................................19
Issue of Newco Sale Notice.....................................20
Acceptance of Offer............................................20
Assignment of Newco agreements on completion...................21
Newco.II Control...............................................21
<PAGE>
Effective Control..............................................21
CHANNEL NAME CHANGE.................................................21
AMENDMENT TO CLAUSE 6.7(a) JOINT VENTURE AGREEMENT..................22
GENERAL.............................................................22
Termination....................................................22
Further Assurance..............................................22
Assignment.....................................................22
Notices........................................................23
Counterparts...................................................23
Severability...................................................23
Costs and Expenses.............................................23
No Partnership or Agency.......................................23
Waiver.........................................................24
Variation......................................................24
Governing Law..................................................24
<PAGE>
THIS AGREEMENT dated 6 September 1995
PARTIES CENTURY UNITED PROGRAMMING VENTURES PTY LIMITED (ACN 069 957 759) of
Level 7, 55 Grafton Street, Woollahra, NSW 2025 (`Newco');
FOXTEL MANAGEMENT PTY LIMITED (ACN 068 671 938) of Level 5, 182 George
Street, Sydney as agent for the Foxtel Partnership (`Foxtel');
XYZ ENTERTAINMENT PTY LIMITED (A.C.N. 066 812 119) of Level 2, 100
Harris Street, Pyrmont, NSW 2009 (`XYZ');
CENTURY PROGRAMMING VENTURES CORP, a Nevada Corporation, of 50 Locust
Avenue, New Canaan, Connecticut, USA 06840 (`Century'); and
UIH AUSTRALIA PROGRAMMING INC., a company incorporated under the laws
of the State of Colorado, USA of 4643 South Ulster Street, Denver,
Colorado USA (`UIH').
INTRODUCTION
A. On 30 June 1995 Newco, Foxtel, XYZ and others entered into the Joint Venture
Agreement in respect of XYZ.
B. XYZ is the joint venture company.
C. Newco and Foxtel will be shareholders in XYZ and this Agreement will further
regulate their respective rights and obligations in respect of XYZ and the
XYZ Group.
D. Pursuant to the Joint Venture Agreement Foxtel has agreed to subscribe for
Shares in XYZ in accordance with Clause 2.
IT IS AGREED
1. DEFINITIONS AND INTERPRETATIONS
1.1 In this Agreement all words have the meaning referred to in the Joint
Venture Agreement unless defined below, and unless the context otherwise
requires:
`A$' or `Australian dollars' means the lawful currency of the Commonwealth
of Australia;
<PAGE>
-2-
`Annual Budget' means the budget approved by the Board for each Financial
Year in accordance with clause 5.2;
`Board' means the board of directors of XYZ;
`Business' means XYZ's business of acquiring, compiling, developing,
producing and selling to distributors the Channels;
`Business Day' means any day (other than a day which is a Saturday, Sunday
or public holiday) on which trading banks are open for business in Sydney;
`Call Date' means the dates established in the Annual Budget or determined
by the Board as the dates on which Contributions are to be made to XYZ by
the Shareholders;
`Call Notice' means a notice issued by the Board under Clause 6.2(b);
`Contribution' means a financial contribution made by a Shareholder to XYZ
in accordance with a Call Notice or otherwise, whether by subscription for
Securities or by way of loan or any financial accommodation for the benefit
of XYZ and accepted as a Contribution by the Board;
`Director' means a member of the Board;
`Disclosure Material' means the documents so entitled and signed for
identification by the parties;
`Financial Year' means each period of 12 months ending on 30 June;
`Intellectual Property' means all patentable inventions, copyrights, trade
marks, and designs which are developed by XYZ in carrying on the Business
or is Intellectual Property developed by one Shareholder which it deems and
the other Shareholders accept as being XYZ's Intellectual Property;
`Joint Venture Agreement' means the Heads of Agreement for Joint Venture
between the parties and Century Programming Ventures Corp, Century
Communications Corp, United International Holdings Inc. and others dated 30
June 1995 and which provides for Foxtel and Newco to become equal
shareholders in XYZ;
`Newco Shareholders Deed' means the Deed between Century, UIH and Newco
dated 30 June 1995;
<PAGE>
-3-
`Program' has the meaning given in the Program Licence Agreement, being
Schedule 13 to the Joint Venture Agreement;
`Programming Licence Agreements' means all of the rights under the licences
entered into by XYZ or XYZ Programming Pty Limited up to Closure relating
to the Programs used or useable in the Business;
`Securities' has the meaning referred to in the Corporations Law, and
includes in relation to XYZ and any other corporation any of:
(a) fully or partly paid shares in the capital of such corporation
(including stock);
(b) options in respect of, or rights to subscribe for, any such shares,
securities (debt or equity) convertible into or exchangeable into such
shares; and
(c) securities (debt or equity) whether or not convertible to shares, the
income and/or capital rights of which are determined by reference to,
or as a proportion of, the economic interest in such corporation
(together with options to subscribe for any such securities and
securities convertible into, or exchangeable for, any such securities),
`Share' means a fully paid ordinary share of A$1.00 par in the capital of
XYZ from time to time;
`Shareholders' means Newco and Foxtel and any person referred to in
paragraph 3 of Schedule 1 on that person becoming a party to this
Agreement;
`Shareholder's Economic Entitlement' or `Economic Entitlement' of a
particular Shareholder means, at any time but subject to clause 6.2(e),
the percentage represented by the fraction, the numerator of which is the
total Contributions to XYZ made by that Shareholder (and in the case of
Newco including all loans made to XYZ by Century and UIH Australia) and the
denominator of which is the total Contributions to XYZ made by all
Shareholders (including all loans made to XYZ by Century and UIH
Australia);
`Software Licences' means licences of the software known as Broadcasting
Scheduling Software and Microsoft Office Professional;
`Subsidiary' means any body corporate in which XYZ directly or indirectly
through one or more intermediaries owns more than 50% of voting rights;
`Subsidiary Board' means the board of directors of any Subsidiary; and
<PAGE>
-4-
`Trade Marks' means those trade mark applications and any consequent
registrations in the name of XYZ for the trade marks known as Max, Red,
Quest, Arena, Lifetime Entertainment and City TV;
`XYZ Boards' means the boards of directors of each company from time to
time in the XYZ Group; and
`Wasted Assets' means the XYZ owned items referred to in Schedule 3.
1.2 Interpretation
This Agreement shall be interpreted in the same manner as the Joint Venture
Agreement.
1.3 Accounting Standards
(a) Unless otherwise provided in this Agreement in respect of any
accounting practice relevant to the matters the subject of this or the
Joint Venture Agreement, the following accounting standards apply:
(i) the accounting standards required under the Corporations Law;
(ii) if no accounting standard applies under the Corporations Law in
relation to an accounting practice, the standards acceptable to
the Australian Accounting Research Foundation, including:
(A) the Australian Accounting Concepts;
(B) the Australian Accounting Standards; and
(C) the Approved Accounting Standards; and
(iii) if no accounting standard applies under clause 1.3(a)(i) or
1.3(a)(ii), the accounting practice agreed within a reasonable
time between the parties and, failing agreement, the accounting
practice determined under clause 1.3(b).
(b) If the parties do not agree under clause 1.3(a)(iii), the matter must
be referred as soon as practicable to the President of the Institute
of Chartered Accountants in Australia or his nominee for determination
of the appropriate accounting practice. Any party may make the
referral under this clause 1.3(b).
<PAGE>
-5-
(c) A determination under clause 1.3(b) is final and binding on the
parties.
(d) In making a determination under clause 1.3(b), the President of the
Institute of Chartered Accountants or his nominee acts as an expert,
not as an arbitrator.
1.4 Inconsistency
(a) This Agreement is entered into in pursuance of Clause 4.2 of the Joint
Venture Agreement and is intended to more fully set out the respective
rights and obligations of the Shareholders. This Agreement is to be
read with and incorporated into the Joint Venture Agreement. If a
provision of this Agreement is inconsistent with a provision of the
Joint Venture Agreement, the provision in the Joint Venture Agreement
must be regarded as negatived or varied to the extent only of the
inconsistency.
(b) If any of the provisions of this Agreement are inconsistent with the
Articles the terms of this Agreement prevail, to the extent of the
inconsistency, and the Shareholders must take all necessary action to
amend the Articles so that they are consistent with this Agreement
2. INITIAL CONTRIBUTIONS
2.1 On Closure Foxtel must pay to XYZ the amount specified in the XYZ Closure
Notice (`the Initial Foxtel Contribution').
2.2 Subject to Closure occurring and the delivery of the Closure Notice by XYZ
to Foxtel, the payment of the Initial Foxtel Contribution will constitute
an application by Foxtel for 2 Shares of $1.00 each and a loan to XYZ of
the balance (`the Foxtel Loan').
2.3 Upon receipt of the Initial Foxtel Contribution, XYZ must:
(a) issue and allot 2 Shares to Foxtel;
(b) issue a share certificate to Foxtel in respect of 2 Shares;
(c) pay half of the proceeds of the Foxtel Loan to each of UIH Australia
and Century in repayment of half of XYZ's outstanding loans to those
parties or their Affiliates;
(d) appoint Mark Booth and Richard Freudenstein to each of the XYZ Boards
as representatives of Foxtel;
<PAGE>
-6-
(e) convert all remaining loans from Century and UIH Australia from $US
into $Australian at an exchange rate of $A1.00=$US0.75.
2.4 Unless and until otherwise agreed in writing between Newco and Foxtel:
(a) the auditors of XYZ will be Deloitte Touche Tohmatsu;
(b) the financial year of XYZ will commence on 1 July of each year and
terminate on 30 June of the following year; and
(c) the secretary of XYZ will be Patrick Delany or any other person as
may be appointed by the Board.
2.5 At the first meeting of the Board after Closure, the Board shall consider
expenditure limits and other limitations on Newco employees who perform
Designated Roles as contemplated by clause 3.5(b) of the Newco Personnel
Agreement and any other employee of XYZ as the Board may consider
appropriate.
2.6 The parties will amend the Memorandum and Articles of Association after
Closure for the purposes of this Agreement and the Joint Venture Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 Subject to all matters disclosed to Foxtel prior to Closure in the
Disclosure Material, Newco represents and warrants to Foxtel as at the date
of this Agreement and as at Closure that:
(a) it is a company duly incorporated and validly existing under the laws
of New South Wales and has all requisite powers to own property and
has the necessary power to bind itself in the manner contemplated by
this Agreement and to execute, deliver and perform this Agreement and
to become bound by it;
(b) this Agreement has been validly executed and delivered by Newco and
constitutes the valid, binding and enforceable obligations of Newco in
accordance with its terms, subject to the discretionary authority of a
court in granting equitable remedies and all applicable bankruptcy and
insolvency laws;
(c) prior to the transactions contemplated by Clause 2 and other than as
contemplated by this Agreement or the Joint Venture Agreement, it is
the legal and beneficial owner of all the shares in XYZ and the XYZ
<PAGE>
-7-
Group and there are no agreements, arrangements or understandings to
issue further Shares or other securities in XYZ or in the XYZ Group;
(d) other than the Subsidiaries comprised in the XYZ Group there is no
other person which XYZ controls the board of, has invested in or has
agreements, arrangements or understandings to control which are
necessary or desirable to conduct the Business;
(e) (other than as contemplated by the Joint Venture Agreement) no company
in the XYZ Group is a party to any agreements, arrangements or
transactions with any party or Affiliate of any party to the Joint
Venture Agreement;
(f) the marketing consultancy agreement between East Coast Pay Television
Pty Limited (ACN 003 546 272) and XYZ has been terminated;
(g) all employment contracts and motor vehicle leases between XYZ and the
individuals listed in Schedule 1 of the Newco Personnel Agreement have
been or will be (with adjustment from Closure) validly novated in
favour of Newco without variation except that the obligations of XYZ
are now or will be the obligations of Newco;
(h) XYZ has appropriately accounted for income tax payable on all salaries
paid by XYZ up to Closure in all material respects;
(i) the information provided by XYZ to Telstra in the course of the due
diligence was true and accurate and complete in all material respects;
(j) the Programming Licence Agreements currently in force permit the
broadcast of the Programs by means of MDS, satellite and cable and
that the sub-licensing arrangements under the Program Licence
Agreement, Channel Supply Agreement and Cable Distribution Agreement
do not constitute a breach of the Programming Licence Agreements;
(k) other than the Software Licences no other software licence or software
is used in the conduct of the Business;
(l) XYZ has made reasonable endeavours prior to Closure to ensure that the
Programs do not breach Australian censorship rules;
(m) XYZ will exercise reasonable endeavours to prosecute the Trade Marks
to registration; and
<PAGE>
-8-
(n) Schedule 1 of the Newco Shareholders Deed constitutes the only
mechanism under which Century or UIH can dispose of its respective
Securities owned by it in or loans made by it to Newco and that the
mechanism for pre-emption between Century and UIH is to the same
practical effect (including as to determination of Fair Market Value)
as Schedule 1 to this Agreement and that Schedule 1 of the Newco
Shareholders Deed shall not be materially amended without Foxtel's
consent (which shall not be unreasonably withheld) during the Term.
3.2 Foxtel represents and warrants to Newco as at the date of this Agreement
and as at Closure:
(a) it is a Company duly incorporated and validly existing under the laws
of New South Wales and has all requisite powers to own property and
has the necessary power to bind itself in the manner contemplated by
this Agreement and to execute, deliver and perform this Agreement and
to become bound by it;
(b) this Agreement has been validly executed and delivered by Foxtel and
constitutes the valid, binding and enforceable obligations of Foxtel
in accordance with its terms, subject to the discretionary authority
of a court in granting equitable remedies and all applicable
bankruptcy and insolvency laws; and
3.3 All warranties given by Newco and its Affiliates under this Agreement and
the Joint Venture Agreement (`Warranties') are given subject to the matters
fairly and accurately disclosed in the Disclosure Material.
3.4 Foxtel or its Affiliates cannot make a claim against Newco Century or UIH
for breach of the Warranties or in respect of any matter the subject of a
Warranty, or number of claims whether arising out of the same or similar
circumstances, unless and until that claim or those claims when aggregated
with all other claims exceeds $296,000 (`the Threshold'). For the purposes
of determining whether Newco is liable once the Threshold is exceeded any
claim by Foxtel (or number of claims arising out of the same or similar
circumstances) must exceed $25,000 and Newco is not liable for any claim of
less than $25,000. Newco is only liable for the amount by which the claim
exceeds the Threshold.
3.5 Foxtel may not claim for breach of the Warranties unless reasonable
particulars of the claim (specifying the breach or other event to which
such claim shall relate and the amount claimed in respect thereof) have
been given to Newco in writing within 2 years from Closure.
<PAGE>
-9-
3.6 If a breach of a Warranty results in an expense, loss, damage or cost to
XYZ, then each Shareholder must contribute funds to XYZ in proportion to
their respective Economic Entitlement for such expense, loss, damage or
cost.
3.7 Payment of any claim under any warranty which fully compensates Foxtel in
respect of the loss to which the claim relates shall satisfy any claim
which is capable of being made under any other warranty or on any other
basis, whether contractual or otherwise, in respect of the same subject
matter unless Foxtel identifies a separate and distinct loss.
3.8 On receipt of a claim from Foxtel, Newco may, at its cost, attempt to
remedy the cause of the claim (where such cause is remediable) within a
reasonable period in the circumstances (but in no event longer than 60
days). If the claim cannot be remedied to Foxtel's reasonable satisfaction
in that period then Foxtel shall be at liberty to pursue any claim it may
have under this Agreement.
3.9 Where a breach of any of the warranties is in respect of a matter where any
of the XYZ Group is insured against any loss or damage arising therefrom,
Foxtel shall not make any claim against Newco under the warranties without
first procuring that the relevant company in the XYZ Group makes a claim
against its insurers for compensation for such loss or damage suffered and
thereafter any claim against Newco shall be limited (in addition to all
other limitations on Newco's liability elsewhere referred to in this
Agreement) to the amount by which the amount of the loss or damage suffered
by Foxtel as a result of such breach shall exceed the compensation paid or
payable by the said insurers to the relevant XYZ company or Foxtel.
3.10 If any claim under the warranties shall arise by reason of some liability
of a company in the XYZ Group which, at the time the claim is notified to
Newco, is contingent only, the claim shall not contribute towards the
Threshold and Newco shall not be under any obligation to make any payment
to Foxtel in respect of such claim until such time as the contingent
liability shall become an actual liability at which time the claim shall
contribute towards the Threshold, but Foxtel must, at Newco's cost, render
Newco and the XYZ Group all reasonable assistance in the mitigation of any
loss in respect of that claim, including in the institution or defence, or
conduct of legal proceedings, whether by allowing the use of their name,
provision of evidence or otherwise.
4. MANAGEMENT OF XYZ GROUP
4.1 Board of Directors
(a) The XYZ Boards will each consist of 4 voting directors.
<PAGE>
-10-
(b) For so long as a Shareholder holds an Economic Entitlement of at least
40% in XYZ that Shareholder must appoint 2 directors to each of the
XYZ Boards and for so long as Newco and Foxtel holds an Economic
Entitlement of at least 40% in XYZ, then:
(i) Newco and Foxtel will each only have one vote at meetings of each
of the XYZ Boards; and
(ii) any decision of an XYZ Board must include an affirmative vote
from a representative of each of Newco and Foxtel.
(c) If, from time to time, either Newco or Foxtel's Economic Entitlement
in XYZ is less than 40%, then the relevant party will not be entitled
to any representation on any of the XYZ Boards and the other party
must appoint further representatives in substitution and clause 4.1(e)
shall not apply.
(d) Each of Newco and Foxtel must ensure that it promptly appoints and
removes directors and, if necessary and appropriate from time to time,
vote or consent to action with respect to its Shares so that the XYZ
Boards are structured in the form contemplated by this clause 4.1.
(e) A quorum for a meeting of the Board is 2, of which 1 must be a
representative of Newco and 1 must be a representative of Foxtel.
(f) The Directors of XYZ shall meet at least four (4) times per year (or
more frequently as requested by any two Directors).
(g) Each of Newco and Foxtel acknowledge that where any Director is
appointed by any Shareholder under a right conferred by this Agreement
to represent the interests of that appointor, that Director, in
performing any of his duties or exercising any power, right or
discretion as a Director in relation to any company in the XYZ Group,
shall be entitled to have regard to and represent the interests of
that appointor and to act on the wishes of that appointor provided
that in each case an honest and reasonable director could have formed
the view that, in so doing, the director was acting bona fide in the
best interests of the XYZ Group as a whole.
4.2 Chairman
(a) The chairman of each of the XYZ Boards shall not have a casting vote.
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(b) The chairman of an XYZ Board shall be appointed annually.
(c) For so long as Newco and Foxtel have the same number of directors on
the Board, the chairman of the Board shall alternate every year
between a chairman appointed by Newco and a chairman appointed by
Foxtel.
(d) For the year commencing on the date of this Agreement, the first
chairman of XYZ shall be appointed by Newco and shall be Andrew Tow.
4.3 Decisions to be made by the Board
(a) All decisions of each XYZ Board must be unanimous.
(b) The following matters must be decided by the Board:
(i) approval, adoption or variation of the Master Business Plan
and Annual Budgets as well as any repeal, amendment or
modification thereof;
(ii) amending or varying this Agreement, the Joint Venture
Agreement, the Channel Supply Agreement, the XYZ Management
Agreement, the Program Licence Agreement, the Newco Personnel
Agreement, or changing the memorandum and articles of any of
the companies in the XYZ Group;
(iii) admitting other shareholders to the XYZ Group or issuing or
redeeming any shares of Newco or Foxtel in the XYZ Group;
(iv) changing the name or Genre of the Channels;
(v) terminating or dissolving any or all companies in the XYZ
Group other than in accordance with the terms of this
Agreement;
(vi) permitting or requiring additional capital or other
contributions to be made to the XYZ Group which are not
provided for in the Master Business Plan or the Annual Budget;
(vii) incurring any indebtedness in the name or for the account of
the XYZ Group which is not provided for in the Master Business
Plan or the Annual Budget;
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(viii) issuing any equity, debt or other securities of the XYZ Group
other than as provided under the Master Business Plan or the
Annual Budget;
(ix) paying interest (and the rate of interest) on any loan made by
a Shareholder to any company in the XYZ Group;
(x) approving distributions of property of the XYZ Group other
than as provided under the Master Business Plan or the Annual
Budget;
(xi) commencing, settling or abandoning any litigation or dispute
for an amount in excess of $10,000 relevant to the XYZ Group
(other than against one of the shareholders);
(xii) entering into any expenditure or any contractual obligation or
commitment under which the XYZ Group will incur a liability
(contingent or otherwise) in excess of $20,000, other than as
provided under the Master Business Plan or the Annual Budget;
(xiii) XYZ establishing a new channel company or channel other than
Channelco5 or Channelco 6;
(xiv) procuring any Channel Company to produce more than one
channel;
(xv) varying the Existing XYZ Structure;
(xvi) changing XYZ's firm of accountants;
(xvii) the matters requiring the approval of XYZ under the Newco
Personnel Agreement or the termination of that agreement;
(xviii) any amendment or variation of the Cable Distribution Agreement
after novation of that agreement to XYZ or pursuant to clause
12.6 of the Joint Venture Agreement;
(xix) determining Call Dates(other than those specified in Schedule
2);
(xx) matters requiring the approval of XYZ under the Joint Venture
Agreement;
(xxi) any resolution of a Subsidiary Board;.
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(xxii) the acceptance of any financial accommodation or benefit
provided or procured by a Shareholder to XYZ as a Contribution
by that Shareholder;
(xxiii) the entry into, variation or termination of any contract or
arrangement (whether legally binding or not) by XYZ with any
of the Directors or any Shareholder or any party to the Joint
Venture Agreement or with any Affiliate of a Director, a
Shareholder or a party to the Joint Venture Agreement;
(xxiv) ceasing to conduct or changing the nature or scope of the
Businesses carried on for the time being or commencing any new
business not being ancillary or incidental to the Business;
(xxv) entry into of any material contract or arrangement outside the
ordinary course of the Business; and
(xxvi) the delegation of any of the above matters or to change or
amend or permit any power or authority of the Directors to be
delegated to an XYZ employee, a Relevant Manager, or
individuals who perform Designated Roles as contemplated by
clause 3.5(b) of the Newco Personnel Agreement.
4.4 Shareholder Obligations
(a) Unless and until otherwise agreed in writing between the Newco and
Foxtel and except as otherwise provided or contemplated in this
Agreement or in the Master Business Plan both Newco and Foxtel, shall
exercise their powers in relation to XYZ both under this Agreement and
as Shareholders (insofar as they lawfully can) so as to ensure that
XYZ does the following:
(i) carries on and conducts the Business in a proper and efficient
manner in accordance with sound business practice and for XYZ's
benefit and so as to give effect to the Master Business Plan and
the Annual Budget;
(ii) performs and complies with all obligations on its part under
this Agreement, the XYZ Management Agreement, the Newco
Personnel Agreement or the Channel Supply Agreement and
complies with the restrictions imposed on it under the
Articles;
(iii) transacts all of its Business on arm's length terms;
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(iv) maintains with a well established and reputable insurer
adequate insurance against all risks usually insured against by
companies carrying on the same or a similar Business and
including, without limitation, for the full replacement or
reinstatement value of all its assets of an insurable nature;
(v) not acquire, dispose, hire, lease, or license or receive leases
or licenses of any assets, goods, rights or services otherwise
than at the best price reasonably obtainable in the
circumstances;
(vi) keeps books or account and make true and complete entries in
them of all its dealings and transactions of and in relation to
its business;
(vii) adopts accounting policies and standards as may from time to
time be generally accepted in Australia when it prepares its
accounts;
(viii) provides each Shareholder within one week of the end of each
calendar month with:
(A) unaudited management accounts for that month in a form
acceptable to the Board; and
(B) cash flow forecasts for a period of 12 months from the end
of each quarter;
(ix) keeps each of the Shareholders fully informed as to all its
financial and business affairs relating to the Business; and
(x) if XYZ requires any approval, consent or licence for the
carrying on of its Business in the places and in the manner in
which it is for the time being carried on or proposed to be
carried on, uses its best endeavours to obtain and maintain the
same in full force and effect.
The word XYZ where used in this clause is taken to include each
company in the XYZ Group and this clause shall apply equally with
necessary changes in relation to each XYZ Group company as in relation
to XYZ.
(b) A quorum for a meeting of Shareholders is 2, of which 1 must be a
representative of Newco and 1 must be a representative of Foxtel.
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4.5 Execution of Agreements
(a) Any agreement requiring the unanimous approval of the Board under
Clause 4.3(b), must be signed by a representative of each of Newco and
Foxtel.
(b) The Board may delegate authority to execute an agreement or a
specified class of agreements to a Relevant Manager or a person
performing a Designated Role under the Newco Personnel Agreement.
4.6 XYZ Consultancy Services
XYZ agrees to provide the following services to Foxtel following Closure:
(a) further advice on channel branding, including on air "look" and
graphics;
(b) further advice on channel marketing and promotion.
In consideration of those services outlined in clauses 4.6(a) and
4.6(b), Foxtel shall pay to XYZ an amount calculated as follows:
(c) in respect of the Channel Red, if it changes its name to "V", not less
than $530,000 and not more than $1,000,000; and
(d) in respect of the Channel Max, if it changes its name to "Fox Kids",
not less than $385,000 and not more than $1,000,000.
4.7 Wasted Assets
As soon as practicable after Closure, Foxtel shall acquire the Wasted
Assets for the values of those assets as set out in Schedule 3.
5. MASTER BUSINESS PLANS AND ANNUAL BUDGETS
5.1 Master Business Plans
(a) The Shareholders must procure the XYZ Group to implement the Master
Business Plan.
(b) On or before the expiry of a Master Business Plan the Board must
develop and implement a new Master Business Plan for the following 10
year period, which will be based on the same principles underlying the
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expiring Master Business Plan, subject to any changes that the Board
may unanimously require.
5.2 Annual Budgets
(a) The first Annual Budget shall be the Original Master Business Plan
unless varied pursuant to Clause 4.8 of the Joint Venture Agreement.
(b) The Call Dates for the first Annual Budget are as specified in
Schedule 2. Schedule 2 is deemed to be part of the Original Master
Business Plan.
(c) No less than 90 days before the end of the each Financial Year the
Board must instruct the Finance Director to prepare in consultation
with the Relevant Managers an Annual Budget for the XYZ Group which
must:
(i) provide for all expenses and liabilities of the XYZ Group, which
must include, without limiting the foregoing, Newco General
Overhead and all costs associated with premises occupied by or
agreed to be occupied by XYZ;
(ii) reconcile to the Master Business Plan;
(iii) specify any proposed variations from or extension to the Master
Business Plan for the approval of the XYZ Board; and
(iv) otherwise incorporate, and provide for the implementation of,
all decisions of the Board.
(d) The Board must approve that proposed Annual Budget with any amendments
it deems necessary at least 30 days before the beginning of each
Financial Year.
(e) Once approved, the Board must specify before the commencement of the
Financial Year the Contributions and Call Dates for the relevant
Financial Year, and are deemed part of the Annual Budget.
(f) On approval by the Board, the proposed Annual Budget is adopted as the
Annual Budget for the relevant Financial Year.
(g) XYZ must, and must procure each of the Channel Companies to, conduct
its business in accordance with the Annual Budget for the relevant
Financial Year reflected in that Annual Budget.
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(h) Pending or failing approval by the Board of any proposed Annual
Budget, the Annual Budget last adopted by the Board continues in
effect, with all relevant amounts increased by 7.5% per annum.
6. FUNDING PRINCIPLES
6.1 Variation to Joint Venture Agreement
The parties agree that Clause 4.2A of the Joint Venture Agreement is
deleted and substituted with the following Clause 6.2. All references to
Clause 4.2A in the Joint Venture Agreement shall be deemed to be references
to Clause 6.2 in this Agreement.
6.2 Contributions
All parties agree, subject to any Master Business Plan:
(a) capital or funding required by XYZ shall be contributed by the
Shareholders in proportion to their respective Economic Entitlement,
or in such adjusted percentages as result from the operation of clause
6.2(e), in the same character (eg. debt or Securities) and in the same
manner and at the same time or times referred to in the Annual Budget
or as unanimously resolved by XYZ;
(b) XYZ must give each Shareholder not less than 7 days written notice
of each Call Date;
(c) a Shareholder may not require repayment by XYZ of any loans to XYZ or
redemption of any Securities in XYZ without the prior consent of the
other Shareholder. UIH or Century may require repayment by XYZ of
either of their respective loans to XYZ provided that the funds to
repay such loans are provided by Newco;
(d) XYZ may only repay any loan to a Shareholder or redeem any Securities
if it also repays or redeems (as the case may be) an amount at the
same time to the other Shareholder in proportion to that other
Shareholder's Economic Entitlement;
(e) if a Shareholder does not make a Contribution within 14 days of the
relevant Call Date (time of the essence) (a `Non-Contributor') then
the Non-Contributor's Economic Entitlement is diluted accordingly;
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(f) if a Shareholder's Economic Entitlement in XYZ falls below 40% then it
shall be deemed to have given a Sale Notice to the other Shareholder
in accordance with Schedule 1.
6.3 All Contributions must be made in $Australian
7. FINANCIAL STATEMENTS AND DISTRIBUTIONS
7.1 Financial Statements
The Shareholders must:
(a) cause XYZ to keep accurate and proper accounts and records in
relation to its Business in such form as will enable a full and
adequate audit to be undertaken; and
(b) procure an annual audit by a qualified independent auditor of all
accounts, records and documents to be kept in accordance with this
Agreement within 30 days of the end of each financial year during the
term of this Agreement and within 30 days of the termination of this
Agreement; and
(c) on completion of the audit, cause preparation of financial statements
in accordance with the accounting standards specified in Clause 1.3.
7.2 US Reporting
In addition to the financial statements prepared under Clause 7.1(c), XYZ
must prepare in respect of each calendar quarter (within 50 days after the
end of that quarter) and each Financial Year, financial statements which
conform to the generally accepted accounting principles as applied by the
accounting profession in the USA. Newco will be responsible for all costs
incurred by XYZ in preparing such financial statements. Foxtel shall not
have access to such financial statements unless it reimburses Newco for
half of such costs.
7.3 Distributions
(a) The unanimous approval of the Board is required for any declaration of
dividends or other distributions of profit.
(b) The Shareholders are entitled to receive dividends or other
distributions of profit in proportion to their Economic Entitlement
from time to time.
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(c) With the unanimous approval of the Board, the Shareholders may be paid
their distribution of profit by way of management fees or interest on
loans.
(d) If the unanimous approval of the Board is not obtained under Clause
7.3(a), and if in respect of any Financial Year of XYZ, XYZ has
profits for distribution, the Shareholders shall ensure that, in the
absence of agreement between them to the contrary, 100% of those
profits are distributed by way of cash dividends among the
Shareholders within 3 months after the end of that year, subject to
the application of reasonable and proper reserves for working capital
in accordance with any applicable Master Business Plan.
7A. INTELLECTUAL PROPERTY
7A.1 All Intellectual Property created or developed after the date of this
Agreement by XYZ (or by Newco through its employees or consultants on
behalf of XYZ pursuant to the Newco Personnel Agreement or the XYZ
Management Agreement or by Foxtel as a Relevant Manager through its
employees or consultants pursuant to the XYZ Management Agreement) shall
constitute the property of XYZ. Newco and Foxtel shall execute any forms or
other documents, including assignments necessary to secure or protect XYZ's
title to the Intellectual Property including rights arising under a license
agreement) in any country of the world. This obligation will continue
throughout any phase of prosecution and maintenance of any application or
registration of any Intellectual Property and also throughout the lifetime
of any copyright.
7A.2 XYZ shall be responsible for protecting and ensuring public notification of
the existence of the Intellectual Property (including copyright) and, if
necessary, obtaining an assignment of any copyright to XYZ.
7A.3 Either Shareholder ("the Requesting Shareholder") may request the Board to
take legal action in respect of any infringement or alleged infringement by
any third person of any Intellectual Property. If the Board does not
unanimously approve of such action, then XYZ must nevertheless take such
legal action if the Requesting Shareholder agrees to be responsible for all
costs incurred in pursuing such action.
8. RESTRICTIONS ON TRANSFER
8.1 The parties agree that Schedule 7 of the Joint Venture Agreement is deleted
and substituted by Schedule 1 to this Agreement.
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8.2 A Shareholder may not sell, dispose or transfer Shares except as provided
in Schedule 1 of this Agreement. A Shareholder may issue a Sale Notice at
any time after but not before 3 years after the date of the Joint Venture
Agreement.
9. FOXTEL'S RIGHT OF PRE-EMPTION IN NEWCO
9.1 Issue of Newco Sale Notice
Century and UIH agree that if a Sale Notice is issued (or deemed to be
issued) by one (`the Seller') to the other (`the Remaining Party') under
Schedule 1 of the Newco Shareholders Deed in respect of all of the Seller's
Securities in Newco (`the Newco Securities') and the Remaining Party does
not accept the offer by the Seller, then before the Seller can offer its
holding of Securities in Newco to a third party:
(a) the Seller must give written notice to Foxtel (`the Pre-emption
Notice') agreeing to sell the Newco Securities to Foxtel at the same
price at which the Newco Securities had been offered to the Remaining
Party (which shall not exceed the Fair Market Value (as defined in the
Newco Shareholders Deed) for those Securities);
(b) Foxtel must respond in writing within 7 days after issue of the
Pre-emption Notice either:
(i) accepting the offer of the Newco Securities; or
(ii) advising that they do not wish to purchase the Newco Securities,
and if Foxtel does not respond within 7 days, Foxtel is deemed to have
advised under paragraph (ii) that it does not wish to purchase the
Sale Securities; and
(c) any sale to a third party shall not be at a price less than the price
last offered to Foxtel and any third party must enter into a deed of
accession agreeing to be bound by the terms of this Agreement.
9.2 Acceptance of Offer
If Foxtel accepts the offer in respect of all of the Newco Securities, then
Foxtel must purchase and the Seller must sell the Newco Securities and
completion of the sale and purchase of the Newco Securities must take place
in accordance with the procedures contained in paragraph 11 of the Newco
Shareholders Deed and Foxtel must execute and deliver to the other parties
to the Newco
<PAGE>
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Shareholders Deed a deed of accession agreeing to be bound by
the terms of the Newco Shareholders Deed.
9.3 Assignment of Newco agreements on completion
On completion of the sale of the Newco Securities to Foxtel, the Remaining
Shareholder may:
(a) procure Newco to novate and assign (in which case Newco must) the
Newco Personnel Agreement, the XYZ Management Agreement and all other
agreements pursuant to which Newco provides management services to
other parties to another company in which the Remaining Shareholder
has Effective Control (`Newco.II');
(b) procure Newco to terminate (in which case Newco must) the employment
of its key management personnel, being those persons then performing
services for XYZ under the Newco Personnel Agreement; and
(c) procure Newco.II to offer employment to those persons on terms and
conditions identical to those on which they were employed by Newco,
and Foxtel agrees to procure Newco to comply with its obligations under
this clause and offer all other such reasonable assistance as Newco may
require.
9.4 Newco.II Control
The Remaining Shareholder must not permit Newco.II to enter into any
agreement or understanding for the provision of the services of those
individuals who fulfil Designated Roles as contemplated by clause 3.5(b) of
the Newco Personnel Agreement to any other person unless the Remaining
Shareholder has Effective Control over the other person.
9.5 Effective Control
For the purpose of this Clause, the Remaining Shareholder has `Effective
Control' of a person if the Remaining Shareholder has no less than the
right to veto the approval of business plans/budgets of that person.
10. CHANNEL NAME CHANGE
10.1 Foxtel and Newco agree to maintain and develop the on-air look of both Red
and Max and shall promote both channels but Newco and Foxtel agree that
the expenses of so doing shall be reasonable.
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10.2 If Newco wishes to use either of the names Max or Red following Closure
and those names are not being used by XYZ it shall purchase that name
subject to the following:
(a) the purchase price shall be not less than $385,000 and not more than
$1,000,000 in the case of Max and in the case of Red shall be not
less than $530,000 and not more than $1,000,000;
(b) Newco shall be entitled to use graphical and interstitial materials
associated with the names purchased; and
(c) use of the names shall be restricted to channel names and the names,
graphical or interstitial material cannot be used otherwise anywhere
in the world.
10.3 UIH may always use the name Max (but not graphical or interstitial
materials developed by XYZ) in connection with channels outside Australia.
11. AMENDMENT TO CLAUSE 6.7(a) JOINT VENTURE AGREEMENT
On Closure clause 6.7(a) of the Joint Venture Agreement is amended by
deleting the word `Channels' where appearing and replacing it with the
expression `Licence A Package'.
12. GENERAL
12.1 Termination
This agreement terminates on the termination of the Joint Venture
Agreement.
12.2 Further Assurance
Each party will provide the information, co-operation and assistance which
any other party reasonably requires to comply with any terms of this
Agreement, and obtain any consents, approvals or permits required by or as
a result of this Agreement.
12.3 Assignment
(a) The respective rights and obligations of each party are not
assignable by that party except in accordance with clause 8.
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(b) This agreement is binding upon and inures to the benefit of the
parties hereto and their respective permitted assigns.
(c) Nothing expressed or implied in this agreement is intended to confer
on any person, other than the parties and their respective permitted
assigns, any rights, remedies, obligations or liabilities under or by
reason of this agreement, unless that person is expressly stated to be
entitled to those rights, remedies or claims.
12.4 Notices
All notices, documents and information exchanged between the parties will
be sent by courier or facsimile to the address of such party as set out in
accordance with the Joint Venture Agreement.
12.5 Counterparts
This Agreement may be executed in a number of counterparts, each of which
shall be taken together, when duly executed by all named parties to the
Agreement and from exchange, to constitute a single Agreement.
12.6 Severability
Any provision of this Agreement which is illegal, void or unenforceable by
or contrary to law will be ineffective to the extent only of that
illegality, voidness or unenforceability by or contrariness to law, without
invalidating the remaining provisions of this Agreement. In such event,
the parties shall negotiate in good faith a new provision which is not
illegal, void or unenforceable by or contrary to law and which provides, or
would provide the parties, with the same or equivalent benefits and
participation as are provided by the provision which is illegal, void or
unenforceable by or contrary to law.
12.7 Costs and Expenses
Except as otherwise specifically provided in this Agreement, each party
must pay its own costs and expenses incidental to this Agreement.
12.8 No Partnership or Agency
This Agreement does not constitute any party the agent of another or imply
that the parties intend constituting a partnership or other form of
association in which any party may be liable for the acts or omissions of
another. No party has authority to pledge the credit of another.
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12.9 Waiver
(a) A waiver, forbearance, abandonment, election or estoppel of, or
affecting:
(A) a term of this Agreement (including this clause 12.9);
(B) a right, power, authority, discretion or remedy under this
Agreement;
(C) a right, power, authority, discretion or remedy created or
arising on a breach of or default under this Agreement
(D) the exercise of a right, power, authority, discretion or remedy
referred to in either paragraphs (2) or (3).
must be in writing, or, in the case of estoppel, must be based on a
written statement signed by the party against whom the waiver,
abandonment, election, forbearance or estoppel is claimed.
(b) A failure or delay in the exercise, or a partial exercise, of a
right, power, authority, discretion or remedy referred to in
paragraphs (2) or (3) of clause 12.9(a) is not regarded as either a
waiver, forbearance, abandonment or election or the basis of an
estoppel, of or affecting any thing referred to in clause 12.9(a).
12.10 Variation
A variation of any term of this Agreement must be in writing and signed by
the parties.
12.11 Governing Law
This Agreement is governed by and is to be construed in accordance with
the laws of New South Wales and the parties submit to the non-exclusive
jurisdiction of the courts for that jurisdiction.
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EXECUTED by the parties as an agreement:
SIGNED for CENTURY UNITED )
PROGRAMMING VENTURES )
PTY LIMITED (ACN 069 957 759) )
by its authorised representative in )
the presence of: )
/s/ Donald F. Hagans
------------------------------
Authorised Signatory
/s/ Anthony Serone Donald F. Hagans
- ------------------------------- ------------------------------
Witness Name (please print)
Anthony Serone Director
- ------------------------------- ------------------------------
Name (please print) Position
SIGNED for FOXTEL )
MANAGEMENT PTY LIMITED )
(ACN 068 671 938) by its authorised )
representative in the presence of: )
/s/ R. Freudenstein
-----------------------------
Authorised Signatory
/s/ Emma Moloney R. Freudenstein
- ------------------------------- ------------------------------
Witness Name (please print)
Emma Moloney Attorney
- ------------------------------- ------------------------------
Name (please print) Position
SIGNED for )
XYZ ENTERTAINMENT PTY )
LIMITED (ACN 066 812 119) by its )
authorised representative in the )
presence of:
/s/ Donald F. Hagans
------------------------------
Authorised Signatory
/s/ Anthony Serone Donald F. Hagans
- ------------------------------- ------------------------------
Witness Name (please print)
Anthony Serone Director
- ------------------------------- ------------------------------
Name (please print) Position
<PAGE>
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SIGNED for CENTURY )
PROGRAMMING VENTURES )
CORP. by its authorised Attorney in )
in the presence of: )
/s/ Patrick Delaney
------------------------------
Authorised Signatory
/s/ Paul Melville
/s/ Anthony Serone Patrick Delaney
- ------------------------------- ------------------------------
Witness Name (please print)
Paul Melville
Anthony Serone Attorney
- ------------------------------- ------------------------------
Name (please print) Position
SIGNED for UIH AUSTRALIA )
PROGRAMMING INC by it )
authorised representative in the )
presence of: )
/s/ Donald F. Hagans
------------------------------
Authorised Signatory
/s/ Anthony Serone Donald F. Hagans
- ------------------------------- ------------------------------
Witness Name (please print)
Anthony Serone Director
- ------------------------------- ------------------------------
Name (please print) Position
<PAGE>
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SCHEDULE 1: PRE-EMPTIVE RIGHTS
The parties agree to the following provisions relating to transfers of
Securities in and issued by XYZ by the owners or holders thereof (in each
instance `Securityholders'). A reference to `the Agreement' means the agreement
to which this schedule is annexed.
1. Restriction on dealing with Securities
Subject to the other provisions contained in this Schedule, in relation to
XYZ:
(a) no Securityholder may transfer or otherwise deal with any of its
Securities or beneficial interest in Securities; and
(b) no Securityholder may transfer or deal in any way with only part of
its holding of Securities and any transfer or dealing must be with all
of the Securities held by that Securityholder.
2. Meaning of Transfer
In this Schedule, `transfer' in relation to Securities includes any
agreement, offer or options to assign, sell, mortgage, charge, pledge or
security, or otherwise dispose of Securities or rights in respect of
Securities or of any beneficial interest in Securities.
3. Exemptions
Paragraph 1(a) does not apply to a transfer of Securities in XYZ:
(a) made by a Securityholder to any of its Affiliates provided that the
Affiliate first executes in the Australian Capital Territory and
delivers to the other parties a deed poll in favour of the other
Securityholders in a form approved by all those parties, agreeing to
be bound to this Agreement or the terms of the XYZ Shareholders
Agreement (as the case may be) as if it were a party to this Agreement
or the XYZ Shareholders Agreement (as the case may be);
(b) made by an Affiliate of a Securityholder to any of the
Securityholders' other Affiliates provided that the other Affiliate
first executes in the Australian Capital Territory and delivers to the
other parties a deed poll in favour of the other Securityholders in a
form approved by all those parties, agreeing to be bound to this
Agreement or the XYZ Shareholders Agreement (as the case may be) as if
it were a party to this Agreement or the XYZ Shareholders Agreement
(as the case may be).
<PAGE>
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(c) consisting of a mortgage, charge or other security granted to a bank,
acting in the ordinary course of ordinary banking business, where that
bank has first executed in the Australian Capital Territory and
delivered to the other parties a deed poll in favour of the parties to
this Agreement in a form approved by all those parties, agreeing to be
bound by the provisions of this Agreement or the XYZ Shareholders
Agreement (as the case may be) applicable to it and, in particular
this Schedule, as if it were a party to this Agreement or the XYZ
Shareholders Agreement (as the case may be).
(d) made in accordance with paragraphs 4 to 14 (inclusive) of this
Schedule; or
(e) made in accordance with or as contemplated by any other provision of
the Agreement to which this is a Schedule.
If a Securityholder (`transferee') holds Securities as a result of one or
more transfers under para. 3(a), and it ceases to be a member of the
Corporate Group (as defined below) it shall forthwith transfer the
Securities to the first (if more than one in a series of transfers)
transferor of the Securities (`transferor'). If the transferor does not
exist or is not a member of the same Corporate Group as when the Securities
were transferred by it, the transferee shall forthwith transfer the
Securities to a member of the same Corporate Group as the transferor at the
time the Securities were transferred by the transferor.
A corporation is a member of the same Corporate Group as another
corporation if that other corporation is its Affiliate.
4. Giving Valuation Notice
Unless an exemption in paragraph 3(a), (b) or (c) applies if any
Securityholder (the `Seller') wishes or is required to transfer any of its
Securities it must give written notice (`Valuation Notice') to the other
Securityholders and the Board setting out particulars of the Securities to
be transferred (the `Sale Securities') and agreeing to sell the Securities
at Fair Market Value (as defined in paragraph 5 below) or if paragraph 15
applies, to transfer the Securities in accordance with paragraph 15 of this
Schedule.
A Valuation Notice is not revocable except with the prior written consent
of all the Securityholders.
5. Fair Market Value
Subject to paragraph 15 below, for the purpose of this paragraph 5
Securities has the meaning given in the Agreement (but excluding
`Contributions' represented other than by subscription for Securities that
is, for avoidance of doubt, excluding loans or other financial
accommodation for the benefit of XYZ) and for the
<PAGE>
-29-
purposes of this Agreement `Fair Market Value' means the value determined
by reference to the following:
(a) within 10 days after receipt of a Valuation Notice, the Board must
nominate 2 duly qualified independent persons (`Valuers') to provide
valuations of the Securityholder's Securities and provide to the
Valuers the following instructions:
(i) each valuation must, as far as possible, be prepared
independently of the other valuations;
(ii) each valuation must be made of the price at which all of the
Securities might reasonably be expected to be sold as at the
date of the Sale Notice assuming:
(A) a willing but not anxious buyer and seller;
(B) a reasonable period within which to negotiate a sale having
regard to the nature of the Securities and the state of the
market for Securities of the same kind;
(C) the Securities are reasonably exposed to the relevant
market;
(D) no account is taken of the value or other advantage or
benefit, additional to market value, to the buyer
incidental to ownership of the Securities being valued;
(E) the Securityholder has sufficient resources to allow a
reasonable period for the exposure of the Securities for
sale;
(F) a goodwill component may (in appropriate circumstances) be
attached to the value of the Securities; and
(G) the business is a going concern and will continue to be for
the period of this Agreement and the rights under this
Agreement have not expired or been terminated;
(iii) each valuation must be completed as soon as reasonably
practicable and in any event, within 45 days after instructions
have been given to the Valuer;
(iv) each valuation is to include all Securityholder loans or other
financial accommodation to XYZ (and loans or other financial
accommodation to XYZ by Century and UIH) as liabilities of XYZ;
<PAGE>
-30-
(v) if a Valuer requires any additional information, that Valuer
should promptly and in any event within 10 days, request the
information from the Securityholder and the Board of Directors
of the relevant entity in which the Securities are issued.
(vi) the Valuers each act as experts not as arbitrators, and their
decision is final and binding on all parties;
(vii) the costs of the Valuers must be borne by the Securityholders
in proportion to their holding of Securities; and
(viii) in all other respects, each Valuer may decide what procedures
are to be followed in order to complete their respective
valuation of the Securities and;
(b) at all times, the Securityholder must provide all information and
assistance reasonably requested by the Valuers on a timely basis to
enable the Valuers to provide the valuations within the time periods
in this paragraph 5.
(c) Immediately after the Board of Directors obtains valuations of the
Fair Market Value of the Securities and informs the Securityholders of
those valuations, the Seller may, (and if it decides not to then the
Seller shall pay all costs of the Valuers) then give a Sale Notice to
the other Securityholders in accordance with paragraph 6 in respect of
all its Securities at a price equal to the Fair Market Value, which
shall be the average of the 2 valuations obtained under this
paragraph. If the discrepancy between the 2 valuations obtained under
this paragraph is greater than 20% of the average of the 2 valuations
then the Valuers must appoint a third duly qualified independent
person to provide a valuation of the Securities under the same
instructions as in this paragraph and the Fair Market Value will be
the average of the 2 closest valuations.
6. Giving Notice
The other Securityholders must then respond in writing to the Seller within
7 days after issue of a Sale Notice:
(a) accepting the offer of the Sale Securities; or
(b) advising that they do not wish to purchase the Sale Securities,
and any Securityholder failing to give notice is deemed to have advised
under paragraph 6(b) that it does not wish to purchase the Sale Securities.
A Sale Notice is not revocable except with the prior written consent of all
Securityholders.
<PAGE>
-31-
7. Acceptance of Offer
If any Securityholder accepts the offer in respect of all of the Sale
Securities, then, subject to paragraph 8, the Securityholders accepting the
Offer must purchase and the Seller must sell the Sale Securities and
paragraphs 9 and 10 shall have no force or effect (other than paragraph
10(b) and (c) of this Schedule, with the necessary changes).
8. Excess Purchasers
If under this Schedule there are any other Securityholders who wish to
purchase more than the total number of Sale Securities then the Sale
Securities must be shared between those Securityholders as follows:
(a) between the Securityholders in proportion to their respective holdings
of Securities, provided that:
(b) no Securityholder is bound to acquire more Securities than it has
accepted.
9. Third Parties
Subject to paragraph 7, in the 6 month period following the giving of a
Sale Notice, the Seller may transfer all or part of the Sale Securities to
any third party for a price not lower than the Fair Market Value. If and
when the Seller reaches agreement with a third party for a price lower than
the Fair Market Value, the Seller must give written notice to all other
Securityholders setting out the terms of the proposed sale. Those
Securityholders then have until the expiration of 7 days after the giving
of the notice to elect to buy the Sale Securities or some of them. If any
of those other Securityholders give notice electing to purchase the Sale
Securities, then the Seller must sell and the Securityholders giving notice
must purchase the whole of the Sale Securities.
10. Transfer to Third Parties
Subject to paragraph 7, if under paragraph 9 the Securityholders do not
agree to buy the whole of the Sale Securities, or the sale is for a price
not lower than the Fair Market Value, then the Seller may transfer the
whole of the Sale Securities to the third party on the terms of the
agreement, provided that:
(a) the third party first executes in the Australian Capital Territory and
delivers to the other parties a deed poll in favour of those parties
in a form approved by all those parties agreeing to be bound by this
Agreement and the XYZ Shareholders Agreement as if it were a party to
this Agreement;
<PAGE>
-32-
(b) the third party shall before registration of the transfer make a
Contribution (other than Securities) to and in respect of XYZ in the
same form and amount as the Contribution (other than Securities) to be
repaid to the Seller under paragraph 11(c) or 11(d) (as appropriate);
and
(c) the transfer to the third party is subject to the Seller obtaining all
necessary consents from any Governmental Agency (including, if
necessary and without limitation, any required under the Foreign
Acquisitions and Takeovers Act 1975) either unconditionally or subject
only to conditions as do not adversely affect XYZ or its activities or
the shareholding in XYZ of any other Securityholder (and in
particular, but without limitation, which do not require any other
Securityholder to divest the whole or any part of its shareholding in
XYZ or to restructure its own shareholding).
In the event of the transfer to a third party of the whole of either Newco
or Foxtel's interest in Securities of XYZ, then the relevant guarantee in
clauses 14 and 15 of the Joint Venture Agreement shall no longer apply.
11. Completion of Sale
(a) Completion of any sale must be within 14 days after acceptance of the
offer.
(b) On completion the Seller shall be deemed to have transferred with the
Sale Securities all the Seller's right, title and interest in the XYZ
Group and the Channels to the purchaser of the Sale Securities.
(c) If the Fair Market Value exceeds zero the Purchaser must pay to the
Seller, in consideration of the Sale Securities, an amount equivalent
to the Fair Market Value and XYZ must repay to the Seller all loans or
other financial accommodation made by the Seller to XYZ (`the Sellers
loans').
(d) If the Fair Market Value is less than or equal to zero, the Purchaser
must pay to the Seller $10.00 in consideration of the sale of the Sale
Securities and XYZ must repay to the Seller in discharge of the
Seller's Loan that amount certified by XYZ's auditors as the amount
which would be repayable in respect of the Seller's loan if XYZ was
wound up on that date (assuming realisation of values for XYZ's assets
consistent with the valuation on which the Fair Market Value was
determined). The Seller must on completion release XYZ from any
obligation to pay the remaining balance of the Seller's loans.
<PAGE>
-33-
12. Nominee
Any Securityholder may appoint a nominee to acquire in its place any Sale
Securities which it is prohibited by law from acquiring, and subject to the
approval of the other Securityholders (such approval not to be unreasonably
withheld) and provided that the third party first executes in the
Australian Capital Territory and delivers to the other parties a deed poll
in favour of those parties in a form approved by all those parties,
agreeing to be bound by this Agreement or the XYZ Shareholders Agreement
(as the case may be) as if it were a party to this Agreement or the XYZ
Shareholders Agreement (as the case may be) that nominee has the rights and
duties under this Schedule which the nominating Securityholder would
otherwise have had in respect of those Sale Securities.
13. Time of Essence
Time is of the essence of this Schedule.
14. Multiple Notices
Any Securityholder may give one or more Sale Notices but may only give one
Valuation Notice in any six month period.
15. Seller Default
Notwithstanding any other provision of this Schedule or the Agreement, if
any Securityholder (`the Seller') is deemed to have given a Sale Notice by
reason of the application at any time of clause 6.2(f) to that Seller,
all the provisions of this Schedule shall apply except that the Seller
shall be entitled to receive in full consideration for the sale of all its
Securities only repayment of the lesser of:
(i) 80% of the total amounts paid up by the Seller on the Securities,
irrespective of the number or market value of any Securities or loans
held by the Seller in XYZ; and
(ii) 80% of the Fair Market Value as determined pursuant to paragraph 5;
and
on completion 80% of the Seller's loans to XYZ (including, if the Seller is
Newco, the loans to XYZ by each of Century and UIH) must be repaid in
accordance with the principles referred to in paragraph 11 and the Seller
must release XYZ from any obligation to repay the balance of such loans.
<PAGE>
-34-
SCHEDULE 2 - CALL DATES
<TABLE>
<CAPTION>
Call Date (each shareholder) A$000's
- ---------------------------------------
<S> <C>
8 September 1995 1,330
- ---------------------------------------
2 October 1995 2,619
- ---------------------------------------
1 November 1995 2,619
- ---------------------------------------
1 December 1995 2,619
- ---------------------------------------
1995 TOTAL 9,187
- ---------------------------------------
1 January 1996 1,262
- ---------------------------------------
1 February 1996 1,262
- ---------------------------------------
1 March 1996 1,262
- ---------------------------------------
1 April 1996 1,262
- ---------------------------------------
1 May 1996 1,262
- ---------------------------------------
1 June 1996 1,262
- ---------------------------------------
1 July 1996 842
- ---------------------------------------
1 August 1996 842
- ---------------------------------------
1 September 1996 842
- ---------------------------------------
1 October 1996 842
- ---------------------------------------
1 November 1996 842
- ---------------------------------------
1 December 1996 842
- ---------------------------------------
1996 TOTAL 12,624
- ---------------------------------------
1 January 1997 228
- ---------------------------------------
1 February 1997 228
- ---------------------------------------
1 March 1997 228
- ---------------------------------------
1 April 1997 228
- ---------------------------------------
1 May 1997 228
- ---------------------------------------
1 June 1997 228
- ---------------------------------------
1997 TOTAL 1,368
- ---------------------------------------
TOTAL 23,179
- ---------------------------------------
</TABLE>
<PAGE>
-35-
SCHEDULE 3
Redundant Equipment and Facilities
<TABLE>
<CAPTION>
Rack Area
---------
<S> <C> <C>
MBF Rack Extended (3) $ 5,400
Louth Server & Software $76,500
Back Up Server $41,500
Change Over Panel $ 5,500
VDU and Keyboard/Trackball $ 1,600
Sony 4 Pack Monitor (2) $ 6,200
Ten XL Switcher (2) $ 6,000
Emergency Switcher (2) $ 5,000
DA Frame and PSU (2) $ 1,670
VDAs (4 per service) (8) $ 3,156
ADAs (7 per service) (14) $ 5,252
Aphex Dominator (2) $ 6,700
Aphex Compellor (2) $ 6,700
Orban Stereo Simulator (2) $11,440
VITs Inserter (2) $24,000
Chyron Codi (6) $48,000
Down Stream Keyer (6) $39,600
Database Computer Rack Mount $ 2,770
VDU and Keyboard/Trackball $ 1,600
CVR-45 Standards Convertor (2) $55,600
Audio Delay (2) $ 3,000
Proc Amp (2) $20,000
DA Frame and PSU (1) $ 835
VDAs (6) $ 2,367
ADAs (6) $ 2,251
Video Patch Panels (3) $ 1,320
Video U Links (60) $ 1,680
Audio Patch Panels (6) $ 8,352
32 x 1 Monitor Switcher V.2A $ 5,870
Switcher Frame and PSU $ 835
4 x 1 O/P Switcher V.2A (2) $ 2,030
$402,728
Work Station
------------
Work Station Computer Rack Mount (2) $ 5,540
</TABLE>
<PAGE>
-36-
<TABLE>
<CAPTION>
<S> <C>
VDU and Keyboard/Trackball (2) $ 1,600
Workstation Software $ 9,805
Sony 4 Pack Monitor (2) $ 6,200
BT100Y Video Monitors (3 per service) (6) $11,400
1450 Video Monitor (2) $ 4,800
Wohler Audio Monitor (2) $ 5,000
VU Display (2) $ 2,000
Cooper Audio Mixer (2) $ 9,000
CD Player (2) $12,000
Louth Control Panel (2) $11,250
Reduced Height Rack (2) $ 1,500
Computer Rack Mount $ 2,770
VUD and Keyboard/Trackball $ 835
Codi Hub and Software $15,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$98,700
Odetics tcs 90 No Machines $410,000 $410,000
No profile
</TABLE>
<TABLE>
<CAPTION>
Tape Preparation
----------------
<S> <C> <C>
Turbo Tape Computer Rack Mount $ 2,770
VDU and Keyboard/Trackball $ 1,600
Turbo Tape Software $21,575
Composite Decoder $10,000
1450 Picture Monitor $ 2,400
Epson Printer $ 700
TOTAL $39,045
Installation
------------
Electrical $10,000
Cable $20,000
Connectors $20,000
Labour $15,000
Video Isolators (20) $ 8,940
$73,940
GRAND TOTAL $1,024,413
</TABLE>
<PAGE>
EXHIBIT 10.17
NEWCO SHAREHOLDERS DEED
PARTIES
CENTURY COMMUNICATIONS CORP
CENTURY PROGRAMMING VENTURES CORP
UNITED INTERNATIONAL HOLDINGS INC.
UIH AUSTRALIA PROGRAMMING INC.
AND
CENTURY UNITED PROGRAMMING VENTURES
PTY LIMITED
(`Newco)
DATED
30/6/95
TRESS COCKS & MADDOX
Solicitors & Notaries
Level 20
135 King Street
SYDNEY NSW 2000
DX 123 SYDNEY
Tel: (02) 221.2744
Fax: (02) 221.4988
Ref: AJS
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
DEFINITIONS AND INTERPRETATIONS............................................. 2
Interpretation......................................................... 3
PURPOSE..................................................................... 4
INITIAL SUBSCRIPTION........................................................ 5
SALE AND PURCHASE........................................................... 5
COMPLETION.................................................................. 6
CLOSURE OF JOINT VENTURE AGREEMENT.......................................... 7
FUNDING PRINCIPLES.......................................................... 8
MANAGEMENT OF Newco......................................................... 9
Board of Directors..................................................... 9
Management............................................................. 10
Employees.............................................................. 10
Sharing of Profits..................................................... 11
Articles of Association................................................ 11
TERM AND TERRITORY.......................................................... 11
CONFIDENTIALITY............................................................. 12
TERMINATION................................................................. 12
GUARANTEE BY UIH Inc........................................................ 13
GUARANTEE BY CCC............................................................ 14
GENERAL..................................................................... 16
SCHEDULE 1: SALE OF SHARES................................................. 20
SCHEDULE 2: ADDRESSES..............................Error Bookmark not defined.
EXHIBIT 1................................................................... 24
<PAGE>
THIS DEED dated 30 June 1995
PARTIES CENTURY COMMUNICATIONS CORP, a Texas corporation, of 50 Locust Avenue,
New Canaan, Connecticut, U.S.A. 06840 (`CCC');
CENTURY PROGRAMMING VENTURES CORP. a Nevada corporation, c/- 50
Locust Avenue, New Canaan, Connecticut, USA 06840 (`Century');
UNITED INTERNATIONAL HOLDINGS INC a company incorporated in the State
of Delaware and having its office at 4643 South Ulster Street, Denver,
Colorado, USA (`UIH Inc')
UIH AUSTRALIA PROGRAMMING INC. a company incorporated under the laws
of the State of Colorado, USA, of 4643 South Ulster Street, Denver,
Colorado, USA (`UIH Australia'); and
CENTURY UNITED PROGRAMMING VENTURES PTY LIMITED (A.C.N. 069 957 759) of
Level 2, 100 Harris Street, Pyrmont, NSW, 2009 (`Newco').
INTRODUCTION
A. Century and UIH Australia are shareholders of XYZ and Newco.
B. Each of Century and UIH Australia has agreed to sell their shares in XYZ to
Newco in consideration for the issue to them of that number of shares in
Newco shown opposite their respective names in clause 4.1.
C. XYZ is engaged in the business of developing, packaging and licensing
program services or channels for the purposes of subscription television
broadcasting.
D. Foxtel proposes to enter into the Joint Venture Agreement with, amongst
others, Newco, for the development and production of channels by XYZ.
E. This Deed establishes certain rights and obligations between Century and
UIH Australia in respect of Newco and XYZ.
<PAGE>
-2-
IT IS AGREED
1. DEFINITIONS AND INTERPRETATIONS
1.1 In this Deed all words have the meaning referred to in the Joint Venture
Agreement unless defined below, and unless the context otherwise requires:
`A$' or `Australian dollars' means the lawful currency of the Commonwealth
of Australia;
`Board' means the board of directors of Newco;
`Closure' means closure of the Joint Venture Agreement;
`Completion' means the completion of the sale and purchase of the XYZ
Shares as provided in Clause 6;
`Completion Date' means the day on which Completion takes place;
`Financial Year' means each period of 12 months ending on 30 June;
`Further Ventures Agreed Terms' means the document entitled `Agreed Terms'
between CCC, Century, UIH Inc. and UIH Australia entered into on or about
the date of this Agreement and attached as Exhibit 1 and the long form of
such agreement to be entered into in accordance with the Agreed Terms;
`Foxtel' means Foxtel Management Pty Limited (ACN 068 671 938) of Level 5,
182 George Street, Sydney as agent for the Foxtel Partnership;
`Joint Venture Agreement' means the heads of agreement for joint venture
entered into between Newco, Foxtel and others on or before the date of this
Deed in relation to the development and production of channels by XYZ and
agreements ancillary to that agreement including this Deed;
`Memorandum of Intent' means the agreement between CCC and UIH Inc. dated
13 October 1994 in respect of the establishment of XYZ;
`Securities' has the same meaning given to that term in the Joint Venture
Agreement and includes Shares;
`Shareholder' means Century and UIH Australia and any other person who may
subsequently Acquire Securities;
<PAGE>
-3-
`Share' means a fully paid ordinary share of A$1.00 par in the capital of
Newco from time to time;
`Territory' has the meaning given to it in clause 10.2;
`XYZ' means XYZ Entertainment Pty Limited (ACN 066 812 119) of Level 2, 100
Harris Street, Pyrmont, NSW 2009; and
`XYZ Shares' means the shares in XYZ held respectively by Century and UIH
Australia.
1.2 Interpretation
In this Deed, unless the context otherwise requires:
(a) headings and underlinings are for convenience only and do not affect
the interpretation of this Deed;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) other parts of speech and grammatical forms of a word or phrase
defined in this Deed have a corresponding meaning;
(e) an expression importing a natural person includes any company,
partnership, joint venture, association, corporation or other body
corporate and any Governmental Agency;
(f) a reference to any thing includes a part of that thing;
(g) a reference to a part, clause, party, annexure, exhibit or schedule is
a reference to a part and clause of, and a party, annexure, exhibit
and schedule to, this Deed and a reference to this Deed includes any
annexure, exhibit and schedule;
(h) a reference to any statute, regulation, proclamation, ordinance or by-
law includes all statutes, regulations, proclamations, ordinances or
by-laws amending, consolidating or replacing them, and a reference to
a statute includes all regulations, proclamations, ordinances and by-
laws issued under that statute;
(i) a reference to a document includes an amendment or supplement to, or
replacement or novation of, that document;
<PAGE>
-4-
(j) a reference to a party to a document includes that party's successors
and permitted assigns;
(k) where the day on or by which any thing is to be done is not a Business
Day, that thing must be done or by the preceding Business Day;
(l) no rule of construction applies to the disadvantage of a party because
that party was responsible for the preparation of this Deed or any
part of it;
(m) where a defined term includes two or more persons, a covenant or
agreement on the part of those two or more persons binds them jointly
and severally;
(n) a reference to any of the terms `include', `includes' and `including'
is deemed to mean `include', `includes', or `including' (as the case
may be) without limitation;
(o) a reference to an agreement other than this Deed includes an
undertaking, agreement or legally enforceable arrangement or
understanding whether or not in writing;
(p) a reference to an asset includes all property of any nature,
including, but not limited to, a business, and all rights, revenues
and benefits;
(q) a reference to a document includes any agreement in writing, or any
certificate notice, instrument or other document of any kind.
1.3 Each party will ensure that its Affiliates comply with any relevant terms
of this Deed. Nothing in this clause relieves any party executing this Deed
from its primary obligation to perform this Deed in accordance with its
terms.
1.4 Each party hereto warrants to the other parties, on behalf of itself only,
that it has full power and authority and has taken all necessary corporate
and other action to enable it to enter into this Deed.
2. PURPOSE
2.1 The purposes of this Deed are:
(a) to provide for the acquisition by Newco of the XYZ Shares from Century
and UIH Australia in exchange for Shares in Newco; and
<PAGE>
-5-
(b) to set out the parties respective rights and responsibilities in
relation to the funding and management of Newco.
2.2 This Deed supersedes the Memorandum of Intent and CCC, Century, UIH Inc.
and UIH Australia:
(a) release each other from all claims arising on or prior to the date of
this Deed or in connection with the Memorandum of Intent or in
connection with the XYZ Group and any other arrangements between them
in relation to the production of channels; and that Memorandum or the
XYZ Group arising on or prior to the date of this Deed; and
(b) acknowledge that they have no obligations or rights in relation to
each other, after the date of this Deed except as contained in this
Deed, the Further Ventures Agreed Terms and, subject to Closure, the
Joint Venture Agreement.
3. INITIAL SUBSCRIPTION
Century and UIH Australia acknowledge that prior to the date of this Deed,
each of them have subscribed for one share of $1.00 each in the capital of
Newco.
4. SALE AND PURCHASE
4.1 Century and UIH Australia each hereby agree to sell to Newco and Newco
hereby agrees to buy from each of Century and UIH Australia the XYZ Shares
in consideration for the issue to Century and UIH Australia of the
following number of Shares in Newco (`the Rollover Shares'):
Shareholder Rollover Shares
Century 1
UIH Australia 1
4.2 Each of Century and UIH Australia warrant to Newco that:
(a) the XYZ Shares constitute the whole of the issued securities (debt and
equity, including options for debt or equity) in XYZ;
(b) on transfer, the XYZ Shares respectively owned by them are
unencumbered;
<PAGE>
-6-
(c) each is entitled to and competent to sell and transfer the XYZ Shares
respectively owned by them pursuant to the articles of association of
XYZ; and
(d) prior to Completion, it shall not assign or create any charge or other
security interest over or in the whole or any part of its interest in
the XYZ Shares respectively owned by them.
5. CONDITIONS PRECEDENT
5.1 The obligations of the parties to complete the sale and purchase of the XYZ
shares are subject to and do no become binding until the earlier of:
(a) the parties obtaining the unconditional approval of the Australian
Treasurer, or the Treasurer indicating to Newco that there is no
objection to the acquisition by Newco of the XYZ Shares; or
(b) the expiration of the relevant period following the giving of notice
under the Section of the Foreign Acquisitions and Takeovers Act 1975
without any order or prohibition being made under any other section of
that Act.
5.2 If the condition set above is not fulfilled within 40 days of the date of
notice to the Treasurer under 5.1 (or such other time as the parties may
agree) then the obligations of the parties under clauses 4 and 6 of this
Deed are terminated, whereupon:
(a) clauses 4 and 6 of this Deed shall be deemed to be rescinded ab initio
and of no further force or effect and shall be severed from this Deed;
and
(b) the parties shall negotiate in good faith to agree on a new venture or
structure (with the same or equivalent protections, benefits and
participations) to hold their respective interests in XYZ to enable
them to complete, with Foxtel, the purpose of the Joint Venture
Agreement.
5.3 The parties must use their respective best endeavours to ensure that the
condition referred to in clause 5.1 is satisfied by the date specified in
clause 5.2.
6. COMPLETION
6.1 Completion shall take place 2 Business Days after fulfilment of the
condition referred to in clause 5.1.
<PAGE>
-7-
6.2 On the Completion Date:
(a) Century and UIH Australia must each deliver to Newco a properly
executed and registrable transfer in respect of the XYZ Shares
respectively held by them in favour of Newco together with the
relative script;
(b) Century and UIH Australia will procure and cause a directors meeting
of XYZ to be held at which the registration of the share transfers to
Newco shall, subject to payment of any stamp duty, be approved; and
(c) Newco must resolve to issue to each of Century and UIH Australia the
Rollover Shares specified in clause 4.1.
7. CLOSURE OF JOINT VENTURE AGREEMENT
7.1 It is the intention of the parties that after Closure of the Joint Venture
Agreement Newco will:
(a) hold 50% of the issued share capital in XYZ;
(b) perform, and will procure XYZ to perform, the Joint Venture Agreement
and any other agreement referred to in the Joint Venture Agreement and
to which Newco is a party (including the Newco Personnel Agreement and
the Management Agreement) in accordance with the Master Business Plan
and the XYZ budget; and
(c) provide personal and/or management services to other parties in
accordance with the Further Ventures Agreed Terms.
7.2 Century and UIH Australia undertake to use their best endeavours to procure
Newco's compliance with its obligations under the Joint Venture Agreement.
7.3 If Closure does not occur, the parties acknowledge that:
(a) Newco will own 100% of the issued capital of XYZ;
(b) XYZ's business will be limited to the development of the Licence A
Package which is to be supplied to CCPTV in accordance with the terms
of the Channel Supply Agreement; and
(c) notwithstanding clause 2.2(b) the parties' relationship will be
governed only by this Deed and the Further Ventures Agreed Terms.
<PAGE>
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8. FUNDING PRINCIPLES
8.1 All parties agree, subject to any Master Business Plan:
(a) capital or funding required by Newco to meet its obligations under any
Master Business Plan or in accordance with any resolution of the Board
of XYZ shall be contributed equally or in such adjusted percentages as
result from the operation of clause 8.1( d) by Century and UIH
Australia in the same character (eg. debt or Securities) and in the
same manner and on or by the Call Date referred to in clause 4.2A of
the Joint Venture Agreement;
(b) neither Century nor UIH Australia may require repayment by Newco of
any loans to Newco or redemption of any Securities in Newco without
the prior written consent of the other;
(c) Newco may only repay any loan to either Century or UIH Australia or
redeem any Securities if it also repays or redeems (as the case may
be) an equal amount at the same time to the other (or an amount that
is proportionate to their interest in Securities in Newco if clause
8.1(d) applies);
(d) if either Century or UIH Australia (in either instance a `Non-
Contributor') fails to contribute capital or funding to Newco required
to enable Newco to meet its obligations referred to in Clause 8.1(a)
prior to 7 days after the Call Date as defined in the Joint Venture
Agreement (time of the essence) then:
(i) the other (`the Contributor') may contribute all capital or
funding required by Newco to enable Newco to comply with its
obligations to XYZ and shall give the Non-Contributor a notice
under this clause of its contribution, and
(ii) the Non-Contributor shall have 30 days (time of the essence) from
the Call Date to contribute its share of the capital or funding
and if it makes such contribution within that time then:
(A) Newco shall immediately reimburse to the Contributor an
amount equal to the Non-Contributor's contribution; and
(B) the Non-Contributor shall at the same time pay directly to
the Contributor interest on that amount at 1.5% above the
Contributor's bank's base rate for the period from the Call
Date to the date of contribution under Clause 8.1(d)(ii); and
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(iii) If the Non-Contributor fails to contribute its capital or
funding within 30 days (time of the essence) of the Call Date
then the Non-Contributor's interest in Securities of Newco
shall be diluted to a percentage of the total Securities of
Newco then on issue. That percentage is determined as follows
(in each case as at the Call Date):
A + B
P = ------ x 100%
C + D
P = the percentage.
A = the total of all amounts paid up by the Non-Contributor on
all Securities held by it in Newco.
B = the total of all amounts on loan to Newco by the
Non-Contributor.
C = the total of all amounts paid up by Century and UIH
Australia on all Securities held by them in Newco.
D = the total of all amounts on loan to Newco by Century and
UIH Australia.
8.2 If, from time to time, either Century or UIH Australia's interest in
Securities in Newco is less than 35%, then the relevant party shall not be
entitled to representation on the Board and shall cease to have any rights
under Clause 9.
8.3 The procedures for effecting the dilution of Securities referred to in
Clause 8.1(d) shall be identical mutatis mutandis to the procedures for
dilution of Securities to be agreed in the XYZ Shareholder's Agreement.
9. MANAGEMENT OF NEWCO
9.1 Board of Directors
(a) The Board will consist of 4 directors.
(b) Subject to Clause 8.2, each of Century and UIH Australia has the right
to appoint 2 directors.
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(c) A quorum for a Board meeting is 2 of which 1 must be a director
appointed by Century, and the other must be a director appointed by
UIH Australia.
(d) Each party will have the right to appoint their nominee as Chairman of
the Board in each alternate financial year.
(e) The Chairman shall not have a casting vote.
(f) The first Chairman of the Board shall be nominated by Century.
(g) A decision of the Board requires a unanimous vote which must include
an affirmative vote from a representative of each of Century and UIH
Australia.
(h) Each of Century and UIH Australia shall have only one vote on each
resolution or matter at a meeting of the Board, despite the number of
members of the Board at any time appointed respectively by them.
(i) Century and UIH agree that each of them will have the right to appoint
half of Newco's directors to the Board of XYZ which will be not less
than 1 for each of Century and UIH (the appointees to be Newco
directors).
(j) Newco's Board must agree (in accordance with this Clause 9.1) on the
manner in which Newco's vote on the Board of XYZ is to be exercised
and Newco's representatives on the Board of XYZ must comply with the
resolution of Newco's Board and must not vote at any meeting of the
Board of XYZ unless Newco's Board has resolved the manner in which the
vote is to be exercised.
9.2 Management
Unless otherwise required by this Deed, the day to day management and all
key decisions of Newco shall be the responsibility of its Board and unless
otherwise agreed or authorised by the Board all formal documents must be
signed by 2 directors (one from Century and one from UIH Australia).
9.3 Employees
(a) On the date of this Deed, Newco will:
<PAGE>
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(i) procure XYZ to terminate the employment of its key management
personnel of XYZ, being those persons identified in Schedule 1 of
the Newco Personnel Agreement; and
(ii) offer employment to those persons on terms and conditions
identical to those on which they were employed by XYZ;
(b) On and after Closure of the Joint Venture Agreement Newco will offer
employment to any other person whose employment the parties consider
is necessary to enable Newco to meet its obligations under the Newco
Personnel Agreement.
(c) The parties will not during the term of this Deed, and for 2 years
following termination of this Deed, solicit, canvass, induce or
encourage any employee or agent of Newco to leave the employment or
agency of Newco or within 2 years of any such person ceasing
employment (for any reason) employ such person.
9.4 Use of Employees under Further Ventures
At the request of Century, Newco's employees will be made available to
third parties in accordance with the Further Ventures Agreed Terms.
9.5 Sharing of Profits
Century and UIH Australia shall be entitled to share in and receive any
distributions of profits of Newco in proportion to the Securities held.
9.6 Articles of Association
The parties undertake to make any and all changes necessary to the Articles
of Association of Newco to reflect the provisions of this Deed.
10. TERM AND TERRITORY
10.1 This Deed may only be terminated by the express written consent of all
parties or as contemplated in clause 12.1.
10.2 This Deed relates to Australia, its territories and possessions. All
obligations under this Deed are to be performed in that territory.
10.3 Either Century or UIH Australia may issue a Sale Notice to the other in
accordance with the procedures set out in Schedule 1 at any time but
paragraph
<PAGE>
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12 of Schedule 1 shall have no application until 5 years after
the date of this Agreement.
11. CONFIDENTIALITY
11.1 Each party must keep confidential and must not disclose confidential
information disclosed to it by any of the other parties for the purposes
of, or in relation to, this Deed. Each party must only use another
parties' confidential information solely for the purposes of this Deed.
This clause does not apply to any information which was obtained
independently.
11.2 A party (`first party') may disclose the confidential information of
another party only to those employees and advisers of the first party or
its Affiliates who:
(a) have a need to know (and only to the extent that each has a need to
know);
(b) have agreed to keep that information confidential.
11.3 There will be no disclosure or public announcement made, procured or
authorised by any party concerning the matters contemplated by this Deed
without the other parties' prior written consent (including in relation to
the nature, context and content of any such announcement), except that a
party will be entitled to make any disclosure required by law, any
Governmental Agency or by the rules of any relevant stock exchange,
subject to that party first obtaining the other parties written consent to
the nature, context or content of any such disclosure, which the other
party must give within sufficient time to enable compliance with the law
or the rules.
12. TERMINATION
12.1 Each of Century and UIH Australia acknowledges that the other shall be
entitled to terminate this Deed in any of the following eventualities:
(a) if the other party is in breach of any material term or provision of
this Deed and such breach is not remedied within 90 days of receiving
notice to do so; or
(b) if it shall effect an arrangement or composition of creditors or
shall cease to carry on business or if a liquidator or receiver,
administrator or manager is appointed over it or a substantial part
of its assets.
<PAGE>
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12.2 In the event that this Deed is terminated by any party under Clause 12.1,
the other party shall be deemed to have issued a Sale Notice on the date
of such termination as defined and for the purposes envisaged in Schedule
1, (but paragraph 12 of the Schedule shall have no application).
13. GUARANTEE BY UIH Inc.
13.1 UIH Inc guarantees to CCC and Century full and punctual performance of the
obligations (including the obligations to pay money), warranties,
representations, undertakings and indemnities of UIH Australia under and
in relation to each and all of:
(a) this Deed; and
(b) the Further Ventures Agreed Terms; and
(c) any agreements, arrangements or understandings consequent upon those
documents,
(all of which are referred to as `the Transaction Documents').
13.2 UIH Inc agrees that the provisions of this clause 13 in so far as they
constitute monetary obligations constitute a guarantee of payment when due
and not collection.
13.3 The obligations of UIH Inc pursuant to this clause 13 shall not be
prejudiced by prior enforcement or release or waiver whether by the other
or any other party of any other collateral or other right or security
(including, without limitation, any rights under the Transaction
Documents).
13.4 As a separate and independent covenant, if UIH Australia is in breach of
any of the Transaction Documents, UIH Inc. undertakes to promptly perform
or to promptly procure the performance of those Transaction Documents
after written demand from CCC or Century and shall indemnify and keep
indemnified each of CCC and Century severally against any loss, damage,
claim or expense suffered or incurred by them (as the case may be) arising
out of or in connection with that breach by UIH Australia of any
Transaction Document.
13.5 This clause 13 shall be a continuing guarantee and indemnity and shall
remain in full force and effect notwithstanding termination of this Deed
until discharge of all of UIH Australia's obligations.
13.6 The obligations of UIH Inc pursuant to this clause 13 shall not be
affected by:
<PAGE>
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(a) the granting of time of other indulgence to UIH Australia or any
other party to any of the Transaction Documents;
(b) the compounding compromise relief abandonment waiver or variation of
any of the rights of CCC or Century, unless in writing and expressed
to waive this guarantee;
(c) the failure of CCC or Century to give notice;
(d) the obtaining by CCC or Century of a judgment against UIH Australia;
(e) any rescission, waiver, amendment or modification of any of the
Transaction Documents;
(f) any legal limitation, disability or other circumstance relating to
CCC or Century.
13.7 The obligations of UIH Inc. under this clause 13 shall be absolute and
unconditional and shall not be subject to any defence of set-off, counter
claim, recoupment or termination whatsoever.
14. GUARANTEE BY CCC.
14.1 CCC guarantees to UIH Inc and UIH Australia the full and punctual
performance of the obligations (including the obligations to pay money),
warranties, representations, undertakings and indemnities of Century under
and in relation to each and all of:
(a) this Deed;
(b) the Further Ventures Agreed Terms; and
(c) any agreements, arrangements or understandings consequent upon those
documents,
(all of which are referred to as `the Transaction Documents').
14.2 CCC agrees that the provisions of this clause 14 in so far as they
constitute monetary obligations constitute a guarantee of payment when due
and not collection.
14.3 The obligations of CCC pursuant to this clause 14 shall not be prejudiced
by prior enforcement or release or waiver whether by the other or any
other party
<PAGE>
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of any other collateral or other right or security (including, without
limitation, any rights under the Transaction Documents).
14.4 As a separate and independent covenant, if Century is in breach of any of
the Transaction Documents, CCC undertakes to promptly perform or to
promptly procure the performance of those Transaction Documents after
written demand from UIH Inc. or UIH Australia and shall indemnify and keep
indemnified UIH Inc. and UIH Australia severally against any loss, damage,
claim or expense suffered or incurred by them (as the case may be) arising
out of or in connection with that breach by Century of any Transaction
Document.
14.5 This clause 14 shall be a continuing guarantee and indemnity and shall
remain in full force and effect notwithstanding termination of this Deed
until discharge of all of Century's obligations.
14.6 The obligations of CCC pursuant to this clause 14 shall not be affected
by:
(a) the granting of time of other indulgence to Century or any other
party to any of the Transaction Documents;
(b) the compounding compromise relief abandonment waiver or variation of
any of the rights of UIH Inc. or UIH Australia, unless in writing and
expressed to waive this guarantee;
(c) the failure of UIH Inc. or UIH Australia to give notice;
(d) the obtaining by UIH Inc. or UIH Australia of a judgment against
Century;
(e) any rescission, waiver, amendment or modification of any of the
Transaction Documents;
(f) any legal limitation, disability or other circumstance relating to
UIH Australia or UIH Inc..
14.7 The obligations of CCC under this clause 14 shall be absolute and
unconditional and shall not be subject to any defence of set-off, counter-
claim, recoupment or termination whatsoever.
<PAGE>
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15. GENERAL
15.1 Each party will provide the information, co-operation and assistance which
any other party reasonably requires to comply with any terms of this Deed,
obtain any consents, approvals or permits required by or as a result of
this Deed.
15.2 All notices, documents and information exchanged between the parties will
be sent by courier or facsimile to the address of such party as set out
and in accordance with the Joint Venture Agreement.
15.3 A party may not assign its rights or obligations under this Deed except in
accordance with Schedule 1.
15.4 This Deed may be executed in a number of counterparts, each of which shall
be taken together, when duly executed by all named parties to the Deed and
from exchange, to constitute a single Deed.
15.5 Any provision of this Deed which is illegal, void or unenforceable by or
contrary to law will be ineffective to the extent only of that illegality,
voidness or unenforceability by or contrariness to law, without
invalidating the remaining provisions of this Deed. In such event, the
parties shall negotiate in good faith a new provision which is not
illegal, void or unenforceable by or contrary to law and which provides,
or would provide the parties, with the same or equivalent benefits and
participation as are provided by the provision which is illegal, void or
unenforceable by or contrary to law.
15.6 Except as otherwise specifically provided in this Deed, each party must
pay its own costs and expenses incidental to this Deed.
15.7 Each party must do all things necessary to give full effect to this Deed
and transactions contemplated by this Deed.
15.8
(a) A waiver, forbearance, abandonment, election or estoppel of, or
affecting:
(1) a term of this Deed (including this clause 15.8);
(2) a right, power, authority, discretion or remedy under this Deed;
(3) a right, power, authority, discretion or remedy created or
arising on a breach of or default under this Deed;
<PAGE>
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(4) the exercise of a right, power, authority, discretion or remedy
referred to in either paragraphs (2) or (3).
must be in writing, or, in the case of estoppel, must be based on a
written statement signed by the party against whom the waiver,
abandonment, election, forbearance or estoppel is claimed.
(b) A failure or delay in the exercise, or a partial exercise, of a
right, power, authority, discretion or remedy referred to in
paragraphs (2) or (3) of clause 15.8(a) is not regarded as either a
waiver, forbearance, abandonment or election or the basis of an
estoppel, of or affecting any thing referred to in clause 15.8(a).
15.9 A variation of any term of this Deed must be in writing and signed by the
parties.
15.10 The powers, rights and remedies of a party under this Deed do not exclude
any other power, right or remedy.
15.11 This Deed is governed by and is to be construed in accordance with the
laws of New South Wales and the parties submit to the non-exclusive
jurisdiction of the courts for that jurisdiction.
EXECUTED as a Deed:
SIGNED for CENTURY )
PROGRAMMING VENTURES )
CORP. by its Attorney in the presence )
of:- )
/s/ Andrew Tow
------------------------------------
Authorised Signatory
/s/ Anthony Serone Andrew Tow
- ----------------------------------- ------------------------------------
Witness Name (please print)
Anthony Serone
- ----------------------------------- ------------------------------------
Name (please print) Position
<PAGE>
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SIGNED for CENTURY )
COMMUNICATIONS CORP. by its )
Attorney in the presence of:- )
/s/ Andrew Tow
------------------------------------
Authorised Signatory
/s/ Anthony Serone Andrew Tow
- ----------------------------------- ------------------------------------
Witness Name (please print)
Anthony Serone
- ----------------------------------- ------------------------------------
Name (please print) Position
SIGNED for UTH AUSTRALIA )
PROGRAMMING, INC. by its )
Attorney in the presence of:- )
/s/ Donald F. Hagans
------------------------------------
Authorised Signatory
/s/ Bernadine Lai Donald F. Hagans
- ----------------------------------- ------------------------------------
Witness Name (please print)
Bernadine Lai Director
- ----------------------------------- ------------------------------------
Name (please print) Position
SIGNED for UNITED )
INTERNATIONAL HOLDINGS )
INC. by its Attorney in the presence )
of:- )
/s/ Donald F. Hagans
------------------------------------
Authorised Signatory
/s/ Bernadine Lai Donald F. Hagans
- ----------------------------------- ------------------------------------
Witness Name (please print)
Bernadine Lai Director
- ----------------------------------- ------------------------------------
Name (please print) Position
<PAGE>
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SIGNED for CENTURY UNITED )
PROGRAMMING, VENTURES )
PTY LIMITED by its Attorney in the )
presence of:- )
/s/ Donald F. Hagans
------------------------------------
Authorised Signatory
/s/ Bernadine Lai Donald F. Hagans
- ----------------------------------- ------------------------------------
Witness Name (please print)
Bernadine Lai Director
- ----------------------------------- ------------------------------------
Name (please print) Position
<PAGE>
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SCHEDULE 1: SALE OF SECURITIES
In this Schedule `Securities' means Securities issued by Newco.
1. Restriction on dealing with Securities
Subject to the other provisions contained in this Schedule:
(a) no Shareholder may transfer or otherwise deal with any of its
Securities or beneficial interest in Securities; and
(b) no Shareholder may transfer or deal in any way with only part of its
holding of Securities and any transfer or dealing must be with all of
the Securities held by that Shareholder.
2. Meaning of Transfer
In this Schedule, `transfer' in relation to Securities includes any
agreement, offer or options to assign, sell, mortgage, charge, pledge or
security, or otherwise dispose of Securities or rights in respect of
Securities or of any beneficial interest in Securities.
3. Exemptions
Paragraph 1 does not apply to a transfer of Securities:
(a) made by a Shareholder to any of its Affiliates provided that the
Affiliate first executes in the Australian Capital Territory and
delivers to the other parties a deed poll in favour of the other
Shareholders in a form approved by all those parties, agreeing to be
bound to this Deed or the terms of the Joint Venture Agreement (as the
case may be) as if it were a party to this Deed or the Joint Venture
Agreement (as the case may be);
(b) made by an Affiliate of a Shareholder to any of the Shareholders'
other Affiliates provided that the other Affiliate first executes in
the Australian Capital Territory and delivers to the other parties a
deed poll in favour of the other Shareholders in a form approved by
all those parties, agreeing to be bound to this Deed or the Joint
Venture Agreement (as the case may be) as if it were a party to this
Deed or the Joint Venture Agreement (as the case may be);
(c) consisting of a mortgage, charge or other security granted to a bank,
acting in the ordinary course of ordinary banking business, where that
<PAGE>
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bank has first executed in the Australian Capital Territory and
delivered to the other parties a deed poll in favour of the parties to
this Deed in a form approved by all those parties, agreeing to be
bound by the provisions of this Deed or the Joint Venture Agreement
(as the case may be) applicable to it and, in particular this
Schedule, as if it were a party to this Deed or the Joint Venture
Agreement (as the case may be);
(d) made in accordance with paragraphs 4 to 14 (inclusive) of this
Schedule; or
(e) made in accordance with or as contemplated by any other provision of
the Deed to which this is a Schedule.
4. Giving Notice
If any Shareholder (the `Seller') wishes to transfer any of its Securities
it must give written notice (`Sale Notice') to the other Shareholders and
the Board setting out particulars of the Securities to be transferred (the
`Sale Securities') and agreeing to sell the Securities at Fair Market Value
unless an exemption in paragraph 3 applies.
5. Fair Market Value
For the purpose of this Deed `Fair Market Value' means the percentage
interest that the Sale Securities represent in the issued Securities of
Newco multiplied by the fair market value of Newco's Securities in XYZ
(`the XYZ Fair Market Value').
The XYZ Fair Market Value is that amount determined by reference to the
following:
(a) within 10 days after receipt of a Sale Notice, the Board of Directors
must nominate 2 duly qualified independent persons (`Valuers') to
provide valuations of Newco's Securities in XYZ (`the XYZ Securities')
and provide to the Valuers the following instructions:
(i) each valuation must, as far as possible, be prepared
independently of the other valuations;
(ii) each valuation must be made of the price at which all of the
XYZ Securities might reasonably be expected to be sold as at
the date of the Sale Notice assuming:
(1) a willing but not anxious buyer and seller;
<PAGE>
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(2) a reasonable period within which to negotiate a sale
having regard to the nature of the XYZ Securities and the
state of the market for Securities of the same kind;
(3) the XYZ Securities are reasonably exposed to the relevant
market;
(4) no account is taken of the value or other advantage or
benefit, additional to market value, to the buyer
incidental to ownership of the XYZ Securities being
valued;
(5) the Shareholder has sufficient resources to allow a
reasonable period for the exposure of the XYZ Securities
for sale;
(6) a goodwill component may (in appropriate circumstances) be
attached to the value of the XYZ Securities; and
(7) the business is a going concern and will continue to be
for the period of this Deed and the rights under this Deed
have not expired or been terminated;
(iii) each valuation must be completed as soon as reasonably
practicable and in any event, within 45 days after instructions
have been given to the Valuer;
(iv) each valuation is to include all Shareholder loans to XYZ (and
loans to XYZ by Century and UIH) as liabilities of XYZ;
(v) if a Valuer requires any additional information, that Valuer
should promptly and in any event within 10 days, request the
information in writing from the Shareholder and the Board of
Directors;
(vi) the Valuers each act as experts not as arbitrators, and their
decision is final and binding on all parties;
(vii) the costs of the Valuers and of Newco or XYZ (if relevant) must
be borne by the Shareholders in proportion to their holding of
Securities;
<PAGE>
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(viii) in all other respects, each Valuer may decide what procedures
are to be followed in order to complete their respective
valuation of the XYZ Securities; and
(b) at all times, the Shareholder must provide all information and
assistance reasonably requested by the Valuers on a timely basis to
enable the Valuers to provide the valuations within the time periods
in this paragraph 5.
(c) Immediately after the Board of Directors obtains valuations of the XYZ
Fair Market Value and informs the Shareholders of the Fair Market
Value, the Seller may (and if it decides not to, then the Seller shall
pay all the costs of the Valuer) give a further Sale Notice to the
other Shareholders in accordance with paragraph 6 in respect of all
its Securities at a price equal to the Fair Market Value, which shall
be the average of the 2 valuations obtained under this paragraph
multiplied by the percentage interest that the Sale Securities
represent in the issued Securities of Newco. If the discrepancy
between the 2 valuations obtained under this paragraph is greater than
20% of the average of the 2 valuations then the Valuers must appoint a
third duly qualified independent person to provide a valuation of the
XYZ Securities under the same instructions as in this paragraph and
the Fair Market Value will be the average of the 2 closest valuations
multiplied by the percentage interest that the Sale Securities
represent in the issued Securities of Newco.
6. Giving Notice
The other Shareholders must respond in writing to the Seller within 7 days
after issue of the further Sale Notice:
(a) accepting the offer of the Sale Securities; or
(b) advising that they do not wish to purchase the Sale Securities,
and any Shareholder failing to give notice is deemed to have advised under
paragraph 6(b) that it does not wish to purchase the Sale Securities.
7. Acceptance of Offer
If any Shareholder accepts the offer in respect of all of the Sale
Securities, then, subject to paragraph 8, the Shareholders accepting the
Offer must purchase and the Seller must sell the Sale Securities and
paragraphs 9 and 10 shall have no force or effect.
<PAGE>
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8. Excess Purchasers
If under this Schedule there are any other Shareholders who wish to
purchase more than the total number of Sale Securities then the Sale
Securities must be shared between those Shareholders as follows:
(a) between the Shareholders in proportion to their respective holdings of
Securities, provided that:
(b) no Shareholder is bound to acquire more Securities than it has
accepted.
9. Third Parties
Subject to paragraph 7, in the 6 month period following the giving of Sale
Notice referred to in clause 4, the Seller may transfer all of the Sale
Securities to any third party for a price not lower than the Fair Market
Value. If and when the Seller reaches agreement with a third party for a
price lower than the Fair Market Value, the Seller must give written notice
to all other Shareholders setting out the terms of the proposed sale.
Those Shareholders then have until the expiration of 7 days after the
giving of the notice to elect to buy the Sale Securities. If any of those
other Shareholders give notice electing to purchase the Sale Securities,
then the Seller must sell and the Shareholders giving notice must purchase
the whole of the Sale Securities.
10. Transfer to Third Parties
Subject to paragraph 7, if under paragraph 9 the Shareholders do not agree
to buy the whole of the Sale Securities, or the sale is for a price not
lower than the Fair Market Value, then the Seller may transfer the whole of
the Sale Securities to the third party on the terms of the agreement,
provided that the third party first executes in the Australian Capital
Territory and delivers to the other parties a deed poll in favour of those
parties in a form approved by all those parties agreeing to be bound by
this Deed and the Joint Venture Agreement as if it were a party to this
Deed and the Joint Venture Agreement.
11. Settlement of Sale
(a) Completion of any sale must be within 30 days after acceptance of the
offer.
(b) On completion the Seller shall be deemed to have transferred with the
Sale Securities all the Seller's right, title and interest in Newco,
the XYZ Group and the Channels to the purchaser of the Sale
Securities.
<PAGE>
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(c) If the Fair Market Value is less than or equal to zero, the Purchaser
must pay the Seller $10.00 in consideration of the sale of the Sale
Securities and procure Newco and XYZ to repay to the Seller in
discharge of the Seller's Loan an amount equal to the aggregate amount
of the Seller's Loans less that amount by which the Fair Market Value
is less than zero. The Seller must release XYZ and Newco from any
obligations to pay the remaining balance of the Seller's Loans.
12. Public Float
This paragraph 12 shall only apply to a Sale Notice issued after the fifth
anniversary of the Agreement. If the Seller is unable in the six month
period referred to in paragraph 9 to achieve a sale in accordance with
paragraphs 9 or 10, then at the Seller's option the Shareholders shall
jointly use their reasonable efforts to achieve a public float of
Securities in Newco and for that purpose shall agree on the appointment of
an underwriter to achieve a float (ie. public listing) of Securities on the
basis of a return (net of commissions and costs) to the Shareholders of not
less than the Fair Market Value of those Securities (`Minimum Return'). If
the underwriter in the underwriting process is able to underwrite the
Minimum Return the Shareholders shall cause those Securities to be floated
on terms and conditions acceptable to the Shareholders (consent not to be
unreasonably withheld). If the underwriter is unable to underwrite, (on
terms acceptable to the Shareholders), the Minimum Return, then the
Shareholders shall engage a second underwriter for the same purpose. If
the second underwriter is able to underwrite (on terms acceptable to the
Shareholders) the Minimum Return the Shareholders shall then cause those
Securities to be floated on terms and conditions acceptable to the
Shareholders (consent not to be unreasonably withheld). If the second
underwriter is unable to underwrite the Minimum Return, then the
Shareholders shall have no obligation to proceed any further with attempts
to float Securities and the Seller shall have exhausted its rights under
this paragraph 12 and this paragraph shall not apply to any Sale Notice
issued by the Seller prior to the expiry of one year after the date of the
report of the second underwriter.
The provisions of this paragraph 12 shall not affect the rights of the
Shareholders in relation to any Securities that are not floated.
13. Nominee
Any Shareholder may appoint a nominee to acquire in its place any Sale
Securities which it is prohibited by law from acquiring, and subject to the
approval of the other Shareholders (such approval not to be unreasonably
withheld) and provided that the nominee first executes in the Australian
Capital
<PAGE>
-26-
Territory and delivers to the other parties a deed poll in favour of those
parties in a form approved by all those parties, agreeing to be bound by
this Deed or the Joint Venture Agreement (as the case may be) as if it were
a party to this Deed or the Joint Venture Agreement (as the case may be)
that nominee has the rights and duties under this Schedule which the
nominating Shareholder would otherwise have had in respect of those Sale
Securities.
14. Time of Essence
Time is of the essence of this Schedule.
15. Multiple Notices
Subject to paragraph 12, any Shareholder may give Sale Notices on more than
one occasion. If, subject to any application of paragraph 12, the Seller
is unable in the six month period referred to in paragraph 9 to achieve a
sale in accordance with paragraphs 9 or 10, then paragraph 1 shall apply.
<PAGE>
-27-
EXHIBIT 1
Further Ventures Agreed Terms
<PAGE>
EXHIBIT 10.23
AUSTRALIS MEDIA LIMITED
(ACN 059 741 178)
AND
CTV PTY LIMITED
(ACN 064 416 128)
FRANCHISE
AGREEMENT
This is the Franchise Agreement
forming Schedule 7 to the
Subscription and Securityholders
Agreement dated 12 October 1994
in relation to CTV.
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS 1
2. CAPACITY OF FRANCHISOR AND FRANCHISEE 9
3. APPOINTMENT OF FRANCHISEE 10
4. APPROVALS 14
5. CONDUCT OF BUSINESS 14
6. REPORTS AND RECORDS 17
7. SERVICE FEE 19
8. EQUIPMENT 22
10. TRAINING 23
11. SUBSCRIBER MANAGEMENT SYSTEM 24
12. BUSINESS NAMES 25
13. COMPLIANCE NOTES 25
14. SERVICE DELIVERY TO FRANCHISEE 26
15. WARRANTIES 27
16. ADVERTISING BY FRANCHISEE 27
17. PROMOTION BY FRANCHISOR 28
18. CONFIDENTIALITY 29
19. FRANCHISOR'S PROPRIETARY RIGHTS 29
20. INSURANCES 31
21. ASSIGNMENT 31
22. CODES OF PRACTICE 32
23. RESOLUTION OF DISPUTES 32
24. RENEWAL OF TERM 33
25. TERMINATION OF AGREEMENT 33
26. RESTRAINT 40
<PAGE>
27. FURTHER ASSURANCE 40
28. INTENTIONALLY DELETED. 40
29. FORCE MAJEURE 40
30. NOTICES 40
31. GOVERNING LAW 41
32. MISCELLANEOUS 41
Schedule 1 - Regions - CTV Pty Limited Northern Franchise
Exhibit 1 - Maps of Regions - CTV Pty Limited Southern Franchise
Schedule 2 - Franchisor's Services
Schedule 3 - Minimum Subscriber Levels
<PAGE>
FRANCHISE AGREEMENT
THIS AGREEMENT is made on the 12th day of October 1994 and takes effect as
from 24 July 1994 between the following parties:
1. AUSTRALIS MEDIA LIMITED (ACN 059 741 178) of 100 Bulwara Road, Pyrmont, NSW
2007 (fax number: (02) 325 7322) (the "Franchisor"); and
2. CTV PTY LIMITED (ACN 064 416 128) of Level 23, 45 Clarence Street, Sydney,
NSW 2000 (fax number: (02) 335 7577) (the "Franchisee").
RECITALS:
A. This Agreement updates and supersedes the agreement dated 24 July 1994 of
the same name and between the same parties as this Agreement and takes
effect as from 24 July 1994.
B. The Australis Group carries on or will carry on the business within
Australia of Transmitting the Franchisor's Services containing the Programs
using the Delivery Systems.
C. The Franchisor has agreed to grant to the Franchisee and the Franchisee has
agreed to accept from the Franchisor an exclusive licence and franchise,
during the Term and in the Regions, to permit and require the Franchisee to
use the Equipment, the Franchisor's Subscriber Management System, the
Franchisor's Proprietary Rights, the Franchisor's Delivery System, the
Franchisor's Services and the Programs in the conduct of the Business on
the terms of this Agreement.
THE PARTIES AGREE as follows:
1. DEFINITIONS
1.1 In this Agreement, unless the context shall otherwise require:
"ACCOUNTING PERIOD" means each calendar quarter;
"ACDC" means the Australian Commercial Disputes Centre Limited or other
body then carrying on the functions of that company;
"ACT" includes any statute and the listing rules of any stock market of any
securities exchange;
"ADVERTISING" means marketing, advertising and promotion of the
Franchisor's Services as envisaged in Clause 16.1;
"ADDITIONAL FIXED FEE" means an additional fixed fee of not less than $1.00
per Subscriber per month calculated on a per Subscriber basis (based in the
case of the Franchisee, on only those Subscribers in respect of which the
Franchisor Subscription Management System is provided, each a "relevant
Subscriber"), equal to the actual cost of operating the Franchisor's
Subscriber Management System plus 10% up to a maximum additional fixed fee
of $4.00 per relevant Subscriber and provided further that the maximum
additional fixed fee is increased for the financial year commencing 1 July
1995 and for each subsequent financial year by the percentage increase in
the Consumer Price Index (All Groups - Sydney) between that published in
respect of the period immediately prior to the commencement of the previous
financial year and that published
<PAGE>
2
in respect of the period immediately prior to the expiry of the previous
financial year; but that in any case the total fee payable by the Franchisee as
an Additional Fixed Fee will not exceed 20% of the total actual cost of
operating the Franchisor's Subscriber Management System plus 10%. In effect, the
computation of the additional fixed fee will be as follows:
(a) total actual cost (plus 10%) / total Subscribers x relevant Subscribers;
(b) qualifications:
(1) the minimum fee of $1.00 and maximum fee of $4 in respect of the first
year will be adjusted annually by the Consumer Price Index;
(2) there will be a maximum fee capped at 20% of total actual cost
(plus 10%).
"AGREED COSTS" means all amounts paid by the Franchisee:
(a) in relation to reception Equipment for supply to Subscribers (excluding the
purchase cost of the Equipment and installation costs);
(b) as depreciation (at the lower of 30% per annum and the highest rate from
time to time permitted for such depreciation under the Income Tax
Assessment Act 1936) of direct purchase costs for the Equipment supplied to
Subscribers (where that Equipment is purchased by the Franchisee);
(c) as any Taxes (but not more than the amounts recovered from Subscribers in
respect of Taxes);
(d) as any direct fees or external costs reasonably incurred by the Franchisee
in relation to the provision of any credit support under clause 7.9;
(e) as any other commercially reasonable and appropriate cost, including sales
commissions, notified by the Franchisee to the Franchisor and in respect of
which the prior written consent of the Franchisor has been obtained.
"AUSTRALIS" means Australis Media Limited (ACN 059 741 178);
"AUSTRALIS GROUP" means the Franchisor and each of its Controlled Entities from
time to time;
"BANK ACCOUNT" means the bank account designated by the Franchisee from time to
time for the purposes of this Agreement;
"BENEFITS" means all discounts, rebates, benefits, subsidies, incentives or
returns;
"BSA" means the Broadcasting Services Act 1992;
"BUSINESS" means the Franchisee's business of providing to subscribers any
Services;
"BUSINESS DAY" means a day when trading banks are open for business in Sydney;
"BUSINESS NAMES" means the business names used from time to time by the
Australis Group which are specified as Business Names by the Franchisor;
"CAST CODE" means the Code of Conduct established from time to time by the
Confederation of Australian Subscription Television;
<PAGE>
3
"COMMENCEMENT DATE", in relation to each Region, means the date on which occurs
the last of each of the following in relation to that Region:
(1) not less than 8 English language subscription television broadcasting
services (being Franchisor's Services) are made available by the Franchisor
to the Franchisee as envisaged in Clause 14.1(a);
(2) means of supply as envisaged in Clause 8 of the Equipment is reasonably
made available to the Franchisee, in sufficient quantities to permit
commencement of the Business in that Region on commercially reasonable
terms; and
(3) the date 6 months after not less than 8 new MDS Licences covering more than
50% of the number of occupied private dwellings within that Region are
issued;
"COMMITTEE" means the technical and services committee to be established as
envisaged in Clause 11A;
"COMPLIANCE NOTES" means guidance notes, instructions or directions prescribed
or specified as envisaged in Clause 13.1;
"CONFIDENTIAL INFORMATION" means any information concerning, relating to or used
in connection with any Services, any Equipment, any Subscriber Management
System, any Delivery System, the Programs, the Software, the business of the
Franchisor or the Business including information of every kind concerning or
relating to customers, suppliers, business transactions, business methods,
accounting and marketing techniques, Transmission of any Services, technical
matters, technology, records, forms, charges, financial affairs, trade secrets
and know-how, other than information which is in the public domain;
"CONTROLLED ENTITIES" means controlled entities and associated or related
companies under the Corporations Law and affiliates;
"COSTS" means when incurred by a party, the actual costs in relation to this
agreement incurred by that party less the value of all Benefits provided to,
received or derived by that party in connection with the act, matter or thing in
respect of which those costs are incurred;
"DELIVERY SYSTEM" means any facilities, systems or technology now existing or
developed after the date of this Agreement for the Transmission of any Services
including satellite, MDS, co-axial cable or fibre optic systems and including
any facilities for originating, compressing, encrypting, Transmitting or
repeating Transmissions;
"DERIVED" has the meaning given to it for the purposes of the Income Tax
Assessment Act 1936;
"EQUIPMENT" means the subscriber reception equipment specified from time to time
by the Franchisor after due consultation with the Franchisee including any
replacement subscriber reception equipment determined to be reasonably required
due to changes in available technology or because specified equipment is not
reasonably available;
"FORCE MAJEURE" means a circumstance beyond the reasonable control of a party
which occurs without the fault or negligence of the party affected and includes
civil disturbance or commotion, strikes, acts of God, war, blockade, revolution,
riot, earthquake, flood, storm, tempest, other natural calamities, technology or
equipment failure or malfunction, prolonged atmospheric interference with
Transmission, non-performance of any
<PAGE>
4
obligation by any third party and legal or governmental enactment, order,
requirement or regulation;
"FRANCHISEE APPROVALS" means any licences, registrations, approvals or other
requirements necessary or desirable (including from any governmental agency or
under any Act) in order to enable the Franchisee to act as a licensee and
franchisee of the Franchisor, to use any relevant Delivery System, to provide
the Franchisor's Services to Subscribers and to carry on the Business, during
the Term and in the Regions;
"FRANCHISEE GROUP" means the Franchisee and any of its subsidiaries from time to
time (it being understood that this does not include Controlled Entities);
"FRANCHISEE INFORMATION" means any Confidential Information created by or for
and belonging to the Franchisee including any information provided to the
Franchisor by the Franchisee pursuant to Clause 6 and including all information
relating to any Subscriber;
"FRANCHISEE REPORT" means the monthly report envisaged in Clause 6.2;
"FRANCHISOR APPROVALS" means any licences, registrations, approvals or other
requirements necessary or desirable (including from any governmental agency or
under any Act) in order to enable the Franchisor to use the Franchisor's
Delivery System and to provide the Franchisor's Services and the Programs,
during the Term and in the Regions;
"FRANCHISOR'S DELIVERY SYSTEM" means any Delivery System owned by, licensed to
or used by the Australis Group at any time during the Term for the Transmission
of the Franchisor's Services for access in the Regions;
"FRANCHISOR'S PROPRIETARY RIGHTS" includes:
(a) the Trade Marks;
(b) Confidential Information other than the Franchisee Information;
(c) the Business Names;
(d) copyright and other industrial and intellectual property rights in all
materials (including marketing materials) supplied by the Franchisor to the
Franchisee for or in connection with the Business;
(e) the Compliance Notes; and
(f) subject to this Agreement, any and all other rights, titles or interests
owned by, licensed to or used by the Australis Group in respect of the
Equipment, the Franchisor's Subscriber Management System, the Franchisor's
Delivery System, the Software, the Program Guide, the Franchisor's Services
and the Programs;
"FRANCHISOR'S SERVICES" means, subject to Clause 3.10, the Services to be
Transmitted by or through the Australis Group during the Term as specified in
Schedule Two, together with any additional Services which are agreed to be
Franchisor's Services from time to time;
"FRANCHISOR'S SUBSCRIBER MANAGEMENT SYSTEM" means any Subscriber Management
System owned by, or licensed to be used by, the Australis Group for or in
connection with the Franchisor's Services in respect of past, present and
prospective subscribers;
"FURTHER TERM" means any further term for this Agreement as envisaged in Clause
24;
"GOVERNMENTAL AGENCY" includes all governments and municipal councils, together
with all governmental, quasi-governmental, council or regulatory ministries,
departments,
<PAGE>
5
bodies, agencies, instrumentalities, enterprises and authorities, including the
Australian Broadcasting Authority, the Trade Practices Commission and the
Australian Stock Exchange Limited;
"GROUP PROMOTION SERVICE" means the marketing, advertising and promotion service
envisaged in Clause 17.1;
"GROSS REVENUES" means all amounts derived by the Franchisee as Subscription
Fees (but, for the avoidance of doubt, this does not apply to equipment);
"INITIAL PERIOD" means, in relation to each Region, the period of 4 (four) years
from the Commencement Date in respect of that Region;
"INSURANCES" means the necessary and prudent insurances envisaged in Clause
20.1(a);
"MDS" means microwave multipoint distribution systems regulated under the Radcom
Act;
"MDS LICENCES" means licences for the operation of MDS Transmitters issued by
the Spectrum Management Agency under the Radcom Act;
"MINIMUM SUBSCRIBER LEVEL" means, in relation to each Region, the number from
time to time equal to the percentage specified in Schedule Three by Region of
occupied private dwellings within the Region to which the Franchisor's Services
can be provided by use of satellite, MDS or any other existing means of delivery
available to the Franchisee, without any material technical impairment;
"NET REVENUES", in an Accounting Period, means Gross Revenues less Agreed Costs;
"NOMINATED CUSTOMERS" means up to 10 persons nominated from time to time by the
Franchisee in each Region, to which the Franchisor's Services may be provided
free of charge;
"OTHER AGREED FEES" means the following costs:
(a) where an amount is incurred or derived by the Australis Group as a direct
Cost arising out of or in connection with the Transmission of Franchisor's
Services to Subscribers, which is of a nature over and above those costs
normally related with the activities of the Franchisor (such as telephone
charges incurred in the performance of designated activities such as
customer retention activities, bank and government fees and charges,
postage and stationery costs, locked bag costs, direct debit, credit card
and other collection charges, cheque dishonour fees and the like), the
amount of that Cost for the Australis Group servicing the relevant
Subscribers over and above the cost for the Australis Group servicing all
subscribers as calculated in accordance with generally accepted Australian
accounting principles;
(b) the Additional Fixed Fee; and
(c) any other amount incurred or derived by the Australis Group which is
notified in advance by the Franchisor to the Franchisee and in respect of
which the prior written consent of the Franchisee which shall not be
unreasonably withheld has been obtained (provided that if the Franchisee
does not give its consent in respect of the expenditure of any such amount
the Franchisor shall be relieved of its obligations under this Agreement to
make such expenditure);
"PREFERRED CUSTOMERS" means the persons nominated by the Franchisee in each
Region with the prior written consent of the Franchisor which shall not be
unreasonably
<PAGE>
6
withheld, to which the Franchisor's Services may be provided at a discount to
the Recommended Subscription Fee as prescribed by the Franchisor;
"PROGRAM FEES" means, in Clause 7.1, in respect of all Costs (including any
residuals) incurred in respect of any Accounting Period by the Australis Group
pursuant to agreements negotiated at arms length in respect of the licence to
the Australis Group of the rights to supply the Programs in Australia by means
of the Franchisor's Delivery System to subscribers, the proportion that the
number of Subscribers bears to the total number of subscribers including the
Subscribers to each of the Franchisor's Services throughout Australia
(regardless of whether such Franchisor Services are offered as part of a package
of Franchisor Services or are offered alone to subscribers), calculated at the
end of each Accounting Period and calculated on a Service by Service basis (it
is understood that the Franchisee will be consulted in relation to the
negotiation of the Program Fees);
"PROGRAM GUIDE" means the program guide envisaged in Clause 16.6
"PROGRAMS" means the programming, programs and content included in the
Franchisor's Services including cinematograph films and sound recording;
"RADCOM ACT" means the Radiocommunications Act 1992;
"RECOMMENDED SUBSCRIPTION FEE" means the amount recommended by the Franchisor to
be charged in each Region by the Franchisee to Subscribers in respect of the
reception of the Franchisor's Services and the lease, rental or provision of any
Equipment (except replacement equipment, where applicable). The Franchisor may
not recommend such an amount or variation to such an amount more than once in
any 6 month period, without the prior written consent of the Franchisee. Subject
to the law, the Recommended Subscription Fee may not be greater than the lowest
subscription fee charged by Australis or any franchisee of Australis it being
understood that special pricing may occur in specific regions for limited
periods. It is understood further that such special pricing will not affect the
determination of the "lowest subscription fee to be charged", so long as the
Franchisee is notified in writing of such special pricing on a timely basis;
"REGION" means each of the areas described in Schedule 1 and depicted in the
maps attached as Exhibit 1;
"SECURITIES" has the meaning given to it in the Corporations Law;
"SERVICES" means:
(a) broadcasting services;
(b) services providing data or text;
(c) services providing telecommunications;
(d) services that make programs available on demand on a point-to-point basis
including a dial-up service;
(e) services providing the Programs (other than the services referred to in
(a), (d), (f), (g) and (h));
(f) interactive services;
(g) pay-per-view services; and
<PAGE>
7
(h) any other services or programming made available by the Franchisor or the
Franchisee to any subscribers on any Delivery System (not otherwise
referred to in (a) to (g) above);
"SERVICE FEE" means the monthly fee envisaged in Clause 7.1;
"SOFTWARE" means the computer software designated by the Franchisor as the
software for the Franchisor's Subscriber Management System, together with any
materials, manuals, operating releases or other associated or additional
information;
"SPECIFICATIONS" means the full specifications for the Subscriber Management
System envisaged in Clause 11.1;
"SPECIFIED PERIOD" means the period of 2 years after the end of the Term;
"SUBSCRIBER" means a person who enters into a Subscriber Contract with the
Franchisee, for the supply of the Franchisor's Services;
"SUBSCRIBER CONTRACT" means the contract between the Franchisee and each
subscriber for the provision of any Services by the Franchisee:
(a) in relation to satellite services in the form prescribed by the Franchisor;
and
(b) in relation to MDS and cable services, in the form prescribed by the
Franchisee (which the Franchisee will provide to the Franchisor for comment
and which, to the extent commercially practicable, will be consistent with
the subscriber contact for satellite services).
"SUBSCRIBER MANAGEMENT SYSTEM" means the procedures and systems (including any
Confidential Information and any Software) for the management, administration
and servicing of subscribers to any Services, including procedures or systems
for:
(a) responding to enquiries from past, present and prospective subscribers;
(b) taking orders from present and prospective subscribers;
(c) arranging and scheduling installations of Equipment for prospective
subscriber and removals of Equipment from past subscribers;
(d) entering, retaining, analysing, retrieving and reporting on all data
concerning subscribers;
(e) recording details of Subscriber Contracts;
(f) invoicing subscribers for Subscription Fees and all other amounts payable
by subscribers for or in connection with any Services;
(g) collecting Subscription Fees and all other amounts payable by subscribers
for or in connection with any Services;
(h) authorising the installation of Equipment;
(i) depositing Subscription Fees and all other amounts payable by subscribers
for or in connection with any Services into the Bank Account;
(j) informing the Franchisee of all services or assistance reasonably requested
by subscribers, including in relation to:
(1) maintenance, repair, servicing and replacement of Equipment;
(2) enquiries concerning Programs or Services;
<PAGE>
8
(3) complaints;
(k) coding all subscribers in Regions as customers of the Franchisee;
(l) collating information to be contained in Franchisee Reports and all
management information reports in the same manner and form as produced in
relation to the Franchisor's other subscribers;
(m) encrypting or otherwise restricting access to any Services; and
(n) providing to the Franchisee particulars of all matters referred to in
Clause 6.2 insofar as they relate to the Subscribers, cross-referenced to a
subscriber identification number and a Subscriber Contract number;
"SUBSCRIPTION FEES" means all amounts payable by Subscribers pursuant to
Subscriber Contracts in respect of the reception of the Franchisor's Services
and the lease or rental of any Equipment (but not including any amounts payable
by Subscribers for any Services which are not Franchisor's Services);
"TAXES" means any sales taxes, goods or services taxes or other charges,
imposts, expenses or duties which, pursuant to any Act are levied by any
governmental agency on Subscribers or the Franchisee in respect of the
provision, delivery or receipt of the Franchisor's Services and which are
charged directly by the Franchisee to Subscribers;
"TERM" means, in relation to each Region, the period commencing on the date of
this Agreement and ending 10 years after the Commencement Date and includes the
Further Term if granted pursuant to Clause 24;
"TRADE MARKS" means the trade marks, service marks, logos and designs used from
time to time by the Australis Group in connection with the Franchisor's Services
which are specified as Trade Marks by the Franchisor;
"TRAINING PROGRAM" means the training program to be provided by the Franchisor
as envisaged in Clause 10;
"TRANSMISSION" includes provision, delivery, broadcasting, diffusion,
reproduction, supply and performance;
"VALUERS" means either:
(a) 2 duly qualified independent persons nominated as envisaged in Clause
25.8(a); or
(b) 3 duly qualified independent persons being the 2 persons referred to in
sub-paragraph (a) above and a third person nominated as envisaged in Clause
25.9(a);
as the case may be.
Words defined in the BSA or in the Copyright Act 1968 shall have the same
meaning in this Agreement.
1.2 In this Agreement, unless the context shall otherwise require:
(a) words importing the singular shall include the plural and vice versa;
(b) all sums are payable in Australian dollars;
(c) Clause headings shall be disregarded;
(d) all warranties shall, during the Term, have the force and effect of
conditions;
<PAGE>
9
(e) all warranties, representations and undertakings survive completion of
this Agreement but any such warranties, representations and
undertakings which relate to the existing status of a party are
limited to 3 years;
(f) the word 'person' means and includes a natural person, a company, a
governmental agency or other authority or association (incorporated or
unincorporated);
(g) references to any party to this Agreement or any other document or
agreement shall include its successors or permitted substitutes or
assigns;
(h) references to any document or agreement (including this Agreement)
include references to such document or agreement as amended, novated,
supplemented or replaced from time to time;
(i) except where followed directly by the word 'only', the terms
'includes' or 'including' will mean 'includes, but is not limited to'
and 'including, but not limited to' respectively, it being the
intention of the parties that any enumeration after those words is
illustrative and not exhaustive;
(j) references to Clauses, Annexures, Exhibits and Schedules are
references to Clauses of and annexures, exhibits and schedules to this
Agreement;
(k) references to any legislation or to any section or provision of any
legislation include any statutory modification or reenactment or any
substituted statutory provision and all ordinances, by-laws,
regulations and other statutory documents issued thereunder;
(l) no rule of construction applies to the disadvantage of a party because
that party was responsible for the preparation of this Agreement or
any part of it;
(m) a reference to conduct includes any omission, statement or
undertaking, whether or not in writing; and
(n) if a word is given a certain meaning or interpretation, words derived
from it or from which it is derived will be given a corresponding
meaning.
1.3 Any reference in this Agreement to a calculation or payment being made in
respect of a particular number of subscribers (including Subscribers) from
time to time shall be made by reference to the number of relevant
subscribers as an average during the applicable Accounting Period.
2. CAPACITY OF FRANCHISOR AND FRANCHISEE
2.1 The Franchisor agrees to procure that each of the persons or companies in
the Australis Group which from time to time has rights in relation to the
Equipment, the Franchisor's Subscriber Management System, the Franchisor's
Proprietary Rights, the Software, the Programs, the Franchisor's Services
or the Franchisor's Delivery System will make those rights available to the
Franchisor or will otherwise conduct itself so as to enable the Franchisor
to perform and observe its obligations under this Agreement in accordance
with its terms and as if each of the companies in the Australis Group were
bound by the Agreement as Franchisor.
2.2 The Franchisee agrees to procure that each of the persons or companies in
the Franchisee Group which from time to time has rights in relation to the
Equipment, any Subscriber Management System, the Software, the Programs,
any Services, any Delivery System or any other matter relevant to this
Agreement will make those rights available to the
<PAGE>
10
Franchisee or will otherwise conduct itself so as to enable the Franchisee
to perform and observe its obligations under this Agreement in accordance
with its terms and as if each of the companies in the Franchisee Group were
bound by the Agreement as Franchisee.
3. APPOINTMENT OF FRANCHISEE
3.1 The Franchisor grants to the Franchisee and the Franchisee accepts from the
Franchisor, in respect of each Region during the Term, subject to and on
the terms of this Agreement:
(a) an exclusive licence and franchise:
(1) to supply or offer to supply the Franchisor's Services and the
Equipment; and
(2) to Transmit the Franchisor's Services and the Programs; and
(b) an exclusive licence and franchise;
(1) to use the Franchisor's Proprietary Rights;
(2) to access and use the Franchisor's Delivery Systems; and
(3) to access and use the Franchisor's Subscriber Management System
including the Software.
3.2 Further to Clause 3.1, the Franchisor agrees with the Franchisee that the
Franchisor shall, in each Region throughout the Term, procure or make
available to the Franchisee, on the terms of this Agreement:
(a) the Franchisor's Services in the manner as envisaged in Clause 14;
(b) the Programs incorporated into the Franchisor's Services;
(c) access to means of supply of the Equipment requested by the Franchisee
as envisaged in Clause 8;
(d) access to and use of the Franchisor's Delivery System only for the
delivery of Franchisor's Services to Subscribers and as envisaged in
Clauses 5 and 14;
(e) access to and use of the Franchisor's Subscriber Management System for
the delivery of Franchisor's Services to Subscribers and for the
delivery of other Services by the Franchisee where agreed pursuant to
clause 11.1;
(f) access to the Training Program as envisaged in Clause 10;
(g) a copy of all marketing, advertising and promotion materials produced
or arranged by the Franchisor as envisaged in Clause 16 and 17;
(h) a Program Guide relating to the Programs available on the Franchisor's
Services as envisaged in Clause 16.6;
(i) at the discretion of the Franchisor, a copy of all material
information (including Confidential Information) owned by the
Franchisor or otherwise in its possession and not liable to
confidentiality obligations to any other person reasonably requested
by the Franchisee to enable the Franchisee to perform its obligations
under this Agreement or to carry on the Business insofar as it relates
to the Franchisor's Services; and
<PAGE>
11
(j) at the discretion of the Franchisor, all assistance reasonably
requested by the Franchisee in connection with the supply of the
Franchisor's Services to Subscribers;
Provided that the Franchisee shall reimburse to the Franchisor any
Costs incurred by the Franchisor in providing the things referred to
in subparagraphs (h), (i) or (j) of Clause 3.2.
3.3 Subject to the terms of this Agreement and except to the extent any claim,
loss or damage is caused by or in connection with any act, omission or
breach by the Franchisor, the Franchisee agrees to indemnify and hold
harmless the Australis Group against and from any and all claims, losses
and damages (including legal fees on a solicitor and own client basis)
arising out of or in connection with the conduct of the Business by the
Franchisee.
3.4 The Franchisor agrees that it shall not, except as envisaged in Clauses
3.7, 3.8, 3.9, 3.10 or 14, Transmit or grant or permit to be granted to
third parties any licence or right to Transmit in any manner or by any
means whatsoever the Programs or the Franchisor's Services or any Services,
during the Term and in the Regions, and the Franchisor agrees:
(a) except as envisaged in Clauses 3.9 or 3.10, not to procure any
Subscribers within any Region;
(b) not to denigrate or discriminate against (other than in exercise of
its rights under this Agreement) in any manner whatsoever the Business
or the Franchisee (but for the purposes of this Clause it shall not be
regarded as discrimination if the Franchisor contracts any other
franchise outside the Regions on terms different to this Agreement
including in relation to the Service Fee); and
(c) not to bid for, acquire or seek to acquire MDS Licences or engage in
any cable subscription television activities in any Region at any
official public auction or other allocation instigated or run by any
governmental agency, without the prior written consent of the
Franchisee or shall not in competition (such competition to be bona
fide) to the Franchisee acquire or hold any direct or indirect voting
or economic interest in or otherwise have any board or management
control of holders of MDS Licences in any Region.
3.5 The Franchisee acknowledges that the Australis Group may not from time to
time have exclusive rights to Transmit the Programs, during the Term and in
the Regions, but the Franchisor shall procure that the Australis Group uses
its best endeavours to acquire such exclusive rights.
3.6 Intentionally omitted.
3.7 Other than in regard to the Services referenced in Schedule 2(a), if, at
any time during the Term, the Australis Group intends to commence any
Service or Franchisor Service which may be Transmitted in any Region, the
Franchisor shall give notice of that intention to the Franchisee. The
Franchisor and the Franchisee shall then attempt to negotiate in good faith
a basis on which the Franchisee would acquire the sole and exclusive
licence and franchise for that Service, during the Term and in each
relevant Region. If agreement cannot be reached between the parties with
respect to those matters within 60 days of first notice to the Franchisee,
the Franchisor may specify in an offer terms on which it would be prepared
to grant to the Franchisee the sole and exclusive licence and franchise for
that Service, during the Term and in each relevant Region. The Franchisee
may accept that offer at any time within a further 60 days. If the
Franchisee does not accept that offer, the Franchisor shall be free to
supply that Service in each relevant Region to
<PAGE>
12
any other person or by itself on terms no more favourable than those
offered to the Franchisee. In those circumstances, the Franchisor will be
entitled to Transmit that Service by means of satellite, but not by means
of MDS or cable, to Subscribers for reception using the Equipment supplied
to those Subscribers as envisaged in this Agreement at no cost to the
Franchisor. If the Franchisee has the right to Transmit a Service in any
Region pursuant to this Clause, the Franchisee shall, within 15 months from
the date of expiry of the period in which the offer referred to in this
clause could have been accepted either:
(a) commence the provision of that Service to its Subscribers; or
(b) at its sole discretion, enter into a sublicence agreement with a third
party for the provision of that Service in the Regions.
Subject to Clause 3.12A and to Clause 3.7(b) above, this Clause shall not
limit in any way the right of the Australis Group to commence and operate
as a principal and not through a franchise any Service in Australia, other
than in any Region.
3.8 If, at any time during the Term, the Franchisee Group intends to promote,
develop, finance and distribute any Service which is intended to be
Transmitted outside the Regions, the Franchisee shall give notice of that
intention to the Franchisor. The Franchisor and the Franchisee shall then
attempt to negotiate in good faith a basis on which the Franchisor may
acquire the sole and exclusive licence for that Service during the Term
outside the Regions throughout Australia. If agreement cannot be reached
between the parties with respect to those matters within 60 days of first
notice to the Franchisor, the Franchisee may specify in an offer terms on
which it would be prepared to grant to the Franchisor the right to acquire
the sole and exclusive licence for that Service during the Term outside the
Regions throughout Australia. The Franchisor may accept that offer at any
time within a further 60 days. If the Franchisor does not accept that
offer, the Franchisee shall be free to supply that Service outside the
Regions throughout Australia to any other person or by itself on terms no
more favourable than those offered to the Franchisor. The Franchisor will
consider in good faith permitting the Franchisee to use the Franchisor's
Subscriber Management System in respect of the Service on reasonable
commercial terms in respect of subscribers both in and outside the Regions.
If the Franchisor has the right to Transmit a Service outside the Regions
under this Clause 3.8, the Franchisor shall, within 15 months from the date
of expiry of the period in which the offer referred to in this clause 3.8
could have been accepted, either:
(a) commence the provision of its Service to its Subscribers; or
(b) at its sole discretion enter into a sublicence agreement with a third
party for the provision of that Service outside of the Regions.
3.9 Subject to Clause 3.15, if:
(a) the Franchisee does not commence the Transmission of any of the
Franchisor's Services to Subscribers in any Region within 3 months of
the Commencement Date; or
(b) by the end of the period of 4 years from the Commencement Date in
respect of any Region, the Franchisee fails to achieve the Minimum
Subscriber Levels required by Clause 5.2(b);
the Franchisor may, by notice to the Franchisee, terminate the rights of
the Franchisee under this Agreement in respect of that Region. In the event
of any such termination, the provisions of Clauses 25.6 to 25.11 shall
apply mutatis mutandis in respect of the
<PAGE>
13
termination of this Agreement in respect of that Region. Further, in that
event, the Franchisor shall be free to Transmit the Franchisor's Services
and the Programs in the relevant Region during the Term, including to past
Subscribers, or to grant or permit to be granted to third parties a licence
or right to Transmit in any manner or by any means whatsoever the Programs
and the Franchisor's Services in the relevant Region during the Term,
including to any past Subscribers.
3.10 Subject to Clause 3.15, if:
(a) the Franchisee (or a sublicensee appointed in respect of a
Franchisor's Service does not commence the Transmission of any
particular 1 or more of the Franchisor's Services pursuant to
Schedule 2(a) in any Region within 3 months of the Commencement Date
or, in respect of a Franchisor's Service or a Service specified as
envisaged in Clause 3.7, within 15 months of being so specified; or
(b) subject to clause 3.7, having commenced Transmission of the
Franchisor's Services in a Region, the Franchisee discontinues such
Transmissions for more than one (1) week in the aggregate during any
1 month period;
the Franchisor may, by notice to the Franchisee, terminate the rights of
the Franchisee under this Agreement in respect of that Franchisor's
Service in respect of that Region. Further, in that event, the Franchisor
shall be free to Transmit that Franchisor's Service and the relevant
Programs in the relevant Region during the Term, including to past
Subscribers, or to grant or permit to be granted to third parties a
licence or right to Transmit in any manner or by any means whatsoever the
relevant Programs and that Franchisor's Service in the relevant Region
during the Term, including to any past Subscribers. In no event shall the
Franchisee be liable to the Franchisor for any sublicensee discontinuing
or failing to commence the Transmission of any Franchisor's Service.
3.11 Notwithstanding any other provision of this Agreement, the Franchisor and
the Franchisee agree that this Agreement shall be deemed to be a separate
and independent agreement in relation to each Region and, without
limiting the generality of the foregoing, any breach by the Franchisee of
this Agreement in relation to a Region shall not affect the Franchisee's
rights or entitlements in connection with any other Region.
3.12 Intentionally deleted.
3.12A Subject to clause 3.7, Franchisor agrees to specify as a Franchisor's
Service each Service Transmitted by the Australis Group from time to time
in respect of which the Australis Group has Transmission rights in the
Regions and which are subscription television broadcasting services,
subscription radio broadcasting services, subscription television
narrowcasting services or subscription radio narrowcast services
(including any pay-per-view or pay-per-listen services).
3.12B Subject to this Agreement, the Franchisor shall not cease the supply of
any Franchisor's Service to the Franchisee if the same Franchisor's
Service is provided by the Franchisor anywhere in Australia.
3.13 Both parties acknowledge that they may not be able to prevent, and are
not responsible or liable for, persons, not being Subscribers, pirating,
receiving or Transmitting the Franchisor's Transmissions within the
Regions during the Term without the Franchisee's or the Franchisor's
consent. However, both parties agree to use their best endeavours to
prevent all pirating within the Regions.
3.14 Intentionally deleted.
<PAGE>
14
3.15 Notwithstanding any other provision of this Agreement, the Franchisor shall
not be entitled to terminate this Agreement or to exercise any other right
of termination (including pursuant to Clauses 3.9 or 3.10) if the
Franchisee pays to the Franchisor when due the Service Fee calculated on
the basis that the Minimum Subscriber Level has been achieved or
maintained, notwithstanding that, in fact, the Franchisee may not have
achieved or maintained the Minimum Subscriber Level in any Region.
4. APPROVALS
4.1 The Franchisee shall:
(a) do all things lawfully necessary to seek and obtain all Franchisee
Approvals within the times required in order for the Franchisee to
perform this Agreement;
(b) obtain and pay for and upon request provide copies to the Franchisor
of all Franchisee Approvals;
(c) ensure that all Franchisee Approvals are kept current during the
Term; and
(d) notify the Franchisor promptly and in any event within 2 Business Days
if any Franchisee Approval or other authorisation which is essential
to the conduct of the Business is repealed, revoked or terminated or
expires or is modified or amended in any manner,
provided that nothing in this Agreement shall oblige the Franchisee to
acquire any MDS Licences or any Delivery System.
4.2 The Franchisor shall at the Franchisee's cost give all reasonable
assistance necessary to enable the Franchisee to obtain all Franchisee
Approvals, including to enable the Franchisee (if required by law to do so)
to obtain and maintain licences under the BSA.
4.3 The Franchisor shall:
(a) do all things lawfully necessary to seek and obtain all Franchisor
Approvals within the times required in order for the Franchisor to
perform this Agreement;
(b) obtain and pay for and provide copies to the Franchisee of all
Franchisor Approvals;
(c) ensure that all Franchisor Approvals are kept current during the
Term; and
(d) notify the Franchisee promptly and in any event within 2 Business Days
if any Franchisor Approval or other authorisation which is essential
to the conduct of the Business is repealed, revoked or terminated or
expires or is modified or amended in any manner.
4.4 The Franchisee shall at the Franchisor's cost give all reasonable
assistance necessary to enable the Franchisor to obtain all Franchisor
Approvals, including to enable the Franchisor to obtain and maintain
licences under the BSA.
5. CONDUCT OF BUSINESS
5.1 During the Term and in each of the Regions, the Franchisee shall at all
times diligently carry on the Business (including complying with all of its
obligations under Clause 5.2) with all due care and skill and as
vigorously, competitively, profitably and efficiently as possible.
5.2 In accordance with this Agreement, the Franchisee shall:
(a) intentionally deleted;
<PAGE>
15
(b) at all times in each Region use its best endeavours to achieve and maintain
the requisite Minimum Subscriber Level;
(c) at all times use its best endeavours to procure Subscribers in the Regions
for the Franchisor's Services;
(d) Intentionally deleted;
(e) Intentionally deleted;
(f) at all times contract Subscribers (including Nominated Customers and
Preferred Customers) on the terms of the prescribed Subscriber Contract;
(g) at all times maintain and operate the Bank Account;
(h) on a regular basis as reasonably prescribed by the Franchisor carry out
Advertising and sell or distribute to all Subscribers a Program Guide as
agreed;
(i) at all times use the Business Names and the Trade Marks in connection with
the Franchisor's Services as reasonably prescribed by the Franchisor but
not otherwise;
(j) at all times use its best endeavours to provide all of the Franchisor's
Services in each Region, using all Delivery Systems owned by, licensed to
or used by the Franchisee;
(k) at any time, if the Franchisee is unable to provide all of the Franchisor's
Services in any Region, provide only those Franchisor's Services agreed by
the Franchisor and Franchisee in that Region (subject to any restrictions
on the Franchisor under any agreement or arrangement with any third party);
(l) subject to Clause 14 at all times Transmit the Franchisor's Services to
Subscribers in their entirety and without interruption, on the dates and at
the times scheduled by the Franchisor;
(m) subject to the Franchisor's delivery of the signal in accordance with
Clause 14, at all times ensure that all Transmissions originated by the
Franchisee have (subject to receipt from the Franchisor of a signal which
permits the same) a signal of reasonable technical quality;
(n) at all times hold and deposit into the Bank Account moneys received from
Subscribers properly and promptly and in any event within 5 Business Days
of receipt;
(o) at all times comply with all applicable laws and all conditions and
requirements imposed by any governmental agency or under any Act (including
all foreign ownership requirements imposed by any Act); and
(p) at all times comply with the Compliance Notes and the reasonable
requirements of any CAST Code;
and the Franchisee shall not:
(q) at any time refuse to procure any particular subscriber or subscribers
generally in any Region, area or suburb without good and reasonable cause;
(r) subject to any separate written agreement with the Franchisor at any time
procure any subscribers outside of the Regions for the Franchisor's
Services;
<PAGE>
16
(s) at any time vary any satellite Subscriber Contract without the prior
written consent of the Franchisor;
(t) subject to the law, at any time charge less than the Recommended
Subscription Fee in respect of the reception of the Franchisor's Services
and the lease, rental or other provision of any Equipment (except
replacement equipment, where applicable), and, in addition the Franchisee
may charge a lesser fee if, in its reasonable opinion, there is a business
need to charge less than that fee, and either:
(1) the Franchisor has agreed to that lesser fee; or
(2) the Franchisee continues to pay the Franchisor fees under clause 7.1
as if that lesser fee was not being charged;
(u) subject to the law, at any time charge less than the fee recommended by the
Franchisor in respect of the purchase of any Equipment or the provision of
the Program Guide provided that the fee is not greater than the lowest
equivalent fee charged by Australis or any franchisee of Australis; and, in
addition, the Franchisee may charge a lesser fee if, in its reasonable
opinion there is a business need to charge less than that fee, and either:
(1) the Franchisor has agreed to that lesser fee; or
(2) the Franchisee continues to pay the Franchisor fees under clause 7.1
as if the lesser fee was not being charged;
(v) without prior notice to the Franchisor, sell, market or promote the
Franchisor's Services with any other Services and in any event will not so
sell, market or promote these services in a manner which will bring the
Franchisor into disrepute or subject to legal action;
(w) at any time add to, edit or in any way interfere with the Franchisor's
Services in the form in which they are provided by the Franchisor to the
Franchisee for delivery to Subscribers;
(x) not Transmit any other Services, unless at that time the Franchisee is
Transmitting at least eight (8) (plus two (2) ABC Programmes if offered) if
offered of the Franchisor's Services in Schedule 2(a) or that denigrates or
otherwise brings into disrepute in any manner the Franchisor's Services,
the Programs or the Franchisor,
(y) at any time without the prior written consent of the Franchisor, which
shall not be unreasonably withheld, acquire or hold any direct or indirect
economic or voting interest in or otherwise have board or management
control of any other franchise granted by the Australis Group or by any
person associated or affiliated with the holder of any satellite
subscription television broadcasting licence; and
(z) at any time without the prior written consent of the Franchisor, which
shall not be unreasonably withheld, acquire or hold any direct or indirect
economic or voting interest in or otherwise have board or management
control of any owner or licensee of any Services, any Delivery System or
any Subscriber Management System,
provided however that the Franchisee may:
(aa) subject to the BSA, to limitations imposed in the Franchisor's agreements
with third party suppliers of Programs or Services and to the reasonable
requirements of any CAST Code, insert up to 4 minutes per hour of
advertising or
<PAGE>
17
programming per Service into the Franchisor's Services (the revenue
from which shall remain the sole property of the Franchisee); and
(ab) use its own business names, brand names or marks in connection with
the Business as envisaged in Clause .
5.3 Subject to the terms of this Agreement and except to the extent that any
claim, loss or damage is caused by or in connection with any act, omission
or breach of this Agreement by the Franchisor, the Franchisee agrees to
indemnify and hold harmless the Australis Group against and from any and
all claims, losses and damages (including legal fees on a solicitor and own
client basis) arising out of or in connection with any breach by the
Franchisee of its obligations under this Agreement including its particular
obligations under Clauses 5.1 and 5.2.
5.4 The Franchisor has given no warranty or guarantee as to the performance or
potential performance of the Business or any benefits which might flow to
the Franchisee from carrying on the Business.
5.5 The Franchisee and the Franchisor will co-operate in good faith to
facilitate the use by the Franchisee of any sub-carrier capacity accessible
to the Australis Group which may not be in use or proposed for use by the
Australis Group at any particular time for the purpose of enabling the
Franchisee to operate, manage and control the Business provided that any
arrangements shall be at no cost to the Franchisor, shall not result in any
loss of revenues by the Australis Group and shall be terminable on a
minimum of 60 days written notice by the Australis Group.
6. REPORTS AND RECORDS
6.1 The Franchisee shall:
(a) keep complete and proper books and records of all moneys received and
expended, all assets acquired, arising or disposed of and all
liabilities incurred, reduced or released in connection with the
Business;
(b) ensure that those books and records are prepared in accordance with
the requirements of the Corporations Law and generally accepted
Australian accounting principles;
(c) ensure that those books and records show a true and fair view of all
transactions and the financial and contractual position of the
Franchisee and, where applicable, the Franchisor with respect to the
Business;
(d) appropriately organise and store all invoices, timesheets, bank
statements, accounts, agreements and other documents relating to the
Business; and
(e) prior to the establishment of books and records in respect of the
Business, consult with and obtain the prior written consent of the
Franchisor or its auditors as to the form of those books and records.
6.2 Subject to Clause 19 the Franchisee shall deliver to the Franchisor within
14 days after the last day of each Accounting Period during the Term a
report in a form reasonably required by the Franchisor and duly completed
and signed by or on behalf of the Franchisee. Such report shall, unless
otherwise specified by the Franchisor, show such information reasonably
prescribed by the Franchisor in connection with the Franchisee's
performance of this Agreement (including information from time to time
required to be provided to a third party under any agreement).
<PAGE>
18
6.3 Without limiting the generality of Clause 6.2 and subject to Clause 6.6,
the Franchisee shall:
(a) deliver to the Franchisor within 30 days after the last day of each
calendar quarter a quarterly statement of Gross Revenues, Agreed
Costs, Net Revenues and Other Agreed Fees prepared in accordance with
the requirements of the Corporations Law and generally accepted
Australian accounting principles;
(b) deliver to the Franchisor as soon as available but not later than 75
days after 30 June of each year an audited annual report for the
previous 12 month period stating numbers of new and total Subscribers,
amounts of Gross Revenues, Agreed Costs, Net Revenues and Other Agreed
Fees and a calculation of the Service Fee payable compared to the
Service Fee paid, together with such other information reasonably
prescribed by the Franchisor in connection with the Franchisee's
performance of this Agreement, prepared in accordance with the
requirements of Clause 6.1; and
(c) provide to the Franchisor such other reports in form and substance as
shall be reasonably specified from time to time by the Franchisor.
6.4 The Franchisee:
(a) shall, upon reasonable notice, and at convenient places, give to the
Franchisor on request such information and copies of such documents in
relation to its financial condition or the Business as the Franchisor
may reasonably request;
(b) shall provide the Franchisor and its nominees on reasonable request
and at reasonable times and places with unrestricted access to all
books, records, statements and documents maintained or kept by the
Franchisee in connection with the Business and this Agreement
including books, records, statements and documents stored in
computerised form;
(c) shall give to the Franchisor and its nominees on reasonable request
and at reasonable times and places the further right to conduct or
supervise a physical inspection of the Business premises and any other
premises used by the Franchisee in connection with the Business;
(d) shall fully co-operate with representatives of the Franchisor making,
conducting, supervising or observing any inspection under this Clause
provided that the inspection shall not interfere with the normal
operation of the Business;
(e) shall, on notification that the Business does not meet the agreed
requirements of the Franchisor in respect of books and records,
correct such deficiencies within a reasonable time;
(f) shall give to the Franchisor and its auditors the right at any time
during normal business hours, with prior reasonable notice to the
Franchisee, to audit or cause to be audited the books, records,
statements and documents which the Franchisee is required to permit
the Franchisor access to under this Clause or which the Franchisee is
required to maintain under Clause 6.1; and
(g) shall fully co-operate with the Franchisor or its auditors conducting
any audit and, if any audit should disclose an understatement of Gross
Revenues or Net Revenues for any period, the Franchisee shall pay to
the Franchisor within 10 Business Days after receipt of the audit
report, any amount due as the amount of such understatement and, if
any audit should disclose an understatement of at
<PAGE>
19
least 5% of total Gross Revenues or Net Revenues, the Franchisee shall
also pay to the Franchisor within 10 Business Days after receipt of
the audit report, the cost of such audit;
provided that in each case the Franchisor shall give the Franchisee not
less than 5 Business Days written notice of any proposed inspection or
audit. Any inspection or audit shall take place during normal business
hours on a Business Day and not more than once during any 6 month period.
6.5 From time to time on reasonable request the Franchisee shall provide to the
Franchisor copies of all business plans, income and expenditure budgets and
marketing plans relevant to the Business and all such material shall be
Franchisee Information.
6.6 The Franchisor shall assist the Franchisee in obtaining all information or
documents required by this Clause 6, to the extent that such information or
documents are in the possession of or under the control of the Franchisor.
Any period of time referred to in this Clause 6 shall be extended by the
period of any delay in the Franchisor providing to the Franchisee any
information or documents under the control of or in the possession of the
Franchisor.
7. SERVICE FEE
7.1 During the Term, the Franchisee shall pay to the Franchisor a fee
calculated as the higher of:
(a) 35% of Net Revenues in respect of all Regions in respect of each
Accounting Period; and
(b) after the Initial Period, 35% of Net Revenues which would have been
earned (deeming there to be no increase in Agreed Expenses) had the
Franchisee complied with Clause 5.2(b) in respect of each Region, or
across all Regions on an aggregated Subscriber basis, in respect of
each Accounting Period;
provided that if from time to time:
(c) the Franchisor has provided to the Franchisee a written statement of
the Program Fees in respect of the Accounting Period referred to in
paragraphs (a) and (b);
(d) a director or the chief executive officer of the Franchisor has
certified that the Franchisor has not received any Benefits that have
not been taken into account for the purposes of that written statement
in determining the Program Fees; and
(e) the Program Fees specified in the written statement are in excess of
the fee calculated in accordance with paragraphs (a) and (b);
the Franchisee must, subject to clause 7.10, pay to the Franchisor an
additional fee equal to that excess in respect of each relevant Accounting
Period, to a maximum of an additional 15% of Net Revenues.
7.2 For the purpose of calculating the Service Fee payable under Clause 7.1,
Agreed Costs may be deducted from or set off against Gross Revenues in the
same or other Regions.
7.3 The Franchisee shall pay to the Franchisor the Service Fee in accordance
with this Clause. In respect of the first and second Accounting Periods in
respect of which a payment is required to be made to the Franchisor as
envisaged in Clause 7.1, the Franchisee shall make that payment to the
Franchisor at the same time as providing to the Franchisor the relevant
Franchisee Report, but in any event not later than 14 days after the last
day of the relevant Accounting Period. In respect of each Accounting Period
<PAGE>
20
after the second Accounting Period in respect of which a payment is
required to be made to the Franchisor as envisaged in Clause 7.1, the
following procedure shall apply:
(a) subject to any deduction which the Franchisee is entitled to make
under paragraph (b)(2), not later than the first Business Day of the
relevant Accounting Period, the Franchisee shall pay to the
Franchisor, as an instalment of the Service Fee, an amount equal to
the Service Fee payable by the Franchisee to the Franchisor in the
next to last Accounting Period (in respect of which the relevant
Franchisee Report should have been delivered to the Franchisor by the
14th day of the last Accounting Period); and
(b) at the same time as providing to the Franchisor the relevant
Franchisee Report:
(1) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is less than the amount of the Service Fee for the
relevant Accounting Period calculated as envisaged in Clause 7.1,
the Franchisee shall pay to the Franchisor the amount of the
shortfall in the next subsequent Accounting Period; or
(2) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is not less than the amount of the Service Fee for
the relevant Accounting Period calculated as envisaged in Clause
7.1, the Franchisee shall notify the Franchisor that it shall
make a deduction equal to the over payment from the amount
payable to the Franchisor under paragraph (a) in the next
subsequent Accounting Period and the Franchisee shall be entitled
to make that deduction.
At the same time as providing to the Franchisor the audited annual report
envisaged in Clause 6.3(b), but in any event within 60 days after 30 June
of each year:
(c) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is less than the amount of the
Service Fee calculated as payable in the audited annual report, the
Franchisor shall request a payment from the Franchisee equal to that
shortfall and the Franchisee shall pay to the Franchisor the amount of
the shortfall within 14 days of that request from the Franchisor; or
(d) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is not less than the amount of the
Service Fee calculated as payable in the audited annual report, the
Franchisee shall request a repayment from the Franchisor equal to the
over payment and the Franchisor shall repay an amount equal to the
over payment within 14 days after that request from the Franchisee.
7.4 If either party fails to pay to the other any moneys (other than any
amounts bona fide in dispute or amounts not able to be calculated
accurately on the otherwise due date) payable under this Agreement on the
due date, including as envisaged in Clauses 7.3 and 7.6, it shall pay to
the other party interest at the rate per annum equal to 4% above the
overdraft rate for amounts in excess of $100,000 charged to the first party
from time to time by its bankers, accruing on a daily basis on the amount
of such moneys from time to time outstanding for the period commencing on
the date on which payment was first due and ending on the date on which the
first party receives payment of such moneys, such interest to be payable on
demand from the first party.
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21
7.5 Fees payable to the Franchisor in respect of pay-per-view Services, and
other Services not forming part of the Franchisor's Services, shall be
negotiated separately by the parties in accordance with Clause 3.7 and are
not included in the Service Fee.
7.6 During the Term, the Franchisee shall pay to the Franchisor all Other
Agreed Fees in accordance with this Clause 7.6, in addition to the Service
Fee payable from time to time. In respect of the first and second
Accounting Periods the Franchisee shall pay the Additional Fixed Fee to the
Franchisor at the same time as providing to the Franchisor the relevant
Franchisee Report, but in any event not later than 14 days after the last
day of the relevant Accounting Period. In respect of each Accounting Period
after the second Accounting Period the following procedure shall apply:
(a) subject to any deduction which the Franchisee is entitled to make
under paragraph (b)(2), not later than the first Business Day of the
relevant Accounting Period, the Franchisee shall pay to the
Franchisor, as an instalment of the Additional Fixed Fee, an amount
equal to the Additional Fixed Fee payable by the Franchisee to the
Franchisor in the next to last Accounting Period (in respect of which
the relevant Franchisee Report should have been delivered to the
Franchisor by the 14th day of the last Accounting Period); and
(b) at the same time as providing to the Franchisor the relevant
Franchisee report:
(1) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is less than the amount of the Additional Fixed Fee
for the relevant Accounting Period the Franchisee shall pay, in
the next subsequent Accounting Period, to the Franchisor the
amount of that shortfall (which in the case of the Additional
Fixed Fee will not exceed $4.00 per Subscriber or such maximum
Additional Fixed Fee as is applicable); or
(2) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is not less than the amount of the Additional Fixed
Fee for the relevant Accounting Period the Franchisee shall
notify the Franchisor that it shall make a deduction equal to the
overpayment from the amount payable to the Franchisor under
paragraph (a) in the next subsequent Accounting Period and the
Franchisee shall be entitled to make that deduction.
At the same time as providing to the Franchisor the audited annual report
envisaged in Clause 6.3(b), but in any event within 60 days after 30 June
of each year:
(c) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is less than the amount of the
Additional Fixed Fee calculated as payable in the audited annual
report, the Franchisee shall pay to the Franchisor the amount of the
shortfall; or
(d) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is not less than the amount of the
Additional Fixed Fee calculated as payable in the audited annual
report, the Franchisee shall request a repayment from the Franchisor
equal to the over payment and the Franchisor shall, subject to its
rights in Clause 6.4, repay an amount equal to the over payment within
14 days after that request from the Franchisee.
The Franchisee shall from time to time pay to the Franchisor any Other
Agreed Fees (other than Additional Fixed Fees which are payable as provided
above) within 14
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22
Business Days after the Franchisor has provided to the Franchisee a written
statement of any Other Agreed Fees supported, where appropriate, by copies
of invoices. The Franchisor may provide such a written statement to the
Franchisee at any time.
7.7 Each of the Franchisor and the Franchisee shall use their best endeavours
to collect Subscription Fees and all other amounts charged to any relevant
Subscribers on a timely basis. If any relevant Subscriber falls into
arrears, the Franchisor shall, at the request of the Franchisee, disconnect
the relevant Subscriber from receiving the Franchisor's Services in the
Regions. The Service Fee payable to the Franchisor shall be adjusted to
take account of any bad or doubtful debts due from relevant Subscribers
except where the Franchisor's underlying Program agreements prohibit the
Franchisor from deducting bad or doubtful debts from its obligations.
7.8 All revenues received by the Franchisor or the Franchisee as Subscription
Fees, as payments for the Program Guide or as other Gross Revenues shall be
deposited (without diversion or deduction other than for payment of
applicable bank and government fees and charges) into the Bank Account.
7.9 The Franchisee shall procure that financial support is obtained in
accordance with this Clause 7.9. Upon the Franchisor's written request but
not before 1 November 1994, the Franchisee shall procure the provision by a
reputable financial institution acceptable to the Franchisor of any
additional credit support including letters of credit (in a form and
substance similar to that required of the Franchisor) in respect of an
amount equal to the Pro Rata Share (as defined below) of any such credit
given or procured by the Australis Group to third parties in respect of the
supply of Programs. The Pro Rata Share is the proportion that the Minimum
Subscriber Level bears to the total number of occupied private dwellings
within Australia (including the Regions) to which the Franchisor's Services
can be provided by use of satellite, MDS or any other existing means of
delivery available to the Franchisor without any material technical
impairment, calculated at the date of the Franchisor's request.
7.10 The Franchisee shall have the right during and for a period of 1 year after
the Term to inspect and to audit or cause to be audited the books, records,
statements and documents which the Australis Group maintain for the
purposes of verifying the Franchisor's determinations and calculations of
Program Fees and Other Agreed Fees on the same terms as the Franchisor has
rights under clause 6.4.
8. EQUIPMENT
8.1 The Franchisor shall procure the supply to the Franchisee of:
(a) the same Equipment as is available to the Franchisor in quantities
sufficient to conduct the Business as notified by the Franchisee to
the Franchisor;
(b) at the same price as is available to the Franchisor;
(c) subject to minimum and maximum order volumes, and to normal order
delays, at the same delivery times as are available to the Franchisor;
(d) subject to the evaluation by the relevant financier of the
circumstances of the Franchisee (including credit worthiness and
security provision) with the same financing arrangements as are
available to the Franchisor (it being understood that the amount of
such facilities will be in the region of $80 million to 100 million
over a start up period of up to 5 years);
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23
(e) with the same warranties and guarantees from the manufacturers or
suppliers as are available to the Franchisor in respect of the
Equipment.
8.2 Subject to Clause 8.3, the Franchisee shall have the absolute discretion to
decide whether it will purchase, lease or rent the Equipment, if available
subject to the requirements of the relevant manufacturer or supplier and
financier of the Equipment.
8.3 The Franchisee shall not obtain any Equipment from any person other than
the Franchisor or its nominee, so long as the Equipment is made available
to the Franchisee in accordance with subparagraphs (a), (b), (c), (d) and
(e) of Clause 8.1 and is available for delivery at times and at customary
and reasonable industry prices for such equipment (at the time of the
relevant Equipment price negotiation) all as reasonably required by the
Franchisee.
8.4 The Franchisee shall maintain the Equipment in accordance with the
manufacturer's standards.
8.5 The Franchisee shall notify the Franchisor immediately of any defect or
malfunction in the Equipment or of any factor causing or threatening damage
or destruction of the Equipment which will or is likely to result in
interruption or delay of any Service to Subscribers. In the event of
interruption of any of the Franchisor's Services to Subscribers by reason
of the Equipment malfunctioning or failing, the Franchisee shall promptly
and in any event within 2 Business Days notify the Franchisor and both
parties shall use their best endeavours to locate and install emergency
alternative Equipment (at no cost to the Franchisor and, where reasonably
practicable, at the cost of the Equipment supplier or manufacturer) to
ensure continuous supply of the Franchisor's Services to Subscribers.
9. Intentionally deleted.
10. TRAINING
10.1 Subject to Clause 10.4, the Franchisor will conduct Training Programs to
which the nominated employees, agents, contractors and subcontractors of
the Franchisee will be invited during the Term. The Training Program shall
from time to time encompass the operation, maintenance and use of the
Equipment, the Franchisor's Delivery System, the Franchisor's Subscriber
Management System, the Franchisor's Services and the Software, together
with general business, computer, sales and other techniques involved in
relation to the conduct of the Business, and be of sufficient standard and
frequency to provide the skills and understanding necessary or desirable to
carry on the Business in a business like manner throughout the Term.
10.2 The Franchisee shall ensure that its nominated employees, agents,
contractors and subcontractors attend and complete the Training Program.
10.3 The Training Program shall be at locations and for durations as are
reasonably convenient to the Franchisee's nominated employees, agents,
contractors and subcontractors. Sydney shall be deemed to be a convenient
location for this purpose.
10.4 The costs of travel, accommodation and meals required by the Franchisee or
its nominated employees, agents, contractors and subcontractors in
attending any such Training Program shall be borne by the Franchisee. All
additional costs of arranging and conducting the Training Program shall be
estimated by the Franchisor and provided to the Franchisee for approval.
Where any particular costs are not approved by the Franchisee, the
Franchisor shall not be obliged to undertake the relevant action giving
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24
rise to those costs. Otherwise, any such additional costs shall be borne by
the Franchisor and the Franchisee as agreed between them.
11. SUBSCRIBER MANAGEMENT SYSTEM
11.1 The Franchisee shall use the Franchisor's Subscriber Management System for
satellite delivered Services, and, in the case of cable and MDS delivered
Services, subject to appropriate technical specifications to be provided by
the Franchisor, subject to consultation with the Franchisee, and to be
reasonably agreed by the Franchisor and the Franchisee. It is understood
that the intention of the parties is that the Franchisor's Subscriber
Management System will be used if it is capable of handling the
requirements of the Franchisee in a reasonable and businesslike manner, and
on a timely basis.
11.2 Subject to clause 11.1, during and, subject to Clause 25, after the Term,
all persons receiving the Franchisor's Services in the Regions shall be
deemed to be Subscribers of the Franchisee and coded in the Subscriber
Management System as such. During and, subject to Clause 25, after the
Term, all data or information concerning the Subscribers in the Subscriber
Management System shall be Franchisee Information.
11.3 Subject to clause 11.1, the Franchisor shall act as the agent of the
Franchisee in relation to the invoicing and the co-ordination of the
collection of Subscription Fees. All transactions with Subscribers shall
identify the Franchisee in a form and manner reasonably approved by the
Franchisee.
11.4 For the Service Fee and the payment of the Other Agreed Fees the Franchisee
shall be entitled to use without any additional cost the Franchisor's
customer support and customer service centres and to refer the Franchisee's
subscribers to those centres for assistance. However, at its cost the
Franchisee shall be entitled to establish its own customer support and
customer service centres in Regions.
11.5 The Franchisee shall not:
(a) use the Software for any purpose other than to operate the Business in
accordance with this Agreement;
(b) sell, rent, lease, lend, sub-licence, transfer or otherwise dispose of
the Subscriber Management System or the Software, any associated
documents, user manuals or operating releases;
(c) alter, decompile, disassemble or reverse-engineer the Software;
(d) remove or obscure any copyright or trade mark on the Software;
(e) copy, duplicate or otherwise reproduce the Software;
(f) permit any person to do anything which the Franchisee is not entitled
to do under the provisions of this Agreement; or
(g) infringe any rights of any person in the Software.
11.6 The Franchisor's Subscriber Management System will at all times during the
Term perform and do each of those things referred to in the definition of
`Subscriber Management System' in Clause 11 of this Agreement in a
businesslike manner and on a timely basis.
11A. TECHNICAL AND SERVICES COMMITTEE
The Franchisor shall establish a consultative technical and services
committee ("Committee") which will consist of representatives of the
Franchisor, the Franchisee and
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25
of each of the Franchisor's franchisees. Each of the Franchisor and the
Franchisee shall be entitled to nominate one representative to participate
in the Committee which will meet on a regular basis which in any event
shall not be less than once each calendar quarter. The purpose of the
Committee is to exchange views and information on the Equipment, the
Franchisor's Subscriber Management Service, the Program Guide and on any
other matter which relates to the franchises granted by the Franchisor to
the franchisees and the common interests of each of the Franchisor and the
franchisees. The Franchisor agrees to give views expressed and information
provided by, and recommendations of, the Committee due consideration but
the Franchisor shall not be bound to comply with or act in accordance with
any recommendation or decision of the Committee.
12. BUSINESS NAMES
12.1 The Franchisor agrees to permit the Franchisee to use the Business Names
during the currency of this Agreement. For this purpose, the Franchisor
shall give such consent as is required to enable the Franchisee to become a
registered proprietor or user of the Business Names in the Regions.
12.2 The Franchisee shall display in a prominent manner signs bearing the
relevant Business Name outside each place where the Business is conducted
and at least 1 indoor sign shall also prominently bear, in lettering of a
size and type approved by the Franchisor, a statement to the effect that
the Business is independently owned and operated by the Franchisee.
12.3 The form, design, colour, text and manner of use of the Business Names on
letterhead paper, invoices and other stationery and documents, in
advertising, on signs and in all other ways shall be subject to the prior
written consent of the Franchisor.
12.4 The Franchisee shall ensure that all documents bearing the Business Names
shall also bear a statement to the effect that the Business is
independently owned and operated by the Franchisee.
12.5 The Franchisee is entitled to use its own business names, brand names or
marks in connection with the Business, but not:
(a) in identifying the Franchisor's Services or the Programs as its own;
(b) to denigrate or otherwise to bring into disrepute in any manner
whatsoever the Franchisor's Services, the Programs or the Franchisor;
and
(c) in any manner which would adversely and materially impact the
Franchisor's Services, the Programs or the Franchisor other than
engaging in activities reasonably necessary to the business of the
Franchisee solely in Australia.
13. COMPLIANCE NOTES
13.1 From time to time during the Term, the Franchisor may prescribe or specify
to the Franchisee guidance notes, instructions or directions in respect of
the carrying on of the Business in connection with the Franchisor's
Services under this Agreement including regarding accounting, computer
operation, Equipment installation, operation and maintenance, Delivery
System operation and maintenance, the Software, the Franchisor's Subscriber
Management System, technical and operational know-how, marketing and sales.
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26
13.2 The Franchisee shall comply with all requirements and standards set out
in the Compliance Notes as if they were set out in full in this Agreement
provided that, to the extent of any inconsistency (other than Clause
32.3), this Agreement shall prevail.
13.3 Notwithstanding any other Clause of this Agreement, any procedures or
requirements specified or to be specified in the Compliance Notes:
(a) shall be reasonable and appropriate having regard to the
Franchisor's Services;
(b) will as far as reasonably practicable be prescribed to ensure
consistent practices by the Franchisor and all franchisees of the
Franchisor;
(c) may be amended by the Franchisee with the prior written consent of
the Franchisor which shall not be unreasonably withheld to take
account of any local circumstances in a Region; and
(d) shall not be more onerous in its effects on the Franchisee than on
any other franchisee of the Franchisor or on the Franchisor acting
in its capacity as a principal providing Franchisor's Services.
14. SERVICE DELIVERY TO FRANCHISEE
14.1 The Franchisor shall procure that the Franchisor's Services are made
available in accordance with Schedule 2 by means of a broadcast quality
signal which meets all applicable requirements of the Broadcasting
Services Act comprising the Franchisor's Services:
(a) by satellite within the relevant satellite footprint; and
(b) by means other than satellite, at any place selected by the
Franchisee from which the Franchisor's Services are Transmitted to
subscribers, provided that the Franchisee shall pay all costs
(including any necessary deposits or capital payments) of
Transmitting the Franchisor's Services from that place to any
Region.
14.2 The Franchisor may, upon reasonable notice:
(a) vary the content of Programs so long as the varied or replacement
Programs, are of a similar quality and standard to that in the
attached Schedule 2(a) of the Franchisor's Services provided that
the variations apply to the Franchisor's Services throughout
Australia;
(b) vary the schedule of Programs within a Service on reasonable notice
to the Franchisee.
14.2A Schedule 2(a) includes the general details of the Program genre,
estimated commencement date, estimated hours on air, which shall all be
reasonably appropriate for the Australian market.
14.3 The Franchisee shall maintain and service the Equipment and receive the
Franchisor's Services from the Franchisor efficiently and in a safe and
proper environment to ensure the effective Transmission of the
Franchisor's Services to Subscribers.
14.4 Subject to Clause 29, if the Franchisor is unable to provide the
Franchisor's Services to the Franchisee for a period of up to 10% of
scheduled programming between the hours of 5.00 pm and 12.00 am in any
day for any reason, there shall be no breach of this Agreement and the
Franchisee shall be entitled to make no claim on the Franchisor for that
interruption of Transmission.
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27
15. WARRANTIES
15.1 The Franchisor warrants to the Franchisee that:
(a) it has full right and power to make and perform this Agreement;
(b) it owns or is the licensee of all rights of every kind and character
necessary or desirable to enable the Franchisor to grant to the
Franchisee the rights and benefits referred to in this Agreement and
to enable the Franchisee to exercise and enjoy those rights and
benefits without requiring any further licence or authority from any
other person;
(c) the use of the Franchisor's Services and the Programs by the
Franchisee as contemplated in this Agreement will not:
(1) infringe the copyright of any person or constitute any tort,
breach of contract of breach of law; and
(2) will not give rise to any actions for defamation or invasion of
privacy of any person;
(d) the Franchisor will obtain and maintain in good standing all
Franchisor Approvals necessary or desirable to enable the Franchisor
to perform this Agreement and to grant to the Franchisee the rights
and benefits referred to in this Agreement;
(e) the Programs will comply with the BSA;
(f) the Franchisor's Services will contain identical Programs throughout
Australia (other than advertising, station promotions, programming
times, permitted local content insertions and other materials
prescribed by the Franchisor);
(g) the Franchisor will refer to the Franchisee any prospective
Subscribers of which the Franchisor becomes aware; and
(h) the Franchisor shall, in respect of all Programs, all Franchisor's
Services and the Franchisor's Delivery System, use its best endeavours
to obtain Transmission rights in each of the Regions.
15.2 The Franchisee warrants to the Franchisor that:
(a) it has full right and power to make and perform this Agreement; and
(b) the Franchisee will (if required by law or a governmental agency to do
so) obtain and maintain in good standing all Franchisee Approvals.
15.3 The Franchisor agrees to indemnify and hold harmless the Franchisee against
and from any and all claims, losses and damages (including legal fees on a
solicitor and own client basis) arising out of or in connection with any
breach by the Franchisor of its obligations under this Agreement or the
conduct by the Franchisor of its business.
16. ADVERTISING BY FRANCHISEE
16.1 The Franchisee shall undertake for its own account and at its own cost
marketing, advertising and promotion of the Franchisor's Services, during
the Term and throughout the Regions.
16.2 The Franchisee may also undertake for its own account and at its own cost
marketing, advertising and promotion of the Business (including other
Services Transmitted by the Franchisee).
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16.3 The Franchisee shall use the Franchisor's marketing, advertising and
promotion materials in any Advertising as agreed, but in addition may use
its own advertising, marketing and promotion materials.
16.4 The Franchisee may use the Business Names and the Trade Marks in any
Advertising.
16.5 The Franchisee shall, subject to this Agreement:
(a) devote its best endeavours towards increasing the number of
Subscribers to the Franchisor's Services;
(b) not, in any Advertising, make any representation or give any warranty
with respect to the Franchisor's Services or the Franchisor other than
those which are authorised in writing by the Franchisor; and
(c) not hold out any additional Services Transmitted by the Franchisee as
the Franchisor's Services.
16.6 If a program guide ('Program Guide') is prescribed by the Franchisor for
use by the Franchisee, the Franchisee shall use its best endeavours to sell
that Program Guide to Subscribers at the recommended retail price (if any).
The Franchisee may insert into the Program Guide (by way of insertion,
supplement or wraparound) details of other Services Transmitted by the
Franchisee and other information, advertising and materials authorised by
the Franchisor, but may not otherwise add to, delete from or change the
form or substance of the prescribed Program Guide. The revenue from such
insertions shall remain the sole property of the Franchisee. The Franchisor
shall procure that the prescribed Program Guide is made available to the
Franchisee at the same Cost incurred by the Franchisor being the Costs
incurred in the production and printing of the Program Guide.
16A. FRANCHISOR'S ADVERTISING REVENUE
Subject only to Clauses 5.2(aa) and 16.6, the Franchisee acknowledges that
all advertising revenues derived from the sale of advertising in respect of
the Programs, the Franchisor's Services and the Program Guide (other than
revenue from advertising procured by the Franchisee and contained in the
Franchisee's insertion, supplement or wrap-around, which revenue remains
the property of the Franchisee) is solely the property of the Franchisor
and the Franchisee has no interest in or claim over such advertising
revenue.
17. PROMOTION BY FRANCHISOR
17.1 Subject to Clause 17.4, the Franchisor shall provide a marketing,
advertising and promotion service in respect of the Franchisor's Services
and the Franchisor's Delivery System in Australia for the benefit of the
Franchisee and other franchisees of the Franchisor.
17.2 The Group Promotion Service shall:
(a) be under the control of the Franchisor; and
(b) encompass local, provincial, statewide and nationwide marketing,
advertising and promotion materials.
17.3 Subject to Clause 17.4, all advertising, marketing or promotion envisaged
in Clause 17 and referring specifically to the Regions shall make reference
to the Franchisee if reference is made to any particular franchisee.
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17.4 The Franchisee may contribute towards the Group Promotion Service an annual
levy prescribed by the Franchisor (which shall be the Pro Rata Share (as
defined in Clause 7.9) of the contribution of the Franchisor). Any such
contribution shall be made on demand and in advance. If the Franchisee
elects not to make such contribution, the Franchisor shall be relieved of
its obligations under Clause 17.
18. CONFIDENTIALITY
18.1 The Franchisee undertakes to the Franchisor to maintain in confidence the
terms of this Agreement and all Confidential Information disclosed to it
under or in connection with this Agreement and to take reasonable
precautions to ensure that its employees, agents, contractors,
subcontractors, sublicensees, accountants, solicitors and other advisers
keep this information confidential.
18.2 The Franchisor undertakes to the Franchisee to maintain in confidence the
terms of this Agreement and all Franchisee Information disclosed to it
under or in connection with this Agreement and to take reasonable
precautions to ensure that its employees, agents, contractors,
subcontractors, sublicensees, accountants, solicitors and other advisers
keep this information confidential.
18.3 The Franchisee shall not use or attempt to use any Confidential Information
for its own purposes (other than in connection with the Business) or for
the purposes of any person other than the Franchisor.
18.4 The Franchisor shall not use or attempt to use any Franchisee Information
for its own purposes or for the purposes of any person other than the
Franchisee.
18.5 Nothing in this Clause 18 shall prevent a party from:
(a) disclosing information in any manner required by law or in accordance
with a requirement of a governmental agency;
(b) disclosing information in confidence to that party's bankers,
accountants, solicitors or other advisers for the purpose of obtaining
advice or in relation to their work with respect to that party;
(c) disclosing information in respect of a Subscriber, to that Subscriber
in the day-to-day operation of the respective business of the
Franchisor and the Franchisee or at that Subscriber's reasonable
request or direction;
(d) disclosing or providing for use of information in respect of
Subscribers to third party program suppliers where required under any
agreement with that third party; or
(e) disclosing information which is in or enters the public domain other
than through breach of this Agreement.
18.6 The Franchisor agrees to use its best endeavours to include as a term in
all agreements with third party program suppliers that any Franchisee
Information disclosed to that program supplier will not be used in any
manner except for confirming the Franchisor's compliance with the relevant
agreement.
19. FRANCHISOR'S PROPRIETARY RIGHTS
19.1 The rights granted by this Agreement to use the Franchisor's Proprietary
Rights and to conduct the Business are:
(a) for the duration only of the Term;
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(b) subject to the provisions of this Agreement;
(c) for the purposes of the conduct of the Business only; and
(d) not capable of assignment to or use by other persons except as
provided in this Agreement.
19.2 If, at any time, the Franchisor has registered or has lodged an application
for registration of a Business Name or Trade Mark, the Franchisor and the
Franchisee shall enter into an appropriate agreement authorising the
Franchisee to use the Business Name or Trade Mark, during the Term and in
the Regions, in such form as the Franchisor reasonably requires. If there
is any inconsistency between any such agreement and this Agreement, this
Agreement shall prevail.
19.3 Any and all of the Franchisor's Proprietary Rights are and remain the sole
property of the Franchisor. The Franchisee shall not in any way question,
claim or dispute the Franchisor's Proprietary Rights or the ownership
thereof.
19.4 The Franchisee shall promptly and in any event within 2 Business Days
notify the Franchisor of any and all apparent infringements of the
Franchisor's Proprietary Rights, any Franchisor Approvals or any Act
relevant to the Franchisor's Services by third parties which come to the
notice of the Franchisee. The Franchisor shall have the sole right to
determine whether:
(a) any action shall be brought, maintained, compromised or disposed of in
respect of any infringement; and
(b) the Franchisee shall be joined in such action at the cost of the
Franchisor.
The Franchisee shall co-operate in the conduct of any action brought by the
Franchisor to the full extent reasonably requested by the Franchisor.
19.5 If any action for or claim of infringement or alleged infringement of the
Franchisor's Proprietary Rights, any Franchisor Approvals, any Franchisee
Approvals or any Act relevant to the Franchisor's Services is brought or
threatened by a third party against the Franchisee, the Franchisee shall
promptly and in any event within 2 Business Days notify the Franchisor of
the pending action, claim or alleged infringement. The Franchisor shall
have the sole right to control any subsequent litigation relating to that
action, claim or alleged infringement. The Franchisee shall co-operate in
the conduct of any such litigation to the full extent reasonably requested
by the Franchisor, at the cost of the Franchisor.
19.6 Unless otherwise agreed in writing by the Franchisor, the Franchisee shall
not, during the Term or after the expiration, termination or assignment of
this Agreement, use or adopt any name, trade name, trading style or
commercial designation which incorporates any of the Business Names or
Trade Marks, or words or symbols contained in them.
19.7 The Franchisor shall:
(a) indemnify and keep the Franchisee indemnified from any claims and any
costs (including legal fees and disbursements) incurred in connection
thereto) made against the Franchisee arising out of the right to trade
under the Business Names and the Trade Marks, arising out of the use
or enjoyment by the Franchisee in accordance with this Agreement of
the Franchisor's Proprietary Rights or arising out of any action or
claim in respect of the Franchisor's Proprietary Rights or any
Franchisor's Approvals whether such claims are successful against the
Franchisee or not; and
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(b) subject to its discretions in Clauses 19.4 and 19.5 promptly and in
any event within 2 Business Days take all reasonable steps it
considers necessary in order to protect the Business Names and Trade
Marks from being infringed by any third party.
20. INSURANCES
20.1 Each party may:
(a) maintain and keep in force during the Term all necessary and prudent
insurances to a prudent level of cover including adequate employer
indemnity (including any insurance which that party is required to
effect pursuant to any workers compensation or similar legislation),
Equipment, motor vehicle, professional indemnity, defamation, property
replacement, public liability, product liability, fire, theft and
burglary;
(b) ensure that all policies of Insurance name the other party as an
additional named insured; and
(c) promptly and in any event within 2 Business Days pay all premiums on
each policy of Insurance as they become due and payable;
Provided that if a party fails to obtain insurance in accordance with this
Clause 20.1, that party shall be solely responsible for the losses or
damages which would have been covered by insurance in accordance with this
Clause.
20.2 The Franchisee shall provide to the Franchisor:
(a) a copy of each policy or a certificate of currency of each policy of
Insurance and any other relevant information thereto from time to time
as specified by the Franchisor; and
(b) 30 days' written notice prior to the termination or cancellation of
any policy of Insurance.
20.3 The Franchisor or its nominees may inspect the Franchisee's insurance file
at the Franchisee's principal business premises at any time on reasonable
notice.
21. ASSIGNMENT
21.1 The Franchisee may not assign this Agreement without the prior written
consent of the Franchisor which shall not be unreasonably withheld
(including, if the Franchisee is not in breach of this Agreement and the
proposed assignee is capable of performing this Agreement).
21.2 Intentionally deleted.
21.3 The Franchisor may not assign this Agreement without the prior written
consent of the Franchisee, which shall not be unreasonably withheld,
provided that the Franchisor is not in breach of this Agreement and the
proposed assignee is capable of performing this Agreement.
21.4 Clauses 21.1 and 21.3 shall not prohibit the assignment of this Agreement
by either party to a Controlled Entity of that party, where that Controlled
Entity assumes the obligations of the party under this Agreement.
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32
22. CODES OF PRACTICE
22.1 To the full extent permitted by law, the Franchising Code of Practice is
expressly negatived and shall not apply to this Agreement or the respective
obligations of the parties under it.
22.2 Subject to this Agreement, each party agrees to comply at all times with
any CAST Code.
23. RESOLUTION OF DISPUTES
23.1 Subject to Clauses 23.2 and 23.5, any dispute, controversy or claim arising
out of or in connection with this Agreement shall be settled by mediation
administered by the ACDC and the following provisions shall apply:
(a) the mediation shall be conducted at Sydney;
(b) the mediator shall be selected by the Franchisor and the Franchisee
from a panel of mediators nominated by the ACDC and, failing agreement
within 14 days as to a mediator, by the Secretary-General for the time
being of the ACDC; and
(c) each of the parties shall be entitled to be represented by 1 duly
qualified legal practitioner or other representative in addition to an
executive of the party whether legally qualified or not.
23.2 If the dispute, controversy or claim is not resolved by mediation pursuant
to Clause 23.1 within 21 days of the appointment of the mediator (or such
longer period as is agreed between the Franchisor and the Franchisee)
either party may refer the dispute, controversy or claim to arbitration
administered by the ACDC and the following provisions shall apply:
(a) the arbitration shall be conducted at Sydney;
(b) subject to Clause 23.2(c), the arbitration shall be conducted in
accordance with the current Rules for the Conduct of Commercial
Arbitrations issued by the Institute of Arbitrators Australia;
(c) the arbitrator shall be selected by the Franchisor and the Franchisee
from a panel of arbitrators nominated by the ACDC and, failing
agreement within 14 days as to an arbitrator, by the Secretary-General
for the time being of the ACDC (the arbitrator shall be a person other
than the mediator who has conducted the mediation pursuant to Clause
23.1);
(d) each of the parties shall be entitled to be represented by 1 duly
qualified legal practitioner or other representative in addition to an
executive of the party whether legally qualified or not; and
(e) examination of witnesses by the parties and by the arbitrator shall be
permitted, but compliance with the rules of evidence shall not be
required.
23.3 The costs of any mediation pursuant to Clause 23.1 or arbitration pursuant
to Clause 23.2 shall be borne equally by the Franchisor and the Franchisee,
who shall also each bear their own costs.
23.4 A party proposing to exercise its rights under Clause 23.1 shall promptly
and in any event within 2 Business Days notify the other in accordance with
the terms of this Agreement.
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33
23.5 Clause 23.1 shall not apply to any dispute:
(a) arising after this Agreement has expired or has been rescinded or
terminated;
(b) concerning whether this Agreement has been validly rescinded or
terminated (including the determination of whether or not an Event of
Default has occurred); or
(c) where a party is seeking an injunction or other equitable relief to
prevent the other from breaching any provision of this Agreement.
24. RENEWAL OF TERM
24.1 If:
(a) the Franchisee desires to take a renewed licence and franchise in
respect of the Franchisor's Services in respect of the Regions for a
further term of 10 years;
(b) the Franchisee not later than the date falling 6 months prior to the
last day of the Term gives to the Franchisor written notice of the
Franchisee's desire to take a renewed Franchise for the Further Term;
and
(c) on the date of the renewal notice under Clause 24.1(b) and on the last
day of the Term the Franchisee is not in breach of this Agreement and
the Franchisor has not given written notice of that breach to the
Franchisee (or if such breach is capable of remedy and is not remedied
within a reasonable time following the giving of such notice),
the Franchisor, at the Franchisee's cost, shall grant to the Franchisee a
renewal of this Agreement for the further term of 10 years, subject to the
terms provided for in Clause 24.2.
24.2 The agreement for the Further Term shall contain the same terms as are
contained in this Agreement, subject to the following:
(a) appropriate amendments to the commencement date and term in those
Clauses which refer to Commencement Date and Term; and
(b) with the exception of the Further Term set out in Clause 24.2.
25. TERMINATION OF AGREEMENT
25.1 The occurrence of any of the following is an Event of Default under this
Agreement, in the case of the Franchisee, where applicable, in relation to
the relevant Region:
(a) a breach by the Franchisee of clause 5.2(b), 5.2(m), 6.4(f), 6.4(g),
7.1 or 7.6, 8.3 and 11.1 (but, in the case of the Franchisee, it shall
not be such a breach if:
(1) in relation to Clause 5.2(b) the Franchisee has achieved at least
80% of the required Minimum Subscriber Level in each Region or of
the total of Subscribers required for the Regions in the
aggregate; or
(2) in relation to the Agreement generally, the Franchisee has
expended all moneys required in the proper manner in accordance
with its approved business plans); or
(b) without limiting the generality of Clause 25.1, Clause 3.9 applies in
respect of at least 4 Regions;
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34
(c) without limiting the generality of Clause 25.1, either party fails to
comply with any applicable law or any condition or requirement imposed
by any governmental agency or under any Act (including any foreign
ownership requirement imposed by any Act);
(d) either party failed to rectify any Event of Default or any breach of
this Agreement within the requisite period of notice as envisaged in
Clause 25.2;
(e) any material representation, warranty or statement made by either
party to the other becomes untrue or inaccurate, unless the first
party has disclosed this to the other party and the other party has
waived such breach in writing;
(f) an order is made for the winding up or dissolution of a party or a
resolution is passed for the winding up or dissolution of that party
other than for the purposes of a reconstruction or amalgamation on
terms approved by a party;
(g) a receiver or receiver and manager, official manager, administrator,
trustee or similar officer is appointed over all of the assets or
undertaking of a party;
(h) any mortgage, charge, encumbrance or other security interest over any
of the assets of a party is enforced;
(i) a distress, attachment or other execution s levied or enforced on or
against any asset of a party;
(j) a party ceases to carry on its Business;
(k) a party is unable to pay debts as and when they fall due or is deemed
unable to pay its debts under any applicable legislation (other than
as a result of a failure to pay a debt or claim which is the subject
of a good faith dispute);
(l) a party enters into or resolves to enter into any arrangement,
composition or compromise with or assignment for the benefit of its
creditors generally or any class of its creditors or proceedings are
commenced to sanction any such arrangement, composition or compromise
other than for the purposes of a reconstruction or amalgamation on
terms approved by the other party;
(m) any Franchisee Approval or other authorisation which is essential to
the conduct of the Business, or any Franchisor Approval or other
authorisation which is essential to the provision of the Franchisor
Services or the performance of the Franchisor's obligations under this
Agreement in its totality is repealed, revoked or terminated or
expires or is modified or amended in such a manner as to prohibit
delivery of the Franchisor's Services to Subscribers or such
performance on the terms of this Agreement, and is not replaced by
another sufficient authorisation; and
(n) any other event or series of events, whether related or not, occurs
(including any material adverse change in the business, assets or
financial condition of a party) which in the reasonable opinion of the
other would materially and adversely affect the ability of the first
party to comply with all of any of its material obligations under this
Agreement.
25.2 If an Event of Default or other breach of this Agreement occurs the party
to whom that Event of Default does not apply may (but is not obliged to)
issue a notice in writing to the party in breach requiring it to rectify:
(a) an Event of Default specified in Clause 25.1(a) and 25.1(k) within 10
days of the notice;
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35
(b) an Event of Default specified in Clause 25.1(c) within 30 days of
the notice or within such later period of notice as may be permitted
by the applicable governmental agency or may be prescribed under the
applicable Act; or
(c) an Event of Default specified in Clauses 25.1(b), 25.1(e), 25.1(n)
or other breach of this Agreement within 30 days of the notice.
25.3 If an Event of Default specified in Clauses 25.1(d), 25.1(f), 25.1(g),
25.1(h), 25.1(i), 25.1(j) or 25.1(m) occurs or the party in default fails
to rectify any other Event of Default within the applicable time
specified in Clause 25.2, the other party may, by notice in writing to
the party in default, terminate this Agreement and the rights of the
party in default under this Agreement (and in the case of the Franchisee,
where the default relates to a Region or Regions, that termination
operates only in relation to the relevant Region or Regions).
25.3A The Franchisor may terminate this Agreement to the extent that any
Franchisor Approval or other authorisation which is essential to the
delivery of the Franchisor's Services to the Franchisee and the
performance of the Franchisor's Obligations under this Agreement is
repealed, revoked or terminated or expires or is modified or amended in
such a manner as to prohibit the Franchisor's delivery of the
Franchisor's Services to the Franchisee or the performance of the
Franchisor's Obligations under this Agreement, and is not replaced by
another sufficient authorisation.
25.4 (a) The following provisions apply where there is a breach by the
Franchisor of clause 8.1, 11.6 or 14 which is not rectified in
accordance with clause 25.2(c):
(1) where such relates to a breach of clause 8.1, the Franchisee
may elect to modify this agreement so that:
(A) the provisions of clause 8 no longer apply and the
Franchisee has the right to use or acquire subscriber
reception equipment from any source and of a kind
determined by it; and
(B) the only fees payable by the Franchisee under this
agreement (as so modified) are those under clause 7.1 and
7.6; and
(2) where such relates to a breach of clause 11.6, the Franchisee
may elect to modify this agreement so that:
(A) the provisions of clause 11 no longer apply and the
Franchisee has the right to use or operate a subscriber
management system or services of any kind; and
(B) the only fees payable by the Franchisee under this
agreement (as so modified) are those under clause 7.1; and
(3) where such relates to a breach of clause 14, the Franchisee may
elect that this agreement be modified so that the Franchisee is
granted an exclusive licence in the Region to supply or offer
the Franchisor's Services and to Transmit the Franchisor's
Services and the Programs using, where applicable, the
Franchisor's Delivery Systems for a fee equal to that in clause
7.1(a) but that all provisions imposing any obligation on the
Franchisee in relation to the Franchisor's Subscriber
Management Systems and the Equipment cease to apply.
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36
(b) In addition to the Franchisee's rights set out in clause 25.4(a) and
to any other rights the Franchisee may have, the Franchisee may, by
notice in writing to the Franchisor, terminate this Agreement and the
rights of the Franchisor if:
(1) the Franchisor breaches clause 14 and that breach has not been
rectified in accordance with clause 25.2(c); or
(2) there has been a breach of both clause 8 and clause 11.6 (even if
not contemporaneous) which breaches have not been rectified in
accordance with clause 25.2(c).
25.5 Termination, expiration or assignment of this Agreement by any means
whatsoever shall have no effect on the provisions of Clause 25.6, on the
liability for damages or otherwise of any party for breach of this
Agreement, on the obligation of any party or for payment of moneys due
under this Agreement or on any provision, express or implied, which is
intended to survive the termination, expiration or assignment of this
Agreement.
25.6 On termination or expiration (other than at the end of the Further Term) of
this Agreement then, in relation to each relevant Region without prejudice
to any other rights or remedies of either party in respect of an Event of
Default:
(a) all rights of each party pursuant to this Agreement shall terminate
including with respect to the Franchisor's Services and the Programs;
(b) each party shall execute all documents and do all acts and things as
may be necessary or required by the other in order more effectually to
vest in and to secure to each party the rights granted to the other
but terminated under this Agreement (including, in relation to the
Franchisee, to return to the Franchisor full title in and registered
ownership of the Business Names and the Trade Marks);
(c) the Franchisee shall discontinue the use of all the Franchisor's
Proprietary Rights;
(d) the Franchisee shall confirm in writing to the Franchisor that use of
the Franchisor's Proprietary Rights has been discontinued;
(e) subject to paragraph (g), the Franchisee shall deliver to the
Franchisor or, at the Franchisor's request, destroy in the
Franchisor's or its nominee's presence, all advertising, signs and
other items bearing the Business Names and Trade Marks and all
documents and other materials under the control of the Franchisee
which contain the Confidential Information or the Franchisor's
Proprietary Rights or which otherwise relate to the Franchisor's
Services;
(f) each party shall retain all applicable business records (including
ledgers, sales reports, accounts and cheques) for at least 6 years (or
such longer period as may be required by law) and shall keep the other
advised of the location of such records;
(g) each party shall pay all amounts owing to the other on demand;
(h) the Franchisee shall provide all reports and records and permit access
and audit as required under Clause 6 and make all payments due under
Clause 7 (as and when payable) during the Specified Period as if this
Agreement had not been terminated, expired or assigned;
(i) the Franchisee shall not be entitled to supply the Franchisor's
Services or the Programs to the Subscribers, nor to use the
Franchisor's Delivery System;
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37
(j) Intentionally deleted.
(k) without limiting the generality of any other Clause of this Agreement,
Clauses 18, 19.6, 25.5 to 25.12 and 26 shall survive termination,
expiration or assignment of this Agreement;
(l) the Franchisee shall notify all Subscribers of the termination,
expiration or assignment of this Agreement in the form prescribed by
the Franchisor; and
(m) the Franchisor shall deliver to the Franchisee, or, at the
Franchisee's request, destroy all things, documents and other
materials under the control of the Franchisor which form part of the
Franchisee's Information.
25.7 After termination pursuant to Clause 25.3 by reason of an Event of Default
by the Franchisee, in respect of all Regions, the Franchisor shall have an
option to purchase from the Franchisee, at the discretion of the
Franchisor, all (but not part only) of the assets (including but not
limited to Equipment and Subscriber contracts) of the Business which relate
solely to the provision of those of Franchisor's Services delivered by
satellite to Subscribers (but not any assets which relate to the provision
of services using cable or MDS)and which are owned and used by the
Franchisee in the performance of its obligations under this Agreement ('the
Offered Assets'). For this purpose, immediately after termination or
expiration of this Agreement, the Franchisee shall or, in default, the
Franchisor may (but is not obliged to) obtain valuations in accordance with
Clause 25.8 of all of the Offered Assets. Such valuations shall be obtained
by the Franchisee and provided to the Franchisor within 30 days after
termination or expiration of this Agreement. The Franchisor shall have 60
days from receipt of the valuations in which to exercise its option under
this Clause 25.7. The option shall be exercised by the Franchisor in
accordance with Clause 25.9.
25.8 The valuations envisaged in Clause 25.7 shall be obtained as follows:
(a) within 45 days of termination or expiration of this Agreement, the
Franchisor and the Franchisee shall each nominate a duly qualified
independent person to provide a valuation of the Offered Assets;
(b) within 45 days of termination or expiration of this Agreement, the
Franchisee shall provide to the Franchisor a list of all Offered
Assets which it in good faith determines are Offered Assets (which the
Franchisor shall be entitled to verify as complete using its rights
under Clause 6) and if the Franchisee fails to provide such a list
within the time specified, the Franchisor may select certain (and not
all) of the Franchisee's assets and despite Clause 25.7 such assets
shall be deemed to be Offered Assets;
(c) within 45 days of termination or expiration of this Agreement, the
Franchisee shall or, in default, the Franchisor may (but shall not be
obliged to) provide to the Valuers the verified list of Offered Assets
provided by the Franchisee, together with instructions in accordance
with paragraph (d) on the conduct of the valuation;
(d) the Valuers shall be instructed as follows:
(1) each valuation shall, as far as possible, be prepared
independently of the other;
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38
(2) each valuation shall separately identify the value attributed to
each Offered Asset or, where more appropriate in the opinion of
each Valuer, each class of Offered Asset;
(3) each valuation shall be made of the price at which all the
Offered Assets might reasonably be expected to be sold on the day
immediately preceding termination or expiry of this Agreement
assuming:
(A) a willing, but not anxious, buyer and seller;
(B) a reasonable period within which to negotiate the sale,
having regard to the nature and situation of the asset or
class of asset and the state of the market for assets of the
same kind;
(C) the Offered Assets are reasonably exposed to the relevant
market;
(D) no account is taken of the value or other advantage or
benefit, additional to market value, to the buyer incidental
to ownership of the asset being valued;
(E) the Franchisee has sufficient resources to allow a
reasonable period for the exposure of the Offered Assets for
sale; and
(F) a goodwill component may (in appropriate circumstances) be
attached to the value of the Offered Assets;
(4) each valuation shall be completed as soon as reasonable
practicable and, in any event, within 45 days of instructions
being given to the relevant Valuer;
(5) if the relevant Valuer requires any additional information, the
relevant Valuer should promptly and in any event within 10 days
request it from the Franchisee with a copy to the Franchisor;
(6) the Valuers shall each act as an independent expert, not as an
arbitrator;
(7) the costs of the Valuers shall be borne equally by the Franchisee
and the Franchisor; and
(8) in all other respects, each Valuer shall decide what procedures
shall be followed in order to establish and complete the
respective valuations of the assets ;
(e) at all times the Franchisee and the Franchisor shall provide all
information and assistance reasonably requested by the Valuers on a
timely basis to enable the Valuers to provide the valuations within
the time period envisaged in Clause 25.7;
(f) on receipt of the valuations from the Valuers, the Franchisee shall
provide that valuations to the Franchisor;
(g) on receipt of the accounts from the Valuers, the Franchisee and
Franchisor shall each pay half of the costs of the Valuer in preparing
the valuations; and
(h) the valuations provided by the Valuers shall be conclusive and final
and binding on the parties (except in the case of manifest error).
25.9 The option provided to the Franchisor in Clause 25.7 may be exercised in
respect of all (but not part only) of the Offered Assets. The exercise
price shall be the average of the 2 valuations obtained under Clause 25.8
except that if the discrepancy between the
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39
valuations obtained from the 2 Valuers appointed under Clause 25.8(a) is
greater than 20% of the average:
(a) the 2 Valuers shall appoint a third duly qualified independent
person to provide a valuation of the Offered Assets;
(b) the third Valuer will provide a valuation in all respects in
accordance with and on the same terms as specified in Clause 25.8
including Clause 25.8(h); and
(c) the exercise price shall be the average of the 2 closest valuations
obtained in accordance with Clause 25.8.
The option may be exercised by the Franchisor by notice to the Franchisee
given at any time during the period envisaged in Clause 25.7. The notice
shall specify:
(d) the Offered Assets of the Business which the Franchisor wishes to
purchase from the Franchisee (being the entire verified list of
assets envisaged in Clause 25.8(c)); and
(e) the exercise price to be paid by the Franchisor in respect of the
exercise of the option; and
(f) the date, time and place at which completion of the purchase shall
take place, in which respect the date shall be a date not less than
14 days or more than 45 days after the date on which the notice of
exercise is given to the Franchisee.
At completion, the Franchisee shall deliver the assets the subject of the
purchase, together with all title and other incidental documents, against
payment by bank cheque of the exercise price in respect of the assets.
The Franchisee warrants to the Franchisor as at completion that it has
absolute and unencumbered title to the assets subject to the purchase.
The Franchisee undertakes to assist the Franchisor to minimise stamp duty
on the purchase of the assets as required by the Franchisor and as
lawfully permitted (including by the sale of companies holding assets
rather than by sale of the assets themselves).
25.10 At the same time as exercising the option envisaged in Clauses 25.7 to
25.9, the Franchisee shall assign to the Franchisor any leases, licences
or other rights in respect of any real or personal property used by the
Franchisee in the performance of its obligations under this Agreement
which the Franchisor requests the Franchisee to assign, subject to the
requirements of any lessor, licensor or other person and to the law.
Where it is not possible for such leases, licences or other rights to be
assigned to the Franchisor, the Franchisee shall use its best endeavours
to procure that the benefit of such leases, licences or other rights
requested by the Franchisor are made available to the Franchisor to the
fullest extent possible. For the purposes of enabling the Franchisor to
determine which leases, licences or other rights it may elect to require
the Franchisee to assign to it, the Franchisee shall provide particulars
of all leases, licences or other rights used by the Franchisee in the
performance of its obligations under this Agreement within 30 days after
termination or expiration of this Agreement (which the Franchisor shall
be entitled to verify as complete using its rights under Clause 6). The
Franchisee undertakes to assist the Franchisor to minimise stamp duty on
the assignment of any leases, licences or other rights as required by the
Franchisor and as lawfully permitted.
25.11 The Franchisor may deduct and withhold from the purchase price for any
assets referred to in Clause 25.7 all amounts whatsoever due to the
Franchisor by the Franchisee and under this Agreement.
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40
25.12 The Franchisee and the Franchisor shall co-operate together in good faith
and shall each use their best endeavours to procure any approvals,
consents or authorisations required from shareholders (of the Australis
Group or the Franchisee ), from any governmental agency or under any Act
for the purposes of performing their obligations under Clause 25.7 to
25.11 on a timely basis (including, where relevant, the obtaining of
waivers of any Act).
26. RESTRAINT
26.1 From the date of this Agreement to the Commencement Date in a particular
Region, the Franchisee shall not Transmit any Services in that Region
without prior notice to the Franchisor.
26.2 From the date of this Agreement to the date of termination, expiration or
assignment of this Agreement, the Franchisee shall not be directly or
indirectly involved in the establishment, operation or provision to any
person of access to or use of any Delivery System or Subscriber
Management System outside the Regions.
26.3 Subject to Clause 3.8, from the date of this Agreement to the date 6
months after the termination, expiration or assignment of this Agreement,
the Franchisee shall not Transmit any Service outside of the Regions.
26.4 From the date of this Agreement to the date 2 years after the termination
or expiration of this Agreement, the Franchisee shall not Transmit in or
outside the Regions, any programming service which at that time is a
Franchisor's Service in respect of which the Franchisor has only a non-
exclusive licence in respect of any area in Australia, which is sourced
or obtained from a person other than the Franchisor, without first giving
the Franchisor the opportunity to provide the programming service to the
Franchisee on terms and conditions at least as favourable (to the
Franchisee) as those offered by any other person.
27. FURTHER ASSURANCE
27.1 The parties shall do all acts and things and enter into such other
agreements as are not inconsistent with the provisions of this Agreement
to effect the intention and purpose of this Agreement.
28. Intentionally deleted.
29. FORCE MAJEURE
29.1 Notwithstanding any other Clause of this Agreement, the obligations of a
party imposed by this Agreement and any time requirements under this
Agreement shall be suspended during the time and to the extent that that
party is prevented from or delayed in complying with that obligation by
Force Majeure.
29.2 Each party shall, on becoming aware of Force Majeure, immediately inform
the other party and use its best efforts to remedy that Force Majeure or
to procure alternative means reasonably available to enable performance
of this Agreement to continue as if no Force Majeure had occurred.
30. NOTICES
30.1 Any request, order, notification, document, consent or other
communication to be given by any party to another shall be in writing and
shall be deemed to be sufficiently given if sent by pre-paid registered
mail or facsimile transmission to the address or facsimile
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41
number set out following the name of that party at the commencement of this
Agreement (or such other address or facsimile number which is notified
under this Clause).
30.2 Any such request, order, notification, document, consent or communication
if sent by pre-paid registered mail shall be deemed to be received by the
party to whom it is addressed on the next Business Day after posting or if
sent by facsimile transmission shall be deemed to be received by the party
to whom it is addressed on receipt by the sender of the confirmation at the
conclusion of the transmission.
31. GOVERNING LAW
31.1 This Agreement shall be governed by and construed in accordance with the
laws of and applicable in the State of New South Wales and the parties
submit to the jurisdiction of the Federal and State courts within that
State.
32. MISCELLANEOUS
32.1 This Agreement shall bind the parties and their successors and assigns.
32.2 This Agreement supersedes all and any previous agreements oral or written
in respect of the franchise between the Franchisee and the Franchisor
(including the Heads of Agreement) and shall constitute the entire
agreement between the parties and there are no understandings,
representations or warranties of any kind between the parties except as
expressly set out in this Agreement. Accordingly, the Heads of Agreement
are terminated and shall be of no further force or effect.
32.3 This Agreement shall not be amended except by an instrument in writing
signed by the parties and stating the parties' intent to amend this
Agreement accordingly.
32.4 The failure of either party to exercise or its delay in exercising any
right, power or privilege available to it under this Agreement shall not
operate as a waiver or preclude any other or further exercise of such
right, power or privilege or the exercise by that party of any other right,
power or privilege under this Agreement.
32.5 No agreement, warranty or undertaking contained in this Agreement shall
merge on execution or completion of this Agreement, but shall continue
after each party has performed their obligations as provided in this
Agreement.
32.6 Nothing contained in this Agreement shall constitute a partnership, joint
venture or association of any kind between the Franchisor and the
Franchisee or render them liable for the debts or liabilities incurred by
the other. In particular, the Franchisee will be solely responsible for all
loss or damage arising out of the operation of the Business or arising out
of the acts or omissions of the Franchisee, its employees, agents,
contractors, subcontractors, sublicensees, accountants, solicitors and
other advisers in any context and the Franchisee agrees to indemnify and
hold harmless the Australis Group against and from any and all such claims,
losses and damages (including legal fees on a solicitor and own client
basis).
32.7 The parties shall bear their own costs arising out of the preparation of
this Agreement, except that the Franchisee shall bear any stamp duty
chargeable on this Agreement and any document created pursuant to it.
<PAGE>
42
SCHEDULE 1
REGIONS - CTV PTY LIMITED NORTHERN FRANCHISE
1. North Eastern NSW - as defined in Apasco correspondence of 15 July 1994.
2. Gold Coast - as defined in the Spectrum Management Agency ("SMA").
3. Cairns - as defined by SMA.
4. Sunshine Coast - points north from the Franchisor's Brisbane area to the
southern most point of Fraser Island and all points within 50 kilometres of
the coast.
5. Mid North Coast - points north from the southern most point of Fraser
Island up to the southern most point of Broad Sound and all points within
50 kilometres of the coast.
6. Far North Coast - all points north of the southern most point of Broad
Sound (excluding Cairns) and all points within 50 kilometres of the coast.
7. Balance of Queensland not previously outlined.
8. Darwin - as defined by SMA.
9. Alice Springs - as defined by SMA.
10. Balance of Northern Territory.
In summary, all of New South Wales except Sydney and the Australian Capital
Territory and the franchise areas of STV Pty Limited and East Coast Pay
Television Pty Limited, all of Queensland except Brisbane and all of the
Northern Territory.
Refer also to the maps in Exhibit 1.
<PAGE>
43
EXHIBIT 1
MAPS OF REGIONS - CTV PTY LIMITED SOUTHERN FRANCHISE
1. CTV - North Eastern NSW
2. CTV - North Eastern NSW Clarification Map
3. CTV - Gold Coast
4. CTV - Cairns
5. CTV - Sunshine Coast
6. CTV - Mid North Coast
7. CTV - Far North Coast
8. CTV - Balance of Qld
9. CTV - Balance of Qld Clarification Map
10. CTV - Darwin
11. CTV - Alice Springs
12. CTV - Balance of NT
<PAGE>
[MAP OF CTV-NORTH EASTERN N.S.W. APPEARS HERE]
<PAGE>
[MAP OF CTV-GOLD COAST APPEARS HERE]
<PAGE>
[MAP OF CTV-CAIRNS APPEARS HERE]
<PAGE>
[MAP OF CTV-SUNSHINE COAST APPEARS HERE]
<PAGE>
MAP OF CTV-MID NORTH COAST APPEARS HERE]
<PAGE>
[MAP OF CTV-FAR NORTH COAST APPEARS HERE]
<PAGE>
[MAP OF CTV-BALANCE OF QLD APPEARS HERE]
<PAGE>
[MAP OF CTV-DARWIN APPEARS HERE]
<PAGE>
[MAP OF CTV-ALICE SPRINGS APPEARS HERE]
<PAGE>
[MAP OF CTV-BALANCE OF N.T. APPEARS HERE]
<PAGE>
44
SCHEDULE 2
FRANCHISOR'S SERVICES
Any subscription television broadcasting service or any subscription radio
broadcasting service:
(a) provided, procured or supplied by the Franchisor in respect of which the
Franchisor has Transmission rights in the Regions at any time; or
(b) provided by the Franchisor or third parties pursuant to a contract or
arrangement between the Franchisor and third parties and in respect of
which the Franchisor has Transmission rights in the Regions; or
any subscription television narrowcasting services provided by the Franchisor to
subscribers as at the date of this Agreement.
SCHEDULE 2(A)
ESTIMATED
PROGRAM GENRE COMMENCEMENT DAILY HOURS
DATE
Premium Movies March 1995 12
Movies March 1995 12
Classic Movies June 1995 8
Sport March 1995 12
International News December 1994 12
ABC Local and Regional News March 1995 12
Childrens/Family March 1995 8
ABC Children's/Education March 1995 8
Cartoons/Animation June 1995 8
Documentary, Lifestyle, Education March 1995 8
Music Video December 1994 12
General Entertainment/Class Drama December 1994 8
<PAGE>
45
SCHEDULE 3
MINIMUM SUBSCRIBER LEVELS
PERIOD MINIMUM SUBSCRIBER LEVEL %
During the Initial Period (Years 0 to 2) 0%
During the period after the end of the Initial
period for a further 2 years (Years 2 to 4) 5%
During the period after the preceding period
for a further 2 years (Years 4 to 6) 10%
During the period after the preceding period
for a further 2 years (Years 6 to 8) 18%
During the period after the preceding period
for a further 2 years (Years 8 to 10)
30% or, if lower, the
percentage from time to time
equal to the percentage
calculated as /S//\\P\\ times
90%, where S equals the total
number of subscribers to the
Franchisor's Services
(excluding the Subscribers)
and P equals the total number
of occupied private dwellings
within Australia (excluding
the Regions) to which the
Franchisor's Services can be
provided by use of satellite,
MDS or any other existing
means of delivery available
to the Franchisor without any
material technical
impairment, calculated at the
end of the relevant
Accounting Period
Thereafter (Years 10 to 20) 30% or, if higher, the
percentage from time to time
equal to the percentage
calculated as /S//\\P\\ times
90%, where S equals the total
number of subscribers to the
Franchisor's Services
(excluding the Subscribers)
and P equals the total number
of occupied private dwellings
within Australia (excluding
the Regions) to which the
Franchisor's Services can be
provided by use of satellite,
MDS or any other existing
means of delivery available
to the Franchisor without any
material technical
impairment, calculated at the
end of the relevant
Accounting Period
<PAGE>
46
EXECUTED as an agreement.
SIGNED for
AUSTRALIS MEDIA LIMITED
by its attorney
in the presence of:
/s/ DONALD F. HAGANS /s/ ROB BIRRELL
- ------------------------- ------------------------
Signature of witness Signature of Attorney
DONALD F. HAGANS ROB BIRRELL
- ------------------------- ------------------------
Print name Print name of Attorney
SIGNED for
CTV PTY LIMITED
by its attorney
in the presence of:
/s/ ROB BIRRELL DONALD F. HAGANS
- ------------------------- ------------------------
Signature of witness Signature of Attorney
ROB BIRRELL DONALD F. HAGANS
- ------------------------- ------------------------
Print name Print name of Attorney
<PAGE>
EXHIBIT 10.24
FRANCHISE AGREEMENT
THIS AGREEMENT is made on the 12th day of 1994 between the following parties:
1. AUSTRALIS MEDIA LIMITED (ACN 059 741 178) of 100 Bulwara Road, Pyrmont, NSW
2007 (fax number: (02) 325 7322) (the "Franchisor"); and
2. STV PTY LIMITED (ACN 065 312 450) of Level 23, 45 Clarence Street, Sydney,
NSW 2000 (fax number: (02) 335 7577) (the "Franchisee").
RECITALS:
A. The Australis Group carries on or will carry on the business within
Australia of Transmitting the Franchisor's Services containing the Programs
using the Delivery Systems.
B. The Franchisor has agreed to grant to the Franchisee and the Franchisee has
agreed to accept from the Franchisor an exclusive licence and franchise,
during the Term and in the Regions, to permit and require the Franchisee to
use the Equipment, the Franchisor's Subscriber Management System, the
Franchisor's Proprietary Rights, the Franchisor's Delivery System, the
Franchisor's Services and the Programs in the conduct of the Business on
the terms of this Agreement.
THE PARTIES AGREE as follows:
1. DEFINITIONS
1.1 In this Agreement, unless the context shall otherwise require:
"ACCOUNTING PERIOD" means each calendar quarter;
"ACDC" means the Australian Commercial Disputes Centre Limited or other
body then carrying on the functions of that company;
"ACT" includes any statute and the listing rules of any stock market of any
securities exchange;
"ADVERTISING" means marketing, advertising and promotion of the
Franchisor's Services as envisaged in Clause 16.1;
"ADDITIONAL FIXED FEE" means an additional fixed fee of not less than $1.00
per Subscriber per month calculated on a per Subscriber basis (based in
the case of the Franchisee, on only those Subscribers in respect of which
the Franchisor Subscription Management System is provided, each a
"relevant Subscriber"), equal to the actual cost of operating the
Franchisor's Subscriber Management System plus 10% up to a maximum
additional fixed fee of $4.00 per relevant Subscriber and provided further
that the maximum additional fixed fee is increased for the financial year
commencing 1 July 1995 and for each subsequent financial year by the
percentage increase in the Consumer Price Index (All Groups - Sydney)
between that published in respect of the period immediately prior to the
commencement of the previous financial year and that published in respect
of the period immediately prior to the expiry of the previous financial
year; but that in any case the total fee payable by the Franchisee as an
Additional Fixed Fee will not exceed 20% of the total actual cost of
operating the Franchisor's Subscriber
<PAGE>
2
Management System plus 10%. In effect, the computation of the
additional fixed fee will be as follows:
(a) total actual cost (plus 10%) / total Subscribers x relevant Subscribers;
(b) qualifications:
(1) the minimum fee of $1.00 and maximum fee of $4 in respect of the first
year will be adjusted annually by the Consumer Price Index;
(2) there will be a maximum fee capped at 20% of total actual cost (plus
10%).
"AGREED COSTS" means all amounts paid by the Franchisee:
(a) in relation to reception Equipment for supply to Subscribers (excluding the
purchase cost of the Equipment and installation costs);
(b) as depreciation (at the lower of 30% per annum and the highest rate from
time to time permitted for such depreciation under the Income Tax
Assessment Act 1936) of direct purchase costs for the Equipment supplied to
Subscribers (where that Equipment is purchased by the Franchisee);
(c) as any Taxes (but not more than the amounts recovered from Subscribers in
respect of Taxes);
(d) as any direct fees or external costs reasonably incurred by the Franchisee
in relation to the provision of any credit support under clause 7.9;
(e) as any other commercially reasonable and appropriate cost, including sales
commissions, notified by the Franchisee to the Franchisor and in respect of
which the prior written consent of the Franchisor has been obtained.
"AUSTRALIS" means Australis Media Limited (ACN 059 741 178);
"AUSTRALIS GROUP" means the Franchisor and each of its Controlled Entities from
time to time;
"BANK ACCOUNT" means the bank account designated by the Franchisee from time to
time for the purposes of this Agreement;
"BENEFITS" means all discounts, rebates, benefits, subsidies, incentives or
returns;
"BSA" means the Broadcasting Services Act 1992;
"BUSINESS" means the Franchisee's business of providing to subscribers any
Services;
"BUSINESS DAY" means a day when trading banks are open for business in Sydney;
"BUSINESS NAMES" means the business names used from time to time by the
Australis Group which are specified as Business Names by the Franchisor;
"CAST CODE" means the Code of Conduct established from time to time by the
Confederation of Australian Subscription Television;
"COMMENCEMENT DATE", in relation to each Region, means the date on which occurs
the last of each of the following in relation to that Region:
(1) not less than 8 English language subscription television broadcasting
services (being Franchisor's Services) are made available by the
Franchisor to the Franchisee as envisaged in Clause 14.1(a);
<PAGE>
3
(2) means of supply as envisaged in Clause 8 of the Equipment is reasonably
made available to the Franchisee, in sufficient quantities to permit
commencement of the Business in that Region on commercially reasonable
terms; and
(3) the date 6 months after not less than 8 new MDS Licences covering more than
50% of the number of occupied private dwellings within that Region are
issued;
"COMMITTEE" means the technical and services committee to be established as
envisaged in Clause 11A;
"COMPLIANCE NOTES" means guidance notes, instructions or directions prescribed
or specified as envisaged in Clause 13.1;
"CONFIDENTIAL INFORMATION" means any information concerning, relating to or used
in connection with any Services, any Equipment, any Subscriber Management
System, any Delivery System, the Programs, the Software, the business of the
Franchisor or the Business including information of every kind concerning or
relating to customers, suppliers, business transactions, business methods,
accounting and marketing techniques, Transmission of any Services, technical
matters, technology, records, forms, charges, financial affairs, trade secrets
and know-how, other than information which is in the public domain;
"CONTROLLED ENTITIES" means controlled entities and associated or related
companies under the Corporations Law and affiliates;
"COSTS" means when incurred by a party, the actual costs in relation to this
agreement incurred by that party less the value of all Benefits provided to,
received or derived by that party in connection with the act, matter or thing in
respect of which those costs are incurred;
"DELIVERY SYSTEM" means any facilities, systems or technology now existing or
developed after the date of this Agreement for the Transmission of any Services
including satellite, MDS, co-axial cable or fibre optic systems and including
any facilities for originating, compressing, encrypting, Transmitting or
repeating Transmissions;
"DERIVED" has the meaning given to it for the purposes of the Income Tax
Assessment Act 1936;
"EQUIPMENT" means the subscriber reception equipment specified from time to time
by the Franchisor after due consultation with the Franchisee including any
replacement subscriber reception equipment determined to be reasonably required
due to changes in available technology or because specified equipment is not
reasonably available;
"FORCE MAJEURE" means a circumstance beyond the reasonable control of a party
which occurs without the fault or negligence of the party affected and includes
civil disturbance or commotion, strikes, acts of God, war, blockade, revolution,
riot, earthquake, flood, storm, tempest, other natural calamities, technology or
equipment failure or malfunction, prolonged atmospheric interference with
Transmission, non-performance of any obligation by any third party and legal or
governmental enactment, order, requirement or regulation;
"FRANCHISEE APPROVALS" means any licences, registrations, approvals or other
requirements necessary or desirable (including from any governmental agency or
under any Act) in order to enable the Franchisee to act as a licensee and
franchisee of the
<PAGE>
4
Franchisor, to use any relevant Delivery System, to provide the Franchisor's
Services to Subscribers and to carry on the Business, during the Term and in the
Regions;
"FRANCHISEE GROUP" means the Franchisee and any of its subsidiaries from time to
time (it being understood that this does not include Controlled Entities);
"FRANCHISEE INFORMATION" means any Confidential Information created by or for
and belonging to the Franchisee including any information provided to the
Franchisor by the Franchisee pursuant to Clause 6 and including all information
relating to any Subscriber;
"FRANCHISEE REPORT" means the monthly report envisaged in Clause 6.2;
"FRANCHISOR APPROVALS" means any licences, registrations, approvals or other
requirements necessary or desirable (including from any governmental agency or
under any Act) in order to enable the Franchisor to use the Franchisor's
Delivery System and to provide the Franchisor's Services and the Programs,
during the Term and in the Regions;
"FRANCHISOR'S DELIVERY SYSTEM" means any Delivery System owned by, licensed to
or used by the Australis Group at any time during the Term for the Transmission
of the Franchisor's Services for access in the Regions;
"FRANCHISOR'S PROPRIETARY RIGHTS" includes:
(a) the Trade Marks;
(b) Confidential Information other than the Franchisee Information;
(c) the Business Names;
(d) copyright and other industrial and intellectual property rights in all
materials (including marketing materials) supplied by the Franchisor to the
Franchisee for or in connection with the Business;
(e) the Compliance Notes; and
(f) subject to this Agreement, any and all other rights, titles or interests
owned by, licensed to or used by the Australis Group in respect of the
Equipment, the Franchisor's Subscriber Management System, the Franchisor's
Delivery System, the Software, the Program Guide, the Franchisor's Services
and the Programs;
"FRANCHISOR'S SERVICES" means, subject to Clause 3.10, the Services to be
Transmitted by or through the Australis Group during the Term as specified in
Schedule Two, together with any additional Services which are agreed to be
Franchisor's Services from time to time;
"FRANCHISOR'S SUBSCRIBER MANAGEMENT SYSTEM" means any Subscriber Management
System owned by, or licensed to be used by, the Australis Group for or in
connection with the Franchisor's Services in respect of past, present and
prospective subscribers;
"FURTHER TERM" means any further term for this Agreement as envisaged in Clause
24;
"GOVERNMENTAL AGENCY" includes all governments and municipal councils, together
with all governmental, quasi-governmental, council or regulatory ministries,
departments, bodies, agencies, instrumentalities, enterprises and authorities,
including the Australian Broadcasting Authority, the Trade Practices Commission
and the Australian Stock Exchange Limited;
"GROUP PROMOTION SERVICE" means the marketing, advertising and promotion service
envisaged in Clause 17.1;
<PAGE>
5
"GROSS REVENUES" means all amounts derived by the Franchisee as Subscription
Fees (but, for the avoidance of doubt, this does not apply to equipment);
"INITIAL PERIOD" means, in relation to each Region, the period of 4 (four) years
from the Commencement Date in respect of that Region;
"INSURANCES" means the necessary and prudent insurances envisaged in Clause
20.1(a);
"MDS" means microwave multipoint distribution systems regulated under the Radcom
Act;
"MDS LICENCES" means licences for the operation of MDS Transmitters issued by
the Spectrum Management Agency under the Radcom Act;
"MINIMUM SUBSCRIBER LEVEL" means, in relation to each Region, the number from
time to time equal to the percentage specified in Schedule Three by Region of
occupied private dwellings within the Region to which the Franchisor's Services
can be provided by use of satellite, MDS or any other existing means of delivery
available to the Franchisee, without any material technical impairment;
"NET REVENUES", in an Accounting Period, means Gross Revenues less Agreed Costs;
"NOMINATED CUSTOMERS" means up to 10 persons nominated from time to time by the
Franchisee in each Region, to which the Franchisor's Services may be provided
free of charge;
"OTHER AGREED FEES" means the following costs:
(a) where an amount is incurred or derived by the Australis Group as a direct
Cost arising out of or in connection with the Transmission of Franchisor's
Services to Subscribers, which is of a nature over and above those costs
normally related with the activities of the Franchisor (such as telephone
charges incurred in the performance of designated activities such as
customer retention activities, bank and government fees and charges,
postage and stationery costs, locked bag costs, direct debit, credit card
and other collection charges, cheque dishonour fees and the like), the
amount of that Cost for the Australis Group servicing the relevant
Subscribers over and above the cost for the Australis Group servicing all
subscribers as calculated in accordance with generally accepted Australian
accounting principles;
(b) the Additional Fixed Fee; and
(c) any other amount incurred or derived by the Australis Group which is
notified in advance by the Franchisor to the Franchisee and in respect of
which the prior written consent of the Franchisee which shall not be
unreasonably withheld has been obtained (provided that if the Franchisee
does not give its consent in respect of the expenditure of any such amount
the Franchisor shall be relieved of its obligations under this Agreement to
make such expenditure);
"PREFERRED CUSTOMERS" means the persons nominated by the Franchisee in each
Region with the prior written consent of the Franchisor which shall not be
unreasonably withheld, to which the Franchisor's Services may be provided at a
discount to the Recommended Subscription Fee as prescribed by the Franchisor;
"PROGRAM FEES" means, in Clause 7.1, in respect of all Costs (including any
residuals) incurred in respect of any Accounting Period by the Australis Group
pursuant to agreements negotiated at arms length in respect of the licence to
the Australis Group of
<PAGE>
6
the rights to supply the Programs in Australia by means of the Franchisor's
Delivery System to subscribers, the proportion that the number of Subscribers
bears to the total number of subscribers including the Subscribers to each of
the Franchisor's Services throughout Australia (regardless of whether such
Franchisor Services are offered as part of a package of Franchisor Services or
are offered alone to subscribers), calculated at the end of each Accounting
Period and calculated on a Service by Service basis (it is understood that the
Franchisee will be consulted in relation to the negotiation of the Program
Fees);
"PROGRAM GUIDE" means the program guide envisaged in Clause 16.6
"PROGRAMS" means the programming, programs and content included in the
Franchisor's Services including cinematograph films and sound recording;
"RADCOM ACT" means the Radiocommunications Act 1992;
"RECOMMENDED SUBSCRIPTION FEE" means the amount recommended by the Franchisor to
be charged in each Region by the Franchisee to Subscribers in respect of the
reception of the Franchisor's Services and the lease, rental or provision of any
Equipment (except replacement equipment, where applicable). The Franchisor may
not recommend such an amount or variation to such an amount more than once in
any 6 month period, without the prior written consent of the Franchisee. Subject
to the law, the Recommended Subscription Fee may not be greater than the lowest
subscription fee charged by Australis or any franchisee of Australis it being
understood that special pricing may occur in specific regions for limited
periods. It is understood further that such special pricing will not affect the
determination of the "lowest subscription fee to be charged", so long as the
Franchisee is notified in writing of such special pricing on a timely basis;
"REGION" means each of the areas described in Schedule 1 and depicted in the
maps attached as Exhibit 1;
"SECURITIES" has the meaning given to it in the Corporations Law;
"SERVICES" means:
(a) broadcasting services;
(b) services providing data or text;
(c) services providing telecommunications;
(d) services that make programs available on demand on a point-to-point basis
including a dial-up service;
(e) services providing the Programs (other than the services referred to in
(a), (d), (f), (g) and (h));
(f) interactive services;
(g) pay-per-view services; and
(h) any other services or programming made available by the Franchisor or the
Franchisee to any subscribers on any Delivery System (not otherwise
referred to in (a) to (g) above);
"SERVICE FEE" means the monthly fee envisaged in Clause 7.1;
<PAGE>
7
"SOFTWARE" means the computer software designated by the Franchisor as the
software for the Franchisor's Subscriber Management System, together with any
materials, manuals, operating releases or other associated or additional
information;
"SPECIFICATIONS" means the full specifications for the Subscriber Management
System envisaged in Clause 11.1;
"SPECIFIED PERIOD" means the period of 2 years after the end of the Term;
"SUBSCRIBER" means a person who enters into a Subscriber Contract with the
Franchisee, for the supply of the Franchisor's Services;
"SUBSCRIBER CONTRACT" means the contract between the Franchisee and each
subscriber for the provision of any Services by the Franchisee:
(a) in relation to satellite services in the form prescribed by the Franchisor;
and
(b) in relation to MDS and cable services, in the form prescribed by the
Franchisee (which the Franchisee will provide to the Franchisor for comment
and which, to the extent commercially practicable, will be consistent with
the subscriber contact for satellite services).
"SUBSCRIBER MANAGEMENT SYSTEM" means the procedures and systems (including any
Confidential Information and any Software) for the management, administration
and servicing of subscribers to any Services, including procedures or systems
for:
(a) responding to enquiries from past, present and prospective subscribers;
(b) taking orders from present and prospective subscribers;
(c) arranging and scheduling installations of Equipment for prospective
subscriber and removals of Equipment from past subscribers;
(d) entering, retaining, analysing, retrieving and reporting on all data
concerning subscribers;
(e) recording details of Subscriber Contracts;
(f) invoicing subscribers for Subscription Fees and all other amounts payable
by subscribers for or in connection with any Services;
(g) collecting Subscription Fees and all other amounts payable by subscribers
for or in connection with any Services;
(h) authorising the installation of Equipment;
(i) depositing Subscription Fees and all other amounts payable by subscribers
for or in connection with any Services into the Bank Account;
(j) informing the Franchisee of all services or assistance reasonably requested
by subscribers, including in relation to:
(1) maintenance, repair, servicing and replacement of Equipment;
(2) enquiries concerning Programs or Services;
(3) complaints;
(k) coding all subscribers in Regions as customers of the Franchisee;
<PAGE>
8
(l) collating information to be contained in Franchisee Reports and all
management information reports in the same manner and form as produced
in relation to the Franchisor's other subscribers;
(m) encrypting or otherwise restricting access to any Services; and
(n) providing to the Franchisee particulars of all matters referred to in
Clause 6.2 insofar as they relate to the Subscribers, cross-referenced
to a subscriber identification number and a Subscriber Contract
number;
"SUBSCRIPTION FEES" means all amounts payable by Subscribers pursuant to
Subscriber Contracts in respect of the reception of the Franchisor's
Services and the lease or rental of any Equipment (but not including any
amounts payable by Subscribers for any Services which are not Franchisor's
Services);
"TAXES" means any sales taxes, goods or services taxes or other charges,
imposts, expenses or duties which, pursuant to any Act are levied by any
governmental agency on Subscribers or the Franchisee in respect of the
provision, delivery or receipt of the Franchisor's Services and which are
charged directly by the Franchisee to Subscribers;
"TERM" means, in relation to each Region, the period commencing on the date
of this Agreement and ending 10 years after the Commencement Date and
includes the Further Term if granted pursuant to Clause 24;
"TRADE MARKS" means the trade marks, service marks, logos and designs used
from time to time by the Australis Group in connection with the
Franchisor's Services which are specified as Trade Marks by the Franchisor;
"TRAINING PROGRAM" means the training program to be provided by the
Franchisor as envisaged in Clause 10;
"TRANSMISSION" includes provision, delivery, broadcasting, diffusion,
reproduction, supply and performance;
"VALUERS" means either:
(a) 2 duly qualified independent persons nominated as envisaged in Clause
25.8(a); or
(b) 3 duly qualified independent persons being the 2 persons referred to
in sub-paragraph (a) above and a third person nominated as envisaged
in Clause 25.9(a);
as the case may be.
Words defined in the BSA or in the Copyright Act 1968 shall have the same
meaning in this Agreement.
1.2 In this Agreement, unless the context shall otherwise require:
(a) words importing the singular shall include the plural and vice versa;
(b) all sums are payable in Australian dollars;
(c) Clause headings shall be disregarded;
(d) all warranties shall, during the Term, have the force and effect of
conditions;
(e) all warranties, representations and undertakings survive completion of
this Agreement but any such warranties, representations and
undertakings which relate to the existing status of a party are
limited to 3 years;
<PAGE>
9
(f) the word 'person' means and includes a natural person, a company, a
governmental agency or other authority or association (incorporated or
unincorporated);
(g) references to any party to this Agreement or any other document or
agreement shall include its successors or permitted substitutes or
assigns;
(h) references to any document or agreement (including this Agreement)
include references to such document or agreement as amended, novated,
supplemented or replaced from time to time;
(i) except where followed directly by the word 'only', the terms
'includes' or 'including' will mean 'includes, but is not limited to'
and 'including, but not limited to' respectively, it being the
intention of the parties that any enumeration after those words is
illustrative and not exhaustive;
(j) references to Clauses, Annexures, Exhibits and Schedules are
references to Clauses of and annexures, exhibits and schedules to this
Agreement;
(k) references to any legislation or to any section or provision of any
legislation include any statutory modification or reenactment or any
substituted statutory provision and all ordinances, by-laws,
regulations and other statutory documents issued thereunder;
(l) no rule of construction applies to the disadvantage of a party because
that party was responsible for the preparation of this Agreement or
any part of it;
(m) a reference to conduct includes any omission, statement or
undertaking, whether or not in writing; and
(n) if a word is given a certain meaning or interpretation, words derived
from it or from which it is derived will be given a corresponding
meaning.
1.3 Any reference in this Agreement to a calculation or payment being made in
respect of a particular number of subscribers (including Subscribers) from
time to time shall be made by reference to the number of relevant
subscribers as an average during the applicable Accounting Period.
2. CAPACITY OF FRANCHISOR AND FRANCHISEE
2.1 The Franchisor agrees to procure that each of the persons or companies in
the Australis Group which from time to time has rights in relation to the
Equipment, the Franchisor's Subscriber Management System, the Franchisor's
Proprietary Rights, the Software, the Programs, the Franchisor's Services
or the Franchisor's Delivery System will make those rights available to the
Franchisor or will otherwise conduct itself so as to enable the Franchisor
to perform and observe its obligations under this Agreement in accordance
with its terms and as if each of the companies in the Australis Group were
bound by the Agreement as Franchisor.
2.2 The Franchisee agrees to procure that each of the persons or companies in
the Franchisee Group which from time to time has rights in relation to the
Equipment, any Subscriber Management System, the Software, the Programs,
any Services, any Delivery System or any other matter relevant to this
Agreement will make those rights available to the Franchisee or will
otherwise conduct itself so as to enable the Franchisee to perform and
observe its obligations under this Agreement in accordance with its terms
and as if each of the companies in the Franchisee Group were bound by the
Agreement as Franchisee.
<PAGE>
10
3. APPOINTMENT OF FRANCHISEE
3.1 The Franchisor grants to the Franchisee and the Franchisee accepts from the
Franchisor, in respect of each Region during the Term, subject to and on
the terms of this Agreement:
(a) an exclusive licence and franchise:
(1) to supply or offer to supply the Franchisor's Services and the
Equipment; and
(2) to Transmit the Franchisor's Services and the Programs; and
(b) an exclusive licence and franchise;
(1) to use the Franchisor's Proprietary Rights;
(2) to access and use the Franchisor's Delivery Systems; and
(3) to access and use the Franchisor's Subscriber Management System
including the Software.
3.2 Further to Clause 3.1, the Franchisor agrees with the Franchisee that the
Franchisor shall, in each Region throughout the Term, procure or make
available to the Franchisee, on the terms of this Agreement:
(a) the Franchisor's Services in the manner as envisaged in Clause 14;
(b) the Programs incorporated into the Franchisor's Services;
(c) access to means of supply of the Equipment requested by the Franchisee as
envisaged in Clause 8;
(d) access to and use of the Franchisor's Delivery System only for the delivery
of Franchisor's Services to Subscribers and as envisaged in Clauses 5 and
14;
(e) access to and use of the Franchisor's Subscriber Management System for the
delivery of Franchisor's Services to Subscribers and for the delivery of
other Services by the Franchisee where agreed pursuant to clause 11.1;
(f) access to the Training Program as envisaged in Clause 10;
(g) a copy of all marketing, advertising and promotion materials produced or
arranged by the Franchisor as envisaged in Clause 16 and 17;
(h) a Program Guide relating to the Programs available on the Franchisor's
Services as envisaged in Clause 16.6;
(i) at the discretion of the Franchisor, a copy of all material information
(including Confidential Information) owned by the Franchisor or otherwise
in its possession and not liable to confidentiality obligations to any
other person reasonably requested by the Franchisee to enable the
Franchisee to perform its obligations under this Agreement or to carry on
the Business insofar as it relates to the Franchisor's Services; and
(j) at the discretion of the Franchisor, all assistance reasonably requested by
the Franchisee in connection with the supply of the Franchisor's Services
to Subscribers;
<PAGE>
11
Provided that the Franchisee shall reimburse to the Franchisor any
Costs incurred by the Franchisor in providing the things referred to
in subparagraphs (h), (i) or (j) of Clause 3.2.
3.3 Subject to the terms of this Agreement and except to the extent any claim,
loss or damage is caused by or in connection with any act, omission or
breach by the Franchisor, the Franchisee agrees to indemnify and hold
harmless the Australis Group against and from any and all claims, losses
and damages (including legal fees on a solicitor and own client basis)
arising out of or in connection with the conduct of the Business by the
Franchisee.
3.4 The Franchisor agrees that it shall not, except as envisaged in Clauses
3.7, 3.8, 3.9, 3.10 or 14, Transmit or grant or permit to be granted to
third parties any licence or right to Transmit in any manner or by any
means whatsoever the Programs or the Franchisor's Services or any Services,
during the Term and in the Regions, and the Franchisor agrees:
(a) except as envisaged in Clauses 3.9 or 3.10, not to procure any
Subscribers within any Region;
(b) not to denigrate or discriminate against (other than in exercise of
its rights under this Agreement) in any manner whatsoever the Business
or the Franchisee (but for the purposes of this Clause it shall not be
regarded as discrimination if the Franchisor contracts any other
franchise outside the Regions on terms different to this Agreement
including in relation to the Service Fee); and
(c) not to bid for, acquire or seek to acquire MDS Licences or engage in
any cable subscription television activities in any Region at any
official public auction or other allocation instigated or run by any
governmental agency, without the prior written consent of the
Franchisee or shall not in competition (such competition to be bona
fide) to the Franchisee acquire or hold any direct or indirect voting
or economic interest in or otherwise have any board or management
control of holders of MDS Licences in any Region.
3.5 The Franchisee acknowledges that the Australis Group may not from time to
time have exclusive rights to Transmit the Programs, during the Term and in
the Regions, but the Franchisor shall procure that the Australis Group uses
its best endeavours to acquire such exclusive rights.
3.6 Intentionally omitted.
3.7 Other than in regard to the Services referenced in Schedule 2(a), if, at
any time during the Term, the Australis Group intends to commence any
Service or Franchisor Service which may be Transmitted in any Region, the
Franchisor shall give notice of that intention to the Franchisee. The
Franchisor and the Franchisee shall then attempt to negotiate in good faith
a basis on which the Franchisee would acquire the sole and exclusive
licence and franchise for that Service, during the Term and in each
relevant Region. If agreement cannot be reached between the parties with
respect to those matters within 60 days of first notice to the Franchisee,
the Franchisor may specify in an offer terms on which it would be prepared
to grant to the Franchisee the sole and exclusive licence and franchise for
that Service, during the Term and in each relevant Region. The Franchisee
may accept that offer at any time within a further 60 days. If the
Franchisee does not accept that offer, the Franchisor shall be free to
supply that Service in each relevant Region to any other person or by
itself on terms no more favourable than those offered to the Franchisee. In
those circumstances, the Franchisor will be entitled to Transmit that
Service by means of satellite, but not by means of MDS or cable, to
Subscribers for reception using the Equipment supplied to those Subscribers
as envisaged in this
<PAGE>
12
Agreement at no cost to the Franchisor. If the Franchisee has the right to
Transmit a Service in any Region pursuant to this Clause, the Franchisee
shall, within 15 months from the date of expiry of the period in which the
offer referred to in this clause could have been accepted either:
(a) commence the provision of that Service to its Subscribers; or
(b) at its sole discretion, enter into a sublicence agreement with a third
party for the provision of that Service in the Regions.
Subject to Clause 3.12A and to Clause 3.7(b) above, this Clause shall not
limit in any way the right of the Australis Group to commence and operate
as a principal and not through a franchise any Service in Australia, other
than in any Region.
3.8 If, at any time during the Term, the Franchisee Group intends to promote,
develop, finance and distribute any Service which is intended to be
Transmitted outside the Regions, the Franchisee shall give notice of that
intention to the Franchisor. The Franchisor and the Franchisee shall then
attempt to negotiate in good faith a basis on which the Franchisor may
acquire the sole and exclusive licence for that Service during the Term
outside the Regions throughout Australia. If agreement cannot be reached
between the parties with respect to those matters within 60 days of first
notice to the Franchisor, the Franchisee may specify in an offer terms on
which it would be prepared to grant to the Franchisor the right to acquire
the sole and exclusive licence for that Service during the Term outside the
Regions throughout Australia. The Franchisor may accept that offer at any
time within a further 60 days. If the Franchisor does not accept that
offer, the Franchisee shall be free to supply that Service outside the
Regions throughout Australia to any other person or by itself on terms no
more favourable than those offered to the Franchisor. The Franchisor will
consider in good faith permitting the Franchisee to use the Franchisor's
Subscriber Management System in respect of the Service on reasonable
commercial terms in respect of subscribers both in and outside the Regions.
If the Franchisor has the right to Transmit a Service outside the Regions
under this Clause 3.8, the Franchisor shall, within 15 months from the date
of expiry of the period in which the offer referred to in this clause 3.8
could have been accepted, either:
(a) commence the provision of its Service to its Subscribers; or
(b) at its sole discretion enter into a sublicence agreement with a third
party for the provision of that Service outside of the Regions.
3.9 Subject to Clause 3.15, if:
(a) the Franchisee does not commence the Transmission of any of the
Franchisor's Services to Subscribers in any Region within 3 months of
the Commencement Date; or
(b) by the end of the period of 4 years from the Commencement Date in
respect of any Region, the Franchisee fails to achieve the Minimum
Subscriber Levels required by Clause 5.2(b);
the Franchisor may, by notice to the Franchisee, terminate the rights of
the Franchisee under this Agreement in respect of that Region. In the event
of any such termination, the provisions of Clauses 25.6 to 25.11 shall
apply mutatis mutandis in respect of the termination of this Agreement in
respect of that Region. Further, in that event, the Franchisor shall be
free to Transmit the Franchisor's Services and the Programs in the relevant
Region during the Term, including to past Subscribers, or to grant or
permit to be granted to third parties a licence or right to Transmit in any
manner or by any means
<PAGE>
13
whatsoever the Programs and the Franchisor's Services in the relevant
Region during the Term, including to any past Subscribers.
3.10 Subject to Clause 3.15, if:
(a) the Franchisee (or a sublicensee appointed in respect of a
Franchisor's Service does not commence the Transmission of any
particular 1 or more of the Franchisor's Services pursuant to Schedule
2(a) in any Region within 3 months of the Commencement Date or, in
respect of a Franchisor's Service or a Service specified as envisaged
in Clause 3.7, within 15 months of being so specified; or
(b) subject to clause 3.7, having commenced Transmission of the
Franchisor's Services in a Region, the Franchisee discontinues such
Transmissions for more than one (1) week in the aggregate during any 1
month period;
the Franchisor may, by notice to the Franchisee, terminate the rights of
the Franchisee under this Agreement in respect of that Franchisor's Service
in respect of that Region. Further, in that event, the Franchisor shall be
free to Transmit that Franchisor's Service and the relevant Programs in the
relevant Region during the Term, including to past Subscribers, or to grant
or permit to be granted to third parties a licence or right to Transmit in
any manner or by any means whatsoever the relevant Programs and that
Franchisor's Service in the relevant Region during the Term, including to
any past Subscribers. In no event shall the Franchisee be liable to the
Franchisor for any sublicensee discontinuing or failing to commence the
Transmission of any Franchisor's Service.
3.11 Notwithstanding any other provision of this Agreement, the Franchisor and
the Franchisee agree that this Agreement shall be deemed to be a separate
and independent agreement in relation to each Region and, without limiting
the generality of the foregoing, any breach by the Franchisee of this
Agreement in relation to a Region shall not affect the Franchisee's rights
or entitlements in connection with any other Region.
3.12 Intentionally deleted.
3.12A Subject to clause 3.7, Franchisor agrees to specify as a Franchisor's
Service each Service Transmitted by the Australis Group from time to time
in respect of which the Australis Group has Transmission rights in the
Regions and which are subscription television broadcasting services,
subscription radio broadcasting services, subscription television
narrowcasting services or subscription radio narrowcast services
(including any pay-per-view or pay-per-listen services).
3.12B Subject to this Agreement, the Franchisor shall not cease the supply of
any Franchisor's Service to the Franchisee if the same Franchisor's
Service is provided by the Franchisor anywhere in Australia.
3.13 Both parties acknowledge that they may not be able to prevent, and are not
responsible or liable for, persons, not being Subscribers, pirating,
receiving or Transmitting the Franchisor's Transmissions within the Regions
during the Term without the Franchisee's or the Franchisor's consent.
However, both parties agree to use their best endeavours to prevent all
pirating within the Regions.
3.14 Intentionally deleted.
3.15 Notwithstanding any other provision of this Agreement, the Franchisor shall
not be entitled to terminate this Agreement or to exercise any other right
of termination (including pursuant to Clauses 3.9 or 3.10) if the
Franchisee pays to the Franchisor when
<PAGE>
14
due the Service Fee calculated on the basis that the Minimum Subscriber
Level has been achieved or maintained, notwithstanding that, in fact, the
Franchisee may not have achieved or maintained the Minimum Subscriber Level
in any Region.
4. APPROVALS
4.1 The Franchisee shall:
(a) do all things lawfully necessary to seek and obtain all Franchisee
Approvals within the times required in order for the Franchisee to
perform this Agreement;
(b) obtain and pay for and upon request provide copies to the Franchisor
of all Franchisee Approvals;
(c) ensure that all Franchisee Approvals are kept current during the Term;
and
(d) notify the Franchisor promptly and in any event within 2 Business Days
if any Franchisee Approval or other authorisation which is essential
to the conduct of the Business is repealed, revoked or terminated or
expires or is modified or amended in any manner,
provided that nothing in this Agreement shall oblige the Franchisee to
acquire any MDS Licences or any Delivery System.
4.2 The Franchisor shall at the Franchisee's cost give all reasonable
assistance necessary to enable the Franchisee to obtain all Franchisee
Approvals, including to enable the Franchisee (if required by law to do so)
to obtain and maintain licences under the BSA.
4.3 The Franchisor shall:
(a) do all things lawfully necessary to seek and obtain all Franchisor
Approvals within the times required in order for the Franchisor to
perform this Agreement;
(b) obtain and pay for and provide copies to the Franchisee of all
Franchisor Approvals;
(c) ensure that all Franchisor Approvals are kept current during the Term;
and
(d) notify the Franchisee promptly and in any event within 2 Business Days
if any Franchisor Approval or other authorisation which is essential
to the conduct of the Business is repealed, revoked or terminated or
expires or is modified or amended in any manner.
4.4 The Franchisee shall at the Franchisor's cost give all reasonable
assistance necessary to enable the Franchisor to obtain all Franchisor
Approvals, including to enable the Franchisor to obtain and maintain
licences under the BSA.
5. CONDUCT OF BUSINESS
5.1 During the Term and in each of the Regions, the Franchisee shall at all
times diligently carry on the Business (including complying with all of its
obligations under Clause 5.2) with all due care and skill and as
vigorously, competitively, profitably and efficiently as possible.
5.2 In accordance with this Agreement, the Franchisee shall:
(a) intentionally deleted ;
(b) at all times in each Region use its best endeavours to achieve and
maintain the requisite Minimum Subscriber Level;
<PAGE>
15
(c) at all times use its best endeavours to procure Subscribers in the Regions
for the Franchisor's Services;
(d) Intentionally deleted;
(e) Intentionally deleted;
(f) at all times contract Subscribers (including Nominated Customers and
Preferred Customers) on the terms of the prescribed Subscriber Contract;
(g) at all times maintain and operate the Bank Account;
(h) on a regular basis as reasonably prescribed by the Franchisor carry out
Advertising and sell or distribute to all Subscribers a Program Guide as
agreed;
(i) at all times use the Business Names and the Trade Marks in connection with
the Franchisor's Services as reasonably prescribed by the Franchisor but
not otherwise;
(j) at all times use its best endeavours to provide all of the Franchisor's
Services in each Region, using all Delivery Systems owned by, licensed to
or used by the Franchisee;
(k) at any time, if the Franchisee is unable to provide all of the Franchisor's
Services in any Region, provide only those Franchisor's Services agreed by
the Franchisor and Franchisee in that Region (subject to any restrictions
on the Franchisor under any agreement or arrangement with any third party);
(l) subject to Clause 14 at all times Transmit the Franchisor's Services to
Subscribers in their entirety and without interruption, on the dates and at
the times scheduled by the Franchisor;
(m) subject to the Franchisor's delivery of the signal in accordance with
Clause 14, at all times ensure that all Transmissions originated by the
Franchisee have (subject to receipt from the Franchisor of a signal which
permits the same) a signal of reasonable technical quality;
(n) at all times hold and deposit into the Bank Account moneys received from
Subscribers properly and promptly and in any event within 5 Business Days
of receipt;
(o) at all times comply with all applicable laws and all conditions and
requirements imposed by any governmental agency or under any Act (including
all foreign ownership requirements imposed by any Act); and
(p) at all times comply with the Compliance Notes and the reasonable
requirements of any CAST Code;
and the Franchisee shall not:
(q) at any time refuse to procure any particular subscriber or subscribers
generally in any Region, area or suburb without good and reasonable cause;
(r) subject to any separate written agreement with the Franchisor at any time
procure any subscribers outside of the Regions for the Franchisor's
Services;
(s) at any time vary any satellite Subscriber Contract without the prior
written consent of the Franchisor;
<PAGE>
16
(t) subject to the law, at any time charge less than the Recommended
Subscription Fee in respect of the reception of the Franchisor's Services
and the lease, rental or other provision of any Equipment (except
replacement equipment, where applicable), and, in addition the Franchisee
may charge a lesser fee if, in its reasonable opinion, there is a business
need to charge less than that fee, and either:
(1) the Franchisor has agreed to that lesser fee; or
(2) the Franchisee continues to pay the Franchisor fees under clause 7.1
as if that lesser fee was not being charged;
(u) subject to the law, at any time charge less than the fee recommended by the
Franchisor in respect of the purchase of any Equipment or the provision of
the Program Guide provided that the fee is not greater than the lowest
equivalent fee charged by Australis or any franchisee of Australis; and, in
addition, the Franchisee may charge a lesser fee if, in its reasonable
opinion there is a business need to charge less than that fee, and either:
(1) the Franchisor has agreed to that lesser fee; or
(2) the Franchisee continues to pay the Franchisor fees under clause 7.1
as if the lesser fee was not being charged;
(v) without prior notice to the Franchisor, sell, market or promote the
Franchisor's Services with any other Services and in any event will not so
sell, market or promote these services in a manner which will bring the
Franchisor into disrepute or subject to legal action;
(w) at any time add to, edit or in any way interfere with the Franchisor's
Services in the form in which they are provided by the Franchisor to the
Franchisee for delivery to Subscribers;
(x) not Transmit any other Services, unless at that time the Franchisee is
Transmitting at least eight (8) (plus two (2) ABC Programmes if offered) if
offered of the Franchisor's Services in Schedule 2(a) or that denigrates or
otherwise brings into disrepute in any manner the Franchisor's Services,
the Programs or the Franchisor,
(y) at any time without the prior written consent of the Franchisor, which
shall not be unreasonably withheld, acquire or hold any direct or indirect
economic or voting interest in or otherwise have board or management
control of any other franchise granted by the Australis Group or by any
person associated or affiliated with the holder of any satellite
subscription television broadcasting licence; and
(z) at any time without the prior written consent of the Franchisor, which
shall not be unreasonably withheld, acquire or hold any direct or indirect
economic or voting interest in or otherwise have board or management
control of any owner or licensee of any Services, any Delivery System or
any Subscriber Management System,
provided however that the Franchisee may:
(aa) subject to the BSA, to limitations imposed in the Franchisor's agreements
with third party suppliers of Programs or Services and to the reasonable
requirements of any CAST Code, insert up to 4 minutes per hour of
advertising or programming per Service into the Franchisor's Services (the
revenue from which shall remain the sole property of the Franchisee); and
<PAGE>
17
(ab) use its own business names, brand names or marks in connection with
the Business as envisaged in Clause 17.
5.3 Subject to the terms of this Agreement and except to the extent that any
claim, loss or damage is caused by or in connection with any act, omission
or breach of this Agreement by the Franchisor, the Franchisee agrees to
indemnify and hold harmless the Australis Group against and from any and
all claims, losses and damages (including legal fees on a solicitor and own
client basis) arising out of or in connection with any breach by the
Franchisee of its obligations under this Agreement including its particular
obligations under Clauses 5.1 and 5.2.
5.4 The Franchisor has given no warranty or guarantee as to the performance or
potential performance of the Business or any benefits which might flow to
the Franchisee from carrying on the Business.
5.5 The Franchisee and the Franchisor will co-operate in good faith to
facilitate the use by the Franchisee of any sub-carrier capacity accessible
to the Australis Group which may not be in use or proposed for use by the
Australis Group at any particular time for the purpose of enabling the
Franchisee to operate, manage and control the Business provided that any
arrangements shall be at no cost to the Franchisor, shall not result in any
loss of revenues by the Australis Group and shall be terminable on a
minimum of 60 days written notice by the Australis Group.
6. REPORTS AND RECORDS
6.1 The Franchisee shall:
(a) keep complete and proper books and records of all moneys received and
expended, all assets acquired, arising or disposed of and all
liabilities incurred, reduced or released in connection with the
Business;
(b) ensure that those books and records are prepared in accordance with
the requirements of the Corporations Law and generally accepted
Australian accounting principles;
(c) ensure that those books and records show a true and fair view of all
transactions and the financial and contractual position of the
Franchisee and, where applicable, the Franchisor with respect to the
Business;
(d) appropriately organise and store all invoices, timesheets, bank
statements, accounts, agreements and other documents relating to the
Business; and
(e) prior to the establishment of books and records in respect of the
Business, consult with and obtain the prior written consent of the
Franchisor or its auditors as to the form of those books and records.
6.2 Subject to Clause 19 the Franchisee shall deliver to the Franchisor within
14 days after the last day of each Accounting Period during the Term a
report in a form reasonably required by the Franchisor and duly completed
and signed by or on behalf of the Franchisee. Such report shall, unless
otherwise specified by the Franchisor, show such information reasonably
prescribed by the Franchisor in connection with the Franchisee's
performance of this Agreement (including information from time to time
required to be provided to a third party under any agreement).
<PAGE>
18
6.3 Without limiting the generality of Clause 6.2 and subject to Clause 6.6,
the Franchisee shall:
(a) deliver to the Franchisor within 30 days after the last day of each
calendar quarter a quarterly statement of Gross Revenues, Agreed
Costs, Net Revenues and Other Agreed Fees prepared in accordance with
the requirements of the Corporations Law and generally accepted
Australian accounting principles;
(b) deliver to the Franchisor as soon as available but not later than 75
days after 30 June of each year an audited annual report for the
previous 12 month period stating numbers of new and total Subscribers,
amounts of Gross Revenues, Agreed Costs, Net Revenues and Other Agreed
Fees and a calculation of the Service Fee payable compared to the
Service Fee paid, together with such other information reasonably
prescribed by the Franchisor in connection with the Franchisee's
performance of this Agreement, prepared in accordance with the
requirements of Clause 6.1; and
(c) provide to the Franchisor such other reports in form and substance as
shall be reasonably specified from time to time by the Franchisor.
6.4 The Franchisee:
(a) shall, upon reasonable notice, and at convenient places, give to the
Franchisor on request such information and copies of such documents in
relation to its financial condition or the Business as the Franchisor
may reasonably request;
(b) shall provide the Franchisor and its nominees on reasonable request
and at reasonable times and places with unrestricted access to all
books, records, statements and documents maintained or kept by the
Franchisee in connection with the Business and this Agreement
including books, records, statements and documents stored in
computerised form;
(c) shall give to the Franchisor and its nominees on reasonable request
and at reasonable times and places the further right to conduct or
supervise a physical inspection of the Business premises and any other
premises used by the Franchisee in connection with the Business;
(d) shall fully co-operate with representatives of the Franchisor making,
conducting, supervising or observing any inspection under this Clause
provided that the inspection shall not interfere with the normal
operation of the Business;
(e) shall, on notification that the Business does not meet the agreed
requirements of the Franchisor in respect of books and records,
correct such deficiencies within a reasonable time;
(f) shall give to the Franchisor and its auditors the right at any time
during normal business hours, with prior reasonable notice to the
Franchisee, to audit or cause to be audited the books, records,
statements and documents which the Franchisee is required to permit
the Franchisor access to under this Clause or which the Franchisee is
required to maintain under Clause 6.1; and
(g) shall fully co-operate with the Franchisor or its auditors conducting
any audit and, if any audit should disclose an understatement of Gross
Revenues or Net Revenues for any period, the Franchisee shall pay to
the Franchisor within 10 Business Days after receipt of the audit
report, any amount due as the amount of such understatement and, if
any audit should disclose an understatement of at
<PAGE>
19
least 5% of total Gross Revenues or Net Revenues, the Franchisee shall
also pay to the Franchisor within 10 Business Days after receipt of
the audit report, the cost of such audit;
provided that in each case the Franchisor shall give the Franchisee not
less than 5 Business Days written notice of any proposed inspection or
audit. Any inspection or audit shall take place during normal business
hours on a Business Day and not more than once during any 6 month period.
6.5 From time to time on reasonable request the Franchisee shall provide to the
Franchisor copies of all business plans, income and expenditure budgets and
marketing plans relevant to the Business and all such material shall be
Franchisee Information.
6.6 The Franchisor shall assist the Franchisee in obtaining all information or
documents required by this Clause 6, to the extent that such information or
documents are in the possession of or under the control of the Franchisor.
Any period of time referred to in this Clause 6 shall be extended by the
period of any delay in the Franchisor providing to the Franchisee any
information or documents under the control of or in the possession of the
Franchisor.
7. SERVICE FEE
7.1 During the Term, the Franchisee shall pay to the Franchisor a fee
calculated as the higher of:
(a) 35% of Net Revenues in respect of all Regions in respect of each
Accounting Period; and
(b) after the Initial Period, 35% of Net Revenues which would have been
earned (deeming there to be no increase in Agreed Expenses) had the
Franchisee complied with Clause 5.2(b) in respect of each Region, or
across all Regions on an aggregated Subscriber basis, in respect of
each Accounting Period;
provided that if from time to time:
(c) the Franchisor has provided to the Franchisee a written statement of
the Program Fees in respect of the Accounting Period referred to in
paragraphs (a) and (b);
(d) a director or the chief executive officer of the Franchisor has
certified that the Franchisor has not received any Benefits that have
not been taken into account for the purposes of that written statement
in determining the Program Fees; and
(e) the Program Fees specified in the written statement are in excess of
the fee calculated in accordance with paragraphs (a) and (b);
the Franchisee must, subject to clause 7.10, pay to the Franchisor an
additional fee equal to that excess in respect of each relevant Accounting
Period, to a maximum of an additional 15% of Net Revenues.
7.2 For the purpose of calculating the Service Fee payable under Clause 7.1,
Agreed Costs may be deducted from or set off against Gross Revenues in the
same or other Regions.
7.3 The Franchisee shall pay to the Franchisor the Service Fee in accordance
with this Clause. In respect of the first and second Accounting Periods in
respect of which a payment is required to be made to the Franchisor as
envisaged in Clause 7.1, the Franchisee shall make that payment to the
Franchisor at the same time as providing to the Franchisor the relevant
Franchisee Report, but in any event not later than 14 days after the last
day of the relevant Accounting Period. In respect of each Accounting Period
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20
after the second Accounting Period in respect of which a payment is
required to be made to the Franchisor as envisaged in Clause 7.1, the
following procedure shall apply:
(a) subject to any deduction which the Franchisee is entitled to make
under paragraph (b)(2), not later than the first Business Day of the
relevant Accounting Period, the Franchisee shall pay to the
Franchisor, as an instalment of the Service Fee, an amount equal to
the Service Fee payable by the Franchisee to the Franchisor in the
next to last Accounting Period (in respect of which the relevant
Franchisee Report should have been delivered to the Franchisor by the
14th day of the last Accounting Period); and
(b) at the same time as providing to the Franchisor the relevant
Franchisee Report:
(1) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is less than the amount of the Service Fee for the
relevant Accounting Period calculated as envisaged in Clause 7.1,
the Franchisee shall pay to the Franchisor the amount of the
shortfall in the next subsequent Accounting Period; or
(2) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is not less than the amount of the Service Fee for
the relevant Accounting Period calculated as envisaged in Clause
7.1, the Franchisee shall notify the Franchisor that it shall
make a deduction equal to the over payment from the amount
payable to the Franchisor under paragraph (a) in the next
subsequent Accounting Period and the Franchisee shall be entitled
to make that deduction.
At the same time as providing to the Franchisor the audited annual report
envisaged in Clause 6.3(b), but in any event within 60 days after 30 June
of each year:
(c) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is less than the amount of the
Service Fee calculated as payable in the audited annual report, the
Franchisor shall request a payment from the Franchisee equal to that
shortfall and the Franchisee shall pay to the Franchisor the amount of
the shortfall within 14 days of that request from the Franchisor; or
(d) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is not less than the amount of the
Service Fee calculated as payable in the audited annual report, the
Franchisee shall request a repayment from the Franchisor equal to the
over payment and the Franchisor shall repay an amount equal to the
over payment within 14 days after that request from the Franchisee.
7.4 If either party fails to pay to the other any moneys (other than any
amounts bona fide in dispute or amounts not able to be calculated
accurately on the otherwise due date) payable under this Agreement on the
due date, including as envisaged in Clauses 7.3 and 7.6, it shall pay to
the other party interest at the rate per annum equal to 4% above the
overdraft rate for amounts in excess of $100,000 charged to the first party
from time to time by its bankers, accruing on a daily basis on the amount
of such moneys from time to time outstanding for the period commencing on
the date on which payment was first due and ending on the date on which the
first party receives payment of such moneys, such interest to be payable on
demand from the first party.
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21
7.5 Fees payable to the Franchisor in respect of pay-per-view Services, and
other Services not forming part of the Franchisor's Services, shall be
negotiated separately by the parties in accordance with Clause 3.7 and are
not included in the Service Fee.
7.6 During the Term, the Franchisee shall pay to the Franchisor all Other
Agreed Fees in accordance with this Clause 7.6, in addition to the Service
Fee payable from time to time. In respect of the first and second
Accounting Periods the Franchisee shall pay the Additional Fixed Fee to the
Franchisor at the same time as providing to the Franchisor the relevant
Franchisee Report, but in any event not later than 14 days after the last
day of the relevant Accounting Period. In respect of each Accounting Period
after the second Accounting Period the following procedure shall apply:
(a) subject to any deduction which the Franchisee is entitled to make
under paragraph (b)(2), not later than the first Business Day of the
relevant Accounting Period, the Franchisee shall pay to the
Franchisor, as an instalment of the Additional Fixed Fee, an amount
equal to the Additional Fixed Fee payable by the Franchisee to the
Franchisor in the next to last Accounting Period (in respect of which
the relevant Franchisee Report should have been delivered to the
Franchisor by the 14th day of the last Accounting Period); and
(b) at the same time as providing to the Franchisor the relevant
Franchisee report:
(1) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is less than the amount of the Additional Fixed Fee
for the relevant Accounting Period the Franchisee shall pay, in
the next subsequent Accounting Period, to the Franchisor the
amount of that shortfall (which in the case of the Additional
Fixed Fee will not exceed $4.00 per Subscriber or such maximum
Additional Fixed Fee as is applicable); or
(2) where the amount paid by the Franchisee to the Franchisor under
paragraph (a) is not less than the amount of the Additional Fixed
Fee for the relevant Accounting Period the Franchisee shall
notify the Franchisor that it shall make a deduction equal to the
overpayment from the amount payable to the Franchisor under
paragraph (a) in the next subsequent Accounting Period and the
Franchisee shall be entitled to make that deduction.
At the same time as providing to the Franchisor the audited annual report
envisaged in Clause 6.3(b), but in any event within 60 days after 30 June
of each year:
(c) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is less than the amount of the
Additional Fixed Fee calculated as payable in the audited annual
report, the Franchisee shall pay to the Franchisor the amount of the
shortfall; or
(d) where the amount paid by the Franchisee to the Franchisor in respect
of the 12 month period to 30 June is not less than the amount of the
Additional Fixed Fee calculated as payable in the audited annual
report, the Franchisee shall request a repayment from the Franchisor
equal to the over payment and the Franchisor shall, subject to its
rights in Clause 6.4, repay an amount equal to the over payment within
14 days after that request from the Franchisee.
The Franchisee shall from time to time pay to the Franchisor any Other
Agreed Fees (other than Additional Fixed Fees which are payable as provided
above) within 14
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22
Business Days after the Franchisor has provided to the Franchisee a written
statement of any Other Agreed Fees supported, where appropriate, by copies
of invoices. The Franchisor may provide such a written statement to the
Franchisee at any time.
7.7 Each of the Franchisor and the Franchisee shall use their best endeavours
to collect Subscription Fees and all other amounts charged to any relevant
Subscribers on a timely basis. If any relevant Subscriber falls into
arrears, the Franchisor shall, at the request of the Franchisee, disconnect
the relevant Subscriber from receiving the Franchisor's Services in the
Regions. The Service Fee payable to the Franchisor shall be adjusted to
take account of any bad or doubtful debts due from relevant Subscribers
except where the Franchisor's underlying Program agreements prohibit the
Franchisor from deducting bad or doubtful debts from its obligations.
7.8 All revenues received by the Franchisor or the Franchisee as Subscription
Fees, as payments for the Program Guide or as other Gross Revenues shall be
deposited (without diversion or deduction other than for payment of
applicable bank and government fees and charges) into the Bank Account.
7.9 The Franchisee shall procure that financial support is obtained in
accordance with this Clause 7.9. Upon the Franchisor's written request but
not before 1 November 1994, the Franchisee shall procure the provision by a
reputable financial institution acceptable to the Franchisor of any
additional credit support including letters of credit (in a form and
substance similar to that required of the Franchisor) in respect of an
amount equal to the Pro Rata Share (as defined below) of any such credit
given or procured by the Australis Group to third parties in respect of the
supply of Programs. The Pro Rata Share is the proportion that the Minimum
Subscriber Level bears to the total number of occupied private dwellings
within Australia (including the Regions) to which the Franchisor's Services
can be provided by use of satellite, MDS or any other existing means of
delivery available to the Franchisor without any material technical
impairment, calculated at the date of the Franchisor's request.
7.10 The Franchisee shall have the right during and for a period of 1 year after
the Term to inspect and to audit or cause to be audited the books, records,
statements and documents which the Australis Group maintain for the
purposes of verifying the Franchisor's determinations and calculations of
Program Fees and Other Agreed Fees on the same terms as the Franchisor has
rights under clause 6.4.
8. EQUIPMENT
8.1 The Franchisor shall procure the supply to the Franchisee of:
(a) the same Equipment as is available to the Franchisor in quantities
sufficient to conduct the Business as notified by the Franchisee to
the Franchisor;
(b) at the same price as is available to the Franchisor;
(c) subject to minimum and maximum order volumes, and to normal order
delays, at the same delivery times as are available to the Franchisor;
(d) subject to the evaluation by the relevant financier of the
circumstances of the Franchisee (including credit worthiness and
security provision) with the same financing arrangements as are
available to the Franchisor (it being understood that the amount of
such facilities will be in the region of $80 million to 100 million
over a start up period of up to 5 years);
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23
(e) with the same warranties and guarantees from the manufacturers or
suppliers as are available to the Franchisor in respect of the
Equipment.
8.2 Subject to Clause 8.3, the Franchisee shall have the absolute discretion to
decide whether it will purchase, lease or rent the Equipment, if available
subject to the requirements of the relevant manufacturer or supplier and
financier of the Equipment.
8.3 The Franchisee shall not obtain any Equipment from any person other than
the Franchisor or its nominee, so long as the Equipment is made available
to the Franchisee in accordance with subparagraphs (a), (b), (c), (d) and
(e) of Clause 8.1 and is available for delivery at times and at customary
and reasonable industry prices for such equipment (at the time of the
relevant Equipment price negotiation) all as reasonably required by the
Franchisee.
8.4 The Franchisee shall maintain the Equipment in accordance with the
manufacturer's standards.
8.5 The Franchisee shall notify the Franchisor immediately of any defect or
malfunction in the Equipment or of any factor causing or threatening damage
or destruction of the Equipment which will or is likely to result in
interruption or delay of any Service to Subscribers. In the event of
interruption of any of the Franchisor's Services to Subscribers by reason
of the Equipment malfunctioning or failing, the Franchisee shall promptly
and in any event within 2 Business Days notify the Franchisor and both
parties shall use their best endeavours to locate and install emergency
alternative Equipment (at no cost to the Franchisor and, where reasonably
practicable, at the cost of the Equipment supplier or manufacturer) to
ensure continuous supply of the Franchisor's Services to Subscribers.
9. Intentionally deleted.
10. TRAINING
10.1 Subject to Clause 10.4, the Franchisor will conduct Training Programs to
which the nominated employees, agents, contractors and subcontractors of
the Franchisee will be invited during the Term. The Training Program shall
from time to time encompass the operation, maintenance and use of the
Equipment, the Franchisor's Delivery System, the Franchisor's Subscriber
Management System, the Franchisor's Services and the Software, together
with general business, computer, sales and other techniques involved in
relation to the conduct of the Business, and be of sufficient standard and
frequency to provide the skills and understanding necessary or desirable to
carry on the Business in a business like manner throughout the Term.
10.2 The Franchisee shall ensure that its nominated employees, agents,
contractors and subcontractors attend and complete the Training Program.
10.3 The Training Program shall be at locations and for durations as are
reasonably convenient to the Franchisee's nominated employees, agents,
contractors and subcontractors. Sydney shall be deemed to be a convenient
location for this purpose.
10.4 The costs of travel, accommodation and meals required by the Franchisee or
its nominated employees, agents, contractors and subcontractors in
attending any such Training Program shall be borne by the Franchisee. All
additional costs of arranging and conducting the Training Program shall be
estimated by the Franchisor and provided to the Franchisee for approval.
Where any particular costs are not approved by the Franchisee, the
Franchisor shall not be obliged to undertake the relevant action giving
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24
rise to those costs. Otherwise, any such additional costs shall be borne by
the Franchisor and the Franchisee as agreed between them.
11. SUBSCRIBER MANAGEMENT SYSTEM
11.1 The Franchisee shall use the Franchisor's Subscriber Management System for
satellite delivered Services, and, in the case of cable and MDS delivered
Services, subject to appropriate technical specifications to be provided by
the Franchisor, subject to consultation with the Franchisee, and to be
reasonably agreed by the Franchisor and the Franchisee. It is understood
that the intention of the parties is that the Franchisor's Subscriber
Management System will be used if it is capable of handling the
requirements of the Franchisee in a reasonable and businesslike manner, and
on a timely basis.
11.2 Subject to clause 11.1, during and, subject to Clause 25, after the Term,
all persons receiving the Franchisor's Services in the Regions shall be
deemed to be Subscribers of the Franchisee and coded in the Subscriber
Management System as such. During and, subject to Clause 25, after the
Term, all data or information concerning the Subscribers in the Subscriber
Management System shall be Franchisee Information.
11.3 Subject to clause 11.1, the Franchisor shall act as the agent of the
Franchisee in relation to the invoicing and the co-ordination of the
collection of Subscription Fees. All transactions with Subscribers shall
identify the Franchisee in a form and manner reasonably approved by the
Franchisee.
11.4 For the Service Fee and the payment of the Other Agreed Fees the Franchisee
shall be entitled to use without any additional cost the Franchisor's
customer support and customer service centres and to refer the Franchisee's
subscribers to those centres for assistance. However, at its cost the
Franchisee shall be entitled to establish its own customer support and
customer service centres in Regions.
11.5 The Franchisee shall not:
(a) use the Software for any purpose other than to operate the Business in
accordance with this Agreement;
(b) sell, rent, lease, lend, sub-licence, transfer or otherwise dispose of
the Subscriber Management System or the Software, any associated
documents, user manuals or operating releases;
(c) alter, decompile, disassemble or reverse-engineer the Software;
(d) remove or obscure any copyright or trade mark on the Software;
(e) copy, duplicate or otherwise reproduce the Software;
(f) permit any person to do anything which the Franchisee is not entitled
to do under the provisions of this Agreement; or
(g) infringe any rights of any person in the Software.
11.6 The Franchisor's Subscriber Management System will at all times during the
Term perform and do each of those things referred to in the definition of
`Subscriber Management System' in Clause 11 of this Agreement in a
businesslike manner and on a timely basis.
11A. TECHNICAL AND SERVICES COMMITTEE
The Franchisor shall establish a consultative technical and services
committee ("Committee") which will consist of representatives of the
Franchisor, the Franchisee and
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25
of each of the Franchisor's franchisees. Each of the Franchisor and the
Franchisee shall be entitled to nominate one representative to participate
in the Committee which will meet on a regular basis which in any event
shall not be less than once each calendar quarter. The purpose of the
Committee is to exchange views and information on the Equipment, the
Franchisor's Subscriber Management Service, the Program Guide and on any
other matter which relates to the franchises granted by the Franchisor to
the franchisees and the common interests of each of the Franchisor and the
franchisees. The Franchisor agrees to give views expressed and information
provided by, and recommendations of, the Committee due consideration but
the Franchisor shall not be bound to comply with or act in accordance with
any recommendation or decision of the Committee.
12. BUSINESS NAMES
12.1 The Franchisor agrees to permit the Franchisee to use the Business Names
during the currency of this Agreement. For this purpose, the Franchisor
shall give such consent as is required to enable the Franchisee to become a
registered proprietor or user of the Business Names in the Regions.
12.2 The Franchisee shall display in a prominent manner signs bearing the
relevant Business Name outside each place where the Business is conducted
and at least 1 indoor sign shall also prominently bear, in lettering of a
size and type approved by the Franchisor, a statement to the effect that
the Business is independently owned and operated by the Franchisee.
12.3 The form, design, colour, text and manner of use of the Business Names on
letterhead paper, invoices and other stationery and documents, in
advertising, on signs and in all other ways shall be subject to the prior
written consent of the Franchisor.
12.4 The Franchisee shall ensure that all documents bearing the Business Names
shall also bear a statement to the effect that the Business is
independently owned and operated by the Franchisee.
12.5 The Franchisee is entitled to use its own business names, brand names or
marks in connection with the Business, but not:
(a) in identifying the Franchisor's Services or the Programs as its own;
(b) to denigrate or otherwise to bring into disrepute in any manner
whatsoever the Franchisor's Services, the Programs or the Franchisor;
and
(c) in any manner which would adversely and materially impact the
Franchisor's Services, the Programs or the Franchisor other than
engaging in activities reasonably necessary to the business of the
Franchisee solely in Australia.
13. COMPLIANCE NOTES
13.1 From time to time during the Term, the Franchisor may prescribe or specify
to the Franchisee guidance notes, instructions or directions in respect of
the carrying on of the Business in connection with the Franchisor's
Services under this Agreement including regarding accounting, computer
operation, Equipment installation, operation and maintenance, Delivery
System operation and maintenance, the Software, the Franchisor's Subscriber
Management System, technical and operational know-how, marketing and sales.
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26
13.2 The Franchisee shall comply with all requirements and standards set out in
the Compliance Notes as if they were set out in full in this Agreement
provided that, to the extent of any inconsistency (other than Clause 32.3),
this Agreement shall prevail.
13.3 Notwithstanding any other Clause of this Agreement, any procedures or
requirements specified or to be specified in the Compliance Notes:
(a) shall be reasonable and appropriate having regard to the Franchisor's
Services;
(b) will as far as reasonably practicable be prescribed to ensure
consistent practices by the Franchisor and all franchisees of the
Franchisor;
(c) may be amended by the Franchisee with the prior written consent of the
Franchisor which shall not be unreasonably withheld to take account of
any local circumstances in a Region; and
(d) shall not be more onerous in its effects on the Franchisee than on any
other franchisee of the Franchisor or on the Franchisor acting in its
capacity as a principal providing Franchisor's Services.
14. SERVICE DELIVERY TO FRANCHISEE
14.1 The Franchisor shall procure that the Franchisor's Services are made
available in accordance with Schedule 2 by means of a broadcast quality
signal which meets all applicable requirements of the Broadcasting Services
Act comprising the Franchisor's Services:
(a) by satellite within the relevant satellite footprint; and
(b) by means other than satellite, at any place selected by the Franchisee
from which the Franchisor's Services are Transmitted to subscribers,
provided that the Franchisee shall pay all costs (including any
necessary deposits or capital payments) of Transmitting the
Franchisor's Services from that place to any Region.
14.2 The Franchisor may, upon reasonable notice:
(a) vary the content of Programs so long as the varied or replacement
Programs, are of a similar quality and standard to that in the
attached Schedule 2(a) of the Franchisor's Services provided that the
variations apply to the Franchisor's Services throughout Australia;
(b) vary the schedule of Programs within a Service on reasonable notice to
the Franchisee.
14.2A Schedule 2(a) includes the general details of the Program genre,
estimated commencement date, estimated hours on air, which shall all be
reasonably appropriate for the Australian market.
14.3 The Franchisee shall maintain and service the Equipment and receive the
Franchisor's Services from the Franchisor efficiently and in a safe and
proper environment to ensure the effective Transmission of the Franchisor's
Services to Subscribers.
14.4 Subject to Clause 29, if the Franchisor is unable to provide the
Franchisor's Services to the Franchisee for a period of up to 10% of
scheduled programming between the hours of 5.00 pm and 12.00 am in any day
for any reason, there shall be no breach of this Agreement and the
Franchisee shall be entitled to make no claim on the Franchisor for that
interruption of Transmission.
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27
15. WARRANTIES
15.1 The Franchisor warrants to the Franchisee that:
(a) it has full right and power to make and perform this Agreement;
(b) it owns or is the licensee of all rights of every kind and character
necessary or desirable to enable the Franchisor to grant to the
Franchisee the rights and benefits referred to in this Agreement and
to enable the Franchisee to exercise and enjoy those rights and
benefits without requiring any further licence or authority from any
other person;
(c) the use of the Franchisor's Services and the Programs by the
Franchisee as contemplated in this Agreement will not:
(1) infringe the copyright of any person or constitute any tort,
breach of contract of breach of law; and
(2) will not give rise to any actions for defamation or invasion of
privacy of any person;
(d) the Franchisor will obtain and maintain in good standing all
Franchisor Approvals necessary or desirable to enable the Franchisor
to perform this Agreement and to grant to the Franchisee the rights
and benefits referred to in this Agreement;
(e) the Programs will comply with the BSA;
(f) the Franchisor's Services will contain identical Programs throughout
Australia (other than advertising, station promotions, programming
times, permitted local content insertions and other materials
prescribed by the Franchisor);
(g) the Franchisor will refer to the Franchisee any prospective
Subscribers of which the Franchisor becomes aware; and
(h) the Franchisor shall, in respect of all Programs, all Franchisor's
Services and the Franchisor's Delivery System, use its best endeavours
to obtain Transmission rights in each of the Regions.
15.2 The Franchisee warrants to the Franchisor that:
(a) it has full right and power to make and perform this Agreement; and
(b) the Franchisee will (if required by law or a governmental agency to do
so) obtain and maintain in good standing all Franchisee Approvals.
15.3 The Franchisor agrees to indemnify and hold harmless the Franchisee against
and from any and all claims, losses and damages (including legal fees on a
solicitor and own client basis) arising out of or in connection with any
breach by the Franchisor of its obligations under this Agreement or the
conduct by the Franchisor of its business.
16. ADVERTISING BY FRANCHISEE
16.1 The Franchisee shall undertake for its own account and at its own cost
marketing, advertising and promotion of the Franchisor's Services, during
the Term and throughout the Regions.
16.2 The Franchisee may also undertake for its own account and at its own cost
marketing, advertising and promotion of the Business (including other
Services Transmitted by the Franchisee).
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16.3 The Franchisee shall use the Franchisor's marketing, advertising and
promotion materials in any Advertising as agreed, but in addition may use
its own advertising, marketing and promotion materials.
16.4 The Franchisee may use the Business Names and the Trade Marks in any
Advertising.
16.5 The Franchisee shall, subject to this Agreement:
(a) devote its best endeavours towards increasing the number of
Subscribers to the Franchisor's Services;
(b) not, in any Advertising, make any representation or give any warranty
with respect to the Franchisor's Services or the Franchisor other than
those which are authorised in writing by the Franchisor; and
(c) not hold out any additional Services Transmitted by the Franchisee as
the Franchisor's Services.
16.6 If a program guide ('Program Guide') is prescribed by the Franchisor for
use by the Franchisee, the Franchisee shall use its best endeavours to sell
that Program Guide to Subscribers at the recommended retail price (if any).
The Franchisee may insert into the Program Guide (by way of insertion,
supplement or wraparound) details of other Services Transmitted by the
Franchisee and other information, advertising and materials authorised by
the Franchisor, but may not otherwise add to, delete from or change the
form or substance of the prescribed Program Guide. The revenue from such
insertions shall remain the sole property of the Franchisee. The Franchisor
shall procure that the prescribed Program Guide is made available to the
Franchisee at the same Cost incurred by the Franchisor being the Costs
incurred in the production and printing of the Program Guide.
16A. FRANCHISOR'S ADVERTISING REVENUE
Subject only to Clauses 5.2(aa) and 16.6, the Franchisee acknowledges that all
advertising revenues derived from the sale of advertising in respect of the
Programs, the Franchisor's Services and the Program Guide (other than revenue
from advertising procured by the Franchisee and contained in the Franchisee's
insertion, supplement or wrap-around, which revenue remains the property of the
Franchisee) is solely the property of the Franchisor and the Franchisee has no
interest in or claim over such advertising revenue.
17. PROMOTION BY FRANCHISOR
17.1 Subject to Clause 17.4, the Franchisor shall provide a marketing,
advertising and promotion service in respect of the Franchisor's Services
and the Franchisor's Delivery System in Australia for the benefit of the
Franchisee and other franchisees of the Franchisor.
17.2 The Group Promotion Service shall:
(a) be under the control of the Franchisor; and
(b) encompass local, provincial, statewide and nationwide marketing,
advertising and promotion materials.
17.3 Subject to Clause 17.4, all advertising, marketing or promotion envisaged
in Clause 17 and referring specifically to the Regions shall make reference
to the Franchisee if reference is made to any particular franchisee.
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17.4 The Franchisee may contribute towards the Group Promotion Service an annual
levy prescribed by the Franchisor (which shall be the Pro Rata Share (as
defined in Clause 7.9) of the contribution of the Franchisor). Any such
contribution shall be made on demand and in advance. If the Franchisee
elects not to make such contribution, the Franchisor shall be relieved of
its obligations under Clause 17.
18. CONFIDENTIALITY
18.1 The Franchisee undertakes to the Franchisor to maintain in confidence the
terms of this Agreement and all Confidential Information disclosed to it
under or in connection with this Agreement and to take reasonable
precautions to ensure that its employees, agents, contractors,
subcontractors, sublicensees, accountants, solicitors and other advisers
keep this information confidential.
18.2 The Franchisor undertakes to the Franchisee to maintain in confidence the
terms of this Agreement and all Franchisee Information disclosed to it
under or in connection with this Agreement and to take reasonable
precautions to ensure that its employees, agents, contractors,
subcontractors, sublicensees, accountants, solicitors and other advisers
keep this information confidential.
18.3 The Franchisee shall not use or attempt to use any Confidential Information
for its own purposes (other than in connection with the Business) or for
the purposes of any person other than the Franchisor.
18.4 The Franchisor shall not use or attempt to use any Franchisee Information
for its own purposes or for the purposes of any person other than the
Franchisee.
18.5 Nothing in this Clause 18 shall prevent a party from:
(a) disclosing information in any manner required by law or in accordance
with a requirement of a governmental agency;
(b) disclosing information in confidence to that party's bankers,
accountants, solicitors or other advisers for the purpose of obtaining
advice or in relation to their work with respect to that party;
(c) disclosing information in respect of a Subscriber, to that Subscriber
in the day-to-day operation of the respective business of the
Franchisor and the Franchisee or at that Subscriber's reasonable
request or direction;
(d) disclosing or providing for use of information in respect of
Subscribers to third party program suppliers where required under any
agreement with that third party; or
(e) disclosing information which is in or enters the public domain other
than through breach of this Agreement.
18.6 The Franchisor agrees to use its best endeavours to include as a term in
all agreements with third party program suppliers that any Franchisee
Information disclosed to that program supplier will not be used in any
manner except for confirming the Franchisor's compliance with the relevant
agreement.
19. FRANCHISOR'S PROPRIETARY RIGHTS
19.1 The rights granted by this Agreement to use the Franchisor's Proprietary
Rights and to conduct the Business are:
(a) for the duration only of the Term;
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(b) subject to the provisions of this Agreement;
(c) for the purposes of the conduct of the Business only; and
(d) not capable of assignment to or use by other persons except as
provided in this Agreement.
19.2 If, at any time, the Franchisor has registered or has lodged an application
for registration of a Business Name or Trade Mark, the Franchisor and the
Franchisee shall enter into an appropriate agreement authorising the
Franchisee to use the Business Name or Trade Mark, during the Term and in
the Regions, in such form as the Franchisor reasonably requires. If there
is any inconsistency between any such agreement and this Agreement, this
Agreement shall prevail.
19.3 Any and all of the Franchisor's Proprietary Rights are and remain the sole
property of the Franchisor. The Franchisee shall not in any way question,
claim or dispute the Franchisor's Proprietary Rights or the ownership
thereof.
19.4 The Franchisee shall promptly and in any event within 2 Business Days
notify the Franchisor of any and all apparent infringements of the
Franchisor's Proprietary Rights, any Franchisor Approvals or any Act
relevant to the Franchisor's Services by third parties which come to the
notice of the Franchisee. The Franchisor shall have the sole right to
determine whether:
(a) any action shall be brought, maintained, compromised or disposed of in
respect of any infringement; and
(b) the Franchisee shall be joined in such action at the cost of the
Franchisor.
The Franchisee shall co-operate in the conduct of any action brought by the
Franchisor to the full extent reasonably requested by the Franchisor.
19.5 If any action for or claim of infringement or alleged infringement of the
Franchisor's Proprietary Rights, any Franchisor Approvals, any Franchisee
Approvals or any Act relevant to the Franchisor's Services is brought or
threatened by a third party against the Franchisee, the Franchisee shall
promptly and in any event within 2 Business Days notify the Franchisor of
the pending action, claim or alleged infringement. The Franchisor shall
have the sole right to control any subsequent litigation relating to that
action, claim or alleged infringement. The Franchisee shall co-operate in
the conduct of any such litigation to the full extent reasonably requested
by the Franchisor, at the cost of the Franchisor.
19.6 Unless otherwise agreed in writing by the Franchisor, the Franchisee shall
not, during the Term or after the expiration, termination or assignment of
this Agreement, use or adopt any name, trade name, trading style or
commercial designation which incorporates any of the Business Names or
Trade Marks, or words or symbols contained in them.
19.7 The Franchisor shall:
(a) indemnify and keep the Franchisee indemnified from any claims and any
costs (including legal fees and disbursements) incurred in connection
thereto) made against the Franchisee arising out of the right to trade
under the Business Names and the Trade Marks, arising out of the use
or enjoyment by the Franchisee in accordance with this Agreement of
the Franchisor's Proprietary Rights or arising out of any action or
claim in respect of the Franchisor's Proprietary Rights or any
Franchisor's Approvals whether such claims are successful against the
Franchisee or not; and
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31
(b) subject to its discretions in Clauses 19.4 and 19.5 promptly and in
any event within 2 Business Days take all reasonable steps it
considers necessary in order to protect the Business Names and Trade
Marks from being infringed by any third party.
20. INSURANCES
20.1 Each party may:
(a) maintain and keep in force during the Term all necessary and prudent
insurances to a prudent level of cover including adequate employer
indemnity (including any insurance which that party is required to
effect pursuant to any workers compensation or similar legislation),
Equipment, motor vehicle, professional indemnity, defamation, property
replacement, public liability, product liability, fire, theft and
burglary;
(b) ensure that all policies of Insurance name the other party as an
additional named insured; and
(c) promptly and in any event within 2 Business Days pay all premiums on
each policy of Insurance as they become due and payable;
Provided that if a party fails to obtain insurance in accordance with this
Clause 20.1, that party shall be solely responsible for the losses or
damages which would have been covered by insurance in accordance with this
Clause.
20.2 The Franchisee shall provide to the Franchisor:
(a) a copy of each policy or a certificate of currency of each policy of
Insurance and any other relevant information thereto from time to time
as specified by the Franchisor; and
(b) 30 days' written notice prior to the termination or cancellation of
any policy of Insurance.
20.3 The Franchisor or its nominees may inspect the Franchisee's insurance file
at the Franchisee's principal business premises at any time on reasonable
notice.
21. ASSIGNMENT
21.1 The Franchisee may not assign this Agreement without the prior written
consent of the Franchisor which shall not be unreasonably withheld
(including, if the Franchisee is not in breach of this Agreement and the
proposed assignee is capable of performing this Agreement).
21.2 Intentionally deleted.
21.3 The Franchisor may not assign this Agreement without the prior written
consent of the Franchisee, which shall not be unreasonably withheld,
provided that the Franchisor is not in breach of this Agreement and the
proposed assignee is capable of performing this Agreement.
21.4 Clauses 21.1 and 21.3 shall not prohibit the assignment of this Agreement
by either party to a Controlled Entity of that party, where that Controlled
Entity assumes the obligations of the party under this Agreement.
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32
22. CODES OF PRACTICE
22.1 To the full extent permitted by law, the Franchising Code of Practice is
expressly negatived and shall not apply to this Agreement or the respective
obligations of the parties under it.
22.2 Subject to this Agreement, each party agrees to comply at all times with
any CAST Code.
23. RESOLUTION OF DISPUTES
23.1 Subject to Clauses 23.2 and 23.5, any dispute, controversy or claim arising
out of or in connection with this Agreement shall be settled by mediation
administered by the ACDC and the following provisions shall apply:
(a) the mediation shall be conducted at Sydney;
(b) the mediator shall be selected by the Franchisor and the Franchisee
from a panel of mediators nominated by the ACDC and, failing agreement
within 14 days as to a mediator, by the Secretary-General for the time
being of the ACDC; and
(c) each of the parties shall be entitled to be represented by 1 duly
qualified legal practitioner or other representative in addition to an
executive of the party whether legally qualified or not.
23.2 If the dispute, controversy or claim is not resolved by mediation pursuant
to Clause 23.1 within 21 days of the appointment of the mediator (or such
longer period as is agreed between the Franchisor and the Franchisee)
either party may refer the dispute, controversy or claim to arbitration
administered by the ACDC and the following provisions shall apply:
(a) the arbitration shall be conducted at Sydney;
(b) subject to Clause 23.2(c), the arbitration shall be conducted in
accordance with the current Rules for the Conduct of Commercial
Arbitrations issued by the Institute of Arbitrators Australia;
(c) the arbitrator shall be selected by the Franchisor and the Franchisee
from a panel of arbitrators nominated by the ACDC and, failing
agreement within 14 days as to an arbitrator, by the Secretary-General
for the time being of the ACDC (the arbitrator shall be a person other
than the mediator who has conducted the mediation pursuant to Clause
23.1);
(d) each of the parties shall be entitled to be represented by 1 duly
qualified legal practitioner or other representative in addition to an
executive of the party whether legally qualified or not; and
(e) examination of witnesses by the parties and by the arbitrator shall be
permitted, but compliance with the rules of evidence shall not be
required.
23.3 The costs of any mediation pursuant to Clause 23.1 or arbitration pursuant
to Clause 23.2 shall be borne equally by the Franchisor and the Franchisee,
who shall also each bear their own costs.
23.4 A party proposing to exercise its rights under Clause 23.1 shall promptly
and in any event within 2 Business Days notify the other in accordance with
the terms of this Agreement.
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23.5 Clause 23.1 shall not apply to any dispute:
(a) arising after this Agreement has expired or has been rescinded or
terminated;
(b) concerning whether this Agreement has been validly rescinded or
terminated (including the determination of whether or not an Event of
Default has occurred); or
(c) where a party is seeking an injunction or other equitable relief to
prevent the other from breaching any provision of this Agreement.
24. RENEWAL OF TERM
24.1 If:
(a) the Franchisee desires to take a renewed licence and franchise in
respect of the Franchisor's Services in respect of the Regions for a
further term of 10 years;
(b) the Franchisee not later than the date falling 6 months prior to the
last day of the Term gives to the Franchisor written notice of the
Franchisee's desire to take a renewed Franchise for the Further Term;
and
(c) on the date of the renewal notice under Clause 24.1(b) and on the last
day of the Term the Franchisee is not in breach of this Agreement and
the Franchisor has not given written notice of that breach to the
Franchisee (or if such breach is capable of remedy and is not remedied
within a reasonable time following the giving of such notice),
the Franchisor, at the Franchisee's cost, shall grant to the Franchisee a
renewal of this Agreement for the further term of 10 years, subject to the
terms provided for in Clause 24.2.
24.2 The agreement for the Further Term shall contain the same terms as are
contained in this Agreement, subject to the following:
(a) appropriate amendments to the commencement date and term in those
Clauses which refer to Commencement Date and Term; and
(b) with the exception of the Further Term set out in Clause 24.2.
25. TERMINATION OF AGREEMENT
25.1 The occurrence of any of the following is an Event of Default under this
Agreement, in the case of the Franchisee, where applicable, in relation to
the relevant Region:
(a) a breach by the Franchisee of clause 5.2(b), 5.2(m), 6.4(f), 6.4(g),
7.1 or 7.6, 8.3 and 11.1 (but, in the case of the Franchisee, it shall
not be such a breach if:
(1) in relation to Clause 5.2(b) the Franchisee has achieved at least
80% of the required Minimum Subscriber Level in each Region or of
the total of Subscribers required for the Regions in the
aggregate; or
(2) in relation to the Agreement generally, the Franchisee has
expended all moneys required in the proper manner in accordance
with its approved business plans); or
(b) without limiting the generality of Clause 25.1, Clause 3.9 applies in
respect of at least 4 Regions;
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34
(c) without limiting the generality of Clause 25.1, either party fails to
comply with any applicable law or any condition or requirement imposed
by any governmental agency or under any Act (including any foreign
ownership requirement imposed by any Act);
(d) either party failed to rectify any Event of Default or any breach of
this Agreement within the requisite period of notice as envisaged in
Clause 25.2;
(e) any material representation, warranty or statement made by either
party to the other becomes untrue or inaccurate, unless the first
party has disclosed this to the other party and the other party has
waived such breach in writing;
(f) an order is made for the winding up or dissolution of a party or a
resolution is passed for the winding up or dissolution of that party
other than for the purposes of a reconstruction or amalgamation on
terms approved by a party;
(g) a receiver or receiver and manager, official manager, administrator,
trustee or similar officer is appointed over all of the assets or
undertaking of a party;
(h) any mortgage, charge, encumbrance or other security interest over any
of the assets of a party is enforced;
(i) a distress, attachment or other execution s levied or enforced on or
against any asset of a party;
(j) a party ceases to carry on its Business;
(k) a party is unable to pay debts as and when they fall due or is deemed
unable to pay its debts under any applicable legislation (other than
as a result of a failure to pay a debt or claim which is the subject
of a good faith dispute);
(l) a party enters into or resolves to enter into any arrangement,
composition or compromise with or assignment for the benefit of its
creditors generally or any class of its creditors or proceedings are
commenced to sanction any such arrangement, composition or compromise
other than for the purposes of a reconstruction or amalgamation on
terms approved by the other party;
(m) any Franchisee Approval or other authorisation which is essential to
the conduct of the Business, or any Franchisor Approval or other
authorisation which is essential to the provision of the Franchisor
Services or the performance of the Franchisor's obligations under this
Agreement in its totality is repealed, revoked or terminated or
expires or is modified or amended in such a manner as to prohibit
delivery of the Franchisor's Services to Subscribers or such
performance on the terms of this Agreement, and is not replaced by
another sufficient authorisation; and
(n) any other event or series of events, whether related or not, occurs
(including any material adverse change in the business, assets or
financial condition of a party) which in the reasonable opinion of the
other would materially and adversely affect the ability of the first
party to comply with all of any of its material obligations under this
Agreement.
25.2 If an Event of Default or other breach of this Agreement occurs the party
to whom that Event of Default does not apply may (but is not obliged to)
issue a notice in writing to the party in breach requiring it to rectify:
(a) an Event of Default specified in Clause 25.1(a) and 25.1(k) within 10
days of the notice;
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35
(b) an Event of Default specified in Clause 25.1(c) within 30 days of the
notice or within such later period of notice as may be permitted by
the applicable governmental agency or may be prescribed under the
applicable Act; or
(c) an Event of Default specified in Clauses 25.1(b), 25.1(e), 25.1(n) or
other breach of this Agreement within 30 days of the notice.
25.3 If an Event of Default specified in Clauses 25.1(d), 25.1(f), 25.1(g),
25.1(h), 25.1(i), 25.1(j) or 25.1(m) occurs or the party in default fails
to rectify any other Event of Default within the applicable time specified
in Clause 25.2, the other party may, by notice in writing to the party in
default, terminate this Agreement and the rights of the party in default
under this Agreement (and in the case of the Franchisee, where the default
relates to a Region or Regions, that termination operates only in relation
to the relevant Region or Regions).
25.3A The Franchisor may terminate this Agreement to the extent that any
Franchisor Approval or other authorisation which is essential to the
delivery of the Franchisor's Services to the Franchisee and the
performance of the Franchisor's Obligations under this Agreement is
repealed, revoked or terminated or expires or is modified or amended in
such a manner as to prohibit the Franchisor's delivery of the Franchisor's
Services to the Franchisee or the performance of the Franchisor's
Obligations under this Agreement, and is not replaced by another
sufficient authorisation.
25.4 (a) The following provisions apply where there is a breach by the
Franchisor of clause 8.1, 11.6 or 14 which is not rectified in
accordance with clause 25.2(c):
(1) where such relates to a breach of clause 8.1, the Franchisee may
elect to modify this agreement so that:
(A) the provisions of clause 8 no longer apply and the
Franchisee has the right to use or acquire subscriber
reception equipment from any source and of a kind determined
by it; and
(B) the only fees payable by the Franchisee under this agreement
(as so modified) are those under clause 7.1 and 7.6; and
(2) where such relates to a breach of clause 11.6, the Franchisee may
elect to modify this agreement so that:
(A) the provisions of clause 11 no longer apply and the
Franchisee has the right to use or operate a subscriber
management system or services of any kind; and
(B) the only fees payable by the Franchisee under this agreement
(as so modified) are those under clause 7.1; and
(3) where such relates to a breach of clause 14, the Franchisee may
elect that this agreement be modified so that the Franchisee is
granted an exclusive licence in the Region to supply or offer the
Franchisor's Services and to Transmit the Franchisor's Services
and the Programs using, where applicable, the Franchisor's
Delivery Systems for a fee equal to that in clause 7.1(a) but
that all provisions imposing any obligation on the Franchisee in
relation to the Franchisor's Subscriber Management Systems and
the Equipment cease to apply.
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36
(b) In addition to the Franchisee's rights set out in clause 25.4(a) and
to any other rights the Franchisee may have, the Franchisee may, by
notice in writing to the Franchisor, terminate this Agreement and the
rights of the Franchisor if:
(1) the Franchisor breaches clause 14 and that breach has not been
rectified in accordance with clause 25.2(c); or
(2) there has been a breach of both clause 8 and clause 11.6 (even if
not contemporaneous) which breaches have not been rectified in
accordance with clause 25.2(c).
25.5 Termination, expiration or assignment of this Agreement by any means
whatsoever shall have no effect on the provisions of Clause 25.6, on the
liability for damages or otherwise of any party for breach of this
Agreement, on the obligation of any party or for payment of moneys due
under this Agreement or on any provision, express or implied, which is
intended to survive the termination, expiration or assignment of this
Agreement.
25.6 On termination or expiration (other than at the end of the Further Term) of
this Agreement then, in relation to each relevant Region without prejudice
to any other rights or remedies of either party in respect of an Event of
Default:
(a) all rights of each party pursuant to this Agreement shall terminate
including with respect to the Franchisor's Services and the Programs;
(b) each party shall execute all documents and do all acts and things as
may be necessary or required by the other in order more effectually to
vest in and to secure to each party the rights granted to the other
but terminated under this Agreement (including, in relation to the
Franchisee, to return to the Franchisor full title in and registered
ownership of the Business Names and the Trade Marks);
(c) the Franchisee shall discontinue the use of all the Franchisor's
Proprietary Rights;
(d) the Franchisee shall confirm in writing to the Franchisor that use of
the Franchisor's Proprietary Rights has been discontinued;
(e) subject to paragraph (g), the Franchisee shall deliver to the
Franchisor or, at the Franchisor's request, destroy in the
Franchisor's or its nominee's presence, all advertising, signs and
other items bearing the Business Names and Trade Marks and all
documents and other materials under the control of the Franchisee
which contain the Confidential Information or the Franchisor's
Proprietary Rights or which otherwise relate to the Franchisor's
Services;
(f) each party shall retain all applicable business records (including
ledgers, sales reports, accounts and cheques) for at least 6 years (or
such longer period as may be required by law) and shall keep the other
advised of the location of such records;
(g) each party shall pay all amounts owing to the other on demand;
(h) the Franchisee shall provide all reports and records and permit access
and audit as required under Clause 6 and make all payments due under
Clause 7 (as and when payable) during the Specified Period as if this
Agreement had not been terminated, expired or assigned;
(i) the Franchisee shall not be entitled to supply the Franchisor's
Services or the Programs to the Subscribers, nor to use the
Franchisor's Delivery System;
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37
(j) Intentionally deleted.
(k) without limiting the generality of any other Clause of this Agreement,
Clauses 18, 19.6, 25.5 to 25.12 and 26 shall survive termination,
expiration or assignment of this Agreement;
(l) the Franchisee shall notify all Subscribers of the termination,
expiration or assignment of this Agreement in the form prescribed by
the Franchisor; and
(m) the Franchisor shall deliver to the Franchisee, or, at the
Franchisee's request, destroy all things, documents and other
materials under the control of the Franchisor which form part of the
Franchisee's Information.
25.7 After termination pursuant to Clause 25.3 by reason of an Event of Default
by the Franchisee, in respect of all Regions, the Franchisor shall have an
option to purchase from the Franchisee, at the discretion of the
Franchisor, all (but not part only) of the assets (including but not
limited to Equipment and Subscriber contracts) of the Business which relate
solely to the provision of those of Franchisor's Services delivered by
satellite to Subscribers (but not any assets which relate to the provision
of services using cable or MDS)and which are owned and used by the
Franchisee in the performance of its obligations under this Agreement ('the
Offered Assets'). For this purpose, immediately after termination or
expiration of this Agreement, the Franchisee shall or, in default, the
Franchisor may (but is not obliged to) obtain valuations in accordance with
Clause 25.8 of all of the Offered Assets. Such valuations shall be obtained
by the Franchisee and provided to the Franchisor within 30 days after
termination or expiration of this Agreement. The Franchisor shall have 60
days from receipt of the valuations in which to exercise its option under
this Clause 25.7. The option shall be exercised by the Franchisor in
accordance with Clause 25.9.
25.8 The valuations envisaged in Clause 25.7 shall be obtained as follows:
(a) within 45 days of termination or expiration of this Agreement, the
Franchisor and the Franchisee shall each nominate a duly qualified
independent person to provide a valuation of the Offered Assets;
(b) within 45 days of termination or expiration of this Agreement, the
Franchisee shall provide to the Franchisor a list of all Offered
Assets which it in good faith determines are Offered Assets (which the
Franchisor shall be entitled to verify as complete using its rights
under Clause 6) and if the Franchisee fails to provide such a list
within the time specified, the Franchisor may select certain (and not
all) of the Franchisee's assets and despite Clause 25.7 such assets
shall be deemed to be Offered Assets;
(c) within 45 days of termination or expiration of this Agreement, the
Franchisee shall or, in default, the Franchisor may (but shall not be
obliged to) provide to the Valuers the verified list of Offered Assets
provided by the Franchisee, together with instructions in accordance
with paragraph (d) on the conduct of the valuation;
(d) the Valuers shall be instructed as follows:
(1) each valuation shall, as far as possible, be prepared
independently of the other;
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38
(2) each valuation shall separately identify the value attributed to
each Offered Asset or, where more appropriate in the opinion of
each Valuer, each class of Offered Asset;
(3) each valuation shall be made of the price at which all the
Offered Assets might reasonably be expected to be sold on the day
immediately preceding termination or expiry of this Agreement
assuming:
(A) a willing, but not anxious, buyer and seller;
(B) a reasonable period within which to negotiate the sale,
having regard to the nature and situation of the asset or
class of asset and the state of the market for assets of the
same kind;
(C) the Offered Assets are reasonably exposed to the relevant
market;
(D) no account is taken of the value or other advantage or
benefit, additional to market value, to the buyer incidental
to ownership of the asset being valued;
(E) the Franchisee has sufficient resources to allow a
reasonable period for the exposure of the Offered Assets for
sale; and
(F) a goodwill component may (in appropriate circumstances) be
attached to the value of the Offered Assets;
(4) each valuation shall be completed as soon as reasonable
practicable and, in any event, within 45 days of instructions
being given to the relevant Valuer;
(5) if the relevant Valuer requires any additional information, the
relevant Valuer should promptly and in any event within 10 days
request it from the Franchisee with a copy to the Franchisor;
(6) the Valuers shall each act as an independent expert, not as an
arbitrator;
(7) the costs of the Valuers shall be borne equally by the Franchisee
and the Franchisor; and
(8) in all other respects, each Valuer shall decide what procedures
shall be followed in order to establish and complete the
respective valuations of the assets;
(e) at all times the Franchisee and the Franchisor shall provide all
information and assistance reasonably requested by the Valuers on a
timely basis to enable the Valuers to provide the valuations within
the time period envisaged in Clause 25.7;
(f) on receipt of the valuations from the Valuers, the Franchisee shall
provide that valuations to the Franchisor;
(g) on receipt of the accounts from the Valuers, the Franchisee and
Franchisor shall each pay half of the costs of the Valuer in preparing
the valuations; and
(h) the valuations provided by the Valuers shall be conclusive and final
and binding on the parties (except in the case of manifest error).
25.9 The option provided to the Franchisor in Clause 25.7 may be exercised in
respect of all (but not part only) of the Offered Assets. The exercise
price shall be the average of the 2 valuations obtained under Clause 25.8
except that if the discrepancy between the
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39
valuations obtained from the 2 Valuers appointed under Clause 25.8(a) is
greater than 20% of the average:
(a) the 2 Valuers shall appoint a third duly qualified independent person
to provide a valuation of the Offered Assets;
(b) the third Valuer will provide a valuation in all respects in
accordance with and on the same terms as specified in Clause 25.8
including Clause 25.8(h); and
(c) the exercise price shall be the average of the 2 closest valuations
obtained in accordance with Clause 25.8.
The option may be exercised by the Franchisor by notice to the Franchisee
given at any time during the period envisaged in Clause 25.7. The notice
shall specify:
(d) the Offered Assets of the Business which the Franchisor wishes to
purchase from the Franchisee (being the entire verified list of assets
envisaged in Clause 25.8(c)); and
(e) the exercise price to be paid by the Franchisor in respect of the
exercise of the option; and
(f) the date, time and place at which completion of the purchase shall
take place, in which respect the date shall be a date not less than 14
days or more than 45 days after the date on which the notice of
exercise is given to the Franchisee.
At completion, the Franchisee shall deliver the assets the subject of the
purchase, together with all title and other incidental documents, against
payment by bank cheque of the exercise price in respect of the assets. The
Franchisee warrants to the Franchisor as at completion that it has absolute
and unencumbered title to the assets subject to the purchase. The
Franchisee undertakes to assist the Franchisor to minimise stamp duty on
the purchase of the assets as required by the Franchisor and as lawfully
permitted (including by the sale of companies holding assets rather than by
sale of the assets themselves).
25.10 At the same time as exercising the option envisaged in Clauses 25.7 to
25.9, the Franchisee shall assign to the Franchisor any leases, licences
or other rights in respect of any real or personal property used by the
Franchisee in the performance of its obligations under this Agreement
which the Franchisor requests the Franchisee to assign, subject to the
requirements of any lessor, licensor or other person and to the law. Where
it is not possible for such leases, licences or other rights to be
assigned to the Franchisor, the Franchisee shall use its best endeavours
to procure that the benefit of such leases, licences or other rights
requested by the Franchisor are made available to the Franchisor to the
fullest extent possible. For the purposes of enabling the Franchisor to
determine which leases, licences or other rights it may elect to require
the Franchisee to assign to it, the Franchisee shall provide particulars
of all leases, licences or other rights used by the Franchisee in the
performance of its obligations under this Agreement within 30 days after
termination or expiration of this Agreement (which the Franchisor shall be
entitled to verify as complete using its rights under Clause 6). The
Franchisee undertakes to assist the Franchisor to minimise stamp duty on
the assignment of any leases, licences or other rights as required by the
Franchisor and as lawfully permitted.
25.11 The Franchisor may deduct and withhold from the purchase price for any
assets referred to in Clause 25.7 all amounts whatsoever due to the
Franchisor by the Franchisee and under this Agreement.
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40
25.12 The Franchisee and the Franchisor shall co-operate together in good faith
and shall each use their best endeavours to procure any approvals,
consents or authorisations required from shareholders (of the Australis
Group or the Franchisee ), from any governmental agency or under any Act
for the purposes of performing their obligations under Clause 25.7 to
25.11 on a timely basis (including, where relevant, the obtaining of
waivers of any Act).
26. RESTRAINT
26.1 From the date of this Agreement to the Commencement Date in a particular
Region, the Franchisee shall not Transmit any Services in that Region
without prior notice to the Franchisor.
26.2 From the date of this Agreement to the date of termination, expiration or
assignment of this Agreement, the Franchisee shall not be directly or
indirectly involved in the establishment, operation or provision to any
person of access to or use of any Delivery System or Subscriber
Management System outside the Regions.
26.3 Subject to Clause 3.8, from the date of this Agreement to the date 6
months after the termination, expiration or assignment of this Agreement,
the Franchisee shall not Transmit any Service outside of the Regions.
26.4 From the date of this Agreement to the date 2 years after the termination
or expiration of this Agreement, the Franchisee shall not Transmit in or
outside the Regions, any programming service which at that time is a
Franchisor's Service in respect of which the Franchisor has only a non-
exclusive licence in respect of any area in Australia, which is sourced
or obtained from a person other than the Franchisor, without first giving
the Franchisor the opportunity to provide the programming service to the
Franchisee on terms and conditions at least as favourable (to the
Franchisee) as those offered by any other person.
27. FURTHER ASSURANCE
27.1 The parties shall do all acts and things and enter into such other
agreements as are not inconsistent with the provisions of this Agreement
to effect the intention and purpose of this Agreement.
28. Intentionally deleted.
29. FORCE MAJEURE
29.1 Notwithstanding any other Clause of this Agreement, the obligations of a
party imposed by this Agreement and any time requirements under this
Agreement shall be suspended during the time and to the extent that that
party is prevented from or delayed in complying with that obligation by
Force Majeure.
29.2 Each party shall, on becoming aware of Force Majeure, immediately inform
the other party and use its best efforts to remedy that Force Majeure or
to procure alternative means reasonably available to enable performance
of this Agreement to continue as if no Force Majeure had occurred.
30. NOTICES
30.1 Any request, order, notification, document, consent or other
communication to be given by any party to another shall be in writing and
shall be deemed to be sufficiently given if sent by pre-paid registered
mail or facsimile transmission to the address or facsimile
<PAGE>
41
number set out following the name of that party at the commencement of
this Agreement (or such other address or facsimile number which is
notified under this Clause).
30.2 Any such request, order, notification, document, consent or communication
if sent by pre-paid registered mail shall be deemed to be received by the
party to whom it is addressed on the next Business Day after posting or
if sent by facsimile transmission shall be deemed to be received by the
party to whom it is addressed on receipt by the sender of the
confirmation at the conclusion of the transmission.
31. GOVERNING LAW
31.1 This Agreement shall be governed by and construed in accordance with the
laws of and applicable in the State of New South Wales and the parties
submit to the jurisdiction of the Federal and State courts within that
State.
32. MISCELLANEOUS
32.1 This Agreement shall bind the parties and their successors and assigns.
32.2 This Agreement supersedes all and any previous agreements oral or written
in respect of the franchise between the Franchisee and the Franchisor
(including the Heads of Agreement) and shall constitute the entire
agreement between the parties and there are no understandings,
representations or warranties of any kind between the parties except as
expressly set out in this Agreement. Accordingly, the Heads of Agreement
are terminated and shall be of no further force or effect.
32.3 This Agreement shall not be amended except by an instrument in writing
signed by the parties and stating the parties' intent to amend this
Agreement accordingly.
32.4 The failure of either party to exercise or its delay in exercising any
right, power or privilege available to it under this Agreement shall not
operate as a waiver or preclude any other or further exercise of such
right, power or privilege or the exercise by that party of any other
right, power or privilege under this Agreement.
32.5 No agreement, warranty or undertaking contained in this Agreement shall
merge on execution or completion of this Agreement, but shall continue
after each party has performed their obligations as provided in this
Agreement.
32.6 Nothing contained in this Agreement shall constitute a partnership, joint
venture or association of any kind between the Franchisor and the
Franchisee or render them liable for the debts or liabilities incurred by
the other. In particular, the Franchisee will be solely responsible for
all loss or damage arising out of the operation of the Business or
arising out of the acts or omissions of the Franchisee, its employees,
agents, contractors, subcontractors, sublicensees, accountants,
solicitors and other advisers in any context and the Franchisee agrees to
indemnify and hold harmless the Australis Group against and from any and
all such claims, losses and damages (including legal fees on a solicitor
and own client basis).
32.7 The parties shall bear their own costs arising out of the preparation of
this Agreement, except that the Franchisee shall bear any stamp duty
chargeable on this Agreement and any document created pursuant to it.
<PAGE>
42
EXECUTED as an agreement:
SIGNED for
AUSTRALIS MEDIA LIMITED
by its attorney
in the presence of:
/s/ DONALD F. HAGANS /s/ ROB BIRRELL
- -------------------------- -----------------------
Signature of witness Signature of Attorney
DONALD F. HAGANS ROB BIRRELL
- -------------------------- -----------------------
Print name Print name of Attorney
SIGNED for
STV PTY LIMITED
by its attorney
in the presence of:
/s/ ROB BIRRELL /s/ DONALD F. HAGANS
- -------------------------- -----------------------
Signature of witness Signature of Attorney
ROB BIRRELL DONALD F. HAGANS
- -------------------------- -----------------------
Print name Print name of Attorney
<PAGE>
43
SCHEDULE 1
REGIONS - STV PTY LIMITED SOUTHERN FRANCHISE
1. South Australia - excluding the Franchisor's Adelaide area.
2. Western Victoria - generally Bendigo, Ballarat areas and all points west of
the Franchisor's Melbourne/Geelong area.
3. Central Victoria - generally Shepparton, Wangaratta and Albury areas.
4. Eastern Victoria - generally Morwell, Traralgon and points east of the
Franchisor's Melbourne/Geelong areas, not including Central Victoria.
5. Southern NSW - generally the area centred around Wagga Wagga.
6. Northern NSW - generally Bathurst, Orange and all points north (not
including those areas in East Coast Pay Television Pty Limited's franchise
areas nor in CTV Pty Limited's Northern franchise areas).
7. Western NSW - generally Cobar, Bourke and all points west.
In summary, all of South Australia excluding Adelaide, all of Victoria excluding
Melbourne and Geelong and all of New South Wales excluding Sydney and the
Australian Capital Territory and the franchise areas of CTV Pty Limited and East
Coast Pay Television Pty Limited.
Refer also to the maps in Exhibit 1.
<PAGE>
44
EXHIBIT 1
MAPS OF REGIONS - STV PTY LIMITED SOUTHERN FRANCHISE
1. STV - South Australia
2. STV - South Australia Clarification Map
3. STV - Western Victoria
4. STV - Central Victoria
5. STV - Eastern Victoria
6. STV - Western Victoria, Eastern Victoria & Central Victoria Clarification
Map
7. STV - Southern NSW
8. STV - Northern NSW
9. STV - Western NSW
10. STV - Western NSW, Northern NSW & Southern NSW Clarification Map
<PAGE>
45
SCHEDULE 2
FRANCHISOR'S SERVICES
Any subscription television broadcasting service or any subscription radio
broadcasting service:
(a) provided, procured or supplied by the Franchisor in respect of which the
Franchisor has Transmission rights in the Regions at any time; or
(b) provided by the Franchisor or third parties pursuant to a contract or
arrangement between the Franchisor and third parties and in respect of
which the Franchisor has Transmission rights in the Regions; or
any subscription television narrowcasting services provided by the Franchisor to
subscribers as at the date of this Agreement.
SCHEDULE 2(A)
PROGRAM GENRE COMMENCEMENT ESTIMATED
DATE DAILY HOURS
Premium Movies March 1995 12
Movies March 1995 12
Classic Movies June 1995 8
Sport March 1995 12
International News December 1994 12
ABC Local and Regional News March 1995 12
Childrens/Family March 1995 8
ABC Children's/Education March 1995` 8
Cartoons/Animation June 1995 8
Documentary, Lifestyle, Education March 1995 8
Music Video December 1994 12
General Entertainment/Class Drama December 1994 8
<PAGE>
46
SCHEDULE 3
MINIMUM SUBSCRIBER LEVELS
PERIOD MINIMUM SUBSCRIBER LEVEL %
During the Initial Period (Years 0 to 2) 0%
During the period after the end of the Initial
period for a further 2 years (Years 2 to 4) 5%
During the period after the preceding period
for a further 2 years (Years 4 to 6) 10%
During the period after the preceding period
for a further 2 years (Years 6 to 8) 18%
During the period after the preceding period
for a further 2 years (Years 8 to 10) 30% or, if lower, the
percentage from time to time
equal to the percentage
calculated as /S//\\P\\ times
90%, where S equals the total
number of subscribers to the
Franchisor's Services
(excluding the Subscribers) and
P equals the total number of
occupied private dwellings
within Australia (excluding the
Regions) to which the
Franchisor's Services can be
provided by use of satellite,
MDS or any other existing means
of delivery available to the
Franchisor without any material
technical impairment,
calculated at the end of the
relevant Accounting Period
Thereafter (Years 10 to 20) 30% or, if higher, the
percentage from time to time
equal to the percentage
calculated as /S//\\P\\ times
90%, where S equals the total
number of subscribers to the
Franchisor's Services
(excluding the Subscribers) and
P equals the total number of
occupied private dwellings
within Australia (excluding the
Regions) to which the
Franchisor's Services can be
provided by use of satellite,
MDS or any other existing means
of delivery available to the
Franchisor without any material
technical impairment,
calculated at the end of the
relevant Accounting Period
<PAGE>
EXHIBIT 10.25
CHANNEL SUPPLY AGREEMENT
PARTIES
XYZ ENTERTAINMENT PTY LIMITED
(`Programmer')
AND
CONTINENTAL CENTURY PAY TELEVISION PTY LIMITED
(`Distributor')
AND
EAST COAST PAY TELEVISION PTY LIMITED
(`Guarantor')
DATED
30 June 1995
TRESS COCKS & MADDOX
Solicitors & Notaries
Level 20
135 King Street
SYDNEY NSW 2000
DX 123 SYDNEY
Tel: (02) 221.2744
Fax: (02) 221.4988
Ref: PAT
<PAGE>
TABLE OF CONTENTS
- ----------------------------------------------------------------------
DEFINITIONS & INTERPRETATION....................................... 2
Definitions................................................... 2
Interpretation................................................ 3
GRANT OF RIGHT TO TRANSMIT AND DISTRIBUTE CHANNELS................. 4
Rights........................................................ 5
Restriction................................................... 6
Rights of the Distributor..................................... 6
DELIVERY........................................................... 9
FEES............................................................... 9
PAYMENT AND REPORTING.............................................. 13
Timing of Fees and Payments................................... 13
Reporting..................................................... 13
Offsetting.................................................... 13
RIGHTS AND DUTIES OF THE DISTRIBUTOR............................... 14
Editorial Control............................................. 14
Compliance with Laws.......................................... 16
Signal Quality................................................ 16
RIGHTS AND DUTIES OF THE PROGRAMMER................................ 16
COMPLIANCE WITH LAW................................................ 16
Licences...................................................... 17
Insurance..................................................... 17
Advertising Revenue........................................... 18
PROGRAMME SCHEDULES........................................... 18
INTELLECTUAL PROPERTY.............................................. 18
Intellectual Property of the Programmer....................... 18
Licence....................................................... 19
Intellectual Property of the Distributor...................... 19
WARRANTIES AND REPRESENTATIONS..................................... 20
Representations and Warranties of the Distributor............. 20
Representations and Warranties of the Programmer.............. 20
INDEMNITIES........................................................ 21
TERM, TERMINATION AND REMEDIES..................................... 23
Term.......................................................... 23
Termination................................................... 23
Effect of Termination......................................... 24
Survival...................................................... 24
OTHER CHANNELS..................................................... 25
No Restriction on Distributor................................. 25
MISCELLANEOUS...................................................... 25
No Partnership or Agency...................................... 25
Force Majeure................................................. 25
Confidentiality............................................... 25
Notices....................................................... 26
Governing Law and Jurisdiction................................ 26
Prohibition and Enforceability................................ 27
Waivers....................................................... 27
Variation..................................................... 27
Cumulative Rights............................................. 27
Assignment.................................................... 28
Counterparts.................................................. 28
Continuing Indemnities and Survival of Indemnities............ 28
Further Assurances............................................ 28
ECT GUARANTEE...................................................... 28
SCHEDULE 1 - DESCRIPTION Of The CHANNELS........................... 31
SCHEDULE 2 - LICENCE FEES.......................................... 33
SCHEDULE 3: CCPTV COSTS........................................... 38
<PAGE>
THIS AGREEMENT is made on 30 June 1995 between the following parties
PARTIES XYZ ENTERTAINMENT PTY LIMITED (ACN 066 812 119) of Level 2, 100
Harris Street, Pyrmont, New South Wales 2009 (`Programmer')
CONTINENTAL CENTURY PAY TELEVISION PTY LIMITED (ACN 062 411 625) of
Level 7, 55 Grafton Street, Bondi Junction, New South Wales 2022
(`Distributor')
EAST COAST PAY TELEVISION PTY LIMITED (ACN 003 546 272) of Level 7, 55
Grafton Street, Bondi Junction, New South Wales 2022 (`Guarantor')
INTRODUCTION
(A) The Distributor owns the `A' Licence and accordingly has the rights to
provide up to 4 subscription television broadcasting services and is
currently using the Optus Satellite as a means of delivery.
(B) The Distributor wishes the Programmer to produce the Licence A Package for
the aforesaid 4 subscription television services and to produce other
Channels and subject to this Agreement the Distributor intends to
distribute the same.
(C) At Distributor's request, the Programmer has agreed to develop, finance and
produce the Channels of programming for the Distributor to:
(1) broadcast as subscription television broadcasting services using
satellite as a means of delivery; and
(2) provide to other persons to broadcast as subscription television or
other broadcasting services using MDS system and cable television
system and/or any other means of delivery
.
(D) This Agreement provides for the terms and conditions of the supply of the
programming constituting the Channels by the Programmer to the Distributor
during the Term and the promotion of those Channels.
IT IS AGREED: in consideration of, among other things, the mutual promises
contained in this agreement.
<PAGE>
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1. DEFINITIONS & INTERPRETATION
1.1. Definitions
In this agreement all words have the meaning referred to in the Joint
Venture Agreement unless defined below, and, unless the context otherwise
requires:
(a) `A' Licence' means the subscription television broadcasting licence
described as `licence A' in and issued under section 93 of the
Broadcasting Services Act 1992 (Cth);
(b) `Agreement' means this agreement;
(c) `Channel Mark' has the meaning given to that expression in clause
9.1(a);
(d) `Commencement Date' means 1 June 1995;
(e) `CPI' means the Consumer Price Index (All Groups) for Sydney
published by the Australian Statistician appointed under the Census
and Statistics Act 1905 (Cth);
(f) `Financial Year' means the period from the Commencement Date to 30
June 1995 and every successive period of 12 months ending on 30 June;
(g) `Joint Venture Agreement' means the Heads of Agreement for Joint
Venture dated this day between Century Programming Ventures Corp,
United International Holdings Inc,Distributor, Programmer, The News
Corporation Limited, Telstra Corporation Limited, Foxtel Management
Pty Limited as agent for the Foxtel Partnership, Century
Communications Corp, UIH Australia Programming Inc, Newco and Pty
Limited and providing for Foxtel and Newco to become equal
shareholders in XYZ;
(h) `MDS system' has the same meaning as in the Broadcasting Services
Act 1992 (Cth);
(i) `Optus Satellite' means a satellite operated under the general
telecommunications licence that was granted to AUSSAT Pty Limited and
notified on 26 November 1991 in Gazette No. S323;
(j) `Subscriber' means each and every location (including without
limitation, each dwelling, (whether in a single family or multi unit
<PAGE>
-3-
building), hotel guest room, bar, restaurant and other residential or
commercial location) which is equipped and entitled to receive any or
all of the Channels using satellite, MDS system, cable or other means
of delivery under a contract or arrangement with Distributor or the
Distributor's sub-contractor, agent or licensee;
(k) `Subscription television broadcasting service' has the same meaning
as in the Broadcasting Services Act 1992 (Cth);
(l) `Term' means the term of this agreement specified in clause 12.1;
(m) `Termination Date' means the date (if any) on which this agreement is
terminated in accordance with clause 12.2;
(n) `Transmission Point' means:
(i) the point from which a broadcast signal can be uplinked to the
Optus Satellite or any other satellite used by Distributor for
broadcasting by the Distributor; and
(ii) in relation to Foxtel, Wharf 8, Pyrmont.
(o) `VBI' means vertical blanking interval.
1.2. Interpretation
In this agreement, unless the context otherwise requires:
(a) headings and underlinings are for convenience only and do not
affect the interpretation of this agreement;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) other parts of speech and grammatical forms of a word or phrase
defined in this agreement have a corresponding meaning;
(e) an expression importing a natural person includes any company,
partnership, joint venture, association, corporation or other body
corporate governmental agency, trust or any other legal entity;
(f) a reference to a part, clause, party, annexure, exhibit or schedule
is a reference to a part and clause of, and a party, annexure,
exhibit and
<PAGE>
-4-
schedule to, this agreement and a reference to this agreement
includes any annexure, exhibit and schedule;
(g) a reference to any statute, regulation, proclamation, ordinance or
by-law includes all statutes, regulations, proclamations, ordinances
or by-laws amending, consolidating or replacing them, and a reference
to a statute includes all regulations, proclamations, ordinances and
by-laws issued under that statute;
(h) a reference to a document includes an amendment or supplement to, or
replacement or novation of, that document;
(i) a reference to a party to a document includes that party's successors
and permitted assigns;
(j) where the day on or by which any thing is to be done is not a
Business Day, that thing must be done on or by the preceding
Business Day;
(k) No rule of construction applies to the disadvantage of a party
because that party was responsible for the preparation of this
agreement or any part of it;
(l) a covenant or agreement on the part of 2 or more persons binds them
jointly and severally;
(m) a reference to an agreement other than this agreement includes an
undertaking, agreement or legally enforceable arrangement or
understanding whether or not in writing;
(n) a reference to an asset includes all property of any nature,
including, but not limited to, a business, and all rights, revenues
and benefits;
(o) a reference to a document includes any agreement in writing, or any
certificate, notice, instrument or other document of any kind.
2. GRANT OF RIGHT TO TRANSMIT AND DISTRIBUTE CHANNELS
2.1. The Distributor engages the Programmer, and the Programmer accepts the
engagement, to produce and supply to the Distributor from the date hereof
the Licence A Package on and subject to the terms of this Agreement. The
Programmer must produce and supply Channel 5 and Channel 6 to the
Distributor in accordance with the Joint Venture Agreement.
<PAGE>
-5-
2.2. Rights
(a) Subject to the terms and conditions of this Agreement, the Programmer
acknowledges that the Distributor is exclusively entitled to (and the
Programmer hereby exclusively grants to the Distributor) during the
Term all rights to distribute the Channels by MDS system, Cable TV
system and satellite, including, without limiting the foregoing;
(i) to transmit, distribute, license and to authorise the
transmission, distribution and licensing of the Channels by any
sub-contractor, agent or licensee by MDS System, Cable TV System
or by satellite;
(ii) to facilitate and authorise the facilitation of Subscribers to
receive the Channels by satellite, MDS system, or Cable TV
System and, for the purpose of viewing the Channels, to
descramble, decode and/or decrypt the signals by which the
Channels are transmitted;
(iii) to promote and market the Channels as the Distributor's
subscription television broadcasting services or those of any of
its sub-contractors, agents or licensees; and
(iv) to utilise excerpts from the programming on the Channels only
to advertise, promote and publicise Distributor's television
broadcasting services or that of any of its sub-contractors,
agents or licensees, subject to any limitations imposed by third
parties and notified to Distributor by Programmer;
(b) The Distributor may cause or authorise the Channels to be received
for a reasonable time by any person who is not a Subscriber for
purposes of promotion or marketing of the Channels.
(c) The Distributor may not authorise any person to record a Channel or
any part of a Channel, other than as may be required or permitted by
law or the relevant Governmental department, regulatory agency or
authority. Notwithstanding the foregoing, the Distributor shall not be
obliged to commence or maintain any action or proceedings to prevent
persons recording Channels.
(d) Subject to clause 2.5, nothing in this Agreement imposes any
obligation on the Distributor to broadcast or otherwise exploit the
Channels or to broadcast or otherwise exploit the Channels
continuously or in any area.
<PAGE>
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2.3. Restriction
The Programmer shall not exploit or authorise or permit exploitation of any
Channels or part of a Channel, by MDS system, Cable TV system or by
satellite during the Term.
2.4. Rights of the Distributor
(a) In the exercise of its rights under this Agreement the Distributor is
entitled:
(i) to conclude as principal or through an agent or sub-contractor
or licensee a subscription contract with any person and confer
on that person the right to receive (amongst other things)
broadcasts of the Channels on such terms (including but not
limited to fees) as the Distributor may, in accordance with the
terms of this agreement but otherwise in its absolute
discretion, think fit;
(ii) in its absolute discretion to facilitate or prevent the
receipt by Subscribers of the Channels and, for the purpose of
viewing the Channels, facilitate or prevent the descrambling,
decoding, or decryptying by Subscribers of the signals by which
the Channels are transmitted;
(iii) in its absolute discretion to take action in its own name
against any Subscriber, agent, licensee or sub-contractor who
is in breach of any contract; and
(iv) to conclude with any person any agreement for the transmission,
distribution or delivery of the Channels.
2.5. Distribution
The Distributor shall use reasonable commercial endeavours to maximise the
distribution of the Channels. The Distributor warrants that as at the date
of this Agreement it has entered into:
(a) agreements with Australis in relation to the distribution of the
License A Package in Australia by MDS system and satellite systems
which provide:-
(i) Galaxy shall pay the fees referred to in clause 4.1 in respect
of the distribution of the Channels by MDS system on the Galaxy
Network;
<PAGE>
-7-
(ii) the term of the agreement (`the MDS Agreement') for the
distribution of the Licence A Package by MDS system is 10 years
from 1 April 1995, with an option to Distributor to renew for 5
years on the same terms. The Distributor undertakes to exercise
that option.
(iii) Australis is expressly entitled to terminate the MDS Agreement
only if:-
(A) a receiver or a receiver and manager of Distributor or the
assets of Distributor is appointed;
(B) the Distributor makes an assignment for the benefit of its
creditors, or enters into any composition or scheme of
arrangement with its creditors or stops or suspends
payment to its creditors or states its intention to do so;
(C) the Distributor becomes insolvent under administration;
(D) the Distributor ceases to deliver the Licence A Package
for more than 2 consecutive months;
(E) the Distributor's entitlement to deliver the Licence A
Package to Australis is suspended for a period in access of
2 consecutive months or cancelled by final order of any
governmental authority;
(F) wilful and persistent breach by the Distributor of its
obligations under the MDS Agreement.
(iv) Australis must pay fees under the MDS Agreement to Distributor
within 45 days of the end of the calendar month.
(b) the Cable Distribution Agreement with Foxtel and others entitling the
Distributor to receive throughout the Term the amounts referred to in
paragraph 2(B) in Schedule 2. Foxtel has agreed in the Cable
Distribution Agreement to distribute the Licence A Package on the
Basic Service.
2.6. The Distributor shall use reasonable endeavours in the Distributor's
agreements with them to require its sub-contractors, licensees or agents
to maximise the number of Subscribers to the Channels.
<PAGE>
-8-
2.7. Distributor warrants that:
(a) Foxtel has agreed to include the Licence A Package on the Foxtel
Basic Service;
(b) Galaxy has agreed to include Licence A Package in the Galaxy Package.
<PAGE>
-9-
2.8. Subject to the payments by the Programmer of the costs referred to in
clause 4A, the Distributor will use its reasonable endeavours until 1 July
1997 and thereafter its reasonable commercial endeavours to maintain the A
Licence in full force and affect.
2.9. Distributor shall at the request and cost (on an indemnity cost basis) of
Programmer pursue all rights and remedies of Distributor to enforce
payments of all amounts due and payable to Distributor by its
subcontractors, agents and licensees in respect of the distribution or
transmission by them of the Channels to Subscribers.
3. DELIVERY
The Programmer shall timely deliver the Channels to the Transmission Points
in broadcast quality by such means as is reasonably required by the
Distributor and to enable Distributor to exploit and turn to account the
rights granted to the Distributor in this Agreement.
4. FEES
4.1. Subject to this Agreement (and without limiting the foregoing, to clause
4A and 5.3), for each Financial Year the Distributor shall pay the
Programmer in accordance with clause 5:-
(a) amounts calculated in accordance with paragraph B of Schedule 2 in
respect of the provision by Foxtel of the Licence A Package to
Subscribers on the Foxtel Network;
(b) in respect of Subscribers of the Distributor or on the Galaxy Network,
(including Subscribers of the Franchisees but, for the avoidance of
doubt, not any Subscribers on the Foxtel Network) and in respect of
the provision to those Subscribers of the Licence A Package the
amounts calculated in accordance with paragraph A of Schedule 2;
(c) in respect of the provision of Channel 5 and Channel 6, the amounts
determined in accordance with the Joint Venture Agreement; and
4.2. The Distributor shall not have any obligation to pay any fees to the
Programmer in relation to Subscribers (other than the Distributor's
Subscribers) unless the Distributor has actually received from its sub-
contractors, agents or licensees payments due in respect of the provision
by them of the Channels to Subscribers, and where the receipt is less than
the amount due to the Distributor by that person and is made or received as
a settlement, compromise, dividend or other distribution in satisfaction of
a higher amount, the fee payable to
<PAGE>
-10-
Programmer in respect of the Subscribers of such person shall be reduced
pro rata to the lesser amount received.
4.2A Distributor covenants that if it agrees to reduce the amounts payable by
Subscribers on the Galaxy Network to less than the amounts set out in
paragraph A of Schedule 2, it shall nevertheless continue to pay to
Programmer the amounts set out in paragraph A of Schedule 2 and clause 4.2
shall not apply in relation to the agreed reduction.
4.2B Distributor covenants that if it agrees to reduce the amounts payable by
Subscribers on the Foxtel Network to less than the amounts set out in
paragraph B of Schedule 2, it shall nevertheless continue to pay to
Programmer the amounts set out in paragraph B of Schedule 2 and clause 4.2
shall not apply in relation to the agreed reduction.
4.3. All parties acknowledge that when the amount charged to Subscribers (`MDS
Subscribers') on the Galaxy Network in respect of the reception by means of
MDS Transmission of the Licence A Package increases to US$4.15 or more,
Distributor may from that time on retain US$1.00 per Subscriber per month
from MDS Subscribers on the Galaxy Network and shall pay to the Programmer
the balance of the amount received per MDS Subscriber per month from
Subscribers on the Galaxy Network in accordance with paragraph A of
Schedule 2 provided that this clause does not affect the Distributor's
obligations under clause 4.1(b).
4A REIMBURSEMENT OF TRANSMISSION COSTS
4A.1 Programmer must reimburse Distributor 100% of Distributor's actual costs
of carrying on the business of providing or distributing the Channels to
the Distributor's Subscribers, subcontractor's licensees or agents,
including without limitation:-
(a) transmission, broadcast and delivery of the Channels, including
without limitation to Foxtel, Australis, Galaxy and Subscribers
(excluding costs of or of providing any Subscriber reception
equipment);
(b) of or in relation to the A Licence including without limitation any
fees paid to maintain the currency of the A Licence and any costs of
complying with its conditions;
(c) of making payments to Broadtel pursuant to an agreement dated 15 July
1994 between Distributor and Broadtel;
(d) in respect of Distributor staff, premises and overhead.
<PAGE>
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plus an amount of A$2,000,000 per annum for each of the first ten years
following execution of this Agreement. Estimates of these costs
(excluding Broadtel), as at the date of this Agreement are contained in
Schedule 3. The amount payable at Closure shall be specified in a notice
(`the Distributor Closure Notice') to be prepared by Distributor and
delivered to Programmer Newco and Foxtel not less than 3 days prior to
Closure.
For the avoidance of doubt, the costs referred to in this clause 4A.1
shall not include any costs of broadcast of the Channels by MDS system
directly to Subscribers.
4A.2 Distributor shall use its reasonable endeavours to:
(a) minimise the costs incurred by it in carrying on the business of
providing or distributing the Channels; and
(b) negotiate any contracts for goods and services (including transponder
leases) it enters in the course of business at not more than the
prevailing market rate for the relevant good or service.
4A3. After Closure Distributor shall grant to Programmer, its advisers and
authorised representatives reasonable access to all books and records of
Distributor relating to the costs referred to in clause 4A.1, for the
purposes of confirming in accordance with this clause the accuracy of the
Distributor's Closure Notice and the notices referred to in clause 4A.4.
4A.4 All costs referred to in clause 4A.1 (other than the amounts payable at
Closure or referred to in Clause 4A.8) shall be paid by Programmer to
Distributor or as Distributor directs within 14 days of written notice by
Distributor to Programmer specifying these costs together with copies of
any supporting invoices. The parties to this Agreement acknowledge that
the costs referred to in clause 4A.1 may increase or decrease in the future
and that any notice shall reflect such increase or decrease, the intention
being that all the actual costs incurred by Distributor are paid by
Programmer as and when due.
4A.5 The amount of A$2 million per annum referred to in clause 4A1 shall be
paid without any request as to A$1 million on each of the following dates,
time to be of the essence:-
(a) the date of Closure;
(b) the date that is 6 months from the date of Closure; and
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(c) each anniversary of each of the dates referred to in this clause
4A.5(a) and 4A.5(b)
until Distributor has received a total of A$20 million pursuant to this
clause 4A.5.
4A.6 Audit
Throughout the term of this Agreement, Distributor shall keep and retain
for 3 years complete and accurate records relating to actual costs referred
to in clause 4A.1. Such records shall be sufficient to enable Programmer's
auditors as provided in this Agreement to verify the costs incurred by
Distributor.
4A.7 (a) During the term of this Agreement and for the subsequent 12 months
(but not more frequently than once in any period of 12 months) on
Programmer giving 10 Business Days' prior written notice, Programmer
shall have the right at its own cost to appoint independent auditors
to inspect the books and records of Distributor in respect of costs
incurred by it relating to a period not exceeding 2 years prior to the
date of such inspection for the purpose of verifying the amounts paid
by Distributor referred to in clause 4A.1.
(b) At the request of Distributor, Programmer shall procure that the
independent auditors shall give Distributor an undertaking in writing
(in such form as requested by Distributor) in relation to the
confidentiality of the information acquired. Programmer shall also
procure that the independent auditors shall provide to Distributor a
copy of any report made by independent auditors to Programmer.
(c) In the event that such inspection reveals an over statement of the
costs, then Distributor shall reimburse to Programmer any over payment
together with interest on the sums actually shown to be overpaid by
such audit such interest to accrue daily at the annual rate of 1.5%
above Distributor bank's base rate from time to time from the date
such sums were overpaid until the date of actual reimbursement by
Distributor.
(d) In the event that such inspection reveals an overpayment of costs by
Programmer in excess of 5% of the costs reimbursed to Distributor for
the period in question, Distributor shall pay the reasonable costs of
the audit.
(e) In the event that any such audit reveals that monies are due to
Distributor, those monies shall be paid within 7 days of the audit
report.
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4A.8 For the avoidance of doubt, the costs referred to in clause 4A.1 shall not
include any costs or amounts incurred or awarded against Distributor
pursuant to litigation against the Distributor directly in connection with
the Distributor's acquisition of the A Licence prior to the date of this
Agreement.
5. PAYMENT AND REPORTING
5.1. Timing of Fees and Payments
(a) The fees referred to in clause 4 and Schedule 2 are payable in respect
of each calendar month.
(b) If the period for which the fees are payable is less than 1 calendar
month including without limitation because this agreement is
terminated before the end of a calendar month, then this clause 5
applies to the relevant period with the necessary changes and the fees
payable must be adjusted pro rata on a daily basis.
(c) Subject to clause 5.1(d) the Distributor shall pay the Programmer the
fees calculated in accordance with clause 4 and Schedule 2 within 60
days after the end of each calendar month.
(d) The Distributor shall direct Foxtel to pay all amounts payable to the
Distributor under the Cable Distribution Agreement in respect of the
supply of the Channels directly to the Programmer. This direction may
not be revoked unless the Programmer has failed or delayed in making
the payments referred to in clause 4A.
5.2. Reporting
Within 60 days after the end of each calendar month, the Distributor shall
deliver to the Programmer a statement in a form reasonably satisfactory to
the Programmer (`Subscribers Report') that sets out (subject to the
information provided to the Distributor) the number of Subscribers at the
end of the relevant month in respect of each Distributor, sub-contractor
agent or licensee which provided the Channels to the Subscribers. The
Subscriber's Report shall be certified as correct by the Chief Financial
Officer of the Distributor or his designee.
5.3. Offsetting
Notwithstanding the other provisions of this Agreement in the event
payments due to the Distributor by the Programmer under this Agreement are
outstanding, Distributor, in addition to Distributor's other rights and
remedies,
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may offset from payments due by Distributor the payments due from the
Programmer to Distributor.
5.4. Audit
(a) Once each Financial Year, the Programmer may at its own expense, at
any time during normal business hours and after giving reasonable
notice to the Distributor visit the offices of the Distributor to
inspect and make copies of any information confirming the statements
in the Subscribers Reports or the notices referred to in clause 4A.
(b) The Distributor must retain all Subscribers Reports for 3 years during
and after the Term.
(c) If, as a result of any inspection under clause 5.4(a) the Programmer
determines that the Distributor has incorrectly calculated or paid any
amount payable under this Agreement then the Programmer may give the
Distributor written notice setting out:
(i) the Programmer's calculations of the correct amount payable;
(ii) the reasons for any difference between the fees payable
determined by the Programmer and those determined by the
Distributor; and
(iii) the amount determined by the Programmer as required to correct
the amounts already paid by the Distributor and (if the
discrepancy exceeds 5% of the amount determined by the
Distributor) to reimburse the Programmer for the reasonable
costs of its inspection under this clause.
(d) The Distributor shall be bound to pay any amounts found to have been
underpaid.
6. RIGHTS AND DUTIES OF THE DISTRIBUTOR
6.1. Editorial Control
(a) The Licence A Package shall conform at all times to the respective
descriptions or genres contained in Schedule 1; and
(i) the Programmer must use all reasonable commercial endeavours to
acquire rights to programmes nominated by the Distributor and
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within the genres of the Channels and to insert those programmes
into the Channels;
(ii) the Distributor may request the Programmer to remove a nominated
programme from a Channel and to substitute a different
programme;
(iii) the Distributor may request the Programmer to re-schedule any
programmes in a Channel;
(iv) the name or brand of any Channel must not be changed without the
Distributor's reasonable approval; and
(v) the Programmer must make all necessary consequential changes to
the programme schedules which the Programmer is obliged to
deliver to the Distributor under clause 8 as a result of any
request made by the Distributor under this clause.
(b) The Programmer may insert advertising into the Channels subject to
compliance at all times with the Distributor's guidelines from time to
time for the insertion by the Programmer of advertising provided that
the Distributor shall allow the insertion of an average of 8 minutes
per hour per Channel for advertising. The Programmer acknowledges that
the Distributor or its sub-contractors agents or licensees may insert
up to an additional 4 minutes of advertising per hour into each
Channel (up to a total of 12 minutes).
(c) The Distributor and its permitted licensees may interrupt, alter, add
to, delete or edit any part of a Channel if, and to the extent that,
it is necessary to comply with the conditions of the `A' Licence or
any other licence permitting the provision of subscription television
broadcasting services.
(d) The names, brands or trademarks of each Channel must be approved by
the Distributor such approval not to be unreasonably withheld. The
Distributor approves the names referred to in Schedule 1 and in clause
4.15 of the Joint Venture Agreement. No Company Mark used in
connection with a Channel may be used directly or indirectly in
connection with anything other than the Channel without the prior
approval of the Distributor (not to be unreasonably withheld), 'except
in connection with advertising, promotion or marketing of the Channel.
(e) The Distributor may pre-empt any scheduled programme and substitute
broadcast matter which it deems, acting reasonably, to be of local or
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national importance in which case it shall reschedule the pre-
empted program.
(f) The Distributor may withdraw any programme from any Channel if the
transmission of that programme would:
(i) infringe the rights of others or violate any law, court order,
regulation or ruling of a government agency;
(ii) affect adversely any licence held by the Distributor;
(iii) subject the Distributor to any liability; or
(iv) be obscene, pornographic or in breach of applicable programme
standards..
6.2. Compliance with Laws
The Distributor must ensure that it:
(a) complies at all times with all relevant laws, Governmental guidelines,
directions and industry codes of practice, including without
limitation clause 6 and Schedule 2 of the Broadcasting Services Act
1992 (Cth); and
(b) does not at any time act in any manner or refrain from acting which
may prejudice its ownership, or the continuance, of the `A' Licence.
6.3. Signal Quality
Subject to Programmer's delivery of signals in accordance with this
Agreement, the Distributor shall use its reasonable endeavours to require
its sublicensees, contractors and agents to ensure that the signal quality
of the Channels is of broadcast quality. The Distributor shall use all
reasonable endeavours to notify the Programmer of any material disruption,
discontinuance, interference with or deterioration in the signal quality of
or the reception by subscribers of, the Channels.
7. RIGHTS AND DUTIES OF THE PROGRAMMER
7.1. Compliance with Law
The Programmer must ensure that:
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(i) it and each of the Channels comply at all times with all relevant
laws, Governmental guidelines, directions and industry codes of
conduct, including the BSA and including without limiting the
foregoing, as if the Programmer were in relation to the content of the
Channels, a `broadcaster' for the purposes of Schedule 2 of the BSA,
and a holder of a satellite subscription television broadcasting
licence under the BSA;
(ii) it does not at any time act in any manner which, if the Distributor
transmits and distributes the Channels, might prejudice the
Distributor's ownership, or the continuance or maintenance of the `A'
Licence, or breach any of the conditions of the `A' Licence;
(iii) without limiting the foregoing, the Channels comply with Section 102
of the Broadcasting Services Act, 1992 (Cth) in relation to Australian
drama programmes ;
7.2. Licences
The Programmer shall obtain and ensure that all necessary licences,
consents and clearances are obtained for the broadcast of the programming
and other content of each of the Channels, including without limitation all
necessary licences, consents and clearances in respect of the copyright,
performing right (including music or sound recording performing rights),
right of privacy, trademark, moral right (if applicable) or other right or
interest of any third party in relation to any material provided to the
Distributor by the Programmer.
7.3. If any copyright clearance or collecting society fees are paid or payable
by Distributor in respect of the broadcast of the Channels, same will be
reimbursed to Distributor by the Programmer.
7.4. Insurance
The Programmer shall effect with an established insurer and maintain until
the end of the Term, errors and omissions insurance in limits of not less
than US$2,000,000 for each occurrence with no limit as to the number of
claims that can be made on such terms as are customary within the
Australian broadcasting industry, naming the Distributor as an additional
primary insured. A copy of the insurance policy with the binder naming the
Distributor as an additional primary insured shall be furnished to the
Distributor within 7 days of the date of this Agreement. During each year
of the Term the Programmer must within 14 days increase the amount of
insurance effected by such amount commensurate with any increase during the
preceding year in the consumer price index.
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7.5. Advertising Revenue
The Programmer shall be entitled to all revenue received from advertising
inserted into the Channels by the Programmer. The Programmer acknowledges
that the Distributor, its sub-contractors, agents or licensees shall be
solely entitled to revenue from advertising inserted into the Channels by
them.
8. PROGRAMME SCHEDULES
8.1. The Programmer shall provide to the Distributor detailed monthly programme
schedules for each of the Channels as soon as reasonably practicable before
transmission of the relevant month's programming, but not less than 2
months in advance.
8.2. Despite clause 8.1, the Programmer may at any time make any change to its
programme schedules necessary to comply with law or to prevent breach of
this Agreement but only with the consent of the Distributor (such consent
not to be unreasonably withheld or delayed), and must notify that change to
the Distributor as soon as reasonably practicable, and provided that any
substitute programming will be of the same Genre as the other programming
on the Channel.
8.3. The Distributor acknowledges that as between the Programmer and the
Distributor, the Programmer is the owner of all copyright, intellectual
property and other rights in the programme schedules referred to in clause
8.1. The Distributor, or its sub-contractors, licensees or agents may
reproduce, copy or otherwise deal with the programme schedules for any
purpose in connection with the marketing, promoting or publicising the
Channels subject to the Programmer's reasonable guidelines.
8.4. The Programmer authorises the Distributor and its licensees to copy the
programme schedules referred to in this clause 8 for the purposes of
providing information to Subscribers and, to newspaper and magazine
publications and other publishers which from time to time publish those
programme schedules and to advertise and/or promote the programming on the
Channels.
9. INTELLECTUAL PROPERTY
9.1. Intellectual Property of the Programmer
The Distributor acknowledges that:
(a) the trade names, trade marks, logos and service marks used from time
to time in connection with any Channel, the name of that Channel and
the
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corporate names of the Programmer and its Affiliates (each a
`Channel Mark') as between the Programmer and Distributor, are the
exclusive property of or are licensed to the Programmer or of its
Affiliate as the case may be (`Relevant Owner');
(b) it has not acquired and will not acquire any proprietary or other
rights in the Channel Marks by reason of this agreement;
(c) it shall make available to the Relevant Owner at the Relevant Owner's
written request copies of any promotional or advertising material
created or disseminated by the Distributor, and not provided by the
Relevant Owner, if that material mentions or uses a Channel Mark.
9.2. Licence
The Programmer hereby grants to the Distributor for the Term and free of
charge the right to use, and to authorise its sub-contractors, licensees
and agents to use, the Channel Marks for advertising, promoting and
marketing the Channels and any of the programming on the Channels or on any
documents or records relating to the Channels. The Programmer also
acknowledges that the Distributor, its sub-contractors, licensees and
agents may broadcast film and video clips from the Channels, including
sound tracks, for advertising, promoting and marketing the Channels. The
Distributor acknowledges that the rights referred to in this clause are
subject to:
(a) any limitations imposed by third parties supplying or licensing
programming or Channel Marks to the Programmer provided that the
Programmer has notified the Distributor of those limitations; and
(b) compliance with the Programmers reasonable guidelines.
9.3. Intellectual Property of the Distributor
The Programmer acknowledges that the trade name, trade marks, logos,
service marks and characters and copyrightable material used from time to
time by the Distributor in connection with the exercise of its rights
hereunder (other than the Company Marks) are the exclusive property of the
Distributor and the Programmer has not acquired and will not acquire any
proprietary or other rights therein nor may it use any of the same without
the prior written agreement of the Distributor.
<PAGE>
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10. WARRANTIES AND REPRESENTATIONS
10.1. Representations and Warranties of the Distributor
For valuable consideration, the Distributor gives the following
representations and warranties in favour of the Programmer on the date of
this agreement:
(a) it has taken all necessary action to authorise the execution, delivery
and performance of this agreement in accordance with its terms;
(b) it has full power to enter into and perform its obligations under this
agreement and can do so without the consent of any other person and
free of any pre-emptive rights or rights of first refusal;
(c) it has obtained all necessary licences, consents and permissions
required (if any) for it to perform its obligations under this
agreement and those licences, consents and permissions are and will
throughout the Term remain in full force and effect.
10.2. Representations and Warranties of the Programmer
For valuable consideration, the Programmer represents and warrants to the
Distributor that effective on the date of and throughout the Term of this
Agreement:
(a) it has taken all necessary action to authorise the execution, delivery
and performance of this agreement in accordance with its terms;
(b) it has full power to enter into and perform its obligations under this
agreement and can do so without the consent of any other person and
free of any pre-emptive rights or rights of first refusal;
(c) it has obtained all necessary licences, consents and permissions
required (if any) for it to perform its obligations under this
agreement and those licences, consents and permissions are and will
throughout the Term remain in full force and effect;
(d) it is not in breach of any terms of the licences, consents and
permissions referred to in clause 10.2(c) and it will not do or permit
anything to be done or not done which might cause any of those
licences, consents or permissions to be suspended or revoked;
(e) the Channels in the form delivered by the Programmer will comply with
the applicable regulatory codes and directions issued from time to
time
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by the Australian Broadcasting Authority or other regulatory
authority and with applicable State and Federal legislation relating
to the broadcast, content and advertising contained in the Channels
from time to time;
(f) broadcast of the Channels in the form delivered by the Programmer
will not give rise to any sustainable action for defamation or
invasion of privacy or publicity of any person or be in contempt of
Court or Parliament;
(g) exploitation of the Channels in the form delivered by the Programmer
will not infringe the copyright, performing rights, trade mark, moral
or intellectual property rights, any contractual right or any other
right of any person;
(h) the Channels in the form delivered by the Programmer will comply in
all respects with the Broadcasting Services Act 1992 (Cth);
(i) performing broadcast, diffusion and other rights in music, musical
works and sound recordings contained in the Channels are either:-
(i) controlled by a performing rights society having jurisdiction or
in the public domain, or
(ii) owned by or licensed to the Programmer and the Programmer has
authority to grant to the Distributor all rights necessary to
permit delivery of the Channels to the Distributors, its sub-
contractors licensees or agents in Australia and to permit
broadcast of the Channels in Australia.
(j) the content of the Channels will be in accordance with the schedules
provided to the Distributor pursuant to clause 8.
11. INDEMNITIES
11.1. Notwithstanding the rights of Distributor under clause 6 the Programmer
indemnifies the Distributor against the full amount of all expenses,
losses, damages and costs (on a full indemnity basis and whether incurred
by or awarded against the Distributor) that the Distributor may sustain or
incur as a result, whether directly or indirectly, of any:
(a) breach of this Agreement by the Programmer, including without
limitation, a breach in respect of which the Distributor exercises a
right to terminate this Agreement;
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(b) authorised use by the Distributor its sub-contractors, agents or
licensees of the Channels as contemplated by this Agreement; or
(c) claim by any person:
(i) for loss or damage to any property, injury to or death of any
person or economic loss or non-economic loss caused by any act or
omission of the Programmer or its employees, contractors or
agents, including without limitation caused by the programming of
a Channel; or
(ii) that the broadcasting or diffusion of any programme infringes
intellectual property rights or any right of privacy or right of
publicity.
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11.2. Clause 11.1(b) and 11.1(c) shall not apply in relation to any variation
to the Channels made by Distributor or its subcontractors, licensees or
agents.
11.3. Distributor shall indemnify Programmer against the full amount of all
expenses, losses, damages and cost (on a full indemnity basis and whether
incurred by or awarded against Programmer) that Programmer may sustain or
incur as a result whether directly or indirectly or any breach by
Distributor of the Channel Supply Agreement or any variation made by the
Distributor as referred to in clause 11.2.
12. TERM, TERMINATION AND REMEDIES
12.1. Term
This Agreement commences on the date hereof and ends on the earlier of
the twenty-fifth (25th) anniversary of the Closure and the Termination
Date.
12.2. Termination
(a) The Distributor may terminate this Agreement at any time by giving
written notice to the Programmer if:
(i) the Programmer has committed a material breach of any of its
obligations under this agreement (including failure to pay any
amount) which the Programmer has not remedied within thirty
days of receipt of written notification to do so;
(ii) an Insolvency Event occurs in respect of the Programmer;
(b) Subject to clause 14.2 and without limitation of its other rights and
remedies, the Distributor may terminate this agreement at any time by
giving written notice to the Programmer if the Programmer acts or
fails to act such that any of the Channels is not provided to the
Distributor during the Term for a continuous period of more than 5
days.
(c) The Programmer may only terminate this Agreement if the Channels are
not being supplied by Distributor to its subcontractor's licensees or
agents for distribution in Australia for a period of 90 days, provided
that the Programmer gives Distributor 30 days written notice of its
intention to terminate this Agreement and the Distributor has failed
to cause the Channels to be supplied to its subcontractor's licensees
or agents for distribution in Australia within that 30 days.
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(d) The Programmer may terminate this Agreement if an Insolvency Event
occurs to the Distributor, provided that if the Insolvency Event is
rectified, waived or terminated within 2 years following any
termination by Programmer, the Programmer must enter into an
agreement with the Distributor on terms identical to this Agreement
for the balance of the term of this Agreement.
(e) The Programmer may terminate this Agreement if the A Licence is
revoked or cancelled provided that the Programmer shall enter into an
Agreement with the Distributor on terms identical to this Agreement
if within 2 years of the Programmer's termination:
(i) the A Licence is reinstated to the Distributor or an Affiliate
of the Distributor,
(ii) the Distributor is able to distribute the Channels by satellite
in accordance with law.
(f) In the event of any termination of this Agreement by the Programmer:
(i) the Programmer must supply the Channels directly to Foxtel on
the terms and conditions of the Cable Distribution Agreement;
and
(ii) the Programmer must offer to supply the Channels to Galaxy for
distribution on the Galaxy Network for fees equivalent to the
amounts provided in paragraph A of Schedule 2.
12.3. Effect of Termination
Termination of this agreement is without prejudice to any rights accrued
to any party up to the time of termination and does not affect the rights
and liabilities of the parties which expressly or impliedly survive
termination.
12.4. Survival
No warranty (including under clause 10, or indemnity under clause 11), in
this Agreement merges on the date of this Agreement, or on the performance
of any other obligations under this Agreement, or is affected by any
termination of this Agreement.
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13. OTHER CHANNELS
13.1. No Restriction on Distributor
The Distributor may directly or indirectly broadcast (whether alone or in
partnership or joint venture or association with any other person) or
otherwise be concerned with or interested in (whether as trustee,
principal, agent, securityholder, unitholder or in any other capacity) the
broadcasting of any programmes or Channels as, or as part of any
subscription television broadcasting service or otherwise, other than the
Channels or programmes or programme services provided pursuant to this
agreement, all without any obligation of any kind to the Programmer.
14. MISCELLANEOUS
14.1. No Partnership or Agency
(a) Nothing in this agreement creates a partnership or agency
relationship between the Programmer or any of its Affiliates on the
one hand and the Distributor or any of its Affiliateson the other
hand.
(b) Neither the Programmer nor the Distributor may hold itself out in any
manner which would indicate or imply any partnership or agency
relationship between the Programmer or any of its Affiliates on the
one hand and the Distributor or any of its Affiliates on the other
hand.
14.2. Force Majeure
(a) Neither party shall be liable for its inability or delay in
performing any of its obligations hereunder if such inability or
delay is caused by a Force Majeure Event.
(b) If the Programmer is due to any Force Majeure Event unable to
provide, or is delayed in providing, any Channel, then, if the
Distributor does not receive payments from some or all of its
Subscribers, sub-contractors, agents or licensees in respect of that
period of time, the Distributor is not liable to pay any part of
those fees or costs referred to in clause 4 that corresponds to the
period of time during which the Programmer is unable to provide, or
is delayed in providing, that Channel.
14.3. Confidentiality
(a) No party may, either before or after the termination of this
agreement, disclose to any person any information relating to the
terms of this
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agreement or any confidential business information concerning the
other derived in the course of performance including but not limited
to any information relating to identification of Subscribers or
financial material learned through an audit unless:
(i) that person is the banker or legal, taxation, accounting or
financial adviser of that party and agrees to keep that
information confidential;
(ii) the information is already in the public domain;
(iii) that party is required by law or by the rules of any relevant
Securities Exchange to disclose that information; or
(iv) the other party gives its prior written consent to the
disclosure, provided that the party advises the person to whom
the information is disclosed that the party is subject to a
duty of confidence and will procure from each such person an
undertaking to maintain the confidentiality of the information
on the terms of a confidentiality agreement reasonably
appropriate or customary in the circumstances.
(b) No party may disclose or make any announcement concerning the matters
contemplated by this Agreement without the other party's prior
written consent (including in relation to the nature, context and
content of any such disclosure or announcement) except that a party
will be entitled to make any disclosure required by law, any
governmental agency or by the rules of any relevant stock exchange,
subject to that party first obtaining the other party's written
consent to the nature, context or content of any such disclosure,
which the other party must give within sufficient time to enable
compliance with the law or the rules.
14.4. Notices
Any notice or other communication including, but not limited to any
request, demand, or approval, to or by a party, must be sent in accordance
with the Joint Venture Agreement.
14.5. Governing Law and Jurisdiction
This agreement is governed by the laws of New South Wales and the parties
submit to the non-exclusive jurisdiction of courts exercising jurisdiction
there.
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14.6. Prohibition and Enforceability
(a) Any provision, or the application of any provision, of this agreement
which is prohibited in any jurisdiction is, in that jurisdiction,
ineffective only to the extent of that prohibition.
(b) Any provision, or the application of any provisions, of this
agreement which is void, illegal or unenforceable in any jurisdiction
does not affect the validity, legality or enforceability of that
provision in any other jurisdiction or of the remaining provisions in
this agreement in that or any other jurisdiction.
(c) In the event of the application of either clause 14.6(a) or (b) to
any provision of this Agreement, the parties shall negotiate in good
faith a new provision which is not illegal, void or unenforceable by
or contrary to law and which provides or will provide the parties
with the same or equivalent benefits and participations as are
provided by the provision which is illegal, void or unenforceable by
or contrary to law.
14.7. Waivers
(a) Waiver of a right arising from a breach of this agreement must be in
writing and signed by the party granting the waiver.
(b) A right arising from a breach of this agreement is not waived by any
failure or delay in exercise, or partial exercise, of any right.
(c) A right is not waived by any failure or delay in exercise, or a
partial exercise, of that or any other right.
14.8. Variation
A variation of any term of this agreement must be in writing and signed by
the parties.
14.9. Cumulative Rights
The rights of the parties to this agreement are cumulative and do not
exclude any other rights, powers, authorities, discretions or remedies of
either party.
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14.10. Assignment
Neither party may assign its rights under this agreement without the
prior written consent of the other party and the assignor shall remain
liable despite assignment. The Distributor may sub-contract or license
any rights hereunder.
14.11. Counterparts
This agreement may be signed in any number of counterparts which, taken
together, constitute one and the same agreement.
14.12. Continuing Indemnities and Survival of Indemnities
(a) Each indemnity contained in this agreement is a continuing
obligation of that party despite:
(i) any settlement of account; or
(ii) the occurrence of any other thing,
and remains in full force and effect until all money owing,
contingently or otherwise, under any indemnity has been paid in
full.
(b) Each indemnity of any party contained in this agreement:
(i) is an additional, separate and independent obligation of that
party and no one indemnity limits the generality of any other
indemnity; and
(ii) survives the termination of this agreement.
14.13. Further Assurances
Each party must do all things necessary to give full effect to this
agreement and the transactions contemplated by this agreement.
15. ECT GUARANTEE
15.1. The Guarantor guarantees to the Programmer the full and punctual
performance of the obligations (including, without limiting the
foregoing, its obligations to pay money) warranties representations
undertakings and indemnities of the Distributor in relation to this
Agreement.
<PAGE>
-29-
15.2. The Guarantor agrees that the provisions of this clause 15 insofar as
they constitute monetary obligations constitute a guarantee of payment
when due and not collection.
15.3. The obligations of the Guarantor pursuant to this clause 15 shall not be
prejudiced by prior enforcement or release or waiver by the Programmer of
any other collateral or other right or security.
15.4. As a separate and independent covenant, if Distributor is in breach of
this Agreement, the Guarantor shall perform or procure the performance
within 7 days after written demand from Programmer of this Agreement and
shall indemnify and keep indemnified the Programmer against any loss
damage claim or expense suffered or incurred by it arising out of or in
connection with that breach by Distributor of this Agreement.
15.5. This clause 15 shall be a continuing Guarantee and Indemnity and shall
remain in full force and effect not withstanding termination of this
Agreement until discharge of all Distributor's obligations.
15.6. The obligations of Guarantor pursuant to this clause 15 shall not be
affected by:
(a) the granting of time or other indulgence to the Distributor or the
Guarantor;
(b) the compounding, compromise, relief, abandonment, waiver or
variation of any of the rights of Programmer unless in writing and
expressed to waive this Guarantee;
(c) the failure of Programmer to give notice;
(d) the obtaining by Programmer of a judgement against Distributor;
(e) any recision, waiver, amendment or modification of this Agreement;
(f) any legal limitation, disability or other circumstance relating to
Distributor or Programmer.
15.7. The obligation of Guarantor under this clause 15 shall be absolute and
unconditional and shall not be subject to any defence of set-off,
counterclaim, recoupment or termination whatsoever (subject to the
application of clause 5.3)
15.8. Guarantor warrants that it is entitled to control 100% of the votes of
all issued shares in Distributor and that Distributor is the holder of
the A Licence.
<PAGE>
-30-
EXECUTED by the parties as an agreement:
SIGNED for XYZ ENTERTAINMENT )
PTY LIMITED by its attorney in the )
presence of: )
/s/ MBJ Crean /s/ Donald F. Hagans
- ---------------------------------- ---------------------------------
Witness Attorney
MBJ Crean Donald F. Hagans
- ---------------------------------- ---------------------------------
Print Name of Witness Print Name of Attorney
SIGNED for and on behalf of CONTINENTAL )
CENTURY PAY TELEVISION PTY LIMITED by )
in the presence of: )
/s/ MBJ Crean /s/ Andrew Tow
- ---------------------------------- ---------------------------------
Witness Authorized Officer
MBJ Crean Andrew Tow
- ---------------------------------- ---------------------------------
Print Name of Witness Print Name
SIGNED for and on behalf of )
EAST COAST PAY )
TELEVISION PTY LIMITED by )
in the presence of: )
/s/ MBJ Crean /s/ Andrew Tow
- ---------------------------------- ---------------------------------
Witness Authorized Officer
MBJ Crean Andrew Tow
- ---------------------------------- ---------------------------------
Print Name of Witness Print Name
<PAGE>
-31-
SCHEDULE 1 - DESCRIPTION OF THE CHANNELS
(Definition of `Channel')
First Channel
Name `Arena'
Description of content A mixture of Australian, European and North American
programmes including without limitation situation
comedies, series, mini-series, game shows, adventure
stories and movies (primarily in English).
Second Channel
Name `Max' and `Classic Max'
Description of content `Max' is produced for children and is a mixture of
cartoons, educational programmes, game shows and
children's drama to be viewed during daylight hours.
`Classic Max' is produced for families and is a
mixture of family entertainment, series and other
favourite classic British, Australian and North
American programmes.
Third Channel
Name `Quest'
Description of content An international mixture of documentaries, adventure,
history and lifestyle programmes.
Fourth Channel
Name `Red'
Description of content Music videos, concerts and related promotions for
both the Australian music industry and the general
public and related programming.
Notes
(1) Arena and Max will be in English other than as noted in relation to Arena
In the case of Quest and Red, no less than 95% of the total air time per
day on each Channel will be in English.
(2) The Channels will operate 24 hours per days, 365 days per year.
<PAGE>
-32-
(3) Taking in the Channels in the aggregate, they will provide popular
programming with a broad mix of content tailored for Australian audiences.
<PAGE>
-33-
SCHEDULE 2 - LICENCE FEES
(Clause 4)
A. in respect of Subscribers to the Licence A Package after 1 June 1995:
Period 1 $US3.15 per Subscriber per month.
(Period to 30 November 1997)
Period 2 $US3.15 + 120% of any increase in
(1 December 1997 to internal costs + 110% of any increase
30 November 1998) increase of external costs over the
costs at 1 June 1995 levels per
Subscriber per month (`Period 2 Rate')
Period 3 Period 2 Rate + 120% of any increase
(1 December 1998 to in internal costs + 110% of any
30 November 1999) increase of external costs over Period
2 per Subscriber per month (`Period 3
Rate')
Period 4 Period 3 Rate + 120% of any increase
(1 December 1999 to in internal costs + 110% of any
30 November 2000) increase of external costs over Period
3 per Subscriber per month (`Period 4
Rate')
Each 12 month period thereafter The per Subscriber rate for the prior
12 month period + 120% of any
increase in internal costs + 110% of
any increase of external costs over the
per Subscriber rate for the prior 12
month period per Subscriber per
month.
PROVIDED that:
(i) the following non-cumulative volume discounts are to apply in any
month if the number of Subscribers on the Galaxy Network (including,
of the Franchisees to which are distributed the Licence A Package in
that month reaches the levels as listed below:
<TABLE>
<S> <C>
250,000 2%
</TABLE>
<PAGE>
-34-
<TABLE>
<S> <C>
500,000 4%
750,000 6%
1,000,000 8%
1,250,000 10%
1,500,000 12%
1,750,000 14%
2,000,000 16%
2,250,000 18%
2,500,000 or over 20%
</TABLE>
(ii) Definitions
(a) `Subscriber per month' means the number determined by the
following formula:
Subscriber = (A+B)/2
Where:
A means the number of Subscribers on the first day of the
current month.
B means the number of Subscribers on the last day of the
current month.
(b) Subscribers include equivalent subscribers which, in the
instance where bulk rates are paid, shall mean the quotient
derived by dividing the bulk rate by the then applicable
individual subscriber rate.
(c) Where a fee is charged for additional outlets, the additional
outlets will be counted as subscribers on a pro rata basis based
upon the revenue derived from such outlets divided by the then
applicable individual subscriber rate.
B. in respect of Subscribers on the Foxtel Network after 1 June 1995:
Year 1: 1 July 1995 to 30 June 1996 US$4.15 per subscriber
per month
Year 2: 1 July 1996 to 30 June 1997 US$4.15 per subscriber
per month
<PAGE>
-35-
Year 3: 1 July 1997 to 30 June 1998 US$4.15 + 120% of any
increase in internal
costs + 110% of any
increase in external
costs over costs at 1
June 1995 per subscriber
per month (`Year 3 Rate').
Year 4: 1 July 1998 to 30 June 1999 Year 3 Rate + 120% of
any increase in internal
costs + 110% of any
increase in external
costs over Year 3 per
subscriber per month
(`Year 4 Rate').
Year 5: 1 July 1999 to 30 June 2000 Year 4 Rate + 120% of any
increase in internal
costs + 110% of any
increase in external
costs over Year 4 per
subscriber per month
(`Year 5 Rate').
Each Year thereafter: Prior Year Rate + 120% of any increase in
internal costs + 110% of any increase in external
costs over the Prior Year per subscriber per month
plus A$971,500 per annum (payable monthly by 12
equal instalments at the same time as the balance
of the monthly Gross Fees)
<PAGE>
-36-
PROVIDED THAT:-
(i) the following non-cumulative volume discounts are to apply to TNC in
any month if the number of subscribers in that month to which it
distributes the Licence A Package exceeds the following levels;
<TABLE>
<S> <C>
250,000 2%
500,000 4%
750,000 6%
1,000,000 8%
1,250,000 10%
1,500,000 12%
1,750,000 14%
2,000,000 16%
2,250,000 18%
2,500,000 20%
</TABLE>
(ii) The expressions `internal costs' and `external costs' refer to the
costs of creating the Channels, irrespective of the party incurring
or responsible for those costs.
(iii) `Subscriber per month' means the number determined by the following
formula:-
Subscriber = (A + B) / 2
where:
A means the number of Subscribers on the first day of the
relevant month, and
B means the number of Subscribers on the last day of the same
month.
(iv) subject to the rights of Distributor and Foxtel under the Cable
Distribution Agreement to agree on an alternative method of
calculating fees payable to Distributor for non-Residential
Subscribers, (which method shall be approved by Programmer) for the
purposes of calculating licence fees, the following provisions shall
apply:
(A) `Subscribers' means Residential Subscribers and Equivalent
Subscribers.
<PAGE>
-37-
(B) `Equivalent Subscribers' means in relation to non Residential
Subscribers a number of Subscribers equal to the quotient
derived by dividing the Bulk Rate by the then applicable rate
for a Residential Subscriber to the Basic Service for one set
top unit.;
(C) the `Bulk Rate' shall mean the total of all gross amounts paid
to Foxtel in respect of the provision of the Foxtel Service to a
Subscriber who is not a Residential Subscriber;
(D) a Residential Subscriber means a Subscriber for a location which
is a single private or domestic dwelling, authorised to receive
the Foxtel Service for not more than [5] set top units.
(E) where a fee is charged to Residential Subscribers for additional
set top units, the additional units will be counted as
Subscribers on a pro-rata basis based upon the total gross
revenue derived from that Residential Subscriber divided by the
then applicable rate for a Residential Subscriber to only the
Basic Service for one set top unit.
<PAGE>
-38-
SCHEDULE 3: CCPTV COSTS
<TABLE>
<CAPTION>
Estimate of Actual Costs per annum Nature of Cost
for 1994/1995 Financial Year
<S> <C>
$7,900,000 Transponders - for carrying the Channels by
Satellite
$ 290,000 Fibre Lease - for transmitting Channels
from the point of production to the uplink
facilities
$ 400,000 Site Leases - at all points in the Channel
transmission chain
$ 400,000 Receive Sites
$ 685,000 Maintenance - Licence A fees and personnel
related to various transmission activities
$9,675,000
A Licence Cost
A$2,000,000
TOTAL; $11,675,000
</TABLE>
<PAGE>
EXHIBIT 10.28
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") entered into as of July 3,
1996, is by and among KIWI CABLE COMPANY BVI, LTD. ("Kiwi"), a British Virgin
Islands limited corporation, with an address of Post Office Box 5968, Sunny
Isle, St. Croix, U.S. Virgin Islands 00823-5968, UIH AUSTRALIA/PACIFIC, INC., a
Colorado corporation, with an address of 4643 South Ulster Street, Suite 1300,
Denver, Colorado 80237 ("UIH A/P"), and UNITED AUSTRALASIAN COMMUNICATIONS,
INC., a Delaware corporation, with an address of 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237 ("UAC").
Recitals
A. Kiwi owns 173,684 Ordinary Shares, par value $1.00 per share, of
Saturn Communications Limited ("Saturn"), which shares represent 50% of the
issued and outstanding capital stock of Saturn (the "Saturn Shares").
B. UIH A/P, directly and through its wholly owned subsidiary, UIH
New Zealand II, Inc. ("UIHNZ"), owns the remaining issued and outstanding
Ordinary Shares of Saturn.
C. UIH A/P desires to acquire all of Kiwi's shares in Saturn in
exchange for the issuance of shares of its own common stock.
D. UAC owns all of the issued and outstanding stock of UIH A/P and
has agreed, subject to the terms and conditions hereof, to issue to Kiwi shares
of UAC's common stock in exchange for the shares of UIH A/P issued to Kiwi
pursuant to the terms hereof.
Agreement
1. Exchange.
1.1 Exchange. Immediately after the execution of this Agreement,
--------
Kiwi shall exchange the Saturn Shares, duly endorsed and with the necessary
transfer stamps affixed, for 13 shares of the Common Stock ("Common Stock"), par
value $0.01 per share, of UIH A/P ("UIH A/P Shares"). The UIH A/P Shares shall
be issued in the name of Kiwi and shall bear a legend referencing this Agreement
and indicating that the shares may not be offered or sold unless in compliance
with the Securities Act of 1933 (the "Securities Act").
1.2 Capitalization. Immediately following the issuance of the UIH
--------------
A/P Shares, (a) the authorized capitalization of UIH A/P shall consist of 1,000
shares of Common Stock, of which 500 shares shall have been issued and
outstanding (13 issued to Kiwi and 487 issued to UAC); and (b) there will be no
issued and outstanding securities of UIH A/P that are exercisable for,
convertible into or exchangeable for the capital stock of UIH A/P.
1
<PAGE>
2. Representations of Kiwi. Kiwi hereby warrants and represents the
following: (a) Kiwi is the sole owner of the Saturn Shares, free and clear of
any liens, charges, or encumbrances, other than any liens that may have been
granted to UIH A/P or its affiliates and those which may exist pursuant to the
Shareholders' Agreement, dated July 8, 1994, between Todd International Limited
("Todd") and UIHNZ (the "Shareholders' Agreement"); (b) Kiwi has the full right
and authority to transfer the Saturn Shares to UIH A/P, and there are no other
shares of capital stock of Saturn owned or claimed by Todd; (c) Kiwi has
received and reviewed a copy of the UIH A/P's preliminary prospectus dated May
31, 1996 (the "Prospectus") and has asked such questions of management of UIH
A/P and received such additional information pertaining to UIH A/P as Kiwi deems
necessary in evaluating the transactions contemplated hereby; (d) Kiwi has all
requisite power and authority to execute, deliver, and perform this Agreement;
(e) all necessary corporate proceedings of Kiwi has been duly taken to authorize
the execution, delivery, and performance of this Agreement by Kiwi; (f) this
Agreement has been duly authorized, executed, and delivered by Kiwi, is the
legal, valid, and binding obligation of Kiwi, and is enforceable as to Kiwi in
accordance with its terms; (g) no consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or other
tribunal is required by Kiwi for the execution, delivery, or performance by Kiwi
of this Agreement; (h) no consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which Kiwi is a
party, or to which any of its properties or assets are subject, is required for
the execution, delivery, or performance of this Agreement; and (i) the
execution, delivery, and performance of this Agreement will not violate, result
in a breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate or result in a breach of any term of the certificate
of incorporation or by-laws of Kiwi or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or decree binding on
Kiwi or to which any of their respective operations, businesses, properties, or
assets are subject.
3. Representations of UIH A/P. UIH A/P hereby warrants and
represents the following: (a) UIH A/P is a corporation duly organized and
existing under the laws of the State of Colorado, with the authority to issue
the UIH A/P Shares; (b) UIH A/P has all requisite power and authority to
execute, deliver, and perform this Agreement; (c) all necessary corporate
proceedings of UIH A/P have been duly taken to authorize the execution,
delivery, and performance of this Agreement by UIH A/P; (d) this Agreement has
been duly authorized, executed, and delivered by UIH A/P, is the legal, valid,
and binding obligation of UIH A/P, and is enforceable as to UIH A/P in
accordance with its terms; (e) no consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or other
tribunal is required by UIH A/P for the execution, delivery, or performance by
UIH A/P of this Agreement; (f) no consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
UIH A/P is a party, or to which any of its properties or assets are subject, is
required for the execution, delivery, or performance of this Agreement; (g) the
execution, delivery, and performance of this Agreement will not violate, result
in a breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate or result in a breach of any term of the
2
<PAGE>
certificate of incorporation or by-laws of UIH A/P or violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on UIH A/P or to which any of its operations, businesses,
properties, or assets are subject; (h) upon issuance, the UIH A/P Shares shall
be validly issued, fully paid, and nonassessable; (i) immediately following the
issuance thereof, the UIH A/P Shares will represent 2.6% of the capital stock of
UIH A/P and immediately following the transactions described in Section 1.1, the
equity capitalization of UIH A/P will be as set forth in Section 1.2 and there
will be no other shares of Common Stock or any security exercisable for,
convertible into or exchangeable for Common Stock issued or outstanding at such
time, and UIH A/P has no present plans or intentions for issuing any additional
shares of Common Stock or any security exercisable for, convertible into or
exchangeable for Common Stock except as described in Section 1.2 or as may be
issued in UIH A/P's planned initial public offering; and (j) the information set
forth in the Preliminary Prospectus dated May 31, 1996, of UIH A/P, is accurate
and complete in all material respects as of the date of such Prospectus and does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained therein not
misleading.
4. Representations of UAC. UAC hereby warrants and represents the
following: (a) UAC is a corporation duly organized and existing under the laws
of the State of Delaware; (b) UAC has all requisite power and authority to
execute, deliver, and perform this Agreement; (c) all necessary corporate
proceedings of UAC have been duly taken to authorize the execution, delivery,
and performance of this Agreement by UAC; (d) this Agreement has been duly
authorized, executed, and delivered by UAC, is the legal, valid, and binding
obligation of UAC, and is enforceable as to UAC in accordance with its terms;
(e) no consent, authorization, approval, order, license, certificate, or permit
of or from, or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by UAC for the
execution, delivery, or performance by UAC of this Agreement; (f) no consent of
any party to any contract, agreement, instrument, lease, license, arrangement,
or understanding to which UAC is a party, or to which any of its properties or
assets are subject, is required for the execution, delivery, or performance of
this Agreement; and (g) the execution, delivery, and performance of this
Agreement will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate or result in a breach
of any term of the certificate of incorporation or by-laws of UAC or violate,
result in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on UAC or to which any of its operations,
businesses, properties, or assets are subject.
5. Resignations. Kiwi shall cause the written resignations of B.
John Klindworth and Tracey K. Kirkman as directors of Saturn to be delivered to
UIH A/P immediately after the execution of this Agreement.
6. Right of First Refusal.
6.1 General Restrictions. Except as permitted under Section 6.2,
--------------------
Kiwi may not sell, assign, place in trust, unless pledged as collateral for a
loan, or in any other manner transfer, encumber or dispose of all or any part of
its UIH A/P Shares (a "Transfer," which shall include any
3
<PAGE>
repossession, foreclosure or similar action by creditors) without first
complying with the provisions of this Article 6 (other than Section 6.2), as
applicable.
6.2 Permitted Transfers. Kiwi may Transfer any or all of UIH A/P
-------------------
Shares to any person or entity that controls, is controlled by or is under
common control with Kiwi or Todd or to any family member of any such person or
to any entity that controls, is controlled by or is under common control with or
is for the benefit of any such person or family member. In the case of any
Transfer permitted by this Section 6.2, the transferee shall execute and deliver
to UIH A/P an instrument under which such transferee agrees to become a party
hereto and to assume, perform and discharge all the obligations and liabilities
of the transferring party hereunder.
6.3 Right of First Refusal.
----------------------
(a) If Kiwi at any time desires to Transfer all or any portion
of the UIH A/P Shares (the "Offered Shares"), other than as permitted by Section
6.2 to a third party or parties (the "Third-Party Transferee"), Kiwi shall first
deliver to UIH A/P written notice (the "Transfer Notice") containing the
purchase price and material terms and conditions of such Transfer to the Third-
Party Transferee within 10 days after execution of definitive agreements
providing for such Transfer.
(b) UIH A/P, or its assigns, shall have the right for a 30-day
period after receipt of the Transfer Notice to purchase all of the Offered
Shares from Kiwi on the terms set forth in the Transfer Notice, which right may
be exercised by delivery of a written notice to Kiwi within such 30-day period.
(c) If UIH A/P does not exercise its right to acquire the Offered
Shares within such 30-day offer period, Kiwi may Transfer all the Offered Shares
to the Third-Party Transferee provided such Transfer to the Third-Party
Transferee closes within 60 days after the expiration of the 30-day period set
forth in Section 6.3(b).
(d) The provisions of this Section 6.3 shall terminate and be of
no further force and effect upon the closing of an initial public offering of
the Common Stock of UIH A/P under the Securities Act.
6.4 Restrictive Legend. The certificate evidencing the UIH A/P
------------------
Shares shall bear a legend in substantially the form set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A STOCK PURCHASE AGREEMENT DATED JULY 3, 1996, AMONG THE
COMPANY AND THE HOLDER, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
ACCORDANCE THEREWITH.
4
<PAGE>
7. Registration Rights.
7.1 Definitions. As used in this Article 7, the following
-----------
capitalized terms shall have the following respective meanings:
(a) Commission. The United States Securities and Exchange
----------
Commission or any other federal agency at the time administering the Securities
Act.
(b) Registrable Securities. The UIH A/P Shares owned by Kiwi or
----------------------
its successors and any shares of capital stock of UIH A/P which may be issued or
distributed in respect thereof by way of stock dividend or stock split or other
distribution, recapitalization, merger, consolidation or reclassification or
other reorganization or otherwise. A Registrable Security shall cease to be a
Registrable Security when: (A) a registration statement with respect to the
sale of such security shall have become effective under the Securities Act and
such security shall have been disposed of in accordance with such registration
statement; (B) such security shall have been otherwise transferred and new
certificates for such security not bearing a legend restricting further transfer
shall have been delivered by UIH A/P; or (C) such security shall have ceased to
be outstanding.
(c) Registration Expenses. As set forth in Section 7.6 hereof.
---------------------
7.2 Demand Registration.
-------------------
(a) At any time following the one year anniversary of an initial
public offering of capital stock of UIH A/P, upon the written request of Kiwi or
its successors requesting that UIH A/P effect the registration under the
Securities Act of all or part of the Registrable Securities and specifying the
intended method of disposition thereof, but subject to the limitations set forth
herein, UIH A/P shall file with the Commission as promptly as practicable after
request, and use its best efforts to cause to become effective, a registration
statement under the Securities Act registering the offering and sale of the
Registrable Securities which UIH A/P has been so requested to register; all to
the extent necessary to permit the disposition (in accordance with the intended
method thereof as aforesaid) of the Registrable Securities so to be registered
(a "Demand Registration"); provided, that (A) UIH A/P shall not be obligated to
file a registration statement pursuant to this Section 7.2(a) with respect to
more than one registration, and (B) UIH A/P shall not be obligated to file a
registration statement pursuant to this Section 7.2(a) unless the aggregate
amount of Registrable Securities that Kiwi or its successor seeks to register
pursuant to such Section constitutes at least 50% of all Registrable Securities.
(b) If in accordance with Section 7.8 hereof a requested
registration pursuant to this Section 7.2 is to be in the form of an
underwritten offering through underwriters, UIH A/P shall designate as
underwriters investment banking firms of national reputation that are
satisfactory to the persons holding a majority of the Registrable Securities to
be included in such registration. If the number of Registrable Securities
requested to be included in such registration is less than the number which, in
the opinion of the managing underwriter, can be sold, UIH A/P may include in
such registration the securities UIH A/P or any other holder of UIH A/P's
securities proposes to sell up
5
<PAGE>
to the number of securities that, in the opinion of the managing underwriter,
can be sold without an adverse effect on the price, timing or distribution of
the Registrable Securities offered.
(c) UIH A/P shall be entitled to postpone for a reasonable
period of time (not to exceed 120 days, which may not thereafter be extended)
the filing of any registration statement otherwise required to be prepared and
filed by it pursuant to Section 7.2(a) hereof if, at the time it receives a
request for such registration, the Board of Directors of UIH A/P determines in
good faith that such offering will materially interfere with a pending or
contemplated financing, merger, sale of assets, recapitalization or other
similar corporate action of UIH A/P, in which case UIH A/P shall have furnished
to holders of Registrable Securities requesting such registration an officers'
certificate to that effect; provided that UIH A/P shall not exercise the right
to postpone registration pursuant to this Section 7.2(c) more than once in any
12-month period. After such period of postponement UIH A/P shall effect such
registration as promptly as practicable without further request from the holders
of Registrable Securities, unless such request has been withdrawn.
7.3 Piggy-back Registration.
-----------------------
(a) If UIH A/P shall at any time propose to file a registration
statement under the Securities Act for (i) an offering of securities of UIH A/P
for resale by holders of UIH A/P's securities other than Registrable Securities
(the "Requesting Holders"), or (ii) an offering of securities of UIH A/P for
cash (other than an offering relating to (A) a business combination that is to
be filed on Form S-4 under the Securities Act (or any successor form thereto),
or (B) an employee benefit plan, or (C) the initial public offering by UIH A/P
of its equity securities, UIH A/P shall provide prompt written notice of such
proposal, in any event, not less than 15 days before the anticipated filing
date, to the holders of Registrable Securities of its intention to do so and of
such holders' rights under this Section 7.3. UIH A/P shall use its best efforts
to include such number of Registrable Securities in such registration statement
which UIH A/P has been so requested to register by any Requesting Holder or
plans to file for the issuance of securities itself (a "Piggy-back
Registration"), which request shall be made to UIH A/P within 10 days after
notice from UIH A/P of such proposed registration; provided, that (i) if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, UIH A/P shall determine for any reason to withdraw any
such registration statement in its entirety, UIH A/P shall give written notice
of such determination and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration, and
(ii) if such registration involves an underwritten offering, all holders of
Registrable Securities requesting to be included in the registration must sell
their Registrable Securities to the underwriters on the same terms and
conditions as apply to the Requesting Holders, with such differences, including
----------
any with respect to indemnification, as may be customary or appropriate in
secondary offerings.
(b) If a registration pursuant to this Section 7.3 involves an
underwritten offering as to which any holder of Registrable Securities has
requested a Piggy-back Registration and the managing underwriter reasonably and
in good faith advises UIH A/P in writing that, in its opinion, the number of
securities to be included in such registration exceeds the number which can be
sold in such offering without an adverse effect on the price, timing or
distribution of such offering, then
6
<PAGE>
(i) first, the number of securities which UIH A/P's security holders other than
the Requesting Holders requested to be included in such registration shall be
reduced as necessary pro rata in proportion to the relative number of securities
requested by each such holder to be included until the number of securities to
be included in such registration no longer exceeds the number which can be sold
in such offering, (ii) second, the number of securities which the Requesting
Holders requested to be included in such registration shall be reduced as
applicable until the number of securities to be included in such registration no
longer exceeds the number which can be sold in such offering, and (iii) third,
the number of securities UIH A/P intended to be included in such registration
shall be reduced as applicable until the number of securities to be included in
such registration no longer exceeds the number which can be sold in such
offering.
7.4 Suspension of Registration Obligation. UIH A/P shall not be
-------------------------------------
required to register the sale of its securities under this Article 7 if in the
written opinion of counsel to UIH A/P there is available for such transaction an
appropriate exemption from registration under the Securities Act.
7.5 Registration.
------------
(a) Whenever any Registrable Securities are to be registered
pursuant to Section 7.2 or 7.3 of this Agreement, UIH A/P will use its best
efforts to effect the registration and the sale of such Registrable Securities
under the Securities Act and the blue sky or securities laws of such states as
holders of Registrable Securities may request in accordance with the intended
method of disposition thereof.
(b) UIH A/P may require each person requesting a registration
pursuant to Section 7.2 or 7.3 to furnish to UIH A/P such information regarding
the distribution of such securities and such other information relating to such
person and its ownership of Registrable Securities as UIH A/P may from time to
time reasonably request in writing. Each such person agrees to furnish such
information to UIH A/P and to cooperate with UIH A/P as necessary to enable UIH
A/P to comply with the provisions of this Article 7.
(c) Upon receipt of any notice from UIH A/P at any time when a
prospectus relating to the registration is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement (as then in effect) contains
an untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the persons selling Registrable Securities
will forthwith discontinue disposition of the Registrable Securities until
receipt of copies of a supplemented or amended prospectus or until such persons
are advised in writing (the "Advice") by UIH A/P that the use of the prospectus
may be resumed, and have received copies of any additional or supplemental
filings which are incorporated by reference in the prospectus and, if so
directed by UIH A/P, such persons will, or will request the managing underwriter
or underwriters, if any, to, deliver to UIH A/P (at UIH A/P's expense) all
copies, other than permanent file copies then in such holder's possession, of
the prospectus covering such Registrable Securities.
7
<PAGE>
7.6 Registration Expenses. All expenses incident to UIH A/P's
---------------------
performance of or compliance with Article 7 of this Agreement, including,
without limitation, all Commission and securities exchange or National
Association of Securities Dealers registration and filing fees, fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of UIH A/P's officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing of the securities to be registered, if any, on each securities exchange
on which similar securities issued by UIH A/P are then listed and reasonable
fees and disbursement of counsel for UIH A/P and its independent certified
public accountants (including the expenses of any special audit or "cold
comfort" letters required by or incident to such performance), Securities Act
liability insurance (if UIH A/P elects to obtain such insurance) and the
reasonable fees and expenses of any special experts retained by UIH A/P in
connection with such registration (all such expenses being herein called
"Registration Expenses") will be borne by UIH A/P; provided, that Registration
Expenses shall not include, and UIH A/P shall not be responsible for any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities or any other expenses incurred by the holders thereof in
connection with such registration, which shall be paid by such holders
requesting such registration.
7.7 Term. This Article 7 shall terminate on the earlier of (i) the
----
date on which the holding period specified in Rule 144(k) (or any successor
rule) under the Securities Act with respect to a person that is not an
"affiliate" (as defined in Rule 144) of UIH A/P has been satisfied or (ii) such
time as all Registrable Securities have been sold pursuant to an effective
registration statement under the Securities Act or may be publicly sold without
registration.
7.8 Underwritten Offerings.
----------------------
(a) Kiwi or its successors may request that any registration
pursuant to Section 7.2 of Registrable Securities be an underwritten
registration. If such a registration is an underwritten offering, UIH A/P will
enter into an underwriting agreement with the managing underwriter or
underwriters for such offering (which managing underwriter or underwriters shall
be an investment banking firm or firms of national reputation designated by UIH
A/P and satisfactory to Kiwi or its successors), such agreement to contain such
terms as are customarily contained in agreements of such type. Persons selling
Registrable Securities in such offering shall be party to such underwriting
agreement.
(b) No person may participate in any registration hereunder
that is underwritten unless such person (i) agrees to sell such person's
securities on the basis provided in any underwriting arrangements approved by
the person or persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
8
<PAGE>
7.9 Indemnification.
---------------
(a) In connection with any offering of Registrable Securities
pursuant to Section 7.2 or 7.3 hereof, UIH A/P agrees to indemnify, to the
fullest extent permitted by law, each holder whose Registrable Securities are
sold in such offering, each of their officers and directors and each person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses (including attorney's fees)
arising out of or based upon any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto under which such
Registrable Securities were registered under the Securities Act and/or the
applicable state blue sky and securities laws (the "Registration Materials"), or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such untrue statement or alleged untrue statement or omission or
alleged omission was made in such Registration Materials upon any written
information furnished in writing to UIH A/P by such holder expressly for use in
such Registration Materials.
(b) Each holder whose Registrable Securities are sold in any
offering pursuant to Section 7.2 or 7.3 hereof severally but not jointly agrees
to indemnify, to the fullest extent permitted by law, UIH A/P, the other holders
whose Registrable Securities are sold in such offering, their respective
officers and directors and each other person, if any, who controls UIH A/P or
such other holders (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses (including attorney's fees)
caused by any untrue or alleged untrue statement of a material fact contained in
any Registration Materials or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Materials in reliance upon any written information
furnished in writing to UIH A/P by the holder expressly for use in such
Registration Materials. In no event shall the liability of any holder hereunder
be an amount greater than the dollar amount of the proceeds received by such
holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
7.10 Lock-Up. If UIH A/P, or any of its affiliates, commences a
-------
public offering of their securities and the managing underwriter of such public
offering requires UIH A/P or its stockholders to execute "lock-up agreements"
with respect to shares of capital stock of UIH A/P, Kiwi agrees to execute a
lock-up agreement on similar terms to those agreements executed by UIH A/P or
its affiliates; provided, however, that in no case shall the lock-up period
exceed 180 days.
8. Indemnification. Each of UIH A/P and UAC, on the one hand, and
Kiwi, on the other hand, shall indemnify and hold the other harmless from any
loss or expense that the other may sustain by reason of any breach of a
representation, warranty, or covenant contained herein.
9. Exchange of UIH A/P Stock for Shares of UAC. If, prior to such
date as a registration statement (other than a registration statement on
Form S-8) with respect to the equity securities of UIH A/P filed under the
Securities Act shall have become effective, UAC commences a public offering of
its securities under the Securities Act, UAC shall notify Kiwi in writing no
later
9
<PAGE>
than fifteen days before the anticipated effective date of such public offering
and the holder of the UIH A/P Shares shall have the option, exercisable within
ten days of the receipt of such notice, to exchange the UIH A/P Shares for
shares of UAC. If the sole asset of UAC is all of the issued and outstanding
shares of common stock of UIH A/P, other than the UIH A/P Shares, the UIH A/P
Shares shall be exchanged for shares of the same class of common stock of UAC
that is being registered for issuance to the public in such number as shall
equal 2.6% of all issued and outstanding shares of all classes of common stock
of UAC, taking into account the issuance of shares upon the exchange of the UIH
A/P Shares. Kiwi acknowledges that the class of UAC common stock to be issued
hereunder may have different voting rights than the class of UAC common stock
held by affiliates of UAC. If UAC holds assets in addition to its interest in
UIH A/P (including, without limitation, cash as a result of issuance of its
securities), the parties shall in good faith negotiate the value of the UIH A/P
Shares and value of UAC, taking into account, among other things, any increase
in the value of UIH A/P since April 26, 1996, in calculating the number of
shares of UAC stock to issue in exchange for the UIH A/P Shares. If the UIH A/P
Shares are exchanged pursuant to this Section 9, the provisions of the Agreement
(including Articles 6 and 7) shall apply to the shares of UAC exchanged for the
UIH A/P Shares.
10. Miscellaneous.
10.1 Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the successors and assigns of Kiwi, UAC and
UIH A/P.
10.2 Notices. All notices required hereunder shall be deemed
-------
received upon the earlier of: (a) the date of actual delivery, (ii) if sent by
overnight courier, two days after the same has been if delivery to the parties
at the addresses set forth above, or (iii) the date such notice is sent by
telefacsimile to the other party at the telefacsimile number provided to the
other party, on the date such telefacsimile is confirmed received by electronic
transmission or other means.
10.3 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
KIWI CABLE COMPANY BVI, LTD.
By: /s/ J. Todd Klindworth
------------------------------
Name: J. Todd Klindworth
Title:
UIH AUSTRALIA/PACIFIC, INC.
By: /s/ Michael T. Fries
-----------------------------
Michael T. Fries, President
10
<PAGE>
UNITED AUSTRALASIAN
COMMUNICATIONS, INC.
By: /s/ Michael T. Fries
-----------------------------
Michael T. Fries, President
11
<PAGE>
Termination of Technical Assistance Agreement
The undersigned, Todd International Ltd. ("Todd") and Saturn Communi-
cations Limited ("Saturn"), hereby terminate, and release each other from
any claims under, the Technical Assistance Agreement (the "Agreement") dated as
of July 8, 1994, between Todd International Ltd. and Saturn (f/n/a Kiwi Cable
Co. Ltd.), except for (i) the amount to be reimbursed to Todd pursuant to
Section 7.1 of the Agreement, which amounts shall be paid as provided in the
Agreement, and (ii) the amount (the "Fee Amount") to be paid to Todd pursuant to
Section 7.3 of the Agreement for the period from the date of the Agreement
through April 26, 1996, which amount shall be, at the election of Saturn, (A)
paid in cash or (B) paid and satisfied in full by the delivery of a promissory
note in the amount of the Fee Amount, which note shall have a one-year term and
shall bear interest at a rate equal to the sum of rate quoted by Citibank as its
"prime rate" on the date hereof plus 2%.
DATE: July 3, 1996
--
TODD INTERNATIONAL LTD.
By: /s/ J. Todd Klindworth
--------------------------
Name: J. Todd Klindworth
Title:
SATURN COMMUNICATIONS LIMITED
By: /s/ Michael T. Fries
--------------------------
Name: Michael T. Fries
Title:
12
<PAGE>
Termination of Shareholders' Agreement
Todd International Limited ("Todd") and UIH New Zealand II, Inc. ("UIHNZ")
and hereby agree that the Shareholders' Agreement dated as of July 8, 1994,
between Todd and UIHNZ, as successor in interest to UIH New Zealand, Inc., is
hereby terminated except for the provisions of Sections 11.1 and 14.3 and
Article 16. UIHNZ acknowledges and agrees that Todd shall have no further
obligations or liabilities under the Shareholders' Agreement, other than
pursuant to Sections 11.1 or 14.3 or Article 16 thereof, whether such obligation
or liability relates to matters occurring prior to or after the date hereof.
Todd acknowledges and agrees that UIHNZ shall have no further obligation or
liabilities under the Shareholders' Agreement, other than pursuant to Sections
11.1 or 14.3 or Article 16 thereof, whether such obligation or liability relates
to matters occurring prior to or after the date hereof.
Dated: July 3, 1996
--
TODD INTERNATIONAL LTD.
By: /s/ J. Todd Kindworth
------------------------
Name: J/ Todd Kindworth
Title:
UIH NEW ZEALAND II, INC.
By: /s/ Michael T. Fries
------------------------
Michael T. Fries, President
13
<PAGE>
EXHIBIT 10.36
Freehill
-----------
Hollingdale
-----------
& Page
-----------
Australis Media Limited
and
UIH Australia/Pacific, Inc.
Securities Purchase Agreement
[COMPANY LETTERHEAD APPEARS HERE]
<PAGE>
THIS SECURITIES PURCHASE AGREEMENT is made on 19 June 1996 between the following
parties:
1. AUSTRALIS MEDIA LIMITED (ACN 059 741 178) of 55 Pyrmont Bridge Road,
Pyrmont, New South Wales, 2009 ("Seller"); and
2. UIH AUSTRALIA/PACIFIC, INC., a company incorporated under the laws of
Colorado, USA of 4643 South Ulster Street, Denver, Colorado, 80237, USA
("UIH").
RECITALS:
A. The Seller is the owner of the Securities.
B. The Seller agrees to sell and UIH agrees to procure that the Buyer buys the
Securities on the terms and conditions set out in this agreement.
THE PARTIES AGREE in consideration of, among other things, the mutual promises
contained in this agreement:
Part 1
Definitions and interpretation
1.1 Definitions
In this agreement and in the recitals:
"Business Day" means a day when trading banks are open for business in Sydney
other than a Saturday, Sunday or public holiday;
"Buyer" means UIH or any person nominated by UIH under clause 6.1 to purchase
the Securities from the Seller;
"$", "A$" and "Dollars" mean the lawful currency of the Commonwealth of
Australia;
"Company" means CTV Pty Limited (ACN 064 416 128);
"Completion Date" means the date of Completion;
"Completion" means completion of the sale and purchase of the Securities in
accordance with part 3;
"CTV Securityholders Agreement" means the agreement dated 12 October 1994
between United International Holdings, Inc., UIH, the Seller, the Company and
Salstel Media Holdings Pty Limited (as amended);
"Date for Completion" means the time and date specified in writing by the Seller
to UIH as the date of completion of the Fundraising;
"Debentures" means all and any debentures issued by the Company and registered
in the name of the Seller;
"Fundraising" means:
(a) the Seller receiving equity subscriptions for shares or convertible notes
or both in an amount of not less than US$50 million of which at least US$10
million must come from Pay TV Options Pty Limited or its related body
corporate; and
(b) completion by Salomon Bros. of a debt offering in the United States for an
amount which, together with the equity subscriptions referred to in (a) is
not less than US$250 million;
<PAGE>
2
"Letter" means the letter of 19 June 1996 headed "CTV Franchise Agreement" from
the Seller and Galaxy Communication Pty Limited to UIH;
"Purchase Price" means A$5 million;
"Rights" means all rights and benefits attaching or relating to, or arising out
of, the Securities or ownership of the Securities or of any Security (including
but not limited to, all moneys, distributions, dividends, shares, stock, rights
to take up securities and bonus shares);
"Securities" means the Debentures and Shares;
"Securityholders" has the meaning given in the CTV Securityholders Agreement;
"Shares" means all and any ordinary shares issued by the Company and registered
in the name of the Seller;
"Warranties" means the warranties and representations set out in Schedule 1.
1.2 Interpretation
In this agreement, headings and underlinings are for convenience only and do not
affect the interpretation of this agreement and, unless the context otherwise
requires:
(a) words importing the singular include the plural and vice versa;
(b) words importing a gender include any gender;
(c) other parts of speech and grammatical forms of a word or phrase defined in
this agreement have a corresponding meaning;
(d) a reference to a part, clause, party, annexure, exhibit or schedule is a
reference to a part and clause of, and a party, annexure, exhibit and
schedule to, this agreement and a reference to this agreement includes any
annexure, exhibit and schedule;
(e) a reference to a party to a document includes that party's successors and
permitted assigns; and
(f) no provision of this agreement will be construed adversely to a party
solely on the ground that the party was responsible for the preparation of
this agreement or that provision.
Part 2
Sale and purchase
2.1 Sale of Securities
On the Completion Date, the Seller must sell and the Buyer must buy the
Securities for the Purchase Price free of all security interests and other third
party rights.
Part 3
Completion
3.1 Date for Completion
(a) Completion must take place on the Date for Completion.
(b) The Seller must give UIH written notice ("Completion Notice") of the Date
for Completion at least 2 Business Days before the proposed Date for
Completion.
<PAGE>
3
3.2 Delivery of documents executed by Seller
At Completion, the Seller must give to the Buyer the following documents:
(a) share certificates for the Shares;
(b) completed transfers of the Shares to the Buyer, duly executed by the Seller
as transferor;
(c) debenture certificates for the Debentures; and
(d) duly signed and completed transfers as referred to in the conditions of
issue of the Debentures.
3.3 Buyer's obligations at Completion
At Completion, the Buyer must pay the Purchase Price to the Seller by electronic
funds transfer to an account nominated by the Seller in the Completion Notice.
3.4 Conditions to Completion
(a) Completion is conditional on all of the following conditions having been
satisfied:
(1) where the Buyer is a person to whom the provisions of the Foreign
Acquisitions and Takeovers Act 1975 (Cth) ("FATA") apply, the
Buyer obtaining all necessary approvals under FATA or, where an
application is made under FATA, the expiry of the applicable time
periods;
(2) completion of the Fundraising; and
(3) receipt by UIH of a written acknowledgment from Pay TV Options
Pty Limited in the terms described in the penultimate paragraph
of the Letter.
(b) The conditions in clause 3.4(a) are for the benefit of UIH and may only be
waived by UIH. Waiver of one condition in clause 3.4(a) does not imply
waiver of the other condition in clause 3.4(a).
(c) UIH must use its reasonable endeavours to satisfy the condition in clause
3.4(a)(1) or to nominate a person under clause 6.1 whose acquisition of the
Securities does not require any approval under FATA.
Part 4
Rights
4.1 Buyer's entitlement to Rights
The Buyer is entitled to all Rights which exist as at the Completion Date,
together with all franking associated with, or otherwise relating to, the
Securities or the Rights. The Seller must do all things necessary to ensure that
the Buyer obtains the full benefit of all such Rights.
Part 5
Warranties
5.1 Giving of Warranties
(a) The Seller gives the Warranties in paragraphs 1.3, 1.4 and 1.5 of Schedule
1 in favour of UIH as at the date of this agreement and for each day up to
and including Completion.
(b) The Seller gives the Warranties in paragraphs 1.1 and 1.2 of Schedule 1 in
favour of UIH as at the Completion Date.
<PAGE>
4
(c) UIH warrants in favour of the Seller as at the date of this agreement and
for each day up to and including Completion that it has full power to enter
into and perform its obligations under this agreement.
5.2 Indemnity
The Seller indemnifies UIH against any claim, action, damage, loss, liability,
expense or outgoing which UIH pays, suffers, incurs or is liable for in respect
of:
(a) any matter or thing being other than as represented or warranted in this
agreement; and
(b) any breach by the Seller of this agreement.
5.3 Reliance
(a) UIH has entered into this agreement in reliance on the Warranties.
(b) The Seller has entered into this agreement in reliance on the warranty
given by UIH under clause 5.1(c).
Part 6
Purchase of all Securities
6.1 Nominee
(a) Subject to clause 6.1(b), UIH may appoint a person as its nominee or more
than one person as its nominees to purchase the Securities in its place.
(b) If UIH nominates more than one person under clause 6.1(a), the nominees
must together in aggregate purchase all and not part of the Securities.
6.2 Simultaneous purchase
The Buyer may only purchase the Securities if at the same time UIH (and any
nominee) purchases all shares and debentures then held by the Seller in STV Pty
Limited.
Part 7
Costs and expenses
7.1 Costs and expenses
Subject to clause 7.2, each party must pay its own costs and expenses in respect
of the negotiation, preparation, execution, delivery and registration of this
agreement.
7.2 Duties
(a) UIH must pay any stamp duty in respect of the execution, delivery and
performance of:
(1) this agreement; and
(2) any agreement or document entered into or signed under this
agreement.
(b) UIH must pay any fine, penalty or other cost in respect of a failure to pay
any stamp duty except to the extent that the fine, penalty or other cost is
caused by an act or default on the part of the Seller in which case the
Seller must pay all of the fine, penalty or other cost.
<PAGE>
5
Part 8
General
8.1 Notices
(a) Any notice or other communication including, but not limited to, any
request, demand, consent or approval, to or by a party to this agreement:
(1) must be in legible writing and in English addressed as shown below:
(A) if to the Seller:
Address: 55 Pyrmont Bridge Road
PYRMONT NSW 2009
Attention: Mr Geoff Kleemann
Facsimile: (02)776 2339
(B) if to UIH:
Address: c/- Level 13
309 Kent Street
SYDNEY NSW 2000
Attention: Mr Don Hagans
Facsimile: (02)262 6726
or as specified to the sender by any party by
notice;
(2) where the sender is a company, must be signed by an officer of the
company or under the common seal of the sender;
(3) is regarded as being given by the sender and received by the
addressee:
(A) if by delivery in person, when delivered to the addressee;
(B) if by post, 3 Business Days from and including the date of
postage; or
(C) if by facsimile transmission, whether or not legibly
received, when transmitted to the addressee,
but if the delivery or receipt is on a day which is not a
Business Day or is after 4.00 pm (addressee's time) it is
regarded as received at 9.00 am on the following Business Day; and
(4) can be relied upon by the addressee and the addressee is not
liable to any other person for any consequences of that reliance
if the addressee believes it to be genuine, correct and authorised
by the sender.
(b) A facsimile transmission is regarded as legible unless the addressee
telephones the sender within 2 hours after the transmission is received or
regarded as received under clause 8.1(a)(3) and informs the sender that it
is not legible.
(c) In this clause 8.1, reference to an addressee includes a reference to an
addressee's officers, agents or employees or any person reasonably believed
by the sender to be an officer, agent or employee of the addressee.
8.2 Governing law and jurisdiction
(a) This agreement is governed by the laws of New South Wales.
<PAGE>
6
(b) Each party irrevocably submits to the non-exclusive jurisdiction of the
courts of New South Wales.
8.3 Non-merger and survival of Warranties
(a) Neither the Warranties, nor any other provision of this agreement, merges
on Completion.
(b) The Warranties survive Completion of this agreement.
8.4 Further assurances
Each party must do all things necessary to give full effect to this agreement
and the transactions contemplated by this agreement.
8.5 Entire agreement
(a) This agreement embodies the entire agreement between the parties with
respect to the subject matter of this agreement and supersedes any prior
negotiation, arrangement, understanding or agreement with respect to the
subject matter or any term of this agreement.
(b) Any statement, representation, term, warranty, condition, promise or
undertaking made, given or agreed to in any prior negotiation, arrangement,
understanding or agreement, has no effect except to the extent expressly
set out or incorporated by reference in this agreement.
8.6 Release
At Completion:
(a) UIH must, and must use its reasonable endeavours to procure that all
parties to the CTV Securityholders Agreement other than the Seller and UIH,
execute a deed of release in the form of Schedule 2; and
(b) the Seller must execute a deed of release in the form of Schedule 2.
EXECUTED by the parties as an agreement:
SIGNED for
AUSTRALIS MEDIA LIMITED
by its authorised representative in the
presence of:
/s/ Robert Mangioni /s/ Geoff Kleemann
- -------------------- ------------------------
Witness Authorised representative
Robert Mangioni Geoff Kleemann
- -------------------- ------------------------
Name (please print) Name (please print)
<PAGE>
7
SIGNED for
UIH AUSTRALIA/PACIFIC, INC.
by its authorised representative
in the presence of:
/s/ Robert Mangioni /s/ Donald F. Hagans, Jr.
- ------------------- -------------------------
Witness Authorised representative
Robert Mangioni Donald F. Hagans, Jr.
- --------------- ---------------------
Name (please print) Name (please print)
<PAGE>
Schedule 1
Warranties
Part 1 Shares and capital
1.1 Title
The Seller is the legal and beneficial owner of the Securities, free of all
security interests and other third party interests or rights.
1.2 Consents
The Seller is able to sell and transfer the Securities without the consent of
any other person and free of any pre-emptive rights or rights of first refusal,
other than the pre-emptive rights and rights of first refusal contained in the
CTV Securityholders Agreement, and in the Company's articles of association.
1.3 Fully paid
The Securities are fully paid and no money is owing in respect of them.
1.4 No legal impediment
The execution, delivery and performance by the Seller of this agreement complies
with each law, regulation, authorisation, ruling, judgment, order or decree of
any government agency.
1.5 Authorisations
The Seller has taken all necessary action to authorise the execution, delivery
and performance by the Seller of this agreement in accordance with its terms.
<PAGE>
SCHEDULE 2
THIS DEED OF release is made on between the following parties:
1. UNITED INTERNATIONAL HOLDINGS, INC., a company incorporated under the laws
of the State of Delaware, United States of America ("USA") and UIH
AUSTRALIA/PACIFIC, INC., a company incorporated under the laws of the State
of Colorado, USA, both of 4643 South Ulster Street, Denver, Colorado, USA
(jointly "UIH");
2. CTV PTY LIMITED (ACN 064 416 128) of Level 13, 309 Kent Street, Sydney, New
South Wales 2000, Australia ("CTV");
3. AUSTRALIS MEDIA LIMITED (ACN 059 741 178) of 55 Pyrmont Bridge Road,
Pyrmont, New South Wales 2009, Australia ("AML"); and
4. SALSTEL MEDIA HOLDINGS PTY LIMITED (ACN 072 016 383) of Level 5, Plaza One,
1 Elizabeth Plaza, North Sydney, New South Wales 2060 ("Salstel").
RECITALS:
A. UIH, AML and Salstel are Securityholders of CTV. The rights and obligations
of UIH, AML and Salstel as Securityholders of CTV are governed by a
Subscription and Securityholders Agreement dated 12 October 1994, as
amended on 21 December 1995 and 4 April 1996 ("Securityholders Agreement").
B. Under a Securities Purchase Agreement dated 13 June 1996, AML has agreed to
sell all Securities issued by CTV and owned by AML.
C. CTV, UIH and Salstel have agreed to release AML from all obligations under
the Securityholders Agreement on completion of the sale of AML's Securities
in CTV.
THIS DEED WITNESSES that in consideration of, among other things, the mutual
promises contained in this deed, the parties agree:
1. Definitions and interpretation
(a) Words in this deed have the same meaning as in the Securityholders
Agreement.
(b) This deed must be interpreted in accordance with clause 1.2 of the
Securityholders Agreement.
2. Release
(a) Each of UIH, CTV and Salstel releases AML from all liability arising under
or in connection with the Securityholders Agreement.
(b) AML releases each of UIH, CTV and Salstel from all liability arising under
or in connection with the Securityholders Agreement.
3. Costs and expenses
Each party must pay its own costs and expenses in respect of:
(a) the negotiation, preparation, execution and delivery of this deed; and
(b) the enforcement or protection or attempted enforcement or protection of
any rights under this deed,
<PAGE>
including, but not limited to, any legal costs and expenses on a full indemnity
basis and any professional consultant's fees in respect of any of the above.
4. Stamp duty
CTV must pay all stamp duty in relation to this deed.
5. Governing law and jurisdiction
(a) This deed is governed by the laws of New South Wales.
(b) Each of the parties irrevocably submits to the non-exclusive jurisdiction
of the courts of New South Wales.
6. Counterparts
(a) This deed may be executed in any number of counterparts which
counterparts, taken together, constitute one document.
(b) A party may execute this deed by signing any counterpart.
7. Attorneys
Each of the Attorneys executing this deed states that it has no notice of any
revocation of the power of attorney appointing it and under which this deed is
executed.
8. Further assurances
Each party must do all things and execute all further documents necessary to
give full effect to this deed.
EXECUTED by the parties as a deed:
SIGNED SEALED & DELIVERED
for UNITED INTERNATIONAL
HOLDINGS, INC by its attorney
in the presence of:
/s/ Donald F. Hagans Jr.
- -------------------------- ------------------------
Witness Attorney
Donald F. Hagans Jr.
- -------------------------- ------------------------
Name (please print) Name (please print)
<PAGE>
SIGNED SEALED & DELIVERED
for UIH AUSTRALIA/PACIFIC, INC
by its attorney in the presence of:
- -------------------------- ------------------------
Witness Attorney
- -------------------------- ------------------------
Name (please print) Name (please print)
SIGNED SEALED & DELIVERED
for CTV PTY LIMITED
by its attorney
in the presence of:
- -------------------------- ------------------------
Witness Attorney
- -------------------------- ------------------------
Name (please print) Name (please print)
SIGNED SEALED & DELIVERED
for AUSTRALIS MEDIA LIMITED
by its attorney in the presence of:
- -------------------------- ------------------------
Witness Attorney
- -------------------------- ------------------------
Name (please print) Name (please print)
<PAGE>
SIGNED SEALED & DELIVERED
for SALSTEL MEDIA HOLDINGS PTY LIMITED
by its attorney in the presence of:
- -------------------------- ------------------------
Witness Attorney
- -------------------------- ------------------------
Name (please print) Name (please print)
<PAGE>
Exhibit 10.37
FREEHILL
-----------
HOLLINGDALE
-----------
& PAGE
-----------
Australis Media Limited
and
UIH Australia/Pacific, Inc.
Securities Purchase Agreement
Solicitors
MLC Centre Martin Place
Sydney New South Wales 2000
Telephone (02) 225 5000 INT+ (61 2) 225 5000 FACSIMILE (02) 322 4000
DX 361 Sydney
Reference: MT:30D
Sydney Melbourne Perth Canberra
Brisbane London Singapore Hanoi
Ho Chi Minh City
Correspondent office in Jakarta
<PAGE>
THIS SECURITIES PURCHASE AGREEMENT is made on 19 June 1996 between the following
parties:
1. AUSTRALIS MEDIA LIMITED (ACN 059 741 178) of 55 Pyrmont Bridge Road,
Pyrmont, New South Wales, 2009 ("Seller"); and
2. UIH AUSTRALIA/PACIFIC, INC., a company incorporated under the laws of
Colorado, USA of 4643 South Ulster Street, Denver, Colorado, 80237, USA
("UIH").
RECITALS:
A. The Seller is the owner of the Securities.
B. The Seller agrees to sell and UIH agrees to procure that the Buyer buys the
Securities on the terms and conditions set out in this agreement.
THE PARTIES AGREE in consideration of, among other things, the mutual promises
contained in this agreement:
Part 1
Definitions and interpretation
1.1 Definitions
In this agreement and in the recitals:
"Business Day" means a day when trading banks are open for business in Sydney
other than a Saturday, Sunday or public holiday;
"Buyer" means UIH or any person nominated by UIH under clause 6.1 to purchase
the Securities from the Seller;
"$", "A$" and "Dollars" mean the lawful currency of the Commonwealth of
Australia;
"Company" means STV Pty Limited (ACN 065 312 450);
"Completion Date" means the date of Completion;
"Completion" means completion of the sale and purchase of the Securities in
accordance with part 3;
"Date for Completion" means the time and date specified in writing by the Seller
to UIH as the date of completion of the Fundraising;
"Debentures" means all and any debentures issued by the Company and registered
in the name of the Seller;
"Fundraising" means:
(a) the Seller receiving equity subscriptions for shares or convertible notes
or both in an amount of not less than US$50 million of which at least US$10
million must come from Pay TV Options Pty Limited or its related body
corporate; and
(b) completion by Salomon Bros. of a debt offering in the United States for an
amount which, together with the equity subscriptions referred to in (a) is
not less than US$250 million;
"Letter" means the letter of 19 June 1996 headed "STV Franchise Agreement" from
the Seller and Galaxy Communication Pty Limited to UIH;
"Purchase Price" means A$5 million;
<PAGE>
2
"Rights" means all rights and benefits attaching or relating to, or arising out
of, the Securities or ownership of the Securities or of any Security (including
but not limited to, all moneys, distributions, dividends, shares, stock, rights
to take up securities and bonus shares);
"Securities" means the Debentures and Shares;
"Securityholders" has the meaning given in the STV Securityholders Agreement;
"Shares" means all and any ordinary shares issued by the Company and registered
in the name of the Seller;
"STV Securityholders Agreement" means the agreement dated 12 October 1994
between United International Holdings, Inc., UIH, the Seller, the Company and
Salstel Media Investments Pty Limited (as amended);
"Warranties" means the warranties and representations set out in Schedule 1.
1.2 Interpretation
In this agreement, headings and underlinings are for convenience only and do not
affect the interpretation of this agreement and, unless the context otherwise
requires:
(a) words importing the singular include the plural and vice versa;
(b) words importing a gender include any gender;
(c) other parts of speech and grammatical forms of a word or phrase defined in
this agreement have a corresponding meaning;
(d) a reference to a part, clause, party, annexure, exhibit or schedule is a
reference to a part and clause of, and a party, annexure, exhibit and
schedule to, this agreement and a reference to this agreement includes any
annexure, exhibit and schedule;
(e) a reference to a party to a document includes that party's successors and
permitted assigns; and
(f) no provision of this agreement will be construed adversely to a party
solely on the ground that the party was responsible for the preparation of
this agreement or that provision.
Part 2
Sale and purchase
2.1 Sale of Securities
On the Completion Date, the Seller must sell and the Buyer must buy the
Securities for the Purchase Price free of all security interests and other third
party rights.
Part 3
Completion
3.1 Date for Completion
(a) Completion must take place on the Date for Completion.
(b) The Seller must give UIH written notice ("Completion Notice") of the Date
for Completion at least 2 Business Days before the proposed Date for
Completion.
<PAGE>
3
3.2 Delivery of documents executed by Seller
At Completion, the Seller must give to the Buyer the following documents:
(a) share certificates for the Shares;
(b) completed transfers of the Shares to the Buyer, duly executed by the Seller
as transferor;
(c) debenture certificates for the Debentures; and
(d) duly signed and completed transfers as referred to in the conditions of
issue of the Debentures.
3.3 Buyer's obligations at Completion
At Completion, the Buyer must pay the Purchase Price to the Seller by electronic
funds transfer to an account nominated by the Seller in the Completion Notice.
3.4 Conditions
(a) Completion is conditional on all of the following conditions having been
satisfied:
(1) where the Buyer is a person to whom the provisions of the Foreign
Acquisitions and Takeovers Act 1975 (Cth) ("FATA") apply, the Buyer
obtaining all necessary approvals under FATA or, where an application
is made under FATA, the expiry of the applicable time periods;
(2) completion of the Fundraising; and
(3) receipt by UIH of a written acknowledgment from Pay TV Options
Limited in the terms described in the penultimate paragraph of the
Letter.
(b) The conditions in clause 3.4(a) are for the benefit of UIH and may only be
waived by UIH. Waiver of one condition in clause 3.4(a) does not imply
waiver of the other condition in clause 3.4(a).
(c) UIH must use its reasonable endeavours to satisfy the condition in clause
3.4(a)(1) or to nominate a person under clause 6.1 whose acquisition of the
Securities does not require any approval under FATA.
Part 4
Rights
4.1 Buyer's entitlement to Rights
The Buyer is entitled to all Rights which exist as at the Completion Date,
together with all franking associated with, or otherwise relating to, the
Securities or the Rights. The Seller must do all things necessary to ensure that
the Buyer obtains the full benefit of all such Rights.
Part 5
Warranties
5.1 Giving of Warranties
(a) The Seller gives the Warranties in paragraphs 1.3, 1.4 and 1.5 of Schedule
1 in favour of UIH as at the date of this agreement and for each day up to
and including Completion.
(b) The Seller gives the Warranties in paragraphs 1.1 and 1.2 of Schedule 1 in
favour of UIH as at the Completion Date.
<PAGE>
4
(c) UIH warrants in favour of the Seller as at the date of this agreement and
for each day up to and including Completion that it has full power to enter
into and perform its obligations under this agreement.
5.2 Indemnity
The Seller indemnifies UIH against any claim, action, damage, loss, liability,
expense or outgoing which UIH pays, suffers, incurs or is liable for in respect
of:
(a) any matter or thing being other than as represented or warranted in this
agreement; and
(b) any breach by the Seller of this agreement.
5.3 Reliance
(a) UIH has entered into this agreement in reliance on the Warranties.
(b) The Seller has entered into this agreement in reliance on the warranty
given by UIH under clause 5.1(c).
Part 6
Purchase of all Securities
6.1 Nominee
(a) Subject to clause 6.1(b), UIH may appoint a person as its nominee or more
than one person as its nominees to purchase the Securities in its place.
(b) If UIH nominates more than one person under clause 6.1(a), the nominees
must together in aggregate purchase all and not part of the Securities.
6.2 Simultaneous purchase
The Buyer may only purchase the Securities if at the same time UIH (and any
nominee) purchases all shares and debentures then held by the Seller in CTV Pty
Limited.
Part 7
Costs and expenses
7.1 Costs and expenses
Subject to clause 7.2, each party must pay its own costs and expenses in respect
of the negotiation, preparation, execution, delivery and registration of this
agreement.
7.2 Duties
(a) UIH must pay any stamp duty in respect of the execution, delivery and
performance of:
(1) this agreement; and
(2) any agreement or document entered into or signed under this
agreement.
(b) UIH must pay any fine, penalty or other cost in respect of a failure to pay
any stamp duty except to the extent that the fine, penalty or other cost is
caused by an act or default on the part of the Seller in which case the
Seller must pay all of the fine, penalty or other cost.
<PAGE>
5
Part 8
General
8.1 Notices
(a) Any notice or other communication including, but not limited to, any
request, demand, consent or approval, to or by a party to this agreement:
(1) must be in legible writing and in English addressed as shown below:
(A) if to the Seller:
Address: 55 Pyrmont Bridge Road
PYRMONT NSW 2009
Attention: Mr Geoff Kleemann
Facsimile: (02)776 2339
(B) if to the UIH:
Address: c/- Level 13, 309 Kent Street
SYDNEY NSW 2000
Attention: Mr Don Hagans
Facsimile: (02)262 6726
or as specified to the sender by any party by notice;
(2) where the sender is a company, must be signed by an officer of the
company or under the common seal of the sender;
(3) is regarded as being given by the sender and received by the
addressee:
(A) if by delivery in person, when delivered to the addressee;
(B) if by post, 3 Business Days from and including the date of
postage; or
(C) if by facsimile transmission, whether or not legibly received,
when transmitted to the addressee,
but if the delivery or receipt is on a day which is not a Business
Day or is after 4.00 pm (addressee's time) it is regarded as
received at 9.00 am on the following Business Day; and
(4) can be relied upon by the addressee and the addressee is not liable
to any other person for any consequences of that reliance if the
addressee believes it to be genuine, correct and authorised by the
sender.
(b) A facsimile transmission is regarded as legible unless the addressee
telephones the sender within 2 hours after the transmission is received or
regarded as received under clause 8.1(a)(3) and informs the sender that it
is not legible.
(c) In this clause 8.1, reference to an addressee includes a reference to an
addressee's officers, agents or employees or any person reasonably believed
by the sender to be an officer, agent or employee of the addressee.
8.2 Governing law and jurisdiction
(a) This agreement is governed by the laws of New South Wales.
(b) Each party irrevocably submits to the non-exclusive jurisdiction of the
courts of New South Wales.
<PAGE>
6
8.3 Non-merger and survival of Warranties
(a) Neither the Warranties, nor any other provision of this agreement, merges
on Completion.
(b) The Warranties survive Completion of this agreement.
8.4 Further assurances
Each party must do all things necessary to give full effect to this agreement
and the transactions contemplated by this agreement.
8.5 Entire agreement
(a) This agreement embodies the entire agreement between the parties with
respect to the subject matter of this agreement and supersedes any prior
negotiation, arrangement, understanding or agreement with respect to the
subject matter or any term of this agreement.
(b) Any statement, representation, term, warranty, condition, promise or
undertaking made, given or agreed to in any prior negotiation, arrangement,
understanding or agreement, has no effect except to the extent expressly
set out or incorporated by reference in this agreement.
8.6 Release
At Completion:
(a) UIH must, and must use its reasonable endeavours to procure that all
parties to the STV Securityholders Agreement other than the Seller and UIH,
execute a deed of release in the form of Schedule 2; and
(b) the Seller must execute a deed of release in the form of Schedule 2.
EXECUTED by the parties as an agreement:
SIGNED for
AUSTRALIS MEDIA LIMITED
by its authorised representative in the
presence of:
/s/ Robert Mangoni /s/ Geoff Kleemann
- ------------------- -------------------------
Witness Authorised representative
Robert Mangoni Geoff Kleemann
- ------------------- -------------------------
Name (please print) Name (please print)
<PAGE>
7
SIGNED for
UIH AUSTRALIA/PACIFIC, INC.
by its authorised representative
in the presence of:
/s/ Robert Mangoni /s/ Donald F. Hagans, Jr.
- ------------------- -------------------------
Witness Authorised representative
Robert Mangoni Donald F. Hagans, Jr.
- ------------------- -------------------------
Name (please print) Name (please print)
<PAGE>
Schedule 1
Warranties
8.1 Title
The Seller is the legal and beneficial owner of the Securities, free of all
security interests and other third party interests or rights.
8.2 Consents
The Seller is able to sell and transfer the Securities without the consent of
any other person and free of any pre-emptive rights or rights of first
refusal, other than the pre-emptive rights and rights of first refusal contained
in the STV Securityholders Agreement, and in the Company's articles of
association.
8.3 Fully paid
The Securities are fully paid and no money is owing in respect of them.
8.4 No legal impediment
The execution, delivery and performance by the Seller of this agreement complies
with each law, regulation, authorisation, ruling, judgment, order or decree of
any government agency.
8.5 Authorisations
The Seller has taken all necessary action to authorise the execution, delivery
and performance by the Seller of this agreement in accordance with its terms.
<PAGE>
SCHEDULE 2
THIS DEED OF release is made on between the following parties:
1. UNITED INTERNATIONAL HOLDINGS, INC., a company incorporated under the laws
of the State of Delaware, United States of America ("USA") and UIH
AUSTRALIA/PACIFIC, INC., a company incorporated under the laws of the State
of Colorado, USA, both of 4643 South Ulster Street, Denver, Colorado, USA
(jointly "UIH");
2. STV PTY LIMITED (ACN 065 312 450) of Level 13, 309 Kent Street, Sydney,
New South Wales 2000, Australia ("STV");
3. AUSTRALIS MEDIA LIMITED (ACN 059 741 178) of 55 Pyrmont Bridge Road,
Pyrmont, New South Wales 2009, Australia ("AML"); and
4. SALSTEL MEDIA INVESTMENTS PTY LIMITED (ACN 072 016 132) of Level 5,
Plaza One, 1 Elizabeth Plaza, North Sydney, New South Wales 2060
("Salstel").
RECITALS:
A. UIH, AML and Salstel are Securityholders of STV. The rights and obligations
of UIH, AML and Salstel as Securityholders of STV are governed by a
Subscription and Securityholders Agreement dated 12 October 1994, as
amended on 21 December 1995 and 4 April 1996 ("Securityholders Agreement").
B. Under a Securities Purchase Agreement dated 13 June 1996, AML has agreed
to sell all Securities issued by STV and owned by AML.
C. STV, UIH and Salstel have agreed to release AML from all obligations
under the Securityholders Agreement on completion of the sale of AML's
Securities in STV.
THIS DEED WITNESSES that in consideration of, among other things, the mutual
promises contained in this deed, the parties agree:
1. Definitions and interpretation
(a) Words in this deed have the same meaning as in the Securityholders
Agreement.
(b) This deed must be interpreted in accordance with clause 1.2 of the
Securityholders Agreement.
2. Release
(a) Each of UIH, STV and Salstel releases AML from all liability arising under
or in connection with the Securityholders Agreement.
(b) AML releases each of UIH, STV and Salstel from all liability arising under
or in connection with the Securityholders Agreement.
<PAGE>
3. Costs and expenses
Each party must pay its own costs and expenses in respect of:
(a) the negotiation, preparation, execution and delivery of this deed; and
(b) the enforcement or protection or attempted enforcement or protection of
any rights under this deed,
including, but not limited to, any legal costs and expenses on a full indemnity
basis and any professional consultant's fees in respect of any of the above.
4. Stamp duty
STV must pay all stamp duty in relation to this deed.
5. Governing law and jurisdiction
(a) This deed is governed by the laws of New South Wales.
(b) Each of the parties irrevocably submits to the non-exclusive jurisdiction
of the courts of New South Wales.
6. Counterparts
(a) This deed may be executed in any number of counterparts which counter-
parts, taken together, constitute one document.
(b) A party may execute this deed by signing any counterpart.
7. Attorneys
Each of the Attorneys executing this deed states that it has no notice of any
revocation of the power of attorney appointing it and under which this deed
is executed.
8. Further assurances
Each party must do all things and execute all further documents necessary to
give full effect to this deed.
EXECUTED by the parties as a deed:
SIGNED SEALED & DELIVERED
for UNITED INTERNATIONAL
HOLDINGS, INC by its attorney
in the presence of:
- ------------------------- ---------------------------
Witness Attorney
- ------------------------- ---------------------------
Name (please print) Name (please print)
<PAGE>
SIGNED SEALED & DELIVERED
for UIH AUSTRALIA/PACIFIC, INC
by its attorney in the presence of:
- ------------------------- ---------------------------
Witness Attorney
- ------------------------- ---------------------------
Name (please print) Name (please print)
SIGNED SEALED & DELIVERED
for STV PTY LIMITED
by its attorney
in the presence of:
- ------------------------- ---------------------------
Witness Attorney
- ------------------------- ---------------------------
Name (please print) Name (please print)
SIGNED SEALED & DELIVERED
for AUSTRALIS MEDIA LIMITED
by its attorney
in the presence of:
- ------------------------- ---------------------------
Witness Attorney
- ------------------------- ---------------------------
Name (please print) Name (please print)
<PAGE>
SIGNED SEALED & DELIVERED
for SALSTEL MEDIA INVESTMENTS PTY LIMITED
by its attorney in the presence of:
- ------------------------- ---------------------------
Witness Attorney
- ------------------------- ---------------------------
Name (please print) Name (please print)
<PAGE>
Exhibit 12.1
Ratio of Earnings to fixed charges
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
December 31, December 31, March 31, March 31, December 31, March 31,
1994 1995 1995 1996 1995 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pretax income from continuing operations (1,674) (17,233) (2,012) (8,664) (59,275) (18,744)
Less: losses from less than 50%
owned persons 551 4,327 290 632 7,597 632
Plus: losses from less than 50% owned persons
where the registrant has guaranteed debt
0 0 0 0 0 0
0 0 0 0 0 0
---------------------------------------------------------------------------------
(1,123) (12,906) (1,722) (8,032) (51,678) (18,112)
Fixed charges:
Interest, whether expensed or capitalized 0 30 0 0 32,649 9,021
Amortization of debt expense 0 0 0 0 0 0
Rental expense demonstrated to be interest 0 0 0 0 0 0
Preferred stock dividend requirements 0 0 0 0 0 0
---------------------------------------------------------------------------------
Total fixed charges 0 30 0 0 32,649 9,021
Adjusted earnings (1,123) (12,876) (1,722) (8,032) (19,029) (9,091)
Fixed charges 0 30 0 0 32,649 9,021
---------------------------------------------------------------------------------
Ratio of earnings to fixed charges
Dollar amount of coverage deficiency (1,123) (12,906) (1,722) (8,032) (51,678) (18,112)
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
UIH AUSTRALIA/PACIFIC, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION
------------------ ------------
<S> <C>
CTV Pty Limited Australia
Century United Programming Venture Pty. Ltd. Australia
Saturn Communications Limited New Zealand
Societe Francaise des Communications et France
du Cable S.A.
STV Pty Limited Australia
Telefenua S.A. French Polynesia
UIH AML, Inc. Colorado
UIH Australia Programming II, Inc. Colorado
UIH New Zealand II, Inc. Colorado
UIH - SFCC II, Inc. Colorado
UIH - SFCC Holdings, L.P. Colorado
UIH-SFCC L.P. Colorado
United Wireless, Inc. Colorado
United Wireless Pty Limited Australia
XYZ Entertainment Pty Limited Australia
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated May 8, 1996 on the consolidated financial statements of UIH
Australia/Pacific, Inc. included in or made part of this Form S-4 registration
statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 25, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 29 March 1996 on the consolidated financial statements of CTV Pty Limited
included in or made part of UIH Australia/Pacific, Inc.'s Form S-4 registration
statement.
ARTHUR ANDERSEN
Sydney, Australia,
July 25, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 29 March 1996 on the consolidated financial statements of STV Pty Limited
included in or made part of UIH Australia/Pacific, Inc.'s Form S-4 registration
statement.
ARTHUR ANDERSEN
Sydney, Australia,
July 25, 1996
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 6 June 1995 on the consolidated financial statements of Kiwi Cable Company
Limited included in or made part of UIH Australia/Pacific, Inc.'s Form S-4
registration statement.
ARTHUR ANDERSEN
Wellington, New Zealand
July 24, 1996
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-4
and in each Prospectus constituting part of this Registration Statement our
report dated March 15, 1996 on the financial statement of XYZ Entertainment Pty
Limited included in each Prospectus. We also consent to the reference to our
firm under the caption "Experts" in each Prospectus included in the Registration
Statement.
July 19, 1996
Deloitte Touche Tohmatsu
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT AUDITORS
- -------------------------------
We hereby consent to the inclusion in this Registration Statement on Form S-4
and each Prospectus constituting part of this Registration Statement of our
report dated February 16, 1996 on the financial statements of TELEFENUA SA,
included in each Prospectus.
We also consent to the reference to our firm under the caption (Experts) in each
Prospectus included in the Registration Statement.
Papeete, July 23, 1996
Coopers & Lybrand Tahiti
/s/ Jean-Pierre Gosse
-------------------------
Jean-Pierre GOSSE
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gene W. Schneider and Bernard G. Dvorak,
and each of them, his or her attorneys-in-fact, with full power of substitution,
for him or her in any and all capacities, to sign a registration statement to be
filed with the Securities and Exchange Commission (the "Commission") on Form S-4
in connection with the exchange offer by UIH Australia/Pacific, Inc., a Colorado
corporation (the "Company"), of securities ("Securities"), and all amendments
(including post-effective amendments) thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission; and to sign all documents in connection with the qualification and
sale of the Securities with Blue Sky authorities and with the National
Association of Securities Dealers, Inc.; granting unto said attorneys-in-fact
full power and authority to perform any other act on behalf of the undersigned
required to be done in the premises, hereby ratifying and confirming all that
said attorneys-in-fact may lawfully do or cause to be done by virtue hereof.
Date: May 30, 1996 /s/ Gene W. Schneider
--------------------------------------------------
Gene W. Schneider
Date: May 13, 1996 /s/ Michael T. Fries
--------------------------------------------------
Michael T. Fries
Date: May 30, 1996 /s/ Bernard G. Dvorak
--------------------------------------------------
Bernard G. Dvorak
Date: May 30, 1996 /s/ Mark L. Schneider
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Mark L. Schneider
Date: May 30, 1996 /s/ Valerie L. Cover
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Valerie L. Cover
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________________
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
________________________________
AMERICAN BANK NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
A National Banking Association 41-0122055
(State of incorporation if not a national bank) (IRS Employer
Identification No.)
101 East Fifth Street
Corporate Trust Department
St. Paul, Minnesota 55101
(Address of principal executive offices) (Zip Code)
AMERICAN BANK NATIONAL ASSOCIATION
101 East Fifth Street
St. Paul, Minnesota 55101
(612) 298-6280
(Exact name, address, and telephone number of agent for service)
________________________________
UIH Australia/Pacific, Inc.
(Exact name of obligor as specified in its charter)
Colorado 84-1341958
(State of incorporation or other (IRS Employer
jurisdiction) Identification
incorporation or
organization)
4643 South Ulster Street
Denver, Colorado 80237
(Address of principal executive offices) (Zip Code)
________________________________
14% Senior Discount Notes Due 2006, Series B
(Title of Indenture securities)
<PAGE>
Item 1. General Information. Furnish the following information as to the
-------------------
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
-Comptroller of the Currency
Treasury Department
Washington, DC
-Federal Deposit Insurance Corporation
Washington, DC
-The Board of Governors of the Federal Reserve System
Washington, DC
(b) The Trustee is authorized to exercise corporate trust powers.
GENERAL
Item 2. Affiliations With Obligor and Underwriters. If the obligor or any
------------------------------------------
underwriter for the obligor is an affiliate of the Trustee, describe
each such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's knowledge the
- --------------------------------------------------------------------------------
obligor is not in default under any Indenture for which the Trustee acts as
- ---------------------------------------------------------------------------
Trustee.
- --------
Item 16. List of Exhibits. Listed below are all the exhibits filed as a part
---------------- of this statement of eligibility and
qualification. Such exhibits are incorporated
by reference from a previous filing under filing
number 333-4402.
Exhibit 1. Copy of Articles of Association of the trustee now in
effect.
Exhibit 2. a. A copy of the certificate of the Comptroller of
Currency dated June 1, 1965, authorizing
American Bank National Association to act as
fiduciary.
b. A copy of the certificate of authority of the
trustee to commence business issued
June 9, 1903, by the Comptroller of the
Currency to American Bank National Association.
<PAGE>
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued by the
Federal Reserve Board.
Exhibit 4. Copy of By-laws of the trustee as now in effect.
Exhibit 5. Copy of each Indenture referred to in Item 4. Not
applicable.
Exhibit 6. The consent of the trustee required by Section
321(b) of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligor, or affiliates, are based upon
information furnished to the Trustee by the obligor. While the Trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, a national banking association organized and existing under the laws of
the United States, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Saint Paul and State of Minnesota on the 5th day of June, 1996.
AMERICAN BANK NATIONAL ASSOCIATION
[SEAL]
Frank P. Leslie III
-------------------
Vice President
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, American Bank National Association, hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: June 5, 1996
AMERICAN BANK NATIONAL ASSOCIATION
Frank P. Leslie IIII
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Vice President
