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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1997
REGISTRATION NO. 333-39707
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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)
COLORADO 84-1341958
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
_______________
MICHAEL T. FRIES
CHIEF EXECUTIVE OFFICER
UIH AUSTRALIA/PACIFIC, INC.
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
_______________
COPIES TO:
GARTH B. JENSEN, ESQ.
HOLME ROBERTS & OWEN LLP
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 the effective date of this Registration Statement.
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.
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SUBJECT TO COMPLETION, DATED DECEMBER 5, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
__________, 1997
OFFER FOR ALL OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2006, SERIES C IN EXCHANGE FOR
14% SENIOR DISCOUNT NOTES DUE 2006, SERIES D OF
UIH AUSTRALIA/PACIFIC, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON JANUARY 8, 1998, 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
$45,000,000 of 14% Senior Discount Notes due 2006, Series D (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 C (the "Old Notes" and, together
with the New Notes, the "Notes") of the Issuer from the holders (the "Holders")
thereof. The Old Notes were offered for sale on September 23, 1997 (the "Note
Offering"). 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 January 22, 1998, or the Company fails to comply with certain
other registration obligations with respect to the Old Notes (each such event
referred to as an "Event Date"), the Company is required to pay liquidated
damages (the "Liquidated Damages") to the Holders of the Notes in an amount
equal to (A) during the first 90-day period beginning on, and including, the
Event Date, an amount equal to 0.5% per annum of the Accreted Value (as defined)
of the Old Notes 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 the Old Notes 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 (the "Special
Interest"), 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 due shall be payable on each
May 15 and November 15 to Holders of record of the Old Notes on the May 1 or
November 1, respectively, next preceding such payment date.
If the Issuer does not consummate an issuance of its capital stock
resulting in gross proceeds to the Issuer of at least $70.0 million (an "Equity
Sale"), then from May 15, 1997, through earlier of the completion of the Equity
Sale or May 15, 2001, the Accreted Value (as defined) of the Notes will increase
at a rate equal to, and from and after May 15, 2001, until the completion of an
Equity Sale, cash interest will accrue on the Notes at, an additional .75% (or
14.75%) per annum, payable semi-annually. The Notes are sometimes 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 (as defined) thereof on
the redemption date; provided that not less than 67% of the principal amount at
maturity of the Notes originally issued are outstanding immediately after giving
effect to such redemption. Upon a Change of Control (as defined), 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 upon a
Change of Control.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 10 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 ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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(CONTINUED FROM THE COVER)
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 year at
a rate of 14% per annum. For each Old Notes 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 of the New
Notes will accrue from the date or 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 "SEC" or 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 Note. 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 form 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 general, senior, unsecured obligations of the Issuer and
will rank pari passu in right and priority of payment with the Issuer's existing
14% Senior Discount Notes due 2006, issued pursuant to the Indenture dated as of
May 14, 1996 (the "1996 Notes") and with all other 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. The Issuer
conducts all of its business through its subsidiaries and the Notes will be
effectively subordinated to the claims of creditors of such subsidiaries. As of
September 30, 1997, the consolidated liabilities of the Issuer and its
subsidiaries (including trade payables of subsidiaries) were approximately
$426.0 million (including the 1996 Notes and the Notes), substantially all of
which, except for the 1996 Notes and Notes, were obligations of the Issuer's
subsidiaries.
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 of the Old Notes, the Issuer promptly will 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.
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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 Commission also maintains a web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
The Company files reports under Section 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"). Such reports filed by the Company can be
inspected at, and copies thereof may be obtained, at the above-listed public
reference facilities of the Commission.
* * *
The Company intends to furnish holders of the Notes with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
* * *
Until _____________________, 1998 (90 days after the date of this
Prospectus) all dealers affecting 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.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
The "Issuer" refers to UIH Australia/Pacific, Inc., a wholly-owned subsidiary of
UIH Asia/Pacific Communications, Inc. ("UAP"), which is an indirect majority-
owned subsidiary of United International Holdings, Inc. ("UIH"), and the
"Company" refers collectively to the Issuer, its subsidiaries and non-majority
owned affiliates and their respective predecessors. The Issuer owns, through
directly and indirectly held interests, a combined effective 100% economic
interest in two Australian companies, CTV Pty Ltd. ("CTV") and STV Pty Ltd.
("STV"), which collectively are referred to herein as "Austar." The "Operating
Companies" refer to Austar 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. Unless
the context requires, all foreign currency amounts translated to U.S. dollars
have been converted using a convenience translation unless otherwise stated. All
references to "$" or "dollars" are to U.S. dollars.
THE COMPANY
OVERVIEW
The Company is a leading provider of multi-channel television services in
Australia and New Zealand. Through its Australian operating company Austar, the
Company is the largest provider of multi-channel television services in regional
Australia, where it operates wireless cable ("MMDS") systems and markets a
direct-to-home ("DTH") service in franchise areas encompassing approximately 1.5
million television homes, or 25% of the total Australian market. In addition,
the Company, through its majority-owned New Zealand operating company, Saturn
Communications Limited ("Saturn"), is constructing a wireline cable and
telephony system in Wellington, New Zealand, a market representing approximately
135,000 television homes. The Company's other assets include (i) a 25% interest
in XYZ Entertainment Pty Ltd. ("XYZ"), a programming company that provides five
channels to the Australian multi-channel television market, four of which are
part of the "Galaxy" package, the most widely distributed programming package in
Australia and the core component of Austar's programming, (ii) an up to 90%
economic interest in Telefenua S.A. ("Telefenua"), the only provider of multi-
channel television services in Tahiti, with an MMDS system in a market with
31,000 television homes, and (iii) a 100% interest in United Wireless Pty
Limited ("United Wireless"), a provider of two-way wireless mobile data services
in Australia.
SPONSORSHIP BY UIH
The Issuer is an indirect majority owned subsidiary of UIH, a leading
provider of multi-channel television services outside the United States.
Together with its strategic and financial partners, UIH has ownership interests
in multi-channel television systems in operation or under construction in 23
countries. UIH's operations are organized in three geographic regions: (i)
Europe, consisting primarily of the Company's interest in one of Europe's
largest privately owned multi-channel television operating companies; (ii)
Asia/Pacific, including investments in operating systems and early stage
projects in Australia, New Zealand, the Philippines, Tahiti and China; and (iii)
Latin America, including multi-channel television systems in Brazil, Chile,
Mexico and Peru. These operating systems served an aggregate of approximately
3.9 million subscribers and passed approximately 7.6 million of the
approximately 10.2 million homes in their respective service areas at June 30,
1997. UIH's net equity interest as of such date in those subscribers, homes
passed and homes in UIH's service areas was 1.5 million, 3.7 million and 4.9
million, respectively.
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.
RECENT DEVELOPMENTS
AUSTAR BANK FACILITY
In July 1997, Austar secured from a bank a syndicated senior secured debt
facility (the "Bank Facility") in the amount of A$200 million (approximately
$138.8 million based on the November 21, 1997 exchange rate). The proceeds of
the Bank Facility will be used to finance Austar's subscriber acquisition and
working capital needs. The Bank Facility consists of three sub-facilities: (i)
an A$50 million working capital facility; (ii) an A$60 million cash advance
facility
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available upon the contribution of additional equity to Austar on a 2:1
debt-to-equity basis; and (iii) an A$90 million term loan facility, which will
be available on the basis of Austar having achieved minimum subscriber and
operating cash flow levels. The maximum amount of equity required in (ii) above
would be A$30 million, of which approximately A$18.5 million had been
contributed as of September 30, 1997, and the remainder of which is expected to
be contributed from proceeds of the Note Offering or by a third party equity
provider, UIH or UAP. The cash advance and term loan facilities are fully
repayable pursuant to an amortization schedule beginning December 31, 2000 and
ending June 30, 2004. As of September 30, 1997, Austar had drawn approximately
A$87 million on the Bank Facility, of which A$50 million was used to repay a
bridge financing facility. The Bank Facility is secured by all of the assets of
Austar and a pledge of all of the shares of CTV and STV held by the Company.
Prior to December 31, 2000, the Bank Facility limits the ability of Austar to
declare and pay dividends, make any payments on any debentures or any other
subordinated shareholder loans, or pay any fees under management or technical
assistance agreements with any related party. After December 31, 2000, however,
these restrictions would be lifted so long as Austar is not in default under the
Bank Facility and there exists an adequate ratio of excess cash flow to total
outstanding debt.
SATURN TRANSACTION
Part of the Company's New Zealand strategy has been to offer an integrated
cable television/telephone service within its operating area. To further this
strategy, in July 1997, the Company took as its partner in Saturn a subsidiary
of Saskatchewan Telecommunications Holdings Corporation ("SaskTel"), a Canadian
telecommunications company with substantial experience in constructing and
operating telephone networks. SaskTel invested approximately $20 million for a
35% interest in Saturn. SaskTel has announced its intentions to invest in
Saturn up to an additional approximate $5.4 million, pro rata to additional
investments by the Company. The $20 million of funding by SaskTel has reduced
the Company's current funding obligations by the same amount and future funding
by SaskTel, pro rata based on its ownership interest, will reduce the Company's
future funding obligations by an additional $20.8 million from what the Company
had anticipated when Saturn was a wholly owned subsidiary of the Company. The
Company and SaskTel will explore additional project financing for construction
of Saturn's system.
The Company believes that SaskTel will bring valuable telephony expertise
to Saturn as it completes construction of its Wellington network and launches
telephone service, scheduled to occur in the first half of 1998. SaskTel has
appointed three of its employees to management positions, including Saturn's
Chief Technology Officer and its Telephone Switch Manager, and has signed a
technical assistance agreement with Saturn to provide additional technical and
management expertise.
XYZ CHANNEL
In September 1997, XYZ launched a fifth channel in addition to the four
channels that it supplies to the Galaxy package. LifeStyle, the new channel,
focuses on home and personal improvement programming and is offered to
subscribers of Austar and FoxTel pay subscription television networks.
AUSTRALIAN PAY TELEVISION MARKET
Optus Vision has publicly announced that it plans to offer subscription
television services by DTH throughout Australia. Optus Vision and Australis had
previously announced plans to form a joint venture to which Australis would
contribute its satellite infrastructure allowing for DTH transmission of Optus
Vision's television programming services. On May 30, 1997, the Supreme Court of
New South Wales, in a proceeding brought by FoxTel, granted a permanent
injunction restraining Australis from transferring such assets to the joint
venture. At this point, the Company is uncertain whether Optus Vision will
continue with its plans to provide DTH service. Australis, a supplier of movie
and sports programming and satellite distribution services to Austar, has
publicly announced that it is facing liquidity problems. Austar has agreed to
purchase from Australis certain equipment for Austar's operations and
Australis has announced that proceeds from such sale will enable Australis to
continue operations during December 1997. Australis has also announced it is
continuing to negotiate with its bondholders, certain of the movie studies that
supply it with programming and other third parties in order to implement a
longer-term source of funding. The Company is currently in negotiations with
Australis and other programming suppliers for the type of programming
Australis supplies and therefore currently believes it will be able to make
satisfactory programming arrangements in the event of a disruption in service
from Australis. There can be no assurance, however, that such arrangements will
be concluded or will be concluded on terms favorable to Austar.
WARRANTS
The Company did not consummate an Equity Sale on or before November 15,
1997. Accordingly, pursuant to the terms of the Indentures governing the 1996
Notes and the Old Notes, the Company issued to holders of the 1996 Notes and the
Old Notes on November 17, 1997 Warrants exercisable for a total of 3.4% of the
Common Stock of the Issuer for aggregate consideration of approximately $5.1
million.
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<CAPTION>
THE EXCHANGE OFFER
<S> <C>
Securities Offered................ $45.0 million principal amount at maturity of New Notes./(1)/ The
terms of the New Notes and the Old Notes are identical in all
material respects, except for certain transfer restrictions and
registration rights 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 satisfy obligations of the Company contained in the
Registration Rights Agreement (the "Registration Rights
Agreement") dated September 23, 1997, by and among the Issuer
and Donaldson, Lufkin & Jenrette Securities Corporation as the
initial purchaser with respect to the initial sale of the Old Notes
(the "Initial Purchaser"). 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 January 8, 1998, or such later date and time
to which it is extended (the "Expiration 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 returned
without expense to the tendering holder thereof as promptly as
practicable after the expiration 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 constitute a taxable exchange for
federal income tax purposes. See the discussion under "Certain
U.S. Income Tax Considerations."
Use of Proceeds................... There will be no proceeds to the Issuer from the exchange
pursuant to the Exchange Offer.
Exchange Agent.................... Firstar Bank of Minnesota, N.A. 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 resell New Notes received in the Exchange Offer)
may require the Issuer to file, and cause to become effective, a
shelf registration statement under the Securities Act, which would
cover resales of Notes by such holders. See "Description of
Notes--Registration Rights."
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(1) The principal amount at maturity is equal to $45.0 million plus $73,173 of
accrued interest assuming the Issuer had consummated an Equity Sale on
September 23, 1997 (the Issue Date), which would result in an interest rate
from the Issue Date to maturity of 14%. The principal amount would increase
to approximately $46.3 million if the Issuer does not consummate an Equity
Sale prior to the maturity date, which would result in an interest rate from
the settlement date to maturity of 14.75%.
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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 marketing-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, 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 are identical in all material respects to the Old
Notes, except (i) for certain transfer restrictions and registration rights
relating to the Old Notes, (ii) as the New Notes will be issued after November
15, 1997, certain provisions relating to the Company's obligation to issue
warrants if an Equity Sale has not occurred on or before November 15, 1997, and
(iii) that, if the Exchange Offer is not consummated by January 22, 1998, or the
Company fails to comply with certain other registration obligations with respect
to the Old Notes (each such event referred to as an "Event Date"), the Company
is required to pay liquidated damages (the "Liquidated Damages") to the Holders
of the Notes in an amount equal to (A) during the first 90-day period beginning
on, and including, the Event Date, an amount equal to 0.5% per annum of the
Accreted Value (as defined) of the Old Notes 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 the Old Notes 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 (the "Special Interest"), 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 due
shall be payable on each May 15 and November 15 to Holders of record of the Old
Notes on the May 1 or November 1, respectively, next preceding such payment
date. See "Registration Rights--The Notes."
Securities Offered...................... $45.0 million principal amount at
maturity of 14% Senior Discount
Notes due 2006, Series D. /(1)/
Maturity................................ May 15, 2006.
(1) The principal amount at maturity is equal to $45.0 million plus $73,173 of
accrued interest assuming the Issuer had consummated an Equity Sale on
September 23, 1997 (the Issue Date), which would result in an interest rate
from the Issue Date to maturity of 14%. The principal amount would increase to
approximately $46.3 million if the Issuer does not consummate an Equity Sale
prior to the maturity date, which would result in an interest rate from the
settlement date to maturity of 14.75%.
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Yields and Interest..................... Cash interest on the Notes will not
commence to accrue prior to May 15,
2001, during which time the Notes will
accrete at 14%, compounded semi-
annually on each May 15 and November
15. On and after May 15, 2001, cash
interest 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 an
Equity Sale, then from May 15, 1997,
through the earlier of (i) the
completion of the Equity Sale, or (ii)
May 15, 2001, the principal amount of
the Notes will increase at a rate
equal to, and from and after May 15,
2001, until the completion of the
Equity Sale, cash interest will accrue
on the Notes at, an additional .75%
(or 14.75%) per annum, payable semi-
annually.
Federal Income Tax Matters.............. The Old Notes were issued on
September 23, 1997, at an issue price
of $665.00 per $1,000 principal amount
at maturity./(1)/ The New Notes will
have substantial "original issue
discount" for United States federal
income tax purposes. Thus, although
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 income for United States federal
income tax purposes in advance of
receipt of the cash payments to which
the income is attributable. See
"Certain U.S. Income Tax
Considerations--Taxation of Original
Issue Discount."
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
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. See "Description of the
Securities--Redemption."
Ranking................................. The Notes will be general, senior,
unsecured obligations of the Issuer,
ranking pari passu in right of payment
to all existing and future
indebtedness of the Issuer, other than
indebtedness that by its terms is
expressly subordinated to 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
September 30, 1997, the Issuer and its
subsidiaries had an aggregate of
approximately $426.0 million of
consolidated liabilities outstanding
(including trade payables of
subsidiaries and the Notes) all of
which, except for the Notes, were
obligations of the Issuer's
subsidiaries and effectively rank
prior in right of payment to the
Notes. See "Capitalization."
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Change of Control.... Upon a Change of Control, each holder
of the Notes will have the right to
require the Issuer to purchase such
holder's Notes at 101% of the Accreted
Value thereof, in the case of any such
purchase prior to May 15, 2001, or
101% of the principal amount at
maturity thereof, plus 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 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 this covenant.
See "Description of Securities--
Certain Covenants--Change of Control."
Certain Covenants.... The indenture under which the Notes
will be issued (the "Indenture")
contains certain covenants which,
among other things, will restrict the
ability of the Issuer and/or its
Restricted Subsidiaries (as defined
herein) to (i) incur additional
indebtedness or issue certain
preferred stock, (ii) pay dividends or
make distributions in respect of the
capital stock of the Issuer or make
certain other Restricted Payments,
(iii) conduct a business other than a
Related Business (as defined herein)
or transfer certain assets to certain
subsidiaries, (iv) create certain
liens, (v) enter into certain
transactions with affiliates or other
interested persons and (vi) consummate
certain asset sales. In addition, the
Indenture will limit the ability of
the Issuer to consolidate, merge or
sell all or substantially all of its
assets. These covenants are subject to
important exceptions and
qualifications. See "Description of
Securities."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company and the Securities that should be considered by prospective investors.
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<PAGE>
RISK FACTORS
Holders should consider carefully the following Risk Factors, as well as
the other information set forth in this Prospectus (including attachments),
before tendering their Old Notes in the Exchange Offer.
This Prospectus contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act. Discussions
containing such forward-looking statements may be found in the material set
forth below and under "Summary," "Management's Discussion and Analysis of
Financial Condition--Liquidity and Capital Resources" and "Business," as well as
within the Prospectus generally. In addition, when used in this Prospectus, the
words "believes," "anticipates," "expects," "plans," "intends" and similar
expressions are intended to identify forward-looking statements. Forward-
looking statements and statements of expectations, plans and intent are subject
to a number of risks and uncertainties. Actual results in the future could
differ materially from those described in the forward-looking statements as a
result, among other things, of the risk factors set forth below and the matters
set forth in the Prospectus generally. The Company undertakes no obligation to
release publicly the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances. The Company
cautions the reader, however, that this list of risk factors and other
cautionary language contained herein may not be exhaustive.
Holding Company Structure; Limitations on Access to Cash Flow. The Issuer
is a holding company with no substantial business operations of its own. The
Issuer's assets consist primarily of its ownership interests in its affiliated
companies. The Notes will be effectively subordinated to all existing and
future indebtedness and other liabilities of the Issuer's subsidiaries because
the Issuer's right to receive the assets of any such affiliates upon their
liquidation or reorganization will be subordinated by operation of law to the
claims of such subsidiaries' creditors (including trade creditors), except to
the extent that the Issuer is itself recognized as a creditor of any such
affiliate, in which case the claims of the Issuer would still be subordinated to
any indebtedness of such affiliate that is senior in right of payment to the
Issuer's claim. The Issuer' subsidiaries have substantial indebtedness and other
liabilities. As of September 30, 1997, the Issuer's subsidiaries had $116.6
million of indebtedness outstanding (including trade payables). In July 1997,
Austar entered into an A$200 million (approximately $138.8 million based on the
November 21, 1997, exchange rate) bank facility to fund its capital expenditures
and working capital needs. See "Recent Developments--Austar Bank Facility." The
Indenture (as defined below) will restrict the ability of the Issuer and its
Restricted Subsidiaries (as defined below) and its Restricted Affiliates (as
defined below) to incur additional indebtedness, and will restrict the ability
of the Issuer to invest in entities that are not Restricted Subsidiaries or
Restricted Affiliates. See "Description of Securities."
The covenants set forth in the Indenture governing the Notes restrict the
activities of the Issuer and its Restricted Subsidiaries but are not generally
applicable to certain of the Issuer's existing affiliated companies because such
entities are not deemed to be "Restricted Subsidiaries" or "Restricted
Affiliates" for purposes of the Indenture. As a result, the ability of such
affiliated companies to incur additional indebtedness, to impose restrictions on
their ability to pay dividends to the Issuer, to sell assets or to engage in
other transactions that may be detrimental to the interests of the Issuer's
creditors, including the holders of Notes, is not restricted. In addition,
under certain limited circumstances, the Issuer is entitled to designate certain
of its Restricted Subsidiaries as Unrestricted Subsidiaries which are not
subject to many of the restrictions set forth in the Indenture. The Issuer's
ability to make future Investments (as defined) in Unrestricted Subsidiaries or
Unrestricted Affiliates is limited by the Indenture which provides that future
Investments in affiliates are, in general, permitted only if such affiliates are
designated as Restricted Affiliates and are bound by the provisions of the
Indenture relating to the incurrence of indebtedness and the issuance of
preferred stock and other significant restrictions.
Leverage; Ability to Service Debt. Immediately following consummation of
the Note Offering, the Company was highly leveraged. As of September 30, 1997,
the consolidated liabilities of the Issuer and its subsidiaries (including trade
payables of subsidiaries) were approximately $426.0 million (including the 1996
Notes and the Notes), substantially all of which, except for the 1996 Notes and
Notes, were obligations of the Issuer's subsidiaries. As of May 16, 2001 (the
date cash interest payments begin on the Issuer's 1996 Notes and the Notes) and
assuming an Equity Sale is consummated on December 31, 1997, the 1996 Notes will
have an Accreted Value of $444.9 million ($455.6 million if an Equity Sale is
not consummated on or before May 15, 2001) and the Notes will have an Accreted
Value of $45.2 million ($46.3 million if an Equity Sale is not consummated on or
before May 15, 2001). Beginning in May 2001 and assuming an Equity Sale is
consummated on December 31, 1997, the Company will have annual cash interest
payments with respect to the 1996 Notes of approximately $62.3 million ($67.2
million if an Equity Sale is not consummated prior to maturity) and with respect
to the Notes of approximately $6.3 million ($6.8 million if an Equity Sale is
not consummated prior to maturity). The Company's ability to meet its debt
service requirements will be dependent upon substantial growth in the Company's
cash flow. If the Company's cash flow and working capital are not sufficient to
fund the Company's expenditures and to service its indebtedness, including the
Notes, the Company would be required to raise additional
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<PAGE>
funds through the sale of equity or debt securities, the refinancing of all or
part of its indebtedness, or by effecting the sale of significant assets. The
indentures governing the 1996 Notes and the Notes, as well as the indentures
governing the outstanding 14% Senior Secured Discount Notes due 1999 of UIH,
restrict the ability of the Company and its Restricted Subsidiaries (as defined
therein) to incur additional indebtedness beyond specified financial ratios.
There can be no assurance that the Company will be successful in generating cash
flow by a sufficient magnitude or in a timely manner or in raising additional
equity or debt financing to enable the Company to meet its debt service and
other liquidity requirements. The high degree to which the Company is leveraged
could have significant adverse consequences upon the Company, including, without
limitation, (i) increased vulnerability to adverse economic and competitive
conditions, (ii) inability to obtain additional financing necessary to fund
future working capital requirements, capital expenditures, acquisitions or other
general needs, and (iii) the dedication of a substantial portion of cash flow
from operations to the payment of principal of and interest on indebtedness,
rather than to the expansion of operations and the pursuit of new opportunities.
In addition, the Issuer and its subsidiaries and affiliates may incur additional
indebtedness, which may be secured debt and/or at the level of the operating
companies, from time to time to finance expansion, either through capital
expenditures or acquisitions, or for other general corporate purposes.
The Issuer's ability to repay its obligations on the 1996 Notes and the
Notes at maturity will be dependent on developing one or more sources of cash
flow prior to the maturity of the 1996 Notes and the Notes in 2006. The Issuer
may (i) seek to refinance all or a portion of the Notes at maturity through
sales of additional debt or equity securities of the Company, (ii) seek to sell
all or a portion of its interests in one or more of its affiliated companies,
(iii) negotiate with its current financial and strategic partners to permit the
cash produced by its affiliated companies to be distributed to equity holders
rather than invested in the businesses of such affiliated companies, and/or (iv)
operate and invest in companies that will make substantial cash distributions on
or before the maturity of the 1996 Notes and the Notes. There can be no
assurance that (i) there will be a market for the debt or equity securities of
the Company in the future, (ii) the Company will be able to sell assets in a
timely manner or on commercially acceptable terms or in an amount that will be
sufficient to repay the 1996 Notes and the Notes when due, or (iii) that the
Company will be successful in developing sufficient cash flow prior to the
maturity of the 1996 Notes and the Notes.
The Issuer's ability to sell or transfer its ownership interests in Saturn,
Telefenua and XYZ is subject to limitations contained in the agreements between
the Company and its strategic and financial partners including, in certain
cases, complete prohibitions on sales or transfers for a period of years and/or
rights of first refusal. In addition, none of the operating companies currently
has any publicly traded securities, and there can be no guarantee that there
will be in the future either a public or private market for the securities of
the operating companies. As a result, the Issuer's ability to liquidate any or
all of its investments may be substantially limited, and there can be no
guarantee that the Issuer will be able to do so in a timely manner in the event
of an acceleration of the Notes prior to their maturity or in order to satisfy
its obligations in respect of such securities in the event of a Change of
Control, or to repay the Notes upon their maturity.
History of Operating Losses. The Company has experienced net losses since
its formation. The Company had consolidated net operating losses of $68.2
million for fiscal 1996 and consolidated net operating losses of $82.5 million
for the nine months ended September 30, 1997. The Company expects to incur
substantial additional net losses and net operating losses for the foreseeable
future as it pursues the development of its multi-channel television systems and
programming ventures, and there can be no assurance that such losses will not
continue indefinitely or exceed the Company's expectations. In addition, the
Company has experienced net losses, net operating losses and negative cash flows
from operations since formation, as each of its operating companies has been in
the early stages of constructing and marketing its operations. In fiscal 1995,
net operating losses (translated using a weighted average exchange rate) for
Austar, Saturn, Telefenua and XYZ were $8.3 million, $2.6 million, $4.2 million
and $28.9 million, respectively. From the Company's acquisition of United
Wireless in September 1995 through December 31, 1995, United Wireless had net
operating losses of $0.6 million. In fiscal 1996, net operating losses
(translated using a weighted average exchange rate) for Austar, Saturn,
Telefenua, XYZ and United Wireless were $54.0 million, $5.3 million, $2.5
million, $18.4 million and $3.1 million, respectively. Continuing net losses,
net operating losses and negative cash flows would increase the Company's need
for additional capital in the future. See "--Need for Additional Capital."
Limited Operating History; Uncertainties Associated with a New Industry;
Customer Acceptance and Market Demand. Saturn and Telefenua are in the early
stages of constructing their respective multi-channel television and
telecommunication systems and/or marketing their respective services. Although
Austar has finished construction of substantially all of its MMDS systems and
has launched DTH service in all of its franchise areas, it is still in the early
stages of marketing its services. Austar's success will depend largely upon its
ability to gain and retain subscribers throughout its franchise areas. Saturn
is in the early stages of constructing a full-service network in its identified
markets. Saturn has launched service in a portion of its service areas and has
only recently begun marketing its services and connecting subscribers beyond its
existing base. Telefenua launched its service in March 1995 and is also in the
early stages of marketing its services. In addition, the successful
implementation of the Company's operating strategies is
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subject to factors and uncertainties, many of which are outside of its control
and difficult to predict, due, in part, to the limited history of multi-channel
television in Australia and Tahiti and of integrated multi-channel television
and telephony services in New Zealand. No assurance can be given that such
factors will not negatively affect the implementation of such operating
strategies and the Company's financial results.
Subscription television services were not introduced in Australia and
Tahiti until 1995 and 1994, respectively. There can be no assurance that the
Company will experience and sustain the levels of customer acceptance and
retention required for its success. While the subscription television and
telecommunications markets in New Zealand have operating histories, there
currently are no fully operational integrated video and voice networks such as
Saturn is building. As a result, the size of the New Zealand market for such
services, likely rates of penetration of services in this market, acceptance of
projected monthly rates for combined services, structure of the competitive
environment and long-term attractiveness of the integrated video and voice
business in New Zealand are unclear.
Need for Additional Capital. While the Company believes that its cash on
hand, available funds under existing financing facilities, the proceeds from the
Note Offering and projected cash flow from operations will be sufficient for the
Company to complete the construction and initial marketing of its existing
operating companies, estimated, as of September 30, 1997, to require
approximately $185.3 million in total (of which the Company's pro rata portion
is approximately $155.1 million), not taking into account existing financing
facilities), over the next two to three years, there can be no assurances that
such funds will be sufficient for its needs. See "Summary Recent Developments--
Funding Requirements." Availability under the Bank Facility is conditioned on
certain cash flow levels and equity contributions to Austar. See "Summary--
Recent Developments--Austar Bank Facility." Austar is evaluating the economic
and strategic benefits of a larger commitment to its DTH business which may
entail greater capital and operating expenditures for subscriber installation
and programming costs. Sources of additional capital, if any, may include
additional debt and equity financing at the Issuer and operating company levels,
although there can be no assurance that such funds will be available on
satisfactory terms or on a timely basis, if at all.
Competitive Industry. The subscription television business in each of the
countries in which the Company operates is and will remain competitive and
subject to rapid change due to regulatory and other factors. Austar currently
competes in one of its metropolitan markets with FoxTel, which has substantial
financial resources and also carries the Galaxy package. Austar may face
competition as FoxTel launches service in other franchise areas. To the extent
Austar experiences competition in any of its markets, its "churn" rate (rate of
subscriber disconnects) could increase. An increase in Austar's churn rate
would result in higher capital expenditure requirements. In addition, since
July 1997 Australian law has allowed other persons to deliver subscription
television services via DTH. Optus Vision Pty Limited ("Optus Vision") publicly
announced in 1996 that it plans to offer subscription television services by DTH
throughout Australia. See "Business--Austar--Competition." Saturn expects to
compete with existing providers of multi-channel television services and
telephony services in New Zealand, certain of which have substantially more
resources and experience than Saturn. These competitors include Telecom New
Zealand Limited, New Zealand's largest telecommunications service provider,
which has announced its intention to rebuild certain of its existing networks to
enable it to offer video and data services to approximately 70,000 homes in
various parts of that country. See "Business--Saturn--Competition." Telefenua
also competes with another provider of subscription television services in its
operating area. See "Business--Telefenua--Competition." In addition to an
existing competitor, United Wireless could face competition in the future from
certain companies with significantly greater resources than the Company that are
currently attempting to implement satellite-generated data transmission and
paging services on a global scale. See "Business--United Wireless (Australian
Mobil Data)--Competition."
Deployment of Network; Access to Infrastructure; Construction Risk. The
construction within management's cost estimates and launch schedules of the
Saturn network is dependent upon factors, many of which are outside of the
Company's control. Because the New Zealand pay television market is in its
early development stages, access to contractors experienced in the necessary
deployment of combined cable television and voice networks in New Zealand is
limited. The Company's continued access to and successful training of
contractors is a key element to meeting management's launch schedules, but there
can be no assurance as to such access. The Company's success will depend in
part upon its ability to deploy networks quickly throughout its service areas.
No assurance can be given that the Company will succeed with its development
schedule or that the Company's financial performance and results of operations
will not be adversely affected by its inability to do so.
Construction projects are subject to cost overruns and delays not within
the control of the Company or its subcontractors, such as delays related to
governmental rules and regulations including zoning and permit requirements, as
well as acts of governmental entities, financing delays and catastrophic
occurrences. Delays also can arise from design changes and material or
equipment shortages or delays in delivery. Services to buildings passed by the
operating systems can be delayed if easements are not obtained from third
parties. Failure to complete construction on a timely basis could
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jeopardize such operating company's ability to compete and could have material
adverse effects on the financial condition and results of operations of one or
more of the operating companies.
Ability to Procure Additional Programming Services. The Company's success
is largely dependent upon management's ability to procure programming that is
attractive to its customers at reasonable commercial rates. The Company is
dependent upon third parties for the development and delivery of programming
services. These programming suppliers will charge the operating companies for
the right to distribute the channels to the operating companies' customers. The
costs to the operating companies for additional services will be determined
through negotiations between the operating companies and these programming
suppliers. Management believes that the availability of sufficient programming
on a timely basis will be critical to the Company's future success. There can
be no assurance that the operating companies will have access to additional
programming services or that management can secure rights to such programming on
commercially acceptable terms.
Australis, Austar's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. Austar has agreed to purchase from Australis certain
equipment for Austar's operations and Australis has announced that proceeds
from such sale will enable Australis to continue operations during December
1997. Australis has also announced it is continuing to negotiate with its
bondholders, certain of the movie studies that supply it with programming and
other third parties in order to implement a longer-term source of funding. If
Australis is unable to make arrangements to satisfy its long-term capital needs,
Australis may have difficulty meeting contractual obligations with respect to
the four non-XYZ Galaxy channels distributed directly by Australis. The Company
believes that if Austar is no longer able to obtain the four Galaxy channels
provided by Australis on an exclusive basis and it were required to seek
replacement programming, it would have access to the same programming directly
from the suppliers of such four Galaxy channels or sufficient alternative
programming on competitive terms. There can be no assurance, however, that this
would be the case, and the inability of Austar to procure the same or suitable
alternative programming at competitive rates and on an exclusive basis in its
service areas could have a material adverse effect on the Company. See
"Business--Austar--Programming."
Rapid Technological Changes. The multi-channel television industry is
subject to rapid and significant changes in technology. Although the Company
believes that its operating companies' current and planned networks have been
designed to be sufficiently flexible to permit them to deliver a variety of
existing multi-channel television and, where appropriate, telecommunications
services to their respective customers and advanced, integrated entertainment,
telecommunications and information services as they become available in the
future, the effect of any future technological changes on the viability or
competitiveness of the Company's network and services cannot be predicted.
Government Regulations; License Renewal. Multi-channel television
operations and programming services are subject to governmental regulation,
which may change from time to time. There can be no assurance that material and
adverse changes in the regulation of the Company's existing operating systems
will not occur in the future. Regulation can take the form of price controls,
service requirements and programming content restrictions, among others. See
"Regulation."
Broadcasting services provided by Austar are subject to Australian
government regulation under the Radiocommunications Act 1992 (the
"Radiocommunications Act"), which regulates the use of the radio spectrum in
Australia; the Broadcasting Services Act 1992 (the "BSA"), which, among other
things, regulates the delivery and content of broadcasting services in
Australia, including subscription television broadcasting services; the Trade
Practices Act 1974 (the "TPA"), which, among other things, regulates the
provision of and access to telecommunications services, and the use of DTH and
cable services; and the Telecommunications Act 1997 (the "Telecommunications
Act"), which, among other things, regulates the use of telecommunications
facilities that supply telecommunications services and program suppliers who
deliver a subscription television broadcasting or narrowcasting service using
cable and in certain respects, DTH satellite transmission. The
Telecommunications Act, which commenced on July 1, 1997, removes the duopoly
previously enjoyed by Telstra and Optus Vision and established for the first
time an open competition regime. At this stage, it is too early to predict what
impact this regime will have on Austar. Changes in existing regulations or laws
or in the interpretation of existing regulations or laws by the courts or
governmental authorities in Australia, as well as the development of the
subscription television industry in Australia generally, may have a material
adverse effect on the ability of XYZ and Austar to compete with other forms of
entertainment and may also have a material adverse effect on XYZ's and Austar's
ability to attain their business objectives or on their results of operations.
Matters which could adversely affect the profitability of XYZ and Austar and/or
the value of their licenses include anti-siphoning regulations which have
limited and, in the future, could limit further the Company's access to certain
sports programming, the loss by Austar of certain of its licenses, the inability
of Austar to acquire additional licenses or be reissued its existing licenses,
the inability of Austar to comply with class licenses for the provision of
broadcasting services or licenses or other obligations under the
Telecommunications Act, the issuance of additional licenses to competitors of
Austar, changes in the Australian programming content requirements, changes in
the amount or calculation of taxes, fees or charges payable for licenses,
license renewals or conversions, changes in the conditions attaching to any
licenses or any
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other policies or regulations that modify the present regulatory environment.
Such regulatory changes and limitations, or the enactment of future limitations,
may adversely affect the ability of XYZ and Austar to secure additional
financing. The Australian Federal government has expressed its intent to review
certain issues relating to subscription television broadcasting services,
including Australian program content requirements and limitations on foreign and
cross-media ownership (although the government announced recently that it would
not pursue any review of the foreign or cross-media ownership rules until after
the next Federal election, which the Company does not anticipate happening for
at least the next two years).
Austar's MMDS licenses issued under the Radiocommunications Act were
granted between 1994 and 1996 and have initial terms of five years from the date
of grant. The terms governing the renewal or conversion of Austar's existing
MMDS apparatus licenses into spectrum licenses has not been announced. The
failure to renew or the revocation of Austar's MMDS licenses, or the failure of
Austar to receive appropriate spectrum licenses upon conversion of existing
licenses would have a material adverse effect on the Company's financial
condition.
While New Zealand currently has an extremely unregulated environment in
which to operate multi-channel television and telephony services and currently
requires no special licenses or franchises to operate multi-channel television
systems, there can be no assurance that the regulatory environment will continue
to remain so unregulated. Telefenua's MMDS authorization expires in 2004 and is
currently under legal challenge. There can be no assurance that Telefenua will
be successful in renewing its license or defending any challenge.
Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations. The Company currently holds a majority of the outstanding
securities presently entitled to vote for the election of directors and has the
right to designate all of the directors of Austar. While the transactions
pursuant to which the Company acquired such securities and related rights did
not require any advance notification or approval under Australian law, in the
future, they could be reviewed by the Treasurer of Australia (the "Treasurer")
under provisions of the Australian Foreign Acquisition and Takeovers Act 1975,
as amended ("FATA"). If so reviewed and determined by the Treasurer to have
resulted in a change of control of an Australian person to a foreign person that
is against the national interest of the Commonwealth of Australia, there would
be no violation of law, but the Treasurer could require the parties to restore
the voting control of Austar so that the Company is entitled to appoint directly
only three of six directors of Austar. While the Company believes a
determination under the FATA should not affect its effective 100% economic
interest in Austar, there can be no assurance that such would be the case. In
addition, if the manner in which the Company designates directors of Austar is
changed as a result of action by the Treasurer, an issue may be presented under
the Investment Company Act of 1940 (the "1940 Act") as to whether the Company
would then be an unregistered investment company. If the Company's economic
interests in Austar did not provide the Company sufficient control of Austar to
permit the Company to obtain exemptive relief from the Commission, there would
be a risk that the Company would be an unregistered investment company and as
such, the Company would be subject to monetary penalties and injunctive relief
in an action brought by the Commission, the Company would be unable to enforce
contracts with third parties and third parties could seek to obtain recision of
transactions undertaken during the period it was established that the Company
was an unregistered investment company. See "Regulation--Australia--Foreign
Acquisitions and Takeovers Act."
Challenge to Telefenua Authorization. In 1993 and 1994, Telefenua entered
into local franchise agreements with 30-year terms to provide cable television
services in Tahiti and subsequently obtained authorizations with a term through
2004 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
enacted by the French Parliament in July 1996 may give 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 may petition for restitution for the
taking of such authorization. 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 "Business--Legal Proceedings."
Dependence on Key Personnel; Relationship with UIH and UAP. 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
no control. The services of such personnel are made available to the operating
companies under the terms
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of Technical Assistance Agreements and the UAP Management Agreement upon payment
by the operating companies of certain fees. No assurance can be given as to the
continued availability of such key personnel. See "Certain Relationships."
As the Company continues the construction and marketing of its operating
systems, its success and growth strategy depends in large part on its ability to
attract and retain local management, marketing and operating personnel at the
UAP and operating company levels. There can be no assurance that the Company
will be able to attract and retain the qualified personnel needed for its
business.
Risks Inherent in Foreign Investment. The Company has invested
substantially all of its resources outside of the United States. Risks inherent
in foreign operations include loss of revenue, property and equipment from
expropriation, nationalization, war, insurrection, terrorism and other political
risks and risks of increases in taxes and governmental royalties and fees. The
Company is also exposed to the risk of changes in foreign and domestic laws and
policies that govern operations of foreign-based companies. Although the
majority of the Company's operations are located in Australia and New Zealand,
the Company has interests in operating systems in Tahiti where foreign
investment risks may be greater.
Foreign Currency Exchange Rate and Conversion Risks. Although the
operating companies have attempted, and will continue to attempt, to match costs
and revenues and borrowings and repayments in terms of their respective local
currencies, payment for a majority of purchased equipment has been, and may
continue to be, required to be made in currencies, including dollars, other than
local currencies. In addition, the value of 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. The Company may also experience economic loss
and a negative impact on earnings related to these monetary assets and
liabilities. The countries in which the operating companies now conduct
business generally do not restrict the removal or conversion of local or foreign
currency; however, there can be no assurance this situation will continue. Such
restrictions, if enacted, could create substantial barriers to the conversion or
repatriation of funds, and such restrictions could adversely affect the
Company's and its operating companies' ability to pay overhead expenses, meet
their respective debt obligations and to continue and expand their businesses.
Limited Insurance Coverage. The operating companies obtain insurance of
the type and amount which management believes is appropriate for their systems.
Such policies do not, however, insure the entire portion of multi-channel
television systems. Accordingly, a catastrophe affecting a significant portion
of a system's infrastructure could result in substantial uninsured losses.
International Tax Risks. In general, a United States corporation may claim
a foreign tax credit against its federal income tax expense for foreign income
taxes paid or accrued. Because the Company must calculate its foreign tax
credit separately for dividends received from each foreign corporation in which
the Company owns 10% to 50% of the voting stock and because of certain other
limitations, the Company's ability to claim a foreign tax credit may be limited,
particularly with respect to dividends paid out of earnings subject to a high
rate of foreign income tax. The Company will also be obligated to allocate
deductions to its foreign activities in computing the foreign tax credit
limitation that limits the available foreign tax credit. These limitations 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.
Ownership of Subsidiaries. While the Issuer has an effective 100% economic
interest in Austar, it holds only 14.9% of Austar's ordinary shares. The
Issuer, through its ownership and economic interest, has the right to appoint
all of the directors of Austar. While the holders of Austar's ordinary shares
are entitled to vote on certain limited matters, they do not have the power to
wrest control of Austar from its board of directors appointed by the Company.
Similarly, while the Issuer holds a majority economic interest in Telefenua and
appoints a controlling number of directors, it holds less than the majority of
Telefenua's outstanding common stock. See "Corporate Organizational Structure--
Austar."
Trading Market for the Securities, Absence of Public Market. The New Notes
are being offered to the holders of the Old Notes. The Issuer has not sought a
listing for the Notes on a national securities exchange or an authorization for
quotation on Nasdaq Stock Market. The Initial Purchaser has informed the Issuer
that it intends to make a market in the Old Notes. The Initial Purchaser is not
obligated to do so however, and any such market making may be
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discontinued at any time without notice at the Initial Purchaser's sole
discretion. There can be no assurance that an active trading market will develop
for the Notes. The liquidity of, and trading market for, the Notes may also be
significantly adversely affected by declines in the market for high yield
securities generally. The Notes may trade at a discount from their respective
initial offering prices, depending upon prevailing interest rates, the market
for similar securities and other factors. See "Plan of Distribution."
Original Issue Discount Consequences. The Notes will be issued at a
substantial discount from their principal amount at maturity. Consequently, the
purchasers of the Notes generally will be required to include amounts in gross
income for Federal income tax purposes in advance of receipt of any cash payment
on the Notes to which the income is attributable. If a bankruptcy case is
commenced by or against the Issuer under the United States Bankruptcy Code (the
"Bankruptcy Code") after the issuance of the Notes, the claim of a holder of
Notes with respect to the principal amount at maturity thereof may be limited to
an amount equal to the sum of (i) the initial offering price of the Notes and
(ii) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the Bankruptcy Code. Any
original issue discount that was not amortized as of any such bankruptcy filing
would most likely constitute "unmatured interest." See "Certain U.S. Income Tax
Considerations."
Issue Price Greater than Accreted Value. Holders considering whether to
tender the Old Notes in the Exchange Offer should note that the issue price of
the Old Notes reflects an approximately $54 premium per $1,000 principal amount
at maturity over the Accreted Value of the Notes on the Issue Date and that
certain rights of Noteholders, including payment upon liquidation of the Issuer,
are based on the Accreted Value of the Notes rather than the issue price.
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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 January 8, 1998, 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, approximately $45.0 million 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
December 10, 1997, 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 Firstar Bank of Minnesota, N.A. (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 he
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 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
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not competed 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 no 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 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 and
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 January 22,
1998, Liquidated Damages will accrue from and including January 22, 1998. 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
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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 January 22, 1998, the liquidated Damages payable on the Old Notes
form 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 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 for 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
that 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 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 to transfer such Old Notes into the exchange Agent's account in the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. 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 guarantee and any other required documents, must, in any
case, however, be transmitted to and received by the Exchange Agent at the
address set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
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 the 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 or 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 the address 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
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parties. Any Old Notes so withdrawn will be deemed not to have been 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 event 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 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 made 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
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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
Firstar Bank of Minnesota, N.A. has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at 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:
Delivery to: Firstar Bank of Minnesota, N.A., as Exchange Agent
By Mail, By Hand and Overnight Courier: By Facsimile:
Firstar Bank of Minnesota, N.A. (612) 229-0415
Attention: Frank P. Leslie, III
Vice President Confirm by Telephone:
101 East Fifth Street
St. Paul, Minnesota 55101-1860 Frank P. Leslie, III
(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 acceptance 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 Issuer and are estimated in the aggregate to be $75,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend on the Old
Notes and as described in the Offering Memorandum dated September 16, 1997
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 broker-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
21
<PAGE>
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 Note 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.
22
<PAGE>
USE OF PROCEEDS
The Issuer will not receive any cash proceeds from the exchange of Old
Notes for the New Notes. The Company plans to use the approximately $29.0
million net proceeds from the Note Offering to fund the capital expenditure and
working capital requirements of its subsidiaries and affiliates as permitted by
the terms of the Indentures governing the Notes and the 1996 Notes.
The Company will require substantial additional capital to complete the
construction and launch of its 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."
EXCHANGE RATE DATA
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
November 28, 1997, the Noon Buying Rate was $0.68 per A$1.00.
<TABLE>
<CAPTION>
At and for the Year Ended
December 31: EXCHANGE RATE AVERAGE RATE(1) HIGHEST RATE LOWEST RATE
------------------------- ------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
1992...................... $0.69 $0.73 $0.77 $0.68
1993...................... 0.68 0.68 0.72 0.65
1994...................... 0.78 0.73 0.78 0.68
1995...................... 0.74 0.74 0.77 0.71
1996...................... 0.79 0.78 0.82 0.73
At and for the Nine Months
Ended September 30, 1997. 0.73 0.76 0.80 0.72
</TABLE>
Source: Federal Reserve Statistical Release H.10(512). Exchange rates have
been rounded to the nearest 1/100th of one dollar.
(1) The average of the Noon Buying Rates during the applicable period.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Issuer as of
September 30, 1997. The table should be read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
(In thousands,
unaudited)
<S> <C>
Debt:
1996 Notes......................................................... $ 272,094
Old Notes.......................................................... 29,982
Other long-term debt............................................... 68,107
Due to parent...................................................... 4,112
---------
Total debt....................................................... 374,295
---------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
none issued and outstanding...................................... --
Common stock ($0.01 par value); 30,000,000 shares authorized;
13,864,941 shares issued and outstanding......................... 139
Additional paid-in capital......................................... 118,331
Unrealized loss on investment...................................... (2,753)
Cumulative translation adjustments................................. (9,734)
Accumulated deficit................................................ (221,313)
---------
Total stockholders' equity (deficit)............................. (115,330)
---------
Total capitalization.......................................... $ 258,965
=========
</TABLE>
24
<PAGE>
CONSOLIDATED SELECTED FINANCIAL DATA
The following consolidated selected financial data for the years ended
December 31, 1994, 1995 and 1996 and balance sheet data as of December 31, 1994,
1995 and 1996 have been derived from the Company's audited consolidated
financial statements. The following selected consolidated financial data for the
nine months ended September 30, 1996 and 1997 and at September 30, 1997, have
been derived from the unaudited financial statements of the Company that, in the
opinion of management of the Company, reflect all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial data for
such periods and as of such dates. The data set forth below are qualified by
reference to and should be read in conjunction with the audited consolidated
financial statements and notes thereto of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- --------- -------- ---------
(In thousands, except share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service and other revenue.............$ -- $ 1,883 $ 24,977 $ 13,262 $ 49,052
System operating expenses............. -- (3,230) (30,730) (13,276) (35,857)
System selling, general and
administrative expense............... -- (2,482) (24,800) (19,625) (37,025)
Corporate general and
administrative expense............... (659) (920) (1,376) (746) (885)
Depreciation and amortization......... -- (1,003) (36,269) (15,935) (57,797)
Net operating loss.................... (659) (5,752) (68,198) (36,320) (82,512)
Equity in losses of
affiliated companies................. (1,015) (16,379) (5,414) (4,501) (2,000)
Interest income (expense), net........ -- 127 (16,650) (9,571) (29,150)
Other income (loss), net.............. -- 4,351 90 1,001 (1,109)
Minority interests.................... -- 420 2,186 2,062 351
---------- ---------- ---------- ---------- ----------
Net loss..............................$ (1,674) $ (17,233) $ (87,986) $ (47,329) $ (114,420)
---------- ---------- ---------- ---------- ----------
Net loss per common share.............$ (.12) $ (1.28) $ (6.44) $ (3.48) $ (8.25)
========== ========== ========== ========== ==========
Weighted-average number of
common shares outstanding............13,504,452 13,504,452 13,670,832 13,615,372 13,864,941
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------ AS OF
1994 1995 1996 SEPTEMBER 30, 1997
------- ------ -------- ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ -- $ 8,730 $ 19,220 $ 45,689
Short-term investments................ -- -- 18,640 --
Property, plant and equipment, net of
accumulated depreciation............. 1 27,630 193,170 191,496
Total assets.......................... 24,084 99,295 319,323 323,929
Long-term debt........................ -- 11,962 254,155 374,295
Total liabilities..................... 11 21,714 315,276 426,032
Stockholders' equity (deficit)........ 24,073 75,066 4,047 (115,330)
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company currently holds (i) an effective 100% economic interest in
Austar, (ii) a 65% interest in Saturn, (iii) a 25% interest in XYZ, (iv) an up
to 90% economic interest in Telefenua and (v) a 100% interest in United
Wireless. Because the Company accounts for its less than majority owned
operating companies on the equity method, prior to September 1995, only the
Company's Tahitian subsidiary, Telefenua, was consolidated. In September 1995,
the Company acquired a 100% interest in United Wireless at which time it began
consolidating its results of operations. In late December 1995, the Company
increased its economic interest in Austar from 50% to 90% (the "Austar
Transaction"). During 1996, the Company further increased its economic interest
in Austar to 100%. Prior to the Austar Transaction, the Company accounted for
its investment in Austar using the equity method of accounting. The Company
began consolidating the results of operations of Austar on January 1, 1996.
Following its July 1996 acquisition of majority control of Saturn, the Company
began consolidating the results of operations of Saturn, which had previously
been accounted for using the equity method of accounting. In July 1997, a
subsidiary of Saskatchewan Telecommunications Holdings Corporation ("SaskTel")
purchased a 35% equity interest in Saturn. The Company accounts for its interest
in XYZ using the equity method of accounting.
In connection with the offering of the 1996 Notes, UIH merged into the
Company UIH's subsidiaries that hold interests in certain operating properties
and early stage projects in Australia, New Zealand and Tahiti. 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 UIH's foreign multi-channel television, programming and
mobile data interests in Australia, New Zealand and Tahiti since inception. The
Company commenced operations in January 1994 when UIH began its development
related activities in the Australia/Pacific region. The Company reflected all
of the transfers from UIH as a capital contribution from parent in the
accompanying consolidated financial statements. The Company reports on the basis
of U.S. GAAP and recognizes its proportionate share of affiliated company income
(loss) on the basis of U.S. GAAP results.
The operating companies have, since inception, been engaged primarily in
the construction of their networks and organizational and start-up activities.
As a result, the Company has generated negative cash flow from operating
activities for all periods presented. Accordingly, the Company believes that
its historical results of operations discussed herein are not indicative of the
results of operations which will follow the completion of construction and
initial marketing of service by the operating companies. As demonstrated by the
table below, the Company has invested significant capital in the operating
companies:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------------------------------------------------
INVESTED
COMPANY SERVICE CAPITAL BY COMPANY
CONSOLIDATED SUBSIDIARIES: OWNERSHIP(1) LAUNCH DATE (IN MILLIONS) SUBSCRIBERS
- ------------------------- ------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C>
Austar........................... 100% Aug. 1995 $290.2 178,832
Saturn........................... 65% Sept. 1996 31.3 2,829
Telefenua........................ 90% Mar. 1995 16.7 6,257
United Wireless.................. 100% Sept. 1995 7.1 N/A
UNCONSOLIDATED AFFILIATE:
- ------------------------
XYZ.............................. 25% Apr. 1995 $ 13.2 524,000
</TABLE>
(1) For an explanation of the Company's interests in each of the operating
companies, see "Corporate Organizational Structure."
The Company has no employees of its own. UAP, the Company's parent,
provides various management, financial reporting, accounting and other services
for the Company pursuant to the terms of the Management Agreement between UAP
and the Company. Austar, Saturn, Telefenua and United Wireless are also parties
to technical service agreements with UAP for which such operating companies pay
to UAP fees based, in part, on their respective gross revenues. See "Certain
Relationships."
26
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Service and Other Revenue. The Company's service and other revenue
increased $35.8 million for the nine months ended September 30, 1997 compared
to the nine months ended September 30, 1996 as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
-------- -------
(In thousands)
<S> <C> <C>
AUSTRALIA
Austar......................... $10,544 $45,510
United Wireless................ 42 265
NEW ZEALAND
Saturn......................... 44 314
TAHITI
Telefenua...................... 2,632 2,963
------- -------
Total service and other revenue... $13,262 $49,052
======= =======
</TABLE>
Austar
Service and other revenue for Austar increased $35.0 million, or
331.6%, from $10.5 million for the nine months ended September 30, 1996 to
$45.5 million for the nine months ended September 30, 1997. This increase
was primarily due to subscriber growth (178,832 at September 30, 1997
compared to 60,276 at September 30, 1996) as Austar continues to roll-out
its services.
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported only three months of service
revenue for Saturn for the nine months ended September 30, 1996. For the
nine months ended September 30, 1997, Saturn reported service revenue of
$314,000, compared with service revenue of $148,000 for the corresponding
period in 1996. The increase between periods was primarily due to an
increase in subscribers (2,829 at September 30, 1997 compared to 1,235 at
September 30, 1996).
Telefenua
Telefenua's service revenue increased to $3.0 million from $2.6
million for the nine months ended September 30, 1997. The increase was
primarily attributable to subscriber growth (6,257 at September 30, 1997
compared to 4,678 at September 30, 1996).
System Operating Expense. System operating expense increased $22.6 million
for the nine months ended September 30, 1997, compared to the nine months ended
September 30, 1996 as follows:
27
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
------ -------
(in thousands)
<S> <C> <C>
Austar........................................ $10,111 $29,841
Saturn........................................ 599 2,461
Telefenua..................................... 1,642 1,451
United Wireless............................... 924 1,273
Other......................................... -- 831
------- -------
Total system operating expense.......... $13,276 $35,857
======= =======
</TABLE>
Austar
Operating expense for Austar increased $19.7 million or 195.1%, from
$10.1 million for the nine months ended September 30, 1996 to $29.8 million
for the nine months ended September 30, 1997. This increase was due to an
increase in satellite programming fees, and copyright costs totaling $12.1
million which corresponds to the increase in subscribers and additional
basic programming services, an increase in salaries and benefits of $1.7
million as a result of additional personnel to support Austar's launch of
local and state offices in its markets, an increase in customer subscriber
management expenses of $2.3 million related to volume increases in billing
and collections, with the remainder due to increases in system travel,
maintenance, vehicle costs and management fees.
Austar is experiencing high operating expense relative to service
revenue due to certain fixed operating expenses (such as management
overhead, license fees and certain office-related costs). Austar expects
operating expense as a percentage of service revenue to decline as start-up
costs decrease and as certain fixed operating expenses are spread over
expected increases in service revenues.
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported only three months of operating
expense for Saturn for the nine months ended September 30, 1996. For the
nine months ended September 30, 1997, Saturn reported system operating
expense of $2.5 million, compared with system operating expense of $1.3
million for the corresponding period in 1996. System operating personnel
expenses increased $296,000 for the nine months ended September 30, 1997,
in order to support Saturn's build-out of its hybrid fiber coaxial network
in the Wellington area.
Telefenua
Operating expense at Telefenua decreased to $1.5 million for the nine
month period ended September 30, 1997, from $1.6 million for the
corresponding period in 1996. This decrease was primarily due to a decrease
in technical-related repairs and maintenance costs as well as a weakening
in the local currency, partially offset by increased programming costs
associated with the increase in subscribers.
Other
In September 1997, the Company began paying a satellite service fee of
approximately $480,000 per month as part of their five-year agreement with
Optus Vision. In addition, the Company expensed a related deposit charged
by Optus Vision during the quarter. In future periods, these costs will be
incurred at the operating system level based on usage of the satellite.
System Selling, General and Administrative Expense. System selling,
general and administrative expense increased $17.4 million for the nine
months ended September 30, 1997, compared to the nine months ended
September 30, 1996 as follows:
28
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Austar........................................ $16,305 $31,910
Saturn........................................ 889 2,330
Telefenua..................................... 1,959 1,503
United Wireless............................... 472 1,282
-------- -------
Total system selling, general and
administrative expense................. $19,625 $37,025
======= =======
</TABLE>
Austar
System selling, general and administrative expense for Austar
increased $15.6 million, or 95.7%, from $16.3 million for the nine months
ended September 30, 1996 to $31.9 million for the nine months ended
September 30, 1997. This increase was primarily due to an increase in
salaries associated with the National Customer Operations Center and
Austar's corporate headquarters of $5.5 million as a result of additional
personnel necessary to support the increase in subscribers, an increase in
marketing costs related to print, radio and television advertisements of
$4.4 million associated with subscriber acquisition and an increase in
direct sales commissions of $2.3 million due to subscriber growth. In
addition, $855,000 of the increase related to one-time charges for the
restructuring and consolidation of various regional offices.
Austar expects that system selling, general and administrative expense
as a percent of service revenue will continue to decline over the remainder
of 1997 as certain fixed expenses are spread over expected increases in
service revenues.
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported only three months of system
selling, general and administrative expense for Saturn for the nine months
ended September 30, 1996. Saturn's system selling, general and
administrative expense was $2.3 million for the nine months ended September
30, 1997 compared to $1.7 million for the comparable period in 1996. System
selling and marketing salaries and expenses increased $524,000 for the nine
months ended September 30, 1997, related to increases in direct sales
commissions due to subscriber growth and marketing/promotion costs for
subscriber acquisition.
Telefenua
System selling, general and administrative expense consolidated by the
Company from Telefenua decreased to $1.5 million for the nine months ended
September 30, 1997, from $2.0 million for the same period in the prior
year. This decrease was primarily due to a reduction in marketing costs
during 1997 as well as a weakening of the local currency.
Corporate General and Administrative Expense. Corporate general and
administrative expense increased $139,000 for the nine months ended September
30, 1997, compared to the amount for the corresponding period in the prior
year.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $41.9 million, or 262.7%, from $15.9 million for the nine
months ended September 30, 1996 to $57.8 million for the nine months ended
September 30, 1997. This increase was primarily attributable to a larger asset
base due to the significant deployment of operating assets to meet subscriber
growth at Austar during the latter part of 1996 and, to a lesser extent, in
1997. For the nine months ended September 30, 1997, depreciation and
amortization expense at Austar was $51.9 million, an increase of $39.6 million
compared to the corresponding period in 1996.
Equity in Losses of Affiliated Companies. The Company experienced a
decrease in equity in losses of affiliated companies of $2.5 million for the
nine months ended September 30, 1997, compared to the corresponding
period in the prior year as follows:
29
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
XYZ Entertainment........................................... 3,571 2,000
Saturn (1).................................................. $ 930 $ --
------ ------
Total equity in losses of affiliated
companies............................................ $4,501 $2,000
====== ======
</TABLE>
____________________
(1) The Company acquired a 50% interest in Saturn in July 1994. The Company
increased its ownership in Saturn to 100% and began consolidating its results
effective July 1, 1996. In July 1997, the Company reduced its interest in
Saturn to 65% from 100%.
Interest Income. Interest income decreased $2.8 million for the nine months
ended September 30, 1997 compared to the amount for the corresponding period in
the prior year. This decrease was due to reduced cash and short-term investment
balances as a result of the fundings to the Company's affiliated operating
systems.
Interest Expense. Interest expense increased $16.8 million for the nine
months ended September 30, 1997 compared to the amount for the corresponding
period in the prior year. This increase was primarily due to the issuance of the
1996 Notes. The 1996 Notes currently accrete interest at a rate of 14.75%
compounded semi-annually. In addition, interest expense related to the Austar
Bank Facility was $1.7 million for the nine months ended September 30, 1997.
YEARS ENDED DECEMBER 31, 1995 AND 1996
Service and Other Revenue. The Company's service revenues (including
installation revenues) increased to $25 million for the year ended December 31,
1996 from $1.9 million in the comparable prior year period. This increase was
primarily attributable to increases in service and installation revenues at
Austar. Service and other revenues for the years ended December 31, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1995 1996
------ -------
(In thousands)
<S> <C> <C>
Austar...................................... $ -- $21,244
Telefenua................................... 1,882 3,513
Saturn...................................... 110
United Wireless............................. 1 110
------ -------
------ -------
Total service and other revenue............. $1,883 $24,977
====== =======
=======
</TABLE>
Austar
Service revenues at Austar were $21.2 million in 1996. Revenues
consisted primarily of service and installation fees from basic subscribers
of $14 million and $7 million, respectively, with other revenue totaling
$0.2 million. The Company began consolidating the results of Austar on
January 1, 1996. As a result, the Company reported no service revenues
from Austar in 1995. Austar's actual service revenues in 1995 were $0.4
million. The increase in service revenues in 1996 was primarily
attributable to an increase in subscribers (5,204 at December 31, 1995
compared to 103,410 at December 31, 1996). Such increase was the result of
the rapid roll-out of Austar's services initially launched in August 1995.
Telefenua
Telefenua's service revenues increased to $3.5 million from $1.9
million in 1995, primarily attributable to an increase in subscribers
(4,126 at December 31, 1995 compared to 5,187 at December 31, 1996).
30
<PAGE>
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Saturn's actual service revenues for the years ended December 31,
1996 and 1995 were $0.2 million and $0.1 million, respectively. The
increase is attributable to an increase in subscribers from 959 in 1995 to
1,697 in 1996.
System Operating Expenses. The Company's operating expenses increased to
$30.7 million in 1996 from $3.2 million in 1995, primarily as a result of
increases in operating expenses at Austar. System operating expenses for the
years ended December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1995 1996
------ ------
(In thousands)
<S> <C> <C>
Austar............................... $ -- $26,310
Telefenua............................ 2,836 2,118
Saturn............................... -- 889
United Wireless...................... 394 1,413
------ -------
Total service and other revenue..... $3,230 $30,730
====== =======
</TABLE>
Austar
The Company reported operating expenses from Austar of $26.3 million
in 1996, consisting primarily of salary and benefits ($11 million),
satellite programming fees ($5.5 million) and annual MMDS spectrum license
fees ($2 million), with the remainder consisting primarily of office-
related expenses, system travel/recruitment and the NCOC and field office
start-up costs. The Company began consolidating the results of Austar on
January 1, 1996. As a result, the Company reported no operating expenses
from Austar in the Company's consolidated statements of operations for 1994
or 1995. Austar's operating expenses for 1995 were approximately $4.3
million. The increase in operating expenses in 1996 was primarily
attributable to the rapid roll-out of Austar's services initially launched
in August 1995 and the corresponding increase in subscribers. Austar is
experiencing high operating expenses relative to service revenues due to
certain fixed operating expenses (such as management overhead, license fees
and certain marketing costs) as well as non-recurring start up costs (such
as initial market research, NCOC establishment costs and additional one-
time expenses due to the name change to "Austar") associated with the
launch of its service. Austar expects operating expenses as a percent of
service revenues to decline as start-up costs are reduced and as certain
fixed operating expenses are spread over expected increases in service
revenues.
Telefenua
Operating expenses consolidated by the Company from Telefenua
decreased to $2.1 million in 1996 from $2.8 million in 1995, primarily due
to a decrease in technical-related repairs and maintenance and tape
production costs, partially offset by an increase in the subscribers in
1996. Telefenua's operating expenses in 1996 consisted primarily of
programming related expenses ($1.2 million) with the remainder consisting
of payroll-related costs and technical-related costs.
Saturn
The Company began consolidating Saturn on July 1, 1996. Accordingly,
while the Company reported operating expenses of $0.9 million for Saturn in
its consolidated statement of operations for 1996, Saturn's actual
operating expenses were approximately $2.3 million for 1996 consisting
primarily of payroll and office expenses related to the start-up
activities, including system design and engineering work, for expansion of
Saturn's Wellington system in 1996. Saturn's system operating expenses in
1995 were $1.1 million.
31
<PAGE>
System Selling, General and Administrative Expenses. The Company's system
selling, general and administrative expenses increased to $24.8 million for 1996
from $2.5 million in 1995, primarily attributable to increases in system
selling, general and administrative expenses at Austar. System selling, general
and administrative expenses for 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1995 1996
------ -------
(In thousands)
<S> <C> <C>
Austar................................... $ -- $18,628
Telefenua................................ 2,286 2,586
Saturn................................... -- 2,463
United Wireless.......................... 196 1,123
------ -------
Total system selling, general and
administrative expenses................. $2,482 $24,800
====== =======
</TABLE>
Austar
System selling, general and administrative expenses consolidated by
the Company from Austar were $18.6 million for the year ended December 31,
1996 and consisted primarily of $5.5 million in marketing costs related to
print, radio and television advertisements utilized in the launch of
Austar's services throughout its service areas during 1996, direct sales
commissions ($4.1 million) and for general and administrative expenses at
Austar's Sydney corporate headquarters ($9 million). The Company began
consolidating the results of Austar on January 1, 1996. Accordingly, the
Company reported no system selling, general and administrative expenses for
Austar in 1995 or 1994. Austar's actual system selling, general and
administrative expenses were approximately $3.1 million in 1995 compared to
$0.4 million in 1994. The increase relates to marketing efforts associated
with Austar's 1995 service launch. The increase in system selling, general
and administrative expenses was primarily attributable to an increase in
marketing related to the increased roll-out of MMDS operating systems and
the initiation of DTH service in 1996.
Telefenua
System selling, general and administrative expenses consolidated by
the Company from Telefenua increased to $2.6 million in 1996 compared to
$2.3 million in 1995 and $0 in 1994. This increase was primarily
attributable to increased marketing efforts associated with Telefenua's
March 1995 service launch.
Saturn
The Company reported system selling, general and administrative
expenses from Saturn of $2.5 million for 1996. The Company began
consolidating the results of Saturn effective July 1, 1996. Accordingly,
no system selling, general and administrative expenses for 1995 and 1994
were reported. Saturn's actual selling, general and administrative costs
increased to $2.8 million in 1996 from $1.2 million in 1995 and $0.4
million in 1994. The increase is attributable to increased marketing
efforts to expand the subscriber base as Saturn's system expanded.
Corporate General and Administrative Expense. The Company's corporate
general and administrative expenses for the year ended December 31, 1996 were
$1.4 million as compared to $0.9 million in 1995 and $0.7 million in 1994. These
expenses relate to corporate staff dedicated to the region.
Depreciation and Amortization. Depreciation and amortization expense
increased to $36.3 million in 1996 compared to $1 million in 1995 due primarily
to the depreciation and amortization of $30.3 million from Austar in 1996. This
increase in depreciation and amortization was attributable primarily to the
significant deployment of operating assets at Austar beginning in early 1996 and
continuing throughout the year as Austar launched service and began serving
subscribers in a number of new markets. Depreciation expense is expected to
increase substantially in future periods as capital expenditures for the build-
out of Austar's MMDS sites and the launch of Saturn's wireline cable plant and
related increases in capital necessary for subscriber equipment continue for the
next several months. The Company began consolidating the results of Austar on
January 1, 1996. As a result, the Company reported no depreciation and
32
<PAGE>
amortization from Austar in its consolidated statements of operations for the
years ended December 31, 1994 and 1995. The Company had no depreciation and
amortization expense in 1994.
Equity in Losses of Affiliated Companies. The Company recognized equity in
losses of affiliated companies of $16.4 million and $5.4 million for the years
ended December 31, 1995 and 1996, respectively, primarily due to the decrease in
its ownership of XYZ and the consolidation of Austar beginning in January 1996.
Equity losses in affiliated companies for 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
Austar(1)........................................... $ 3,212 $
Saturn(2)........................................... 1,438 930
XYZ(3).............................................. 11,729 4,484
------- ------
Total equity in losses of affiliated companies..... $16,379 $5,414
======= ======
</TABLE>
(1) The companies that comprise Austar were incorporated in mid-1994. The
Company acquired an initial interest in these companies in the fall of 1994
and increased its economic interest in these companies to 90% in late
December 1995. Austar launched its first MMDS system in August 1995. The
Company began consolidating Austar effective January 1, 1996. Accordingly,
the Company reported no equity in losses related to Austar in 1996.
(2) The Company acquired an initial 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. The Company increased its ownership
interest in Saturn from 50% to 100% in July 1996. Accordingly, subsequent
to that time, the Company consolidated the operating results of Saturn.
Prior to such time, the Company recognized equity in losses from Saturn.
(3) XYZ was formed in October of 1994 and began distributing its four channels
in April 1995.
Saturn
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.
XYZ
Equity in losses of XYZ decreased to $4.5 million in 1996 from $11.7
million in 1995. This decrease was primarily attributable to the decrease
in the Company's interest in XYZ from 50% to 25% in September 1995. In
addition, XYZ reported a lower net loss in 1996 due to higher revenues in
1996 resulting from an increase in programming subscribers combined with a
favorable comparison to 1995 which included high start-up costs associated
with the launch of the channels. XYZ's actual operating revenues for 1996
were $7.6 million compared to $1.3 million for 1995. XYZ's operating,
selling, general and administrative expenses for 1996 were $17.3 million
(consisting primarily of satellite transponder costs of $5.9 million,
staffing costs of $3.3 million, production/programming costs of $4.9
million and advertising/marketing costs of $1.6 million) compared to $27.5
million for 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.
Interest Expense. The Company issued approximately $225.1 million (gross
proceeds) of the Notes in the May 1996 Offering. As a result of the May 1996
Offering, the Company incurred interest expense of $20.3 million for the year
ended December 31, 1996. Prior to the May 1996 Offering, the Company had no
significant amount of interest-bearing debt.
Interest Income. Interest income increased to $4.1 million from $0.2
million in 1995 and $0 in 1994. The increase is attributable to higher short-
term investment balances resulting from the issuance of the Notes.
33
<PAGE>
YEARS ENDED DECEMBER 31, 1994 AND 1995
Although the Company was formed in 1994, most of the operating companies
did not launch service until mid-to late-1995.
Service and Other Revenue. The Company's service revenues (including
installation revenues) increased to $1.9 million for the year ended December 31,
1995 from $0 in the prior year.
Austar
The Company began consolidating the results of Austar on January 1,
1996. As a result, the Company reported no service revenues from Austar in
1995. Austar's actual service revenues for 1995 were $0.4 million compared
to $0 in 1994. The increase in service revenues in 1995 was primarily
attributable to an increase in subscribers (none at December 31, 1994
compared to 5,204 at December 31, 1995). Such increase was the result of
the rapid roll-out of Austar's services initially launched August 1995.
Telefenua
Telefenua's service revenues increased to $1.9 million for 1995 from
$0 in 1994. The increase is primarily attributable to an increase in
subscribers (none at December 31, 1994 compared to 4,126 at December 31,
1995). Telefenua launched service in March 1995.
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported no service revenue from Saturn
in 1995. Saturn's actual service revenues for the year ended December 31,
1994 were $0.05 million compared to $0.1 million for the year ended
December 31, 1995. The increase was primarily attributable to an increase
in subscribers from 443 at December 31, 1994 to 959 at December 31, 1995.
System Operating Expenses. The Company's operating expenses increased to
$3.2 million for the year ended December 31, 1995 from $0 in the prior year,
primarily as a result of increases in operating expenses at Telefenua.
Austar
The Company began consolidating the results of Austar on January 1,
1996. As a result, the Company reported no operating expenses from Austar
in the Company's consolidated statements of operations for 1994 and 1995.
Austar's actual operating expenses increased to approximately $4.3 million
in 1995 relative to 1994. Operating expenses consisted primarily of payroll
($1.7 million) and satellite programming fees ($0.4 million), with the
remainder consisting primarily of office related expenses, system
travel/recruitment and NCOC and field office start-up costs. The increase
in operating expenses in 1995 was primarily attributable to the rapid roll-
out of Austar's services, initially launched in August 1995, and the
corresponding increase in subscribers (none at December 31, 1994 compared
to 5,204 at December 31, 1995).
Telefenua
Operating expenses consolidated by the Company from Telefenua
increased to $2.8 million in 1995 from $0 in 1994. Telefenua's operating
expenses for 1995 consisted primarily of programming fees, production costs
and payroll related costs. Telefenua launched service in March 1995
resulting in the increase in operating expenses.
Saturn
The Company began consolidating Saturn on July 1, 1996. Accordingly,
the Company reported no operating expenses for Saturn in its consolidated
statements of operations for the years ended December 31, 1994 and 1995.
Saturn's actual operating expenses were $0.4 million for 1994 compared to
$1.1 million for 1995. The increase is attributable to system expansion
and increased subscribers (443 at December 31, 1994 compared to 959 at
December 31, 1995).
System Selling, General and Administrative Expenses. The Company's system
selling, general and administrative expenses increased to $2.5 million for the
year ended December 31, 1995 from $0 in 1994.
34
<PAGE>
Austar
The Company began consolidating the results of Austar on January 1,
1996. Accordingly, the Company reported no system selling, general and
administrative expenses for Austar in 1994 or 1995. Austar's actual system
selling, general and administrative expenses were $0.4 million in 1994
compared to $3.1 million in 1995. The increase relates to marketing
efforts associated with Austar's 1995 service launch.
Telefenua
System selling, general and administrative expenses consolidated by
the Company from Telefenua increased to $2.3 million in 1995 compared to $0
in 1994. This increase was primarily attributable to increased marketing
efforts associated with Telefenua's March 1995 service launch.
Saturn
The Company began consolidating Saturn effective July 1, 1996.
Accordingly, no system selling, general and administrative expenses for
1994 and 1995 were reported. Saturn's actual selling, general and
administrative costs increased from $0.4 million in 1994 to $1.2 million in
1995. The increase is attributable to increased marketing efforts to
expand the subscriber base as Saturn's system expanded.
Corporate General and Administrative Expense. The Company's corporate
general and administrative expense for the year ended December 31, 1995
increased to $0.9 million from $0.7 million in the year ended December 31, 1994,
primarily due to the hiring of additional corporate staff dedicated to the
region.
Depreciation and Amortization. The Company had depreciation and
amortization expense of $1 million for the year ended December 31, 1995 due
primarily to the acquisition of Telefenua and the launch of its system in March
1995. The Company had no such expenses in 1994.
Equity in Losses of Affiliated Companies. The Company recognized equity in
losses of affiliated companies of $1 million and $16.4 million for the years
ended December 31, 1994 and 1995, respectively. The companies that comprise
Austar were incorporated in mid-1994. The Company acquired an initial interest
in these companies in the fall of 1994 and increased its economic interest in
these companies to 90% in late December 1995. Austar launched its first MMDS
system in August 1995. The Company acquired an initial 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. XYZ was formed in
October of 1994 and began distributing its four channels in April 1995.
Gain on Sale of Investment. In September 1995 the Company sold one half of
its interest in XYZ at cost. As the recognition of equity losses through that
date had reduced the Company's investment to zero, the Company recognized a gain
on the entire amount received of $4.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company is responsible for its proportionate share of the capital
requirements of the operating companies. The Company has funded its
proportionate share to date with capital contributed by UIH, and the proceeds of
the Notes and has reduced its proportionate share to date with proceeds from the
Austar Bank Facility and the Saturn Transaction.
The following table sets forth, as of September 30, 1997, (i) the total
estimated funding required for the construction and initial marketing of the
operating companies' systems in their existing license areas, including any
capital invested to date and the application of any operating cash flow sources
for such operating companies, (ii) the total amount of capital invested in each
of the operating companies and the portion funded by the Company and by bank
facilities and (iii) the total estimated additional funding required based on
the assumptions stated in (i) above and the Company's estimated portion of such
funding. Such amounts are expected to be funded over the next 24 to 36 months.
The estimated required additional funding numbers below have not been reduced to
give effect to any surplus cash flow of any one operating company which might be
available to fund the requirements of another operating company. To the extent
the operating companies fund their construction and other costs through project
financing, the Company's portion of estimated additional funding would be
reduced proportionately. The Company's portion of estimated additional funding
would be increased proportionately to the extent cash flow from the operating
companies and other sources of financing are not sufficient to meet project
funding requirements. To the extent that the other shareholders of XYZ
Entertainment fail to fund their pro rata share of the additional shareholder
capital, the Company may elect to fund all or a portion of such shortfall.
35
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED TOTAL PROJECT CAPITAL INVESTED ESTIMATED REQUIRED
FUNDING REQUIREMENTS AS OF SEPTEMBER 30, 1997(1) ADDITIONAL FUNDING
--------------------- -------------------------- -----------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY(2) TOTAL (2) THE COMPANY TOTAL
- ----------------- ----------- ----- -------------- --------- ----------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Austar.................. $391,000 $391,000 $290,202(3) $290,202(3) $100,798(4) $100,798(4)
Saturn.................. 83,015 130,464 31,296(5) 50,896(6) 51,719 79,568
Telefenua............... 17,400 17,400 16,737 16,737 663 663
XYZ..................... 13,974 55,896 13,185 52,740 789 3,156
United Wireless......... 8,226 8,226 7,087 7,087 1,139 1,139
-------- -------- -------- -------- -------- --------
Total................. $513,615 $602,986 $358,507 $417,662 $155,108 $185,324
======== ======== ======== ======== ======== ========
</TABLE>
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation.
(2) Includes amounts contributed to Austar (approximately $11.0 million) and
Saturn (approximately $2.9 million) by shareholders other than the Company,
which were contributed by such shareholders prior to the acquisition
of their respective interests by the Company.
(3) Includes approximately A$87.0 million ($67.5 million converted using the
exchange rate on each funding date) of amounts borrowed under the Austar
Bank Facility. Does not include the $58.6 million paid by the Company to
increase its economic interest in Austar to approximately 100%.
(4) The Austar Bank Facility of A$200.0 million ($155.0 million) reduces the
Company's portion of the remaining funding requirements. As of September 30,
1997, Austar had drawn A$87.0 million on this facility leaving A$113.00
million ($82.0 million converted using the September 30, 1997 exchange rate)
that can be drawn down, assuming compliance with certain financial
covenants.
(5) Does not include the value of shares of common stock exchanged for shares of
the Company to increase the Company's interest in Saturn to 100% effective
July 1996.
(6) Includes the $19.6 million invested by SaskTel for its 35% interest in
Saturn in July 1997. Does not include the value of shares of common stock
exchanged for shares of the Company to increase the Company's interest in
Saturn to 100% effective July 1996.
The Company received total gross proceeds of $29.9 million from the
issuance of the Old Notes. The Company plans to use the proceeds from the sale
to fund capital expenditure and working capital requirements of its subsidiaries
and affiliates as permitted by the terms of the Company's indentures.
In July 1997, SaskTel purchased a 35% equity interest in Saturn by
investing approximately $19.6 million for its shares. The Company believes that
SaskTel will contribute telephony expertise to Saturn in providing
cable/telephony service in the Wellington, New Zealand area. The proceeds from
the sale are expected to provide a portion of the capital necessary for
completion of the project.
The Company believes that it will be required to fund a total of
approximately $155.1 million in order to build-out its existing projects over
the next three years. 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. In addition to
the Austar Bank Facility and cash on hand, the Company intends to raise
additional capital through capital contributions from UAP, further issuances of
debt either by the Company or the operating companies, or by the sale of all or
a part of its equity in certain of its operating subsidiaries. The Company's
indentures and UIH's indentures place restrictions on the Company and certain of
its subsidiaries with respect to the amount of additional debt each may incur.
The Company and all of the operating companies are currently restricted under
the UIH indentures. The Company, Austar and Telefenua are restricted under the
Company's indenture. The restrictions imposed by the indentures will be
eliminated upon the retirement of UIH's notes at their maturity in November 1999
and upon the retirement of the Company's Notes at their maturity in May
2006.
The Company is negotiating to sell all or a portion of its interest in
Telefenua, the proceeds of which would be used to fund its other businesses.
There can be no assurance that the Company will be successful in completing this
sale.
Cash and cash equivalents increased $26.5 million from $19.2 million as
of December 31, 1996 to $45.7 million as of September 30, 1997. Principal
sources of cash during the nine months ended September 30, 1997 included $66.0
million of borrowings on the Austar Bank Facility, $29.9 million gross proceeds
from the issuance of the Old Notes, $20.3 million from SaskTel's purchase of a
35% equity interest in Saturn (the "Saturn Transaction"), the net sale of the
remaining balance in short-term investments of $18.6 million and a loan from UIH
of $5.0 million. These funds were used principally for purchases of property,
plant and equipment totaling $67.9 million to continue the build-out of the
Company's existing projects, primarily Austar, and to pay down related
construction payables that existed as of December 31, 1996 totaling $29.4
million, as well as funding operating activities of $6.7 million during the
period. During the nine months ended September 30, 1997, the Company incurred a
net loss of $114.4 million of which $57.8 million was from non-cash depreciation
and amortization expense and $27.0 million was from non-cash accretion of
interest on the Notes. In addition, accounts payable, accrued liabilities and
other increased $20.0 million, the majority of which was due to an increase in
the amounts owed to UIH and UAP for capital contributions paid by UIH on the
Company's behalf.
36
<PAGE>
During the nine months ended September 30, 1996, cash and cash
equivalents increased $60.5 million from $8.7 million as of December 31, 1995 to
$69.2 million as of September 30, 1996. Principal sources of cash during this
period included $225.1 million gross proceeds from the issuance of the 1996
Notes, loans from UIH totaling $15.1 million and capital contributions from UIH
totaling $10.7 million. These funds were used principally to purchase property,
plant and equipment totaling $105.9 million to construct Austar's and
Telefenua's systems, to purchase net short-term investments of $27.6 million, to
pay down the $25.0 million owed to UIH under a bridge loan and to contribute
$10.7 million to Saturn and XYZ Entertainment to meet the Company's funding
obligations, as well as funding operating activities of $8.1 million during the
period. During the nine months ended September 30, 1996, the Company incurred a
net loss of $47.3 million of which $15.9 million was from non-cash depreciation
and amortization expense and $12.0 million was from non-cash accretion of
interest on the May 1996 Notes. In addition, accounts payable, accrued
liabilities and other increased $17.5 million, the majority of which was related
to the build-out of the operating systems.
Effective November 17, 1997, the Company issued warrants to the holders
of the 1996 Notes and the Old Notes to purchase 3.4% of the common stock of the
Company. The total number of warrants issued was 488,000. Each warrant entitles
the holder to purchase from the Company one share of Common Stock at a purchase
price per share of $10.45, exercisable until May 15, 2006.
Australis, a supplier of movie and sports programming as well as
satellite distribution services to Austar, has publicly announced that it may
need to appoint a receiver owing to liquidity issues. The Company is currently
in negotiations with Australis and other programming suppliers for these types
of programming and, therefore, currently believes it will be able to make
satisfactory programming arrangements in the event of a disruption in service
from Australis. There can be no assurance, however, that such arrangements will
be concluded, or will be concluded on terms favorable to Austar.
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 Company and the operating companies do not execute hedge
transactions to reduce the Company's exposure to foreign currency exchange rate
risks. Accordingly, the Company may experience economic loss and a negative
impact on earnings 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 Company related to the operating
companies' commitments for equipment purchases and operating expenses is
generally limited due to the insignificance of the related monetary asset and
liability balances; however, exchange rate risk to the Company of these notes
payable, 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 interest in 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.
37
<PAGE>
BUSINESS
GENERAL
The Company is a leading provider of multi-channel television services in
Australia, New Zealand and Tahiti. Through its Australian operating company
Austar, the Company is the largest provider of multi-channel television services
in regional Australia, where it operates MMDS systems and markets a DTH service
in franchise areas encompassing approximately 1.6 million television homes, or
25% of the total Australian market. In addition, the Company, through its 65%-
owned New Zealand operating company Saturn is constructing a wireline cable and
telephony system in Wellington, New Zealand, a market representing approximately
141,000 television homes. The Company's other assets include a (i) 25% interest
in XYZ, a programming company that provides four channels to the Australian
multi-channel television market as part of the "Galaxy Package," the most widely
distributed programming package in Australia and the core component of Austar's
programming offering, as well as a recently launched fifth channel, (ii) up to a
90% economic interest in Telefenua, the only provider of multi-channel
television services in Tahiti, with an MMDS system in a market with 31,000
television homes, and (iii) a 100% interest in United Wireless, a provider of
wireless mobile data services in Australia.
The Company believes that it is well-positioned to capitalize on the
rapidly increasing demand for multi-channel television and telephony services in
Australia, New Zealand and Tahiti. As of September 30, 1997, the Company had
invested over $350 million in its networks and operating infrastructure and had
launched service in each of its markets. As of September 30, 1997, the Company's
multi-channel television operating systems had an aggregate of approximately 1.6
million television homes serviceable and approximately 187,000 subscribers,
compared to approximately 296,200 television homes serviceable and approximately
29,300 subscribers as of December 31, 1995 (with a substantial majority of such
growth resulting from Austar's expansion). During this same period, programming
subscribers of XYZ increased from approximately 65,000 to approximately 524,000.
While the Company expects that a substantial portion of its growth will come
from the continued development of Austar, the Company is also anticipating
significant growth by its other operating companies, each of which the Company
believes has attractive growth prospects.
The following table sets forth certain operating statistics of the
operating companies as of September 30, 1997:
<TABLE>
<CAPTION>
TELEVISION ECONOMIC
HOMES IN HOMES BASIC OWNERSHIP
OPERATING SYSTEM TECHNOLOGY SERVICE AREA SERVICEABLE SUBSCRIBERS INTEREST(1)
- ---------------- ---------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Austar MMDS/DTH 1,622,000 1,589,000 178,832 100%
Saturn Cable/Telephony 141,000 20,124 2,829 65%
Telefenua MMDS 31,000 20,128 6,257 90%
XYZ Programming N/A N/A 524,000 25%
--------- --------- -------
Total 1,794,000 1,629,252 711,918
========= ========= =======
</TABLE>
- --------------------
(1) For a full description of the Company's ownership interest in its operating
companies, see "Corporate Organizational Structure."
AUSTAR (AUSTRALIA)
Austar is the largest provider of multi-channel television services in
regional Australia (areas outside Australia's six largest cities). In early
1996, Austar initiated widespread deployment of its services and, as of
September 30, 1997, had launched MMDS service in all of its 38 metropolitan
markets containing approximately 842,000 homes, and had initiated the marketing
of DTH services in non-metropolitan markets containing approximately 747,000
homes. These markets represent substantially all of Austar's 1.6 million
franchise television homes.
Operating and Growth Strategy. Due to the relatively small size and low
housing densities which characterize the markets in its franchise areas, Austar
is primarily utilizing MMDS and DTH wireless technologies to deliver its
service. In its metropolitan markets, Austar constructs and owns the
transmission facilities and installs and retains ownership of the in-home
subscriber equipment. In its non-metropolitan markets, Austar is marketing a
DTH service (consisting primarily of the Galaxy Package) and installs and
retains ownership of the in-home subscriber equipment. As a result, Austar did
not incur the costs necessary to own the facilities required to offer a DTH
service and only incurs capital costs when a DTH subscriber is installed.
Approximately 875,000 of the television homes in Austar's service area are in
metropolitan markets with sufficient size and densities to justify the
construction of MMDS networks. Austar owns virtually all of the licenses in the
MMDS spectrum currently available in these markets for the provision of MMDS
38
<PAGE>
services. Because MMDS service is less expensive to install than DTH, Austar
services customers in these metropolitan markets with its MMDS service whenever
possible. A small number (approximately 30% of homes in these metropolitan
markets, however, are out of the line of sight of Austar's MMDS networks.
Austar services these homes with its DTH service. Austar markets its
programming services via DTH in its non-metropolitan franchise areas
representing 747,000 television homes. These are less densely populated areas
outside its metropolitan markets that are more effectively serviced by DTH
technology. In addition, Austar recently began construction of a wireline cable
network in Darwin, a market containing approximately 26,200 serviceable homes
where dense vegetation makes an MMDS system impractical.
The deployment of MMDS networks in combination with DTH has allowed Austar
to roll out its service quickly and achieve rapid subscriber growth in its
franchise areas. Austar believes that the ability to be the first provider of
multi-channel television services in each of its markets has allowed Austar to
establish a significant market presence and strong brand awareness, factors
which management believes provide it with a competitive advantage. Austar is
currently the only provider of multi-channel television services in
substantially all of its franchise areas.
As of September 30, 1997, Austar had launched service in 38 of its
metropolitan markets representing substantially all of its potential serviceable
homes. From February through April 1997, sales orders declined in relation to
the previous months due to a planned reduction in sales and marketing efforts
designed to conserve cash in light of then existing funding needs. The
following table sets forth the summary operating statistics in Austar's launched
metropolitan markets, which are served primarily by MMDS, as well as its non-
metropolitan markets served by DTH:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------------------------------------
JAN. 31 FEB. 28 MAR. 31 APR. 30 MAY 31 JUNE 30 JULY 31 AUG. 31 SEPT. 30
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumulative metropolitan
markets launched......... 38 38 38 38 38 38 38 38 38
Metropolitan homes
serviceable.............. 782,000 782,000 842,000 842,000 842,000 842,000 842,000 842,000 842,000
Non-metropolitan homes
serviceable.............. 747,000 747,000 747,000 747,000 747,000 747,000 747,000 747,000 747,000
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total homes serviceable... 1,529,000 1,529,000 1,589,000 1,589,000 1,589,000 1,589,000 1,589,000 1,589,000 1,589,000
========= ========= ========= ========= ========= ========= ========= ========= =========
Sales orders.............. 19,067 12,603 12,086 12,672 23,143 15,472 20,401 17,996 18,370
Net gain in subscribers... 12,620 7,659 5,467 1,912 10,182 8,245 8,657 8,982 8,617
Total subscribers......... 116,030 123,689 129,156 131,068 141,250 149,495 158,152 167,134 178,832
World Movies subscribers.. 15,420 17,025 19,447 19,341 20,691 22,453 25,461 26,755 26,191
Installation backlog...... 11,709 8,611 9,041 9,523 11,591 4,882 7,302 7,734 6,307
</TABLE>
To facilitate the rapid roll-out of its service, Austar has established
local offices in the majority of its metropolitan markets. These local offices
coordinate marketing, installation and customer service in Austar's metropolitan
markets and surrounding non-metropolitan areas. The local offices are supported
by five regional offices. Each regional office typically serves three to twelve
metropolitan markets. Austar estimates that approximately 70% of its potential
non-metropolitan customers are within fifty kilometers of its metropolitan
service areas. This proximity enables Austar to reduce installation and service
costs associated with DTH service to non-metropolitan subscribers and to focus
subscription sales through the use of marketing, promotional and sales tactics.
Austar has entered into contracts with a number of service companies to
install MMDS receivers, DTH satellite dishes and set-top decoders. Installers
collect the installation fee, install subscriber equipment and test reception
quality. Austar has trained and established certain guidelines for third party
service company employees who install Austar reception equipment. Austar has an
extensive quality assurance program and expends a significant amount of effort
to follow-up on installations to ensure customer satisfaction and, in the case
of DTH equipment installed within its metropolitan markets, verify that more
economical MMDS technology could not be used. Austar believes its efforts to
resolve service problems quickly has helped establish customer loyalty.
As of September 30, 1997, Austar had spent $54 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 approximately $320 and $600 per subscriber, respectively. These
subscriber costs are partially offset by the Company's metropolitan and non-
metropolitan installation charges of $31 to $75 and $115, respectively. Austar
retains ownership of all MMDS and DTH customer premises equipment.
39
<PAGE>
Pricing. Austar is currently providing the eight channel Galaxy Package,
the most widely distributed programming package in Australia, plus six
additional channels of programming as its standard basic package at a monthly
rate of approximately $31, with a one-time installation charge ranging from
approximately $31 to $75 for metropolitan subscribers and $115 for non-
metropolitan DTH subscribers. Austar also integrates all available off-air
channels into its basic channel line up at no additional charge. In March 1996,
Austar began offering its first premium channel, World Movies, which consists
primarily of foreign movies, art films and features. Austar is charging
approximately $5.30 per month for World Movies. As of September 30, 1997,
Austar had 26,191 subscribers for its World Movies premium channel.
Marketing; Customer Support. Austar has focused its marketing and sales
efforts to support its strategy of rapid system roll-out which management
believes will provide it with a competitive advantage in each of its markets.
Austar has developed a comprehensive marketing and sales organization consisting
of a 180 person direct sales force and over 200 national customer service and
telemarketing personnel. The direct sales force, which operates out of local
offices in each of Austar's metropolitan markets, is currently generating sales
of approximately 2,500 subscriptions per week. The sales force at Austar's
National Customer Operations Center ("NCOC") is currently generating sales of
approximately 2,000 to 2,500 additional subscriptions per week from inbound and
outbound calls. This sales organization is supported by an integrated marketing
program of television, radio and print advertising.
The NCOC is a state-of-the-art fully-integrated subscriber management
system featuring a sophisticated digital wide-area network, Cable Data's
Intelecable platform, an automated response unit and predictive dialer
technology. The NCOC currently services all of Austar's MMDS and DTH
subscribers and has the capacity to service all future customers in its existing
markets. NCOC employees process installation orders, handle customer inquiries,
including programming and technical questions, and implement the customer
retention program, which includes telephone contact with customers following a
cancellation request, as well as making unprompted contact with customers
immediately following installation in an effort to ensure customer satisfaction.
Incoming calls from all of Austar's markets are directed to the NCOC where
customer service representatives are available to provide sales and service
information. The NCOC currently handles approximately 3,700 calls per day but
has scaleable capacity to handle at least 5,000 calls per day. The NCOC
facility currently employs 180 customer service professionals, which Austar
intends to increase as its subscriber base grows in its franchise areas. In
addition, Austar is exploring the possibility of using the NCOC to outsource
customer service to third parties in similar lines of business where
appropriate.
Austar's monthly "churn" (calculated as total disconnects as a percentage
of average subscribers), which averaged 5.4% per month during 1996, has declined
to an average of 3.8% per month during the nine month period ended September 30,
1997. Austar believes that this ratio is likely to continue to decline in the
future due to several factors, although there can be no such assurances. First,
over 31% of the total disconnects in 1996 and 15% during the first nine months
of 1997 have resulted from subscribers in the Gold Coast (which represents only
10% of Austar's total subscribers as of September 30, 1997), the only market in
which Austar currently faces competition. As a result of this competitive
environment, Austar's installation fee in the Gold Coast is only $15 as compared
to $31 to $75 in other metropolitan markets and $115 in non-metropolitan
markets. A higher installation charge results in a larger financial commitment
to the service by the subscriber and therefore reduces the probability of churn.
In connection with the Company's acquisition of Australis' interest in Austar
and related agreements and transactions (the "Australis Arrangement"), Austar
will be compensated by Australis for any FoxTel Management Pty Limited
("FoxTel") subscribers in the Gold Coast. Second, due to the significantly
higher installation charges in its non-metropolitan markets summarized above,
Austar believes that this ratio will decline as its percentage of non-
metropolitan subscribers to total subscribers increases (because Austar only
launched its rural DTH service in May 1996, its percentage of non-metropolitan
subscribers to total subscribers has increased from 0% on May 1, 1996 to
approximately 23% at September 30, 1997). Approximately 49% of Austar's total
serviceable homes are in its non-metropolitan franchise area. Austar's average
monthly churn in its non-metropolitan markets has been approximately 2.0% during
the first nine months of 1997. Finally, Austar expects its churn to decline as
it continues to implement its customer assurance and retention program and the
breadth and quality of its programming package improves and is actively
negotiating to add additional sports and other programming to its offering. In
addition, the Company has recently implemented specific plans to decrease churn,
such as introducing direct debit banking for customers, and reducing telephone
abandonment rates which aid in customer retention and satisfaction. There can
be no assurances, however, that Austar will be successful in these efforts to
decrease churn or that Austar will not face increased churn as competitors enter
its markets.
Programming. The Company believes that programming is an important
component in building successful multi-channel television systems. Accordingly,
Austar has secured the right to distribute the Galaxy Package in its service
areas pursuant to franchise agreements with Australis with initial terms through
2009 (extendible at the option of Austar through 2019). Austar believes that
the terms of its franchise agreements with Australis are favorable to Austar and
that these terms provide Austar with a programming cost advantage over potential
competitors. See "--Franchise Agreements."
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<PAGE>
The Galaxy Package is the most widely distributed programming package in
Australia and is the core programming offering of Austar, East Coast Television,
Australis and FoxTel. Management believes that approximately 75% of Australia's
multi-channel television subscribers subscribe to the Galaxy Package. The
channels in the Galaxy Package were developed exclusively for the Australian
market by several of the world's leading programming companies, including
Paramount, Sony, Universal, Fox and Viacom. The Galaxy Package consists of the
following eight channels:
<TABLE>
<CAPTION>
GALAXY CHANNEL PROGRAMMING GENRE
- -------------- -----------------
<S> <C>
Showtime.................... premium feature movies
Encore...................... library movies
Fox Sports.................. sports
TV-1........................ general entertainment
Discovery................... documentary, adventure, history and lifestyle
Nickelodeon/Nick at Nite.... children's and family entertainment
Arena....................... general entertainment
Channel [V]................. music video
</TABLE>
In addition to the right to distribute the Galaxy Package, Austar has the
right to distribute any additional channels offered by Galaxy and will pay
Australis for such channels a fee no greater than that charged to any other
person and in no case greater than Australis' cost (as charged by third parties
with respect to programming delivered by such party to Australis or the lowest
price at which Australis agrees to distribute Australis produced or compiled
programming), plus 10%. See "--Franchise Agreements."
Austar has also secured additional programming on a non-exclusive basis,
which it is distributing to its customers as part of its standard basic
programming package, and Austar integrates all available free-to-air channels
into its standard basic channel line up at no additional charge. Austar's other
"cable" channels include the following:
<TABLE>
<CAPTION>
OTHER CHANNELS PROGRAMMING GENRE
- -------------- -----------------
<S> <C>
CMT....................... country music videos
BBC World................. world news
CNBC(1)................... business news
Asia Business News (2).... regional business news
TNT(2)(3)................. library movies
Cartoon Network(2)(3)..... cartoons
CNN International(2)...... world news
The Value Channel(4)...... shopping
Preview(4)................ programming guide
Comedy Channel............ comedy
LifeStyle................. home and personal improvement
</TABLE>
- --------------------
(1) All markets except the Gold Coast.
(2) The Gold Coast (MMDS) only.
(3) TNT and Cartoon Network share one channel.
(4) DTH only.
In March 1996, Austar began offering its first optional premium channel,
World Movies, which consists primarily of foreign movies, art films and
features. Austar is charging approximately $5.30 per month for World Movies.
Demand for this service has been strong with approximately 26,191 customers as
of September 30, 1997, representing 15% of Austar's basic subscribers. On
November 1, 1997, Austar launched Nightmoves, Australia's first adult premium
channel, for A$19.95 per month. Austar estimates that this service will net
Austar approximately 77% of the subscription revenues generated.
Austar acquired the programming rights to and initiated transmission of the
Super League Channel to all of its customers for the 1997 season. The parties
currently are negotiating a long-term agreement for 1998 and subsequent seasons,
although there can be no assurances that Austar will be successful in obtaining
an agreement on satisfactory terms, if at all. The Super League is a rugby
league competition supported by News Corp. and produced in partnership with
News Corp.'s Fox Sports joint venture. Rugby league is one of the most popular
television sports in the Queensland and New South Wales portions of Austar's
franchise areas. The Super League Channel currently provides live telecasts
41
<PAGE>
(and replay rights) of certain Super League weekly games on Friday nights,
Saturday, Sunday and Monday evenings, but the suppliers of the channel have
indicated their intention to add, at some point in the future, additional
"football" programming, including U.S. NFL games and international soccer.
Austar intends to expand further the number of programming services
available on its MMDS systems and expects that it will be marketing additional
channels of programming via DTH. Austar's MMDS systems have the capacity to
transmit up to 19 analog channels (of which Austar currently uses 11 to 12 in
its markets) in addition to free-to-air channels, which are integrated into the
programming line-up at the rooftop. Austar is currently testing digital
technology in one market and intends to offer digital service in certain
metropolitan markets if and when competitive factors dictate. The DTH service
marketed by Austar utilizes MPEG II digital technology which has over 100
channels of capacity. In addition to any additions to the Galaxy Package,
Austar has also secured, beginning in July 1997 for a five-year period, a 54 MHz
transponder capable of broadcasting between 10 and 15 digital channels on the
Optus Networks satellite that currently transmits the Galaxy Package, and
pursuant to the Australis Arrangement, has the right to deliver such programming
to its customers through the Australis system. The Company currently is
evaluating the revenue generation potential for program carriage on this
transponder and may sublease all or a portion of its transponder capacity during
the initial term of the agreement. Such transponder payments will be
approximately $480,000 per month, beginning in September 1997, under the
agreement with Optus Networks.
Franchise Agreements. Austar has entered into franchise agreements with
Australis. Each franchise agreement is for a term of 15 years commencing in
October 1994, and Austar has the option to renew the franchise agreements on
identical terms for another ten years. Under the franchise agreements,
Australis granted Austar the license and right to distribute the Galaxy Package
in its franchise areas. These franchise agreements provide exclusivity over
wireless technologies and provide that Australis will not grant rights to any
other person to use Australis' satellite infrastructure or system to transmit
the Galaxy Package in Austar's franchise areas.
Pursuant to the terms of its franchise agreements, Austar pays a percentage
of net revenues to Australis for the right to distribute the Galaxy Package.
For purposes of the franchise agreements, net revenues equal gross revenues
received from the eight Galaxy channels currently provided less certain agreed
costs, including depreciation of subscriber equipment, which the Company
believes results in a favorable programming pricing structure.
In March 1995, Australis granted FoxTel a license to distribute the Galaxy
Package over cable television systems throughout Australia, including Austar's
franchise areas. The Company believes that because of such action, Australis
was in breach of its franchise agreements. FoxTel currently is distributing
Galaxy programming, in only one of Austar's markets, the Gold Coast, which
contains approximately 116,000 serviceable homes. On June 19, 1996, pursuant to
the Australis Arrangement, Austar and the Company agreed to settle their dispute
with Australis with respect to this matter. As part of the Australis
Arrangement, the parties agreed that Australis is entitled to grant FoxTel the
non-exclusive right to distribute the Galaxy Package by cable, but that FoxTel
may not sublicense or assign this right without Austar's consent. Australis
agreed to pay to Austar an amount equal to the amount Australis received from
FoxTel for programming service for the period from March 1995 through June 30,
1996, less the amount Australis paid to third party programming suppliers for
such programming with respect to FoxTel subscribers located in Austar's
franchise areas during such period. In addition, from June 30, 1996 through the
term of the franchise agreements, Austar has the right in its sole discretion,
either to (i) sublicense to FoxTel the right to transmit the services provided
to it by Australis (and any other services) by cable transmission in its
franchise areas or (ii) require Australis to pay Austar 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 Austar's franchise areas and (b) an additional amount (if any) to put
Austar in the position that it would have been in had it sublicensed the
services provided to it by Australis directly to FoxTel (which currently would
be approximately A$10 per FoxTel subscriber per month). The Company believes
that, because its programming costs are less than the revenue to be generated by
sublicensing such programming to FoxTel, the benefits to be gained from this
aspect of the Australis Arrangement will be substantial over the years. As part
of the Australis Arrangement, Australis agreed to extend the term of the
franchise agreements by five years to an initial 15-year term and amended
certain financial and strategic terms of the franchise agreements. Australis
also granted to Austar the right to use Australis' satellite infrastructure to
provide additional DTH services within Austar's franchise areas. In addition,
Australis agreed to provide all future Galaxy channels to Austar at a price no
less favorable than that charged other persons and in any event at no more than
Australis' cost (as charged by third parties with respect to programming
delivered by such party to Australis or the lowest price of which Australis
agrees to distribute Australis produced or compiled programming), plus 10%. In
return, the Company agreed (i) to waive and release any claim arising out of or
in connection with Australis' execution and performance of its license agreement
with FoxTel and (ii) not to make any objection or claim against Australis or
FoxTel in connection with such license agreement. Management believes the
Australis Arrangement is favorable to Austar.
42
<PAGE>
Competition. The substantial majority of Austar's metropolitan markets are
either small (i.e., approximately 20,000 homes), and/or have relatively low
household densities (generally 25 to 75 homes per square kilometer as compared
to 100 to 130 homes per square kilometer in Australia's largest capital cities).
As a result, Austar believes that its metropolitan markets generally do not have
sufficient density to justify the construction of competitive wireline cable
systems. While the Company believes household densities potentially could
support wireline cable construction in areas representing approximately 20% of
Austar's total franchise homes, the relatively small size of these markets
reduces the attractiveness of constructing a competitive cable network. In
addition, Austar, as a licensed subscription television provider, is authorized
to build wireline cable systems in its markets and where appropriate could
construct wireline cable systems. With the exception of the FoxTel cable
television system currently extending into Austar's 116,000-home Gold Coast
metropolitan market, Austar currently does not have any operational subscription
television competitors in its franchise areas. In the Gold Coast, Austar
currently is providing 15 channels of programming as its standard basic package
which includes the eight channel Galaxy programming package as well as seven
additional channels, at a monthly rate of approximately $23 with a one-time
installation charge of approximately $15. FoxTel offers the Galaxy Package of
eight channels as well as its ten other satellite or locally originated channels
for a monthly fee of $31 and an installation charge of $16. At September 30,
1997, Austar had 17,000 subscribers in the Gold Coast and estimates that FoxTel
has 10,000 subscribers in this market. In addition, Austar is currently testing
digital MMDS technology in the Gold Coast and expects to implement digital
service in those metropolitan markets where competitive conditions dictate.
Approximately 747,000 of Austar's 1.6 million franchise homes are in non-
metropolitan markets which generally have densities of fewer than 25 households
per square kilometer. As a result, the Company believes that these markets can
only be served economically with DTH technology. Although regulations no longer
prohibit additional DTH services, Austar retains its exclusive right to market
the Galaxy Package in its franchise areas through 2009 (extendible to 2019 at
Austar's option). In addition, Austar believes it has an additional competitive
advantage in offering DTH service in these markets because over 70% of its
serviceable homes are within a fifty kilometer radius of its metropolitan
markets, in most of which it has sales personnel and installation technicians.
Accordingly, Austar believes its cost to market and install subscribers in these
areas should be below that of any potential competitor without similar
infrastructure in place.
Management believes that Austar has established a significant subscriber
base, strong brand awareness and substantial operational and marketing
infrastructure, factors that provide it with a competitive advantage. Telstra
and OptusVision have announced that they have effectively completed the roll-out
of their respective broadband cable systems. In 1996, Optus Vision publicly
announced that it plans to offer subscription television services by DTH
throughout Australia. See "Summary--Recent Developments--Australian Pay
Television Market."
Management and Employees. Austar's senior management includes nine
expatriate employees appointed to Austar that collectively have 130 years
experience in the construction, marketing and operation of multi-channel
television systems. Austar and UAP are parties to a 10-year Technical
Assistance Agreement, renewable for up to an additional 15 one-year terms,
pursuant to which Austar pays UAP a monthly fee equal to 5% of its gross
revenues for the provision of various management and technical services, and
reimburses UAP for certain direct costs incurred by UAP, including the salaries
and benefits relating to the senior management team.
As of September 30, 1997, Austar had a total of 720 employees.
Substantially all of Austar's employees are parties to an "award" governing the
minimum conditions of their employment including probationary periods of
employment, rights upon termination, vacation, overtime and dispute resolution.
SATURN (NEW ZEALAND)
The Company owns 65% of Saturn, which recently launched service on the
initial portions of its hybrid fiber coaxial ("HFC") network that will allow it
to provide multi-channel television services as well as business and residential
telecommunications services in the Wellington area, encompassing 135,000 homes.
Wellington is New Zealand's capital and second largest city. The Company
launched service in portions of this system in September 1996 and expects
construction to be completed by mid-1999. Saturn also operates an existing
cable system, which passes approximately 6,000 homes, on the Kapiti Coast north
of Wellington. As of September 30, 1997, Saturn's activated networks passed
approximately 20,000 homes and serviced approximately 2,700 subscribers. In
addition, Saturn has secured additional rights to use existing poles to attach
its network cable in markets representing approximately 500,000 homes, subject
to local planning approval, and is exploring the possibility of expanding its
networks and services to these markets.
In July 1997, SaskTel invested approximately $20 million in Saturn in
return for a 35% interest. The Company believes that SaskTel, a subsidiary of
the Saskatchewan Telecommunications Holding Corporation, will contribute
substantial telephony expertise to Saturn as it builds and operates its cable
television/telephony service in Wellington.
43
<PAGE>
Market Overview. The Company believes that New Zealand, a market of 1.2
million television homes, is attractive for multi-channel television providers.
New Zealand has a demographic profile similar to Australia, including high per
capita income and strong television, VCR and cellular telephone penetration
rates. In addition, New Zealand imposes virtually no pricing regulation and
only limited program content regulation, and permits operators to offer combined
multi-channel television and telephony services over one network. There is
currently only one significant multi-channel television provider that currently
offers a five-channel UHF-delivered subscription service.
Operating and Growth Strategy. Saturn is constructing a 750 MHz HFC
network designed to service 500 to 1,500 homes per node with each home drop
overlaid with copper telephony plant. This architecture will allow the
integrated delivery of pay television, telephony, Internet access, high speed
data and future interactive services. The majority of Saturn's approximately
1,600 kilometers of plant will be constructed on aerial utility poles which will
allow for quicker and more cost-effective network construction than underground
wireline. In addition, because current Wellington zoning generally permits only
a single additional communications cable on its aerial utility poles, Saturn's
status as first operator on such poles may limit use of these poles by other
communications providers who will need to obtain specific resource covenants.
Because the only significant multi-channel television competitor in the
Wellington market offers a UHF-delivered service that is limited to only five
channels, management believes it will be able to build a significant customer
base by offering an attractive basic programming line-up of over 30 channels at
competitive prices, as well as pay-per-view, data and telephony services.
Saturn recently executed an interconnect agreement with Telecom New Zealand
("Telecom") that will allow it to provide local residential and business
telephone services. By bundling both subscription television and telephony
services, Saturn will be able to offer pricing discounts across both services,
which management believes will provide an advantage over competitors that offer
only one service.
Programming. Saturn's programming strategy is to offer a wide variety of
high-quality channels at competitive prices. Saturn is currently offering a
single tier of service consisting of 23 channels and currently is negotiating
with a number of programming services to expand its channel offering. The
following is a list of the programming currently offered by Saturn in its basic
package:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
- ------- -----------------
<S> <C>
TV 1................... general entertainment
TV 2................... general entertainment
TV 3................... general entertainment
TV 4................... general entertainment
MTV.................... music videos
Community Channel...... local news, events
CNN International...... world news
Asia Business News..... Asian business news
Discovery.............. science and nature
NBC Superchannel....... general entertainment
TNT.................... classic movies
Cartoon Network........ children's cartoon programming
Trackside.............. TAB racing
Kidzone................ children's programming
Weather Channel........ live weather from NZ MetService
Program Guide.......... programming line-up
TVSN................... shopping
CMTV................... country music videos
Elijah Television...... non-denominational religious programming
Worldnet............... U.S. information service news and science
MCM.................... music videos
</TABLE>
In addition, Saturn has recently launched a 20-channel pay-per-view service
pursuant to licensing agreements with Universal Pictures, Fox, Warner and
Columbia Tri-Star.
Pricing. Saturn currently offers a single basic service package with 23
channels in Wellington at a monthly subscription rate of $18.50 with a one time
installation fee of $30 per subscriber. Sky TV ("Sky"), Saturn's primary
44
<PAGE>
competitor for multi-channel television services, charges subscribers a monthly
rate of approximately $36 for five channels of programming with a one time
installation fee of $35 per subscriber.
Marketing; Customer Support. Saturn's marketing strategy uses promotion
techniques proven in existing subscription television markets such as the United
States and Europe, including direct sales campaigns (door-to-door selling),
direct mail and telemarketing supported by a mass media brand awareness program.
Direct sales has proven to be the most effective technique in other cable
television markets, particularly in areas where multi-channel television is in
its introductory stage. Each of these techniques aims to communicate the
selling points of cable television: expanded choice, high entertainment value
and breadth of programming genre to potential subscribers. Homes are released
for marketing on a node by node basis as construction is completed, which allows
a very targeted marketing program tailored to the unique demographic profile of
the territory, and enables Saturn to capitalize on the product awareness
resulting from its construction efforts. Saturn's sales strategy is designed to
include an emphasis on telephony services (once these can be offered) and to
capitalize on the value, quality and customer service advantages associated with
bundled services. Saturn has established a national customer services center at
its corporate headquarters in Wellington. All call management technology
employed by Saturn is scaleable and can be configured to support a national
network expansion. In addition, Saturn is currently developing a sophisticated
marketing database to assist its sales force in a targeted sales approach in
future marketing campaigns.
Competition. There are currently five broadcast networks in New Zealand.
The largest provider of subscription television services in New Zealand is Sky,
which operates a five channel scrambled UHF subscription television service.
Although Sky offers a popular sports channel on an exclusive basis, Sky does not
currently offer the programming diversity or television/telephony bundling that
Saturn plans to offer, services Saturn believes will drive its penetration. Sky
has recently announced, however, that for an installation fee of $420 it intends
to offer a satellite service primarily targeted to rural areas of New Zealand
that currently are unable to receive Sky's UHF signal and which may enable it to
provide up to an additional five channels. Independent News Limited, which is
49% owned by News Corp., recently acquired a significant shareholding in Sky.
The Company is uncertain of the effects such Sky investment will have on Sky's
competitive position.
In addition, Telecom, New Zealand's largest telecommunications service
provider with nearly a 100% share of local loop revenues, 75% of national and
international toll revenues and 90% of cellular revenues, has announced its
intention to rebuild certain of its existing networks using HFC technology,
which will allow it to offer video and data services to a total of approximately
70,000 homes in various parts of New Zealand, and that further expansion of its
network will depend on results of the initial roll-out. Telecom recently
activated the initial portion of its network in the Wellington area, which
passes approximately 8,000 homes. Telecom is also expected to be the primary
competition to Saturn's planned local loop telephony service.
Management and Employees. UAP has appointed three of its employees to
senior management positions at Saturn, including Saturn's chief executive
officer, and Saturn's technical director and customer operations director.
SaskTel has appointed three of its employees to senior Saturn management
positions, including Saturn's chief technology officer. UAP and SaskTel also
provide technical, administrative and operational assistance to Saturn pursuant
to Technical Assistance Agreements. Saturn reimburses UAP and SaskTel for all
direct and indirect costs associated with these services, including employee
costs, and pays each of SaskTel and UAP 2.5% of Saturn's gross revenue through
2007.
As of September 30, 1997, Saturn had 148 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.
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides five channels (the
"XYZ Channels"), four of which are part of the eight channels that are
distributed as the Galaxy Package, the most widely distributed programming
package in Australia. The XYZ Channels consist of the following:
45
<PAGE>
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
- ------- -----------------
<S> <C>
Discovery Channel........... documentary, adventure, history and lifestyle
programming
Nickelodeon/Nick at Nite.... children's educational, entertainment and
cartoons/family-oriented drama and entertainment
Channel [V]................. music video with local presenters
Arena....................... drama, comedy, general entertainment, programming,
library movies
Life Style.................. home and personal improvement programming
</TABLE>
Though not part of the Galaxy Package, LifeStyle is being carried by Austar
and FoxTel.
XYZ provides the XYZ Channels to Continental Century Pay Television Pty
Limited (the "A Licenseholder"), which in turn, pursuant to long-term carriage
agreements, supplies them as part of the Galaxy Package to Australis and its
franchisees and to FoxTel. The Galaxy Package is available to the majority of
Australia's approximately six million television households, including all
households marketed via MMDS and DTH by Australis and its franchisees, pursuant
to a carriage agreement between Australis and the A Licenseholder that has been
warranted to XYZ as having a term through at least 2010. The XYZ Channels are
also distributed to FoxTel pursuant to a carriage agreement between FoxTel and
the A Licenseholder that has been warranted to XYZ as having a term through
2020. XYZ's agreement with the A Licenseholder provides for fixed per
subscriber prices. The Company understands the carriage agreement between the A
Licenseholder and FoxTel provides for substantial minimum subscriber guarantees.
XYZ currently receives monthly revenues of approximately $3.15 per MMDS or DTH
subscriber and $4.15 per FoxTel subscriber. ECT, an affiliate of the A
Licenseholder, has guaranteed the performance of all of the A Licenseholder's
obligations to XYZ under this agreement. As of September 30, 1997, the XYZ
channels were distributed to approximately 524,000 multi-channel television
subscribers.
Operating and Growth Strategy. XYZ is an independently managed venture
which purchases, edits, packages and transmits programming for the XYZ Channels
in exchange for a monthly fee per subscriber. The Company and Century jointly
manage Arena and LifeStyle; the Company, Century and FoxTel manage Channel [V];
and the Company and Century, together with Nickelodeon Australia, Inc.
("Nickelodeon") manage the Nickelodeon/Nick at Nite channel. Each of these three
channels reports to a board comprised of the Company, Century and FoxTel
executives. The Discovery Channel is managed by Discovery Asia and distributed
by XYZ.
XYZ is focusing its marketing efforts on creating, building and supporting
channel identification and brand awareness. XYZ's goal is to acquire quality
programming that will engender viewer loyalty. XYZ also plans to create and
distribute an additional channel in 1998. Advertising sales were launched on
all XYZ Channels on July 1, 1997. Advertising sales are managed by Multi-Channel
Network, a consortium of all advertising channels funded by channel providers
and distributors.
Acquisition of Programming. In July 1995, XYZ and Discovery Asia executed
a twelve-year exclusive carriage agreement whereby a localized version of the
Discovery Channel replaced the existing documentary channel developed by XYZ.
The Company believes that, as a result of this arrangement, XYZ will be able to
offer subscribers higher quality programming at a lower cost to XYZ.
XYZ and Nickelodeon, a division of Viacom, are jointly producing and
distributing an Australian version of Nickelodeon/Nick at Nite, which XYZ began
distributing in October 1995. XYZ pays a monthly per subscriber license
distribution fee that is shared equally by Nickelodeon and XYZ.
XYZ acquires programming and locally produces interstitials for, packages
and distributes Arena, LifeStyle and Channel [V]. 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.
In March 1997, XYZ and Channel [V] Music Networks ("CVMN"), a joint venture
between Star TV and several record companies including B.M.G., EMI, Sony and
Warner Music, entered into an agreement to re-brand XYZ's music video channel
under a license arrangement with the international music video channel, Channel
[V]. The arrangement, which has a ten year term, will allow XYZ to use the
Channel [V] trademarks, interstitial materials and
46
<PAGE>
management and gives it access to Channel [V]'s favorable record programming
arrangements. XYZ has agreed to pay a management fee of A$1 million over the
first two years as well as a licensing fee based on gross subscriber revenues,
ranging from 2.5% for the first two years to 5% for the third through the tenth
years. After the third year, CVMN shall have a one-year option to acquire a 20%
interest in Channel [V] at a price equal to XYZ's cost plus cost of capital at
11.5% per annum. Upon such acquisition, CVMN will offset its licensing fee
against current and future profit shares.
Employees. As of September 30, 1997, XYZ had 64 employees and the
Nickelodeon joint venture had 20 employees. The programming joint venture
between the Company and Century had 11 employees that provide management
services to XYZ.
TELEFENUA (TAHITI)
The Company has an up to 90% economic interest in Telefenua which operates
a 16 channel MMDS service in a service area that, as of September 30, 1997,
passed approximately 20,000 television homes. Telefenua currently is expanding
its network by selectively adding beam benders and repeaters that will allow its
signal to reach substantially all of the approximately 31,000 serviceable homes
in its franchise areas. Telefenua had 6,257 subscribers as of September 30,
1997, representing a 31% penetration rate. The Company is in the early stages
of negotiating the sale of all or a portion of Telefenua to local strategic
investors, although there can be no assurance that the Company will conclude
such a transaction.
Market Overview. Tahiti and Moorea are the two largest and most populous
islands of French Polynesia, a self-governing territory of the Republic of
France. The French government contributes heavily to French Polynesia's economy
and approximately one-third of Tahiti's population is employed by the national
government. Television viewing alternatives are limited, but demand for
television is strong as demonstrated by the country's high television and VCR
penetration rates, 99% and 66%, respectively, and average per capita television
viewing of nearly four hours per day. Prior to late 1994, television choice was
limited to two government broadcast channels.
Operating and Growth Strategy. Telefenua is focusing on increasing its
penetration rates through continued direct marketing campaigns, including door-
to-door sales, and expanding its serviceable homes through select deployment of
beam benders and repeaters. Management is actively seeking to expand its
programming offering including the planned introduction of premium movie
services. Telefenua is also expanding its network by adding additional beam
benders and repeaters. The Company anticipates this expansion will be completed
over the next 12 to 24 months.
Pricing. The subscription fee for Telefenua's basic tier is approximately
$45 per month and the expanded tier monthly rate is approximately $55. To date,
nearly 99% of Telefenua's customers are subscribing to the expanded tier of
service. Telefenua also charges a one-time installation rate of approximately
$100.
Programming. Telefenua offers a combination of French and English language
services. Telefenua's current channel line-up consists of 16 channels
segregated into three tiers of service--a basic service with 11 channels, an
expanded tier with an additional three channels and a premium service consisting
of two channels. Telefenua's basic tier offers the two local broadcast channels
as well as French language childrens', sports, general entertainment and music
channels and the English language CNN International channel. Telefenua also
plans to offer a local public access channel. The expanded tier includes French
language movies, a documentary channel and ESPN International.
With the exception of CNN International, ESPN International, HBO and the
two local broadcast channels, all programming consists of taped French satellite
services. Current French regulations require approval of the national
regulatory authority for all programming. The following is a list of
programming currently offered by Telefenua:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
<S> <C>
RFO 1.................. government broadcast, general entertainment
RFO 2.................. government broadcast, general entertainment
CNN International...... world news
RTL.................... general entertainment
Eurosport.............. sports
Canal J/Canal Jimmy.... adult and childrens'
Serie Club............. general entertainment
Paris Premiere......... arts, life
</TABLE>
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<TABLE>
<S> <C>
MCM.................... music video
M6..................... general entertainment
CMT.................... country music video
Planete................ documentary (expanded basic tier)
Cine Cinemas........... movies (expanded basic tier)
ESPN International..... sports (expanded basic tier)
CineStar............... premium movie
HBO.................... premium movie
</TABLE>
Marketing; Customer Support. Telefenua utilizes several marketing
techniques, proven in the U.S. multi-channel television industry, including
door-to-door, direct mail and local media. The Company's customer service
center also conducts telemarketing campaigns and has opened sales boutiques in
high traffic areas throughout Tahiti and Moorea. Marketing campaigns consist of
selected promotions targeting specific demographic groups throughout the year
and new markets as they are activated. Telefenua's customer service center is
located at its corporate headquarters. The center handles all customer
inquiries, coordinates installations and manages all maintenance activities.
Competition. Telefenua's only subscription television competitor is Canal
Plus, which offers a single channel UHF service offering a combination of
sports, movies and general entertainment programming. The Company estimates
that Canal Plus had approximately 3,800 subscribers, of which an estimated 1,000
are also customers of Telefenua. The monthly subscription fee for Canal Plus'
service is approximately equal to the subscription fee for Telefenua's 15-
channel expanded tier service. There is no existing competition in Tahiti from
DTH services due to limited satellite coverage in the region and lack of
available satellite delivered French language programming.
Management and Employees. UIH and the Societe Francaise des Communications
et du Cable S.A. ("SFCC"), Telefenua's immediate parent, are parties to a
Technical Assistance Agreement, whereby UIH has agreed to provide technical,
administrative and operational assistance to the SFCC. SFCC 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 reimbursement of expenses and a fee
equal to 5.5% of Telefenua's gross revenue through the end of 1996, 3.5% of
gross revenue for the following 12 months, and 2.5% thereafter. The fees
payable to UIH under its Technical Assistance Agreement with SFCC 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 and
charges Telefenua for these amounts.
As of September 30, 1997, Telefenua had 41 employees.
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
The Company owns a 100% economic interest in United Wireless, a provider of
two-way wireless mobile data services in Australia. Wireless data networks
provide for the two-way transmission of packet switched data between a
customer's terminal and a host computer. The transmission of wireless data
occurs over a network, similar in configuration to a cellular telephone network,
which is constructed and maintained by a local network carrier, such as United
Wireless.
Background. In September 1995, the Company acquired a 100% interest in
BellSouth Mobile Data Australia Pty Limited which was renamed United Wireless.
United Wireless is in the second phase of its network deployment in the major
metropolitan markets of Australia. United Wireless' network is based on the
"Mobitex" technology, developed by Ericsson and Swedish Telekom and launched in
1984. Today, there are 14 operational Mobitex wireless data networks deployed
throughout Europe, North America and the Asia/Pacific region.
Market Overview. The Australian wireless mobile and fixed data industry is
in an early stage of development. Wireless data services were first introduced
in Australia in 1992 by United Wireless' predecessor. Today, there are two
public wireless data carriers in Australia with a total estimated installed base
of 5,500 customer terminals.
Operating and Growth Strategy. United Wireless is aggressively expanding
its network coverage areas to encompass the metropolitan markets of Adelaide,
Brisbane, Canberra, the Gold Coast, Melbourne, Perth and Sydney.
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The Company plans on spending approximately $1.4 million for network
construction and working capital needs through 1998.
Marketing and Customers. United Wireless' target market includes large
companies with significant potential installed bases, such as utilities,
security alarm firms, commercial banks, transport companies, and courier and
delivery companies. Management believes that the most expeditious and
economical approach to building an installed customer terminal base is to target
its efforts on securing these large corporate accounts. Specific applications
that United Wireless plans to target include remote order entry (i.e., sales
persons and couriers), credit and debit card validation, remote meter reading
for utilities, security monitoring and vending machine inventory monitoring.
Revenue and Pricing. The majority of United Wireless' revenues are derived
from monthly access fees charged on a per terminal basis. The average customer
pays a monthly rate of $25 per terminal.
Sales. United Wireless utilizes a network of systems integrators that act
as the primary interface with potential customers. These systems integrators
develop specific customer applications which utilize the Mobitex wireless
network for transmission of data. United Wireless works closely with these
systems integrators providing technical, marketing and other general sales
support.
Competition. United Wireless competes primarily with Telstra Wireless
Data, a subsidiary of Telstra, whose wireless data network was developed by
Motorola. The Company estimates Telstra Wireless Data has an installed base of
approximately 5,250 customer terminals.
In addition to an existing competitor, United Wireless could face
competition in the future from certain companies that are attempting to
implement satellite-generated data transmission and paging services on a global
scale. The launch of low earth orbit satellite systems offering wide area public
data communications in Australia is expected between 1999 and 2002. The Company
believes, however, that the costs of both terminal equipment and data
transmission are expected to be significantly greater than those incurred by
United Wireless.
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.
Employees. As of September 30, 1997, United Wireless had 23 employees.
TECHNOLOGIES EMPLOYED BY THE COMPANY
The Company currently uses three principal transmission technologies in the
deployment of its multi-channel television services in Australia, New Zealand
and Tahiti. These technologies are: (i) microwave multipoint distribution
systems (MMDS or wireless cable); (ii) DTH satellite broadcast services; and
(iii) wireline cable, or CATV, the technology with which multi-channel
television services are most frequently delivered in the United States. The
Company has carefully evaluated the characteristics of the markets in which it
is currently operating or planning to operate multi-channel television systems
and has chosen what it believes to be the most appropriate transmission
technology for each. While these transmission technologies are, in general,
similar with respect to picture quality, all such technologies offer improved
picture quality compared to what has historically been offered by over-the-air
broadcasters.
MMDS is a microwave distribution system for which frequency bands are
utilized for transmission of the programming services. MMDS signals originate
from a head-end facility, which receives satellite-delivered programming
services and delivers such programming via an encoded microwave signal from
transmitters located on a tower or on top of a building to a small receiving
antenna located at a subscriber's premises, where the microwave signals are
decoded. MMDS transmission requires a clear line-of-sight because microwave
frequencies will not pass through obstructions; however, many signal blockages
can be overcome through the use of low power signal repeaters which retransmit
an otherwise blocked signal over a limited area. The initial construction costs
of a MMDS system generally are significantly lower than a wireline cable or DTH
system. The Company is using MMDS transmission technology in Australia and
Tahiti, where housing density and topography make MMDS the most cost effective
technology.
DTH transmits encoded signals directly from a satellite to a subscriber's
premises, where it is decoded. Currently in Australia, all DTH subscription
television services are transmitted via the Optus Satellite using High
Performance Beams ("HP Beams") covering certain geographic areas (commonly
referred to as a satellite "footprint"). All of Austar's franchise areas are
within the Optus Satellite footprint. Because this signal will be transmitted
at a high
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power level and frequency utilizing MPEG II digital technology, its reception
can be accomplished with a relatively small (26-35 inch) dish mounted on a
rooftop or in the yard for the households located within the innermost satellite
transmission footprint and with a slightly larger (35-47 inch) dish for the
households located outside the innermost footprint. Austar is using DTH
transmission technology for homes in its MMDS markets that are not reachable by
its MMDS signals, as well as for homes in its franchise areas where household
densities do not support the construction of MMDS systems. Due to satellite
coverage limitations, DTH service currently is not available in New Zealand or
Tahiti although Sky has recently announced plans to start delivering services to
New Zealand by satellite.
A wireline cable television system is a network of coaxial or fiber-optic
transmission cables through which programming is transmitted to a subscriber's
premises from the system's head-end facility, which receives satellite and tape-
delivered programming. Wireline cable television offers a wide bandwidth that
generally allows the transmission of a larger number of channels than MMDS.
When constructed with a HFC network, as the Company plans to do in New Zealand,
the system's infrastructure can be used to deliver telephony and data services.
The primary disadvantages of a wireline cable network are the higher costs of
construction, especially in areas of low housing density, and the length of time
required to construct the network. The Company is constructing wireline cable
systems in New Zealand and, due to topography and housing densities, is
constructing a wireline cable system in one market in Australia.
EMPLOYEES
The Company has no employees. Administrative and other services for the
Company are currently provided by UAP. UAP and the Company are parties to the
UAP Management Agreement pursuant to which UAP provides all management and
administrative services necessary for the Company. UAP supplies certain
employees to Austar, Saturn and Telefenua pursuant to Technical Assistance
Agreements with such operating companies. See "Certain Relationships."
LEGAL PROCEEDINGS
Other than as described below, the Company is not a party to any other
material legal proceedings, nor is it currently aware of any other threatened
material legal proceedings. From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal
course of its business.
The territorial government of Tahiti has legally challenged the Decree and
authority of the 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 may give 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.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision from
using such infrastructure to deliver DTH services in Austar's franchise area.
Austar believes that the use of the infrastructure by any entity other than
Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which granted
Austar an exclusive license and franchise to use the infrastructure within its
franchise areas. Austar is seeking injunctive relief or, in the alternative,
damages associated with this violation of its franchise agreements. On December
6, 1996, Australis filed counterclaims against Austar and the Company alleging
generally that Austar and the Company breached implied terms of the Australis
Arrangement by seeking such injunctive relief. In addition, Optus Vision claims
that the exclusive nature of Austar's franchise agreements violates Australia's
Trade Practices Act. On May 9, 1997, pursuant to the court's permission, Austar
amended its complaint to include claims that the agreement between Australis and
Optus Vision violates Australia's Trade Practices Act and that Austar is
entitled to damages arising from interference with its contractual relations
with Australis under the Franchise Agreements. Austar's complaint was also
amended to add as defendants two affiliates of Optus Vision: Publishing and
Broadcasting Ltd. and its subsidiary, Pay TV Optus. In response, on September
10, 1997, Australis lodged an amended cross-claim. Depending on the outcome of
the appeal lodged by Optus Vision and Australis, Austar's claim for an
injunction to prevent the transfer of the assets may become unnecessary. Optus
Vision has indicated, however, that it is pursuing its
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claim that the exclusive nature of Austar's franchise agreements violate
Australia's Trade Practices Act. On May 30, 1997, the Supreme Court of New South
Wales, in a separate proceeding brought by FoxTel, granted a permanent
injunction restraining Australis from transferring such assets to the joint
venture. Both Optus Vision and Australis are appealing the decision. The Company
intends to defend vigorously its position.
REGULATION
AUSTRALIA
Australia is a Federal jurisdiction. The Federal Government of Australia
has exclusive jurisdiction with respect to certain matters enumerated in
Australia's constitution while the States and Territories of Australia have
residual power over all other matters. The provision of subscription television
services is regulated by the Federal government under various Commonwealth
statutes. In addition, State and Territory laws, including environmental and
consumer contract legislation, may impact the construction and maintenance of a
transmission system for subscription television services, and the content of
those services, as well as on various aspects of the subscription television
business itself.
The Australian regulatory framework distinguishes between the regulation of
the subscription television services themselves and the regulation of the
facilities used to transmit those services. The BSA, which is a Federal
statute, regulates the provision of subscription broadcasting and subscription
narrowcasting services in Australia, and certain aspects of the content and
satellite transmission of those services. Narrowcasting services are
essentially services available to special interest groups or which target
particular audiences and are provided pursuant to class licenses. Subscription
broadcasting services provide programmes of appeal to the general public (as
opposed to those which target particular audiences) and require an individual
license for each service.
The transmission facilities used to provide these services are principally
regulated by the Radiocommunications Act, the Telecommunications Act and the
Trade Practices Act. The Radiocommunications Act commenced on July 1, 1993 and,
among other things, regulates the use of MMDS transmission, the radio frequency
spectrum and the spectrum used by satellite operations. The Telecommunications
Act which commenced on July 1, 1991, and Trade Practices Amendment
(Telecommunications) Act 1997, which commenced on July 1, 1997 regulate the
provision of and access to telecommunications services, and the use of DTH and
cable services.
BROADCASTING SERVICES ACT
Overview. The BSA regulates the ownership and operation of television and
radio services in Australia. It applies to all categories of television and
radio services, whether those services are broadcasting or narrowcasting;
television or radio; national, community, commercial or subscription;
transmitted via cable (fiber-optic or coaxial), DTH, MMDS or any other means or
a combination of those means of transmission.
The Australian Broadcasting Authority ("ABA") may determine additional or
clarify the criteria for the categories of broadcast services. An operator
wishing to determine the appropriate category for a service may obtain an
opinion from the ABA as to which category within such service falls. For a
period of five years after the date of such an opinion, neither the ABA nor any
other Australian government agency may take any action against the provider of
the service alleging that such service falls into a category other than the
category referred to in the opinion; provided that the circumstances relating to
the broadcasting service remain substantially the same as those specified in the
application for the opinion.
Subscription Television Broadcasting Services. The BSA regulates
subscription television broadcasting services by requiring each service to have
an individual license. Subscription television broadcasting licenses are issued
by the ABA on receipt of a written application and fee and a satisfactory report
from the ACCC that the grant of the license would not substantially lessen
competition. Prior to July 1, 1997, no further licenses could be issued by the
ABA to applicants which used satellite as a means of service delivery. The
ACCC's report must set out its opinion regarding whether the granting of the
Broadcast License to the applicant (i) would constitute a contravention of
Section 50 of the Trade Practices Act ("TPA") if the allocation of the license
were the acquisition by the applicant of an asset of a body corporate or (ii)
would not be authorized under Section 88 of the TPA if the applicant had applied
for such an authorization.
Section 50 of the TPA prohibits acquisitions of the shares or assets of a
corporation which would have the effect or would be likely to have the effect of
substantially lessening competition in a relevant market. Section 88 relates to
the procedure whereby such acquisitions can be authorized by the ACCC if they
result in, or are likely to result in, such a benefit to the public that the
acquisition should be allowed to take place.
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In addition, the ABA must also determine whether the applicant is suitable
to hold a subscription television broadcasting license under the BSA pursuant to
certain enumerated factors. An applicant will be deemed a "suitable"
Subscription Broadcast licensee unless the ABA determines that granting such a
license to the applicant would lead to a significant risk of the contravention
of the BSA or breach of the license conditions. Section 98(3) of the BSA sets
out factors which the ABA is required to take into account in assessing such
risk. Austar is not aware of any existing circumstances that would affect its
suitability to be a licensee.
Companies associated with STV and CTV hold approximately 100 non-satellite
subscription television broadcasting licenses. These licenses, together with
Austar's MMDS licenses, enable Austar to provide subscription television
broadcasting services by MMDS in its franchise areas.
Each subscription television broadcasting license is issued subject to
certain conditions, including: (i) cigarette or other tobacco product
advertising is prohibited; (ii) subscription fees must be the predominant source
of revenue for the service, even after advertisements are permitted; (iii) the
licensee must remain a "suitable" licensee under the BSA; (iv) 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; (v) customers must have the option to rent domestic
reception equipment and must have the ability to terminate the rental agreement
on one month's written notice to the licensee; and (vi) the licensee must comply
with provisions of the BSA relating to anti-siphoning and the broadcasting of R-
and X-rated materials. The ABA may vary or revoke license conditions or may, by
written notice, specify additional conditions.
The BSA also provides for the issuance of satellite licenses for DTH
service. Each Satellite subscription television broadcasting license, which is
defined to mean "a license to provide a subscription television broadcasting
service with the use of a satellite that was, at any time prior to July 1, 1997,
operated under the general telecommunications license that was granted to Aussat
Pty Limited and notified on November 26, 1991 in Gazette No. 5323," is subject
to certain additional conditions, including that: (i) the licensee must use the
Digital Transmission Standard (as part of that standard, satellite reception
equipment must be capable of Australian manufacture); (ii) domestic reception
equipment used by the licensee must be accessible by other satellite
broadcasting services; (iii) the licensee's subscriber management system must
provide access to that system to other subscription television broadcasting
licenses at a fair price; and (iv) if the ABA is directed by the Australian
Minister for Communications and the Arts (the "Minister") to include such a
condition, Australian industry must be adequately involved in the provision of
services under the license.
The BSA enables (and in some cases requires) the ABA to impose conditions
on satellite subscription television broadcasting licenses, subscription
broadcasting licenses and on non-satellite subscription licenses.
On August 25, 1997 the ABA made conditions with substantially the following
effect:
. Satellite Subscription Television Broadcasting Licenses - satellite
subscription broadcasting licensees are required to take all reasonable
steps to ensure that domestic reception equipment used to enable
subscribers to receive its services is accessible to other satellite
broadcasting services at a fair price. In addition, satellite
subscription television broadcasting licensees which have a subscriber
management system must provide continuous access to its subscriber
management system to other satellite subscription television broadcasting
licensees at a fair price.
. Subscription Television Broadcasting Licensees - all subscription
television broadcasting licensees are subject to a condition that they
make available to subscribers the use of domestic reception equipment on
a rental basis.
. Non-Satellite Subscription Television Broadcasting Licenses - all non-
satellite subscription television broadcasting licensees are subject to a
condition that subscribers who rent domestic reception equipment must be
able to terminate their domestic reception equipment rental agreement by
giving one months written notice to the licensee.
Austar is presently reviewing the impact of these conditions on its
business. While no view has yet been formed on the impact of the new BSA
license conditions on Austar's business, the Company does not believe such
conditions will have a material adverse effect on Austar.
While Austar has been granted a license and franchise by Australis to
market DTH services for two satellite license holders and XYZ supplies
programming to one satellite license holder, the DTH services are provided by
those satellite license holders and the conditions of the satellite licenses do
not directly apply to either Austar or XYZ (although they do apply to the DTH
Services). Material non-compliance by a satellite license holder with
conditions of its license,
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however, could have a material adverse effect on Austar or XYZ. See "Risk
Factors--Ability to Procure Additional Programming Services."
Foreign Ownership. Foreign ownership of "company interests" of
subscription television broadcasting licensees is limited to 20% by a single
foreign person and an aggregate of 35% by all foreign persons. "Company
interests" under the BSA mean, in broad terms, a beneficial entitlement to, or
an interest in, shares of the company, being in a position to exercise control
of votes as a poll at a shareholders meeting, having a beneficial entitlement to
a dividend, a share of profits under the company's memorandum and articles of
association or shareholder distributions upon liquidation or otherwise.
"Foreign person" means (i) a natural person who is not an Australian citizen or
(ii) a company wherever incorporated, where non-Australian citizens hold company
interests in the company exceeding 50%; or (iii) a company, wherever
incorporated, where (a) a company referred to in (ii) or (b) natural persons who
are not Australian citizens and a company referred to in (ii), hold company
interests in the company exceeding 50%. Company interests can be traced through
a series of companies in order to determine levels of foreign ownership in
accordance with a formula specified in the BSA. Currently, UAP'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--Austar."
Cross-Media Ownership. There are no provisions in the BSA limiting the
interest that an existing media owner may have in the operator of a narrowcast
service, a subscription radio broadcast service or a non-satellite subscription
television broadcasting service. In relation to the last category of service,
however, the ABA is obliged to monitor the level of cross-media ownership.
Broadcasting Adult Materials. A subscription television broadcasting
licensee may not broadcast R- or X-rated material ("restricted to persons over
eighteen years of age" as determined by the Office of Film Literature
Classification) programming until the ABA has completed an extensive survey on
community standards on taste and decency in relation to classifications for
subscription television and on what levels of violence and depiction of sex
should be allowed, and has recommended, and the Federal Parliament has approved,
the broadcast of programs in that category.
While the ABA has completed its survey and has recommended that R-rated
programming should be available to subscription broadcasting television
subscribers, subject to certain controls, the Federal Parliament has not
approved the recommendation. A Senate (upper house) committee issued a report
in February 1995 recommending an extension of the existing moratorium banning R-
rated movies from subscription television. The Senate committee also
recommended that the Australian Government revise the R-rating system (which is
somewhat different than the R-rating system in the United States), creating one
version for movies and another censored version for video and subscription
television. The Minister has yet to submit a proposal regarding the
transmission of R-rated programming to Parliament.
The Company is unable to predict the Minister's recommendations or their
likely effect on Austar or XYZ. A change from the current prohibition on R-
rated material may enable subscription television service providers, such as
Austar, or programmers, such as XYZ, to provide or produce a broader range of
services than is currently permitted. If the Federal 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.
Notwithstanding the foregoing, the Company understands that Australis has
obtained an opinion from the ABA to allow it to transmit "R" programming as a
narrowcast service and at present, the Company transmits "R" programming on a
number of narrowcast services which are subject to such restrictions.
Anti-Siphoning. The BSA contains "anti-siphoning" provisions, intended to
prevent 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 and
certain national and international golfing events and tennis matches, all for a
period of ten years. The Minister may add or remove events from the anti-
siphoning list.
Australian Content. The BSA requires any subscription television
broadcasting service predominantly devoted to drama programs to devote at least
10% of its annual program expenditures to new Australian drama programs. Based
on its discussions with government regulators, Austar believes the programming
it distributes currently complies with
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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 government has indicated that this review should
consider whether Australian content requirements should be extended to non-drama
services.
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 spectrum
access licenses. Apparatus licenses authorize the licensee (and certain persons
authorized by the licensee) to operate specified radiocommunications devices.
The apparatus licenses issued to Austar authorize the operation of
radiocommunications transmitters at each of Austar's MMDS systems and permit the
transmission of signals over specified frequencies to Austar's subscribers. As
of the date hereof, the government has not issued any spectrum access licenses.
General conditions apply to each MMDS license, including conditions that
apparatus licensees and operators of devices comply with the Radiocommunications
Act, and meet all obligations under that Act. MMDS licenses of the type held by
Austar are further restricted by conditions including operating on specified
frequencies and operating consistently with the frequency band plan, without the
likelihood of interference. The Australian Communications Authority (the
"ACA"), 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.
Each apparatus licensee may, within six months before an apparatus license
is due to expire, apply to the ACA 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 notices of any intention
not to renew the Licenses or any changes to any conditions placed on the
Licenses. The Minister, the ACA, 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 ACA decides not to renew a license, it must notify the licensee in
writing of its reasons for doing so. Such decision is then reviewable by an
administrative appeals body. In deciding whether to renew an apparatus license,
the ACA must consider the effect on radiocommunications of the proposed
operation of the radiocommunications devices that would be authorized under the
relevant apparatus licenses. The ACA may not issue an apparatus license that is
inconsistent with the spectrum plan or any relevant frequency band plan except
in certain limited cases. 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 ACA 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, the Radiocommunications Act or any other law. The
Radiocommunications Act does not prohibit the sale of shares in a company that
holds an apparatus license.
The Radiocommunications Act provides for the preparation of plans for the
conversion of existing apparatus licenses into spectrum licenses. The ACA is
required to prepare conversion plans at the direction of the Minister. The ACA
may make a written determination fixing spectrum access charges. 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 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 ACA. Apparatus licenses
authorize the licensees to operate specified radiocommunications devices such as
MMDS transmitters and repeaters. Spectrum licenses may be allocated by auction,
tender or for a pre-determined or negotiated price. 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 fifteen years but will not necessarily be reissued to the
same licensees. Instead, MMDS spectrum licenses will be reallocated in the same
way they are originally allocated, unless the ACA determines that special
circumstances exist and it is in the public
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interest for the same licensees to continue to hold the spectrum licenses, or
unless the Minister determines that it is in the public interest that the MMDS
spectrum licenses be reissued to the same licensees.
TELECOMMUNICATIONS ACT
The Telecommunications Act 1997, which became effective in July 1997, (in
conjunction with the TPA, discussed below) regulates the use of
telecommunications facilities and the supply of telecommunications services in
Australia. This new legislation provides for major changes to the regulation of
the Australian communications industry, the full effect of which is presently
difficult to ascertain because many of the standards and codes upon which the
Telecommunications Act operates have yet to be drafted and/or implemented. In
general terms, the Telecommunications Act regulates three types of communication
industry participants: carriers, carriage service providers and content service
providers. A communications industry participant may be a carrier, carriage
service provider and/or a content service provider at the same time and will
therefore be subject to all the relevant provisions relating to its
participation in each role.
Carriers. The characteristics of carriers are not defined in the
Telecommunications Act. Carriers are persons or organizations who hold carrier
licenses issued by the ACA. Owners of telecommunications infrastructure known
as "network units" (which includes wires, cables and optical fiber connecting
distinct points within Australia and designated radiocommunications facilities)
must hold a carrier license or nominate a third party to assume its carrier-
related obligations. There is no requirement in the Telecommunications Act that
"network units" be used for or used exclusively for telephony purposes.
The conduct of carriers is regulated under the Telecommunications Act by
standard and specific carrier license conditions (including access obligations
in relation to other carriers), obligations contained in the Telecommunications
Act and the TPA, and by industry codes and standards (which may or may not be
made into legally enforceable standards).
The Company understands from the ACA that, as of September 10, 1997, 11
carrier licenses had been issued to persons including some of Australia's
largest telephone and telecommunications companies. The Darwin cable television
network owned by CTV is a network unit for the purposes of the
Telecommunications Act and consequently requires a carrier license for its
operation. An STV subsidiary has obtained a carrier license and nominated
carrier declaration in relation to the Darwin cable television network and,
accordingly, has carrier-related obligations under the Telecommunications Act.
These include the obligation to pay carrier license fees and universal service
levies. At this stage the Company does not know the precise amounts of
universal levies that may be charged.
Service Providers. There are two classes of non-carriers regulated by the
Telecommunications Act: carriage service providers and content service
providers. Carriage service providers are, in general terms, persons or
organizations that supply services for carrying communications to the public
using "network units" owned by carriers where the communications are between
points in Australia or points in Australia and points outside Australia. The
Telecommunications Act also provides additional technical categories which may
render some organizations (such as intermediaries used to supply carriage
services) carriage service providers.
In addition to STV's subsidiary being a carrier, a number of Austar
entities are likely to be deemed carriage service providers. Carriage service
providers do not require a license from the ACA but they are required to comply
with service provider rules and specific obligations found in the
Telecommunications Act, determinations made by the ACA from time to time in
relation to carriage service providers, industry standards and access
obligations found in the TPA.
Content Service Providers are persons or organizations that use or propose
to use listed carriage services to supply content services to the public. An
Austar subsidiary that provides television content is likely to be a content
service provider under the Telecommunications Act. Similar to carriage service
providers, content service providers do not require licenses from the ACA, but
are regulated by the Telecommunications Act.
FOREIGN ACQUISITIONS AND TAKEOVERS ACT
The FATA requires (i) any natural person not ordinarily resident in
Australia, or (ii) any corporation or trustee of a trust estate in which a
natural person not ordinarily resident in Australia or a foreign corporation
(being a corporation organized outside Australia) holds a substantial interest
(defined below) or in which two or more such persons or foreign corporations
hold an aggregate substantial interest (defined below), who proposes entering
into an agreement by virtue of which the person, corporation or trustee will
acquire or increase a substantial interest in an Australian corporation to
notify the Treasurer of its intention to do so. The person, corporation or
trustee may then only enter the proposed transaction if (a) the Treasurer
advises that the Federal Government has no objection to the transaction; or (b)
the
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Treasurer has made no order prohibiting the transaction and the person,
corporation or trustee has received no advice referred to above after 40 days
have elapsed following the giving of the notice to the Treasurer.
The Treasurer may make an order prohibiting the transaction if he or she is
satisfied it would result in foreign persons or different foreign persons
controlling the corporation and that result would be contrary to the national
interest. Alternatively, the Treasurer may advise that the Federal Government
has no objection to the transaction, provided that the person, corporation or
trustee complies with specified conditions. If the Treasurer specified
conditions in connection with the non objection, the person, corporation or
trustee entering into the transaction, must comply with such conditions.
A person is deemed to hold a "substantial interest:" (a) in a corporation,
if the person, alone or together with any associates (as defined, in the FATA),
is in a position to control not less than 15% of the voting power in the
corporation or holds interest in not less than 15% of the issued shares in the
corporation; or (b) in a trust estate, if the person alone or together with any
associates (as defined), holds a beneficial interest in not less than 15% of the
corpus or income of the trust estate. Two or more persons are taken to hold an
"aggregate substantial interest;" (c) in a corporation, if they, together with
any associates (as defined), are in a position to control not less than 40% of
the voting power in the corporation or hold not less than 40% of the issued
shares in the corporation; or (d) in a trust estate, if they together with any
associates hold in the aggregate beneficial interests in not less than 40% of
the corpus or income of the trust estate. Where a trustee has power or
discretion under the terms of a trust as to the distribution of income or corpus
of the trust estate to beneficiaries, each beneficiary is taken for the purpose
of paragraphs (b) and (d) above to hold a beneficial interest in the maximum
percentage of income or corpus of the trust estate that the trustee is empowered
to distribute to that beneficiary.
The circumstances in which a person is taken to hold an interest in a share
are widely described in the FATA and include, without limitation, having a legal
or equitable interest in the share, having entered into a contract to purchase
the share or an option for the share, or an interest in the share, or having the
right to vote the share. Voting power is determined by reference to the right
to vote at an annual general or extraordinary meeting of the corporation and not
by reference to the right to appoint or elect directors. The right of a company
to nominate and vote for the election of directors is not voting power expressly
limited by the FATA. See "Corporate Organizational Structure--Austar." For the
purposes of paragraphs (a), (b), (c) and (d) above, control over voting power
may be direct or indirect including control by means of arrangements or
practices, whether legally enforceable or not, and whether or not based on legal
or equitable rights. FATA also provides that, for the purposes of such Act, a
holder of a substantial interest or holders of an aggregate substantial interest
(including any such interest held by other applications of the relevant
provision) in the corporation or a trust estate which is in a position to
control any voting power in another corporation or holds interests in shares in
another corporation or in another trust estate shall be taken to be in the
position to control such voting power in the other corporation or to hold such
interests in the other corporation or in the other trust estate, as the case may
be.
The FATA also regulates certain other transactions, such as altering a
constituent document of an Australian corporation or entering into an
arrangement in relation to an Australian business. The FATA does not require,
however, compulsory notification of those transactions. If the Treasurer is
satisfied that (a) a transaction falls within the description regulated by the
FATA, (b) the result of the transaction is that one or more foreign persons or
different foreign persons would control the Australian corporation, and (c) that
the result would be contrary to the national interest, 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 the above-described other transactions is not
required, there is a procedure for voluntarily notifying the Treasurer of such
transactions. If the Treasurer advises that the Federal 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 Austar Transaction and certain amendments to the articles of
association and securityholder agreements of Austar made in 1995 affected the
number of Austar directors designated by the Company and the manner in which
those directors are elected. While those matters did not require any advance
notification or approval under Australian law, they could in the future be
reviewed by the Treasurer of Australia under provisions of the FATA. If so
reviewed and determined by the Treasurer to have resulted in a change of control
of an Australian person to a foreign person that
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is against the national interest, there would be no violation of law but the
Treasurer could, among other things, require control of Austar to be restored to
its previous position. Prior to any change, the Company was entitled to appoint
directly three of six directors of Austar. While the Company believes that it is
unlikely that the Treasurer would reach such a conclusion if it decided to
review the Austar Transaction, there can be no such assurances. If the Treasurer
were to require control of Austar to be restored to the maximum extent permitted
by the FATA, the Company could appoint only one-half of the directors of Austar
and it might no longer affirmatively control Austar. While the Company believes
a determination under the FATA would not affect the Company's 100% economic
interest in Austar, there can be no assurances that such would be the case. If
the Treasurer were to review matters, the Company would seek to minimize the
effect of any required change on its relationship with Austar through a
restructuring of its ownership interest or arrangements providing for the
designation of independent persons as the directors it does not designate. See
"Risk Factors--Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations" and "Corporate Organizational Structure--Austar."
TRADE PRACTICES ACT
The Trade Practices Act ("TPA") governs restrictive trade practices and
consumer protection and provides an access regime for telecommunications
services. The TPA's restrictive trade practices and consumer protection
sections 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,
resale price maintenance, third line forcing, and abuse of market power by
corporations having a substantial degree of power in a market. The restrictive
trade practices provisions also prohibit acquisitions of the shares or assets of
a corporation which would substantially lessen competition in a market.
Substantial pecuniary penalties may be imposed for contraventions of the
TPA. The Minister, the ACCC or any other person may bring an action to restrain
contraventions of the TPA by injunction against any person who has contravened
or is proposing to contravene the TPA. A person who has suffered loss as a
result of another person contravening the TPA may bring an action to recover
damages against any person involved in the contravention.
The ACCC may authorize otherwise prohibited conduct, other than price
fixing agreements (except in special circumstances, price discrimination, and
misuse of market power) if it results in, or is likely to result in, a net
benefit to the public.
The telecommunications access regime provided under part XIC of the TPA was
implemented on July 1, 1997. As with the Telecommunications Act, many
telecommunications industry participants are presently attempting to ascertain
their position under the TPA and there is a level of uncertainty regarding the
operation of part XIC as codes on which part XIC operate have not yet been
implemented. The Company believes no industry participants have obtained access
to telecommunications services under this section to date.
Part XIC of the TPA generally places access obligations on carriers or
carriage service providers who supply "declared services" either to themselves
or third parties who provide access to such services to access seekers. There
are some exemptions to the obligation to provide access discussed below.
"Services" for these purposes, has a sufficiently broad heading to include
subscription television broadcasting or narrowcasting services.
Services become "declared services" in two ways. First, the ACCC has
deemed a number of services to be declared services under certain transitional
provisions, primarily telephony and data focused services, including services
such as domestic PSTN originating and terminating access, domestic GSM
originating and terminating access, digital data access service and broadcast
data access service. Secondly, the ACCC may make a declaration that services
are "declared services" if the industry body known as the Telecommunications
Access Forum ("TAF") makes a recommendation to the ACCC that a particular
service become a declared service or the ACCC decides to declare a service after
holding a public inquiry. The Company understands that, to date, the ACCC has
only declared services pursuant to such transitional provisions, but that the
TAF (of which Austar is a member) is in the process of recommending a number of
services to the ACCC for declaration as declared services.
Declared services are not only services which carry telecommunications, but
also may be a service that facilitates the supply of a listed carriage service.
Further, access obligations in relation to a declared service extend to
"conditional-access customer equipment" where the service is provided by means
of the conditional-access equipment. In the Explanatory Memoranda to the Trade
Practices (Telecommunications) Amendment Act, "set-top boxes used for the supply
of pay television" was provided as an example of "conditional-access customer
equipment."
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Carriers or carriage service providers supplying declared services are not
required to provide access to the declared services in certain circumstances.
These include if the provision of access to the access seeker would prevent a
service provider or carrier who already has access to the declared service from
obtaining a sufficient amount of the service to be able to meet its reasonably
anticipated requirements, if the access provider has reasonable grounds to
believe that the access seeker would fail to a material extent to comply with
the terms and conditions on which the access provider complies, if the access
seeker would fail to protect the integrity of the telecommunications network or
the safety of individuals working on the network, and exemptions in relation to
creditworthiness of the access seeker. In addition, the ACCC may make class
exemptions or individual exemptions in relation to carriers or carriage service
providers complying with access obligations.
LOCAL REGULATION
When Austar constructs facilities, such as transmitter towers, it must also
comply with local government regulations, such as planning and zoning
requirements, as well as federal environmental laws. Austar works with the
local government primarily on issues concerning construction standards. Austar
has established construction standards that Austar believes meet or exceed the
local regulations.
NEW ZEALAND
The Company believes that the deregulated nature of the New Zealand market
is favorable to providers of multi-channel television and telephony services.
The New Zealand government does not regulate the rates of multi-channel
television or telephony services. There are no programming regulations in New
Zealand other than those regulating programming with sexual or violent content,
or which is likely to offend good taste and decency, the maintenance of law and
order or the privacy of individuals. Unlike the other countries in which the
Company operates, there are at present no quotas on foreign originated
programming.
New Zealand's Telecommunications Act is primarily concerned with technical
and operational issues such as the licensing of certain forms of radio
equipment, and the right in certain circumstances to construct and maintain
telecommunications networks across public and privately owned land without the
owner's consent. These rights to construct and maintain telecommunications
networks are exercisable by "network operators," although they are very
infrequently used, with most lines being built with the consent of the relevant
landowner or local government body. Saturn holds network operator status, which
is granted on a nationwide non-exclusive basis. Construction and operation of a
telecommunications network on privately-owned land with the consent of the
relevant land owner may be done by any person and there is no legal requirement
to hold network operator status.
The New Zealand government does not specifically regulate pricing of multi-
channel television or telecommunications services. Pricing may be subject,
however, to New Zealand's competition legislation, the Commerce Act 1986 (the
"Commerce Act"), which prohibits businesses in a dominant position (i.e.,
possessing a high degree of monopoly power) in any market from using that
position for an anti-competitive purpose. The Commerce Act also prohibits
arrangements or understandings which have the purpose or effect of substantially
reducing competition. In addition, pursuant to the Commerce Act, the government
can impose price controls on any goods or services, although this power has been
used only once and is not currently in use.
New Zealand has no restrictions on foreign ownership of companies that
provide multi-channel television and telephony services other than a requirement
in certain circumstances for the consent of the Overseas Investment Commission,
which is typically given as a matter of course.
TAHITI
Telefenua's right to operate a multi-channel television service was granted
by the CSA in 1994 for a term expiring on December 31, 2004. The CSA
authorizations were based on the Decree of the French government and decisions
of the Commission Mixte Des Frequences ("CMDF"), which controls all radio
frequencies for France and grants ranges to various public and private
enterprises. Telefenua is the first multi-channel operator to be granted
approval to operate a wireless network by the CMDF. Telefenua was granted the
right to use all necessary MMDS microwave frequencies, 2.5 GHz to 2.7 GHz,
through the year 2004. The Company expects that the term for the MMDS frequency
will be renewed when the frequency distribution is revised on January 1, 2005,
in accordance with the 1992 World Administrative Radio Communications
Conference. No fees are payable for use of such frequencies.
Telefenua has local franchise agreements with 16 municipalities (of which
14 are exclusive) on the islands of Tahiti and Moorea. The franchise agreements
provide the Company with 30-year rights to operate MMDS multi-channel
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television networks. The franchise agreements require Telefenua to carry certain
services, including local broadcast channels, and to provide local programming.
No fees are payable by Telefenua under these franchise agreements.
There are currently no government regulations on subscription rates or rate
increases.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The Tahitian territorial government's challenge to
France's authority to award Telefenua an MMDS license in Tahiti was upheld by
the Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking cancellation
of the MMDS licenses awarded by the CSA to Telefenua, although no such
cancellation has yet taken place. A law recently enacted by the French
Parliament could give 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."
CORPORATE ORGANIZATIONAL STRUCTURE
AUSTAR
The Issuer holds a combined effective 100% economic interest in CTV and
STV, which operate together under the name Austar, through direct and indirect
holdings of convertible debentures and ordinary shares. The Issuer holds
approximately 14.9% of the ordinary shares of CTV and STV, which accounts for an
approximately 0.3% economic interest in Austar. The Issuer holds all of CTV's
and STV's convertible debentures, which accounts for an approximately 97.8%
economic interest in Austar. In addition, through its 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 1.9% economic interest in Austar.
Although the Issuer holds debentures and one share in each of SMH and SMI, it
does not control such entities or have controlling rights as a shareholder of
such entities.
These holdings resulted from three acquisitions and certain capital
contributions made by the Issuer. In July 1994, as part of the establishment of
CTV, the Issuer 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 Issuer acquired a 50% economic interest in STV. In December 1995 (the
"December 1995 Austar Transaction"), the Issuer acquired an additional 40%
economic interest in each of CTV and STV from existing shareholders for
approximately $15.2 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 December 1995 Austar Transaction, SMH and SMI, which
are Australian companies and members of the Salisbury Securities Limited Group
of companies, acquired 74% and 75% of the ordinary shares of CTV and STV,
respectively. Throughout 1996, the Issuer increased its economic interest in
Austar to 96% as a result of capital contributions, including the conversion of
bridge loans and accrued interest, totaling $118.6 million made by the Issuer to
Austar as to which the other principal holder of economic interests in Austar
did not contribute its pro rata share. In October 1996, the Issuer acquired the
remaining effective 4% economic interest in Austar from Australis Media Limited
for approximately $7.9 million.
The Issuer, CTV, STV, SMI and SMH are parties to securityholders'
agreements, (collectively, the "CTV/STV Securityholders' Agreements") that
contain provisions relating to governance of the companies, transfers by the
securityholders of their respective interests in the companies (including a
change in control), raising additional capital and funding for the companies and
other matters concerning ownership and operation of the companies. Certain of
these provisions are also contained in the Articles of Association of each of
CTV and STV (collectively, the "CTV/STV Articles of Association"). In
connection with the December 1995 Austar Transaction, the Issuer and SMH, with
respect to CTV, and the Issuer 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 is to consist of such
number of directors as is determined by the directors from time to time, and
unless so determined shall be two. The current number is six voting directors
and one non-voting managing director. Each holder of an ordinary share or
debenture of CTV and STV is entitled to cast one vote for the election of
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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 Issuer and any person
nominated by the Issuer to hold economic interests in CTV and STV are considered
one holder and their economic interests are aggregated. Thus, the Issuer and
SMH, with respect to CTV, and the Issuer 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 Issuer
and SMH together have the right to nominate all of CTV's voting directors for
election by CTV's securityholders, the Issuer and SMI together have the right to
nominate all of STV's six voting directors for election by STV's
securityholders.
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, among other things, require the parties to the
December 1995 Austar Transaction to restore the control of CTV and STV to the
position it was in before the December 1995 Austar Transaction. Before the
December 1995 Austar Transaction, directors were not elected but were appointed
directly by securityholders, and the Issuer 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.
Under the SMH/SMI Agreements, UIH A/P has the right to nominate all voting
directors that the Issuer and SMH, with respect to CTV's board, and the Issuer
and SMI, with respect to STV's board, have the right to nominate. Thus, the
Issuer is currently entitled to designate all of the six voting directors of
each company. The Issuer and SMH and SMI have agreed that if the Treasurer
issues an order restoring control or indicates the intention to do so, the
Issuer 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 Issuer will have the right to designate the maximum
number of voting directors permitted by law and the Issuer and SMH, in the case
of CTV, and the Issuer and SMI, in the case of STV, will designate as
independent directors the remaining number of voting directors that the parties
are entitled to designate pursuant to the CTV/STV Articles of Association and
CTV/STV Securityholders' Agreements. An independent director is, among other
things, a person agreed on by the Issuer and SMH or SMI, as the case may be, but
not associated with either the Issuer or SMH or SMI. Either the Issuer or SMH
or SMI, as the case may be, will have the right to remove an independent
director.
While the Issuer 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."
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,
as the case may be.
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 Issuer holds
14.9% of the ordinary shares of CTV and STV that may be voted on these matters
at an ordinary meeting of shareholders.
The CTV/STV Securityholders' Agreements provide that a securityholder may
not transfer its securities in CTV or STV, except to or between certain
affiliates or as security to a bank or in other specified situations, until the
securityholder has first offered the securities to the other securityholder. If
the other securityholder does not purchase
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<PAGE>
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, as the case may be. Such approval is to be granted if the securityholder
has followed the requisite procedures.
In the event of a "change of control" of a securityholder, the party
experiencing the change of control must offer its securities in CTV or STV to
the other securityholders at the average fair market value of the securities
based on the valuations of two qualified independent persons. A change of
control is deemed to occur when (i) the power to control the composition of the
board or the management of the securityholder passes to a person who did not
possess such power at the date of the CTV/STV Securityholders' Agreements, (ii)
the ability to procure or prevent passing an ordinary resolution at the general
meeting of the securityholder passes to a person who did not possess that
ability at the date of the CTV/STV Securityholders' Agreements, or (iii) a
person becomes beneficially entitled to more than 50% of the ordinary shares or
voting rights of a securityholder or any holding company of a securityholder and
the person was not at the date of the CTV/STV Securityholders' Agreements
beneficially entitled to more than 50% of those share or voting rights. These
"change of control" provisions do not apply to changes in control of UIH or the
Issuer.
The Issuer 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 Issuer has an indirect 25% interest in XYZ through its 50% interest in
Century United Programming Ventures Pty Limited ("CUPV"), an Australian
corporation owned equally by the Issuer and Century. CUPV holds a 50% interest
in XYZ. The remaining 50% interest in XYZ is held by Foxtel.
In October 1994, UIH and Century formed XYZ and each acquired an initial
50% interest. In September 1995, Foxtel purchased a 50% interest in XYZ and the
Company and Century transferred the remaining 50% interest to CUPV. The sale
diluted UIH's indirect interest in XYZ to 25%. UIH received sale proceeds of
approximately $4.1 million from Foxtel for one-half of its initial interest in
XYZ.
Pursuant to a shareholders agreement executed in September 1995 (the "XYZ
Shareholders' Agreement"), each shareholder holding an economic interest of at
least 40% in XYZ may appoint two of the four directors to each of the boards of
directors of XYZ and the companies in which XYZ holds interests. As long as
CUPV and Foxtel hold an economic interest of at least 40% in XYZ, each of them
is entitled to one vote at meetings of each of such boards and any board
decisions must include an affirmative vote by each of them. A quorum consists
of two directors, of which one must be a representative of CUPV and one must be
a representative of Foxtel, provided that neither CUPV nor Foxtel's interest is
less than 40%. If either CUPV or Foxtel's economic interest is less than 40%,
that party will not be entitled to any representation on any of the such boards
and the other party must appoint further representatives. All board decisions
require unanimous consent. Board approval is required for actions relating to,
among other things: amendments or variations to the business plan and certain
agreements (including the XYZ Shareholders' Agreement) and articles of
association of any company in which XYZ holds an interest; admitting new
shareholders or issuing or redeeming any shares of CUPV or Foxtel in XYZ; or
requiring additional capital or other contributions, incurring indebtedness or
expenditures, issuing securities, or approving distributions of property, not
approved in the business plan. Funding required by XYZ must be contributed by
each shareholder in proportion to its economic interest or as otherwise provided
by the XYZ Shareholders' Agreement and if a shareholder fails to do so within
the requisite time period after a call is made, its economic interest will be
diluted accordingly.
The XYZ Shareholders' Agreement provides that a shareholder may not
transfer its interest in XYZ, except in limited circumstances, until the
shareholder has first offered such interest to the other shareholders at fair
market value as determined in accordance with the XYZ Shareholders' Agreement.
If the other shareholders do not purchase the offered securities, then during
the six-month period following such offer, the selling shareholder may transfer
all or part of its XYZ interest to any third party at a price no lower than the
price offered to the other shareholders, subject to such third party's agreeing
to the same transfer restrictions and the terms of the XYZ Shareholders'
Agreement. Century and the Issuer have granted each other a right of first
refusal to acquire the other's interest in CUPV. If neither the Issuer 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.
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<PAGE>
SATURN
The Issuer acquired in 1994 a 50% interest in Saturn, a New Zealand
corporation. In July 1996, the Issuer acquired the remaining 50% interest in
Saturn. In July 1997 SaskTel purchased a 35% equity interest in Saturn.
The Company and SaskTel are parties to a Shareholders Agreement which
provides that a shareholder may not transfer its interest in Saturn, except in
limited circumstances, until the shareholder has first offered such interest to
the other shareholder. If the other shareholder does not purchase the offered
interest, then during the three-month period following the negotiation period
with the other shareholder, the offering shareholder may sell the interest to a
third party. If the proposed transfer to the third party is on terms that are
not more favorable to the offering shareholder, the other shareholder shall have
a 30-day right of first refusal to purchase such shares on the terms offered the
third party. The Shareholders Agreement provides that, at any time after July
23, 2002, either shareholder may offer all of its interest for sale to the other
shareholder. If the shareholders cannot agree on a price within a set period,
the offering shareholder may sell the shares to a third party or may elect to
have the company appraised. If the offering shareholder still wishes to sell
the shares at the appraised price and other shareholder does not purchase the
offering shareholder's interest at the appraised price, the offering shareholder
may cause Saturn to be offered to a third party at a price not less than the
appraised price. The shareholders have also granted each other "tag along"
rights to require their respective interests in Saturn to be purchased by a
third party that purchases the other shareholder's interest in proportion to
such offer. A change in control of either shareholder without the other's
consent gives that other shareholder the right to purchase all the shares of the
shareholder subject to the change of control.
Pursuant to the Shareholders Agreement, the board of directors of Saturn
shall consist of at least five and not more than six members and each
shareholder may appoint one member of the board for each 15% of the total
outstanding shares of Saturn held by such shareholder. Each director shall
serve at the pleasure of the appointing shareholder and may be removed at any
time by the appointing shareholder. The Shareholder Agreement also provides
that a quorum of the board must include a majority of the directors and for such
time as each shareholder owns 20% or more of the total outstanding shares of
Saturn, the quorum must include at least one director appointed by each
shareholder. The number of votes that each director shall be entitled to cast
is equal to the percentage of total outstanding shares held by the appointing
shareholder of that director, except that where a shareholder, by virtue of its
percentage ownership, is entitled to appoint more than one director, all such
directors appointed by that shareholder shall in the aggregate have only the
voting power of the number of shares held by such appointing shareholder. The
Shareholders Agreement provides that as long as each shareholder owns 20% or
more of the total outstanding shares of Saturn, certain matters, including
without limitation, entering into new lines of business, capital expenditures
outside of the annual budget in excess of NZ$100,000, the acquisition or sale of
assets by Saturn with a value exceeding NZ$1,000,000, or the sale or disposition
of all or substantially all of the capital stock of Saturn, must be approved by
the board, including the approval of a director appointed by each shareholder.
Further, under the Shareholders Agreement, each shareholder must approve any
variation in the authorized or issued share capital of Saturn or in any rights
attached thereto, any amendment to the constitution of Saturn, the liquidation
of the company or any merger or consolidation involving Saturn or its controlled
affiliates. Saturn's constitution reflects the Shareholder's Agreement.
TELEFENUA
UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership wholly owned
by the Issuer, is the general partner of a limited partnership (the
"Partnership") that owns 100% of the preferred stock of SFCC, representing
approximately 40% of the share capital of SFCC. SFCC is the parent company of
Telefenua, which owns and operates the multi-channel television system in
Tahiti. As holder of 100% of the preferred stock of SFCC, the Partnership is
entitled to certain preferential distributions by SFCC. Through its general
partner's interest in the Partnership, UIH-SFCC will receive 90% of
distributions made by SFCC until UIH-SFCC has received a return of its
investment plus a 20% cumulative compounded annual return, 75% of distributions
until it has received the return of its investment plus a 40% cumulative
compound annual return and 64% of distributions thereafter. Once UIH-SFCC's
total equity investment exceeds $10 million, further equity investments would
not be entitled to the 90% and 75% distributions. Instead, equity investments
above $10 million, to the extent not matched pro rata by the Issuer's partners,
would increase the 64% that UIH receives after the preferential distributions
are made on the first $10 million. As of January 31, 1997, UIH-SFCC has also
advanced $7.6 million as a bridge loan to SFCC, approximately $5.0 million of
which was converted into convertible debentures of SFCC, which are convertible
into preferred stock of SFCC. UIH-SFCC has converted 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.
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As holder of 100% of the preferred stock of SFCC, the Partnership is
entitled to designate three of the six members of SFCC's board of directors. In
addition, certain actions by SFCC require the approval of at least two of the
directors designated by the Partnership. These decisions include expenditures
exceeding 50,000 French francs, borrowing funds or making loans or guarantees,
transferring material assets, adopting or modifying or deviating from an annual
business plan, investing in any other business or activity and certain other
matters specified in the Articles of Association of SFCC. As general partner of
the Partnership, UIH-SFCC has broad powers to manage the Partnership's affairs,
subject to fiduciary duties.
The Articles of Association of SFCC provide that (a) the preferred shares
of SFCC are freely transferable and (b) sales of the common shares are subject
to a right of first refusal in favor of the other shareholders of the Issuer.
In the case of a sale of common shares, each other shareholder may require the
purchaser to purchase the other shareholders' shares on the same terms. As
general partner of the Partnership, UIH-SFCC may cause the Partnership to sell
the preferred shares of SFCC to third parties. If any such sale occurs before
June 1, 1999, however, then each limited partner will have the right to receive
a distribution of its pro rata portion of the preferred shares before they are
sold to the third party. Sales of interests in the Partnership are subject to a
right of first refusal in favor of the other partners. In the case of a sale of
a general partner's interest, the limited partners may require the purchaser to
purchase their interests on the same terms as the purchase of the general
partner's interests.
UNITED WIRELESS
United Wireless is a wholly owned subsidiary of the Issuer.
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<PAGE>
MANAGEMENT
The directors and executive officers of the Company and the key employees
of the operating companies and their ages and positions with the respective
company are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
----
<S> <C> <C>
THE COMPANY:
Gene W. Schneider........ 71 Chairman of the Board
Michael T. Fries......... 34 President, Chief Executive Officer and Director
J. Timothy Bryan......... 36 Chief Financial Officer and Director
John C. Porter........... 39 Chief Operating Officer
Kevin Ong................ 41 Vice President--Finance
Mark L. Schneider........ 42 Director
OPERATING COMPANIES:
Bruce Mann............... 41 Director of Sales and Marketing, Austar
Robert J. Birrell........ 34 Finance Director, Austar
Jack B. Matthews......... 45 Chief Executive Officer, Saturn
Michel Laurent........... 44 Managing Director, Telefenua
Joseph P. Gatto, Jr...... 50 Chief Executive Officer, United Wireless
</TABLE>
Senior management of the Company, initially Mr. Porter, will participate in
a non-voting, advisory role to the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
GENE W. SCHNEIDER has served as Chairman of the Board of Directors of the
Company and UAP since their respective formations. He has served as Chairman of
the Board of Directors of UIH since May 1989 and UIH's Chief Executive Officer
since October 1995. Mr. Schneider was, until November 1991, Chairman of United
Artists Entertainment Company, the third-largest U.S. cable television company
and the largest theater owner in the world. He was founder of United Cable
Television Corporation ("United Cable") in the early 1950's and, as its Chairman
and Chief Executive Officer, built United Cable into the eighth-largest multiple
system operator prior to merging with United Artists Entertainment Company
("United Artists") in 1989. He has been active in cable television affairs and
has served on numerous National Cable Television Association ("NCTA") committees
and special projects since NCTA's inception in the early 1950's. He also has
served on the boards of directors of several other companies, including Turner
Broadcasting Corporation.
MICHAEL T. FRIES has served as Chief Executive Officer of the Company since
November 1996, as President of the Company and UAP since their respective
formations, and as a Director of the Company and UAP since November 1996. Mr.
Fries was President of UIH Asia/Pacific, Inc., the predecessor to the Company
previously responsible for all operating and development activities of the
Company in the Asia/Pacific region. Prior to assuming that position in 1995,
Mr. Fries served as Senior Vice President, Development, of UIH, in which
capacity he was responsible for managing UIH's worldwide acquisitions and new
business development activities since March 1990, including UIH's expansion into
the Asia/Pacific market. From 1985 to 1990, Mr. Fries was employed by
PaineWebber Incorporated (New York) where he spent approximately one year in the
firm's venture capital group and four years in the investment banking division,
specializing in domestic and international transactions for companies in the
media and telecommunications industry.
J. TIMOTHY BRYAN is the Chief Financial Officer and a Director of both the
Company and UAP, positions he has held since December 1996. Effective January
1, 1997, he became the Chief Financial Officer of UIH. Prior to joining UIH in
December 1996, Mr. Bryan served as Vice President of Finance and Treasurer of
Jones Financial Group, Inc., an affiliate of Jones International, Limited and
Jones Intercable, Inc. from 1993 to January 1996, and as Treasurer of Jones
Intercable, Inc. from 1990 to 1993. From 1988 through 1990, he served in the
Communications Division of the Corporate Banking Department of NationsBank of
North Carolina and from 1983 to 1988, worked at Mellon Bank Corporation in the
Corporate and International Banking Departments.
JOHN C. PORTER has served as Chief Operating Officer of the Company since
November 1996 and Chief Operating Officer of Austar since April 1995, where he
directly managed the technical, operating and administrative
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<PAGE>
aspects of Austar's multi-channel systems and was the principal executive in the
field responsible for the launch of MMDS and cable systems, as well as Austar's
DTH business. As Chief Operating Officer of the Company, Mr. Porter will
continue to participate in the management and operations of Austar, along with
the Company's other operating companies. Prior to joining Austar, Mr. Porter
spent the last 10 years serving in various capacities for Time Warner Cable, a
subsidiary of Time Warner, Inc. Most recently, Mr. Porter acted as the Division
President, Central Ohio, a 170,000 subscriber, 400 employee division. Mr. Porter
has over 16 years of management experience in the U.S. multi-channel television
industry.
KEVIN ONG has served as Vice President-Finance of the Company since May
1996. Prior to joining UIH, Mr. Ong served in various financial and senior
management positions with U.S. and international cable television operators.
From 1988 to 1994, Mr. Ong served as Director with Jones Intercable, Inc. and
Treasurer of Jones International, Limited, where he was responsible for
financial operations and various accounting functions. From 1977 to 1988, Mr.
Ong was employed at KPMG Peat Marwick, attaining an audit senior manager
position.
MARK L. SCHNEIDER has been a Director of the Company since November 1996.
Mr. Schneider is also a Director of UIH and UAP. In December 1996, Mr.
Schneider became Executive Vice President 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. During these periods Mr.
Schneider was responsible for all of its international multi-channel television
system and programming activities. Prior to joining UIH, he served as Vice
President of Corporate Development at United Cable from March 1987 until May
1989. In that position, he was responsible for United Cable's acquisition and
development of international cable television systems and other businesses.
Gene W. Schneider and Mark L. Schneider are father and son. No other
family relationships exist between any other executive officers or directors of
the Company.
OTHER MANAGEMENT
Senior management of the operating companies include the following
individuals:
BRUCE MANN has served as Sales and Marketing Director of Austar since
joining that company in April 1995. Mr. Mann is responsible for the development
of Austar's marketing and sales techniques and has played a critical role in the
successful implementation of these plans throughout Austar's franchise area.
Mr. Mann has been involved in various marketing capacities of communications and
entertainment companies for the past 15 years including eight years at Time
Warner Cable as Director of Marketing-Brooklyn, Queens. From 1994 until joining
Austar, Mr. Mann served as President, National Division, of Cross Country
Wireless, Inc., a U.S. provider of wireless multi-channel television services.
From 1991 to 1994, Mr. Mann served as Vice President-Marketing of Washington
Redskins/Jack Kent Cooke Stadium, Inc., specializing in sports and entertainment
related promotion, advertising and marketing.
ROBERT J. BIRRELL has served as Finance Director of Austar since January
1996 and has been involved with the development aspects of the Austar business
since April 1994. Mr. Birrell is responsible for the accounting, finance,
inventory control, investor relations and legal aspects of Austar's business.
Prior to joining Austar, Mr. Birrell has been involved with various activities
in large scale retailing in the Australian marketplace. From 1985 to 1993, Mr.
Birrell served as Treasurer of Industrial Equity Limited, an Australian based
investment company, and prior to that as Manager Arbitrage of Macquarie Bank
Limited. Mr. Birrell has over 14 years experience in the banking and business
environment in Australia.
JACK B. MATTHEWS has served as Chief Executive Officer of Saturn since
joining that company in January 1995. Mr. Matthews is responsible for technical,
operating and marketing aspects of the business. Mr. Matthews has served in
various general management capacities with several U.S. multiple system
operators including, Cox Cable Communications and Continental Cablevision. From
August 1993 until joining Saturn, Mr. Matthews was the Vice President-Sales &
Marketing of Arrowsmith Technologies, a cable technology company which develops
and installs advanced field operations management and operations support systems
for the cable television industry. From 1990 to 1993, Mr. Matthews was the
President of COMM/ONE, a entrepreneurial business marketing sophisticated video
and voice processing systems. Mr. Matthews has over 14 years of U.S. multi-
channel television industry experience.
MICHEL LAURENT has served as Managing Director of Telefenua since May 1995.
Since joining Telefenua, Mr. Laurent has been responsible for the launch of
Telefenua's service and rapid increase in its customer base. From 1991 until
joining Telefenua, Mr. Laurent held various positions with Videotron Limited,
the largest cable television and telecommunications company in the province of
Quebec and the second largest multiple system operator in Canada.
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<PAGE>
Mr. Laurent most recently served as Vice President of Operations for Videotron's
Montreal division and was responsible for technical, operating and marketing
aspects of the business. Mr. Laurent is fluent in French and English.
JOSEPH P. GATTO, JR. has been the Chief Executive Officer of United
Wireless since May 1996. Mr. Gatto was the Vice President-Development of UAP
focusing on telecommunications business development within the Asia/Pacific
region. Prior to joining UIH, Mr. Gatto was the Director of Sales of Plexsys
International Corp., a cellular system network manufacturer, where he was
responsible for worldwide sales. Mr. Gatto has also served in various sales and
marketing capacities for U.S. and Asian telecommunications and technology
companies.
EXECUTIVE COMPENSATION
All of the officers of the Company are employed by UIH, the majority
indirect stockholder of the Company. The Company pays no separate compensation
to these officers; however, the Company and UIH are parties to the 10-year
management agreement (the "UIH Management Agreement"), pursuant to which the
Company pays UIH a management fee for certain services provided to the Company.
Most of the members of senior management of Austar, 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
Assistance Agreements between UIH and each of Austar, Saturn and Telefenua.
Gene W. Schneider, the Company's Chairman, is also the Chairman and Chief
Executive Officer of UIH and spends only a portion of his time on matters
pertaining to the Company and its operations. The Chief Executive Officer of
the Company, Michael T. Fries, is also an officer and employee of UIH and spends
approximately 75% of his time on matters pertaining to the Company and its
operations. J. Timothy Bryan, the Company's Chief Financial Officer, is also an
officer and employee of UIH and spends only a portion of his time on matters
pertaining to the Company and its operations. The services of Messrs.
Schneider, Fries and Bryan 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 and Bryan, the Company pays a management fee to UIH
under the UIH Management Agreement for certain services, including those of
Messrs. Schneider, Fries and Bryan, performed on behalf of the Company. The
following chart summarizes the compensation paid during the years ended December
31, 1995 and 1996 to the Company's Chief Executive Officer and the four most
highly compensated executive officers of the Company and the operating
companies.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS(1)
SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS(#) COMPENSATION (2)
------------------------- --------- ----------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------ ---- -------- -------
<S> <C> <C> <C> <C> <C>
Gene W. Schneider(3) 1996 $346,827 $ -- 100,000 $4,750
Chairman 1995 324,577 -- 40,000 4,620
Michael T. Fries(3) 1996 230,577 -- 10,000 4,750
Chief Executive Officer 1995 212,769 -- 35,000 4,620
Robert G. McRann(4) 1996 221,423 79,377 (5) -- 4,750
Managing Director, Austar 1995 161,538 24,279 (5) -- 3,836
John C. Porter(6) 1996 195,986 77,911 (7) -- 4,750
Chief Operating Officer 1995 138,750 25,748 (7) -- 3,468
Donald F. Hagans 1996 199,038 35,000 -- --
Vice President--Australia 1995 175,000 -- 12,000 --
</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) Effective July 1997, the secondment agreement between UIH and Austar,
pursuant to which Mr. McRann served as managing director of Austar, was
terminated.
(5) Includes $29,985 and $24,279 of additional cash compensation relating to the
overseas assignment of Mr. McRann during 1996 and 1995, respectively.
(6) Mr. Porter became an employee of UIH on March 27, 1995.
(7) Includes $35,509 and $25,748 of additional cash compensation relating to the
overseas assignment of Mr. Porter during 1996 and 1995, respectively.
Messrs. Schneider, Fries and Hagans, as employees and officers of UIH,
have been granted options to acquire stock of UIH. Messrs. McRann and Porter
have not been granted any options by UIH. The following tables set forth
information concerning options to purchase shares of UIH Class A Common Stock
granted to these executives in the last fiscal year as well as the value of
unexercised options held by such executives as of December 31, 1996. No such
executive has exercised any options during the fiscal year ended December 31,
1996.
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<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR(1)
POTENTIAL REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
INDIVIDUAL APPRECIATION FOR
GRANTS OPTION TERM(2)
---------------------------------------------------- -----------------
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider............. 100,000 15.27 $12.75 12/20/06 $801,841 $2,032,022
Michael T. Fries.............. 10,000 1.53 12.75 12/20/06 80,184 203,202
Robert G. McRann.............. -- -- -- -- -- --
John C. Porter................ -- -- -- -- -- --
Donald F. Hagans.............. -- -- -- -- -- --
</TABLE>
- -------------------
(1) Stock options granted are for UIH Class A Common Stock. The stock options
granted during the last fiscal year become exercisable with respect to 25%
of the shares covered thereby after the first anniversary of the effective
date of the grant and with respect to the remaining 75% in equal monthly
increments over the three-year period thereafter. The initial 25% of all of
the options listed in this table becomes exercisable on December 20, 1997.
Vesting of the options granted is accelerated upon a change of control of
UIH as defined in UIH's stock option plan.
(2) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts shown
are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of the Common Stock, continued employment of the optionee
through the term of the options, and other factors.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Gene W. Schneider.................... -- -- 143,125/146,875 --
Michael T. Fries..................... -- -- 115,624/49,375 --
Robert G. McRann..................... -- -- -- --
John C. Porter....................... -- -- -- --
Donald F. Hagans..................... -- -- 64,500/27,499 --
</TABLE>
AGREEMENTS WITH EMPLOYEES
Many of the employees serving as senior management in the Company's
operating companies are parties to employment agreements typically with terms of
three to five years. The agreements generally provide for a specified
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base salary as well as a bonus set at a specified percentage of the base salary,
which bonus is based on the performance of the respective company and employee.
The agreements often provide for the grant of an incentive interest equal to a
percentage of the residual equity value of the respective company which is
typically defined as the fair market value of the business less net liabilities
and a reasonable return on shareholders' investment. The employment agreements
generally also provide for cost of living differentials, relocation and moving
expenses, automobile allowances and income tax equalization payments, if
necessary, to keep the employee's tax liability the same as it would be in the
United States.
Of the persons identified in the Summary Compensation Table, Mr. McRann has
such an employment agreement with UIH. This employment agreement provides for
an annual base salary of $225,000 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 Austar as well as Mr. McRann's individual performance. Mr. McRann
was also granted an incentive interest, that vests over a four year period,
equal to .75% of the "residual equity value" of Austar, calculated as (i) ten
times EBITDA from the prior 12 months, less (ii) the sum of Austar's net
liabilities and an amount equal to the total shareholder investment in Austar,
plus a 12% compounded annual return on such investment. In the event of a change
of control of Austar, the residual equity value will be the greater of (x) the
amount calculated above or (y) the net gross proceeds to the shareholders from
the event that causes the change of control, less an amount equal to the total
shareholder investment in Austar, plus a 12% compounded annual return on such
investment. Austar reimburses UIH under the Technical Assistance Agreement for
employment costs associated with Mr. McRann.
COMPENSATION OF DIRECTORS
All of the directors of the Company are also directors or officers of UIH,
the majority stockholder of the Company, or officers of the Company. They
receive no separate cash 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. UIH's Compensation
Committee, none of the members of which are employees or executive officers of
the Company, determine the compensation of the Company's executive officers in
their capacity as employees of UIH. Directors or executive officers of the
Company may serve on the Boards of Directors of Austar, Saturn, Telefenua and
XYZ and as part of their duties may determine the compensation of those
operating companies' employees. None of the employees of such operating
companies, however, are directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles 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 Articles 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
Articles 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
UAP owns all of the 13,864,941 issued and outstanding shares of common
stock of the Company.
The Company issued on November 17, 1997, warrants exercisable for 3.4% of
its common stock (on a fully converted basis) for aggregate consideration of
approximately $5.1 million to holders of the 1996 Notes and the Old Notes
pursuant to the terms of the Indentures.
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CERTAIN RELATIONSHIPS
RELATIONSHIP WITH UIH AND UAP
The Company is currently a direct, wholly owned subsidiary of UIH
Asia/Pacific Communications, Inc. ("UAP"), which in turn is an indirect 98%
owned subsidiary of UIH. Prior to the Issuer's offering of the 1996 Notes in
May 1996 (the "May 1996 Offering"), its operations were funded by UIH.
Immediately prior to the May 1996 Offering, UIH Australia, Inc., UIH Australia
II, and UIH Australia III, Inc. (the "UIH Australia Subsidiaries"); UIH New
Zealand, Inc. (the "UIH New Zealand Subsidiary"); UIH-SFCC, Inc. (the "UIH
Tahiti Subsidiary"); and UIH Australia Holdings, Inc. were merged with and into
the Company (the "Merger"). The UIH Australia Subsidiaries held UIH's interest
in Austar, the UIH New Zealand Subsidiary held UIH's interest in Saturn, the UIH
Tahiti Subsidiary held UIH's interest in Telefenua, UIH Australia Holdings, Inc.
held UIH's interest in United Wireless (the "UIH Wireless Subsidiary") and the
Company 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 Company 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, 1995 and 1996, UIH
contributed (i) a total of $19.7 million, $50.8 million and none, respectively,
to the UIH Australia Subsidiaries, which amounts were used to fund the UIH
Australia Subsidiaries' investment in Austar; (ii) a total of $2.5 million, none
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, $6.9 million and none, 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, $911,000 and $875,000,
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, $5.1 million and $1.8 million, respectively, to the Company, which
amounts were used to fund the Company's investment in XYZ. No additional shares
of capital stock were issued to UIH in connection with these capital
contributions. During the years ended December 31, 1994, 1995 and 1996, UIH
made bridge loans (i) totaling none, $5.4 million and $19.6 million,
respectively, to certain of the UIH Australia Subsidiaries, which amounts in
turn were used to make loans to Austar; (ii) totaling none, $2 million and $2.8
million, respectively, to the UIH New Zealand Subsidiary, which amounts in turn
were used to make loans to Saturn; and (iii) totaling none, $6.8 million and
$600,000, 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% per annum. At the time of the
May 1996 Offering, the Company acquired $25 million of these bridge loans and
the remaining portion of the bridge loans were contributed to the Company.
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 Company's acquisition in July 1996 of the remaining
50% interest of Saturn it did not hold at the time, the Issuer declared and paid
a dividend of 387 shares of common stock to UAP and issued to the other
shareholder of Saturn, 13 shares of common stock, which represented 2.6% of the
Issuer's issued and outstanding common stock. The former shareholder of Saturn
subsequently exchanged this interest in the Issuer for common stock of UAP.
From time to time, UAP and UIH have advanced funds to the Company as
permitted by the terms of the Indenture governing the 1996 Notes. As of June
30, 1997, there was approximately $10 million of related party notes owed to UAP
and UIH, a substantial portion of which was used to finance Saturn's operations
before SaskTel's investment in Saturn. These notes accrue interest at 15% per
annum. The Company anticipates that additional amounts will be funded from time
to time by UAP or UIH as permitted by the Indentures governing the 1996 Notes
and the Notes.
UAP MANAGEMENT AGREEMENT AND TECHNICAL ASSISTANCE AGREEMENTS
The Company and UAP are parties to a management agreement (the "UAP
Management Agreement"), pursuant to which UAP agreed to continue to perform
certain administrative, accounting, financial reporting and other services for
the Company, which has no separate employees of its own. Pursuant to the UAP
Management Agreement, UAP is paid an initial management fee of $750,000 for the
first year of such agreement, which fee increased, effective May 1, 1997 (the
first anniversary date of the UAP Management Agreement) and will increase each
anniversary date thereafter by 8% per year. In addition, the Company reimburses
UAP for all out-of-pocket expenses incurred by UAP in performance of its duties
under the UAP Management Agreement, including travel, lodging and entertainment
expenses. UAP calculated the management fee for the first year of the UAP
Management Agreement, based upon an estimate of staff hours to accomplish the
various administrative, accounting, financial reporting and other services to be
provided to the Company under the UAP Management Agreement. UAP then calculated
the percentage those hours constituted of the respective employees' annual work
hours and multiplied that percentage by the employment cost for such
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employees to UAP. The Company believes the fee payable under the UAP Management
Agreement to be comparable to the costs for such services if obtained from a
non-affiliate of UAP. The Company understands that UAP has contracted for
certain services that UAP in turn provides under the UAP Management Agreement
from UIH.
UAP and each of Austar, Saturn and Telefenua are parties to Technical
Assistance Agreements, pursuant to which UAP provides certain technical
assistance in connection with such operating companies' design, development,
construction, marketing and operation of their respective multi-channel
television systems. In addition, pursuant to such agreements, certain members
of senior management of Austar, Saturn and Telefenua are employees of UAP that
have been seconded to the respective operating companies. Fees paid under these
Technical Assistance Agreements are typically a percentage (5% for Austar, 2.5%
for Saturn and 3% declining to 2% for Telefenua) of gross revenues generated by
the operating companies plus reimbursements for costs associated with such
seconded employees. For the year ended December 31, 1994, Austar, Saturn and
Telefenua had accrued fees to UAP under their respective Technical Assistance
Agreements of approximately $89,000, $3,000 and $0, respectively. For the year
ended December 31, 1995, Austar, Saturn and Telefenua had accrued fees to UAP
under their respective Technical Assistance Agreements of approximately $1.5
million, $0 and $1.2 million, respectively. For the year ended December 31,
1996, Austar, Saturn and Telefenua had accrued fees under these agreements of
approximately $1.1 million, $1.0 million and $1.8 million, respectively. The
fees payable to UAP under each of the Technical Assistance Agreements were
negotiated between UAP and their respective companies and their other
shareholders at such time as UAP did not hold the majority interest in such
Operating Companies. Saturn has a similar Technical Assistance Agreement with
its 35% shareholder, SaskTel, with a fee thereunder of 2.5% per year.
TAX SHARING AGREEMENT
The Company is included as a member of UIH's consolidated tax return and,
is a member of the UIH consolidated group (as long as non-UIH ownership of the
Company does not exceed 20%). UIH and the Company 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 Company will
reimburse UIH for the portion of the tax cost relating to the Company and its
operations.
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DESCRIPTION OF THE SECURITIES
The Notes were issued under an Indenture (the "Indenture") dated as of
September 23, 1997 between the Issuer and Firststar Bank of Minnesota, N.A.,
as trustee (the "Trustee"). A copy of the Indenture is filed as an exhibit to
the Registration Statement. Upon the issuance of the Exchange Notes, 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 summary of certain provisions of the Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act, and to all of the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part of the Indenture by reference to the Trust Indenture Act, as in
effect on the date of the Indenture. 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 $45,000,000 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, including the Existing
Notes. At the Issue Date, it is expected that there will be no outstanding
Indebtedness of the Issuer ranking junior in right of payment to the Notes.
The Notes will be effectively subordinated in right of payment to all existing
and future liabilities, including trade payables, of any of the Issuer's
subsidiaries. See "Risk Factors--Holding Company Structure; Limitations on
Access to Cash Flow."
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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 provides 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 provides 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) [intentionally omitted] (v) so long as no Default
shall have occurred and be continuing, Investments in Saturn, together with
all investments in Saturn made by the Company since May 14, 1996, 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,
together will all investments in Unrestricted Subsidiaries and Unrestricted
Affiliates made by the Company since May 14, 1996, not to exceed $15,000,000
(or, to the extent non-U.S. dollar denominated, the U.S. Dollar Equivalent
thereof) in the aggregate at any time outstanding, provided that no more than
$8,000,000 in the aggregate of Investments under this clause (vi) (or to the
extent non-U.S. dollar denominated, the U.S. Dollar Equivalent thereof) shall
constitute Investments in persons other than XYZ Entertainment Limited, plus,
in the case of the disposition or repayment of any such Investment for cash
(including upon a Revocation after the Issue Date of a Designation made after
the Issue Date), an amount equal to the lesser of the return of capital with
respect to such Investment and the cost of such Investment, in either case,
reduced by the excess, if any, of the cost of the disposition of such
Investment over the gain, if any, realized by the Issuer or such Restricted
Subsidiary in respect of such disposition; (vii) [intentionally omitted]
(viii) so long as no Default shall have occurred and be continuing, any
Investments in Unrestricted Subsidiaries and Unrestricted Affiliates
principally engaged in or which will principally engage in a Related Business
which is made with the net cash proceeds of a (1) capital contribution to the
Issuer or (2) issue or sale of Capital Stock (other than Disqualified Stock)
of the Issuer, but (to avoid duplication of the use of such net cash proceeds)
only to the extent the Company has not previously made any Restricted Payment
either (x) with such net cash proceeds pursuant to clauses (ii), (iii) or
(viii) of this paragraph or (y) which the Issuer could not have made without
including such net cash proceeds in clause (iii)(b) of the first paragraph of
the preceding paragraph plus, in the case of the disposition or repayment of
any such Investment for cash (including upon a Revocation after the Issue Date
of a Designation made after the Issue Date), an amount equal to the lesser of
the return of capital with respect to such Investment and the cost of such
Investment, in either case, reduced by the excess, if any, of the cost of the
disposition of such Investment over the gain, if any, realized by the Issuer
or such Restricted Subsidiary in respect of such disposition (excluding, in
the case of repayment of any such Investments in XYZ Entertainment, the
portion of such repayment which may be paid as dividends by the Issuer
pursuant to clause (x) of this paragraph), (ix) so long as no Default shall
have occurred and be continuing, payments of dividends (not constituting a
return of capital) on Disqualified Stock of the Issuer issued pursuant to and
in compliance
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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 provides 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, 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), so long as no default under such
agreement shall exist or would result from any such payment.
Business of the Issuer. The Indenture provides 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 provides that the
Issuer will not, and will not permit any of its Subsidiaries or controlled
Affiliates to, conduct its business in a fashion that would cause the Issuer
to be required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended), or otherwise become
subject to regulation under the Investment Company Act of 1940, as amended.
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Limitation on Transactions with Affiliates. The Indenture provides 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) [intentionally omitted], (v) [intentionally omitted],
(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 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
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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 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
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available for such offer, Notes to be purchased will be selected on a pro rata
basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, (a) up to the XYZ
Distribution Amount of the Net Cash Proceeds from any Asset Sale of the
Issuer's or any Restricted Subsidiary's direct or indirect interest in XYZ
Entertainment need not be applied as provided in the second sentence of the
first paragraph of this covenant and (b) the Issuer and the Restricted
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent (i) at least 85% of the consideration for
such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for
Fair Market Value (with Fair Market Value being determined by an Independent
Financial Advisor as required by the definition of Fair Market Value);
provided that any Net Cash Proceeds received by the Issuer or any of the
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall be subject to the provisions of the two
preceding paragraphs.
If the Issuer is required to make an Asset Sale Offer, the Issuer will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable United States or foreign securities laws and
regulations and any applicable requirements of any securities exchange on
which the Notes are listed.
Reports. The Indenture provides 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 provides that the Issuer may designate (i) any Subsidiary of the
Issuer as an "Unrestricted Subsidiary" under the Indenture and (ii) any
Restricted Affiliate as an Unrestricted Affiliate (each, a "Designation") only
if:
(a) no Default shall have occurred and be continuing after giving effect
to such Designation; and
(b) the Issuer would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of such Subsidiary or Restricted Affiliate, as the case may
be, on such date.
In the event of any such Designation, the Issuer shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount. If at any time a person designated as a Restricted
Affiliate under the Indenture ceases to constitute a Restricted Affiliate for
any reason, the Issuer shall be deemed to have made an Investment constituting
a Restricted Payment pursuant to the covenant "Limitation on Restricted
Payments" for all purposes of the Indenture in an amount equal to the Fair
Market Value of such person at such time. The Indenture will further provide
that (i) the Issuer shall not and shall not permit any Restricted Subsidiary
to, at any time (x) provide credit support for, or a guarantee of, any
Indebtedness of any Unrestricted Subsidiary or Unrestricted Affiliate, as the
case may be (including any undertaking, agreement or instrument evidencing
such Indebtedness), (y) be directly or indirectly liable for any Indebtedness
of any Unrestricted Subsidiary or Unrestricted Affiliate, as the case may be,
or (z) be directly or indirectly liable for any Indebtedness which provides
that the holder thereof may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity upon the occurrence of a default with
respect to any Indebtedness of any Unrestricted Subsidiary or Unrestricted
Affiliate, as the case may be (including any right to take enforcement action
against such Unrestricted Subsidiary or Unrestricted Affiliate, as
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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. Saturn and United Wireless shall not be designated Restricted
Subsidiaries during the term of the Indenture.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Issuer will not, in a single transaction or
through a series of transactions, consolidate or combine with or merge with or
into or, directly or indirectly, sell, assign, convey, lease, transfer or
otherwise dispose of all or substantially all of its properties and assets to
any person or persons, and the Issuer will not permit any of its Subsidiaries
to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in the
sale, assignment, conveyance, lease, transfer or disposition of all or
substantially all of the properties and assets of the Issuer and its
Subsidiaries, taken as a whole, to any person or persons, unless (a) the
Issuer shall be the continuing person or the resulting, surviving or
transferee person (in either case, the "surviving entity") shall be a company
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia; (b) the surviving entity (if other
than the Issuer) shall expressly assume all of the obligations of the Issuer
under the Notes and the Indenture and shall execute a supplemental indenture
to effect such assumption which supplemental indenture shall be delivered to
the Trustee and shall be in form reasonably satisfactory to the Trustee; (c)
immediately after giving effect to such transaction or series of transactions
on a pro forma basis (including, without limitation, any Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), the Issuer or the surviving entity
(assuming such surviving entity's assumption of the Issuer's obligations under
the Notes and the Indenture), as the case may be, would be able to incur $1.00
of Indebtedness under the proviso of the covenant "Limitation on Additional
Indebtedness and Preferred Stock of Restricted Subsidiaries;" (d) immediately
after giving effect to such transaction or series of transactions on a pro
forma basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Default shall have occurred and be
continuing; and (e) the Issuer or the surviving entity, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel stating that such transaction or series of transactions, and, if a
supplemental indenture is required in connection with such transaction or
series of transactions to effectuate such assumption, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied.
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The Indenture provides 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 provides 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 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.
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dollar denominated, the U.S. Dollar Equivalent thereof) or more or shall
have exercised any right under applicable law or applicable security
documents to take ownership of any such assets in lieu of foreclosure; or
(vii) one or more judgments, orders or decrees for the payment of money
in the amount of $5,000,000 (or, to the extent non-U.S. dollar denominated,
the U.S. Dollar Equivalent thereof) or more, either individually or in the
aggregate, shall be entered against the Issuer or any Restricted Subsidiary
or any of their respective properties and shall not be discharged and there
shall have been a period of 60 days or more during which a stay of
enforcement of such judgment or order, by reason of pending appeal or
otherwise, shall not be in effect; or
(viii) certain events of bankruptcy, insolvency, reorganization or
administration with respect to the Issuer or any Restricted Subsidiary
shall have occurred; or
(ix) [intentionally omitted]
If an Event of Default (other than an Event of Default specified in clause
(viii) above with respect to the Issuer) occurs and is continuing, then the
Trustee or the holders of at least 25% in principal amount at maturity of the
outstanding Notes may, by written notice, and the Trustee upon the request of
the holders of not less than 25% in principal amount at maturity of the
outstanding Notes shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Notes to be immediately due and payable
and upon any such declaration such amounts shall become immediately due and
payable. If an Event of Default specified in clause (viii) above with respect
to the Issuer occurs and is continuing, then the Default Amount of, and any
accrued and unpaid interest on, all outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount at maturity of outstanding Notes may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default, other than nonpayment of the Default Amount of, and any accrued and
unpaid interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree. The holders of a majority in
principal amount at maturity of the outstanding Notes also have the right to
waive past defaults under the Indenture, except a default in the payment of
the Default Amount of, or any interest on, any outstanding Note, or in respect
of a covenant or a provision that cannot be modified or amended without the
consent of all holders of Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount at maturity of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 30 days after receipt of such notice and the Trustee has not
within such 30-day period received directions inconsistent with such written
request by holders of a majority in principal amount at maturity of the
outstanding Notes. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
Default Amount of, or any accrued and unpaid interest on, such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, if an Event of Default shall occur and be continuing, the Trustee
is not under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders unless such
holders shall have offered to such Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the
holders of a majority in principal amount at maturity of the outstanding Notes
have the right to direct the time, method and place of
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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 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
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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
Firststar Bank of Minnesota, N.A. 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 provides that the Indenture and the Notes will be governed by
and construed in accordance with laws of the State of New York without giving
effect to principles of conflicts of law.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for any other capitalized terms used herein for which
no definition is provided.
"Accreted Value" means, as of any date of determination prior to May 15,
2001, the sum (rounded to the nearest whole dollar) of (a) $610.70 for each
$1,000 principal amount at maturity of Notes and (b) the portion of the excess
of the principal amount of Notes over $610.70 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.
"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
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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 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.
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"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 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 to any person, or
any person consolidates with, or merges with or into, the Issuer, in any such
event pursuant to a
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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.
"Common Stock" means any Capital Stock other than Preferred Stock.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for corporation, local, foreign and other income taxes of the Issuer
and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with U.S. GAAP.
"Consolidated Interest Expense" means, with respect to any period, without
duplication, the sum of (i) the interest expense of the Issuer and the
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with U.S. GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under any Currency Agreements
and Interest Rate Protection Obligations (including any amortization of
discounts), (c) the interest portion of any deferred payment obligation, (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit, bills of exchange, promissory notes and bankers' acceptance
financing and (e) all accrued interest and (ii) all but the principal
component of Capitalized Lease Obligations paid, accrued and/or scheduled to
be paid or accrued by such person during such period as determined on a
consolidated basis in accordance with U.S. GAAP.
"Consolidated Net Income" means, with respect to any period, the
consolidated net income of the Issuer and the Restricted Subsidiaries for such
period, adjusted, to the extent included in calculating such net income, by
excluding, without duplication, (i) all extraordinary gains or losses (on an
after-tax basis) of such person (net of fees and expenses relating to the
transaction giving rise thereto) for such period, (ii) except to the extent
dividended or otherwise distributed to the Issuer or any Restricted
Subsidiary, income of the Issuer and the Restricted Subsidiaries derived from
or in respect of all Investments in persons other than any Restricted
Subsidiary, (iii) the portion of net income (or loss) of such person allocable
to minority interests in unconsolidated persons for such period, except to the
extent actually received by the Issuer or any Restricted Subsidiary, (iv) net
income (or loss) of any other person combined with such person on a "pooling
of interests" basis attributable to any period prior to the date of
combination, (v) any gain or loss, net of taxes, realized by such person upon
the termination of any employee pension benefit plan during such period, (vi)
gains or losses in respect of any Asset Sales (on an after-tax basis and net
of fees and expenses relating to the transaction giving 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)
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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.
"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.
"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,
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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 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
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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, 14.00% 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
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.
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"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, 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 May 14, 1996 pursuant to this clause (c) and
clause (d) below shall not exceed the sum of (x) $85,000,000 plus (y) 200%
of the sum of (A) cash proceeds of capital contributions to the Issuer
after the Issue Date invested in such Existing Business and (B) cash
proceeds of the issuance of Capital Stock (other than Disqualified Capital
Stock) of Issuer after the Issue Date invested in such Existing Business;
(d) Indebtedness of the Issuer to the extent the proceeds of such
Indebtedness are utilized to finance the construction of the networks for
the Existing Business of a Restricted Subsidiary (including the purchase of
equipment for use in and the installation and construction costs related to
the construction of such networks) in the licensed service areas of such
Restricted Subsidiary existing on the Issue Date or to support the
operations or working capital requirements related to any such Existing
Business; provided, however, that any such Indebtedness (i) shall not
provide for any required payment of principal prior to the Final Maturity
Date, (ii) shall not provide for any required payment of interest prior to
May 15, 2001 and (iii) shall not be guaranteed by any Restricted
Subsidiary; provided that the aggregate principal amount of Indebtedness
incurred after May 14, 1996 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.
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(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 (g) to any person other than the Issuer or a
Restricted Subsidiary, (y) any sale or other disposition of Capital Stock
of a Restricted Subsidiary, or Designation of a Restricted Subsidiary as an
Unrestricted Subsidiary or Unrestricted Affiliate, which holds Indebtedness
of the Issuer or Indebtedness or Preferred Stock of another Restricted
Subsidiary such that such Restricted Subsidiary, in any such case, ceases
to be a Restricted Subsidiary or (z) any Restricted Affiliate which holds
Indebtedness of the Issuer or Indebtedness or Preferred Stock of another
Restricted Subsidiary ceases, for any reason, to constitute a Restricted
Affiliate;
(g) Interest Rate Protection Obligations of the Issuer and/or any
Restricted Subsidiary relating to (i) Indebtedness of the Issuer or any
Restricted Subsidiary (which Indebtedness (x) bears interest at fluctuating
interest rates and (y) is otherwise permitted to be incurred under the
"Limitation on Additional Indebtedness and Preferred Stock of Restricted
Subsidiaries" covenant) and/or (ii) Indebtedness for which a lender has
provided a commitment in an amount reasonably anticipated to be incurred by
the Issuer or a Restricted Subsidiary in the following 90 days after such
Interest Rate Protection Obligation has been incurred, but only to the
extent that the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness
(and/or Indebtedness subject to commitments) to which such Interest Rate
Protection Obligations relate; provided in no event shall any Restricted
Subsidiary incur Indebtedness under an Interest Rate Protection Obligation
under this clause (g) relating to Indebtedness of the Issuer;
(h) Indebtedness of the Issuer and/or any Restricted Subsidiary under
Currency Agreements relating to (i) Indebtedness of the Issuer or a
Restricted Subsidiary and/or (ii) obligations to purchase or sell assets,
properties or services or license programming rights, in each case,
incurred in the ordinary course of business of the Issuer or any Restricted
Subsidiary; provided that such Currency Agreements do not increase the
Indebtedness or other obligations of the Issuer and the Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder; provided, further, in no event shall any Restricted
Subsidiary incur Indebtedness under any Currency Agreement under this
clause (h) relating to Indebtedness or obligations of the Issuer;
(i) Indebtedness of the Issuer and/or any Restricted Subsidiary in
respect of performance bonds of the Issuer or any Restricted Subsidiary or
surety bonds provided by the Issuer or any Restricted Subsidiary incurred
in the ordinary course of business in connection with the construction or
operation of a Related Business (other than with respect to the production
or acquisition of programming);
(j) issuances of Preferred Stock or Indebtedness by a Restricted
Subsidiary (which Indebtedness constitutes Capital Stock of such Restricted
Subsidiary) to the holders (or, other than in the case of the Issuer or any
Restricted Subsidiary that is a holder, the Affiliates) of the common
equity of such Restricted Subsidiary (determined on an economic basis) on a
basis that is substantially proportionate to their common 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;
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(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.
"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 extent
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
bounds, 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
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of the property or materially impair the use thereof in the operation of
business by the Issuer or such Restricted Subsidiary.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock or shares whether now outstanding, or
issued after the Issue Date.
"Pro Rata Share" means a fraction, (i) the numerator of which is the
Accreted Value of Notes outstanding on the applicable purchase date and (ii)
the denominator of which is the sum of (x) the aggregate Accreted Value or of
Notes outstanding on such date and (y) if there is Pari Passu Indebtedness
which require that Net Cash Proceeds be used to offer to purchase such Pari
Passu Indebtedness, the outstanding principal amount of such Pari Passu
Indebtedness on such date.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Issuer (or any person of
which the Issuer is a direct subsidiary) which has been registered under the
Securities Act.
"Purchase Money Financing" means Indebtedness of the Issuer or any
Restricted Subsidiary incurred to finance the purchase (other than pursuant to
an Asset Acquisition) of any assets by Issuer (or incurred within 60 days
after such purchase and secured by the assets so purchased) or any Restricted
Subsidiary that will be used in a Related Business to the extent the purchase
cost for such assets is or should be included in "additions to property, plant
and equipment" in accordance with U.S. GAAP.
"Related Business" means any business in which the Issuer or its Restricted
Subsidiaries are engaged, directly or indirectly, (i) that consists primarily
of, or is related to, operating, acquiring, developing and constructing multi-
channel television systems, programming services, wire-based or "wireless"
telephony services and related services, (ii) that uses existing or future
technology for the transmission and delivery of programming, voice or other
data or (iii) that supports or is incidental to any business listed in clause
(i) or (ii).
"Restricted Affiliate" means, with respect to the Issuer, any other person
(i) of which at least 40% of the outstanding Voting Stock shall at the time be
owned, directly or indirectly, by the Issuer, and (ii) which has been
designated in a Board Resolution as a Restricted Affiliate based on a
determination by the Board that the Issuer has, directly or indirectly, the
requisite control over such other person to prevent it from taking any action
at any time in contravention of any of the provisions of the Indenture that
are applicable to Restricted Subsidiaries. The Issuer will be required to
deliver an Officers' Certificate to the Trustee, including a copy of the Board
Resolution, upon designating any person as a Restricted Affiliate.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Issuer or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Issuer (other than dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Issuer or in options, warrants or other rights to purchase Capital
Stock (other than Disqualified Stock) of the Issuer); (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock
of the Issuer (other than any such Capital Stock owned by the Issuer or a
Restricted Subsidiary); (iii) the making of any principal payment on, or the
purchase, redemption, defeasance or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled 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
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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.
"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
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can be incurred (including Permitted Indebtedness), any Investment can be made
and any Affiliate Transaction can be undertaken (a "Tested Transaction"), the
"U.S. Dollar Equivalent" of such Indebtedness, Investment or Affiliate
Transaction shall be determined on the date incurred, made or undertaken and
no subsequent change in the U.S. Dollar Equivalent shall cause such Tested
Transaction to have been incurred, made or undertaken in violation of the
Indenture.
"U.S. GAAP" means generally accepted accounting principles and practices in
the United States consistently applied by a corporation or as between
corporations and over time, as in effect from time to time; provided that, for
purposes of determining compliance with the covenants "Limitation on
Additional Indebtedness and Preferred Stock of Restricted Subsidiaries" and
"Limitation on Restricted Payments," U.S. GAAP shall mean such generally
accepted accounting principles and practices as adopted by the Issuer on the
Issue Date and as are consistent with those set forth in this Offering
Memorandum.
"Voting Stock" means, with respect to any person, the Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors or other members of the governing body of such person.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer or another
Wholly Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of an
Unrestricted Subsidiary.
"Wholly Owned Unrestricted Subsidiary" means any Unrestricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Issuer, a Wholly
Owned Restricted Subsidiary or another Wholly Owned Unrestricted Subsidiary.
For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of an Unrestricted Subsidiary.
"XYZ Distribution Amount" means, with respect to an Asset Sale of the direct
or indirect interest of the Issuer in XYZ Entertainment, the Net Cash Proceeds
of which have been distributed to the Issuer, the sum of (i) with respect to
the first $70,000,000 of such Net Cash Proceeds 100% of the amount by which
the aggregate amount of such Net Cash Proceeds exceeds $35,000,000 and (ii)
75% of the amount by which the aggregate amount of such Net Cash Proceeds
exceeds $70,000,000.
"XYZ Entertainment" means (i) XYZ Entertainment Limited and (ii) any
Replacement Asset received in consideration for the Issuer's direct or
indirect interest in XYZ Entertainment Limited upon an Asset Sale of such
interest and (iii) any Replacement Asset received in consideration of any
Replacement Asset described in the preceding clause (ii) or this clause (iii)
upon an Asset Sale of such Replacement Asset.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein 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.
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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 nor the
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, the
Issuer and the Trustee may treat the persons in whose names Securities,
including the Global Securities, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Issuer nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of the Global Note (including principal, premium, interest and
liquidated damages, if any).
The Issuer believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the Securities as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of the Global Securities will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Securities. Subject to certain conditions, any person having a
beneficial interest in any Global Security may, upon request to the Issuer or
the Trustee, as applicable, exchange such beneficial interest for such
Securities in the form of Certificated Securities. Upon any such issuance, the
Issuer or Trustee, as applicable, is required to register such Certificated
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof). All such Certificated Securities
would be subject to the legend
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requirements described herein under "Notice to Investors." In addition, if (i)
the Issuer notifies the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary and the Issuer is unable to locate a
qualified successor within 90 days or (ii) the Issuer, at its option, notifies
the Trustee in writing that it elects to cause the issuance of the applicable
Securities in the form of Certificated Securities, then, upon surrender by the
applicable Global Security Holder of its Global Security, Securities in such
form will be issued to each person that such Global Security Holder and the
Depositary identify as being the beneficial owner of the related Securities.
Neither the Issuer nor the Trustee will be liable for any delay by the
Global Security Holder or the Depositary in identifying the beneficial owners
of Securities, and the Issuer and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Security Holder
or the Depositary for all purposes.
Same-Day Settlement and Payment. The Indenture requires 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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CERTAIN U.S. INCOME TAX CONSIDERATIONS
The following is a general discussion of certain of the expected United
States federal income tax consequences applicable to holders of the Old Notes
who purchased the Old Notes pursuant to the Offering, exchange the Old Notes for
the New Notes pursuant to the Exchange Offer and held the Old Notes and will
hold the New Notes as capital assets (referred to herein as the "Holders"). It
is intended only as a descriptive summary and does not purport to be a complete
technical analysis or listing of all potential tax effects to holders of the
Notes. The Company has received an opinion from its counsel, Holme Roberts &
Owen LLP, that the following describes the material United States federal income
tax consequences expected to result to the Holders, subject to the conditions,
limitations and assumptions 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 is also based on the information included in this Prospectus and the
related documents, and on certain representations from the Company as to factual
matters. 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 Old Notes for New Notes or the ownership or
disposition of New Notes or that, if litigated, the Service's position would not
be sustained by a court.
The tax consequences to a Holder may vary depending on the Holder's
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, or in connection with a conversion transaction, persons
that have a functional currency other than the United States dollar, investors
in pass-through entities and foreign entities and individuals) may be subject to
special rules not discussed below.
As used in this discussion, the term "U.S. Holder" means a Holder that, for
United States federal income tax purposes, is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any State, (iii) an
estate the income of which is subject to United States federal income tax,
regardless of its source or (iv) a trust if (a) a court within the United States
is able to exercise primary supervision over the administration of the trust and
(b) one or more United States fiduciaries have the authority to control all
substantial decisions of the trust. The term "Non-U.S. Holder" means a Holder
that is, for United States federal income tax purposes, not a U.S. Holder.
THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS EXPECTED
AND URGED TO CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
SUCH HOLDER OF EXCHANGING OLD NOTES FOR NEW NOTES AND OF HOLDING AND DISPOSING
OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ALL STATE, LOCAL OR
FOREIGN TAX LAWS, AND POSSIBLE CHANGES IN FEDERAL INCOME TAX LAW SINCE THE DATE
OF THIS PROSPECTUS.
EXCHANGE OF NOTES
Although there is no direct authority as to whether the exchange of the Old
Notes for the New Notes pursuant to the Exchange Offer will be treated as a
taxable exchange for United States federal income tax purposes, it is the
opinion of Holme Roberts & Owen LLP, counsel to the Company that based on its
analysis of applicable law, the exchange should not be treated as a taxable
exchange for United States federal income tax purposes. Accordingly, a U.S.
Holder should not recognize gain or loss upon the exchange of Old Notes for New
Notes and, upon such exchange, should have the same adjusted tax basis in and
holding period for the New Notes as it had in the Old Notes immediately prior to
the exchange.
ORIGINAL ISSUE DISCOUNT
The New Notes will have substantial original issue discount for United
States federal income tax purposes. As a result, a U.S. Holder who acquires a
New Note generally will be required to include original issue discount in gross
income as it accrues, for United States federal income tax purposes. Therefore,
inclusion in gross income will take place in advance of the receipt of cash
payments on the New Notes.
The amount of original issue discount with respect to each Note is 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
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includes all payments, whether denominated as principal or interest, required to
be made thereunder through and including maturity. The "issue price" of a New
Note should be the same as the issue price (described below) of the Old Notes.
Each U.S. Holder will be required to include in gross income an amount
equal to the sum of the "daily portions" of the original issue discount on 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 (generally a six month period or shorter
period from the date of original issue) 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 will be equal to the product
of the "adjusted issue price" of the Note (at the beginning of the accrual
period) and the "yield to maturity" of the Notes (taking into account the length
of the particular accrual period). The adjusted issue price of a Note at the
beginning of an accrual period is the original issue price of the Note plus the
aggregate amount of original issue discount that has accrued in all prior
accrual periods less any payments (other than payments not taken into account in
determining the stated redemption price) made on the Note, subject to the
special rules for adjusted issue price described under "Contingent Interest"
below. The original issue price of the Old Notes is equal to the first price at
which a substantial amount of the Old Notes were sold to the public for money
(excluding sales to underwriters, placement agents or wholesalers, etc., acting
in an underwriting capacity). 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.
Under the original issue discount computations, during the period prior to
May 15, 2001, a U.S. Holder may include in income an amount of original issue
discount with respect to a Note that is greater than the difference between the
principal amount of the Note and the issue price of the Note. During the period
after May 15, 2001, the amount of original issue discount includable in income
by a U.S. Holder may be less than the cash payments to be made on the Note.
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 decreased from 14.75% to 14% from and after the time of an Equity Sale. It is
unclear under the Regulations how the change in the interest rate should be
reported for purposes of computing original issue discount. Although no
assurances can be given, the Company believes, and the discussion below assumes,
that the Notes will be treated as contingent payment debt instruments for United
States federal income tax purposes as a result of these terms of the Indenture.
Under the Regulations, the amount of original issue discount with respect
to the Notes for each period will accrue under the constant yield method based
upon a projected payment schedule (that takes into account the expected amount
of the contingent payments and the yield on comparable debt instruments of the
Company) and applying rules similar to the rules for accruing original issue
discount on a noncontingent debt instrument as discussed above. If the actual
amount of a contingent payment for any period differs from the scheduled
projected amount for that period, appropriate adjustments to income and loss
will be made as described below to reflect the difference.
Under the adjustment provisions of the Regulations, if the actual amount of
a contingent payment is different than the projected amount, the difference will
result in either a positive adjustment (if the actual amount is greater than the
projected amount) or a negative adjustment (if the actual amount is less than
the projected amount). All positive and negative adjustments will be netted for
each taxable year. Any net positive adjustment will be treated by a U.S. Holder
as additional interest for the taxable year. Any net negative adjustment will
be applied: first, to offset the interest that the U.S. Holder would otherwise
account for on the Note for the taxable year; second, as ordinary loss to the
U.S. Holder to the extent of prior interest inclusions on the Note in excess of
the net negative adjustments treated as an ordinary loss; and third, any
remaining net negative adjustment will be carried forward to succeeding taxable
years and if not used by
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the time the instrument is sold or matures, will be treated as a reduction in
the amount realized on the sale or retirement of the debt instrument.
Under the Regulations, the adjusted issue price of the Notes will be equal
to the issue price increased by the interest previously accrued based on the
projected payment schedule and decreased by the amount of any noncontingent
payment and the projected amount of any contingent payments previously made on
the Note. In essence, the projected payments are treated as actual payments for
purposes of making adjustments to the issue price.
A U.S. Holder's tax basis for the contingent payment debt instrument is
increased by the interest previously accrued by the U.S. Holder on the debt
instrument in accordance with the projected payment schedule and decreased by
the amount of any noncontingent payments and the projected amount of any
contingent payments previously made to the U.S. Holder.
The amount deemed received by the U.S. Holder upon the scheduled retirement
of the Notes will be the amount based on the projected payment schedule. If the
actual amount received differs from the projected amount, the difference will be
accounted for under the rules for positive and negative adjustments described
above.
Any gain recognized by a U.S. Holder on the sale, exchange or other
disposition of the Notes will generally be treated as interest income under the
Regulations. Any loss on the sale, exchange or other disposition will be
treated as an ordinary loss to the extent that the U.S. Holder's total interest
inclusions exceed the total net negative adjustments. Any additional loss will
be treated as a loss from the sale of the Notes. Notwithstanding the foregoing
rules, if there is no remaining contingent payment on the Notes at the time of
the sale, exchange or other disposition, any gain or loss recognized by the U.S.
Holder will be gain or loss from the sale or exchange of the Notes. However,
any gain will be treated as interest income to the extent of any positive
adjustments that have already been triggered but not included in income.
Under the Regulations, the Company will be required to prepare a projected
payment schedule and to make that schedule available to the record holders of
the Notes. The projected payment schedule is used to determine the U.S. Holder's
interest accruals and adjustments. Holders should consult their tax advisors as
to the specific application of the contingent payment debt instruments rules to
them.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION
In general, a U.S. Holder will recognize gain or loss upon the sale,
retirement or other taxable disposition of the Notes measured by the difference
between the amount of cash and fair market value of property received (except to
the extent attributable to accrued interest not previously taken into account)
in exchange therefor and the U.S. Holder's adjusted tax basis for the Notes.
See the special rules with respect to gain or loss and adjusted tax basis
described under "Contingent Interest" above.
With respect to tax matters relating to legal defeasance and covenant
defeasance in certain circumstances, see "Description of Securities--Description
of the Notes--Defeasance."
LIMITATION ON THE COMPANY'S INTEREST DEDUCTIONS
It is expected that the Notes will be subject to the "applicable high yield
discount obligation" provisions of the Code. As a result, the Company will not
be able to deduct any original issue discount that accrues with respect to the
Notes until the amount attributable to such original issue discount is actually
paid. In addition, 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 a corporate U.S. Holder may be
entitled, under certain circumstances, to treat the portion of the interest that
is not deductible by the Company as a dividend, which may then qualify for the
dividends received deduction provided for by the Code. In such event, corporate
U.S. Holders of Notes should consult with their own tax advisors as to the
applicability of the dividends received deduction. Except as described above,
treatment of the Notes as "applicable high yield discount obligations" will not
affect the reporting of the original issue discount as income by the
U.S. Holders.
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BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax
amount if (i) the payee fails to furnish a taxpayer identification number
("TIN") to the payor, (ii) the Service notifies the payor that the TIN furnished
by the payee is incorrect, (iii) 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 (iv) 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 Company or its paying agent or other withholding agent will be
required to withhold a tax equal to 31% of any "reportable payment," which
includes, among other things, interest actually paid, original issue discount
and amounts paid through brokers in retirement of securities. Any amount
withheld from a payment to a Holder under the backup withholding rules will be
allowed as a refund or credit against such Holder's federal income tax, provided
that the required information is furnished to the Service. Certain Holders
(including, among other, corporations and certain tax-exempt organizations) are
not subject to the backup withholding information reporting requirements.
EMPLOYEE BENEFIT PLANS
Prior to purchasing a note, a prospective Holder who is a fiduciary with
respect to an "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), must comply with
the fiduciary responsibility requirements of ERISA, including the 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.
NON-U.S. HOLDERS
Payments of interest and accruals of original issue discount on the Notes
will be exempt from United States federal income tax, including withholding tax,
if paid to a holder who is not a Non-U.S. Holder, unless the Non-U.S. Holder is
engaged in a trade or business in the United States and the income is
effectively connected with such trade or business.
A Non-U.S. Holder will not be subject to United States federal income or
withholding tax on gain realized on the sale or other disposition of the Notes
unless (i) such gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business within the United States or, if a treaty applies,
generally attributable to the United States permanent establishment maintained
by the Non-U.S. Holder, or (ii) in the case of gain realized by an individual
Non-U.S. Holder, such Holder is present in the United States for at least 183
days during the taxable year of the disposition and certain other conditions are
met.
The foregoing discussion with respect to Non-U.S. Holders does not
purport to address all tax consequences applicable to Non-U.S. Holders. All Non-
U.S. Holders are urged and expected to consult their own tax advisors as to the
tax consequences of this investment, including the applicability and effect of
foreign, state, or local tax laws.
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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 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 LLP, 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 report referred to above has been incorporated by
reference herein in reliance 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 are 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 are
incorporated by reference 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 stated in their report appearing
therein, and are incorporated by reference herein in reliance upon the report of
such firm given upon their authority as experts in giving said report.
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The financial statements of XYZ Entertainment Pty Ltd. as of December 31,
1995 and for the year then ended included in this Prospectus have been audited
by Deloitte Touche Tohmatsu, independent auditors, as stated in their report
with respect thereto, and are incorporated by reference herein upon the
authority of said firm as experts in giving said report.
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<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
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<S> <C>
UIH AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants...................... F-3
Report of Independent Auditors................................ F-4
Independent Auditors' Report.................................. F-5
Consolidated Balance Sheets as of December 31, 1995 and
1996 and September 30,1997 (Unaudited)..................... F-6
Consolidated Statements of Operations For the Years
Ended December 31, 1994, 1995 and 1996 and
For the Nine Months Ended September 30, 1996 (Unaudited) and
September 30, 1997 (Unaudited).............................. F-7
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1994, 1995 and
1996 and For the Nine Months Ended September 30, 1997
(Unaudited)................................................. F-8
Consolidated Statements of Cash Flows For the Years
Ended December 31, 1994, 1995 and 1996 and For the
Nine Months Ended September 30, 1996 (Unaudited) and
September 30, 1997 (Unaudited).............................. F-9
Notes to Consolidated Financial Statements.................... F-10
CTV PTY LIMITED
Independent Audit Report...................................... F-27
Balance Sheets as of December 31, 1994 and 1995............... F-28
Profit and Loss Accounts for the Period Ended
December 31, 1994 and the Year Ended December 31,
1995........................................................ F-29
Statements of Cash Flows for the Period Ended
December 31, 1994 and the Year Ended December 31,
1995....................................................... F-30
Notes to the Financial Statements............................. F-31
STV PTY LIMITED
Independent Audit Report...................................... F-41
Balance Sheets as of December 31, 1994 and 1995............... F-42
Profit and Loss Accounts for the Period Ended
December 31, 1994 and the Year Ended December 31,
1995........................................................ F-44
Statements of Cash Flows for the Period Ended
December 31, 1994 and the Year Ended December 31,
1995........................................................ F-45
Notes to the Financial Statements............................. F-46
XYZ ENTERTAINMENT PTY LIMITED
Independent Auditors' Report.................................. F-56
Consolidated Statements of Operations for the
Period from October 17, 1994 (date of inception)
to December 31, 1994 and the Years Ended December
31, 1995.................................................... F-57
Consolidated Balance Sheets as of December 31, 1994
and 1995.................................................... F-58
Consolidated Statements of Shareholders' Deficiency
for the Period from October 17, 1994 (date of
inception) to December 31, 1994 and the Years
Ended December 31, 1995..................................... F-59
Consolidated Statements of Cash Flows for the Period
from October 17, 1994 (date of inception) to
December 31, 1994 and the Years Ended December 31,
1995........................................................ F-60
Notes to the Consolidated Financial Statements................ F-61
</TABLE>
F-1
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<TABLE>
<S> <C>
SATURN COMMUNICATIONS LIMITED (FORMERLY KNOWN AS KIWI CABLE
COMPANY LIMITED)
Auditors' Report....................................................... F-74
Statement of Financial Performance for the Years Ended December 31,
1994 and 1995........................................................ F-75
Statement of Movements in Equity for the Years Ended December 31, 1994
and 1995............................................................. F-76
Statement of Financial Position as of December 31, 1994 and 1995....... F-77
Statement of Cash Flows for the Years Ended December 31, 1995 and 1996. F-79
Notes to and Forming Part of the Financial Statements.................. F-80
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UIH Australia/Pacific, Inc.:
We have audited the accompanying consolidated balance sheets of UIH
Australia/Pacific, Inc. (a Colorado corporation and majority-owned subsidiary of
UIH Asia/Pacific Communications, Inc.) and subsidiaries as of December 31, 1995
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1994, 1995 and 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Telefenua S.A. as of
and for the year ended December 31, 1995, a subsidiary which is consolidated in
the accompanying consolidated financial statements. UIH Australia/Pacific,
Inc.'s consolidated financial statements for the year ended December 31, 1995
reflect assets, liabilities, revenues, expenses and a net loss related to
Telefenua S.A. of $10,989,000, $9,710,000, $1,882,000, $5,438,000 and
$3,556,000, respectively. We did not audit the financial statements of XYZ
Entertainment Pty Limited ("XYZ") as of and for the year ended December 31,
1995, an investment which is reflected in the accompanying consolidated
financial statements on the equity method of accounting. UIH Australia/Pacific,
Inc.'s consolidated statement of operations reflects equity in losses related to
XYZ of $11,729,000 for the year ended December 31, 1995, and Note 4 to the
consolidated financial statements includes summarized financial data for XYZ.
The financial statements of Telefenua S.A. and XYZ as of and for the year ended
December 31, 1995 were audited by other auditors whose reports have been
furnished to us and our opinion, insofar as it relates to the summarized
financial data for Telefenua S.A. and XYZ included in Notes 3 and 4 to the
consolidated financial statements and to the amounts included in the
accompanying consolidated financial statements with respect to Telefenua S.A.
and XYZ, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of UIH Australia/Pacific,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1994, 1995 and
1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
March 28, 1997
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, 1995
and the related statement of income and changes in financial position for the
year 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 audit.
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 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 financial statements referred to above present fairly,
in all material respects, the financial position of TELEFENUA SA as of December
31, 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
for 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 shareholders' equity
are set forth in Note 2(a) of the notes to the financial statements.
Coopers & Lybrand
Papeete, Tahiti
February 16, 1996
F-4
<PAGE>
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, stockholders' 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 stockholders' 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-5
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
--------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 8,730 $ 19,220 $ 45,689
Short-term investments................ -- 18,640 --
Subscriber receivables................ 138 1,625 2,519
Related party receivables............. 1,907 1,958 2,194
Other current assets.................. 932 2,393 2,645
-------- --------- ---------
Total current assets............ 11,707 43,836 53,047
Investments in and advances to
affiliated companies, accounted for
under the equity method................ 2,829 -- --
Other investments in affiliated
companies, including marketable equity
securities............................. -- 1,372 2,031
Property, plant and equipment, net of
accumulated depreciation of $1,217
$31,611, and $67,449, respectively..... 27,630 193,170 191,496
License fees, net of accumulated
amortization of $442, $2,520, and
$3,324, respectively................... 10,693 10,387 8,644
Goodwill, net of accumulated
amortization of $38, $3,835, and
$6,932, respectively................... 45,324 58,134 53,839
Other non-current assets, net,
including $0, $1,600, and $1,600,
respectively, of related party
receivables............................ 1,112 12,424 14,872
-------- --------- ---------
Total assets..................... $ 99,295 $ 319,323 $ 323,929
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued
liabilities, including $1,488,
$1,575, and $18,653, respectively,
of related party payables.............. $ 7,749 $ 20,468 $ 37,624
Construction payables.................... -- 38,331 6,924
Accrued funding obligation............... 1,834 1,270 904
Other current liabilities, including
related party notes of $0, $0,
and $4,999, respectively............... 169 722 6,285
-------- --------- ---------
Total current liabilities.......... 9,752 60,791 51,737
Due to parent............................ 11,095 2,758 4,112
Senior discount notes and other
liabilities............................. 867 251,397 370,183
-------- --------- ---------
Total liabilities............... 21,714 314,946 426,032
-------- --------- ---------
Minority interest in subsidiaries........ 2,515 -- 13,227
Commitments (Note 12)
Stockholders' Equity (Deficit):
Common stock, $.01 par value,
30,000,000 shares authorized,
13,504,453, 13,864,941 and 13,864,941
shares issued and outstanding,
respectively......................... 139 139 139
Additional paid-in capital............ 93,643 112,346 118,331
Unrealized loss on investment......... -- (3,412) (2,753)
Cumulative translation adjustments.... 191 2,197 (9,734)
Accumulated deficit................... (18,907) (106,893) (221,313)
-------- --------- ---------
Total stockholders' equity
(deficit)........................ 75,066 4,377 (115,330)
-------- --------- ---------
Total liabilities and
stockholders' equity (deficit)... $ 99,295 $ 319,323 $ 323,929
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-6
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED SEPTEMBER 30, 1997
DECEMBER 31, (UNAUDITED)
------------------------------------ ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Service and other revenue................$ -- $ 1,883 $ 24,977 $ 13,262 $ 49,052
System operating expense, including
$85, $610, $787, $362 and $2,174,
respectively, of related party
expenses................................ -- (3,230) (30,730) (13,276) (35,857)
System selling, general and
administrative expense.................. -- (2,482) (24,800) (19,625) (37,025)
Corporate general and administrative
expense, including $659, $918, $750,
$563 and $885, respectively, of
management fees to
related party........................... (659) (920) (1,376) (746) (885)
Depreciation and amortization............ -- (1,003) (36,269) (15,935) (57,797)
---------- ---------- ---------- ---------- ----------
Net operating loss................... (659) (5,752) (68,198) (36,320) (82,512)
Equity in losses of affiliated companies. (1,015) (16,379) (5,414) (4,501) (2,000)
Gain on sale of investment in
affiliated company...................... -- 4,132 -- -- --
Interest income.......................... -- 157 4,106 3,284 526
Interest expense......................... -- (30) (20,298) (12,855) (29,043)
Interest expense, related party, net..... -- -- (458) -- (633)
Other income (expense), net.............. -- 219 90 1,001 (1,109)
---------- ---------- ---------- ---------- ----------
Net loss before minority interest.... (1,674) (17,653) (90,172) (49,391) (114,771)
Minority interest in subsidiary.......... -- 420 2,186 2,062 351
---------- ---------- ---------- ---------- ----------
Net loss.............................$ (1,674) $ (17,233) $ (87,986) $ (47,329) $ (114,420)
========== ========== ========== ========== ==========
Net loss per common share................$ (0.12) $ (1.28) $ (6.44) $ (3.48) $ (8.25)
========== ========== ========== ========== ==========
Weighted average number of common shares
outstanding.............................13,504,452 13,504,452 13,670,832 13,615,372 13,864,941
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
operations.
F-7
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED CUMULATIVE
--------------- PAID-IN LOSS ON TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL INVESTMENT ADJUSTMENTS DEFICIT TOTAL
------ ------ ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994............ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock............. 13,504,453 135 -- -- -- -- 135
Capital contributions from
parent.............................. -- -- 25,207 -- -- -- 25,207
Cumulative translation
adjustment.......................... -- -- -- -- 405 -- 405
Net loss............................. -- -- -- -- -- (1,674) (1,674)
---------- ------ -------- ------- ------- --------- ---------
Balances, December 31, 1994.......... 13,504,453 135 25,207 -- 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.......... 13,504,453 135 93,647 -- 191 (18,907) 75,066
Capital contributions from
parent.............................. -- -- 10,903 -- -- -- 10,903
Acquisition of remaining 50%
interest in Saturn.................. 360,488 4 7,796 -- -- -- 7,800
Unrealized loss on investment........ -- -- -- (3,412) -- -- (3,412)
Change in cumulative
translation adjustment.............. -- -- -- -- 2,006 -- 2,006
Net loss............................. -- -- -- -- -- (87,986) (87,986)
---------- ------ -------- ------- ------- --------- ---------
Balances, December 31, 1996.......... 13,864,941 $ 139 $112,346 $(3,412) $ 2,197 $(106,893) $ 4,377
Gain on sale of stock by subsidiary
(unaudited)......................... -- -- 5,985 -- -- -- 5,985
Unrealized loss on investment
(unaudited)......................... -- -- -- 659 -- -- 659
Change in cumulative translation
adjustments (unaudited)............. -- -- -- -- (11,931) -- (11,931)
Net loss (unaudited)................. -- -- -- -- -- (114,420) (114,420)
---------- ------ -------- ------- ------- --------- ---------
Balances, September 30, 1997
(unaudited)......................... 13,864,941 $ 139 $118,331 $(2,753) $(9,734) $(221,313) $(115,330)
========== ====== ======== ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
stockholders equity.
F-8
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
---------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................. $ (1,674) $(17,233) $ (87,986) $ (47,329) $(114,420)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization............ -- 1,003 36,269 15,935 57,797
Equity in losses of affiliate
companies, net.......................... 1,015 16,379 5,414 4,501 2,000
Gain on sale of investment in
affiliated company...................... -- (4,132) -- -- --
Minority interest share of losses........ -- (420) (2,186) (2,062) (351)
Increase (decrease) in technical
assistance agreement
payables................................ -- -- 1,677 1,772 2,248
Loan guarantee fee....................... -- -- (784) -- --
Accretion of interest on senior
discount notes.......................... -- -- 20,067 12,028 26,969
Increase in subscriber receivables....... -- -- (1,487) (3,580) (1,079)
(Increase) Decrease in other assets...... (1,852) (1,487) (1,512) (6,855) 165
Increase in accounts payable,
accrued liabilities and other........... 11 238 13,185 17,473 19,992
-------- -------- --------- --------- ---------
Net cash flows from operating activities. (2,500) (5,652) (17,343) (8,117) (6,679)
-------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments....... -- -- (199,242) (132,887) (3,663)
Proceeds from sale of short-term
investments............................. -- -- 180,602 105,257 22,303
Restricted cash deposited................ -- -- -- (10,000) --
Investments in and advances to
affiliated companies and other
investments............................. (22,841) (22,472) (16,204) (10,651) (2,366)
Purchase of additional interests in
Austar, net of cash acquired
in 1995................................. -- (8,017) (7,920) -- --
Proceeds from sale of investment in
affiliated company...................... -- 4,132 -- -- --
Purchase of property, plant and
equipment............................... (1) (7,648) (187,100) (105,899) (67,948)
Increase (decrease) in construction
payables................................ -- -- 38,331 5,636 (29,385)
-------- -------- --------- --------- ---------
Net cash flows from investing activities. (22,842) (34,005) (191,533) (148,544) (81,059)
-------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent........ 25,342 38,600 10,664 10,664 --
Cash contribution from minority interest
partners................................ -- -- -- -- 20,336
Proceeds from offering of senior
discount notes.......................... -- -- 225,115 225,115 29,925
Borrowings on bridge loan related party
payables to parent...................... -- 9,927 15,073 15,073 4,999
Payment of bridge loan payable to parent. -- -- (25,000) (25,000) --
Deferred debt offering costs............. -- -- (10,007) (9,624) (4,632)
Borrowing on other debt.................. -- -- 2,465 13 65,971
Payment on other debt.................... -- -- -- -- (959)
-------- -------- --------- --------- ---------
Net cash flows from financing activities. 25,342 48,527 218,310 216,241 115,640
-------- -------- --------- --------- ---------
EFFECT OF EXCHANGE RATES ON CASH......... -- (140) 1,056 918 (1,433)
-------- -------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. -- 8,730 10,490 60,498 26,469
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. -- -- 8,730 8,730 19,220
-------- -------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD. $ -- $ 8,730 $ 19,220 $ 69,228 $ 45,689
======== ======== ========= ========== =========
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Non-cash capital contribution of
preferred stock from parent
utilized in purchase of
additional 40% interest in Austar....... $ -- $ 29,840 $ -- $ -- $ --
======== ======== ========= ========== ==========
Non-cash stock issuance utilized in
purchase of 50%
Interest in Saturn...................... $ -- $ -- $ 7,800 $ 7,800 $ --
======== ======== ========= ========== ==========
Gain on issuance of shares by a wholly-
owned subsidiary........................ $ -- $ -- $ -- $ -- $ 5,985
======== ======== ========= ========== ==========
(Increase) decrease in unrealized loss
on investment........................... $ -- $ -- $ -- $ (784) 659
======== ======== ========= ========== ==========
Assets acquired with capital leases..... $ -- $ -- $ 3,632 $ 1,707 $ --
======== ======== ========= ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash received for interest........... $ -- $ -- $ 262 $ 131 $ 377
======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
cash flows.
F-9
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1995 AND 1996, AND JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Monetary Amounts in Thousands)
1. ORGANIZATION AND BACKGROUND
UIH Australia/Pacific, Inc. (the "Company"), a majority-owned subsidiary of
UIH Asia/Pacific Communications, Inc. ("UAP"), which is in turn an indirect
wholly-owned subsidiary of United International Holdings, Inc. ("UIH"), was
formed on October 14, 1994, for the purpose of developing, acquiring and
managing foreign multi-channel television, programming and telephony operations.
Immediately prior to the May 1996 offering (the "May 1996 Offering") of the
Company's 14% Senior Discount Notes due 2006 (the "Notes"), 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 Holdings, Inc.
were merged with and into the Company. The UIH Australia Subsidiaries held UIH's
interest in the two companies that form Austar, the UIH New Zealand Subsidiary
held UIH's interest in Saturn Communications Limited ("Saturn"), the UIH
Tahiti Subsidiary held UIH's interest in Telefenua S.A. ("Telefenua"), UIH
Australia Holdings, Inc. held UIH's interest in United Wireless Pty Limited
("United Wireless") and the Company held UIH's interest in XYZ Entertainment
Pty Limited ("XYZ Entertainment" or "XYZ"). 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 UIH's ownership interests in multi-channel television,
programming and mobile data companies in Australia, Tahiti and New Zealand since
inception. The reorganized Company commenced operations in January 1994 when UIH
began its development-related activities in the Pacific region. UIH transferred
the net assets of the above mentioned subsidiaries, including capitalized
development costs and investments in affiliated companies, to the Company at its
historical cost, which the Company reflected as capital contributions from the
parent company. Capital contributions totaled $25,342, $68,440 and $10,903 for
the years ended December 31, 1994, 1995 and 1996, respectively. The accompanying
consolidated financial statements have been prepared as though the Company made
investments in the following entities on the original date UIH or certain of its
wholly-owned subsidiaries made the investment:
. The Company acquired, through directly and indirectly held interests, an
effective 50% economic interest in the two companies that form Austar in
1994. In December 1995, the Company increased its effective economic
interest in Austar (formerly CEtv) to 90%. In May 1996, the Company
increased its economic interest in Austar to 94% which was subsequently
increased to 96% and in October 1996, acquired the remaining 4% economic
interest in Austar for $7,920. The companies that comprise Austar (CTV Pty
Limited ("CTV") and STV Pty Limited ("STV")) have acquired multi-point
microwave distribution systems ("MMDS") licenses to supply subscription
television services to television households in the northern, 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 ("DTH")
satellite service marketed by Austar. The Company's ownership interests are
comprised of direct and indirect holdings of convertible debentures and
ordinary shares of CTV and STV. Ownership of the debentures entitles the
Company to vote for directors on the same basis as ordinary shares. The
Company is party to various securityholder agreements which enable it to
designate all of the six voting directors of both CTV and STV. The Company
has consolidated Austar for balance sheet purposes effective December 31,
1995 and for income statement purposes effective January 1, 1996. Prior to
these dates, the Company accounted for its investments in CTV and STV under
the equity method.
. The Company acquired an effective 90% economic interest in Telefenua in
January 1995. The Company's economic interest will decrease to 75% and 64%
once the Company has received a 20% and 40% 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. Through its majority ownership of
UIH SFCC LP, a Colorado limited partnership that holds 100% of the
preferred stock of SFCC, which in turn is the parent company of Telefenua,
the Company has the right to
F-10
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
. appoint three of the six board members. Furthermore, by agreement with the
common shareholders, the Company has the right to appoint a fourth
director. The Company consolidates its investment in Telefenua.
. In July 1994, the Company acquired a 50% interest in Kiwi Communications
Limited, which recently changed its name to Saturn. Saturn is constructing
a wireline multi-channel television system in New Zealand, primarily in the
greater Wellington area. In July 1996, the Company acquired the remaining
50% interest in Saturn in exchange for a 2.6% interest in the Company which
was valued at approximately $7,800. The holder of this interest was granted
a one-time conversion right to exchange such interest for an equivalent
interest in the common stock of UAP upon certain circumstances. The Company
has consolidated the operations of Saturn since July 1, 1996. Prior to that
time, the Company accounted for its investment in Saturn under the equity
method.
. XYZ Entertainment is an Australian proprietary company incorporated in New
South Wales. Century United Programming Ventures Pty Limited ("CUPV"), an
Australian corporation, owned equally by the Company and Century
Communications Corp. ("Century"), holds a 50% interest in XYZ
Entertainment. In October 1994, the Company acquired an initial 50%
interest in XYZ Entertainment. In September 1995, a third party purchased a
50% interest in XYZ Entertainment, thereby diluting the Company's indirect
interest in XYZ Entertainment to 25%. The Company accounts for its
investment through CUPV in XYZ on the equity basis.
. The Company acquired a 100% interest in August 1995 in United Wireless, a
provider of wireless mobile data services in Australia, primarily Sydney
and Melbourne, and is in 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
consolidated United Wireless since August 1995.
Liquidity and Capital Resources
A substantial portion of the Company's investments to date relate to its
investment in Austar, which is comprised primarily of MMDS and DTH satellite
operations. The Company has essentially completed the construction and
deployment of Austar's entire MMDS network infrastructure and has incurred
certain other significant expenditures, such as Austar's National Customer
Service Center, which contemplates provision of MMDS and DTH services to a
substantially larger customer base than currently exists. If additional capital
financings are not available to continue to connect new customers at Austar, the
Company's revenues will decline and the current net operating loss will increase
over time due to customer disconnections, which are normally experienced in
connection with multi-channel television operations. In order to complete the
anticipated build-out of Austar and the Company's other projects, the Company
will need a significant amount of additional capital which is not currently
available.
As of December 31, 1996, the Company had a net working capital deficit of
$15,380, excluding $1,575 due UIH. Owing to the nature of the operation, the
Company is able to slow the rate of network construction at Austar and the
Company's other projects to adjust to the level of funding sources that are
available. The Company believes it can, if necessary, substantially reduce the
capital required at Austar as the majority of future capital expenditures will
be for subscriber installation and premise equipment, which are controllable by
the Company based upon the rate of new subscriber connection. The Company is
currently in the process of seeking additional sources of funds, which sources
could include private equity, bank and/or public debt and the sale of certain
non-strategic assets. The Company may or may not be successful in completing
all or any of such offerings. The Company believes, however, that continued
financial support from UIH combined with, if necessary, reductions in the
Company's planned capital expenditures, are sufficient to sustain its operations
through at least early 1998.
F-11
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
In July 1996, the Company effected a 4.87 for 1 stock split. In addition, in
November 1997 the Company effected a stock split whereby the 500 shares of
common stock outstanding were exchanged for 13,864,941 shares of common stock.
All share amounts have been restated for all periods presented to reflect this
event.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises majority control and owns a
majority economic interest. During the year ended December 31, 1995, the
Company consolidated Telefenua, and subsequent to August 31, 1995, United
Wireless. Due to the Company's acquisition of the majority economic interest in
CTV and STV in late December 1995, the accompanying December 31, 1995
consolidated balance sheet consolidates the accounts of CTV and STV as of
December 31, 1995. The Company recognized equity losses from its investments in
CTV and STV through December 31, 1995. The Company consolidated the operations
of CTV and STV beginning January 1, 1996. The Company has consolidated the
operations of Saturn since July 1, 1996. Prior to that time, the Company
accounted for its investment in Saturn under the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months. The portion of short-term investments and
the Company's investment in Australis Media Limited ("Australis") (see Note 5)
which are classified as available-for-sale in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"), are accounted for at
fair market value. As of December 31, 1996, the Company held approximately
$18,640 of short-term investments (which are comprised primarily of certificates
of deposit and government securities) classified as available-for-sale
securities which are stated at amortized cost, which approximates fair value,
under the provisions of SFAS 115.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in companies in which the Company's voting interest is
20% to 50%, its investments are held through a combination of voting common
stock, preferred stock, debentures or convertible debt, and 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:
F-12
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
--------------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSSES OF TRANSLATION
AFFILIATED COMPANIES AFFILIATED COMPANIES(1) ADJUSTMENTS 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
======= ======== ==== =======
AS OF DECEMBER 31, 1996
---------------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATED COMPANY AFFILIATED COMPANY(3) ADJUSTMENT TOTAL
-------------------- ----------------------- ----------- -------
XYZ Entertainment... $16,202(4) $(16,312) $110 $ ---
======= ======== ==== =======
AS OF SEPTEMBER 30, 1997 (UNAUDITED)
-----------------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSSES OF TRANSLATION
AFFILIATED COMPANY AFFILIATED COMPANY ADJUSTMENTS TOTAL
-------------------- ----------------------- ----------- -------
XYZ Entertainment... $18,202(4) $(18,312) $110 $ --
======= ======== ==== =======
</TABLE>
(1) Does not include cumulative equity in losses for Austar of $3,763, as
Austar's balance sheet was consolidated effective December 31, 1995.
(2) Includes $4,132 of investment prior to the receipt of $4,132 of proceeds
received from the sale of 50% of the Company's interest. As the Company had
recorded equity in losses from XYZ Entertainment in an amount equal to its
invested capital, the Company recognized a gain of $4,132 on this
transaction. In addition, the Company accrued an additional funding
obligation of $1,834 as of December 31, 1995.
(3) Does not include cumulative equity in losses for Saturn of $2,733, as
Saturn's balance sheet was consolidated effective July 1, 1996.
(4) Includes an accrued funding obligation of $1,270 at December 31, 1996, and
$904 at September 30, 1997 (unaudited). 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.
The Company recognized $11,729 and $4,484 of equity losses from XYZ
Entertainment for the years ended December 31, 1995 and 1996, respectively,
including $1,834 and $1,270 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant 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. All
subscriber equipment and capitalized installation labor is depreciated over 3
years. Upon disconnection of a subscriber, the remaining book value of the
subscriber equipment, excluding converters which are covered upon disconnection,
and the capitalized labor is written off. Depreciation expense is computed using
the straight-line method over the asset's estimated useful life as shown below:
<TABLE>
<CAPTION>
AVERAGE YEARS
-------------
<S> <C>
MMDS distribution facilities.................................. 5-10
Cable distribution networks................................... 5-10
Subscriber premises equipment and converters.................. 3
Furniture and fixtures........................................ 10
Leasehold improvements........................................ 6-10
Other......................................................... 3-5
</TABLE>
F-13
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
LEASED ASSETS
Assets acquired under capital leases are included in property, plant and
equipment. The initial amount of the leased asset and corresponding lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.
LICENSE FEES
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses ($10,520), acquired for a 5-year period for Australia,
will be amortized over the remaining license period upon commencement of
operations. The licenses are renewable every 5 years. In Tahiti, the license
rights, totaling $2,387, are amortized over a 10-year period.
GOODWILL
The Company's acquisition of an additional 40% economic interest in CTV and
STV was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
tangible and intangible assets approximated their respective fair values at that
date. Accordingly, goodwill of $44,790 will be amortized over 15 years beginning
January 1, 1996. The Company's acquisition in July 1996 of the additional 50%
interest in Saturn resulted in an additional $8,773 of goodwill which is being
amortized over 15 years.
RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amount of all tangible and intangible assets are reviewed
periodically whenever events and circumstances indicate the carrying value of
the assets may exceed their recoverable amount. The recoverable amounts of all
tangible and intangible assets have been determined using net cash flows which
have not been discounted to their present values.
REVENUE RECOGNITION
Monthly service revenues are recognized as revenue in the period the related
services are provided to the subscribers. Installation fees are recognized as
revenue in the period in which the installation occurs, to the extent
installation fees are equal to or less than direct selling costs. To the extent
installation fees exceed direct selling costs, the excess would be deferred and
amortized over the average contract period.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the large
number of customers comprising the Company's customer base.
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.
F-14
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOREIGN OPERATIONS
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at year end and the
statements of operations are translated at the average exchange rates during the
period. Exchange rate fluctuations on translating foreign currency financial
statements into U.S. dollars result in unrealized gains or losses referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of stockholders' equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period end translations) or realized
upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported on the Consolidated
Statements of Cash Flows will not agree to changes in the corresponding balances
on the Consolidated Balance Sheets.
The effects of exchange rate changes on cash balances held in foreign
currencies are reported as a separate line below cash flows from financing
activities.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In management's opinion, all adjustments (of a normal recurring nature) have
been made which are necessary to present fairly the financial position of the
Company as of September 30, 1997 and the results of its operations for the nine
months ended September 30, 1996 and 1997.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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 UIH of $817 and equipment leased
to Telefenua totaling $2,039. Details of the net assets acquired, which were
denominated in French Pacific francs and translated to U.S. dollars using the
exchange rate on the day of the acquisition, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible assets.................... $ 4,213
Intangible assets.................. 1,835
Other.............................. 107
Cash............................... 6,181
Accounts payable and accrued
liabilities....................... (783)
Due to affiliate................... (2,110)
Minority shareholders' interest.... (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 in Telefenua as of December 31, 1996
includes the cash and notes contributed of $6,877, an equipment lease of $2,285
and bridge loans in the amount of $4,527, plus additional cash investment during
1996 totaling $3,048. The Company's consolidated assets, liabilities, revenues,
expenses and net
F-15
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
loss after intercompany eliminations related to Telefenua for the year ended
December 31, 1995 totaled $10,989, $9,710, $1,882, $5,438 and $3,556,
respectively.
In response to a legal challenge by the President of Tahiti, the Conseil
d'Etat of France recently canceled a decree authorizing MMDS systems in French
Polynesia and similar French territories. The cancellation could provide a legal
basis to cancel a required authorization already granted to Telefenua by the
communications agency because the authorization was based in part on the decree.
A law recently enacted by the French Parliament gives Telefenua a legal basis to
ask for a new authorization from the communications agency, should the existing
authorization be nullified. There can be no assurance, however, that if the
existing authorization is nullified a new authorization will be obtained, or if
a new authorization is obtained, that it would not differ from the existing
authorization.
In December 1995, the Company acquired an additional 40% effective economic
interest in Austar from other shareholders increasing its effective economic
interest to 90%. The Company paid $15,240 in cash and contributed 170,513 shares
of UIH'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 acquired, which were denominated in Australian dollars
and translated to U.S. dollars using the exchange rate on the day of the
acquisition, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible assets.................... $ 18,267
Intangible assets.................. 8,643
Receivables, prepaids and other.... 2,704
Cash............................... 7,222
Accounts payable and accrued
liabilities....................... (6,140)
Other debt......................... (890)
Minority shareholders' interest.... (2,363)
Net investment prior to
acquisition of 40%................ (27,153)
--------
290
Goodwill........................... 44,790
--------
Total consideration............. $ 45,080
========
</TABLE>
The Company's cumulative investment in Austar as of December 31, 1995 includes
cash invested of $19,903, bridge loans of $5,400, the purchase of a 10% interest
from another shareholder for $5,613 and the purchase of the 40% interest from
another shareholder for $45,080. The Company's equity in losses from Austar for
the years ended December 31, 1994 and 1995 are $551 and $3,212, respectively.
The Company invested an additional $149,076 in Austar during 1996, including
certain bridge loans from UIH totaling $19,600 (see Note 8) and acquired the
remaining minority interest in October 1996 for $7,920.
In 1994, the Company acquired a 50% interest in Saturn. In July, 1996, the
Company acquired the remaining 50% of Saturn by issuing 13 shares of its common
stock valued at $7,800. Details of the net assets acquired, which were
determined in New Zealand dollars and translated to U.S. dollars using the
exchange rate on the day of the acquisition, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible assets.................... $ 8,509
Receivables, prepaids and other.... 373
Cash............................... 708
Accounts payable and accrued
liabilities....................... (1,430)
New investment prior to
acquisition of 50%................ (9,133)
------
(973)
Goodwill........................... 8,773
-------
Total consideration.... $ 7,800
=======
</TABLE>
The Company's cumulative investment in Saturn as of December 31, 1996 was
$18,561.
F-16
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $2,829 and $0 as of December 31, 1995 and 1996,
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% economic interest in CTV,
an Australian company that currently holds MMDS licenses in Australia. The
Company then acquired an additional 10% economic interest in CTV from another
shareholder for $5,613. As noted above, in December 1995, the Company
purchased an additional 40% economic interest in CTV which increased its
economic interest to 90% and, accordingly, the Company has consolidated the
balance sheet of CTV effective December 31, 1995 (see Note 1).
Condensed financial information for CTV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994(1) 1995
--------- ---------
CONDENSED CONSOLIDATED INCOME STATEMENT
DATA
<S> <C> <C>
Revenue................................. $ -- $ 433
Operating, selling, general and
administrative expenses................ (243) (4,804)
Depreciation and amortization........... (3) (1,113)
------- -------
Net operating loss.................... (246) (5,484)
Interest, net........................... 246 914
Other................................... -- 245
------- -------
Net loss.............................. $ -- $(4,325)
======= =======
</TABLE>
(1) CTV began operations during 1994.
STV
In October 1994, the Company began to fund its 50% economic interest in STV,
an Australian company that holds MMDS licenses in Australia. In December 1995,
the Company purchased an additional 40% economic interest in STV which increased
its economic interest to 90%, and, accordingly, the Company has consolidated the
balance sheet of STV effective December 31, 1995 (see Note 1).
Condensed financial information for STV, stated in U.S. dollars, is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1994(1) 1995
---------- ----------
<S> <C> <C>
CONDENSED CONSOLIDATED INCOME STATEMENT
DATA
Revenue................................. $ -- $ 10
Operating, selling, general and
administrative expenses................ (197) (2,670)
Depreciation and amortization........... (3) (158)
----- -------
Net operating loss.................... (200) (2,818)
Interest, net........................... 107 315
----- -------
Net loss.............................. $ (93) $(2,503)
===== =======
</TABLE>
(1) STV began operations during 1994.
F-17
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 1995
------------------
CONDENSED CONSOLIDATED BALANCE SHEET DATA
<S> <C> <C>
Cash.................................... $ 2,309
Property, plant and equipment, net...... 2,499
Intangible assets, net.................. 1,871
Other assets............................ 1,933
--------
Total assets.......................... $ 8,612
========
Accounts payable and accrued liabilities $ 16,068
Shareholder loans....................... 21,597
Shareholders' equity.................... (29,053)
--------
Total liabilities and shareholders' equity $ 8,612
========
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1994(1) 1995
-------- -----
CONDENSED CONSOLIDATED INCOME STATEMENT
DATA
Revenue................................. $ $ 1,266
Operating, selling, general and (183) (27,511)
administrative expenses................
Depreciation and amortization........... -- (2,662)
----- --------
Net operating loss.................... (183) (28,907)
Interest, net........................... 2 145
----- --------
Net loss.............................. $(181) $(28,762)
===== ========
</TABLE>
(1) XYZ Entertainment began operations during 1994.
<TABLE>
<CAPTION>
SATURN
<S> <C>
Condensed financial information for Saturn, stated in U.S. dollars, is
as follows:
AS OF
DECEMBER 31, 1995
-----------------
CONDENSED CONSOLIDATED BALANCE SHEET
DATA
Cash.................................... $ 248
Property, plant and equipment, net...... 1,478
Other assets............................ 303
------
Total assets.......................... $2,029
======
Accounts payable and accrued liabilities $2,802
Related party debt...................... --
Shareholders' equity.................... (773)
------
Total liabilities and shareholders'
equity............................... $2,029
======
</TABLE>
F-18
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994 1995
--------- ---------
<S> <C> <C>
CONDENSED CONSOLIDATED INCOME STATEMENT
DATA
Revenue................................. $ 43 $ 148
Operating, selling, general and
administrative expenses................ (976) (2,365)
Depreciation and amortization........... (351) (385)
------- -------
Net operating loss.................... (1,284) (2,602)
Other................................... 69 (55)
------- -------
Net loss.............................. $(1,215) $(2,657)
======= =======
</TABLE>
5. OTHER INVESTMENTS IN AFFILIATED COMPANIES, INCLUDING MARKETABLE EQUITY
SECURITIES
In May 1996, the Company used $10,000 of the proceeds from its offering of the
Notes (see Note 7) to acquire a UIH subsidiary which guaranteed $10,000 of debt
for Australis, Austar's primary supplier of programming. As consideration for
giving the guarantee, the Company received warrants valued at $784 to acquire
4,171,460 ordinary shares or convertible debentures. On October 31, 1996, the
Company's $10,000 guarantee of Australis' debt expired. The Company used $3,339
of the related cash to acquire 7,736,171 debentures of Australis. Further, the
Company exercised warrants to acquire Australis common stock and debentures at
A$0.20 per share for 3,016,832 shares of Australis common stock and 1,154,628
debentures. Each debenture is convertible into one common share of Australis. As
of December 31, 1996, the Company had recognized an unrealized loss of $3,412 on
the Australis investment in accordance with the provisions of SFAS 115, thereby
reducing the carrying value of the investment to $1,372.
<TABLE>
<CAPTION>
6. PROPERTY, PLANT AND EQUIPMENT
AS OF AS OF
DECEMBER 31, SEPTEMBER 30, 1997
------------------------ ------------------
1995 1996 (UNAUDITED)
------- -------- ------------------
<S> <C> <C> <C>
MMDS distribution facilities............ $15,417 $ 57,073 $ 58,217
Cable distribution networks............. 266 12,912 16,297
Subscriber premises equipment and
converters............................. 7,728 129,337 155,860
Furniture and fixtures.................. 255 1,462 2,005
Leasehold improvements.................. 1,582 3,525 3,272
Other................................... 3,599 20,472 23,294
------- -------- --------
28,847 224,781 258,945
Accumulated depreciation................ (1,217) (31,611) (67,449)
------- -------- --------
Net property, plant and equipment....... $27,630 $193,170 $191,496
======= ======== ========
7. SENIOR DISCOUNT NOTES AND OTHER
LIABILITIES
Senior discount notes and other liabilities consists of the following:
AS OF AS OF
DECEMBER 31, SEPTEMBER 30, 1997
------------------------ ------------------
1995 1996 (UNAUDITED)
------- -------- ------------------
<S> <C> <C> <C>
The Notes, net of unamortized discount............. $ - $245,182 $272,094
September 1997 Notes, net of unamortized discount.. - - 29,982
Austar interim financing facility,
including accrued interest of
$0, $0, and $521, respectively.................... - - 63,144
Capitalized lease obligations...................... 890 4,522 3,990
Mortgage note, interest at 7.885%, 7
year term......................................... 1,252 1,158
Other.............................................. 124 1,337 1.101
------- -------- --------
1,014 252,293 371,469
Less current portion............................... (147) (896) (1,286)
------- -------- --------
$ 867 $251,397 $370,183
======= ======== ========
</TABLE>
F-19
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On May 14, 1996, the Company raised total gross proceeds of approximately
$225,115 from the private placement of $443,000 aggregate principal amount of
the Notes. No cash interest payments are required until May 15, 2001, at which
time cash interest payments will be payable semi-annually on each May 15 and
November 15. The Notes are due May 15, 2006. In September 1996, the Notes were
exchanged for 14% Senior Discount Notes due 2006, Series B. As of December 31,
1996, the Notes had an accreted value of $245,182. The trading value of the
Notes as of December 31, 1996 was $230,360.
If the Company or UAP do not consummate an issuance of capital stock resulting
in gross proceeds to the Company of at least $70,000 (an "Equity Sale") prior to
May 16, 1997, then the interest rate on the Notes will be increased by an
additional 0.75% per annum, until such time as the Equity Sale is effected. In
addition, if the Company or UAP do not consummate an Equity Sale prior to
November 16, 1997, the then holders of the Notes will be entitled to receive
warrants to purchase common stock of the Company or, in certain circumstances,
of UAP. The Company plans to pursue additional sources of funding that may
constitute an Equity Sale although there can be no assurance that the Company
will be successful in concluding an Equity Sale prior to May 16 or November 16,
1997 (See Note 15).
8. RELATED PARTY
In connection with the corporate reorganization discussed in Note 1, the
Company and UIH have executed a 10-year management services agreement (the "UIH
Management Agreement"), pursuant to which UIH 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 and for the first four months of 1996, UIH allocated
approximately $659, $918 and $250 to the Company for such services. Effective
May 1, 1996, pursuant to the UIH Management Agreement, UIH 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 UIH Management Agreement and each
anniversary date thereafter by 8% per year. In addition, the Company 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 has executed technical assistance agreements with CTV and STV pursuant to
which it will provide various management and technical services. Under the
agreements, UIH receives a management fee equal to 5% of CTV and STV's total
revenue, less certain deductions, for the first two years, 4% for the next six
years, 3% for the following two years and 2% thereafter. In addition, UIH is
reimbursed for all direct costs associated with services it provides for Austar.
Austar's managing director, chief operating officer and marketing director are
employees of UIH that have been seconded to Austar. In addition, UIH has
appointed seven other management personnel and all six directors. During the
years ended December 31, 1995 and 1996, CTV and STV paid UIH a total of $555 and
$2,338 under such agreements, respectively.
UIH and the parent company of Telefenua have executed a technical services
agreement whereby UIH has agreed to provide technical, administrative and
operational assistance to Telefenua. 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 services agreement with
an indirect majority owned subsidiary 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 the managing director and the technical director of
Telefenua. UIH pays these employee's salaries and benefits and charges Telefenua
for these amounts. During the years ended December 31, 1995 and 1996, Telefenua
paid UIH $615 and $0 under this agreement, respectively.
Saturn and UIH have executed a technical services 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, pricing and packaging of services; (iii)
selection of
F-20
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
programming and negotiations with suppliers and (iv) accounting, billing and
subscriber management systems. UIH receives a management fee equal to 5% of
Saturn's gross revenue through July 1999. UIH is also reimbursed for all direct
and indirect costs associated with these services. The managing director,
technical director and customer operations director are employees of UIH that
have been seconded to Saturn pursuant to the terms of the technical services
agreement. During the years ended December 31, 1995 and 1996, Saturn paid UIH
$0 and $525 under this agreement, respectively.
Included in the due to parent payable is the following:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30, 1997
------------------------ ------------------
1995 1996 (UNAUDITED)
-------- ------------- ------------------
<S> <C> <C> <C>
Payable to UIH and UAP for
management fees, invoices and
capital contributions paid by
UIH on the Company's behalf..... $ - $ - $17,024
CTV bridge loans(1).............. 5,400 - -
Telefenua bridge loan, including
accrued interest of $231
and $0, respectively (2)........ 4,527 - -
CTV/STV technical assistance
agreement obligations........... 1,488 1,135 2,614
Telefenua technical assistance
agreement obligations........... 1,168 1,879 2,497
Saturn technical assistance
agreement obligations........... - 1,002 205
Other............................ - 317 425
------- ------- -------
12,583 4,333 22,765
Less current portion..... (1,488) (1,575) (18,653)
------- ------- -------
$11,095 $ 2,758 $ 4,112
======= ======= =======
</TABLE>
(1) The loan extended to CTV had an interest rate of 9.25%. The loan and
accrued interest were converted into equity of CTV in May 1996.
(2) The loan extended to Telefenua is at an interest rate of 14% and is
compounded annually and has no terms of repayment. The Company has the
option to convert the bridge loan into equity of Telefenua.
Upon completion of the offering of the Notes discussed in Note 7,
approximately $25,000 of the proceeds were used to acquire certain bridge loans
made by UIH to CTV, STV and Telefenua noted above, including $15,073 advanced to
Austar and Telefenua subsequent to December 31, 1995. The Austar bridge loans
and related accrued interest were converted into equity of Austar in May 1996.
9. STOCKHOLDERS' EQUITY
UIH and many of its employees serving as senior management in the Company's
operating companies are parties to employment agreements, typically with terms
of three to five years. The agreements generally provide for a specified base
salary as well as a bonus set at a specified percentage of the base salary,
which bonus is based on the performance of the respective company and employee.
The agreements often provide for the grant of an incentive interest equal to a
percentage of the residual equity value of the respective company which is
typically defined as the fair market value of the business less net liabilities
and a reasonable return on shareholders' investment. The Company has recorded a
liability for the estimated amount of the bonus earned during 1996. The
employment agreements generally also provide for cost of living differentials,
relocation and moving expenses, automobile allowances and income tax
equalization payments, if necessary, to keep the employee's tax liability the
same as it would be in the United States.
10. 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. Generally, the Company's ability to claim a foreign tax credit is
limited to the amount of U.S. taxes the Company
F-21
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
pays with respect to its foreign source income. In calculating its foreign
source income, the Company is required to allocate interest expense and overhead
incurred in the United States between its U.S. and foreign activities.
Accordingly, to the extent U.S. borrowings are used to finance equity
contributions to its foreign subsidiaries, the Company's ability to claim a
foreign tax credit may be significantly reduced. These limitations and the
inability of the Company to offset losses in one foreign jurisdiction against
income earned in another foreign jurisdiction could result in a high effective
tax rate on the Company's earnings. The Company has an ownership interest in
Telefenua, which is located in Tahiti, a self-governing territory of France,
with which the United States does not have an income tax treaty. As a result,
the Company may be subject to increased withholding taxes on dividend
distributions and other payments from Telefenua and also may be subject to
double taxation with respect to income generated by Telefenua.
The Company is included as a member of UIH's consolidated tax return and,
after the offering of the Notes in May 1996, remained a member of the UIH
consolidated group. UIH and the Company 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 Company will
reimburse UIH 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. Any
differences in income tax expense (benefit) allocated to the Company by UIH in
accordance with the tax sharing agreement and the income tax expense (benefit)
which is recognized under SFAS 109 will be accounted for as a deemed capital
distribution or contribution. 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, the non-
consolidation of its consolidated foreign subsidiaries for U.S. tax purposes and
the current non-deductibility of interest expense on the Company's Senior
Discount Notes for federal income 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 $7,000 and $9,000 at December 31, 1995 and 1996, respectively) in
investments in affiliated companies who, in turn have equity investments in
foreign corporations.
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
1995 1996
-------- ---------
<S> <C> <C>
Basis differences in property, plant
and equipment.......................... $ - $ 625
Accrued interest expense on the Notes... - 7,826
Company's United States tax net
operating loss carryforward............ 1,189 -
Tax net operating loss carryforward of
consolidated foreign subsidiaries(1)... 4,165 25,539
------- --------
Deferred tax asset...................... 5,354 33,990
Valuation reserve....................... (5,354) (33,990)
------- --------
Deferred tax asset, net................. $ - $ -
- ---------------------------------------- ======= ========
</TABLE>
(1) For Australian income tax purposes, the net operating loss carryforward may
be limited in the event of a change in control of Austar or a change in the
business.
F-22
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Expected income tax expense (benefit)
at statutory rates..................... $ (653) $(6,721) $(34,315)
Tax effect of permanent and other
differences:
Book/tax basis differences associated
with foreign equity investments....... 396 6,388 2,111
Amortization of licenses............... -- 157 625
Amortization of outside basis
differences........................ -- -- 1,324
Non-deductible entertainment........... -- 222 139
Effect of net book operating losses
not recognized (recognized)........... 257 (85) 29,981
Other.................................. -- 39 135
------- ------- --------
Total income tax expense (benefit) $ -- $ -- $ --
======= ======= ========
11. REVENUES BY GEOGRAPHIC AREA
The following table sets forth the Company's revenue by geographic area:
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- --------
AUSTRALIA
Austar............................... $ -- $ -- $ 21,244
United Wireless...................... -- 1 110
NEW ZEALAND
Saturn............................... -- -- 110
TAHITI
Telefenua............................ -- 1,882 3,513
------- ------- --------
$ -- $ 1,883 $ 24,977
======= ======= ========
12. COMMITMENTS
Austar has license fees payable
annually as follows:
1997......................... $ 2,629
1998......................... 2,629
1999......................... 2,629
2000......................... 2,338
2001 and thereafter.......... 1,021
-------
$11,246
=======
Austar has capital lease
obligations as follows:
1997......................... $ 1,327
1998......................... 1,753
1999......................... 2,151
2000......................... 113
2001 and thereafter.......... 47
-------
5,391
Future finance charges....... (869)
-------
$ 4,522
=======
</TABLE>
F-23
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Austar has operating lease obligations as follows:
<S> <C>
1997......................... $ 2,714
1998......................... 2,491
1999......................... 1,983
2000......................... 1,707
2001 and thereafter.......... 3,466
-------
$12,361
=======
</TABLE>
During 1994, CTV and STV entered into franchise agreements with Australis. The
agreements carry 15-year terms and may be extended for an additional 10 years.
The agreements provide for an exclusive license and franchise for MMDS and
satellite services and a non-exclusive license and franchise for cable services
for all franchisor services including uplink and programming including Channel
[V] (a 24 hour music video channel), Arena, Showtime, Nickelodeon, TV1, Encore,
Discovery and Fox Sports (the "Galaxy Package").
Under the agreements, minimum payments are due, which include service fees
based on varying percentages of net revenues as defined in the agreement, and
subscription levies which are dependent on the number of subscribers.
Austar has secured, beginning in July 1997, for a five-year period a 54 MHz
transponder capable of broadcasting between 10 and 15 digital channels on the
Optus Vision Pty Limited ("Optus") satellite that currently transmits the
Galaxy Package, and pursuant to an agreement with Australis has the right to
deliver such programming to its customers through the Galaxy system. The Company
will pay approximately $480 per month in satellite service fees under its
agreement with Optus. Satellite fees payable annually are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997................ $ 2,880
1998................ 5,760
1999................ 5,760
2000................ 5,760
2001................ 5,760
2002................ 2,880
-------
$28,800
=======
</TABLE>
Although Austar's franchise agreements were formerly exclusive for all multi-
channel television including MMDS and cable television operations, the Company
and Austar have recently agreed to allow Foxtel Management Pty Limited
("Foxtel") to carry the Galaxy programming package on Foxtel's wireline cable
television systems throughout Australia. This agreement provides that Austar
will be compensated for any Foxtel subscriber in its franchise area in an amount
equal to the profit margin Austar would have received if it had sublicensed such
programming to Foxtel (the "Australis Arrangement").
13. CONTINGENCIES
In October 1996, a complaint was served on UIH by an individual who claimed to
have worked with UIH in connection with the acquisition by Austar of certain of
its licenses claiming that UIH owes him a 12.5% equity interest in unspecified
subsidiaries of UIH in consideration of services purportedly provided. This
complaint, seeking an unspecified amount of damages, is pending in a civil court
in Melbourne, Australia. UIH intends to vigorously defend these claims, which
UIH believes are without merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking an injunction to prevent (i) Australis
from transferring its satellite delivery systems and associated infrastructure
to its joint venture with Optus and (ii) Optus from using such infrastructure to
deliver DTH services in Austar's franchise area. Austar believes that using the
infrastructure by any entity other than Austar for the provision of DTH services
within Austar's franchise areas violates the terms of Austar's franchise
F-24
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
agreement with Australis which granted Austar an exclusive license and franchise
to use the infrastructure within its franchise areas. Austar is seeking
injunctive relief or, in the alternative, damages associated with this violation
of its franchise agreements.
On December 6, 1996, Australis filed counterclaims against Austar and the
Company alleging generally that Austar and the Company breached implied terms of
the Australis Arrangement by seeking such injunctive relief. In addition, Optus
claims that the exclusive nature of Austar's franchise agreements violates
Australia's Trade Practices Act. The Company intends to vigorously defend its
position.
Australis, Austar's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. Australis has recently closed private offerings of debt
and equity securities that Australis announced would enable it to carry its
business through to cash flow positive. If such financing is not sufficient to
satisfy Australis' long-term capital needs, Australis may have difficulty
meeting contractual obligations with respect to the four Galaxy channels
distributed directly by Australis. The Company believes that if Austar is no
longer able to obtain the four Galaxy channels provided by Australis on an
exclusive basis and it were required to seek replacement programming, it would
have access to the same programming directly from the suppliers of the four
Galaxy channels or sufficient alternative programming on competitive terms.
There can be no assurance, however, that this would be the case and the
inability of Austar to procure the same or suitable alternative programming at
competitive rates and on an exclusive basis in its service areas could have a
material adverse effect on the Company.
14. PRO FORMA INFORMATION
The following unaudited pro forma information for the year ended December 31,
1995 gives effect to the acquisitions of the additional 50% economic interests
in Austar, the disposition of the 25% interest in XYZ Entertainment, the
acquisition of the additional 50% economic interest in Saturn and the
acquisition of United Wireless as if each had occurred on January 1, 1995. The
pro forma financial information does not purport to represent what the Company's
results of operations would actually have been if such transactions had in fact
occurred on such date. The pro forma adjustments are based upon currently
available information and upon certain assumptions that management believes are
reasonable under current circumstances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
-----------------------------------------------------------------------------
UNITED
AUSTAR XYZ SATURN WIRELESS PRO
ACTUAL TRANSACTION(1) SALE (2) PURCHASE(3) PURCHASE(4) FORMA
--------- -------------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service and other revenue............... $ 1,883 $ 443 $ -- $ 148 $ 33 $ 2,507
System operating expense................ (3,230) (793) -- (863) (687) (5,573)
System selling, general and
administrative expense................. (2,482) (6,681) -- (1,502) (341) (11,006)
Corporate general and administrative
expense............................. (920) -- -- -- -- (920)
Depreciation and amortization expense... (1,003) (4,259) -- (997) (86) (6,345)
-------- -------- ------- ------- ------- --------
Net operating loss................. (5,752) (11,290) -- (3,214) (1,081) (21,337)
Equity in losses of affiliated companies (16,379) 3,212 4,132 1,438 -- (7,597)
Interest, net........................... 127 1,230 -- -- -- 1,357
Other, net.............................. 4,771 244 (4,132) (55) 1 829
-------- -------- ------- ------- ------- --------
Net loss........................... $(17,233) $ (6,604) $ -- $(1,831) $(1,080) $(26,748)
======== ======== ======= ======= ======= ========
</TABLE>
(1) Amounts represent Austar's actual operating results for the year ended
December 31, 1995 as if Austar had been consolidated for the entire year
except for "Equity in losses of affiliated companies" which represents the
elimination of the
F-25
<PAGE>
Company's share of Austar's losses recognized during the year, and except
for a portion of "Depreciation and amortization expense" totaling $2,988
which represents amortization related to the goodwill recorded in connection
with the acquisition of the additional 40% effective economic interest,
amortized over 15 years on a straight-line basis.
(2) Represents elimination of the gain on sale of XYZ and 25% of the equity in
losses previously recognized.
(3) Amounts represent Saturn's actual operating results for the year ended
December 31, 1995 as if Saturn had been consolidated for the entire year
except for "Equity in losses of affiliated companies" which represents the
elimination of the Company's share of Saturn's losses recognized during the
year ended and except for a portion of "Depreciation and amortization
expense," totaling $612 which represents amortization of goodwill recorded
in connection with the purchase of the additional 50% interest in Saturn,
which is amortized over 15 years on a straight-line basis.
(4) Represents actual operating results of United Wireless during the eight
months ended August 1995, the period prior to the Company's acquisition of
its 100% interest.
15. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
In July 1997, Austar secured a financing facility from a bank for a Senior
Syndicated Term Debt Facility in the amount of Australian $("A$")200,000
(US$155,000) (the "Bank Facility"). The proceeds of the Bank Facility will be
used to fund Austar's subscriber acquisition and working capital needs. The
Bank Facility consists of three sub-facilities: (i) A$50,000 revolving working
capital facility; (ii) A$60,000 cash advance facility available upon the
contribution of additional equity on a 2:1 debt-to-equity basis; and (iii)
A$90,000 term loan facility, which will be available on the basis of Austar
having achieved minimum subscriber and operating cash flow levels. The maximum
amount of equity required in (ii) above would be A$30,000, approximately A$7,500
of which has already been contributed during 1997 and the remainder of which is
expected to be contributed by a third party equity provider, UAP or UIH. The
cash advance and term loan facilities are fully repayable pursuant to an
amortization schedule beginning December 31, 2001 and ending June 30, 2004. As
of June 30, 1997, Austar had drawn A$50,000 (US$38,840 converted using the
exchange rate on each funding date) on an interim financing facility, which was
subsequently repaid from the proceeds of the Bank Facility.
In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a
35% equity interest in Saturn by investing approximately New Zealand
$("NZ$")30,000 (US$19,600) for its shares. The Company believes that SaskTel, a
division of Saskatchewan Telecommunications Holdings Corporation of
Saskatchewan, Canada, will contribute telephony expertise to Saturn in providing
cable/telephony service in the Wellington, New Zealand area.
On May 15, 1997, the Company's minority holder exchanged its 2.6% interest
for a 2% interest in UAP.
On September 23, 1997, the Company received total gross proceeds of $29,925
from the private placement of $45,000 aggregate principal amount of 14% senior
discount notes (the "September 1997 Notes"). On and after May 15, 2001, cash
interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The September 1997 Notes are due May
15, 2006. Effective September 23, 1997, the interest rate on these notes
increased by an additional 0.75% per annum to 14.75%, until such time as the
Company consummates an Equity Sale. Due to this increase in interest rates, the
September 1997 Notes will accrete to a principal amount of $46,277 if an Equity
Sale is not consummated prior to maturity.
Effective November 17, 1997, the Company issued warrants to the holders of
the May 1996 Notes and the September 1997 Notes (collectively, the "Notes") to
purchase 3.4% of the common stock of the Company. The total number of warrants
issued was 488,000. Each warrant entitles the holder to purchase from the
Company one share of Common Stock at a purchase price per share of $10.45,
exercisable until May 15, 2006.
Australis Media Limited ("Australis"), a supplier of movie and sports
programming as well as satellite distribution services to Austar, has publicly
announced that it may need to appoint a receiver owing to liquidity issues. The
Company is currently in negotiations with Australis and other programming
suppliers for these types of programming and, therefore, currently believes it
will be able to make satisfactory programming arrangements in the event of a
disruption in service from Australis. There can be no assurance, however, that
such arrangements will be concluded, or will be concluded on terms favorable to
Austar.
F-26
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of
CTV Pty Limited
We have audited the accompanying consolidated financial statements of CTV Pty
Limited and its subsidiaries for the period ended 31 December 1994 and the year
ended 31 December 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on those consolidated financial statements based on our audits.
We conducted our audits 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 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
CTV Pty Limited as of 31 December 1994 and 1995, and the consolidated results of
the group's operations and consolidated cash flows for the periods then ended in
accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-27
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEETS
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------------
DECEMBER 31,
------------------------------
NOTE 1994 1995
---- ----
$A $A
<S> <C> <C>
Current assets
Cash.................................. 19,371,145 9,712,936
Receivables........................... 3 718,939 4,538,627
Inventory............................. -- 679,628
Other................................. 4 25,582 830,133
---------- ----------
20,115,666 15,761,324
---------- ----------
Non-current assets
Investments........................... 5 2 2
Property, plant and equipment......... 6 2,746,809 17,955,579
Intangibles........................... 7 5,021,630 7,906,674
---------- ----------
Total non-current assets........... 7,768,441 25,862,255
---------- ----------
Total assets.................... 27,884,107 41,623,579
---------- ----------
Current liabilities
Creditors and borrowings.............. 8 2,747,734 15,477,769
Provisions.......................... -- --
---------- ----------
Total current liabilities.......... 2,747,734 15,477,769
---------- ----------
Non-current liabilities
Creditors and borrowings.............. 9 36,165 684,945
Provisions.......................... 10 -- 156,267
---------- ----------
Total non-current liabilities...... 36,165 841,212
---------- ----------
Total liabilities............... 2,783,899 16,318,981
---------- ----------
Net assets.............................. 25,100,208 25,304,598
========== ==========
Shareholders' equity
Share capital......................... 11 42,729 42,729
Reserves.............................. 13 5,116,536 5,116,536
Retained profits/(accumulated losses). 206 (5,795,404)
---------- ----------
5,159,471 (636,139)
Convertible debentures................ 12 19,940,737 25,940,737
---------- ----------
Total shareholders' equity...... 25,100,208 25,304,598
========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-28
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
ECONOMIC ENTITY
---------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Revenue:
Service............................... -- 579,690
-------- ----------
-- 579,690
-------- ----------
Expenses:
General and administration............ 321,494 6,406,782
Depreciation and amortization......... 4,055 1,491,456
Management fees....................... -- 29,651
-------- ----------
325,549 7,927,889
-------- ----------
Operating loss.......................... (325,549) (7,348,199)
-------- ----------
Non-operating income (expense)
Interest income....................... 327,355 1,227,029
Interest expense and costs of finance. (1,600) (2,180)
Other, net foreign exchange gains--
non-speculative trading.............. -- 327,740
-------- ----------
325,755 1,552,589
-------- ----------
Net profit (loss) before tax............ 206 (5,795,610)
Income tax attributable to net
profit/(loss).......................... -- --
-------- ----------
Net profit/(loss)....................... 206 (5,795,610)
Retained profits/(accumulated losses)
at beginning of period................. -- 206
-------- ----------
Retained profits/(accumulated losses)
at end of period....................... 206 (5,795,404)
======== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-29
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------- ---------------
NOTE 1994 1995
---- ----
<S> <C> <C> <C>
$A $A
Cash flows from operating activities
Receipts from customers............... -- 522,211
Payments to suppliers and employees... (297,332) (3,973,333)
Interest received..................... 327,355 1,227,029
Interest and other costs of finance
paid................................. (1,600) (2,180)
---------- ----------
Net operating cash flows.............. 28,423 (2,226,273)
---------- ----------
Cash flows from investing activities
Purchase of subsidiaries, net of cash
acquired............................ (12) (10)
Payments for plant and equipment...... (55,871) (15,326,279)
Payments for MDS and broadcast
licenses............................ (5,021,630) (3,437,458)
Decrease in inventory net of payables. -- --
Loans granted......................... (718,939) (3,768,962)
Payments for investments.............. -- (2)
---------- ----------
Net investing cash flows.............. (5,796,452) (22,532,711)
---------- ----------
Cash flows from financing activities
Proceeds from share issues............ 5,159,265 --
Proceeds from issue of convertible
debentures.......................... 19,940,737 6,000,000
Proceeds from intercompany loans...... -- --
Payment on intercompany loans......... -- --
Proceeds from short term loans........ 39,781 8,818,202
Proceeds from lease financing......... -- --
Repayment of finance lease principal.. (609) (45,167)
---------- ----------
Net financing cash flows.............. 25,139,174 14,773,035
---------- ----------
Net increase/(decrease) in cash held.... 19,371,145 (9,985,949)
Cash at beginning of period............. -- 19,371,145
Effect of different exchange rate....... -- 327,740
---------- ----------
Cash at the end of the period........... 8, 16 19,371,145 9,712,936
========== ==========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-30
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with the historical
cost convention using the Australian dollar ("$A") as the reporting currency
and using the accounting policies described below. They do not take account of
changes in either the general purchasing power of the dollar or in the prices of
specific assets.
The Company was incorporated on 21 April 1994. The comparative financial
statements have been prepared for the period 21 April 1994 to 31 December 1994
and for the year ended 31 December 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
parent entity, CTV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the Economic Entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in the
profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items 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.
INVENTORY
Inventory consists of home subscriber equipment including cable, antennae and
decoders and is valued at cost.
F-31
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property, plant
and equipment is reviewed annually by directors to ensure that it is not in
excess of the recoverable amount from the assets.
Property, plant and equipment, excluding freehold land, are depreciated or
amortized at rates based upon their expected useful lives using the straight
line method.
Leasehold improvements...................... 6 years
Computer equipment.......................... 3 years
Motor vehicles.............................. 5 years
Furniture and fittings...................... 10 years
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 amortized 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
periodically whenever events and circumstances indicate the carrying value of
the assets may 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.
REVENUE RECOGNITION
Monthly service revenues are recognized as revenue in the period the related
services are provided to the subscribers. The Company recognizes installation
revenues to the extent of direct selling costs in the period the installation
occurs. To the extent installation fees exceed direct selling costs, the excess
would be deferred and amortized over the average contract period. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of trade receivables. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base.
F-32
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 2. INCOME TAX:
(a) Non-current deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------- ----------------
1994 1995
------------- ----------------
$A $A
<S> <C> <C>
Interest receivable and prepaids.................. (14,367) (339,527)
------- ----------
Total non-current deferred tax liability.......... (14,367) (339,527)
Net operating loss carryforward.................. 2,061,456
----------
Total non-current deferred tax asset.............. -- 2,061,456
------- ----------
Net non-current deferred tax asset
before valuation allowance...................... (14,367) 1,721,929
Valuation allowance.............................. -- (1,721,929)
------- ----------
Net non-current deferred tax asset
(liability)...................................... (14,367) --
======= ==========
</TABLE>
Net operating loss carryforwards have an unlimited carryforward period for
Australian tax purposes.
(b) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Net 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)
--Amortization of licenses...................... -- 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 net
profit/(loss).................................... -- --
======= ==========
</TABLE>
(c) 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 realization 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 realized;
(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
realizing 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 utilize the available losses.
F-33
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Trade debtors........................... -- 57,479
Less: provision for doubtful debts...... -- (5,792)
-------- -----------
-- 51,687
Related parties:
--United International Holdings Inc... 95,865 140,217
--Other............................... -- 712,554
--Related body corporate--STV Pty Ltd.. 623,074 3,627,044
Other persons........................... -- 7,125
--------- -----------
718,939 4,538,627
========= ===========
NOTE 4. OTHER ASSETS (CURRENT):
Prepaid expenses........................ 10,465 787,916
Security deposits....................... 15,117 42,217
--------- -----------
Total other assets (current)............ 25,582 830,133
========= ===========
NOTE 5. INVESTMENTS (NON-CURRENT):
Investments in associated companies
(Note 18).............................. 2 2
========= ==========
NOTE 6. PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements:
--At cost............................. -- 151,200
--Accumulated depreciation............ -- (8,705)
--------- ----------
Total leasehold improvements, net....... -- 142,495
Plant and equipment:
--At cost............................. 55,881 15,737,143
--Accumulated depreciation............ (4,055) (872,818)
--------- ----------
Total plant and equipment, net.......... 51,826 14,864,325
--------- ----------
Plant and equipment under lease:
--At capitalized cost................. 44,506 912,820
--Accumulated depreciation............ -- (61,563)
--------- ----------
Total leased plant and equipment, net... 44,506 851,257
--------- ----------
Capitalized network construction
expenditures:
--At cost............................. 2,650,477 2,097,502
--Accumulated amortization............ -- --
---------- ----------
Total capitalized development 2,650,477 2,097,502
expenditures, net...................... ---------- ----------
Total property, plant and equipment, net 2,746,809 17,955,579
========== ==========
</TABLE>
F-34
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 7. INTANGIBLE ASSETS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------
1994 1995
------------ -------------
$A $A
<S> <C> <C>
MDS licenses:
--At cost............................. 5,018,215 8,196,618
--Accumulated amortization............ -- (544,093)
----------- -----------
Total MDS licenses net:................. 5,018,215 7,652,525
----------- -----------
Program Rights fees at cost: -- 250,000
--Accumulated amortization............ -- (8,333)
Other at cost........................... -- --
Organization costs at cost:............. 3,415 12,482
----------- -----------
Total intangible assets, net............ 5,021,630 7,906,674
=========== ===========
NOTE 8. CREDITORS AND BORROWINGS
(CURRENT):
Unsecured:
Overdraft............................. -- --
Trade creditors....................... 1,684 5,727,304
Unearned Income....................... -- 29,062
Accrued Expenses...................... 2,698,537 728,113
Due to related body corporate--United
International Holdings Inc........... 39,781 8,857,983
Secured:
Finance lease liability (Note 15)..... 7,732 135,307
----------- -----------
Total current creditors and borrowings.. 2,747,734 15,477,769
=========== ===========
NOTE 9. CREDITORS AND BORROWINGS
(NON-CURRENT):
Secured
Finance lease liability (Note 15)..... 36,165 684,945
----------- -----------
Total non-current creditors and
borrowings............................. 36,165 684,945
=========== ===========
NOTE 10. PROVISIONS (NON-CURRENT):
Annual leave............................ -- 156,267
=========== ===========
NOTE 11. SHARE CAPITAL:
Authorized capital:
--100,000,000 ordinary shares of $1
each................................. 100,000,000 100,000,000
----------- -----------
Total authorized capital as at 31
December 1995.......................... 100,000,000 100,000,000
Issued and paid up capital:
--42,729 ordinary shares of $1 each... 42,729 42,729
----------- -----------
Total issued and paid up capital........ 42,729 42,729
=========== ===========
</TABLE>
F-35
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
1994 1994 1995 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Opening number of shares... 3 -- 42,729 --
Issued during the year..... 42,726 13 -- --
Redeemed................... -- 13 -- --
------ ---- ------ ----------
Closing number of shares... 42,729 -- 42,729 --
====== ==== ====== ==========
</TABLE>
NOTE 12. CONVERTIBLE DEBENTURES:
During the year ended 31 December 1995, the company issued 162,643 convertible
debentures for $A6,000,000. These debentures confer rights upon the holders as
creditors of the company. They do not confer any right to attend or vote at
general meetings. Interest is payable to the holders equal to the amount of the
distribution that the holder would have received if, as at the date the
entitlement to the distribution was determined, all of the debentures of that
holder and all other holders had been converted into shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would not
result in the breach of any Statute by the debenture holder or any other person.
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which would
result in a different conversion factor. Debentures may not be redeemed for
cash.
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.
<TABLE>
<CAPTION>
NOTE 13. RESERVES:
ECONOMIC ENTITY
-----------------------
DECEMBER 31,
-----------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Share premium opening balance..... -- 5,116,536
Premium on issues of shares....... 5,116,536 --
Redemption of preference shares... -- --
---------- ----------
Total reserves.................... 5,116,536 5,116,536
========== ==========
</TABLE>
NOTE 14. EMPLOYEE ENTITLEMENTS:
SUPERANNUATION COMMITMENTS
The Economic Entity contributes to a defined contribution superannuation plan
for substantially all of its employees. Each participating entity in the
Economic Entity has a legal obligation to contribute to the schemes, which are
as follows:
F-36
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(a) Hourly employees and commission employees--Employee Retirement Fund, a fund
administered by MLC. This is a defined Retirement Fund, a fund contribution
fund; and
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by MLC
(contributions 6%). This is a defined contribution fund.
NOTE 15. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------------
DECEMBER 31,
--------------------------
1994 1995
------------ -----------
$A $A
<S> <C> <C>
(a) Annual license 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, the Company entered into a franchise agreement with
Australis Media Limited. The agreement carries a 15 year term beginning on
24 July 1994 and may be extended for an additional 10 years. The agreement
provides for an exclusive license and franchise for MDS and Satellite and a
non-exclusive license and franchise for cable for all franchisor services
including uplink and programming including Channel [V] (a 24 hour music
video channel), Arena, Showtime, Nickelodeon, TV1, Encore, Discovery and
Fox Sports.
Under the agreement, minimum payments are due, which include service fees
based on varying percentages of net revenues as defined in the agreement,
and subscription levies which are dependent on the number of subscribers.
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
F-37
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Flows is reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------
DECEMBER 31,
-------------------------
1994 1995
---- ----
<S> <C> <C>
$A $A
Cash.................................................... (261,963) 73,377
Short term money market deposits........................ 19,297,768 9,974,899
---------- ---------
19,371,145 9,712,936
========== =========
</TABLE>
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax
<TABLE>
<S> <C> <C>
Operating profit (loss) after income tax:............... 206 (5,795,610)
Adjustments for non-cash income and expense items:
Depreciation and amortization expense................. 4,055 1,491,456
Bad debts expense and provision for doubtful debts.... -- 5,792
Transfers to provisions:
Annual leave.......................................... -- 156,267
Unrealized foreign exchange gain...................... -- (327,740)
Increase in other receivables......................... -- (57,479)
Increase in trade creditors........................... 49,744 3,785,221
Increase in inventory................................. -- (679,628)
Increase in other assets.............................. (25,582) (804,552)
------- ----------
Net cash from operating activities.................... 28,423 (2,226,273)
======= ==========
(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:
FAIR VALUE OF
NET TANGIBLE ASSETS
---------------------
ENTITY 1994 1995
------ ----- -----
$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 Beach 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-38
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(d) Non-cash financing and investing activities
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A821,522 (1994: $A44,506) by means of finance
leases. These transactions are not reflected in the Statement of Cash Flows.
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 ---------------- ------------- --------------
INCORPORATION DATE OF TYPE OF 1994 1995 1994 1995 1994 1995
NAME OF CONTROLLED 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 Limited...... Australia 24/4/95 Ordinary 2 100 --
Auldana Beach Pty Limited.... 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
Limited 50% 50% 31 December -- --
Ilona Investments Delivery of subscription
Pty Limited television services to
regional Australia 50% 50% 30 June -- --
---- ----
-- --
==== ====
<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-39
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTE 19. RELATED PARTY DISCLOSURES:
(a) Other director transactions
Crase Partners, a director-related firm of J. K. Crase, provided general
accounting services to the company during the year. These services were provided
at an arms length basis.
J. K. Crase, a director, purchased equipment from the company during the year.
The purchase was made on an arms length basis.
(b) Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year with
related parties in the wholly owned group:
loans were advanced to subsidiaries to fund the acquisition of MDS licenses.
Loans totaled
$A5,021,618 and $A8,309,384 at December 31, 1994 and 1995, respectively.
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. CTV has amounts
receivable from STV of $A623,074 and $A3,627,044 at December 31, 1994 and 1995,
respectively.
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 shareholders' equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Shareholders' equity as per balance sheet... 25,100,208 25,304,598
Adjustments to reported equity:
Convertible debentures.................... (19,940,737) (25,940,737)
----------- ----------
Shareholders' equity in accordance with
US GAAP................................... 5,159,471 (636,139)
=========== ==========
</TABLE>
F-40
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of
STV Pty Limited
We have audited the accompanying consolidated financial statements of STV Pty
Limited and its subsidiaries for the period ended 31 December 1994 and the year
ended 31 December 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on those consolidated financial statements based on our audits.
We conducted our audits 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 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
STV Pty Limited as of 31 December 1994 and 1995, and the consolidated results of
the group's operations and consolidated cash flows for the periods then ended in
accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-41
<PAGE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------
DECEMBER 31,
------------------------
NOTE 1994 1995
---- ----
$A $A
<S> <C> <C> <C>
Current assets
Cash............................ 10,078,250 2,236
Receivables..................... 3 63,934 1,325,563
Prepayments and other........... -- 382,866
---------- ----------
Total current assets............. 10,142,184 1,710,665
---------- ----------
Non-current assets
Investments..................... 4 2 2
Property, plant and equipment... 5 527,373 6,085,042
Intangibles..................... 6 3,562 3,727,654
---------- ----------
Total non-current assets......... 530,937 9,812,698
---------- ----------
Total assets..................... 10,673,121 11,523,363
---------- ----------
Current liabilities
Creditors and borrowings........ 7 759,411 4,673,587
---------- ----------
Total current liabilities........ 759,411 4,673,587
---------- ----------
Non-current liabilities
Creditors and borrowings........ 8 36,165 313,981
Provisions...................... 9 -- 11,495
---------- ----------
Total non-current liabilities.... 36,165 325,476
---------- ----------
Total liabilities................ 795,576 4,999,063
---------- ----------
Net assets....................... 9,877,545 6,524,300
========== ==========
</TABLE>
The accompanying notes form an intergral part of this balance sheet
F-42
<PAGE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------
DECEMBER 31,
-------------------------
NOTE 1994 1995
---- ----
$A $A
<S> <C> <C> <C>
Shareholders' equity
Share capital........................ 10 133,296 133,296
Reserves............................. 12 1,426,959 1,426,959
Accumulated losses................... (122,457) (3,475,702)
--------- ---------
1,437,798 (1,915,447)
Convertible debentures................ 11 8,439,747 8,439,747
--------- ---------
Total shareholders' equity............ 9,877,545 6,524,300
========= =========
</TABLE>
The accompanying notes form an integral part of this balance sheet
F-43
<PAGE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1994 1995
$A $A
<S> <C> <C>
Revenue:
Service.............................. -- 13,819
------- ---------
-- 13,819
------- ---------
Expenses:
General and administration........... 258,991 3,576,688
Depreciation and amortization........ 4,055 212,635
------- ---------
263,046 3,789,323
------- ---------
Operating loss........................ (263,046) (3,775,504)
------- ---------
Non-operating income (expense)
Interest income...................... 142,189 422,563
Interest expense and costs of
finance........................... (1,600) (304)
140,589 422,259
------- ---------
Net loss before tax................... (122,457) (3,353,245)
Income tax attributable to net loss... -- --
------- ---------
Net loss.............................. (122,457) (3,353,245)
------- ---------
Accumulated losses at beginning of
period............................... -- (122,457)
------- ---------
Accumulated losses at end of
period............................... (122,457) (3,475,702)
======= =========
</TABLE>
The accompanying notes form an integral part of the profit and loss account
F-44
<PAGE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------- ------------
NOTE 1994 1995
---- ----
$A $A
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS)
<S> <C> <C> <C>
Cash flows from operating activities:
Receipts from customers -- 74,749
Payments to suppliers and
employees............................. (210,202) (3,876,242)
Interest received 78,255 422,563
Interest and other costs of finance
paid.................................. (1,600) (304)
---------- ----------
Net operating cash flows (133,547) (3,379,234)
---------- ----------
Cash flows from investing activities:
Purchase of subsidiaries, net of
cash acquired......................... (2) (12)
Payments for plant, equipment and
construction in process............... (486,922) (5,381,613)
Payments for MDS licenses (3,562) (3,757,962)
Payments for investments -- (2)
Loans granted -- (1,322,587)
---------- ----------
Net investing cash flows (490,486) (10,462,176)
---------- ----------
Cash flows from financing activities:
Proceeds from issues of shares 1,560,255 --
Proceeds from short-term loans 702,890 3,787,493
Proceeds from debenture issues 8,439,747 --
Repayment of finance lease
principal............................. (609) (22,097)
---------- ----------
Net financing cash flows 10,702,283 3,765,396
---------- ----------
Net increase (decrease) in cash held 10,078,250 (10,076,014)
Cash at the beginning of the period -- 10,078,250
Cash at the end of the period 15 10,078,250 2,236
========== ==========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows
F-45
<PAGE>
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with the historical
cost convention using the Australian dollar (''$A'') as the reporting currency
and using the accounting policies described below. Further, they do not take
account of changes in either the general purchasing power of the dollar or in
the prices of specific assets.
The Company was incorporated on 28 June 1994. The comparative financial
statements have been prepared for the period 28 June 1994 to 31 December 1994
and for the year ended 31 December 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
parent entity, STV Pty Limited, and its subsidiaries. The term ''Economic
Entity'' used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the Economic Entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in the
profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognized in different accounting periods for
book and tax purposes, calculated at the tax rates expected to apply when the
differences reverse.
The benefit arising from estimated carry-forward tax losses has not been
recorded in the future income tax benefit account as realization of such benefit
is considered not to be virtually certain.
LEASED ASSETS
Assets of the Economic Entity acquired under finance leases are capitalized.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortized over the life of the relevant lease. Lease liabilities are reduced by
the principal component of lease payments. The interest component is charged
against operating profit.
Operating leases are not capitalized and rental payments are charged against
operating profit in the period in which they are incurred.
F-46
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property, plant
and equipment is reviewed annually by directors to ensure that it is not in
excess of the recoverable amount from the assets.
Leasehold improvements.......... 6 years
Computer equipment.............. 3 years
Motor vehicles.................. 5 years
Furniture and fixtures.......... 10 years
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 licenses, acquired for a 5 year period, will be amortized 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 amounts of all non-current assets are reviewed at least
periodically whenever events and circumstances indicate the carrying value of
the assets may 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.
ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
REVENUE RECOGNITION
Monthly service revenues are recognized as revenue in the period the related
services are provided to the subscribers. The Company recognizes installation
revenues to the extent of direct selling costs in the period the installation
occurs. To the extent installation fees exceed direct selling costs, the excess
would be deferred and amortized over the average contract period. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of trade receivables. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base.
F-47
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INCOME TAX:
(a) Non-current deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------- -------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Interest receivable and prepaids....................... -- (133,683)
------ ---------
Total non-current deferred tax liability............... -- (133,683)
Net operating loss carryforward....................... 42,500 1,195,261
------ ---------
Total non-current deferred tax asset................... 42,500 1,195,261
------ ---------
Net non-current deferred tax asset before valuation
allowance............................................ 42,500 1,061,578
Valuation allowance................................ (42,500) (1,061,578)
------ ---------
Net non-current deferred tax asset (liability)......... -- --
====== =========
</TABLE>
Net operating loss carryforwards have an unlimited carryforward period for
Australian tax purposes.
(b) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------- --------------
1994 1995
----- ----
$A $A
<S> <C> <C>
Net 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
Amortization of licenses....................... -- 12,193
Effect of losses not brought to account........ 42,500 1,195,261
------- ---------
Total income tax attributable to net loss....... -- --
======= =========
</TABLE>
(c) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $A3,475,702 available to offset against future years' taxable
income. The benefit of these losses of $A1,237,761 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.
F-48
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Accounts Receivable Trade......................... -- 3,004
Allowance for Bad Debts.......................... -- (28)
Non-trade amounts owing by:
Related parties
Wholly owned group............................... -- --
Associated companies............................. -- 1,322,587
Other persons..................................... 63,934 --
------- ---------
Total current receivables......................... 63,934 1,325,563
======= =========
NOTE 4. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note 17) 2 2
======= =========
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements:
At cost.......................................... -- 128,274
Accumulated amortization......................... -- (7,801)
-------- ----------
Total leasehold improvements, net................. -- 120,473
-------- ----------
Plant and equipment:
At cost.......................................... 55,881 4,093,944
Accumulated depreciation......................... ( 4,055) (149,677)
-------- ----------
Total plant and equipment, net.................... 51,826 3,944,267
-------- ----------
Plant and equipment under lease:
At capitalized cost.............................. 44,506 408,832
Accumulated depreciation......................... -- (25,343)
-------- ----------
Total lease plant and equipment, net.............. 44,506 383,489
-------- ----------
Capitalized network construction expenditures:
At cost.......................................... 431,041 1,636,813
Accumulated amortization......................... -- --
-------- ----------
Total capitalized development expenditures, net... 431,041 1,636,813
-------- ----------
Total property, plant and equipment, net.......... 527,373 6,085,042
======== ==========
</TABLE>
F-49
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ECONOMIC ENTITY
---------------------
NOTE 6. INTANGIBLE ASSETS (NON-CURRENT): 1994 1995
---- ----
$A $A
<S> <C> <C>
MDS licenses............................. 1,570 3,501,285
Accumulated Amortization................ -- (25,536)
Other licenses........................... -- 251,570
Accumulated Amortization................ -- (8,333)
Other.................................... 1,992 8,668
------------ ------------
Total intangible assets, net............. 3,562 3,727,654
============ ============
NOTE 7. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Trade creditors......................... 1,689 120,561
Accrued expenses........................ 47,100 --
Due to associated company--CTV Pty Limited 623,021 3,627,044
Due to related body corporate--United
International Holdings Inc............. 79,816 863,341
Secured: Secured: Finance lease liability (Note 14) 7,732 62,641
------------ ------------
759,358 4,673,587
============ ============
NOTE 8. CREDITORS AND BORROWINGS (NON-CURRENT):
Secured:
Finance lease liability (Note 14)....... 36,165 313,981
------------ ------------
Total non-current creditors and borrowings 36,165 313,981
============ ============
NOTE 9. PROVISIONS (NON-CURRENT):
Annual leave............................ -- 11,495
============ ===============
NOTE 10. SHARE CAPITAL:
Authorized capital:
100,000,000 ordinary shares of $1
each................................... 100,000,000 100,000,000
----------- -----------
Total authorized capital................. 100,000,000 100,000,000
=========== ===========
Issued and paid up capital:
133,296 ordinary shares of $1 each...... 133,296 133,296
------------ -----------
Total issued and paid up capital......... 133,296 133,296
============ ===========
</TABLE>
F-50
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
1994 1994 1995 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Opening number of shares..... -- -- 133,296 --
Issued during the year (a)... 133,296 2 -- --
Redeemed..................... -- 2 -- --
------- ---- ------- ----------
Closing number of shares..... 133,296 -- 133,296 --
======= ==== ======= ==========
</TABLE>
NOTE 11. CONVERTIBLE DEBENTURES:
During the year ended 31 December 1995, the company had outstanding 986,707
convertible debentures for $A8,439,747. 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 any time 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.
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
------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Share premium opening balance... -- 1,426,959
Premium on issue of shares...... 1,426,959 --
--------- ---------
Total reserves.................. 1,426,959 1,426,959
========= =========
</TABLE>
F-51
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE13 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.
NOTE 14. COMMITMETNS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
(a) Annual license 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 1994, the Company entered into a franchise agreement with
Australis Media Limited. The agreement carries a 15 year term beginning on
12 October 1994 and may be extended for an additional 10 years. The
agreement provides for an exclusive license and franchise for MDS and
Satellite and a non-exclusive license and franchise for cable for all
franchisor services including uplink and programming including Channel [V]
(a 24 hour music video channel), Arena, Showtime, Nickelodeon, TV1, Encore,
Discovery and Fox Sports.
Under the agreement, minimum payments are due, which include service fees
based on varying percentages of net revenues as defined in the agreement, and
subscription levies which are dependent on the number of subscribers.
F-52
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. NOTES TO THE STATEMENT OF CASH FLOWS:
(a) Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash at
the end of the financial year as shown in the Statement of Cash Flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Cash.................................................................................................. 5,994 2,236
Short-term money market deposits...................................................................... 10,072,256 --
---------- -----
10,078,250 2,236
========== =====
</TABLE>
<TABLE>
(b) Reconciliation of net cash provided by operating activities to operating loss after income tax.
ECONOMIC ENTITY
---------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------- -----------
1994 1995
---- ----
$A $A
<S> <C> <C>
Operating loss after income tax....................................................................... (122,457) (3,353,245)
Adjustments for non-cash income and expense items:
Depreciation and amortization expense................................................................ 4,055 212,635
Bad debts expense and provision for doubtful
debts............................................................................................... -- 28
Unrealized foreign exchange gain..................................................................... -- --
Transfers to provisions:
Annual leave........................................................................................ -- 11,495
Increase in other receivables....................................................................... (63,934) 60,930
Increase (decrease) in trade creditors.............................................................. 48,789 71,789
Increase in other assets............................................................................ -- (382,866)
------- ---------
Net cash from operating activities.................................................................... (133,547) (3,379,234)
======= =========
</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
----------------------
1994 1995
---- ----
ENTITY $A $A
- ------
<S> <C> <C>
Selectra Pty Limited.................... 2 --
Vermint Grove Pty Limited--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-53
<PAGE>
STV PTY AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(d) Non-cash financing and investing activities
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A354,822 (1994: $A44,506) 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>
BOOK VALUE OF CONTRIBUTION TO
PLACE OF PARENT CONSOLIDATED
NAME OF INCORPORATION/ DATE OF TYPE OF ENTITY'S % OF RESULT FOR THE
CONTROLLED ENTITY FORMATION(A) ACQUISITION SHARES INVESTMENT SHARES HELD YEAR
- ----------------- ------------ ----------- ------ ----------- ------------ -------------
1994 1995 1994 1995 1994 1995
-----------------------------------------------
$A $A % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vermint Grove Pty Limited 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>
NAME OF ASSOCIATED PRINCIPAL ACTIVITY OF OWNERSHIP BALANCE DIVIDENDS
COMPANY ASSOCIATED COMPANY INTEREST DATE RECEIVED
- ----------------------------- ------------------ ---------------- ---------- ----------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Communication & Entertainment Delivery of subscription
Australia Pty Limited television services 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-54
<PAGE>
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
and total $A0 and $A3,863,022. STV also has amounts payable to United
International Holdings, Inc. of $A79,816 and $A863,341 at December 31, 1994
and 1995, respectively.
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. STV has receivables
from associated companies totaling $A0 and $A1,322,587 at December 31, 1994 and
1995, respectively. STV has amounts payable to CTV of $A623,074 and $A3,627,044
as of the same dates.
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 shareholders' equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---- ----
$A $A
<S> <C> <C>
Shareholders' equity as per balance sheet 9,877,545 6,524,300
Adjustments to reported equity:
Convertible debentures (8,439,747) (8,439,747)
--------- -----------
Shareholders' equity in accordance with US GAAP 1,437,798 (1,915,447)
========= ===========
</TABLE>
F-55
<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, stockholders' 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 stockholders' 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-56
<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>
NOTE 1994 1995
-------- -----------
$A $A
<S> <C> <C> <C>
Revenue
Channel supply................................... Nil 1,117,091
Other............................................ Nil 592,149
Interest......................................... 2,829 196,291
------- ----------
2,829 1,905,531
------- ----------
Operating expenses
Cost of services................................. Nil 24,677,575
Selling, general and administrative.............. 236,703 12,475,597
Depreciation and amortization.................... 2 Nil 3,594,737
------- ----------
Cost of operations................................ 236,703 40,747,909
------- ----------
Net loss before income taxes...................... 233,874 38,842,378
------- ----------
Income taxes...................................... 3 Nil Nil
------- ----------
Net loss.......................................... 2 233,874 38,842,378
------- ----------
Net loss per share................................ 116,937 19,421,189
======= ==========
Weighted average number of ordinary shares out-
standing during the period....................... 2 2
======= ==========
</TABLE>
The accompanying notes form part of these financial statments.
F-57
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
------------- ------------
NOTE $A $A
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ 670,754 3,105,803
Receivables.......................................... 33,000 1,006,241
Amounts due from stockholder......................... Nil 21,219
Program material rights (net of accumulated
amortization of $Anil and $A1,430,000).............. Nil 2,298,935
-------- -----------
Total current assets............................... 703,754 6,432,198
-------- -----------
Non-current assets
Property, plant and equipment........................ 4 57,448 3,361,070
Investment in associated company..................... 6 Nil 245,518
Amounts due from related party....................... 8 Nil 1,326,578
Program material rights (net of accumulated
amortization of $Anil and $A180,000)................ Nil 217,916
-------- -----------
Total non-current assets........................... 57,448 5,151,082
-------- -----------
Total assets..................................... 761,202 11,583,280
======== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Creditors, trade..................................... Nil 20,792,868
Other creditors and accruals......................... Nil 75,656
Amounts due to related party......................... Nil Nil
-------- -----------
Total current liabilities........................... Nil 20,868,524
-------- -----------
Non-current liabilities
Creditors, trade..................................... Nil 743,086
Amounts due to stockholders.......................... 8 995,074 29,047,920
-------- -----------
Total non-current liabilities....................... 995,074 29,791,006
-------- -----------
Total liabilities................................ 995,074 50,659,530
-------- -----------
Commitments and Contingencies (See Notes)
Stockholders' deficiency
Redeemable preferences shares, par value $A1.00
per share: Authorized 100,000 shares, none
issued and outstanding.............................. Nil Nil
Ordinary shares, par value $A1.00 per share:
Authorized 900,000 shares, 2 issued and
outstanding......................................... 9 2 2
Accumulated deficit.................................. (233,874) (39,076,252)
-------- -----------
Total stockholders' deficiency...................... (233,872) (39,076,250)
-------- -----------
Total liabilities and stockholders' deficiency... 761,202 11,583,280
======== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-58
<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
--------- ------------ ------------
$A $A $A
<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)
== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-59
<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>
1994 1995
---------- -------------
$A $A
<S> <C> <C>
Cash flows from operating activities
Cash receipts in the course of operations............. Nil 370,348
Cash payments in the course of operations............. (269,703) (17,351,047)
Interest received..................................... 2,829 196,291
--------- ------------
Net cash used in operating activities................. (266,874) (16,784,408)
--------- ------------
Cash flows from investing activities
Payments for property, plant and equipment............ (57,448) (4,999,012)
Proceeds from sale of program material rights......... Nil 2,304,795
Payment for investment................................ Nil (1)
Payments for program material rights.................. Nil (7,164,583)
--------- ------------
Net cash used in investing activities................. (57,448) (9,858,801)
--------- ------------
Cash flows from financing activities
Proceeds from issues of shares........................ 2 Nil
Proceeds from stockholder loans....................... 995,074 29,078,258
--------- ------------
Net cash provided by financing activities............. 995,076 29,078,258
--------- ------------
Net increase in cash and cash equivalents held......... 670,754 2,435,049
Cash and cash equivalents at the beginning of the
period................................................ Nil 670,754
--------- ------------
Cash and cash equivalents at the end of the period..... 670,754 3,105,803
========= ============
Reconciliation of Net Loss to Net Cash Used in
Operating Activities
Net loss............................................. (233,874) (38,842,378)
Add non-cash items:
Amounts set aside to provisions..................... Nil 1,771,817
Depreciation and amortization....................... Nil 3,594,737
Gain on disposal of program material rights......... Nil (189,213)
Loss on disposal of program material rights......... Nil 1,511,315
Gain on disposal of fixed assets.................... Nil (168,358)
Loss on disposal of fixed assets.................... Nil 9,690
--------- ------------
Net cash used in operating activities before change
in assets and liabilities............................ (233,874) (32,312,390)
Change in assets and liabilities:
Increase in trade receivables....................... (33,000) (994,460)
(Increase) decrease in other receivables............ Nil (1,518,255)
Increase in creditors............................... Nil 18,040,697
--------- ------------
Net cash used in operating activities............. (266,874) (16,784,408)
========= ============
</TABLE>
The accompanying notes form part of these financial statements.
F-60
<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). 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 license
holders in Australia. The Galaxy Package is distributed via satellite, microwave
Multipoint distribution system and other transmission technologies by the
Satellite B license 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 license 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-61
<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 unrealized profits arising within the Economic Entity have
been eliminated in full.
(C) REVENUE AND REVENUE RECOGNITION
Sales revenue comprises license fees earned from a related entity for
development and production of channels of programming for subscription
television broadcasting services. Revenue is recognized 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 realization of
the asset is assured beyond a reasonable doubt. Deferred tax assets which
include tax losses are only recorded when their realization is virtually
certain.
The recovery of deferred tax assets (both recognized and unrecognized) 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.
F-62
<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
Leases
Payments made under operating leases are charged against profits in equal
installments 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.
(H) SUPERANNUATION
XYZ contributes to one defined contribution fund for all employee groups.
Contributions of $A135,675 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 recognized as an asset and stated at the lower of
unamortized cost and net realizable value. The rights represent the ability to
use television programs over a specified period of time, as set out in the
license agreements. Program material rights acquired under license agreements
are recognized when the license period begins and all of the following
conditions are met:
(i) The cost of each license 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 license 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 license 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.
F-63
<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
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.
(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.
<TABLE>
<CAPTION>
NOTE 2--EXPENDITURES
1994 1995
----- ----
$A $A
<S> <C> <C>
Expenses included in the net loss were:
Depreciation and amortization:
plant and equipment............................. Nil 828,647
program material rights......................... Nil 2,766,090
----- ----------
Total depreciation and amortization............ Nil 3,594,737
===== ==========
Amounts set Aside to Provision:
employee entitlements--annual leave............. Nil 75,656
provision for doubtful debts.................... Nil 1,696,160
----- ----------
Nil 1,771,816
===== ==========
Exchange (gain) loss, net, on foreign currency
transactions:
Exchange gain on foreign currency
transactions.................................. Nil (368,670)
----- ----------
Exchange (gain) loss, net...................... Nil (368,670)
===== ==========
</TABLE>
F-64
<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 $A7,997,055 (1994: $A71,840). 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
------- -----------
$A $A
<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 $A1,897,111 (1994: $ANil) 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>
1994 1995
------- -----------
$A $A
<S> <C> <C>
Plant and equipment--at cost................. 57,448 4,026,837
Less: accumulated depreciation............... Nil (665,767)
------ ---------
Total property, plant and equipment........ 57,448 3,361,070
====== =========
There have been no current valuations included in the above amounts.
</TABLE>
F-65
<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
------- ----------
$A $A
<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-cancelable 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
NAME OF COMPANY PRINCIPAL ACTIVITY INTEREST AMOUNT AMOUNT
- --------------- ------------------ ------------- -------------- ----------------
1994 1995 1994 1995 1994 1995
---- ---- ----- ---- ----- ----
PERCENT $A $A $A $A
<S> <C> <C> <C> <C> <C> <C> <C>
Nickelodeon Australia Production and Development
Management Pty Limited of the Nickelodeon Channel N/A 50 Nil 245,518 Nil 245,518
The balance date of the associate is June 30.
The carrying amount of the investment in the associated company is as follows: $A
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>
F-66
<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
<TABLE>
<CAPTION>
The carrying amount of the investment equates to the equity-accounted amount
at December 31, 1995 as follows:
<S> <C>
$A
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
OF HELD 1994 1995 1994 1995
---- ----- ----- -----
SHARE PERCENT $A $A $A $A
----- --------
<S> <C> <C> <C> <C> <C> <C>
Chief Entity
XYZ Entertainment Pty
Limited........................ 233,874 38,842,378
Corporate Bodies Corporate
XYZ Programming Pty
Limited.......................... Ord 100 Nil 2 Nil Nil
Arena Television Pty Limited..... Ord 100 Nil 2 Nil Nil
Quest Television Pty Limited..... Ord 100 Nil 2 Nil Nil
Max Television Pty Limited....... Ord 100 Nil 2 Nil Nil
Red Television Pty Limited....... Ord 100 Nil 2 Nil Nil
------- ----------
Consolidated net loss 233,874 38,842,378
======== ==========
</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.
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)
F-67
<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
<TABLE>
<CAPTION>
1994 1995
------- --------
$A $A
<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
$ANil -- $A9,999..................................................................... 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>
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995
----
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED $A
<S> <C> <C> <C> <C>
Loans advanced Non-interest bearing, no Century United D Hagans
from stockholder... set terms over payment Programming Ventures and A Tow
Pty Limited 14,523,960
Loans advanced Non-interest bearing, no Foxtel Management M Booth and
from stockholder... set terms of repayment Pty Limited R Freudenstein 14,523,960
-----------
29,047,920
===========
</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.
LOANS TO DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995
-----
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED $A
<S> <C> <C> <C> <C>
Loans advanced Non-interest bearing, no Century United D Hagans
to stockholder........ . set terms of repayment Programming Ventures and A Tow
Pty Limited 881,633
========
</TABLE>
There were no loans to Director Related Entities at December 31, 1994.
F-68
<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
<TABLE>
<CAPTION>
OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995
-----
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED $A
<S> <C> <C> <C> <C>
Establishment and Normal commercial UIH Australia D Hagans
restructuring terms and conditions Programming Inc. 250,000
fees paid...................................
Establishment and Normal commercial Century Programming A Tow
restructuring terms and conditions Ventures Corp. 250,000
fees paid...................................
Establishment, Normal commercial Century United D Hagans and
operating and terms and conditions Programming Ventures A Tow
management fees............................. Pty Limited 860,444
Channel supply Normal commercial Continental Century A Tow
license fee terms and conditions Pay Television Pty
revenue..................................... Limited 943,358
Channel supply Normal commercial Foxtel Management R Freudenstein
license fee terms and conditions Pty Limited and M Booth
revenue..................................... 330,753
There were no other transactions with
Director Related Parties at December 31,
1994.
LOANS TO OTHER RELATED ENTITIES
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995
----
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED $A
Loans advanced to Non-interest bearing, Nickelodeon Australia
associated no set terms of Management Pty Limited
company..................................... repayment 1,941,677
Loans advanced to Non-interest bearing, Nickelodeon Australia Inc.
related party............................... no set terms of
repayment 1,326,578
There were no loans to Other Related Entities at December 31, 1994.
OTHER TRANSACTIONS WITH OTHER RELATED ENTITIES
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995
-----
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED $A
Subscriptions payable........................ Normal commercial Nickelodeon Australia
terms and conditions Management Pty
Limited 113,219
</TABLE>
There were no other transactions with other related entities at December 31,
1994.
F-69
<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
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
license 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
Limited.
The ultimate holding company in the wholly-owned group is XYZ Entertainment
Pty Limited.
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.
<TABLE>
<CAPTION>
NOTE 9--SHARE CAPITAL
<S> <C> <C>
1994 1995
---- ----
$A $A
Authorized Capital
900,000 ordinary shares of $A1.00 each 900,000 900,000
100,000 redeemable preference shares of $A1.00 each... 100,000 100,000
---------- ----------
1,000,000 1,000,000
---------- ----------
Issued and Paid-Up Capital
2 ordinary shares of $A1.00 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-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
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
-------- ----------
$A $A
<S> <C> <C>
US Dollars
Liabilities
Current....... Nil 1,719,055
Non-current... 995,074 743,085
-------- ----------
Total........ 995,074 2,462,140
======== ==========
Assets
Current....... Nil 25,729
======== ==========
Sterling
Liabilities
Current....... Nil 10,949
======== ==========
</TABLE>
NOTE 12--SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN AUSTRALIA AND THE UNITED STATES
As stated in Note 1, the consolidated financial statements of XYZ have been
prepared in accordance with accounting principles generally accepted in
Australia, which differ in certain significant respects from those generally
accepted in the United States. A description of the major differences between
Australian GAAP and US GAAP affecting the Company follows:
(A) STATEMENT OF CASH FLOWS
Under US GAAP, a Statement of Cash Flows would not provide a subtotal for
"net cash used in operating activities before changes in assets and
liabilities" as shown in Reconciliation of Net Loss to Net Cash Used in
Operating Activities.
(B) DEFERRED TAXATION
Australian GAAP adopts the full liability method of tax effect accounting
whereby deferred tax assets and liabilities arising from timing differences are
recorded in the balance sheet at the rate of tax expected to be applicable at
the time those timing differences reverse. A deferred tax asset in relation to
available tax losses may be recognized to the extent that there is virtual
certainty of its recovery against future taxable income.
Under US GAAP, deferred taxes are provided on all temporary differences.
Temporary differences encompass timing differences and other events that create
differences between the tax basis of an asset or liability and its reported
amount in the financial statements. A deferred tax asset is recorded in a loss
period and is reduced by a valuation allowance to the extent it is more likely
than not that the deferred tax asset will not be realized.
No deferred tax asset has been recognized 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-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
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:
$A
Investment................................ 1
Amounts due from associated company (net
of provision for non-recoverability
of $A1,696,160) 245,517
-------
245,518
=======
(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 US 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-72
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NOTE 13--REPORTING OF SIX MONTH PERIODS
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -----------------
$A $A
<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 administrative..... 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-73
<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 years 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-74
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31
-------------------
NOTE 1994 1995
---- ----
NZ$ NZ$
<S> <C> <C> <C>
Programming revenue....................... 70,389 169,223
Other revenue............................. -- 57,835
---------- ----------
Total revenue............................. 70,389 227,058
Expenses..................................
Programming expenses...................... 203,901 448,243
Selling, general & administration......... 684,811 1,306,969
Management fee expense to related party... 309,426 17,209
Other operating expenses.................. 845,791 2,506,326
---------- ----------
Deficit before taxation for the year...... 2 (1,973,540) (4,051,689)
Income tax expense........................ 11 -- --
---------- ----------
Net deficit for the year.................. (1,973,540) (4,051,689)
========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-75
<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)
===========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-76
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
-----------------
NOTE 1994 1995
---- ----
NZ$ NZ$
<S> <C> <C> <C>
OWNER'S EQUITY
Share capital [Shares issued: 347,368 (1994: 347,368)]... 3 347,368 347,368
Reserves................................................. 3 6,981,575 6,981,575
Retained earnings........................................ (4,461,709) (8,513,398)
---------- ----------
2,867,234 (1,184,455)
NON-CURRENT LIABILITIES
Related party loan....................................... 8 - 3,076,199
CURRENT LIABILITIES
Accounts Payable & Accruals
Trade creditors..................................... 103,584 135,894
Other............................................... 110,868 122,207
---------- ----------
214,452 258,101
Employee entitlements.................................... 24,554 62,747
Converter deposits....................................... 24,356 -
Current-portion finance lease liability.................. 9 23,701 14,270
Related party payables................................... 8 - 879,336
---------- ----------
287,063 1,214,454
---------- ----------
Total Liabilities and Equity............................. 3,154,297 3,106,198
========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-77
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION (continued)
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
----------------------------
NOTE 1994 1995
---- ----
NZ$ NZ$
<S> <C> <C> <C>
NON-CURRENT ASSETS
Property, plant and equipment cost......... 3,297,551 4,150,307
Accumulated depreciation................. (1,300,597) (1,887,172)
---------- ----------
4 1,996,954 2,263,135
Investments - Unlisted Shares.............. - 5,000
---------- ----------
1,996,954 2,268,135
CURRENT ASSETS
Cash....................................... 733,407 379,547
Accounts receivables
Customers............................... - 21,746
Employees............................... 34,472 32,545
Others.................................. 17,143 33,463
Provision for doubtful debts............ - (10,000)
---------- ----------
51,615 77,754
Inventories................................ 170,709 160,074
Prepayments................................ - 29,351
Related party receivables.................. 8 201,612 191,337
---------- ----------
1,157,343 838,063
---------- ----------
TOTAL ASSETS............................... 3,154,297 3,106,198
========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-78
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED 31 DECEMBER
-----------------
NOTE 1994 1995
------- ------
NZ$ NZ$
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was provided from:
Customers................................. 22,031 171,749
Cash was disbursed to:
Payments to suppliers and employees....... (1,496,891) (3,624,231)
---------- ----------
Net cash flows from operating activities... 10 (1,474,860) (3,452,482)
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 assets.................. (726,123) (932,018)
Purchase of investments................... - (5,000)
---------- ----------
Net cash flows from investing activities... (583,817) (867,189)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash was provided from:
Share issue............................... 3 7,155,259 -
Related party loans....................... - 3,965,811
Cash was applied to:
Related party loan repayment.............. (4,402,250) -
---------- ----------
Net cash flow from financing activities.... 2,753,009 3,965,811
Net increase/(decrease) in cash held....... 694,332 (353,860)
Add opening cash brought forward........... 39,075 733,407
---------- ----------
Ending cash carried forward................ 733,407 379,547
========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-79
<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 and the New Zealand
dollar ("NZ$") as the reporting currency.
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 fixes
assets at rates calculated to allocate the assets' cost, less estimated residual
value, over their estimated useful lives.
<TABLE>
<CAPTION>
Major depreciation rates are:
<S> <C>
Plan 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.
F-80
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1995
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 installments
over the lease term.
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 asses 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 adopted the
principles of this statement on January 1, 1996. The provisions of SFAS 121 did
not have an effect on the Company's reported results.
F-81
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1995
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.
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 $US14.39 ($NZ24.12), giving
rise to a share premium reserve at balance date of $US2,389,509 ($NZ4,005,883).
Also on 8 July 1994, the balance of the Todd International loan account,
being $US1,775,000 ($NZ2,975,692) after forgiveness of $US50,176 ($NZ84,117) and
repayment of $US900,000 ($NZ1,508,801), converted to equity.
F-82
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1995
4. FIXED ASSETS
<TABLE>
<CAPTION>
1994
-------------------------------------
COST ACCUMULATED NET BOOK
---- DEPRECIATION VALUE..
------------ --------
<S> <C> <C> <C>
Leasehold improvements.............................. 121,516 (49,341) 72,175
Office equipment (including finance lease assets)... 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
========= ========== =========
1995
-------------------------------------
COST ACCUMULATED NET BOOK
---- DEPRECIATION VALUE..
------------ --------
<S> <C> <C> <C>
Leasehold improvements.............................. 127,912 (74,197) 53,715
Office equipment (including finance lease assets)... 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>
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:
United International Holdings, Inc. (significant shareholder)
Received funding.................. NZ$3,910,256 (1994:Nil)
F-83
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1995
Funding was provided by United International Holdings for Saturn to meet
its day to day obligations. The funding ha 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.
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)
Saturn also has a receivable balance owing from:
Todd International Limited (significant shareholder)
Receivable........................ NZ$191,337 (1994: NZ$201,613)
The receivable from Todd International is denominated in US dollars and is
on interest free terms.
Funding was provided by UIH for Saturn to meet its day to day obligations.
The funding has been provided interest free and repayable on demand. Although
the amount is repayable on demand a call will not be made until Saturn can
afford to meet its day to day obligations and pay back this funding.
United International Holdings--Tahiti (subsidiary of United
International Holdings)
Received payment of prior year balance
Cash Received......................... NZ$ Nil (1994: $22,195)
Balance Receivable.................... NZ$12,227 (1994: $12,227)
Saturn also has the following balances with:
Todd International Limited (significant shareholder)
Receivable............................ NZ$191,337 (1994: $201,612)
Payable............................... NZ$45,279 (1994:Nil)
The receivable from Todd International is denominated in US dollars and is
on interest free terms. The payable is denominated in New Zealand dollars and
is interest free repayable on demand.
9. FINANCE LEASES
At 31 December the following finance lease existed:
<TABLE>
<CAPTION>
ASSET VALUE LEASE
NZ$ LIABILITY
NZ$
<S> <C> <C>
Canon photocopier and fax
1995....................................... 19,263 14,270
1994....................................... 24,400 23,701
</TABLE>
F-84
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - (Continued)
FOR THE YEAR ENDED 31 DECEMBER 1995
The finance lease payment commitments as at balance date were payable:
<TABLE>
<CAPTION>
1995 1994
---- ----
NZ$ NZ$
<S> <C> <C>
within 1 year.................... 7,752 9,431
between 1 and 2 years............ 6,518 7,752
between 2 and 3 years............ - 6,718
------ ------
14,270 23,901
====== ======
</TABLE>
10. RECONCILIATION OF NET DEFICIT AFTER TAXATION TO NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED 31 DECEMBER
-----------------
1994 1995
---- ----
NZ$ NZ$
<S> <C> <C>
Net deficit after taxation (1,973,540) (4,051,509)
Add non-cash items:
Depreciation................................... 570,905 586,575
Provisions for doubtful debts.................. - 10,000
Add/(less) movements in working capital items
(Increase) in receivable and prepayments.... (48,358) (65,489)
(Increase)/decrease in inventories.......... (170,709) 10,635
Increase in accounts payable and accruals... 134,897 19,293
Increase in employee entitlements........... 11,945 38,193
---------- ----------
Net outflow from operations......................... (1,474,860) (3,452,302)
========== ==========
</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 utilize 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-85
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offering covered by this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Issuer or the Initial Purchaser. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy the
Notes by anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making the offer or solicitation is not
qualified to do so, 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 create any implication that the information contained herein is
correct as of any time subsequent to its date.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Additional Information...................... 3
Prospectus Summary.......................... 4
Risk Factors................................ 10
The Exchange Offer.......................... 17
Use of Proceeds............................. 23
Exchange Rate Data.......................... 23
Capitalization.............................. 24
Consolidated Selected Financial Data........ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 26
Business.................................... 38
Regulation.................................. 51
Corporate Organizational Structure.......... 59
Management.................................. 64
Certain Relationships....................... 70
Description of the Securities............... 72
Certain U.S. Income Tax Considerations...... 98
Plan of Distribution........................ 102
Legal Matters............................... 102
Experts..................................... 102
Index to Financial Statements............... F-1
</TABLE>
----------------------------
$45,000,000
UIH AUSTRALIA/PACIFIC, INC.
14% SENIOR DISCOUNT NOTES
DUE 2006, SERIES D
---------------------
PROSPECTUS
---------------------
_______________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the Prospectus contained in this Registration Statement.
<TABLE>
<CAPTION>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<S> <C>
3.1 Articles of Incorporation of the Issuer, as amended.(1)
3.1A Articles of Amendment to Articles of Incorporation of the Issuer.(2)
3.2 By-laws of the Issuer.(1)
4.1 The Indenture dated as of September 23, 1997, between the Issuer and Firstar Bank of Minnesota, N.A.
(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.(1).
5.1 Opinion of Holme Roberts & Owen LLP as to the legality of the Notes.*
8.1 Opinion of Holme Roberts & Owen LLP as to certain other matters.*
10.1 The Indenture as included as Exhibit 4.1.
10.2 Purchase Agreement dated September 16, 1997, between the Issuer and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ").*
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.3 Registration Rights Agreement dated September 23, 1997, between the Issuer and DLJ.*
10.4 Indenture dated as of May 14, 1996, between the Issuer and American Bank National Association.(1)
10.5 Memorandum of Variation dated December 21, 1995, to the Subscription and Securityholders
Agreement, among United International Holdings, Inc. ("UIHI"), UIH Australia, Inc. ("UIHA"), Salstel
Media Holdings Pty Limited ("SMH"), Australis Media Limited ("Australis") and CTV Pty Ltd
("CTV").(1)
10.6 Memorandum of Variation dated December 21, 1995, to the Subscription and Securityholders
Agreement dated October 12, 1994, among UIHI, UIH Australia II, Inc. ("UIHA II"), Salstel Media
Investment Pty Limited ("SMI"), Australis and STV Pty Ltd ("STV").(1)
10.7 Memorandum of Variation dated April 4, 1996, to the CTV Securityholders Agreement, among UIHI,
UIHA, Australis, SMH an CTV.(1)
10.8 Memorandum of Variation dated April 4, 1996, to the STV Securityholders Agreement, among UIHI,
UIHA II, Australis, SMI and STV.(1)
10.9 Security Purchase Agreement dated December 21, 1995, between Media International Holdings Limited
("MHL") and UIHA.(1)
10.10 Security Purchase Agreement dated December 21, 1995, between MIHL and UIHA II.(1)
10.11 Agreement dated December 21, 1995, among UIHI, UIHA and SMH.(1)
10.12 Amending Agreement dated April 4, 1996, to CTV Securityholders Agreement, among UIHI, UIHA and
SMH.(1)
10.13 Agreement dated December 21, 1995, among UIHI, UIHA II and SML.(1)
10.14 Amending Agreement dated April 4, 1996, to the STV Securityholders Agreement, among UIHI, UIHI II
and SMI.(1)
10.15 Subscription and Investment Agreement dated July 21, 1997, among SaskTel, Saskatchewan
Telecommunications Holding Corporation, UIH New Zealand Holdings, Inc. ("UIHNZ"), UIH
Asia/Pacific Communications, Inc. ("UAP") and Saturn, as amended.*
10.16 Shareholders Agreement dated July 23,1997, among SaskTel, UIHNZ and Saturn.*
10.17 XYZ Shareholders Agreement dated September 6, 1995, among Century United Programming Venturers
Pty Limited ("CUPV"), Foxtel Management Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited
("XYZ"), Century United Programming Ventures ("CPVC") and the Issuer.(1)
10.18 Shareholders Deed dated June 30, 1995, among Century Communications Corp., CPVC, UIHI, the
Issuer and CUPV.(1)
10.19 UIH-SFCC L.P. Amended and Restated Agreement of Limited Partnership dated January 6, 1995,
among UIH-SFCC Inc. and the limited partners named therein.(1)
10.20 Master Agreement dated January 11, 1995, between UIH-SFCC, L.P. and Societe Francaise des
Communications et du Cable S.A. ("Societe").(1)
10.21 Shareholders' Agreement dated January 11, 1995, among UIH-SFCC, L.P. and the shareholders named
therein.(1)
10.22 Franchise Agreement dated October 12, 1994, between Australis and CTV.(1)
10.23 Agreement dated June 19, 1996, between Australis, the Issuer and Galaxy Communications Pty Limited
("Galaxy") re: CTV Franchise Agreement.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.24 Franchise Agreement dated October 12, 1994, between Australis and STV.(1)
10.25 Agreement dated June 19, 1996, between Australis, the Issuer and Galaxy re: STV Franchise
Agreement.(1)
10.26 A$200,000,000 Syndicated Senior Secured Debt Facility Agreement, dated July 31, 1997, among Austar
Entertainment Pty Limited, Chase Securities Australia Limited, Chase Securities Australia Limited, the
Guarantors named herein, and the financial institutions named herein.*
10.27 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and East Coast Pay Television Pty
Limited ("ECT").(1)
10.28 Technical Assistance Agreement dated October 12, 1994, between CTV and United International
Management, Inc. ("UIMI").(1)
10.29 Technical Assistance Agreement dated October 12, 1994, between STV and UIMI.(1)
10.30 Technical Assistance Agreement dated July 8,1994, between Saturn and UIHI.(1)
10.31 Amendment No. 1 to Technical Assistance Agreement dated July 23, 1997, between Saturn and UAP.*
10.32 Technical Assistance Agreement dated July 23,1997, between SaskTel and Saturn.*
10.33 Technical Assistance Agreement dated January 11, 1995, between Telefenua S.A. and Societe.(1)
10.34 Assignment of Rights and Delegation of Duties under Technical Assistance Agreement dated January 11,
1995, between Societe and UIMI.(1)
10.35 Management Agreement dated May 1, 1996, between UIH Management, Inc. and the Issuer, as assigned
to UAP.(1)
10.36 Tax Allocation Agreement dated May 8, 1996, among UIHI, UAP and the Issuer.(1)
10.37 Warrant Agreement dated as of November 15, 1997, between the Issuer and
Firstar Bank of Minnesota, N.A.*
10.38 Registration Rights Agreement dated May 14, 1996, between the Issuer,
DLJ and Merrill Lynch, Pierce, Fenner & Smith.(1)
12.1 Statement re: Ratio of Earnings to Fixed Charges.*
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 Ltd.).
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 LLP is included in Exhibit 5.1.
24.1 Powers of Attorney.*
</TABLE>
- --------------
* Previously filed
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 33-05017) filed with the Commission on May 31, 1996.
(2) Incorporated by reference to Amendment No.1 to the Company's Registration
Statement on Form S-3 (File No. 333-37651) filed with the Commission on
November 13, 1997.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THIS 5TH DAY OF
DECEMBER 1997.
UIH Australia/Pacific, Inc.,
A Colorado corporation
By:/s/ Michael T. Fries
-----------------------------------
Michael T. Fries, Attorney-in-Fact
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 AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
TITLE/POSITION HELD
SIGNATURE WITH THE REGISTRANT DATE
_________ __________________ _____
<S> <C> <C>
* Chairman of the Board December 5, 1997
- -----------------------------
Gene W. Schneider
/s/ Michael T. Fries Chief Executive Officer and Director December 5, 1997
- -----------------------------
Michael T. Fries
* Chief Financial Officer and Director December 5, 1997
- -----------------------------
J. Timothy Bryan
* Director December 5, 1997
- -----------------------------
Mark L. Schneider
* Controller (Principal Accounting December 5, 1997
- ----------------------------- Officer)
Valerie L. Cover
/s/ Michael T. Fries December 5, 1997
- -----------------------------
By: Michael T. Fries,
Attorney-in-fact
</TABLE>
II-5
<PAGE>
CONFORMED COPY
EX-10.26
A$200,000,000
SYNDICATED SENIOR SECURED DEBT FACILITY
AGREEMENT
DATE: 31 July 1997
AUSTAR ENTERTAINMENT PTY LIMITED
Borrower
EACH COMPANY SPECIFIED AS A GUARANTOR IN SCHEDULE 1
Guarantor
EACH FINANCIAL INSTITUTION SPECIFIED AS A BANK IN SCHEDULE 2
Bank
CHASE SECURITIES AUSTRALIA LIMITED
Facility Agent
CHASE SECURITIES AUSTRALIA LIMITED
Security Agent
<PAGE>
TABLE OF CONTENTS
CLAUSE PAGE
1. DEFINITIONS AND INTERPRETATION 1
1.1 DEFINITIONS 1
1.2 INTERPRETATION 13
1.3 JOINT AND SEVERAL LIABILITY 14
1.4 DEBENTURE STOCK TRUST DEED 15
1.5 SPECIFIED RATE 15
2. THE FACILITY 15
2.1 FACILITIES 15
2.2 BANKS' COMMITMENTS 15
2.3 SEVERAL OBLIGATIONS 15
2.4 SEVERAL INTERESTS 16
2.5 PURPOSE 16
2.6 TERMINATION 16
2.7 NATURE OF BORROWER'S RIGHTS AND OBLIGATIONS HEREUNDER 16
2.8 VOTING 17
3. CONDITIONS PRECEDENT 17
3.1 CONDITIONS PRECEDENT TO THE FIRST UTILISATION 17
3.2 CONDITIONS PRECEDENT TO ALL UTILISATIONS 17
3.3 WAIVER 18
3.4 CONDITIONS PRECEDENT TO ALL TRANCHE 2 UTILISATIONS 18
3.5 CONDITIONS PRECEDENT TO ALL TRANCHE 3 UTILISATIONS 18
3.6 AGENT NOT LIABLE 19
3.7 AGENT SATISFIED 19
4. UTILISATIONS 19
4.1 NOTICE 19
4.2 CONTENTS OF UTILISATION NOTICE 19
4.3 REQUIREMENTS OF UTILISATION NOTICE 19
4.4 AGENT NOTIFY BANKS 20
4.5 MAKING OF ADVANCES 20
4.6 DISBURSEMENT 20
4.7 FACILITY AGENT'S RIGHT TO VARY 20
5. COMMITMENTS 20
5.1 TRANCHE 1 COMMITMENTS 20
5.2 TRANCHE 2 COMMITMENTS 20
5.3 TRANCHE 3 COMMITMENTS 21
5.4 FIRST TRANCHE 3 UTILISATION 21
5.5 VOLUNTARY CANCELLATION 21
5.6 REDUCTION CONSEQUENT ON REPAYMENT OR PREPAYMENT 21
<PAGE>
5.7 LIMITATIONS 21
6. REPAYMENT AND PREPAYMENTS 22
6.1 REPAYMENT OF TRANCHE 1 UTILISATIONS 22
6.2 REPAYMENT OF TRANCHE 2 ADVANCES AND TRANCHE 3 ADVANCES 22
6.3 RECALCULATION OF REPAYMENTS 23
6.4 REPAYMENT INSTRUCTIONS 23
6.5 VOLUNTARY PREPAYMENT 23
6.6 FACILITY AGENT TO NOTIFY BANKS 23
6.7 MANDATORY PREPAYMENT 23
6.8 EXCESS CASH FLOW ELECTION 24
6.9 ORDER OF APPLICATION 24
6.10 DATE FOR PREPAYMENT 25
6.11 GENERAL PROVISIONS RELATING TO PREPAYMENT 25
7. INTEREST 25
7.1 INTEREST PERIODS 25
7.2 RESTRICTIONS ON SELECTION 26
7.3 CALCULATION OF INTEREST 26
7.4 PAYMENT OF INTEREST 26
8. INTEREST ON OVERDUE AMOUNTS 26
8.1 PAYMENT OF INTEREST 26
8.2 ACCRUAL OF INTEREST 27
9. BILL RELIQUIFICATION 27
9.1 DRAWING OF BILLS 27
9.2 ATTORNEY 27
9.3 APPOINTMENT REVOKED 27
9.4 INDEMNITY 27
9.5 NOTICE 28
10. FEES 28
10.1 COMMITMENT FEE 28
10.2 ARRANGEMENT/UNDERWRITING FEE 28
10.3 ESTABLISHMENT FEE 28
10.4 AGENCY FEES 28
10.5 RATIO RANGE 28
11. PAYMENTS 29
11.1 PAYMENT TO SECURITY AGENT 29
11.2 TIME AND PLACE 29
11.3 MERGER 29
11.4 CONVERSION OF FOREIGN CURRENCY RECEIPTS TO DOLLARS 29
11.5 COSTS OF CONVERSION 30
<PAGE>
11.6 APPLICATION 30
11.7 FOREIGN CURRENCY INDEMNITY 30
11.8 INSUFFICIENT PAYMENT 31
11.9 ANTICIPATORY PAYMENTS 31
11.10 ROUNDING 31
12. TAXES 31
12.1 NO DEDUCTION FOR TAXES AND NO SET-OFF OR COUNTERCLAIM 31
12.2 PAYMENT NET OF TAXES 31
12.3 FUNDING 33
12.4 TERMINATION 33
12.5 RIGHT TO PREPAY INDIVIDUAL BANK 33
13. ILLEGALITY 33
14. INCREASED COST 34
14.1 OBLIGATION TO INDEMNIFY 34
14.2 RIGHT TO PREPAY INDIVIDUAL BANK 34
15. MITIGATION 35
15.1 MITIGATION 35
15.2 REPLACEMENT OF BANK 35
15.3 COSTS AND EXPENSES 35
16. REPRESENTATIONS AND WARRANTIES 35
16.1 GENERAL REPRESENTATIONS AND WARRANTIES 35
16.2 INFORMATION REPRESENTATIONS AND WARRANTIES 37
16.3 CORPORATE REPRESENTATIONS AND WARRANTIES 38
16.4 REPRESENTATIONS AND WARRANTIES REPEATED 39
17. UNDERTAKINGS 39
17.1 DURATION AND BENEFIT 39
17.2 INFORMATION 39
17.3 SECURITY VALUE 41
17.4 LIABILITIES 43
17.5 USE OF FUNDS 44
17.6 DIVIDENDS AND SHARE CAPITAL 44
17.7 INTELLECTUAL PROPERTY RIGHTS 45
17.8 INSURANCE 46
17.9 LICENCES 46
17.10 MATERIAL CONTRACTS 47
17.11 SECURITY PROPERTY 48
17.12 GENERAL UNDERTAKINGS 48
18. FINANCIAL RATIOS 50
<PAGE>
18.1 FINANCIAL COVENANTS 50
18.2 COMPLIANCE CERTIFICATE 51
18.3 STAMP DUTY CERTIFICATE 51
19. DEFAULT AND TERMINATION 51
19.1 EVENTS OF DEFAULT 51
19.2 FACILITY AGENT'S RIGHTS UPON EVENT OF DEFAULT 54
19.3 CHIPPAWA AND ILONA 55
20. GUARANTEE AND INDEMNITY 55
20.1 GUARANTEE 55
20.2 INDEMNITY 55
20.3 PERFORMANCE OF OBLIGATIONS 55
20.4 LIABILITY AS GUARANTOR AND INDEMNIFIER 55
20.5 PRINCIPAL OBLIGATION 56
20.6 ABSOLUTE LIABILITY 56
20.7 UNCONDITIONAL LIABILITY 56
20.8 NO OBLIGATION TO GAIN CONSENT 58
20.9 NO MARSHALLING 58
20.10 VOID OR VOIDABLE TRANSACTIONS 58
20.11 INSOLVENCY 59
20.12 NO SET-OFF, COUNTERCLAIM, ETC. 59
20.13 RESTRICTION ON GUARANTOR'S DEALINGS 59
20.14 RELEASE OF RELEVANT PERSON 60
20.15 CONDITIONS PRECEDENT 60
20.16 CLAIM ON THE GUARANTORS 60
20.17 SUBROGATION 60
20.18 GENERAL WAIVER BY GUARANTORS 60
20.19 JUDGMENT 61
21. ADDITIONAL GUARANTORS AND SECURITY 61
21.1 ADDITIONAL GUARANTORS 61
21.2 SECURITY 61
21.3 ADDITIONAL SECURITY 62
22. RELEASE OF GUARANTORS AND SECURITY 62
22.1 GUARANTORS 62
22.2 ASSETS 62
22.3 CONDITIONS FOR RELEASE 62
22.4 RELEASE OF GROUP MEMBERS 63
23. INDEMNITY 63
24. AGENTS 64
24.1 APPOINTMENT 64
24.2 RELATIONSHIPS 64
<PAGE>
24.3 COMMUNICATIONS 64
24.4 INSTRUCTIONS OF MAJORITY 64
24.5 AMENDMENTS 65
24.6 NO NEED FOR INQUIRIES 65
24.7 DELEGATION 65
24.8 AGENT NOT BOUND TO ENQUIRE 66
24.9 DEFAULT 66
24.10 AGENTS AS BANKS 66
24.11 AGENT'S DEALINGS 66
24.12 NOTICES AND REPORTS 66
24.13 NOT RESPONSIBLE 67
24.14 INDEMNITY 67
24.15 OBSERVE LAWS 68
24.16 REPLACEMENT 68
24.17 NO AUTHORITY 68
24.18 SECURITY AGENT AS TRUSTEE 69
25. SET-OFF 69
26. PRO RATA SHARING 69
27. EXPENSES AND STAMP DUTIES 70
27.1 EXPENSES 70
27.2 STAMP DUTIES 71
28. ASSIGNMENTS AND CONFIDENTIALITY 71
28.1 SUCCESSORS AND ASSIGNS 71
28.2 ASSIGNMENTS BY THE BORROWER 71
28.3 BANKS 71
28.4 SUBSTITUTION 72
28.5 INCREASED COSTS AND ILLEGALITY 72
28.6 SUB-PARTICIPATIONS 73
28.7 STOCK CERTIFICATES 73
28.8 CONFIDENTIALITY 73
29. GOVERNING LAW AND JURISDICTION 74
29.1 GOVERNING LAW 74
29.2 JURISDICTION 74
30. MISCELLANEOUS 74
30.1 CERTIFICATE OF AGENT 74
30.2 NOTICES 74
30.3 CONTINUING OBLIGATION 75
30.4 SETTLEMENT CONDITIONAL 75
30.5 FURTHER ASSURANCE 75
30.6 ATTORNEY 75
30.7 SEVERABILITY OF PROVISIONS 76
<PAGE>
30.8 REMEDIES CUMULATIVE 76
30.9 WAIVER 76
30.10 CONSENTS AND APPROVALS 76
30.11 WRITTEN WAIVER, CONSENT AND APPROVAL 76
30.12 TIME OF ESSENCE 76
30.13 CONSULTANTS FEES 76
30.14 MORATORIUM LEGISLATION 77
30.15 BINDING ON EACH SIGNATORY 77
30.16 COUNTERPARTS 77
30.17 PROCEEDS ACCOUNT 77
31. NO REPRESENTATION BY OR RELIANCE ON THE BANK OR AGENT 77
SCHEDULE 1 - ORIGINAL GUARANTORS 78
SCHEDULE 2 - BANKS 80
SCHEDULE 3 - LICENCES 81
SCHEDULE 4 - DOCUMENTARY CONDITIONS PRECEDENT 84
SCHEDULE 5 - FORMS OF UTILISATION NOTICE 86
SCHEDULE 6 - ACCESSION AGREEMENT 87
SCHEDULE 7 - SUBSTITUTION CERTIFICATE 89
SCHEDULE 8 - NOTICE FROM UIH 94
SCHEDULE 9 - COMPLIANCE CERTIFICATE 95
SCHEDULE 10 - FORM OF STAMP DUTY CERTIFICATE 97
<PAGE>
FACILITY AGREEMENT made at Sydney on 31 July 1997 at 3.30 pm
BETWEEN AUSTAR ENTERTAINMENT PTY LIMITED, ACN 068 104 530 of Level 13, 309
Kent Street, Sydney, New South Wales (the "BORROWER")
AND EACH COMPANY SPECIFIED AS A GUARANTOR IN SCHEDULE 1 (each an
"ORIGINAL GUARANTOR")
AND EACH FINANCIAL INSTITUTION SPECIFIED AS A BANK IN SCHEDULE 2 (each
a "BANK")
AND CHASE SECURITIES AUSTRALIA LIMITED, ACN 002 888 011 of Level 35,
AAP Centre, 259 George Street, Sydney, New South Wales as facility
agent for the Banks (in this capacity the "FACILITY AGENT")
AND CHASE SECURITIES AUSTRALIA LIMITED, ACN 002 888 011 of Level 35,
AAP Centre, 259 George Street, Sydney, New South Wales as security
agent and trustee for the Banks (in this capacity the "SECURITY
AGENT")
RECITALS
At the request of the Borrower and the Guarantors the Banks have agreed, subject
to the terms of this Agreement, to provide the facilities described herein to
the Borrower.
THE PARTIES AGREE:
1. DEFINITIONS AND INTERPRETATION
1. Definitions
In this Agreement:
"ACCESSION AGREEMENT" means an agreement substantially in the form of
Schedule 6 made pursuant to clause 21.1.
"ACCOUNTS" means from time to time:
(a) the latest audited consolidated annual accounts of CTV and STV;
(b) the latest audited notionally consolidated annual accounts of the
Group;
(c) the latest audited consolidated semi-annual accounts of CTV and
STV;
(d) the latest audited notionally consolidated semi-annual accounts of
the Group;
<PAGE>
(e) the latest unaudited consolidated monthly management accounts of
the Group; and
(f) any other audited or unaudited consolidated or unconsolidated
accounts (if any) of the Group or any member thereof, delivered or
required to be delivered to the Facility Agent pursuant to this
Agreement, or such of those accounts as the context requires.
"ADDITIONAL GUARANTOR" means any entity which becomes a party hereto as a
Guarantor pursuant to an Accession Agreement.
"ADVANCE" means:
(a) when designated "TRANCHE 1", "TRANCHE 2" or "TRANCHE 3" the
principal amount of each borrowing under this Agreement from the
Tranche 1 Commitments, the Tranche 2 Commitments or the Tranche 3
Commitments respectively or the principal amount of such borrowing
outstanding from time to time, as the context requires
(collectively the "TRANCHE 1 ADVANCES", the "TRANCHE 2 ADVANCES"
and the "TRANCHE 3 ADVANCES");
(b) without any such designation, a Tranche 1 Advance, a Tranche 2
Advance or a Tranche 3 Advance as the context requires, and
"ADVANCES" without any such designation means some or all of the
Tranche 1 Advances and/or the Tranche 2 Advances and/or the
Tranche 3 Advances as the context requires.
"ADVERSE TITLE RETENTION ARRANGEMENT" means any title retention
arrangement entered into with any person in connection with the
acquisition of goods in the course of business on terms that the vendor=s
title is or may be retained in respect of any goods which have been paid
for in full.
"AGENT" means:
(a) when designated "FACILITY AGENT", Chase Securities Australia
Limited or any of its successors pursuant to clause 24.16;
(b) when designated "SECURITY AGENT", Chase Securities Australia
Limited or any of its successors pursuant to any relevant
provision of any of the Securities; and
(c) without any such designation, the Facility Agent or the Security
Agent, as the context requires, and "AGENTS" without any such
designation means one or more of the Facility Agent and the
Security Agent, as the context requires.
"AMORTISATION SCHEDULE" means the schedule of dates and payments set out
in clause 6.2
"AUSTRALIS" means Australis Media Limited, ACN 059 741 178.
<PAGE>
"AUSTRALIS SETTLEMENT AGREEMENT" means:
(a) the CTV Franchise Agreement letter dated 19 June 1996 from
Australis to UIH Australia/Pacific, Inc. and the attached Schedule
of Terms;
(b) the STV Franchise Agreement letter dated 19 June 1996 from
Australis to UIH Australia/Pacific, Inc. and the attached Schedule
of Terms;
(c) Narrowcast letter dated 19 June 1996 from STV to Australis;
(d) Narrowcast letter dated 19 June 1996 from CTV to Australis;
(e) Joint Venture Clarification Letter dated 19 June 1996 from
Australis to UIH Australia/Pacific, Inc. and CTV;
(f) Waiver and Release Letter dated 19 June 1996 from Australis to
CTV, STV and UIH Australia/Pacific, Inc.; and
(g) Letter dated 19 June 1996 from UIH Australia/Pacific, Inc. to STV
and CTV.
"AVAILABILITY PERIOD" means the period from the date of this Agreement
to:
(a) when designated "TRANCHE 1", close of business in Sydney on 30
June 2000;
(b) when designated "TRANCHE 2", close of business in Sydney on 30
June 2000 or the date of the initial Tranche 3 Advance (if any)
whichever occurs first;
(c) when designated "TRANCHE 3", close of business in Sydney on 30
June 2000, or such later date as all the Banks may agree in
writing on or after the date hereof.
"BANK" means each of the following:
(a) each bank or other financial institution whose name is set out in
Schedule 2;
(b) each bank or other financial institution to which rights and/or
obligations under this Agreement are assigned or transferred
pursuant to clause 28;
(c) any successor or successors in title to any of the foregoing,
provided that upon (i) termination in full of all the Commitments
of any Bank, and (ii) irrevocable payment in full of all amounts
which may be or become payable to such Bank under the Transaction
Documents, such Bank shall not be regarded as being a Bank for the
purposes of determining whether any
<PAGE>
provision of any of the Transaction Documents requiring consultation with
or the consent or approval of or instructions from the Banks or the
Majority Banks has been complied with (together the "BANKS").
"BANKING DAY" means a day on which trading banks are open for business
generally in Sydney and Melbourne.
"BILL" means a bill of exchange within the meaning given to the
expression "BILL OF EXCHANGE" in the Bills of Exchange Act 1909 of the
Commonwealth of Australia, but does not include a cheque or payment
order, and any reference to the drawing, acceptance, indorsement or other
dealing of or with a Bill refers to a drawing, acceptance, indorsement or
other dealing within the meaning of that Act.
"BILL RATE" in relation to each Interest Period means the rate (expressed
as a percentage per annum) which is the average of the bid rates shown at
approximately 11.00 am on page "BBSY" on the Reuters Monitor System on
the first day of that Interest Period for a term equal to the duration of
that Interest Period (or if that Interest Period is subject to marginal
adjustment, for a term equal to the duration of the Interest Period
prior to such adjustment) provided that if such rate is no longer
available or, in the opinion of the Facility Agent such rate becomes
inappropriate, unfair or incapable of application, the Bill Rate shall
mean the rate reasonably determined by the Facility Agent to be the
appropriate equivalent rate having regard to prevailing market
conditions.
"BRIDGE FINANCING FACILITY AGREEMENT" means the agreement so entitled
dated 2 April 1997 between the Borrower, the Original Guarantors, the
Facility Agent and Chase.
"BUSINESS PLAN" means the financial model prepared by the Borrower dated
7 February 1997 and entitled "LRP3", or any revised version of such
model, agreed by the Facility Agent acting on instructions from the
Majority Banks to be the Business Plan for the purposes of the Facility.
"CHASE" means The Chase Manhattan Bank, ARBN 074 112 011.
"CHIPPAWA" means Chippawa Pty. Limited, ACN 068 943 635.
"COMMITMENT" in relation to a Bank means:
(a) when designated "TRANCHE 1", "TRANCHE 2" or " TRANCHE 3", the
amount appearing and designated as such against that Bank's name
in Schedule 2 or in the Substitution Certificate or other document
by which it became a party to or acquired rights under this
Agreement (collectively the "TRANCHE 1 COMMITMENTS", the "TRANCHE
2 COMMITMENTS" and the "TRANCHE 3 COMMITMENTS");
(b) without any such designation, a Bank's Tranche 1 Commitment,
Tranche 2 Commitment or Tranche 3 Commitment, as the context
requires,
<PAGE>
in each case as reduced or increased pursuant to clause 5.4 or by
substitution or transfer pursuant to clause 28 and any Substitution
Certificates to which such Bank is party, and to the extent not
cancelled, reduced or terminated under this Agreement (collectively the
"TOTAL COMMITMENTS").
"COMPLIANCE CERTIFICATE" means a certificate in the form of Schedule 9
signed by two members of the Board of Directors of the Borrower stating
that the financial covenants listed in clause 18.1 and the
representations and warranties listed in clause 16 are true and correct
and, when given at the end of the financial year, will be based on
audited Accounts.
"CONTROLLER" has the meaning given in section 419(1) of the Corporations
Law.
"CTV" means CTV Pty. Limited, ACN 064 416 128.
"CTV FRANCHISE AGREEMENT" means the Franchise Agreement dated 12 October
1994 between CTV and Australis as varied by agreement dated 19 June 1996.
"DEBENTURES" means the perpetual, subordinated, convertible debentures
issued by CTV or STV, as the case may be.
"DEBENTURE STOCK TRUST DEED" means the deed so entitled dated 2 April
1997 entered into by, amongst others, the Security Agent and the
Borrower.
"DOLLAR" or "$" means the lawful currency for the time being of the
Commonwealth of Australia.
"EBITDA" means, on a consolidated basis for any period, cash revenue
minus:
(a) all corporate overhead;
(b) all scheduled licence and service fees and programming payments;
(c) all operating expenses except depreciation, amortisation
(including programming amortisation), interest expenses, other
non-cash charges, income taxes accrued for such period,
extraordinary abnormal and non recurring gains or losses, and
gains or losses from the sale of assets to the extent such items
are included in operating expenses; and
(d) for customers who have been disconnected and represent
disconnections in excess of 3% of Total Subscribers per month
during the relevant period the aggregate installation costs
associated with replacing those customers (which have not already
been included as an operating expense), less the cost of
recoverable Equipment but including the costs associated with the
recovery of that Equipment (which have not already been included
as an operating expense).
<PAGE>
"ENCUMBRANCE" means any mortgage, charge, pledge, lien, encumbrance,
security interest, title retention, preferential right, security trust
arrangement, contractual right of set-off or any other security
agreement or arrangement in favour of any person.
"EQUIPMENT" means receiving equipment consisting of antennae, down
converters, satellite dishes, set-top boxes, ancillary equipment and
installation costs.
"EQUITY CONTRIBUTION" means the amount contributed as cash to CTV and/or
STV by UIH Australia/Pacific, Inc. or a Related Body Corporate of UIH
Australia/Pacific, Inc. (in the form of equity, Subordinated Debt or
other type of financial accommodation acceptable to the Facility Agent)
which has been used or which is available to be used for the purpose of
purchasing Equipment and for working capital purposes since 1 January
1997 less $25,000,000 and any management and/or other fees paid to UIH
Australia/Pacific, Inc. or a Related Body Corporate.
"EVENT OF DEFAULT" means any of the events set out or referred to in
clause 19 as an Event of Default.
"EVENT OF INSOLVENCY" means:
(a) a receiver, manager, receiver and manager, trustee, administrator,
Controller or similar officer is appointed in respect of a
Relevant Person or any asset of a Relevant Person;
(b) a liquidator or provisional liquidator is appointed in respect of
any Relevant Person;
(c) any application (not being an application withdrawn or dismissed
within 7 days or an application which the Facility Agent agrees is
frivolous or vexatious and will be dismissed) is made to a court
for an order, or an order is made, or a meeting is convened, or a
resolution is passed, for the purpose of:
(i) appointing a person referred to in paragraphs (a) or (b);
(ii) winding up a Relevant Person; or
(iii) proposing or implementing a scheme of arrangement in
respect of a Relevant Person;
(d) a moratorium of any debts of a Relevant Person or an official
assignment or a composition or an arrangement (formal or informal)
with a Relevant Person's creditors or any similar proceeding or
arrangement by which the assets of a Relevant Person are subjected
conditionally or unconditionally to the control of a Relevant
Person's creditors is ordered, declared or agreed to, or is
applied for and the application is not withdrawn or dismissed
within 7 days;
(e) a Relevant Person becomes, or admits in writing that it is, or is
declared to be, is deemed under any applicable law to be,
insolvent or unable to pay its debts;
<PAGE>
(f) any writ of execution, garnishee order, mareva injunction or
similar order, attachment, distress or other process is made,
levied or issued against or in relation to any asset of a Relevant
Person in respect of a claim greater than $100,000.
"EXCESS CASH FLOW" means, for any specified period, all cash inflows
during that period of the Group from whatever source (not including cash
proceeds from new equity and Subordinated Debt issues, other than those
due in accordance with clause 3), less all cash outflows during that
period of the Group (including debt amortisation in accordance with the
Amortisation Schedule but excluding any payments made pursuant to clause
17.6), determined on a consolidated basis and based on audited accounts.
"EXCLUDED TAXES" means any Taxes imposed by any jurisdiction on the
overall net income of a Bank but not Taxes:
(a) which are calculated on or by reference to the gross amount of any
payments (without the allowance of any deduction) derived under
this Agreement or any Transaction Document or any other document
referred to in this Agreement or a Transaction Document by the
Bank; or
(b) which are imposed as a result of the Bank being considered a
resident of or organised or doing business in that jurisdiction
solely as a result of it being a party to this Agreement or a
Transaction Document or any transaction contemplated by this
Agreement or a Transaction Document.
"FACILITY" means:
(a) when designated "TRANCHE 1 FACILITY", the revolving working
capital facility referred to in clause 2.1(a);
(b) when designated "TRANCHE 2 FACILITY", the amortising cash advance
facility referred to in clause 2.1(b);
(c) when designated "TRANCHE 3 FACILITY", the amortising term loan
facility referred to in clause 2.1(c); and
(d) without any such designation, the Tranche 1 Facility, the Tranche
2 Facility or the Tranche 3 Facility as the context requires, and
"THE FACILITIES" means the Tranche 1 Facility, the Tranche 2
Facility and the Tranche 3 Facility taken together.
"FINANCIAL LIABILITY" means present or future, actual or contingent
indebtedness in respect of financial accommodation, credit or hedging
arrangements, finance leases or hire purchase arrangements or any
guarantee or other assurance in respect of any such indebtedness.
"FINANCIAL YEAR" means a calendar year ending on 31 December.
"FOREIGN CURRENCY" means the currency for the time being of any country
<PAGE>
other than the Commonwealth of Australia.
"FUNDING BANK" means Chase.
"FUNDING AND LC BANK AGREEMENT" means each document so named entered into
between the Funding Bank and an LC Bank.
"GROUP" means the Borrower, CTV and STV and each Subsidiary of the
Borrower, CTV and STV.
"GUARANTOR" means each entity identified as an Original Guarantor in
Schedule 1 and each Additional Guarantor (together the "GUARANTORS").
"HEDGING AGREEMENTS" means any interest rate or currency hedging
agreement entered into between the Borrower and a Bank (or its
affiliate).
"ILONA" means Ilona Investments Pty. Limited, ACN 068 943 626.
"INFORMATION MEMORANDUM" means the memorandum dated May 1997 prepared by
the Facility Agent on the basis of information supplied by the Obligors
to assist the Facility Agent in obtaining persons to provide financial
accommodation pursuant to the Facility and containing information,
financial and otherwise, regarding Obligors.
"INSOLVENCY PROVISION" means any law relating to insolvency,
sequestration, liquidation or bankruptcy (including any law relating to
the avoidance of conveyances in fraud of creditors or of preferences and
any law under which a liquidator or trustee in bankruptcy may set aside
or avoid transactions) and any provision of any agreement, arrangement or
scheme, formal or informal, relating to the administration of any of the
assets of any person.
"INTENDED OBLIGATIONS" means any payment or other act the making or doing
of which would have formed part of the Obligations but for a circumstance
referred to in clause 20.7(c).
"INTEREST EXPENSE" means all Senior Debt interest and financing costs,
whether paid as cash or accrued as a liability on all direct, contingent
(including imputed interest on capital equipment lease obligations), and
other permitted indebtedness of the Group, determined on a consolidated
basis less any interest revenue earned by the Group during that period.
"INTEREST PERIOD" means each period determined in accordance with clause
7.1.
"LC BANK" means any person, other than a Bank, who has or hereafter
enters into a Funding and LC Bank Agreement with the Funding Bank.
"LICENCE" means each of the licences listed in Schedule 3.
"MAJORITY BANKS" means at any time:
(a) whilst no Advance is outstanding, a Bank or Banks the aggregate of
whose Commitments at the relevant time represent by value more
<PAGE>
than 66 2/3% of the Total Commitments at such time; or
(b) if an Advance is then outstanding, a Bank or Banks the aggregate
of whose participations in the Advances outstanding at such time
represent by value more than 66b% of the aggregate of all the
Advances.
"MATERIAL ADVERSE EFFECT" means any effect which is, or is reasonably
likely:
(a) to be materially adverse to:
(i) the ability of CTV, STV or the Borrower to perform its
material obligations under any of the Transaction Documents
to which it is a party; or
(ii) the ability of any Obligor (except CTV, STV or the
Borrower) to perform its material obligations under any of
the Transaction Documents to which it is a party and which
are material to the Group as a whole; or
(iii) the business, assets, financial condition of the Borrower
or of the Group taken as a whole; and/or
(b) (where the context so admits) to result in any of the Transaction
Documents not being legal, valid and binding on, and enforceable
substantially in accordance with its material terms against, any
party (other than a Bank, the Facility Agent or the Security
Agent) to that Transaction Document and/or (in the case of any of
the Securities) not providing to the Security Agent for itself and
on behalf of the Banks, perfected, enforceable security over the
assets to be covered by that Security, in a manner and to an
extent reasonably considered by the Majority Banks to be
materially adverse to their interests under the Transaction
Documents.
"MATERIAL CONTRACT" means:
(a) the STV Franchise Agreement;
(b) the CTV Franchise Agreement;
(c) the Australis Settlement Agreement; and
(d) each other contract entered into by a member of the Group after
the date of this Agreement which is of similar importance to the
net cash flow or operation of the business of the Group as the
contracts listed in paragraphs (a) - (c) of this definition and
which the Facility Agent (acting on the instructions of the
Majority Banks) designates to be a Material Contract by notice to
the Borrower.
"NET PROCEEDS" means the consideration received by any member or members
of the Group in respect of the disposal to a person not in the Group of
any member of the Group or of all or any part of the business,
undertaking or assets of any member of the Group (including the amount of
any intercompany debt repaid to continuing members of the Group), after
deduction of all Taxes applicable on, or to any gain resulting from, the
<PAGE>
disposal and of all reasonable costs, fees, expenses and the like
properly incurred by continuing members of the Group in arranging and
effecting that disposal.
"OBLIGATIONS" means all the liabilities of the Borrower or any Guarantor
to the Agents and the Banks under or by reason of any Transaction
Document and, without limiting the generality of the foregoing, includes
any liabilities which:
(a) are liquidated or unliquidated;
(b) are present, prospective or contingent;
(c) are in existence before or come into existence upon or after the
date of this document;
(d) relate to the payment of money or the performance or omission of
any act;
(e) sound in damages only; or
(f) accrue as a result of an Event of Default, and irrespective of:
(i) whether the Borrower or any other Relevant Person is liable
or obligated solely, or jointly and severally with another
person;
(ii) the circumstances in which the Banks come to be owed each
liability or obligation and in which each liability or
obligation came to be secured by this document, including,
without limitation any assignment of any liability or
obligation or of this document; or
(iii) the capacity in which the Borrower, any other Relevant
Person and the Banks come to owe or to be owed such
liability or obligation.
"OBLIGOR" means a several reference to the Borrower, each Guarantor, any
other member of the Group which has been required to enter into (whether
or not it has yet entered into) any Accession Agreement and/or Security
and, when used in clause 20, also means any person from whom a Guarantor,
but for any provision of this Agreement, would be entitled to seek
contribution in respect of money paid or payable by virtue of the
guarantee contained herein (together the "OBLIGORS").
"ORIGINAL SECURITIES" means:
(a) Deed of Fixed and Floating Charge in favour of the Security Agent
over the whole of the assets and undertakings of the Borrower and
the Original Guarantors (other than CTV) which are located in
Queensland, dated 2 April 1997;
(b) Deed of Fixed and Floating Charge in favour of the Security Agent
over the whole of the assets and undertakings of CTV which are
<PAGE>
located in Queensland, dated 2 April 1997;
(c) Deed of Fixed and Floating Charge in favour of the Security Agent
over the whole of the assets and undertakings of the Borrower and
the Original Guarantors which are located in jurisdictions other
than Queensland, South Australia, Western Australia and Tasmania,
dated 2 April 1997;
(d) Deed of Fixed and Floating Charge in favour of the Security Agent
over the whole of the assets and undertakings of the Borrower and
the Original Guarantors which are located in South Australia and
Tasmania, dated 2 April 1997;
(e) Deed of Fixed and Floating Charge over the whole of the assets and
undertakings of the Borrower and the Original Guarantors which are
located in Western Australia, dated 2 April 1997; and
(f) the Share Mortgage.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of
notice, lapse of time, satisfaction of a condition or any determination
would be likely to constitute an Event of Default.
"PRESCRIBED RATE" for each Interest Period means the aggregate of the
Bill Rate in relation thereto and the Utilisation Margin.
"PROPORTION" means the amount of a Bank's participation in an Advance in
the proportion (applied to the requested amount of the Advance) which its
Commitment bearing the same Tranche designation as such Advance bears to
the amount of the Total Commitments having such designation.
"RATIO RANGE" on any date means the amount of Total Debt divided by
actual EBITDA for the last quarter annualised period.
"RELATED BODY CORPORATE" has the meaning given in section 9 of the
Corporations Law, but on the basis that "SUBSIDIARY" for the purposes of
that definition has the meaning given in this Agreement.
"RELEVANT PERSON" means a several reference to each Obligor, Chippawa and
Ilona.
"REPAYMENT DATE" means each repayment date specified in clause 6.2.
"SALSTEL HOLDINGS" means Salstel Media Holdings Pty Limited, ACN 072 016
383.
"SALSTEL INVESTMENTS" means Salstel Media Investments Pty Limited, ACN
072 016 132.
"SECURITIES" means the Original Securities together with any other
security held by the Security Agent as agent of the Banks at any time for
the due performance, observance and fulfilment of the Obligations, and
"SECURITY"
<PAGE>
means each or any one of them as the context requires.
"SECURITY PROPERTY" means any property subject to a Security.
"SEMI-ANNUAL PERIOD" means any period from 1 January to 30 June or 1 July
to 31 December.
"SEMI-ANNUAL PROJECTED EXCESS CASH FLOW" means, for any Semi-annual
Period, half of the Excess Cash Flow projected in the Business Plan for
the financial year of which that Semi-annual Period forms part.
"SENIOR DEBT" means all direct and contingent borrowings (excluding non-
financial corporate guarantees) of the Group which are not subordinated.
"SHARE MORTGAGE" means the Deed of Mortgage of Securities in favour of
the Security Agent dated 1 July 1997 granted by Salstel Holdings, Salstel
Investments and UIH Austar, Inc. in respect of the whole of the share
capital in CTV and STV and certain other property.
"SPECIFIED RATE" means the aggregate of the Prescribed Rate and 2% per
annum.
"STAMP DUTY CERTIFICATE" means a certificate in the form of Schedule 10
signed by an authorised officer of the Borrower as to the location and
value of the Security Property.
"STOCK" means debenture stock issued under the Debenture Stock Trust
Deed.
"STV" means STV Pty Limited, ACN 065 312 450.
"STV FRANCHISE AGREEMENT" means the Franchise Agreement dated 12 October
1994 between STV and Australis as varied by agreement
dated 19 June 1996.
"SUBORDINATED DEBT" means any indebtedness the payment of which is
subordinated to the Senior Debt.
"SUBSIDIARY" in relation to any person, has the meaning given in the
Corporations Law but so that:
(a) an entity will also be deemed to be a Subsidiary of a company if
it is controlled by that company (expressions used in this
paragraph have the meanings given for the purposes of Parts 3.6
and 3.7 of the Corporations Law);
(b) a trust may be a Subsidiary, for the purposes of which any units
or other beneficial interests will be deemed shares; and
(c) a corporation or trust may be a Subsidiary of a trust if it would
have been a Subsidiary if that trust were a corporation.
A determination by any auditors of the Borrower for the time being as to
<PAGE>
whether an entity is a Subsidiary of another entity will be evidence of
the same until the contrary is proved.
"SUBSTITUTION CERTIFICATE" means a certificate in the form of Schedule 7
completed and entered into in accordance with clause 28.4, and references
to "SUBSTITUTES" shall be construed as references to persons becoming
party to this Agreement pursuant to Substitution Certificates.
"TAX" and "TAXES" mean all income tax, stamp duty and other taxes,
levies, imposts, deductions, charges and withholdings plus interest
thereon and penalties, if any, and charges, fees or other amounts made on
or in respect thereof and "TAXATION" shall be construed accordingly.
"TERMINATION DATE" means the earlier of:
(a) (i) when designated "TRANCHE 1 TERMINATION DATE", 30 June 2000;
(ii) when designated "TRANCHE 2 TERMINATION DATE", 30 June 2004
or the date of the initial Tranche 3 Advance (if any)
whichever occurs first;
(iii) when designated "TRANCHE 3 TERMINATION DATE", 30 June 2004,
or in each case such other date as is agreed in writing
between the Facility Agent (acting on the instructions of
all Banks) and the Borrower; and
(b) such earlier date on which the Facility is terminated or cancelled
in accordance with this Agreement.
"TOTAL DEBT" means Senior Debt plus Subordinated Debt.
"TOTAL SUBSCRIBERS" means, on a day, the lesser of:
(a) the total number of customers of the Group having paid the most
recently ended monthly base package subscription fee; and
(b) the subscription revenue for the most recently ended month divided
by $39.95, as certified to the Facility Agent by two of the
Borrower's directors on a monthly basis.
"TRANSACTION DOCUMENT" means:
(a) this Agreement (together with each Accession Agreement and
Substitution Certificate);
(b) each Hedging Agreement;
(c) the Debenture Stock Trust Deed and each Stock Certificate issued
under that deed;
<PAGE>
(d) each Security; and
(e) each other document to which any Relevant Person (on the one hand)
and an Agent or a Bank (on the other hand) are parties at any time
that:
(i) relates to any money that is declared by that document to
be part of the Obligations; or
(ii) is expressed to be, or is agreed by the said parties to be,
a Transaction Document for the purposes hereof; and
(f) any other document which is, or which is expressed to be,
collateral or supplemental to any other document that is then a
Transaction Document.
"UTILISATION" means:
(a) when designated "TRANCHE 1 UTILISATION", "TRANCHE 2 UTILISATION"
or "TRANCHE 3 UTILISATION", a utilisation under this Agreement of
the Tranche 1 Facility, the Tranche 2 Facility or the Tranche 3
Facility respectively;
(b) without any such designation, a utilisation of the Tranche 1
Facility, the Tranche 2 Facility or the Tranche 3 Facility, as the
context requires.
"UTILISATION DATE" means the date on which an Advance is made or, where
the context requires, is proposed to be made.
"UTILISATION MARGIN" means the percentage per annum determined in
accordance with clause 10.5.
"UTILISATION NOTICE" means a notice given under clause 4 in respect of an
Advance.
2. Interpretation
In this Agreement unless the context indicates a contrary intention:
(1) the expression "PERSON" includes an individual, the estate of an
individual, a body politic, a corporation and a statutory or other
authority or association (incorporated or unincorporated);
(2) a reference to any party includes that party's executors,
administrators, successors, substitutes and assigns, including any
person taking by way of novation;
(3) a reference to any Transaction Document however described or to
any other document includes the Transaction Document or other
document as amended, novated, supplemented, varied or replaced
from time to time;
<PAGE>
(4) a reference to any legislation or to any section or provision
thereof includes any statutory modification or re-enactment or any
statutory provision substituted therefor and all ordinances, by-
laws, regulations and other statutory instruments issued
thereunder;
(5) words importing the singular include the plural (and vice versa)
and words denoting a given gender include all other genders;
(6) headings are for convenience only and do not affect
interpretation;
(7) a reference to a clause is a reference to a clause of this
Agreement;
(8) where any word or phrase is given a defined meaning any other part
of speech or other grammatical form in respect of such word or
phrase has a corresponding meaning;
(9) where the day on or by which any sum is payable or any act, matter
or thing is to be done is a day other than a Banking
Day, that sum will be paid and such act, matter or thing will be
done on the immediately preceding Banking Day;
(10) all accounting terms used have the meaning given to those terms
under accounting principles and practices generally accepted in
Australia from time to time;
(11) representations, warranties, covenants, undertakings and
agreements made or given in favour of the Agents in their capacity
as Agents enure for the benefit of and, subject to the Transaction
Documents, be capable of enforcement by the Banks and each of
them; and
(12) a reference to a law includes an Australian or applicable foreign
law, regulation, rule, directive or policy of any government or
regulatory authority whether or not having the force of law.
3. Joint and several liability
The obligations of the Guarantors under this Agreement will bind each of
them severally and every 2 or more of them jointly and unless the context
indicates a contrary intention, the expression "GUARANTORS" will be
deemed to include any person who has guaranteed, or in the future
guarantees to the Agents and the Banks the due performance of the whole
or any part of Obligations.
4. Debenture Stock Trust Deed
This Agreement and each of the Transaction Documents as defined in this
Agreement are "Transaction Documents" for the purposes of the Debenture
Stock Trust Deed.
5. Specified Rate
A reference to the Specified Rate in the Securities is agreed to be a
reference to the Specified Rate as defined in clause 1.1.
<PAGE>
6. THE FACILITY
1. Facilities
Subject to the terms of this Agreement and in reliance upon the
representations and warranties set out in clause 16, the Banks grant to
the Borrower the following facilities:
(1) TRANCHE 1 FACILITY: a working capital facility whereby the Banks,
when requested by the Borrower pursuant to a Utilisation Notice,
during the Tranche 1 Availability Period, will make Tranche 1
Advances in an aggregate amount which will not
exceed the Tranche 1 Commitments;
(2) TRANCHE 2 FACILITY: a cash advance facility whereby the Banks,
when requested by the Borrower pursuant to a Utilisation Notice,
during the Tranche 2 Availability Period, will made Tranche 2
Advances in an aggregate amount which will not exceed the Tranche
2 Commitments; and
(3) TRANCHE 3 FACILITY: a term loan facility whereby the Banks, when
requested by the Borrower pursuant to a Utilisation Notice, during
the Tranche 3 Availability Period, will make Tranche 3 Advances in
an aggregate amount which will not exceed the Tranche 3
Commitments.
2. Banks' Commitments
No Bank is obliged to participate in the making of a Tranche 1 Advance, a
Tranche 2 Advance or a Tranche 3 Advance if to do so would cause the
aggregate of its participation in Tranche 1 Advances, Tranche 2 Advances
or Tranche 3 Advances (as the case may be) outstanding under this
Agreement to exceed its Tranche 1 Commitment, its Tranche 2 Commitment or
its Tranche 3 Commitment (as the case may be).
3. Several obligations
The obligations of each Bank under this Agreement and each Transaction
Document are several. The failure of a Bank to perform its obligations
under this Agreement or a Transaction Document shall not relieve any
other Bank, the Agents or a Relevant Person of any of its respective
obligations or responsibilities under this Agreement or the Transaction
Documents. The Agents shall not be responsible for the obligations of
any Bank (except for its own obligations, if any, as a Bank), nor shall
any Bank be responsible for the obligations of any other Bank.
4. Several interests
The interests of the Agents and each Bank under this Agreement and each
Transaction Document are several. The amounts due to the Facility Agent
on its own account, the Security Agent on its own account and to each
Bank under this Agreement or a Transaction Document constitutes a
separate and
<PAGE>
independent debt.
5. Purpose
(1) The Facilities will be used as follows:
(1) The Tranche 1 Facility will be used for the purpose of
repaying in full the moneys owing pursuant to the
Bridge Financing Facility Agreement and thereafter for the
purchase and installation of Equipment and working capital
requirements.
(2) The Tranche 2 Facility will be used for the purpose of
purchasing and installing Equipment and working capital
requirements.
(3) The Tranche 3 Facility will be used for the purpose of
purchasing and installing Equipment and working capital
requirements.
(2) The Banks will consider the use of the Tranche 2 Facility and the
Tranche 3 Facility for credit support purposes provided that
satisfactory security can be agreed with the Facility Agent acting
on behalf of all Banks.
(3) The Facilities will not be used for any other purpose than that
described in clause 2.5(a).
6. Termination
(1) The Tranche 1 Facility terminates on the Tranche 1 Termination
Date.
(2) The Tranche 2 Facility terminates on the Tranche 2 Termination
Date.
(3) The Tranche 3 Facility terminates on the Tranche 3 Termination
Date.
7. Nature of Borrower's rights and obligations hereunder
(1) (BORROWER AS AGENT): Each Obligor (other than the Borrower) by its
execution of this Agreement or an Accession Agreement irrevocably
authorises the Borrower on its behalf to give all notices and
instructions under the Transaction Documents, to execute on its
behalf any Accession Agreement and to make such agreements capable
of being given or made by any Obligor relating to the Transaction
Documents notwithstanding that they may affect such Obligor,
without further reference to or the consent of such Obligor.
(2) (BORROWER'S ACTS BINDING): Every act, omission, agreement,
undertaking, settlement, waiver, notice or other communication
given or made by the Borrower under this Agreement, or in
connection
<PAGE>
with this Agreement, (whether or not known to any other Obligor
and whether occurring before or after such other Obligor became an
Obligor under this Agreement) shall be binding for all purposes on
all other Obligors as if the other Obligors had expressly
concurred with the same. In the event of any conflict between any
notices or other communications of the Borrower and any other
Obligor, those of the Borrower shall prevail.
8. Voting
(1) When the Funding Bank enters into a Funding and LC Bank Agreement,
it may notionally divide any or all of its Commitments and/or
participations in the Advances into separate amounts to reflect
each LC Bank's Commitment (as defined in the relevant Funding and
LC Bank Agreement) and may vote or abstain from voting, with
respect to any such separate amount, on any matter separately and
differently from its vote or abstention with respect to any other
such separate amount on such matter.
(2) LC Banks may attend any meeting of Banks.
9. CONDITIONS PRECEDENT
1. Conditions precedent to the first Utilisation
The obligations of each Bank under this Agreement are subject to the
conditions precedent that:
(1) (FINANCE DOCUMENTS): the Facility Agent has received original
copies of this Agreement and the Securities, duly executed by the
Borrower and the Original Guarantors, together with an undertaking
by the Borrower (which it hereby gives) that it will pay all
applicable stamp duty, including further stamp duty on the
Securities when, and if, required;
(2) (DOCUMENTS): the Facility Agent has received all of the documents
listed in Schedule 4 in form and substance satisfactory to it;
(3) (FEES): all fees referred to in clauses 10.2, 10.3 and 10.4 and
all other fees and expenses owing to the Banks and their
consultants have been paid, other than those disputed in good
faith or confirmation that the Borrower will pay simultaneously
with the first Utilisation those fees and expenses;
(4) (TOTAL SUBSCRIBERS): the Facility Agent has received evidence in
the form of a statement from two directors of the Borrower, that
the Group has achieved and maintains a minimum Total Subscribers
level of 120,000;
(5) (INDENTURE): the Facility Agent has received a notice
substantially in the form of Schedule 8 from UIH
Australia/Pacific, Inc.
2. Conditions precedent to all Utilisations
<PAGE>
The obligations of the Facility Agent and each Bank in respect of each
Utilisation are subject to the Facility Agent being satisfied that both
at the date of the relevant Utilisation Notice and at the Utilisation
Date:
(1) (REPRESENTATIONS AND WARRANTIES TRUE): the representations and
warranties listed in clause 16 are true and correct and will be
correct immediately after the making of the Advance;
(2) (NO EVENT OF DEFAULT): no Event of Default or Potential Event of
Default is subsisting or will result from the making of the
Advance;
(3) (NO MATERIAL ADVERSE EFFECT): no event has occurred which would
have a Material Adverse Effect;
(4) (NO CHANGE IN LAW): no change has occurred in applicable laws or
regulations which would have a Material Adverse Effect; and
(5) (FURTHER GUARANTEES AND SECURITY): all Accession Agreements and
Securities required by the terms of this Agreement to be entered
into on or before such Utilisation Date have been or will on such
Utilisation Date be duly executed and delivered to the Facility
Agent together with all other documents required to be delivered
to the Facility Agent in relation thereto.
3. Waiver
The conditions precedent listed in clauses 3.1 and 3.2 may be waived by
the Facility Agent acting on behalf of:
(1) all Banks, in relation to clause 3.1; and
(2) the Majority Banks, in relation to clause 3.2.
4. Conditions Precedent to all Tranche 2 Utilisations
The obligations of the Facility Agent and each Bank in respect of each
Tranche 2 Utilisation are subject to the Facility Agent being satisfied
that at the relevant date of the Tranche 2 Utilisation Notice the amount
of the Equity Contribution is at least 50% of the aggregate of the amount
of Tranche 2 Advances outstanding and the amount requested in the Tranche
2 Utilisation Notice.
5. Conditions Precedent to all Tranche 3 Utilisations
The obligations of the Facility Agent and each Bank in respect of each
Tranche 3 Utilisation are subject to the Facility Agent being satisfied
that at the date of the Tranche 3 Utilisation Notice:
(1) if the requested Tranche 3 Advance were to be added to existing
aggregate outstanding Advances under the Facilities, the sum would
not exceed 5 times the last quarter's annualised EBITDA; and
<PAGE>
(2) the Borrower has achieved and maintains Total Subscribers of not
less than:
(1) if prior to 30 June 1999, 200,000; or
(2) if after 30 June 1999, 300,000.
6. Agent not liable
The Facility Agent shall be deemed to be satisfied with the form and
substance of a document under clause 3.1(b) if to the Facility Agent the
document appears on its face to conform with its description and the
Facility Agent shall not be liable for any cost, loss damage or expense
suffered or incurred by any person as a result of its being so satisfied.
7. Agent satisfied
The Facility Agent will be deemed to be satisfied that the conditions
precedent to Utilisations referred to in clauses 3.2, 3.4 and 3.5 have
been met if, prior to each Utilisation Date, the Facility Agent receives
from the Borrower a written notice certifying that the relevant
conditions precedent have been met and information in support of that
certification and the information appears, on its face, to support the
certification made.
8. UTILISATIONS
1. Notice
The Borrower may request a Utilisation under the Facility on a Banking
Day by giving written notice of its intention to do so to the Facility
Agent.
2. Contents of Utilisation Notice
Each Utilisation Notice for an Advance shall be in the form of Schedule 5
and shall specify:
(1) whether the Utilisation is a Tranche 1 Advance, a Tranche 2
Advance or a Tranche 3 Advance;
(2) the amount of the Utilisation (which shall not be less than
$5,000,000 and must be an integral multiple of $1,000,000);
(3) the proposed Utilisation Date which must be a Banking Day prior to
expiration of the applicable Availability Period;
(4) the proposed duration of its (or its first) Interest Period (which
must be of either 1, 2, 3 or 6 months duration);
(5) payment instructions; and
(6) such other particulars as the Facility Agent may from time to time
require.
<PAGE>
3. Requirements of Utilisation Notice
Each Utilisation Notice shall:
(1) be received by the Facility Agent 3 clear Banking Days before the
proposed Utilisation Date;
(2) be signed by a person duly authorised by the Borrower to do so;
(3) be irrevocable; and
(4) not be given until the conditions precedent to a Utilisation have
been satisfied or waived.
4. Agent Notify Banks
Promptly after its receipt of a Utilisation Notice the Facility Agent
shall notify each Bank.
5. Making of Advances
Subject to the terms of this Agreement, each Bank shall, on the
Utilisation Date, make available to the Facility Agent its Proportion in
Dollars for the account of the Borrower. All such amounts shall be made
available to the Facility Agent in accordance with clause 11 for
disbursement to or to the order of the Borrower in accordance with the
provisions of this Agreement.
6. Disbursement
Amounts received by the Facility Agent under clause 4.5 or 5.1 shall be
applied by it in accordance with the payment instructions specified in
the relevant Utilisation Notice.
7. Facility Agent's right to vary
Without limitation to the rights and powers vested in it under this
Agreement, the Facility Agent may vary any of the times at or by which
any act, matter or thing is to be done under this clause 4 if it
determines that such a variation is necessary or desirable to ensure the
effective operation of the Facility. Any such variation shall be binding
on all parties to this Agreement.
8. COMMITMENTS
1. Tranche 1 Commitments
Any part of the Tranche l Commitments not borrowed hereunder before
expiry of the Tranche 1 Availability Period shall be cancelled
automatically at close of business in Sydney on such expiry.
2. Tranche 2 Commitments
Any part of the Tranche 2 Commitments not drawn hereunder before expiry
of
<PAGE>
the Tranche 2 Availability Period shall be cancelled automatically at
close of business in Sydney on such expiry.
3. Tranche 3 Commitments
Any part of the Tranche 3 Commitments not drawn hereunder before expiry
of the Tranche 3 Availability Period shall be cancelled automatically at
close of business in Sydney on such expiry.
4. First Tranche 3 Utilisation
If the Borrower issues the first Utilisation Notice in respect of a
Tranche 3 Advance then each of the following occurs on the Utilisation
Date for that Utilisation Notice:
(1) the Tranche 2 Commitments (both drawn and undrawn) will convert to
Tranche 3 Commitments and all outstanding Tranche 2 Advances will
be deemed to be Tranche 3 Advances;
(2) the Tranche 3 Commitments will increase by the amount of the
Tranche 2 Commitments so converted; and
(3) the Tranche 2 Facility will be cancelled.
5. Voluntary Cancellation
The Borrower may, on giving not less than 30 days' prior written notice
to the Facility Agent (which shall promptly give notice of the same to
the Banks), cancel or reduce any of the Tranche 1 Commitments, the
Tranche 2 Commitments or the Tranche 3 Commitments in whole or in part
specified by the Borrower without incurring any penalty or other cost,
provided that such cancellation or reduction may only be effected to the
extent of the amount of the applicable Commitments undrawn on that date
and the applicable Commitments of each Bank must be reduced pro rata. Any
such notice by the Borrower shall be irrevocable and shall specify the
relevant Commitments being cancelled, the date upon which the reduction
is to become effective and the amount of the reduction.
6. Reduction consequent on Repayment or Prepayment
(1) The Tranche 2 Commitments and/or the Tranche 3 Commitments shall
be reduced (such reduction being applied pro rata as between all
the Tranche 2 Commitments and/or the Tranche 3 Commitments as the
case may be), by the amount of any repayment or prepayment of any
Tranche 2 Advance or Tranche 3 Advance made pursuant to clauses
6.2, 6.5, 6.7 and 6.8.
(2) An individual Bank's Tranche 2 Commitment and Tranche 3
Commitment shall be reduced by the amount of any prepayment of
that Bank's participation in any Tranche 2 Advance or Tranche 3
Advance (as the case may be) made pursuant to any other provision
of this Agreement.
<PAGE>
7. Limitations
Save as expressly provided, any amount of the Total Commitments cancelled
or otherwise extinguished under this Agreement may not be reinstated.
Save as expressly provided neither the Total Commitments nor any
constituent part thereof may be reduced or cancelled under this
Agreement.
8. REPAYMENT AND PREPAYMENTS
1. Repayment of Tranche 1 Utilisations
(1) The Borrower shall repay the full amount of each Tranche 1 Advance
made to it on the last day of the Interest Period relating to that
Advance.
(2) All Tranche 1 Utilisations shall be paid in full on the Tranche 1
Termination Date.
(3) If on the last day of an Interest Period for a Tranche 1 Advance
(the "MATURING ADVANCE") a new Tranche 1 Advance (the "NEW
ADVANCE") is due to be made to the Borrower, then only an amount
equal to:
(1) the amount of the Maturing Advance; minus
(2) the amount of the New Advance, need be paid by the Borrower
to the Facility Agent (if such amount is a positive number)
or by the Facility Agent to the Borrower (if such amount is
a negative number).
2. Repayment of Tranche 2 Advances and Tranche 3 Advances
At the end of the Tranche 2 Availability Period or the Tranche 3
Availability Period (whichever is later), the Facility Agent will
calculate the repayment instalments for each Repayment Date specified
below having regard to the outstanding Tranche 2 Advances or Tranche 3
Advances (as the case may be). The amount to be repaid on each Repayment
Date will be calculated so that the remaining Tranche 2 Advances or
Tranche 3 Advances outstanding after such repayment are equal to the
amount of Tranche 2 Advances or Tranche 3 Advances outstanding on the
last day of the Tranche 2 Availability Period or the Tranche 3
Availability Period (as the case may be) multiplied by the percentage set
out opposite the relevant date.
<TABLE>
<CAPTION>
REPAYMENT DATES %
<S> <C>
31 December 2000 90
31 March 2001 82
30 June 2001 75
30 September 2001 67
31 December 2001 60
31 March 2002 58
30 June 2002 55
30 September 2002 51
31 December 2002 48
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
31 March 2003 42
30 June 2003 37
30 September 2003 32
31 December 2003 28
31 March 2004 14
30 June 2004 0
</TABLE>
3. Recalculation of Repayments
If during the period from the end of the Tranche 2 Availability Period or
the Tranche 3 Availability Period (whichever is later) to the Tranche 2
Termination Date or the Tranche 3 Termination Date (whichever is later),
the Borrower prepays any part of the Tranche 2 Advances or Tranche 3
Advances under any of clauses 6.5, 6.7, 6.8, 12.4, 13, 14.2 or 19, the
Facility Agent will recalculate the repayment installments for each
remaining Repayment Date by applying the amount of the prepayment pro
rata against all remaining repayment installments.
4. Repayment Instructions
Upon completion of the calculations referred to in clauses 6.1, 6.2 and
6.3, the Facility Agent will notify the Borrower in writing of the
repayments required to be made by the Borrower in accordance with those
calculations.
5. Voluntary Prepayment
(1) The Borrower may prepay a Tranche 2 Advance or a Tranche 3 Advance
or part thereof on the last day of its current Interest Period on
giving not less than 10 Banking Days' prior written notice to the
Facility Agent.
(2) Any notice of prepayment given by the Borrower is irrevocable and
the Borrower is thereby bound to prepay in accordance with the
notice.
(3) Interest accrued on any amount prepaid under this Agreement shall
be paid at the time of prepayment.
(4) Any prepayment is permanent, and the Facility will be cancelled to
the extent of the prepayment.
6. Facility Agent to notify Banks
Promptly after its receipt of a notice of prepayment the Facility Agent
shall notify each Bank of the prepayment, the date on which the
prepayment is to be made and its pro rata share thereof.
7. Mandatory Prepayment
(1) Subject to clause 6.8, after the expiry of the Tranche 3
Availability Period, the Borrower will apply on a semi-annual
basis towards the repayment of the Facility, without limitation,
all of the Excess Cash Flow for the preceding 6 month period which
is in excess of half of
<PAGE>
the Excess Cash Flow projected in the Business Plan to be
generated in the 12 month period of which the relevant semi-annual
period forms part. The amount to be prepaid will be calculated by
the Facility Agent on receipt of the audited semi-annual Accounts.
(2) If any member of the Group or any of the assets, business or
undertaking of any member of the Group (except in respect of those
assets, business or undertakings of Chippawa and Ilona which are
not owned by any member of the Group) are disposed of, the
Borrower, unless the Majority Banks shall otherwise consent in
writing, shall apply, or shall procure that there shall be
applied, forthwith an amount equal to the Net Proceeds arising
from the disposal, in or towards prepayment
of the Utilisations in accordance with clause 6, provided that the
foregoing shall not apply to Net Proceeds arising from:
(1) a disposal of trading stock in the ordinary course of
trading; or
(2) a disposal of assets not constituting trading stock which
are to be replaced by other assets being acquired for use
for like purposes and are so replaced within 3 months of
the date of such disposal (save to the extent the Net
Proceeds exceed the acquisition cost of those other
assets); or
(3) any disposal the consideration for which, when taken
together with the consideration for any related disposals
or recoveries, does not exceed $500,000 unless or until the
aggregate thereof exceeds $5,000,000 in any 12 month
period.
(3) At any time during the term of the Facility, the Borrower must
apply in prepayment of any Advances outstanding at the time all of
the proceeds (in excess of replacement costs) of any property or
casualty insurance, other than business interruption insurance.
8. Excess Cash Flow election
(1) The Borrower may elect to make the prepayments referred to in
clause 6.7(a) on an annual basis by giving not less than 3 months
prior written notice to the Facility Agent.
(2) If the Borrower elects to make the prepayments referred to in
clause 6.7(a) on an annual basis:
(1) the Borrower will apply in a financial year towards the
repayment of the Facility, without limitation, all of the
Excess Cash Flow for that financial year which is in excess
of the Excess Cash Flow projected in the Business Plan to
be generated in that financial year. The amount to be
prepaid will be calculated by the Facility Agent on receipt
of the audited annual Accounts;
(2) all prepayments made pursuant to clause 6.7(a) after the
<PAGE>
date of the election must be made on an annual basis; and
(3) after the date of the election, the Borrower may only make
the payments referred to in clause 17.6 on an annual basis
based on audited annual Accounts.
9. Order of Application
The amounts required to be applied in prepayment pursuant to clause 6.7
and 6.8 shall be applied as follows:
(1) first, in prepayment of the Tranche 2 Advances or Tranche 3
Advances (as the case may be) until repaid or prepaid in full;
(2) second, in prepayment of the Tranche 1 Advances until repaid or
prepaid in full.
10. Date for Prepayment
If the Borrower becomes obliged to prepay or procure the prepayment of
any amount under clause 6.7 or 6.8, the prepayment shall be made on the
last day of the Interest Period relating to the Advance to be repaid.
11. General provisions relating to prepayment
(1) The Facility Agent's certificate as to the repayments and date for
repayments required to be made by the Borrower will be conclusive
and binding on the Borrower and the Guarantors in the absence of
manifest error on the face of the certificate.
(2) Amounts repaid and prepaid in respect of the Tranche 2 Advances
and/or the Tranche 3 Advances under any provision of this
Agreement may not be reborrowed hereunder.
(3) Amounts repaid pursuant to clause 6.1 in respect of Tranche 1
Utilisations prior to the Tranche 1 Termination Date may, subject
to the terms of this Agreement, be redrawn as Tranche 1
Utilisations. Any amounts repaid or prepaid in respect of Tranche
1 Utilisations under any other provision of this Agreement may not
be redrawn.
12. INTEREST
1. Interest Periods
(1) Not later than 3 Banking Days before the commencement of each
Interest Period in respect of an Advance, the Borrower will notify
the Facility Agent whether the Interest Period for that Advance is
to be of 1, 2, 3 or 6 months' duration (or such other period as
the Facility Agent may agree to facilitate compliance with clause
7.2(a)).
(2) The first Interest Period in relation to an Advance is the period
commencing on the Utilisation Date for that Advance.
<PAGE>
(3) If the Borrower fails to select an Interest Period for an Advance
in accordance with clause 7.1(a), the Interest Period shall be 3
months.
(4) The term of each Interest Period is subject to such marginal
adjustment as the Facility Agent in its discretion determines so
that the first and last days of it are Banking Days and the final
Interest Period in relation to a Facility terminates on the
Termination Date for that Facility.
2. Restrictions on Selection
(1) The Borrower shall, in relation to Advances drawn by it, select
the duration of Interest Periods pursuant to clause 7.1 so as to
ensure that:
(1) in relation to each Facility, no more than 5 different
Interest Periods are current at any one time;
(2) each date for repayment of part of the Tranche 2 Facility
or the Tranche 3 Facility (as the case may be) will also be
the last day of an Interest Period in relation to an amount
at least equal to the amount due to be paid on such date;
and
(3) that no Advance shall have an Interest Period expiring
after the Termination Date.
(2) If it appears to the Facility Agent in good faith that the
requirements of paragraph (a) above will not be met by either the
Borrower's selection of any Interest Period or the operation of
clause 7.1(c), the Facility Agent, on behalf of and after
consultation with the Borrower, shall select a different duration
for such Interest Period.
3. Calculation of Interest
(1) Interest on each Advance accrues daily and is to be computed on a
daily basis on a year of 365 days. Interest is to be calculated
from and including the first day of an Interest Period but
excluding the last day of the Interest Period.
(2) The rate of interest for each Advance for each Interest Period is
the Prescribed Rate in relation thereto.
(3) The Facility Agent's certificate as to the Prescribed Rate and the
Specified Rate at any time will be conclusive and binding on the
Borrower and the Guarantors in the absence of manifest error on
the face of the certificate.
4. Payment of Interest
(1) The Borrower will pay to the Facility Agent for the account of
the Banks the accrued interest in relation to that Advance at the
end of each Interest Period.
(2) The Facility Agent will promptly distribute the interest received
by it from the Borrower among the Banks in accordance with their
<PAGE>
Proportions with respect to that Advance.
5. INTEREST ON OVERDUE AMOUNTS
1. Payment of Interest
(1) The Borrower and the Guarantors will pay to the Facility Agent for
the account of the Banks interest on all amounts due and payable
by them under or in respect of this Agreement or the Securities
and unpaid, including any interest payable under this clause.
(2) The Facility Agent will distribute the interest received by it
from the Borrower among the Banks in accordance with their
Proportions with respect to that Advance.
2. Accrual of Interest
Interest will accrue on all amounts due and payable from day to day from
the due date up to the date of actual payment, before and (as a separate
and independent obligation but without duplication) after judgment, at
the Specified Rate for successive 3 month periods (as if the same were 3
month Interest Periods) commencing on the date of default and, if not
paid when due, shall itself bear interest in accordance with this clause.
3. BILL RELIQUIFICATION
1. Drawing of Bills
The Borrower agrees (at the relevant Bank's cost) to draw Bills in
connection with any Advance made to it in the manner required by any Bank
whenever requested by a Bank to do so except that:
(1) the discounted value of those Bills when added to the aggregate
discounted value of all other Bills drawn under this clause for
the relevant Bank and which are outstanding at any time may not
exceed that Bank's participation in all Advances which are
outstanding;
(2) the obligations of the Borrower as drawer or otherwise under those
Bills are non-recourse.
2. Attorney
The Borrower irrevocably appoints each Bank (severally) as its attorney
to draw Bills in its name or on its behalf under clause 9.1 and agrees to
ratify all action taken by any Bank as its attorney under this clause.
3. Appointment Revoked
The requirement to draw Bills under clause 9.1 and the appointment under
clause 9.2 will cease and be revoked without necessity for notice when
all Advances are repaid. Nothing in clause 9.1 or 9.2 requires the
Borrower or
<PAGE>
authorises any Bank as attorney to draw a Bill which matures
after the Termination Date.
4. Indemnity
Each Bank (severally) indemnifies the Borrower against loss, cost,
expense or liability on any Bill drawn by the Borrower at the request of
that Bank under clause 9.1 or drawn by that Bank under clause 9.2. Each
Bank agrees to pay the costs of preparation of and all stamp duty on each
Bill drawn at its request under this clause 9. Each indemnity in this
clause 9.4 is a continuing obligation of each Bank (severally) and
survives the termination of this Agreement or the repayment of any Bill
drawn under this clause 9.
5. Notice
On request from the Borrower through the Facility Agent (not more often
than once each quarter) the Banks will notify the Borrower through the
Facility Agent of the total face value of Bills outstanding at that time
under this clause.
6. FEES
1. Commitment Fee
(1) The Borrower will pay in Dollars to the Facility Agent for
distribution among the Banks pro rata to their respective
Commitments, a commitment fee ("COMMITMENT FEE") computed in
accordance with clause 10.5 on the daily undrawn balance of the
Commitments, during the period from and including the date of this
Agreement until the expiry of the last of the Tranche 1, 2 or 3
Availability Periods.
(2) Accrued Commitment Fee shall be payable quarterly in arrears from
the date of this Agreement and also on any date on which the Total
Commitments shall be terminated.
(3) The Commitment Fee shall accrue from day to day and be calculated
on the basis of a year of 365 days and for the actual number of
days elapsed.
2. Arrangement/Underwriting Fee
The Borrower must pay to the Facility Agent, the arrangement/underwriting
fee as set out in a letter from the Facility Agent to the Borrower dated
24 April 1997 unless that fee or an equivalent fee has already been paid
to the Facility Agent.
3. Establishment Fee
The Facility Agent must pay each Bank (from the arrangement/underwriting
fee paid pursuant to clause 10.2) an establishment fee upon first
Utilisation of the Facility of an amount by reference to the terms set
out in the Information Memorandum and the accompanying invitation letter
from the Facility Agent to each Bank.
4. Agency Fees
<PAGE>
The Borrower must pay to the Facility Agent, an agency fee as set out in
a letter from the Facility Agent to the Borrower dated 24 April 1997.
5. Ratio Range
(1) Subject to paragraph (c) below, the Commitment Fee and the
Utilisation Margin will be set in accordance with the Ratio Range
for the most recent financial quarter as follows:
<TABLE>
<CAPTION>
RATIO RANGE COMMITMENT FEE UTILISATION MARGIN
<S> <C> <C>
Greater than or
equal to 4.00 0.875% pa 1.75% pa
Between 3.00 and 4.00 0.750% pa 1.50% pa
Less than or equal
to 3.00 0.625% pa 1.25% pa
</TABLE>
(2) The Ratio Range will be calculated quarterly by the Facility Agent
upon receipt of the relevant Accounts showing the results of the
latest financial quarter. If the Ratio Range for the last quarter
results in a change of Utilisation Margin or Commitment Fee the
Facility Agent will notify the Borrower and the Banks and the change
will take effect from the date of delivery of the relevant Accounts to
the Facility Agent.
(3) If an Event of Default has occurred and while it subsists the
Utilisation Margin will be 3.75%.
(4) From the date of this Agreement until first changed pursuant to sub-
clause (b) above the Utilisation Margin is 1.75% and the Commitment
Fee is 0.875%.
6. PAYMENTS
1. Payment to Security Agent
All payments to be made by any Obligor under any Transaction Document shall
be paid to or to the order of the Security Agent, provided that the Security
Agent hereby consents to all such payments being made to the Facility Agent
in accordance with the terms of this Agreement until the Securities shall
become enforceable and the Security Agent withdraws such consent by notice
to the Facility Agent and the Obligors.
2. Time and place
Subject to clause 11.1 all payments by any Obligor under any Transaction
Document, or by any Bank under this Agreement (unless expressly provided
otherwise in writing), are to be made to the Facility Agent in Dollars in
immediately available funds not later than 11.00 am local time on the due
date to such accounts as the Facility Agent may from time to time designate.
3. Merger
<PAGE>
If the liability of any Obligor to pay any money the payment or repayment of
which forms part of the Obligations becomes merged in any judgment or order,
as an independent obligation the Obligor will pay to the Facility Agent on
behalf of the Banks interest at the rate which is the higher of that payable
under this Agreement and that fixed by or payable under such judgment or
order.
4. Conversion of Foreign Currency receipts to Dollars
(1) Notwithstanding the Obligor's obligation under clause 11.2 to make all
payments in Dollars, if any payment is tendered to an Agent or a Bank
under any Transaction Document in a Foreign Currency, the Agent or
Bank, as the case may be, at its absolute discretion may accept
payment in the Foreign Currency as tendered.
(2) If any payment in a Foreign Currency is tendered to and accepted by an
Agent or Bank, or if any funds are recovered by an Agent or Bank under
any Transaction Document in a Foreign Currency, the Agent or Bank as
the case may be at its absolute discretion may actually or notionally
convert such payment or funds to Dollars at such time or times as it
sees fit and at such rate or rates as it is, or considers it would be,
able to obtain in the market at the time of such conversion. The
amount of Dollars actually or notionally received after such
conversion will be applied in reduction of the Obligations.
5. Costs of Conversion
The Borrower will pay to an Agent or a Bank all commissions and expenses
involved in actually or notionally converting any payment or receipt in a
Foreign Currency into Dollars.
6. Application
Each payment received by any Agent for the account of another person
pursuant to clause 11.1 or 11.2 shall:
(1) in the case of a payment received for the account of the Borrower, be
made available by that Agent to the Borrower by application, on the
date of receipt:
(1) first, in or towards payment of any amounts then due and payable
(and unpaid) by the Borrower under this Agreement; and
(2) second, in payment to such account as the Borrower shall have
properly designated for the purpose in the relevant Utilisation
Notice or otherwise in writing; and
(2) in the case of any other payment, be made available by the Agent to
the person for whose account the payment was received on the date of
receipt to such account of the person as that person shall have
previously notified to the Agent for the purposes of this Agreement.
The Facility Agent or the Security Agent (as the case may be) shall promptly
distribute payments received for the account of the Banks among the Banks
pro rata to their respective entitlements provided that the Facility Agent
may deduct
<PAGE>
therefrom any amount due to the Facility Agent or the Security
Agent pursuant to clause 11.8, 24.14 or 26.
7. Foreign Currency indemnity
If Foreign Currency is received by an Agent or a Bank as a result of a court
or tribunal order or as a result of a distribution under an Insolvency
Provision, then as a separate, additional and continuing liability
(notwithstanding such order or distribution) the Borrower will pay to the
Agent or Bank any deficiency in the amount of Dollars actually received by
the Agent or Bank resulting from any variation between:
(1) the rate of exchange at which the amount of Foreign Currency was
calculated for the purposes of the court or tribunal order or the
distribution; and
(2) the rate of exchange at which the Agent or Bank is able to purchase
Dollars with the amount of Foreign Currency actually received by the
Agent or Bank.
8. Insufficient payment
If an amount required to be paid to the Facility Agent under this Agreement
is not paid in full when due, the Facility Agent may apportion such amount
between principal, interest, commission, fees, charges and other amounts
payable under this Agreement in such manner as it may determine and any such
determination shall be binding on each party hereto.
9. Anticipatory payments
The Facility Agent will not be obliged to make a payment to a Bank or a
Borrower out of any sum which it is expecting to receive for the account of
the Bank or the Borrower until it has been able to establish that it has
received the sum. The Facility Agent may elect to make such payment,
whereupon to the extent such payment is made but the Facility Agent does not
receive the sum when due in whole or in part:
(1) each person to which such payment was made shall, on request by the
Facility Agent, immediately refund it to the Facility Agent;
(2) if the person who has failed to pay the sum when due is an Obligor,
interest payable by the Obligor on the amount of the sum not paid when
due and not refunded under clause 11.9(a) shall, notwithstanding any
other provision of this Agreement, belong to the Facility Agent
absolutely; and
(3) if the person who has failed to pay the sum is a Bank, the Bank will
pay interest on the amount of the sum not paid when due and not
refunded under clause 11.9(a) at a rate determined by the Facility
Agent to be equal to its cost of funds.
The provisions of this clause are without prejudice to any rights which any
person may have against the party who fails to pay any sum.
<PAGE>
10. Rounding
In making any payment under this Agreement, the Facility Agent may round
amounts to the nearest dollar.
11. TAXES
1. No deduction for Taxes and no set-off or counterclaim
All payments by the Obligors under any Transaction Document, whether of
principal, interest or other amounts due thereunder, shall be:
(1) free of any set-off or counterclaim; and
(2) without deduction or withholding for any present or future Taxes
unless the Obligor is compelled by law to deduct or withhold the same.
2. Payment net of Taxes
If:
(1) an Obligor is legally compelled to make any deduction or withholding
on account of Taxes (other than Excluded Taxes);
(2) an Agent is legally compelled to make any deduction or withholding on
account of Taxes (other than Excluded Taxes) from any payment to a
Bank;
(3) a Bank does not receive a payment to which it is entitled under this
Agreement or a Transaction Document free and clear of Taxes (other
than Excluded Taxes);
(4) a Bank or an Agent is obliged to pay any Taxes in respect of a payment
made or to be made by an Obligor under this Agreement or a Transaction
Document (other than Excluded Taxes); or
(5) a Bank is obliged, in respect of financial accommodation ("FUNDING")
raised or proposed to be raised by the Bank to permit or facilitate
its participation in an Advance:
(1) to make any additional payments as a result of any deduction or
withholding from any payment or repayment which the Bank is
obliged to make in respect of the Funding (other than in respect
of Excluded Taxes); or
(2) to pay any Taxes (other than Excluded Taxes) as a result of or in
connection with the Funding or any payment or repayment to be
made by it in connection with the Funding, then:
(6) where clause 12.2(a), (b), (c) or (d) apply, the Obligor shall on
demand by the Facility Agent pay to the Facility Agent such additional
amounts, by
<PAGE>
way of additional interest, as may be necessary to ensure
that the Agent or Bank affected receives when due a net amount (after
payment of any Taxes, other than Excluded Taxes) equal to the full
amount which it would have been entitled to receive and retain had the
deduction or withholding not been made or had the payment been free
and clear of Taxes or had the Agent or Bank not been obliged to pay
any Taxes in respect of the payment; and
(7) where clause 12.2(e) applies in relation to a Bank, the relevant
Obligor shall on demand by the Facility Agent pay to the Facility
Agent on account of the Bank an amount equal to the amount required to
be paid, or paid, in respect of or as a result of any deduction or
withholding or payment of Taxes to which the
paragraph applies; and
(8) in addition to clause 12.2(f), where any Obligor is legally compelled
to make any deduction or withholding on account of Taxes the relevant
Obligor, shall:
(1) pay to the appropriate governmental authority or department any
amount deducted or withheld in respect of Taxes; and
(2) within 20 Banking Days after making the deduction or withholding
provide to the Facility Agent evidence satisfactory to it of that
payment having been made.
3. Funding
(1) The Banks will use their best efforts to raise all Funding free and
clear of Taxes.
(2) If a Bank is obliged to make any deduction or withholding or pay any
Taxes as referred to in clause 12.2(e), the Bank will promptly notify
the Facility Agent and the Borrower of that obligation and its amount.
4. Termination
If any Obligor fails to comply with the provisions of clause 12.2 in
relation to a Bank, the Bank may by notice to the Borrower through the
Facility Agent terminate its obligations under this Agreement
notwithstanding that any obligation of an Obligor under clause 12.2 may be
void, voidable or unenforceable. Upon such a notice being given, the
Borrower will within 5 Banking Days prepay the relevant Bank's participation
in all affected Utilisations together with accrued interest thereon and all
other money payable under this Agreement to the Bank. Any such prepayment
shall be permanent and the Facility shall be cancelled to the extent of the
prepayment.
5. Right to Prepay Individual Bank
In the event that any Borrower is or would be obliged under clause 12.2 to
pay any additional amounts to a Bank, such Borrower may prepay the whole
(but not part) of the then outstanding amount of such Bank's participation
in the affected Utilisations made by it, together with all interest and
other charges accrued on those participations and all other amounts payable
to such Bank under the Transaction Documents, on giving not less than 10
Banking Days' prior written
<PAGE>
notice to such Bank (through the Facility Agent) provided that consent to
the making of such prepayment shall have been given by the Majority Banks,
which consent will not be unreasonably withheld or delayed (ignoring for the
purpose such Bank, its Commitments and its participations in the
Utilisations).
6. ILLEGALITY
If any change in applicable law, regulation, treaty or official directive or
in the interpretation or administration thereof by any governmental
authority charged with the administration thereof makes it unlawful or
impossible for a Bank to give effect to its obligations under this
Agreement:
(1) the Bank's obligations under this Agreement will be suspended
immediately for the duration of such illegality or impossibility;
(2) the Bank may by notice to the Borrower through the Facility Agent
terminate its obligations under this Agreement;
(3) if required by or as a result of the applicable event, or if necessary
to prevent or remedy a breach of, or to comply with, any applicable
law, regulation, treaty or official directive, the Borrower will
prepay an amount equal to the Bank's participation in all Utilisations
together with all interest and fees accrued thereon and such other
amounts as are payable to the Bank under this Agreement in full
immediately, or if delay in prepayment does not compound such breach
or affect such compliance, at the end of the current Interest Period
(or such lesser period if the applicable law, regulation, treaty or
official directive requires); and
(4) the Borrower will indemnify the Bank and notwithstanding termination
of its obligations under this Agreement keep it indemnified against
any cost, loss, damage or expense suffered, incurred or payable by it
as a result of the operation of clause 13(a), (b) and (c) and shall
pay to the Facility Agent for the account of the Bank prior to
termination of the Bank's obligations under this Agreement such amount
as the Bank estimates in good faith to be, then or in the future,
payable to it by the Borrower under this indemnity.
7. INCREASED COST
1. Obligation to Indemnify
(1) If by reason of any change in law or in its interpretation or
administration or by reason of compliance with any request from or
requirement of any fiscal, monetary or other authority:
(1) a Bank incurs a cost as a result of its having entered into or
performed its obligations under the Facility or as a result of
any Advance being outstanding hereunder;
(2) there is any increase in the cost to a Bank of funding or
maintaining any Utilisation made or to be made hereunder;
(3) the amount of principal, interest or other amount payable to a
Bank or the effective return to a Bank on the Utilisations
under this
<PAGE>
Agreement or the anticipated rate of return at the date of this
Agreement on the Bank's overall capital is reduced; or
(4) a Bank becomes liable to make any payment (not being a payment of
Tax on its overall net income) on or calculated by reference to
the amount of Utilisations made hereunder or Bills outstanding
hereunder, then from time to time on notification by the Bank
through the Facility Agent the Borrower shall pay to the Facility
Agent on account of the Bank amounts sufficient to indemnify the
Bank against such cost, increased cost, reduction or liability.
(2) The notification referred to in clause 14.1(a) shall set out in
reasonable detail (excluding confidential information) the basis for
the notification.
(3) If a Bank has acted in good faith it is no defence that any such cost,
increased cost, reduction or liability could have been avoided.
(4) A Bank's certificate as to the amount of, and basis for arriving at,
any such cost, increased cost, reduction or liability is conclusive
and binding on the Borrower and the Guarantors in the absence of
manifest error on the face of the certificate.
2. Right to Prepay Individual Bank
Where clause 14.1 applies the relevant Borrower subject to the prior consent
of the Majority Banks, which consent will not be unreasonably withheld or
delayed (ignoring for this purpose the relevant Bank, its Commitments and
its participations in the Utilisations), upon giving not less than 10
Banking Days' notice to that Bank (through the Facility Agent) may prepay
the whole (but not part only) of that Bank's participation in all (and not
some only of) the Advances together with all interest and other charges on
or in respect thereof, and all other amounts payable by it under the
Transaction Documents to such Bank, provided always that any such notice by
such Borrower is given whilst circumstances exist entitling such Bank to
claim compensation under this clause.
3. MITIGATION
1. Mitigation
If circumstances arise in respect of any Bank which would, or upon the
giving of notice would, result in the operation of clause 12, 13 or 14 to
the detriment of an Obligor:
(1) such Bank shall use best endeavours to promptly notify the Facility
Agent and the Borrower and, upon the request of the Borrower,
shall enter into discussions with the Borrower with a view to
determining what mitigating action might be taken by such Bank,
including discussion of the possibility of a change in its lending
office, a change in the method of funding Advances or a transfer of
its participation in the Facilities and its Commitments to another
bank or financial institution; and
(2) at the request of the Borrower, the Facility Agent will enter into
<PAGE>
discussions with the Borrower with a view to determining what
mitigating action might be taken by the Facility Agent with respect to
the administration of this Agreement by the Facility Agent, PROVIDED
THAT nothing in this clause shall oblige any Bank or the Facility
Agent to incur any costs or expenses or to take any action or refrain
from taking any action.
2. Replacement of Bank
If such circumstances as are referred to in clause 15.1 shall arise, the
Facility Agent, at the request of the Borrower, will consult with the
Borrower with a view to identifying and approaching bank(s) and financial
institution(s) acceptable to the Borrower who may be willing to become party
to this Agreement as Bank(s) in replacement for the relevant Bank(s).
3. Costs and Expenses
Any reasonable costs and expenses reasonably incurred by any Bank or the
Facility Agent pursuant to this clause shall be paid by the Borrower within
5 Banking Days after receipt of a demand specifying the same in reasonable
detail.
4. REPRESENTATIONS AND WARRANTIES
1. General representations and warranties
The Borrower and each Guarantor hereby represents and warrants in respect of
itself only to the Agents and each Bank that:
(1) (LEGALLY BINDING OBLIGATION): each Transaction Document to which it is
a party constitutes a valid and legally binding obligation of it in
accordance with its terms;
(2) (EXECUTION, DELIVERY AND PERFORMANCE): the execution, delivery and
performance of each Transaction Document to which it is a party does
not violate any existing law or regulation or any document or
agreement to which it is a party or which is binding upon it or any of
its assets;
(3) (AUTHORISATION): all consents, licences, approvals and authorisations
of every government authority required to be obtained by it in
connection with the execution, delivery and performance of each
Transaction Document to which it is a party have been obtained and are
valid and subsisting;
(4) (NO LITIGATION): no litigation, arbitration, criminal or
administrative proceedings are current, pending or, to the knowledge
of the Borrower or Guarantor, threatened in which there is a
reasonable likelihood of an adverse determination and which if
adversely determined would have a Material Adverse Effect;
(5) (NO EVENT OF DEFAULT): no event has occurred which constitutes an
Event of Default or a Potential Event of Default;
<PAGE>
(6) (LAWS): it has complied in all material respects with all statutes and
regulations relative to it and the businesses (if any) carried on by
it the non-compliance with which would have a Material Adverse Effect;
(7) (FINANCIAL LIABILITIES): save as disclosed to the Facility Agent prior
to the date of this Agreement or any date on which this representation
and warranty is repeated, it is not in default in the payment of any
material sum, or in the performance or observance of any material
obligation in respect of any Financial Liability greater than
$500,000, and no event has occurred which with the giving of notice,
lapse of time or other condition could constitute such a default in
respect of any Financial Liability greater than $500,000;
(8) (NO TRUSTS): it is not the trustee of any trust and does not hold any
property subject to or impressed by any trust;
(9) (TITLE): it is the sole legal and beneficial owner of the Security
Property subject to the Security free and clear of all Encumbrances
other than those of the type referred to in clause 17.3(a); and
(10) (INTELLECTUAL PROPERTY RIGHTS):
(1) it owns or has licensed to it all the intellectual property
rights which are material in the context of its business and
which are required by it in order for it to carry on its business
as it is being conducted and it does not, in carrying on its
business and to the best of its knowledge, infringe any
intellectual property rights of any third party in any material
respect;
(2) none of the intellectual property rights which are material in
the context of its business is, to its knowledge, being infringed
nor, to its knowledge, is there any threatened infringement of
those intellectual property rights, by any third party.
(11) (TAX LIABILITIES): no claims are being or are reasonably likely to be
asserted against it with respect to Taxes which are reasonably likely
to be determined adversely to it and which, if so adversely
determined, would have a Material Adverse Effect. It is not materially
overdue in the filing of any Tax returns required to be filed by it
and it has paid all Taxes shown to be due on such returns or on any
assessments made against it non-payment, or a claim for payment, of
which would have a Material Adverse Effect.
(12) (LICENCES): each of the Licences held by it is legally and
beneficially owned by the licensee referred to in Schedule 3 and the
Obligor is not aware of any fact or circumstance which would cause any
of the Licences to be suspended, revoked or cancelled prior to its
normal expiry date or which would cause the non-renewal of any of the
Licences where such suspension, revocation, cancellation or non-
renewal would, having regard to all of the circumstances (including,
but not limited to, the suspension, revocation, cancellation or non-
renewal of other Licences at any prior time) and taking into account
the cumulative effect of all such previous
<PAGE>
events and circumstances, be reasonably likely to have an adverse
effect on the Obligor's business or financial condition or on its
ability to perform its material obligations under any of the
Transaction Documents and so far as it is aware, no other
authorisations, permits or licences are required by any member of the
Group to enable that person to lawfully conduct its business as it is
being carried on at the date of this Agreement; and
(13) (MATERIAL CONTRACTS): save as disclosed to the Facility Agent prior to
the date of this Agreement or any date on which this representation
and warranty is repeated, each of the Material Contracts to which it
is a party is in full force and effect and it is not aware of any
breach by it of any material term of any Material Contract to which it
is a party nor, (to the best of its knowledge) is any other party to
any Material Contract in breach of any such material term.
2. Information representations and warranties
The Borrower and each Guarantor hereby represents and warrants to the Agents
and each Bank in respect of itself only that:
(1) (INFORMATION): all information relating to an Obligor provided to the
Banks by an Obligor or at their direction in connection with the
Facility and each Transaction Document is true in all material
respects and is not, by omission or otherwise, misleading in any
material respect;
(2) (ACCOUNTS): the Accounts provided to the Facility Agent:
(1) have been prepared in accordance with accounting principles and
practices generally accepted in Australia; and
(2) give a true and fair view of the financial condition of the
relevant entity as at the date to which such accounts relate and
the results of operations for the accounting period ending on
that date and since that date there has been no material adverse
change in the financial condition of CTV, STV or the Group as
shown in such accounts which would have a Material Adverse
Effect;
(3) (DOCUMENTS): the documents delivered to the Facility Agent by or on
behalf of any Obligor pursuant to clause 3.1(b) and any other
provision of the Transaction Documents were genuine and in the case of
copy documents, were true, complete and accurate copies in all
material respects, of originals which have not been amended, varied,
supplemented or superseded in any way which would be likely materially
to have a Material Adverse Effect;
(4) (INFORMATION MEMORANDUM): save as disclosed in writing to the Facility
Agent all material written factual information contained in the
Information Memorandum is true in all material respects at the date
(if any) ascribed thereto in the Information Memorandum, all
expressions of opinion or intention and all forecasts and projections
contained in the Information Memorandum were arrived at after careful
consideration and were based on reasonable grounds, and so far as it
is aware the Information Memorandum as of its date was not misleading
in any material respect
<PAGE>
and as at its date did not omit to disclose any matter failure to
disclose which would result in any information contained in the
Information Memorandum being misleading in any material respect in the
context of this Agreement;
(5) (BUSINESS PLAN): save as disclosed in writing to the Facility Agent
all material factual information contained in the Business Plan is
true in all material respects at the date (if any) ascribed thereto in
the Business Plan or (if none) at the date of the relevant Business
Plan, all expressions of opinion or intention and all forecasts and
projections contained in the Business Plan were arrived at after
careful consideration, were based on reasonable grounds, and the
Business Plan as of its date was not misleading in any material
respect and as at its date did not omit to disclose any matter failure
to disclose which would result in any information contained in the
Business Plan being misleading in any material respect in the context
of this Agreement; and
(6) (RECENT EVENTS): save as disclosed in writing to the Facility Agent so
far as it is aware, reasonable enquiry having been made, since the
date of the material contained in the Information Memorandum and the
Business Plan respectively, nothing has occurred of which it is aware
and which is not in the public domain which, as at the date of this
Agreement, renders any of the material information, expressions of
opinion or intention, projections or conclusions referred to in (d) or
(e) above and contained in the Information Memorandum or the Business
Plan inaccurate or misleading (or in the case of expressions of
opinion, conclusions or projections, other than fair and reasonable)
in any material respect in the context of the Group and the
transaction contemplated by this Agreement.
3. Corporate representations and warranties
The Borrower and each Guarantor hereby represents and warrants to the Agents
and each Bank in respect of itself only that:
(1) (DUE INCORPORATION): it is duly incorporated and has the corporate
power to own its own property and to carry on its own business as is
now being conducted;
(2) (MEMORANDUM AND ARTICLES): the execution, delivery and performance of
each Transaction Document to which it is a party does not violate its
Memorandum and Articles of Association;
(3) (CORPORATE POWER): it has the power, and has taken all corporate and
other action required, to enter into any Transaction Document to which
it is a party and to authorise the execution and delivery thereof and
the performance of its obligations thereunder; and
(4) (FILINGS): it has filed all corporate notices and effected all
registrations with the Australian Securities Commission or similar
office in its jurisdiction of incorporation and in any other
jurisdiction as required by law where failure to file or effect
registration would reasonably be expected to have a Material Adverse
Effect, and all such filings and registrations are current, complete
and accurate in all material respects.
<PAGE>
4. Representations and warranties repeated
Each representation and warranty contained in clause 16.1, 16.2 (except for
paragraphs (c), (d), (e) and (f)) and 16.3 shall be repeated on the date of
each Advance with reference to the facts and circumstances then subsisting,
as if made on each such day and each quarter the Borrower will deliver a
Compliance Certificate to the Facility Agent in respect of the same.
5. UNDERTAKINGS
1. Duration and Benefit
The undertakings in this Agreement are given for the benefit of the Agents
and each Bank and shall remain in force from and after the date of this
Agreement and so long as any amount is or may be outstanding under this
Agreement or any Commitment is in force. The Facility Agent (acting at the
direction of the Majority Banks) may waive compliance with any undertaking
contained in this clause 17 either for a specific purpose or
generally by providing the Borrower with a letter in writing specifying the
waiver being granted.
2. Information
(1) (FINANCIAL INFORMATION): The Borrower and each Guarantor will ensure
that there is delivered to the Facility Agent:
(1) as soon as practicable and in any event not later than 120 days
after the close of each of its financial years, a copy of the
consolidated audited balance sheet and profit and loss statement
for STV and CTV and a consolidated balance sheet and profit and
loss statement for the Group for that financial year certified as
correct by an auditor approved by the Facility Agent it being
acknowledged that Arthur Andersen is acceptable;
(2) as soon as practicable and in any event not later than 90 days
after each half of each of its financial years, a copy of the
consolidated audited balance sheet and profit and loss statement
for STV, CTV and the Group for that half-year certified as
correct by an auditor approved by the Facility Agent it being
acknowledged that Arthur Andersen is acceptable;
(3) within 30 days of the beginning of each month, a copy of the
management accounts of the Group for the preceding month and a
statement of the Total Subscribers (which includes reasonable
details of new installations and monthly churn rate) at the end
of the preceding month;
(4) as soon as practicable and in any event not later than 90 days
after the commencement of its financial year, a copy of the
Group's annual budget and an updated Business Plan; and
(5) promptly such further information regarding its financial
condition and business operations as the Facility Agent from time
to time reasonably requires.
(2) (COMPLIANCE WITH ACCOUNTING STANDARDS): The Borrower and each
<PAGE>
Guarantor will ensure that the Accounts (except for management
accounts of the Group given under clause 17.2(a)(iii)) are prepared in
accordance with the relevant Articles of Association, the Corporations
Law, any applicable statute and all accounting principles and
practices generally accepted in Australia consistently applied, or if
not consistently applied, accompanied by details of the
inconsistencies, and shall give a true and fair view of its financial
condition and the result of its operations as at the date, and for the
period ending on the date, to which those Accounts are prepared.
(3) (PROJECTIONS): The Borrower shall ensure that there is delivered to
the Facility Agent in sufficient copies for each of the Banks not
later than the commencement of each financial year, a projected
consolidated balance sheet, profit and loss account, cash flow
statement and rolling monthly cash forecast of the Group for (or in
the case of a balance sheet, as at the end of) such annual financial
year, together with details of the principal assumptions underlying
such projections and a description of the proposed activities of the
Group during such period.
(4) (PROVISION OF FURTHER INFORMATION): The Borrower and each Guarantor
will:
(1) (SPECIAL RESOLUTIONS): deliver to the Facility Agent before the
date of the relevant meeting, a copy of any notice calling an
extraordinary general meeting of any Relevant Person or proposing
any special or extraordinary resolution thereof;
(2) (REPORTS TO MEMBERS ETC.): deliver to the Facility Agent, upon
issue, a copy of all material reports, accounts, notices and
circulars issued by any Relevant Person (in order to comply with
any applicable legislative requirement or its Memorandum or
Articles of Association) to any of its members or to UIH
Australia/Pacific, Inc. or to the holders of any discount notes
(or their trustees) or to the Australian Stock Exchange Limited
or any of its subsidiaries or to any other stock exchange;
(3) (CERTIFICATE OF DEFAULT): as and when reasonably required by the
Facility Agent, furnish the Facility Agent with a statement made
by 2 directors of the Borrower stating to the best knowledge of
such directors whether or not an Event of Default or a Potential
Event of Default has occurred and, if it has, setting out details
thereof and the steps (if any) taken or proposed to be taken to
remedy or cure the same;
(4) (EVIDENCE OF COMPLIANCE): as and when reasonably required by the
Facility Agent, furnish to the Facility Agent proof to the
reasonable satisfaction of the Facility Agent that the
Obligations of the Borrower and each Guarantor have been and
continue to be performed and observed; and
(5) (BUSINESS PLAN): provide a revised Business Plan to the Facility
Agent whenever there is any material change to the timing of the
payments, budgets or assumptions contained therein.
(5) (NOTIFICATION OF CERTAIN EVENTS): The Borrower and each Guarantor will
promptly notify the Facility Agent in writing as soon as it becomes
aware
<PAGE>
of the occurrence of:
(1) (EVENT OF DEFAULT): any Event of Default or Potential Event of
Default;
(2) (LITIGATION): any litigation, arbitration, criminal or
administrative proceedings or labour disputes relating to a
Relevant Person or any Relevant Person's property, assets or
revenues that, if decided adversely to the Relevant Person, is
reasonably likely to have a Material Adverse Effect and provide
periodic reports on the status of the litigation;
(3) (SHUTDOWN OF TRANSMISSION): any actual threatened shutdown or
suspension of transmission of the subscriber television service
operated by the Group except shutdown or suspension in the
ordinary course of business;
(4) (MATERIAL ADVERSE EFFECT): any event which would reasonably be
expected to have a Material Adverse Effect;
(5) (AUTHORISED PERSONS): any change in the persons authorised by it
to sign Bills, notices, certificates or other documents in
connection with the Facility, giving specimen signatures of any
new person so authorised and giving to the satisfaction of the
Facility Agent evidence, where requested by the Facility Agent,
of the authority of that person; or
(6) (TRUSTEE): if any Relevant Person becomes or is appointed the
trustee of any trust or comes to hold any property subject to or
impressed by any trust.
(6) (SECURITY PROPERTY): Each Obligor will maintain and protect all of
its Security Property and will not take any action that is reasonably
likely to result in the business of the Group not remaining capable of
operating in a manner that will enable the Borrower to meet its
obligations.
3. Security Value
(1) (RESTRICTION ON ENCUMBRANCES): No Borrower or Guarantor will create,
permit or suffer to exist any Encumbrance over all or any of its
assets (including the Security Property) except for:
(1) the Securities;
(2) liens arising by operation of law in the ordinary course of day-
to-day trading and securing obligations not more than 90 days
old;
(3) a banker's lien or right of set-off or combination arising by
operation of law or practice over property or money deposited
with a banker in the ordinary course of the Relevant Person=s
ordinary business;
(4) contractual set off rights in respect of the Borrower=s
transactional banking facilities and arrangements;
(5) arrangements constituted by retention of title (other than an
Adverse Title Retention Arrangement) in connection with the
acquisition of goods provided the goods are acquired in the
ordinary course of the Relevant Person's business;
(6) Encumbrances arising by operation of law in connection with
rights arising in the ordinary and usual course of its business
in favour of
<PAGE>
an unpaid seller, the obligations of the purchaser
not being more than 90 days old; or
(7) Encumbrances created by statute in favour of governmental or
semi-governmental authorities or departments securing the payment
of rates or Taxes except as created because of the failure to
duly pay Taxes.
(2) (TRANSACTIONS SIMILAR TO SECURITY): No Borrower or Guarantor will:
(1) sell or otherwise dispose of any of its assets on terms whereby
such asset is or may be leased to or re-acquired or acquired by
any member of the Group; or
(2) sell or otherwise dispose of any of its receivables on recourse
terms; or
(3) except for assets acquired in the ordinary course of business on
the normal commercial terms of the vendor, purchase any asset on
terms providing for a retention of title by the vendor or on
conditional sale terms or on terms having a like substantive
effect to any of the foregoing, provided that where such assets
are fixed assets, the aggregate capital value of the item or
items acquired or supplied under the same contract (or under a
series of related contracts) will be less than $100,000 or such
other amount as agreed.
(3) (ADVERSE TITLE RETENTION ARRANGEMENTS): No Obligor will enter into or
allow to exist any Adverse Title Retention Arrangement in respect of
any assets delivered to it in the course of its business.
(4) (DISPOSALS): No Borrower or Guarantor will, either in a single
transaction or in a series of transactions whether related or not and
whether voluntarily or involuntarily, sell, transfer, lease or
otherwise dispose of:
(i) any shares in any member of the Group;
(1) all or any other part of its respective assets or undertaking,
other than:
1. disposals in the ordinary course of business of the Group;
2. disposals of surplus, obsolete or redundant plant and
equipment, not required for the efficient operation of its
business, at fair market value;
3. the expenditure of cash in payment for assets or services
acquired at market value in the course of its business;
4. disposals of assets in exchange for other assets, in the
reasonable opinion of the person effecting the disposal,
comparable or superior as to type, value or quality;
5. disposals of assets to any member of the Group;
6. disposals of assets for the purposes of replacement of those
assets; or
7. disposals of assets with the prior written consent of the
Agent, which consent will not be unreasonably withheld or
delayed.
(5) (PARI PASSU RANKING): The Borrower and each Guarantor undertakes that
<PAGE>
its obligations under this Agreement rank and will at all times rank
at least pari passu in right and priority of payment and in point of
security (save by reason of and to the extent of its security afforded
thereto by the Securities) with all its other present and future
unsecured and unsubordinated obligations, other than obligations
applicable generally to companies incorporated in its jurisdiction of
incorporation which have priority by operation of law (including,
without prejudice to the generality of the foregoing, in respect of
employees' remuneration, Taxes and like obligations).
4. Liabilities
(1) (RESTRICTION ON GUARANTEES): No Borrower or Guarantor will, without
the prior consent in writing of the Facility Agent, enter into any
bond, guarantee or indemnity in respect of any Financial Liabilities
in favour of any person other than:
(1) pursuant to the Transaction Documents;
(2) a guarantee given to a bank to facilitate the operation of bank
accounts of members of the Group maintained with such Bank on a
net balance basis; or
(3) in respect of any Financial Liabilities permitted under clause
17.4(c).
(2) (FURTHER RESTRICTION ON GUARANTEES): No Borrower or Guarantor will,
without the prior consent in writing of the Facility Agent, enter into
any bond, guarantee or indemnity in respect of any obligation except
Financial Liabilities in favour of any person other than in respect of
a member of the Group. For the avoidance of doubt, it is agreed that
take or pay or minimum payment obligations incurred by a Borrower or a
Guarantor are not bonds, guarantees or indemnities to which this
clause 17.4(b) applies.
(3) (FINANCIAL LIABILITIES): No Borrower or Guarantor will create, incur
or be liable for any Financial Liabilities of itself other than:
(1) under the Transaction Documents; or
(2) indebtedness under transactional banking facilities and
arrangements;
(3) indebtedness under hedging arrangements; or
(4) trade or other similar indebtedness incurred in the ordinary
course of business; or
(5) subordinated loans from the shareholders of CTV and STV or any
person approved by the Facility Agent provided that:
1. such loans are on terms and conditions reasonably approved
by the Facility Agent; and
2. the Security Agent has been granted a limited recourse
mortgage over such loans; and
(6) cash backed performance bond facilities up to an aggregate of
$1,000,000 or such larger amount agreed to by the Facility Agent
acting on directions from the Majority Banks; or
<PAGE>
(7) under finance leases in respect of motor vehicles and office
equipment for employees and consultants of the Group; or
(8) under the Debentures; or
(9) any Financial Liability approved by the Facility Agent, and
ensure that no indebtedness referred to in paragraphs (v) and
(viii) above is repaid or repurchased without the prior written
consent of the Agent or until the Facility has been repaid and
cancelled in full.
(4) (OPTIONS): No Borrower or Guarantor will, without the prior consent of
the Facility Agent, enter into or permit to subsist any arrangement
whereby any person:
(1) has the right (whether or not exercisable only on a contingency)
to require any member of the Group to purchase or otherwise
acquire any property or any interest in property; or
(2) has the right (whether or not exercisable only on a contingency)
to require any member of the Group to sell or otherwise dispose
of any property or interest in property, except under the
shareholders agreements for CTV, STV, Chippawa and Ilona or those
companies' constituent documents or the CTV Franchise Agreement
and the STV Franchise Agreement. For the absence of doubt, CTV
and STV may, without the prior consent of the Agent, issue
options over shares or debentures in themselves.
(5) (TREASURY TRANSACTIONS): No Borrower or Guarantor will enter into any
interest rate swap, cap, ceiling, collar or floor or any currency
swap, futures, foreign exchange or commodity contract or option
(whether over the counter or exchange traded) or any similar treasury
transaction, other than in accordance with clause 17.12(h), spot
foreign exchange contracts entered into in the ordinary course of
business and transactions entered into for the hedging of actual or
projected exposures arising in the ordinary course of ordinary trading
activities of the Group or to meet its obligations under this
Agreement.
5. Use of Funds
(1) (REPAYMENT OF SHAREHOLDERS' LOANS): No Obligor will repay, and each
Obligor will procure that no amount of shareholders' loans to any
Relevant Person will be repaid prior to any Termination Date without
the prior written consent of the Facility Agent except where the
shareholder receiving the repayment is the Borrower or a Guarantor or
where permitted under clause 17.6;
(2) (LOANS OUT): No Borrower or Guarantor will make any loan to any person
save for:
(1) loans made by one member of the Group to another member of the
Group where the recipient of the loan is the Borrower or a
Guarantor; and
(2) deposits made with banks in the ordinary course of business as
<PAGE>
part of its transactional banking facilities and arrangements.
6. Dividends and Share Capital
(1) (RESTRICTION ON DIVIDENDS): CTV and STV undertake not to:
(1) declare, make or pay any dividend, charge, fee or other
distribution (whether in cash or in kind) on or in respect of its
share capital; or
(2) make any payment of interest or any similar payment in respect of
the Debentures or any other subordinated shareholder loans; or
(3) pay any fees under any management agreements or technical
assistance agreements with any Related Body Corporate; at any
time prior to 31 December 2000, and thereafter may do so subject
to paragraph (b) below.exit
(2) (PAYMENT OF DIVIDENDS): After 31 December 2000, STV and CTV may make
payments of the sort described in paragraph (a) above during a Semi-
annual Period provided that:
(1) at the time such payments are to be made no Event of Default or
monetary Potential Event of Default has occurred and is
subsisting; and
(2) where the ratio of Total Debt to Excess Cash Flow (before debt
amortisation) for the preceding 2 Semi-annual Periods (considered
as a single period for the purposes of calculation) is:
1. less than or equal to 3:1: STV and CTV may make payments in
aggregate up to the lesser of:
1) up to 100% of the Excess Cash Flow for the
preceding Semi-annual Period; or
2) up to 100% of the Semi-annual Projected Excess Cash Flow
for the preceding Semi-annual Period;
2. greater than 3:1: STV and CTV may make payments in aggregate
up to the lesser of:
1) up to 50% of the Excess Cash Flow for the preceding
Semi-annual Period; or
2) up to 50% of the Semi-annual Projected Excess Cash Flow
for the preceding Semi-annual Period.
(3) (PREPAYMENTS): The Borrower may make payments of the sort described in
paragraph (a) semi-annually unless the Borrower has elected to make
prepayments pursuant to clause 6.7(a) on an annual basis in accordance
with clause 6.8 in which case the Borrower may only make payments of
the sort described in paragraph (a) annually following the end of each
financial year.
<PAGE>
(4) (SHARE CAPITAL): No Borrower or Guarantor will, without the prior
written consent of the Facility Agent, such consent not to be
unreasonably withheld or delayed:
(1) redeem, repurchase, defease, retire or repay any of its share
capital or any Debentures, or resolve to do so; or
(2) issue any share capital to any person unless such share capital
will form part of the Security Property.
7. Intellectual Property Rights
(1) (REGISTRATIONS): The Borrower and each Guarantor will make such
registrations and pay such fees, registration Taxes and similar
amounts as are necessary to keep its registered intellectual property
rights which are material to its business in force and to record its
interest in the intellectual property rights.
(2) (PROTECTION OF RIGHTS): The Borrower and each Guarantor will take such
steps as are necessary and commercially reasonable (including, without
limitation, the institution of legal proceedings) to prevent third
parties infringing those intellectual property rights referred to in
paragraph (a) above and (without prejudice to paragraph (a) above)
take such other steps as are reasonably practicable to maintain and
preserve its interests in those rights.
(3) (NO DISPOSAL): No Borrower or Guarantor will either in a single
transaction or in a series of transactions whether related or not and
whether voluntarily or involuntarily, sell, transfer, lease, license
or otherwise dispose of all or any part of its interest in any of the
intellectual property rights save:
(i) as effected pursuant to any Security; or
(ii) as permitted by the Majority Banks; or
(iii) for any licence arrangements in respect of those rights entered
into with members of the Group for so long as they remain
members of the Group; or
(iv) in the ordinary course of business
(4) (NO ABANDONMENT): No Borrower or Guarantor will permit any
registration of any of the intellectual property rights to be
abandoned, cancelled or lapsed or to be liable to any claim of
abandonment for non-use or otherwise except where such abandonment,
cancellation or lapse would not reasonably be expected to have a
Material Adverse Effect.
8. Insurance
Each Obligor will comply with any insurance obligations in any Securities to
which it is a party (except that the Borrower will only be required to
obtain business interruption insurance within 12 months from the date of
this Agreement).
<PAGE>
9. Licences
The Borrower and each Guarantor will, and will ensure that each Relevant
Person will:
(1) (RENEW): on or before the time and in the manner prescribed by the
relevant Statute for each Licence, apply for and procure the renewal
of the Licence and pay or cause to be paid the renewal fees and other
sums required in respect of the Licence or the renewal of the Licence
within the time allowed and in the manner prescribed by the Statute
unless the non-renewal of the Licence would, having regard to all of
the circumstances (including, but not limited to, the non-renewal of
other Licences at any prior time) and taking into account the
cumulative effect of all such previous events and circumstances, not
be reasonably likely to have an adverse effect on the Relevant
Person's business or financial condition or on its ability to perform
its material obligations under any of the Transaction Documents;
(2) (PRODUCTION OF THE LICENCE): upon request, produce to the Facility
Agent each Licence and all receipts for payments in relation to each
Licence unless already delivered to the Security Agent under clause
17.11(f);
(3) (NO CANCELLATION): not do, allow or suffer any act, matter or thing as
a result of which any Licence is or may be surrendered, forfeited,
withdrawn, cancelled, refused or rendered void, or whereby the holder
of any Licence is disqualified permanently or temporarily from
receiving or continuing to hold a Licence except on surrender and
renewals of Licences unless such surrender, forfeiture, withdrawal,
cancellation, refusal, rendering void or disqualification would,
having regard to all of the circumstances (including, but not limited
to, the surrender forfeiture, withdrawal, cancellation, refusal,
rendering void or disqualification of other Licences at any prior
time) and taking into account the cumulative effect of all such
previous events and circumstances, not be reasonably likely to have an
adverse effect on the Relevant Person=s business or financial
condition or on its ability to perform its material obligations under
any of the Transaction Documents;
(4) (NO TRANSFER): not surrender or concur in the transfer of any Licence
to any person other than to an Obligor;
(5) (COMPLY WITH STATUES): comply with all Statutes and all lawful
requirements of every government authority in relation to the Licence
if failure to comply would reasonably be expected to result in a
forfeiture, termination, cancellation, fine, non-renewal or suspension
of such Licence; and
(6) (NOTICE): promptly notify the Facility Agent if any relevant
authority issues any material notice in respect of any Licence or
threatens to suspend or cancel any of the Licences or if it becomes
aware of any enquiry by any relevant authority which could affect any
of the Licences.
10. Material Contracts
<PAGE>
(1) (NO CHANGES): The Borrower and each Guarantor will not without the
prior written consent of the Facility Agent (acting on instructions of
the Majority Banks) which consent will not be unreasonably withheld:
(1) make (whether formally or by conduct) any material amendment or
modification to any of the Material Contracts or waive compliance
with any material provision of any of the Material Contracts;
(2) terminate, repudiate, rescind or revoke any Material Contract;
(3) take or fail to take any action which could reasonably be
expected to result in the termination of any of the Material
Contracts; or
(4) assign or novate its interest in any of the Material Contracts or
consent or permit any other party to do the same.
(2) (PROTECTION): The Borrower and each Guarantor will:
(1) comply with the material terms of the Material Contracts;
(2) take all action reasonably available to them to ensure that the
Material Contracts remain in full force and effect; and
(3) provide the Facility Agent with copies of all material notices
served or received under any of the Material Contracts.
11. Security Property
(1) (GOOD REPAIR): Each Obligor will maintain and protect the Security
Property and keep the same in a good and tenantable state of repair
and in good working order and condition, and will on being required so
to do by the Facility Agent promptly rectify every material defect in
the repair and condition thereof.
(2) (OUTGOINGS): Each Obligor will duly and punctually pay when due all
outgoings including rent and Taxes payable by it in respect of the
Security Property.
(3) (NOT TO PREJUDICE): No Obligor will do or (to the extent it is able)
permit any act, omission or thing whereby any part of the Security
Property becomes or could be liable to surrender, forfeiture or
cancellation or becomes prejudiced in any manner or the value of any
Security as a security to the Banks becomes or could be materially
lessened.
(4) (PERMIT INSPECTION): Each Obligor will permit the Facility Agent and
any employee, agent or professional adviser of the Facility Agent, to
enter any land or buildings owned or occupied by the Obligor at all
reasonable times, after reasonable notice, to inspect its condition
and to monitor compliance with the Transaction Documents.
(5) (PROTECTION OF CHARGED PROPERTY): Each Obligor will at the request of
the Facility Agent take or defend all legal proceedings that the
Facility Agent (acting reasonably) considers necessary or desirable
for the preservation, protection or recovery of the Security Property.
(6) (DOCUMENTS OF TITLE AND OTHER SECURITIES): Each Obligor will lodge
with
<PAGE>
the Security Agent promptly upon request by the Security Agent:
(1) all certificates, scrip and other indicia of title or interest in
any shares or securities;
(2) all negotiable instruments other than cheques;
(3) all certificates of title to land and all original property
leases;
(4) all Licences unless delivered under clause 17.9(b);
(5) all other documents of title to the Security Property
immediately on request of the same from the Facility Agent.
12. General undertakings
(1) (PERFORM OBLIGATIONS): The Borrower and each Guarantor will perform,
fulfil and observe its Obligations.
(2) (MAINTAIN ALL CONSENTS): The Borrower and each Guarantor will obtain,
renew, maintain and comply with all consents, licences, approvals and
authorisations necessary for the validity and enforceability of the
Transaction Documents and the performance of its obligations hereunder
and thereunder and the effectiveness of each Security as a security
with the stated priority and it will promptly provide copies thereof
to the Facility Agent when these are obtained or renewed.
(3) (CHANGE OF BUSINESS): No Borrower or Guarantor will make or threaten
to make any substantial change in the nature of its respective
business as conducted at the date of this Agreement which would have
a Material Adverse Effect or take any action which would result in the
business not remaining capable of operating in a manner that would not
have a Material Adverse Effect.
(4) (ANY ACTION): No member of the Group will take any action that would
result in the Borrower not remaining capable of operating in a manner
that would enable the Borrower to meet all of its Obligations.
(5) (MERGERS): No Borrower or Guarantor will enter into any merger or
consolidation or make any acquisition of any other person or business
except in respect of the assets or shares of a member of the Group by
the Borrower or a Guarantor.
(6) (ADMINISTRATION AND WINDING-UP ORDERS ETC.): No Borrower or Guarantor
will make or join in making any application to any court for an
administration, winding-up, receivership or other similar order to be
made in relation to any member of the Group, other than in respect of
a solvent winding-up or dissolution of a member of the Group.
(7) (ARM'S-LENGTH TERMS): No Borrower or Guarantor will enter into any
material transaction with any person otherwise than on (or better
than) arm's-length terms and for full market value, and save for
intercompany loans permitted pursuant to clause 17.5(b).
(8) (HEDGING): The Borrower will maintain interest and currency hedging
arrangements with the Banks (and/or their affiliates) and will not
enter into
<PAGE>
any hedging arrangements with a financial institution which is not a
Bank (and/or its affiliate) so long as the price and other terms of
the arrangements offered by the Banks (or their affiliates, where
relevant) are fair having regard to the Facility and the market at the
relevant time. The Borrower will from time to time consult with the
Facility Agent to agree satisfactory levels of interest and currency
hedging to be entered into by the Borrower. At no time will the
Borrower hedge more than 100% of its actual exposures in any market.
(9) (CONSTITUTIONAL DOCUMENTS): No Borrower or Guarantor will, save as
required by law, amend or agree to amend the Memorandum or Articles of
Association or other constitutional documents or by-laws of any member
of the Group in any way which would have a Material Adverse Effect.
(10) (RELATED ENTITY TRANSACTIONS): No Borrower or Guarantor will knowingly
enter into any transaction with any shareholder of the Borrower or any
Related Body Corporate of any shareholder of the Borrower without the
prior written consent of the Facility Agent, such consent not to be
unreasonably withheld, unless such transaction is entered into on
ordinary commercial terms in the ordinary course of that company's
business.
(11) (BANK ACCOUNTS): No Borrower or Guarantor will open or maintain any
account with any branch of any bank or other financial institution
providing like services (other than an account maintained pursuant to
the requirements of the Transaction Documents) unless the opening and
maintenance of such account has been approved by the Facility Agent
except for accounts for transactional banking facilities and
arrangements in the ordinary course of business or in connection with
Financial Indebtedness permitted under clause 17.4(c)(ii), (iii) and
(vi).
(12) (COMPLIANCE WITH LAWS): The Borrower and each Guarantor will comply in
all material respects with all applicable laws, rules, regulations and
orders of any governmental authority, whether domestic or foreign
having jurisdiction over it or any of its assets.
(13) (TAXES): The Borrower and each Guarantor will pay all material Taxes
due and payable by it within a reasonable time of the relevant due
date (save to the extent that payment of the same is being contested
in good faith and adequate reserves are being maintained for those
Taxes).
(14) (ACCESS): Upon reasonable notice being given by the Facility Agent,
the Borrower and each Guarantor will procure that any one or more
representatives of the Facility Agent be allowed (at the Facility
Agent's risk and expense) to have access during normal business hours
to the assets, books and records of each Obligor and to inspect the
same without disruption or interference to the
operation of those assets, books and records.
(15) (CASH MANAGEMENT): Promptly after execution of this Agreement, the
Borrower will establish a cash management system acceptable to the
Banks and, subject to the Borrower's agreement, with central
<PAGE>
concentration of accounts to be located with a Bank.
(16) (CHIPPAWA AND ILONA): Each Relevant Person who, from time to time,
controls the legal and/or beneficial ownership of all or any part of
the issued share capital of Chippawa and Ilona covenants to use its
reasonable endeavours to ensure that Chippawa and Ilona will not,
without the consent of the Facility Agent acting on behalf of the
Banks, engage in any business or conduct any activities otherwise than
in accordance with the shareholders agreements for Chippawa and Ilona
including, without limitation, borrowing money, incurring liability or
granting an Encumbrance.
13. FINANCIAL RATIOS
1. Financial Covenants
The Borrower and each Guarantor will ensure that:
(1) (SENIOR DEBT/EBITDA): for the financial year ending 31 December 1999
and each Semi-annual Period thereafter, the ratio of Senior Debt (as
at the last day of the financial year ending 31 December 1999 and as
at each Semi-annual Period thereafter) to EBITDA for the Group for the
preceding 12 month period must be less than or equal to 5.00:1.
(2) (TOTAL DEBT /EBITDA): for the financial year ending 31 December 1999
and each Semi-annual Period thereafter, the ratio of Total Debt (as at
the last day of the financial year ending 31 December 1999 and as at
each Semi-annual Period thereafter) to EBITDA of the Group for the
preceding 12 month period must be less than or equal to 6.00:1.
(3) (EBITDA/INTEREST EXPENSE): for the first financial year ending after
the date of the initial drawdown of the Tranche 3 Facility or the
financial year ending 31 December 1999 (whichever is sooner) and for
each Semi-annual Period thereafter, the ratio of EBITDA of the Group
for the preceding 12 month period to Interest Expense for the
preceding 12 month period must not be less than 2.25:1.
(4) (MINIMUM TOTAL SUBSCRIBERS LEVEL): between 30 June 1998 and 30 June
1999, Total Subscribers must be greater than or equal to 200,000 and
thereafter Total Subscribers must be greater than or equal to 300,000.
(5) (MINIMUM EBITDA): for the financial year ending 31 December 1999
and for each Semi-annual Period thereafter EBITDA of the Group for the
preceding 12 month period must be at least $50,000,000.
2. Compliance Certificate
The Borrower will deliver a Compliance Certificate to the Facility Agent
within 30 days after the end of each quarter (except for Compliance
Certificates given at the end of the financial year which must be given
promptly but in any event not later than 120 days from the end of the
financial year) and at each Utilisation Date for a new Advance.
<PAGE>
3. Stamp Duty Certificate
The Borrower will deliver a Stamp Duty Certificate to the Security Agent as
soon as practicable and in any event not later than:
(1) 30 days after its execution of this Agreement;
(2) 120 days after the close of its financial years; and
(3) 90 days after each half of each of its financial years.
4. DEFAULT AND TERMINATION
1. Events of Default
Each of the following events is an Event of Default, whether or not the
cause is beyond the control of the Borrower, the Guarantors or any other
person:
(1) (FAILURE TO PAY): any Obligor does not pay within 2 Business Days of
the due date and in the specified manner, any amount payable by it
under any Transaction Document;
(2) (FAILURE TO COMPLY): the Borrower or Guarantor defaults in fully
performing, observing and fulfilling any provision of any Transaction
Document other than a provision requiring the payment of money as
contemplated by clause 19.1(a), provided that in the case of a default
capable of remedy, that default has not been remedied within 7 days of
the occurrence of being asked by the Facility Agent to remedy the
default (or such longer period agreed by the Facility Agent acting on
instructions from Majority Banks);
(3) (UNTRUE WARRANTY): any representation, warranty or statement made,
repeated or deemed to be made or repeated in any Transaction Document
or in connection with the Facility or any accounts or opinion
furnished in connection with the application for the Facility or under
this Agreement is proved to be untrue in any material respect when
made, repeated or deemed to be made repeated or furnished (as the case
may be) and the representation, warranty
or statement continues to be untrue 7 days after the representation,
warranty or statement is identified;
(4) (BREACH OF UNDERTAKING): any Relevant Person breaches any written
undertaking given at any time to the Banks or any Agent or fails to
comply with any condition imposed by the Banks or any Agent in
agreeing to any matter (including any waiver);
(5) (EVENT OF DEFAULT UNDER TRANSACTION DOCUMENT): any event of default
occurs under any Transaction Document;
(6) (DEFAULT UNDER OTHER TRANSACTIONS):
(1) any Financial Liability greater than $5,000,000 of any Relevant
Person becomes, or becomes capable of being declared,
<PAGE>
prematurely due and payable as a result of a default or an event
of default howsoever described thereunder;
(2) any Financial Liability greater than $5,000,000 of any Relevant
Person or any sum payable in respect thereof is not paid when due
and payable;
(3) any Encumbrance securing more than $5,000,000 over any asset of a
Relevant Person becomes capable of being enforced as a result of
a default or an event of default howsoever described thereunder;
(4) any Relevant Person defaults in fully performing, observing and
fulfilling any of the terms, covenants and conditions of any
Encumbrance securing more than $5,000,000 relating to any of its
assets or any Encumbrance relating to any asset of any Relevant
Person otherwise becomes enforceable;
(5) any Encumbrance securing more than $5,000,000 which is a floating
security over any asset of any Relevant Person crystallises into,
or otherwise becomes, a fixed or specific security; or
(6) any Encumbrance securing more than $5,000,000 relating to a
Security Property is varied without the prior written consent of
the Security Agent or comes to secure an aggregate debt or
liability (present or future, actual, contingent or prospective
and on any account whatsoever) that exceeds the amount previously
agreed to by the Security Agent in writing;
(7) (EVENT OF INSOLVENCY): any Event of Insolvency occurs in respect of
any Relevant Person;
(8) (INVESTIGATION): an investigation into the affairs or particular
affairs of a Relevant Person is directed or commenced under the
Corporations Law which would have a Material Adverse Effect;
(9) (CESSATION OF BUSINESS): a Relevant Person ceases, or threatens to
cease, to carry on all or a substantial part of its business or all or
a material part of the Relevant Person's business is destroyed,
confiscated, appropriated or resumed or suffers loss or material
damage unless insured to the satisfaction of the Facility Agent;
(10) (VOID OR VOIDABLE): any Transaction Document is or becomes or is
claimed by any Relevant Person to be void, voidable or unenforceable
in whole or in part;
(11) (ILLEGALITY): at any time it is unlawful for a Relevant Person to
perform any of its material obligations under any Transaction
Document;
(12) (FAILURE TO COMPLY WITH LAWS): any Relevant Person fails to duly and
punctually comply with all statutes, material regulations and other
laws binding on it and such failure would have a Material Adverse
Effect;
(13) (CHANGE IN CONTROL): without the prior written consent of the Facility
Agent, acting on instructions from Majority Banks, Effective Control
of CTV or STV is altered from that subsisting at the date hereof. For
the purpose of this sub-clause "EFFECTIVE CONTROL" means:
<PAGE>
(1) the ability to appoint a majority of directors to the Board of
Directors of CTV or STV;
(2) control of more than 49% of the economic interest or value of CTV
or STV is acquired by one or more parties other than United
International Holdings, Inc., or its Related Bodies Corporate; or
(3) control of legal and/or beneficial ownership of more than 49% of
the issued share capital of CTV or STV excluding any part thereof
which carries no right to participate beyond a specified amount
in the distribution of either profit or capital;
(14) (CHANGE IN SHAREHOLDING): divestment by UIH Australia/Pacific, Inc.
of all or any part of its 25% legal and beneficial shareholding in XYZ
Entertainment Pty Limited, without the prior written consent of the
Facility Agent (acting on instructions from Majority Banks), which
consent will not be unreasonably withheld or delayed provided that the
Borrower demonstrates, to the satisfaction of the Facility Agent, that
the Borrower has continuing and acceptable access to programming
satisfactory to the Facility Agent;
(15) (HEDGING): the Borrower hedges more than 100% of its physical
exposures;
(16) (REDUCTION IN CAPITAL): without the prior written consent of the
Facility Agent (acting on instructions from Majority Banks), a
Relevant Person takes action to reduce its share capital (other than
by the redemption of redeemable preference shares);
(17) (RESERVE LIABILITY): without the prior written consent of the Facility
Agent, any meeting of a Relevant Person is convened for the purpose of
considering or passing a special resolution under section 188(2) of
the Corporations Law or any such resolution is proposed at any meeting
of a Relevant Person;
(18) (MATERIAL CONTRACTS): without the prior written consent of the
Facility Agent (acting on instructions from Majority Banks) an event
of default howsoever described occurs and is continuing under any
Material Contract or any Relevant Person fails to comply with any
material term of a Material Contract or any Material Contract is
prematurely terminated or it becomes unlawful for any party to a
Material Contract to perform its obligations and which event of
default or failure to comply or termination or illegality:
(1) remains unremedied 7 days after the Facility Agent has requested
the Borrower to procure that it be remedied; and
(2) would be reasonably likely to have a Material Adverse Effect;
(19) (LOSS OF CONSENTS):
(1) any authorisation, approval, consent, licence (including, without
limitation, the Licences), exemption, filing or registration or
other requirement necessary:
1. to enable any Relevant Person to comply with any of its
<PAGE>
material obligations under any of the Transaction Documents
or any of the Material Contracts; or
2. for the conduct of its business; is revoked or refused or
does not remain in full force and effect in accordance with
its terms once granted, or is not renewed prior to its
expiry or is adversely modified and that event has a
Material Adverse Effect;
(2) the authority of any Relevant Person in the conduct of its
business is wholly or substantially curtained by any seizure or
intervention by or on behalf of any authority or the ability of
the Group to conduct its business or to determine the amount it
will charge for its services is limited, restricted or
constrained by any government or governmental agency taking any
action or such government or governmental agency announces its
intention to take such action in relation to any member of the
Group or any of its assets to an extent greater than existing at
the date of this Agreement and such action is reasonably likely
to have a Material Adverse Effect;
(20) (LICENCES): a breach of any of the Licences occurs and such breach is
not remedied within 30 days or such other period as may be specified
in any notice of breach issued by the relevant authority unless such
breach would, having regard to all of the circumstances (including,
but not limited to, the breach of other Licences at any prior time)
and taking into account the cumulative effect of all such previous
events and circumstances, not be reasonably likely to have an adverse
effect on a Relevant Person's business or financial condition or on
its ability to perform its material obligations under any of the
Transaction Documents;
(21) (MATERIAL CHANGE): any event or series of events whether related or
not occurs which has a Material Adverse Effect.
2. Facility Agent's rights upon Event of Default
Subject to clause 19.3, if any Event of Default occurs, at any time
thereafter while such event continues, the Facility Agent may at its option
if so authorised by the Majority Banks and shall upon the direction of the
Majority Banks by written notice to the Borrower:
(1) declare that an Event of Default has occurred; and/or
(2) declare that the Total Commitments and any other obligations of the
Banks or the Agents to the Obligors under the Transaction Documents
shall be cancelled forthwith, whereupon the same shall be so cancelled
and all fees payable in relation to the Total Commitments shall become
immediately due and payable; and/or
(3) declare that the Advances to the Borrower, together with all interest
accrued on those Advances and all other amounts which form part of the
Obligations (as specified in such notice) shall thenceforth be
repayable on demand being made by the Facility Agent (and in the event
of any such demand those Advances, such interest and such other
amounts shall be immediately due and payable); and/or
<PAGE>
(4) declare the Advances to the Borrower immediately due and payable,
whereupon they shall become immediately due and payable together with
all interest accrued on those Advances and all other amounts which
form part of the Obligations.
3. Chippawa and Ilona
Notwithstanding clause 19.2, if any Event of Default occurs in relation to
Chippawa or Ilona under clause 19.1, the Borrower has 14 days in which to
remedy the default.
4. GUARANTEE AND INDEMNITY
1. Guarantee
Each Guarantor hereby irrevocably and unconditionally guarantees to the
Agents and each Bank (or any of them) the due and punctual performance in
full of the Obligations.
2. Indemnity
Each Guarantor as a separate, additional and primary liability hereby
irrevocably and unconditionally agrees to indemnify the Agents and each Bank
and at all times hereafter to keep the Agents and each Bank indemnified
against any failure by the Borrower to duly and punctually perform its
Obligations and Intended Obligations.
3. Performance of Obligations
If the Borrower or a Guarantor or any other person bound to perform or pay
after the expiration of any applicable grace period any Obligation or
Intended Obligation fails to do so in full on the due date therefor, each
Guarantor shall immediately on demand by either of the Agents or a Bank
perform or pay that Obligation or Intended Obligation.
4. Liability as Guarantor and indemnifier
Any reference herein to the obligations or liabilities of a Guarantor shall
be construed as a reference to its obligations or liabilities whether as a
Guarantor or indemnifier hereunder and the use of the expression "GUARANTOR"
herein in relation to a party shall not be construed as diminishing that
party's obligations hereunder as an indemnifier. The provisions of this
clause 20 preserving the liability of a party hereto as a Guarantor apply
mutatis mutandis to any liability that arises whether in regard to that
party's guarantee or indemnity hereunder.
5. Principal obligation
Each obligation of each Guarantor hereunder constitutes a principal, and not
a secondary or ancillary obligation, to the intent that, without limiting in
any way the operation of any of the other provisions of this clause 20, any
limitation on the liability of a Guarantor which would otherwise arise by
reason of its status as a Guarantor, co-Guarantor, indemnifier or co-
indemnifier is hereby negatived.
<PAGE>
6. Absolute liability
The liability of each Guarantor hereunder is absolute and is not subject to
the execution of the Transaction Documents (other than this Agreement) or of
any other document by any person or to the performance of any condition
precedent or subsequent, including, without limiting the generality of the
foregoing, as between any Relevant Person and the Facility Agent, the Banks
or any of them or amongst any 2 or more Relevant Persons but is subject to
non-payment or the non-performance of an Obligation or Intended Obligation
by the principal obligor.
7. Unconditional liability
The liability of each Guarantor hereunder shall not be affected by any act,
omission, matter or thing that would otherwise operate in law or in equity
to reduce or release a Guarantor from its liability including, without
limiting the generality of the foregoing, any of the following:
(1) (EVENT OF DEFAULT): the occurrence of any Event of Default;
(2) (DISTRIBUTIONS): the receipt by any Agent or any Bank of any payment,
dividend or distribution under any Insolvency Provision in relation to
the Borrower or any Guarantor;
(3) (INVALIDITY ETC.): any Transaction Document or any payment or other
act the making or doing of which would otherwise have formed part of
the Obligations, or any transaction or document which would otherwise
have given rise to such a payment or other act being or becoming or
being conceded to be illegal, invalid, void, voidable, unenforceable
or irrecoverable in whole or in part for any reason whether past,
present or future, including, without limiting the generality of the
foregoing:
(1) any statute, other law or principle of equity;
(2) any act or omission by any person;
(3) any legal limitation, disability or incapacity of the Borrower or
any Guarantor;
(4) any improper exercise of a power or authority in relation to the
Borrower or any Guarantor;
(5) any right of an Agent or a Bank to enforce or recover such
document, payment or other act or to exercise any remedy or right
it has for the enforcement or recovery of such document, payment
or other act being suspended or postponed by order of any court
or otherwise; or
(6) any Insolvency Provision;
(4) (NEW GUARANTORS): the Agents, Banks or any of them accepting from any
person any guarantee, indemnity or contract of suretyship for the
performance of the whole or any part of the Obligations;
(5) (TIME OR INDULGENCE): the Agents, Banks or any of them agreeing with
the Borrower or any Guarantor to grant time, waiver or other
indulgence or concession to, or to make any composition or compromise
with the Borrower or any Guarantor;
<PAGE>
(6) (FORBEARANCE): the Agents, Banks or any of them forbearing or
neglecting to exercise any remedy or right they have or it has for the
enforcement of any Transaction Document or any other obligation or
liability forming part of the Obligations;
(7) (LACHES ETC.): any laches, acquiescence or other act, neglect,
default, omission or mistake by the Agents, Banks or any of them;
(8) (REPUDIATION): the determination, rescission, repudiation or
termination, or the acceptance of any of the foregoing, by the Agents,
Banks, the Borrower or any Guarantor or any of them of any
Transaction Document or any other obligation or liability forming part
of the Obligations;
(9) (VARIATION): any variation (whether by way of insertion, deletion,
modification, novation or otherwise) to any Transaction Document or
any other obligation or liability forming part of the Obligations,
whether or not such variation is substantial or material or imposes an
additional liability upon or is onerous on the Borrower or any
Guarantor, including without limiting the generality of the foregoing,
any increase in the limit or extension of the term for, or the
imposition of any condition or variation in the rate of interest in
respect of advances or financial accommodation to the Borrower;
(10) (RELEASE): the full, partial or conditional release or discharge
(whether before or after any demand has been made on the Guarantor
hereunder) by the Agents, Banks or any of them or by operation of law,
of the Borrower or any Guarantor or any other person from any
Transaction Document or any other obligation or liability forming part
of the Obligations (but without affecting the validity of any release
and discharge of a Guarantor in accordance with this Agreement);
(11) (SECURITY PROPERTY): the release of any property from any Security or
the substitution of any property in place of any other property now or
hereafter the subject of a Security;
(12) (SECURITIES): the Agents, Banks or any of them wasting, destroying,
abandoning, prejudicing or not perfecting, maintaining, preserving,
enforcing or realising or negligently or not bona fide enforcing or
realising any Security;
(13) (LOSS OF SECURITIES): the failure to obtain any Security or the loss
or impairment of any Security by operation of law or otherwise,
whether or not the same is in breach of an express or implied
condition to obtain or preserve such Security or in breach of any
equitable duty which might otherwise have been imposed upon the
Agents, Banks or any of them;
(14) (PRIORITY OF SECURITIES): the Agents, Banks or any of them agreeing to
any order of priorities with respect to any Security or to any
variation of any then previously agreed order of priority;
(15) (ACCOUNTS): the opening or operation of any new account with the
Agents, Banks or any of them by the Borrower or any Guarantor;
<PAGE>
(16) (CHANGE OF CONSTITUTION): any change in membership (whether by death
or retirement of an existing member, admission of a new member or
otherwise), in the place of business or in the name of any
partnership, firm or association in which the Borrower or any
Guarantor is a member;
(17) (TRANSFER): the transfer or assignment of the benefit of any
Transaction Document or of any other obligation or liability forming
part of the Obligations;
(18) (DISCLOSURE): any failure by the Agents, Banks or any of them to
disclose to the Guarantor any material or unusual fact, circumstance,
event or thing whatsoever known to, or ought to have been known by, an
Agent or any Bank relating to or affecting the Borrower or any
Guarantor at any time prior to or during the currency of any
Transaction Document, whether prejudicial or not to the rights and
liabilities of the Guarantor and whether or not any Agent or any Bank
was under any duty to disclose such fact, circumstance, event or thing
to the Guarantor or the Borrower; or
(19) (COVENANT NOT TO TAKE ACTION): any Agent or any Bank entering into a
covenant with the Borrower or any Guarantor not to do all or any of
the following, namely, sue, issue process, sign or execute judgment,
commence proceedings for bankruptcy or liquidation, participate in any
official management, scheme of arrangement or reconstruction, prove in
any bankruptcy or liquidation or do any other act, matter or thing in
respect of the liability of the Borrower or that Guarantor (but
without affecting the validity of any waiver given in accordance with
clause 30.11 of this Agreement).
8. No obligation to gain consent
Nothing herein shall be construed as a requirement that any Guarantor
consent to or be made aware of any event referred to in clause 20.7, any
transaction between the Agents, Banks or any of them and the Borrower or any
one or more Guarantors or any particulars concerning any obligation or
liability that forms part of the Obligations.
9. No marshalling
The Agents and the Banks are under no obligation to marshal or appropriate
in favour of any Guarantor or to exercise, apply, transfer or recover in
favour of any Guarantor any Security or any funds or assets that they or any
of them hold or are entitled to receive or have a claim upon.
10. Void or voidable transactions
If there is upheld, conceded or compromised any claim that a transaction in
any way affecting or relating to the Obligations or the Securities is void,
voidable, unenforceable or irrecoverable the following provisions apply:
(1) (RESTORATION OF OBLIGATIONS): if as a result of or in connection with
entering into the transaction the Obligations have been reduced in any
way, then upon such claim being upheld, conceded or compromised, each
<PAGE>
Agent and each Bank will be entitled against each Guarantor to all
such rights as it would have had if the transaction or so much thereof
as is held or conceded to be void or voidable or is foregone on
compromise had not taken place;
(2) (RESTORATION OF SECURITY): if as a result of or in connection with
entering into the transaction, or if as a result of the transaction
being held or conceded to be void or unenforceable, a Bank's rights
under any Security have been surrendered, cancelled or reduced in any
way, then upon such claim being upheld, conceded or compromised, each
Guarantor will take all steps and sign all such documents as may be
necessary or convenient to restore those rights or equivalent rights
to the Bank; and
(3) (COSTS AND EXPENSES): the Guarantors will pay to each Agent and each
Bank all costs and expenses (including legal costs and expenses as
between solicitor and own client) incurred by each Agent and each Bank
in or in connection with any negotiations or proceedings relating to
any such claims.
11. Insolvency
No Guarantor will lodge any proof of debt or similar claim under any
Insolvency Provision in relation to the Borrower or any Guarantor in
competition with any Agent or any Bank. Each Guarantor irrevocably
authorises the Security Agent to prove as its attorney for all money which
it may be entitled to from the Borrower or any Guarantor and to retain and
to carry to a suspense account and appropriate at the discretion of the
Security Agent (but for the benefit of the Banks) any amount so received
until with the aid thereof each Bank has been paid 100 cents in the dollar
in respect of the indebtedness of the Borrower or each Guarantor as the case
may be.
12. No set-off, counterclaim, etc.
No Guarantor will seek to reduce or avoid its liability under a Transaction
Document by raising any defence, set-off or counterclaim available to any
Agent or the Borrower or any other Guarantor.
13. Restriction on Guarantor's dealings
No Guarantor will, without the Facility Agent's prior written consent (which
the Facility Agent may withhold in its discretion):
(1) (NO PROCEEDINGS): institute any proceedings against any other Relevant
Person;
(2) (NO DEMAND): make any demand for, or accept any money in part or
complete satisfaction of, any liability on any account of any other
Relevant Person other than as permitted under this Agreement or for a
liability arising out of the supply of goods and services by the
Guarantor to that Relevant Person in the ordinary course of that
Guarantor's ordinary business at a rate and on terms not exceeding and
not more onerous than usually found for the supply of such goods and
services by parties dealing at arm's length;
<PAGE>
(3) (NO ENFORCEMENT OF SECURITIES): enforce any Encumbrance now or
hereafter held by it (either alone or with others) in respect of any
such liability as aforesaid; or
(4) (NO SET-OFF): set-off any money owing by the Guarantor against any
liability owing to the Guarantor by any other Relevant Person or
permit any Relevant Person to set off any money owing by the Relevant
Person against any liability owing to that Relevant Person by the
Guarantor.
14. Release of Relevant Person
Notwithstanding any presumption or principle of law to the contrary, an
Agent may in relation to any Relevant Person enter into a covenant not to
sue, issue process, sign judgment and execute or commence proceedings for
the bankruptcy or liquidation of any one or more of such resultant judgment
debtors, participate in any official management, scheme of arrangement or
reconstruction, prove in any bankruptcy or liquidation and do any other act,
matter or thing in respect of that Relevant Person's liability without
thereby in any way impairing or reducing the liability of any Guarantor or
other Guarantor (as the case may be) to the Agents, the Banks or any of them
under this Agreement.
15. Conditions precedent
The Facility Agent may waive, dispense with or accept such evidence as in
its absolute discretion it sees fit in relation to the satisfaction of any
condition precedent contained in any Transaction Document or otherwise for
the grant of any advances or financial accommodation to or for the account
of the Borrower, and the Guarantors' liability hereunder shall not be
affected or in any way impaired by any exercise by the Facility Agent of
that discretion.
16. Claim on the Guarantors
(1) An Agent or a Bank shall not make any demand or claim on a Guarantor
under this clause 20 unless the Borrower or a Guarantor has failed in
the due and punctual payment of any of its Obligations.
(2) Neither an Agent nor a Bank shall be required to make any claim or
demand on the Borrower or on any other Relevant Person, or to enforce
any Transaction Document or any other right, power or remedy against
any Relevant Person, before making any demand
or claim upon any Guarantor.
17. Subrogation
No Guarantor will seek the transfer to it of any Security which is subject
to an agreed order of priority in the Security Agent's or any Bank's hands
under any right of subrogation, unless and until it has entered into a deed
under which it undertakes to be bound by the priority affecting such
Security with the other parties to such agreed order of priority.
18. General waiver by Guarantors
<PAGE>
The Guarantors expressly waive all rights inconsistent with the provisions
of this Agreement, including all rights as to contribution, indemnity or
subrogation which they might otherwise be entitled to claim and enforce
until the Obligations have been paid in full.
19. Judgment
Any judgment obtained against the Borrower is conclusive as against each
Guarantor.
20. ADDITIONAL GUARANTORS AND SECURITY
1. Additional Guarantors
(1) The Borrower and each Guarantor shall procure that any wholly owned
member of the Group which is not a Guarantor shall become, promptly
after being required by the Facility Agent on the instructions of the
Majority Banks to become, an Additional Guarantor by entering into an
Accession Agreement, subject to any provision of law prohibiting that
person from becoming an Additional Guarantor.
(2) Where any such prohibition as is referred to above exists, the
Borrower and each Guarantor shall use its reasonable endeavours
lawfully to overcome the prohibition, and the Facility Agent may (but
shall not be obliged to) agree with the potential Additional Guarantor
concerned limitations on its liability as an Additional Guarantor
under this Agreement and other amendments (applying only in relation
to that Additional Guarantor) to this Agreement or to the relevant
Accession Agreement.
(3) On each date that an Accession Agreement is entered into the Borrower
shall procure that each of the documents listed in paragraphs 1, 3, 4,
5, 9, 10 and 15 of Schedule 4 (as appropriate) are delivered in
respect of the Additional Guarantor and the Accession Agreement in
form and substance satisfactory to the Facility Agent.
2. Security
(1) The Borrower and each Guarantor shall execute and deliver to the
Security Agent such further or additional Securities in such form and
in relation to such of its assets as the Majority Banks shall
reasonably require subject to any provision of law prohibiting such
person from entering into such Security.
(2) Where any such prohibition as is referred to above exists, the
Borrower and each Guarantor shall use their reasonable endeavours
lawfully to overcome the prohibition, and the Security Agent may (but
shall not be obliged to) agree with the relevant Obligor limitations
on the extent of the security granted by it.
(3) The Obligors shall at their own expense execute and do all such
assurances, acts and things as the Security Agent or the Majority
Banks may reasonably require for perfecting or protecting the security
intended to be afforded by the Securities or for facilitating the
realisation in
<PAGE>
accordance with the Securities of all or any part of the assets which
are subject to the Securities and the exercise of all powers,
authorities and discretions vested in the Security Agent under the
Securities or in any receiver of all or any part of those assets and
in particular shall execute all transfers, conveyances, assignments
and releases of that property whether to the Security Agent or to its
nominees and give all notices, orders and directions which the
Security Agent may reasonably think expedient for the purpose of this
clause 21.2(c).
(4) The Obligors shall procure that in relation to each further or
additional Security the relevant Borrower or Guarantor shall do all
things necessary duly to perfect in the jurisdiction of its
incorporation and in the jurisdiction wherein the assets which are the
subject of the further or additional Securities are located, the
security intended to be afforded to the Agents and the Banks under
such further or additional Securities and shall deliver to the
Facility Agent such directors and shareholders resolutions, legal
opinions, notices, certificates or documents of title or other items
as the Facility Agent shall reasonably require.
3. Additional Security
Notwithstanding clause 21.2(a), the Borrower and each Guarantor shall:
(1) procure that any person who becomes a member of the Group and who is a
wholly owned subsidiary of an Obligor shall execute and deliver and do
all things necessary to be joined to the Securities; and
(2) ensure that any Security Property relating to the Securities referred
to in clause 21.3(a) shall be free and clear of any Encumbrances
other than Encumbrances permitted under clause 17.3(a) or the
Securities.
4. RELEASE OF GUARANTORS AND SECURITY
1. Guarantors
Subject to clause 22.3, at the time of completion of any sale or other
disposal to a person or persons outside (and which will remain outside) the
Group of all of the shares in the capital of any Guarantor (or of all of the
shares in any other member of the Group such that any Guarantor ceases as a
result thereof to be a member of the Group) and in such other circumstances
(if any) as all the Banks may from time to time agree in writing, such
Guarantor shall be released from all past, present and future liabilities
(both actual and contingent) hereunder and under the Securities to which it
is a party, and the security provided over its assets under the Securities
will be released.
2. Assets
Subject to clause 22.3, at the time of completion of any sale or other
disposal to a person or persons outside (and which will remain outside) the
Group of any assets owned by an Obligor over which security has been created
by the Securities to which that Obligor is party, those assets shall be
released from such security.
<PAGE>
3. Conditions for Release
The release of the guarantees and security referred to in clause 22.1 and
22.2 above shall only occur if:
(1) either:
(i) such disposal will not result directly or indirectly in any
breach of any of the terms of this Agreement; or
(ii) such disposal is being effected at the request of the Majority
Banks in circumstances where any of the security created by the
Securities has become enforceable; or
(iii) such disposal is being effected by enforcement of the
Securities; or
(iv) all Banks agree to the release; and
(2) the Net Proceeds arising out of such disposal will be applied strictly
in accordance with the requirements of this Agreement; and
(3) any assets to be transferred to other members of the Group before
completion of such disposal shall have been so transferred and (if
so required by the Majority Banks) security over such assets shall
have been granted to the Security Agent to its satisfaction; and
(4) the Security Agent shall have executed such documents effecting such
release as shall be reasonably required to achieve such release as
aforesaid (and the Security Agent shall execute such documents at the
expense of the relevant Obligor promptly upon (and only upon) it being
satisfied that the conditions in (a), (b) and (c) above are satisfied
or have been waived by all of the Banks).
4. Release of Group Members
If any person which is a member of the Group shall cease to be such a member
in consequence of the enforcement of any of the Securities or in consequence
of a disposal of the shares therein effected at the request of the Majority
Banks in circumstances where any of the security created by the Securities
has become enforceable, any claim which any Obligor may have against such
person or any of its Subsidiaries in or arising out of this Agreement or any
of the Securities (including, without limitation, any claim by way of
subrogation to the rights of the Agents and the Banks against such person
under the Transaction Documents and any claim by way of contribution or
indemnity) shall be released automatically and immediately upon such person
ceasing to be a member of the Group.
5. INDEMNITY
The Borrower shall on demand by the Facility Agent indemnify each Bank
against any loss, cost or reasonable out of pocket expenses which the Bank
may sustain or incur as a consequence of:
<PAGE>
(1) any sum payable by the Borrower hereunder not being paid when due;
(2) the occurrence of any Event of Default or Potential Event of Default;
(3) an Advance requested in a Utilisation Notice not being provided for
any reason including failure to fulfil any condition precedent but
excluding any default by the Bank claiming an indemnity pursuant to
this paragraph; or
(4) the Bank receiving payments of principal other than on the last day of
an Interest Period or when due for any reason, including, without
limitation, prepayment in accordance with a Transaction Document.
Such losses, costs or expenses shall include the amount determined in good
faith by the Bank as being any loss including loss of margin, cost or
expense incurred by reason of the liquidation or re-employment of deposits
or other funds acquired or contracted for by the Bank to fund or
maintain any such Advance or amount.
6. AGENTS
1. Appointment
The Facility Agent and the Security Agent are hereby appointed and
authorised to act on behalf of each Bank with power to enter into each
Transaction Document and to exercise such rights, remedies, powers and
discretions as are specifically delegated to them under the Transaction
Documents together with such rights, remedies, powers and discretions as are
reasonably incidental thereto. The Agents do not have any duties,
obligations or liabilities to the Banks or any of them beyond those
expressly stated in this Agreement and the Transaction Documents.
2. Relationships
(1) Nothing contained in this Agreement, and no action taken by the Banks
pursuant hereto, shall be deemed to constitute the Banks a
partnership, association, joint venture or other entity.
(2) In performing their respective functions and duties under the
Transaction Documents, the Agents shall act solely on behalf of the
Banks and do not assume and shall not be deemed in any circumstances
whatsoever to have assumed any responsibility, liability or
obligation, towards, or relationship of agency or trust with, or for,
the Obligors.
3. Communications
Except where this Agreement otherwise expressly provides, all communications
to be made between a Relevant Person and the Banks or any of them concerning
the Facility shall be made by or through the Facility Agent.
4. Instructions of Majority
Subject to clause 24.5, the Facility Agent must act or refrain from acting
in the exercise of any right or power, or as to any matter not expressly
provided for by
<PAGE>
this Agreement, in accordance with the instructions of the Majority Banks
and shall be fully protected in so doing. Any such instructions shall be
binding on all the Banks. In the absence of any such instructions, the
Facility Agent may act or refrain from acting as it sees fit, provided that
it has used reasonable endeavours to obtain such instructions. In no event,
however, shall the Facility Agent be required to take any action which
exposes, or is likely to expose, it to personal liability unless it is
indemnified to its reasonable satisfaction, or which is contrary to this
Agreement or any law, regulation or directive.
5. Amendments
If authorised by the Majority Banks, the Facility Agent or (in the case of
any Security) the Security Agent may (except where any other authority is
required for the same by the express provisions of the Transaction
Documents) grant waivers or consents or (with the agreement of the Borrower)
vary the terms of the Transaction Documents. Any such waiver, consent or
variation so authorised and effected by the relevant Agent shall be binding
on all the Banks and the relevant Agent shall be under no liability
whatsoever in respect of any such waiver, consent or variation, provided
always that, except with the prior written consent of all the Banks and the
Borrower, nothing in this clause shall authorise:
(1) the extension of any Availability Period; or
(2) any variation of the definition "MAJORITY BANKS" in clause 1.1; or
(3) any extension of the date for, or alteration in the amount or currency
of, or waiver of any payment of principal, interest, Utilisation
Margin, fee, commission or any other amount payable under any of the
Transaction Documents; or
(4) any change to any Bank's Commitment; or
(5) any variation of clauses 11.6, 12, 26 or this clause 24.5; or
(6) any variation of any provision wherein (before such variation) it is
provided that certain things may not be done without or may be done
with the consent or approval of all the Banks; or
(7) any waiver or consent in relation to, or variation of the material
provisions of, any Security or clause 20 or 21 of this Agreement; or
(8) (save as otherwise expressly provided for elsewhere in this Agreement
or the relevant Security) any release of the security provided by any
of the Securities over any asset.
6. No need for inquiries
No Relevant Person shall be concerned to inquire as to whether any Agent has
been given any instructions by the Majority Banks or as to the terms of any
instructions so given and may rely on all notices from any Agent without the
need to make further enquiry.
7. Delegation
<PAGE>
Each Agent may from time to time delegate the performance of its duties and
obligations as Agent. The Banks and each Relevant Person agree that any
delegate of the duties and obligations of the Agent will be entitled to the
benefit of the provisions of this clause 24 as if it were the Agent and,
without limitation, will not be responsible or liable for any
damage, cost, loss or expense they or any of them may suffer or incur as a
result of or in connection with an act or omission or negligence of the
delegate except to the extent arising as a direct result of the gross
negligence or wilful misconduct of the delegate.
8. Agent not bound to Enquire
The Agents are not obliged to ascertain or enquire:
(1) either initially or on a continuing basis, as to the credit or
financial condition or affairs of the Obligors or any other person; or
(2) as to the performance or observance by the Obligors or any other
person of any of the terms of any Transaction Document; or
(3) whether any Event of Default or Potential Event of Default has
occurred.
9. Default
No Agent shall be obliged to make any inquiry as to whether a Relevant
Person is in breach of, or in default under a Transaction Document or as to
the existence of an Event of Default or Potential Event of Default and shall
not be deemed to have any knowledge of the occurrence of such a breach,
default, Event of Default or Potential Event of Default unless it has
received express written notice thereof from a Bank or a Relevant Person,
stating that such notice is a "NOTICE OF DEFAULT" and describing the breach,
default, Event of Default or Potential Event of Default. In the event that
an Agent receives such a notice, or otherwise acquires actual notice of an
Event of Default or Potential Event of Default it shall promptly notify the
Banks. Subject to its being indemnified to its satisfaction, each Agent
shall take such action with respect to an Event of Default as it shall be
directed to take by the Majority Banks. Until an Agent receives such
directions it may (but shall not be obliged) take or refrain from taking
such action as it shall in its absolute discretion deem advisable in the
best interests of the Banks.
10. Agents as Banks
With respect to its own rights as a Bank (if any), each Agent shall have the
same rights and powers under each Transaction Document as any other Bank and
may exercise the same as though it were not performing the duties and
functions delegated to it as an Agent and the term "BANKS" shall include the
Agents in their individual capacity as a Bank.
11. Agent's dealings
The Agents may, without any liability to account to the Banks or any of
them, accept deposits from, lend money to and generally engage in any kind
of banking or financial, trust or other business with any Relevant
Person as if they were not
<PAGE>
Agents and may accept fees and other consideration from any Relevant Person
for services in connection with any Transaction Document or otherwise
without having to account for the same to the Banks.
12. Notices and reports
Promptly after its receipt thereof, the Facility Agent will make available
for examination by each Bank at its address for service of notices and on
request by a Bank provide to the Bank a copy of each report, notice or other
document required under this document or a Transaction Document to be
delivered to the Facility Agent by a Relevant Person.
13. Not responsible
(1) The Agents shall not be responsible to any Bank for failure of a
Relevant Person to perform its obligations under a Transaction
Document, a Relevant Person's financial condition, the completeness or
accuracy of any statements, representations or warranties in a
Transaction Document the Information Memorandum or any document
delivered under or in connection with a Transaction Document, the
valid execution, effectiveness, adequacy, genuineness, validity,
enforceability or admissibility in evidence of a Transaction Document
or any such other document or the failure of any party to perform and
observe its obligations under a Transaction Document.
(2) Each Bank acknowledges that it has not relied on any statement,
opinion, forecast or other representation made by any Agent to induce
it to enter into this Agreement or agree to participate in the
Facility whether made in the Information Memorandum or otherwise and
that it has made and (without reliance on any Agent and based on such
documents as it considers appropriate) it will continue to make its
own appraisal of the affairs and financial condition of each Relevant
Person and its own decisions as to whether or not to take action under
a Transaction Document.
(3) The Agent will not be obliged on a continuing basis or at a particular
time to provide any Bank with any financial or other information with
respect to a Relevant Person other than as provided in clause 24.12.
(4) Without limitation to clause 24.9, the Agent will not be obliged to
keep itself informed as to the performance and observance by the
Relevant Persons of their respective obligations and responsibilities
under this document and the Transaction Documents.
(5) The Agent shall not be liable for any cost, loss, damage or expense of
whatsoever nature suffered or incurred by a Bank or any other person
except to the extent arising as a direct result of the gross
negligence or wilful misconduct of the Agent.
14. Indemnity
Each Bank shall reimburse each Agent rateably in accordance with Commitments
(to the extent that it is not reimbursed by the Borrower) on
<PAGE>
demand, for charges and expenses incurred by it in connection with the
negotiation, preparation, execution, stamping and registration of the
Transaction Documents, in contemplation of, or otherwise in connection with,
the enforcement or preservation of any rights under a Transaction Document
or in carrying out its duties as an Agent under the Transaction Documents
including, in each case, the fees and expenses of legal and other
professional advisers. Each Bank shall indemnify each Agent rateably in
accordance with its Commitments against all liability, damage, costs, claims
and expenses suffered or incurred or made against an Agent in connection
with a Transaction Document, the performance or purported performance of its
duties as Agent under a Transaction Document or any action taken or omitted
to be taken by an Agent under (or purportedly under) a Transaction Document
except to the extent, however, that such liability, damage, cost, claim or
expense directly results from the Agent's gross negligence or wilful
misconduct.
15. Observe laws
Each Agent may refrain from doing anything which would or might in its
opinion either be contrary to any relevant law of any relevant jurisdiction
or any official directive or render it liable to any person and may do
anything which in its opinion is necessary to comply with any relevant law
or official directive.
16. Replacement
(1) The Facility Agent (the "RETIRING AGENT") may:
(1) resign at any time by giving not less than 20 Banking Days'
written notice thereof to the Banks and the Borrower; and
(2) be removed from office upon not less than 20 Banking Days' prior
written notice signed by or on behalf of the Majority Banks.
(2) Where the retiring Agent is also the Security Agent, the removal
referred to in paragraph (a)(ii) above pursuant to this clause 24.16
shall also effect the removal of the Security Agent. The Borrower and
the Banks acknowledge that the giving of a notice of removal of the
retiring Agent pursuant to paragraph (a)(ii) above shall be deemed to
be notice in writing to the Borrower and the Banks of the intention of
the Security Agent to retire as trustee pursuant to clause 8.2 of the
Debenture Stock Trust Deed.
(3) Upon receipt of a notice of resignation from the retiring Agent, or
the giving of a notice of removal of the retiring Agent, the Majority
Banks shall have the right, in consultation with the Borrower, to
appoint a successor Facility Agent. In the case only of resignation
of the retiring Agent, if within 20 Banking Days after the giving of a
notice of resignation, no successor Agent has been appointed, the
retiring Agent may, in consultation with the Borrower, appoint a
successor Facility Agent which shall be a reputable and experienced
financier having an office in Sydney.
(4) The resignation or removal of the retiring Agent and the appointment
of the successor Facility Agent shall both become effective upon the
successor Facility Agent notifying the Banks and the Borrower of its
acceptance of such appointment, and specifying for the purposes of
this
<PAGE>
Agreement an office in Sydney. Upon giving such notification, the
successor Facility Agent shall succeed to and be vested with all the
rights, obligations, powers and duties and privileges of the Facility
Agent under the Transaction Documents in place of the retiring Agent
and the retiring Agent shall be discharged from its duties and
obligations under the Transaction Documents.
(5) The provisions of this clause 24 shall continue in effect for the
benefit of a retiring Agent in respect of any actions taken or omitted
to be taken while the retiring Agent was acting as an Agent.
17. No authority
Each Bank acknowledges and agrees that it does not have authority on behalf
of the other Banks to waive any right or remedy of the Banks or the Agents
or to modify or vary, or agree to modify or vary, any provision of any
Transaction Document.
18. Security Agent as Trustee
(1) The Security Agent in its capacity as trustee or otherwise shall not
be liable for any failure, omission, or defect in perfecting the
security constituted by the Securities.
(2) The Security Agent in its capacity as trustee or otherwise may accept
without enquiry such title as an Obligor may have to the property over
which security is intended to be created by the Securities.
(3) Each Bank hereby confirms its approval of the Transaction Documents
and any security created pursuant thereto and hereby authorises,
empowers and directs the Security Agent (by itself or by such
person(s) as it may nominate) to execute and enforce the same as
trustee or as otherwise provided (and whether or not expressly in the
Banks' names) on its behalf.
19. SET-OFF
Each Obligor authorises each Bank at any time after an Event of Default has
occurred and is continuing to apply without prior notice any credit balance
(whether or not then due) to which the Obligor is at any time entitled on
any account at any office of the Bank in or towards satisfaction of any sum
then due and unpaid from that Obligor to the Bank and the Obligors each
further authorise each Bank without prior notice at any time after an Event
of Default has occurred and is continuing to set-off any amount owing
(whether present or future, actual, contingent or prospective and on any
account whatsoever) by that Obligor against any liability (whether present,
future, actual, contingent or prospective) of the Obligor hereunder or on
any other account whatsoever. No Bank shall be obliged to exercise any of
its rights under this clause, which shall be without prejudice and in
addition to any right of set-off, combination of accounts, lien or other
right to which it is at any time otherwise entitled (whether by operation of
law, contract or otherwise). Each Bank shall notify the Facility Agent and
the relevant Obligor forthwith upon its exercise of a right of set-off
involving any Obligor giving full details in relation thereto and the
Facility Agent shall inform the other Banks.
<PAGE>
20. PRO RATA SHARING
If at any time the proportion which a Bank ("OVERPAID BANK") has received or
recovered by set-off or otherwise in respect of its portion of any sum due
from an Obligor to the Banks under the Transaction Documents is greater (the
amount of the excess being herein referred to as the "EXCESS AMOUNT") than
the proportion thereof received or recovered by the Bank receiving or
recovering the smallest or no proportion thereof, then:
(1) the Overpaid Bank shall promptly notify the Facility Agent;
(2) the Overpaid Bank shall, within 10 Banking Days of such notification,
pay to the Facility Agent an amount equal to the excess amount;
(3) the Facility Agent shall treat such payment as if it were a payment by
the Obligor on account of the sum owed to the Banks as aforesaid; and
(4) at the option of the Overpaid Bank:
(1) subject to clause 26(f), the liability of the Obligor to the
Overpaid Bank shall be increased (or treated as not having been
reduced); or
(2) the Obligor shall fully indemnify the Overpaid Bank making such
payment for the amount thereof; provided that:
(5) if a Bank has commenced an action or proceeding in any court to
recover sums owing to it pursuant to this Agreement or a Transaction
Document and as a result thereof, or in connection therewith, has
received an excess amount, the Bank shall not be required to share any
portion of such excess amount with a Bank which was notified of such
legal action or proceeding and which had the legal right to, but did
not, join such action or proceeding or commence and diligently
prosecute a separate action or proceeding to enforce its rights in the
same or another court; and
(6) if all or a portion of the relevant receipt or payment by or to an
Overpaid Bank is thereafter rescinded or must otherwise be restored to
an Obligor, the Banks shall repay to the Facility Agent for the
account of the Overpaid Bank such amount as shall be necessary to
ensure that (subject to clause 26(e)) all the Banks share rateably in
the amount of the receipt or payment retained by the Overpaid Bank and
the provisions of clause 26(c) and (d) shall apply only to the
retained amount.
21. EXPENSES AND STAMP DUTIES
1. Expenses
The Borrower on demand by the Facility Agent will pay to or at the direction
of the Facility Agent all reasonable out of pocket expenses including legal
fees, costs and disbursements (on a solicitor/own client basis) assessed
without the necessity of taxation, incurred or payable by the Facility Agent
or the Security
<PAGE>
Agent (except that the Borrower will only be liable to pay the legal fees
and disbursements of one firm acting for the Agent and Banks and is not
liable to pay any legal fees, costs and expenses incurred by any Banks
instructing separate legal counsel) in connection with:
(1) the preparation and negotiation of the Transaction Documents and the
Securities and any subsequent consent, agreement, approval or waiver
thereunder or amendment thereto;
(2) the execution of the Transaction Documents and the Securities and any
subsequent consent, agreement, approval or waiver thereunder or
amendment thereto;
(3) the enforcement, attempted enforcement or the preservation of any
rights under the Transaction Documents and the Securities including,
without limitation, any expenses incurred in the evaluation of any
matter of material concern to the Facility Agent or the Security
Agent;
(4) the obtaining of persons to participate in the Facility as Banks
(including, without limitation, advertising, accommodation, travelling
and out-of-pocket expenses); and
(5) the carrying out by the Agents (or any delegate of the Agents) of any
of their duties under the Transaction Documents.
2. Stamp duties
(1) (PAYMENT OF ALL DUTIES): The Borrower must pay all stamp, loan
transaction, registration and similar Taxes, including fines and
penalties, financial institutions duty and debits tax which may be
payable to or required to be paid by any appropriate authority or
determined to be payable in connection with the execution, delivery,
performance or enforcement of the Transaction Documents or any
payment, receipt or other transaction contemplated by them.
(2) (INDEMNITY): The Borrower will indemnify and keep indemnified the
Agents and each Bank against any loss or liability incurred or
suffered by it as a result of the delay or failure by the Borrower to
pay such Taxes.
3. ASSIGNMENTS AND CONFIDENTIALITY
1. Successors and assigns
This Agreement is binding on and enures to the benefit of each party hereto
and its respective successors and permitted assigns.
2. Assignments by the Borrower
The Borrower cannot assign any of its rights under any Transaction Document
without the prior written consent of the Facility Agent acting with the
approval of all the Banks.
3. Banks
<PAGE>
A Bank may assign all or any of its rights or transfer all or any of its
rights and obligations under the Transaction Documents to another bank or
financial institution at any time if:
(1) it has first consulted with the Borrower regarding the identity of the
new Bank;
(2) any necessary prior authorisation from any relevant governmental
authority or department is obtained;
(3) in the case of an assignment of rights only, the Facility Agent has
received notice of the assignment under which the assignee irrevocably
authorises the assignor to act as the assignee's agent with full power
and authority to exercise the rights assigned and to receive (and give
valid receipts for) all money payable under the Transaction Documents
in respect of those rights;
(4) in the case of a transfer of rights and obligations, such transfer is
effected by a substitution in accordance with clause 28.4;
(5) in the case of an assignment or transfer of part of its rights and
obligations, the Bank assigns or transfer a pro-rata share of each
Facility; and
(6) it receives the prior consent of the Facility Agent, which consent
will not be unreasonably withheld or delayed.
4. Substitution
(1) If a Bank wishes to transfer all or any of its rights and obligations
under the Transaction Documents to a bank or financial institution, it
and the proposed transferee shall in Canberra or outside Australia
execute and deliver to the Facility Agent 4 counterparts of the
Substitution Certificate.
(2) On receipt of a Substitution Certificate the Facility Agent shall (if
it is satisfied that the substitution complies with clause 28.3)
promptly:
(1) notify the Borrower and each other Bank;
(2) countersign in Canberra or outside Australia the counterparts on
behalf of all other parties to this Agreement;
(3) enter the transfer in a register kept by it (which shall be
conclusive); and
(4) retain one counterpart and deliver one counterpart to each of the
relevant transferor and transferee and to the Borrower.
(3) On any such certificate being countersigned by the Facility Agent the
transferor shall be relieved of its obligations to the extent and from
the date specified in such certificate and the transferee shall be
bound by the Transaction Documents to the extent and from the date
stated in the certificate.
(4) Each other party to this Agreement irrevocably authorises the Facility
<PAGE>
Agent to sign each such certificate on its behalf and acknowledges
that:
(1) upon such a certificate being signed by the Facility Agent it
shall be deemed for all purposes to have consented to the
transfer of obligations provided for in the certificate; and
(2) it will continue to be bound by the provisions of the Transaction
Documents accordingly.
(5) Unless the Facility Agent otherwise agrees, no transfer of a Bank's
obligations may be effected while any Utilisation Notice is current.
5. Increased Costs and Illegality
If any change in lending office of any Bank or assignment or substitution of
or with respect to all or any part of the rights or obligations of a Bank
under this Agreement pursuant to clause 28.3 or 28.4 is made which results
(or would but for this clause result) at the time thereof in amounts
-------------------
becoming payable under clauses 12.2 or 14.l, then the assignee or transferee
(or, in the case of a change in lending office, the Bank) shall be entitled
to receive such amounts only to the extent that the assignor or transferor
would have been so entitled had there been no such assignment, transfer or
change in lending office. Nothing in this clause will affect the rights of
an assignee or transferee under clauses 12.2 or 14.1 in relation to amounts
which may become payable after the time of assignment or transfer. No such
assignment or transfer shall be made if the assignee or transferee would be
entitled immediately afterwards to give notice under clause 13.
6. Sub-participations
Any Bank shall be entitled freely to enter into any sub-participation or
other arrangement with any third party relating to the Transaction Documents
which does not transfer to that third party any obligation and/or any legal
or equitable interest in any of the rights arising under this Agreement.
7. Stock Certificates
(1) In addition to execution and delivery of the Substitution Certificate
pursuant to clauses 28.3 and 28.4, the proposed transferee will
subscribe for Stock in accordance with the terms of the Debenture
Stock Trust Deed.
(2) The Borrower will issue and register the Stock subscribed for pursuant
to clause 28.7(a) in accordance with the terms of the Debenture Stock
Trust Deed.
(3) Each Bank must consent to the issue of the Stock referred to in clause
28.7(b), as required by the Debenture Stock Trust Deed.
(4) If the transferor Bank has transferred all of its rights and
obligations under the Transaction Documents in accordance with this
clause, it must agree to the cancellation of any Stock held by it.
The Borrower must take all steps necessary to cancel such Stock.
<PAGE>
8. Confidentiality
(1) Subject to clause 28.8(b), no Bank shall disclose any confidential or
unpublished information or documents supplied by an Obligor in
connection with the Transaction Documents which are specifically
indicated by the Obligor to be confidential.
(2) A Bank shall be entitled to disclose any confidential information or
documents:
(1) in any proceeding arising out of or in connection with any
Transaction Document to the extent that such disclosure is deemed
by the Bank necessary to protect its interests;
(2) if required to do so under a binding order of any governmental or
semi-governmental authority or department or any procedure for
discovery in any proceedings;
(3) if required to do so under any law or any administrative
guideline, directive, request or policy whether or not having the
force of law and, if not having the force of law, the observance
of which is in accordance with the practice of responsible
bankers or financial institutions;
(4) otherwise as required or permitted by any Transaction Document;
(5) to its legal advisers and its consultants as long as it advises
them of the confidential nature of the information or documents
or that nature is clear from the circumstances of the disclosure;
(6) to a proposed assignee or transferee or sub-participant with the
prior written consent of the Borrower which consent shall not
unreasonably be withheld or delayed and will be deemed to have
been given if not refused within 15 Banking Days of a request
therefor;
(ii) relating to its level of exposure to any Obligor under any
Hedging Agreement or on any other account, to any Agent or any
other Bank; or
(7) with the prior written consent of the Borrower.
(3) This clause 28.8 shall survive the termination of this Agreement.
9. GOVERNING LAW AND JURISDICTION
1. Governing law
This Agreement is governed by and construed in accordance with the laws
applying in New South Wales.
2. Jurisdiction
(1) (ACCEPTANCE OF JURISDICTION): Each of the Obligors irrevocably submits
to and accepts, generally and unconditionally, the non-exclusive
jurisdiction of the courts and appellate courts of New South Wales
with respect to any legal action or proceedings which may be brought
at any time relating in any way to any Transaction Document.
<PAGE>
(2) (NO OBJECTION TO INCONVENIENT FORUM): Each of the Obligors irrevocably
waives any objection it may now or in the future have to
the venue of any action or proceedings relating to a Transaction
Document including any objection it may now or in the future have that
any such action or proceeding has been brought in an inconvenient
forum.
3. MISCELLANEOUS
1. Certificate of Agent
A certificate in writing signed by an officer of the Facility Agent
certifying the amount payable by an Obligor hereunder or stating any other
act, matter or thing relating to any Transaction Document is prima facie and
binding on each Obligor in the absence of manifest error on the face of the
certificate.
2. Notices
Any notice or other communication which must be given, served or made under
or in connection with any Transaction Document:
(1) must be in writing in order to be valid;
(2) is sufficient if executed by the party giving, serving or making the
same or on its behalf by any attorney, director, secretary, other duly
authorised officer or solicitor of such party;
(3) will be deemed to have been duly given, served or made in relation to
a person if it is delivered or posted by prepaid post to the address,
or sent by facsimile to the number of that person set out herein (or
at such other address or number as is notified in writing by that
person to the other parties from time to time); and
(4) will be deemed to be given, served or made:
(1) (in the case of prepaid post) on the fifth day after the date of
posting;
(2) (in the case of facsimile) on receipt of a transmission report
confirming successful transmission; and
(3) (in the case of delivery by hand) on delivery.
3. Continuing obligation
Each Transaction Document constitutes a continuing obligation regardless of
any settlement of account, intervening payment, express or implied
revocation or any other matter or thing, until a final discharge thereof has
been given to the Borrower and the Guarantors.
4. Settlement conditional
Any settlement or discharge between the Agents, the Banks and the Borrower
and/or the Guarantors is conditional on any security or payment given or
made by the Borrower, any Guarantor or any other person in relation to the
Obligations
<PAGE>
not being avoided, repaid or reduced by virtue of any Insolvency Provision.
If such security or payment is so avoided, repaid or reduced, the Agents and
the Banks are entitled to recover the value or amount of such security or
payment avoided, repaid or reduced from the Borrower and the Guarantors
subsequently as if such settlement or discharge had not occurred.
5. Further assurance
The Borrower and the Guarantors on demand by the Facility Agent or the
Security Agent and at the entire cost and expense of the Borrower and the
Guarantors will perform all such acts and execute all such agreements,
assurances and other documents and instruments as the Facility Agent
reasonably requires to perfect or improve the rights and powers afforded,
created, or intended to be afforded or created, by any Transaction Document.
6. Attorney
Each Obligor hereby irrevocably appoints:
(1) the Agents and each Bank, severally;
(2) each director and secretary and authorised officer from time to time
of each Agent and each Bank; and
(3) any duly appointed agent of the Agents and each Bank, jointly and
severally the attorney of the Obligor, in the Obligor's name and on
the Obligor's behalf, at any time from time to time while an Event of
Default subsists and in such manner as the relevant Agent or the
relevant Bank, as the case may be, in its absolute discretion shall
think fit to:
(4) do all acts necessary or proper to further or fully assure any
Transaction Document or any Bill to the Bank; and
(5) do all acts necessary or proper to perfect or improve the rights and
powers afforded or created, or intended to be afforded or created, by
any Transaction Document.
7. Severability of provisions
Any provision of any Transaction Document which is illegal, void or
unenforceable will be ineffective to the extent only of such illegality,
voidness or unenforceability without invalidating the remaining provisions
hereof or thereof.
8. Remedies cumulative
The rights and remedies conferred by this Agreement on the Agents or the
Banks are cumulative and in addition to all other rights or remedies
available to the Agents or the Banks by law or by virtue of any Transaction
Document.
9. Waiver
<PAGE>
A failure to exercise or enforce or a delay in exercising or enforcing or
the partial exercise or enforcement of any right, remedy, power or privilege
arising under any Transaction Document by the Agents or the Banks will not
in any way preclude, or operate as a waiver of, any further exercise or
enforcement thereof or the exercise or enforcement of any other right,
remedy, power or privilege thereunder or provided by law.
10. Consents and approvals
Where any act, matter or thing under any Transaction Document depends on the
consent or approval of the Agents or Banks, then unless expressly provided
otherwise therein, that consent or approval may be given or withheld in the
absolute and unfettered discretion of the Agents or Banks (as the case
requires) and may be given subject to such conditions as the Agents or Banks
(as the case requires) thinks fit in its absolute and unfettered discretion.
11. Written waiver, consent and approval
Any waiver, consent or approval given by the Facility Agent under any
Transaction Document will only be effective and only binds the Banks if it
is given in writing, and executed by the Facility Agent or on its behalf by
an officer for the time being of the Facility Agent.
12. Time of essence
Time is of the essence in respect of each Relevant Person's obligations
under the Transaction Documents.
13. Consultants fees
Where the Facility Agent has to make any determination (whether in respect
of an Advance or otherwise), it may employ such consultants or persons as it
thinks fit to assist in making such determination. The Borrower will
reimburse the Facility Agent for all reasonable fees paid by the Facility
Agent to any such consultants or persons upon receipt of a written demand
therefor.
14. Moratorium legislation
To the fullest extent permitted by law, the provisions of all statutes
whether existing now or in the future and whether operating directly or
indirectly to lessen or otherwise to vary or affect in favour of any
Relevant Person any obligation under any Transaction Document, or to delay
or otherwise prevent or prejudicially affect the exercise of any rights or
remedies conferred on an Agent or any Bank under any Transaction Document,
are hereby expressly waived, negatived and excluded.
15. Binding on each signatory
Each Transaction Document is binding on each of the signatories
notwithstanding that any one or more of the named parties hereto does not
execute it, that there is any invalidity, forgery or irregularity touching
its execution or that it is or becomes unenforceable, void or voidable
against a named party.
<PAGE>
16. Counterparts
This Agreement may be executed in a number of counterparts, all of which
taken together will be deemed to constitute one and the same document.
17. Proceeds Account
The Security Agent agrees with each of the Obligors that it will not
exercise its rights under clause 5.2 of the document referred to in
paragraph (a) of the definition of "Original Securities" or clause 3.3 of
the documents referred to in paragraphs (b), (c), (d) and (e) of the
definition of "Original Securities" in such a way as to prevent that party
from making a payment which is otherwise permitted by clause 17.5(b)(i) or
clause 17.6.
18. NO REPRESENTATION BY OR RELIANCE ON THE BANK OR AGENT
Each party other than each Bank and each Agent acknowledges that:
(1) no Bank and no Agent has any duty to supply that party with
information in relation to or affecting the other or others of them
prior to the date hereof or during the currency of any Transaction
Document;
(2) it has relied upon that party's own inquiries as to the other or
others of them, the nature and extent of the entire relationship
between them and between them and each Bank and the Agents whether or
not recorded in the Transaction Documents, and the nature and effect
of the Transaction Documents; and
(3) it has not entered into any Transaction Document in reliance on or as
a result of any representation, promise, statement, conduct or
inducement to that party by or on behalf of any Bank or any Agent or
by or on behalf of any Relevant Person otherwise than as
embodied in the Transaction Documents or as notified in writing by
that party to the Banks and the Agents prior to the date hereof.
<PAGE>
SCHEDULE 1
ORIGINAL GUARANTORS
<TABLE>
<CAPTION>
NAME
JURISDICTION OF ACN ADDRESS
INCORPORATION IN
AUSTRALIA
<S> <C> <C> <C>
CTV Pty Limited Queensland 064 416 128 Level 13,
309 Kent Street
Sydney, NSW 2000
STV Pty Limited South Australia 065 312 450 Level 13,
309 Kent Street
Sydney, NSW 2000
AUSTAR Services Pty South Australia 068 521 880 Level 13,
Ltd 309 Kent Street
Sydney, NSW 2000
AUSTAR Retail Pty Ltd South Australia 068 521 826 Level 13,
309 Kent Street
Sydney, NSW 2000
Selectra Pty Ltd South Australia 065 367 526 Level 13,
309 Kent Street
Sydney, NSW 2000
Vinatech Pty Ltd South Australia 065 366 314 Level 13,
309 Kent Street
Sydney, NSW 2000
Jacolyn Pty Ltd South Australia 064 744 869 Level 13,
309 Kent Street
Sydney, NSW 2000
Yanover Pty Ltd New South Wales 065 017 012 Level 13,
309 Kent Street
Sydney, NSW 2000
Keansburg Pty Ltd South Australia 064 744 887 Level 13,
309 Kent Street
Sydney, NSW 2000
Orloff Pty Ltd South Australia 064 756 190 Level 13,
309 Kent Street
Sydney, NSW 2000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION OF ACN ADDRESS
INCORPORATION IN
AUSTRALIA
<S> <C> <C> <C>
Maxi-Vu Pty Ltd Victoria 064 795 679 Level 13,
309 Kent Street
Sydney, NSW 2000
Palara Vale Pty Ltd South Australia 068 943 500 Level 13,
309 Kent Street
Sydney, NSW 2000
Auldana Beach Pty Ltd South Australia 068 943 340 Level 13,
309 Kent Street
Sydney, NSW 2000
Grovern Pty Ltd South Australia 068 943 402 Level 13,
309 Kent Street
Sydney, NSW 2000
Lystervale Pty Ltd South Australia 068 943 457 Level 13,
309 Kent Street
Sydney, NSW 2000
Minorite Pty Ltd South Australia 068 943 484 Level 13,
309 Kent Street
Sydney, NSW 2000
Vermint Grove Pty Ltd South Australia 068 943 555 Level 13,
309 Kent Street
Sydney, NSW 2000
Kidillia Pty Ltd South Australia 068 943 608 Level 13,
309 Kent Street
Sydney, NSW 2000
Carryton Pty Ltd South Australia 068 943 573 Level 13,
309 Kent Street
Sydney, NSW 2000
Dovevale Pty Ltd South Australia 068 943 591 Level 13,
309 Kent Street
Sydney, NSW 2000
XTEK Bay Pty Ltd South Australia 068 943 564 Level 13,
309 Kent Street
Sydney, NSW 2000
Windytide Pty Ltd South Australia 068 943 546 Level 13,
309 Kent Street
Sydney, NSW 2000
</TABLE>
<PAGE>
SCHEDULE 2
BANKS
<TABLE>
<CAPTION>
NAME & TRANCHE 1 TRANCHE 2 TRANCHE 3 TOTAL
ADDRESS COMMITMENT COMMITMENT COMMITMENT COMMITMENT
<S> <C> <C> <C> <C>
The Chase $32,500,000 $39,000,000 $58,500,000 $130,000,000
Manhattan Bank,
ARBN 074 112 011
of Level 35, AAP
Centre, 259 George
Street, Sydney,
New South Wales
Toronto Dominion $12,500,000 $15,000,000 $22,500,000 $50,000,000
Australia Limited,
ACN 004 958 020
of Level 36, 385
Bourke Street,
Melbourne, Victoria
Paribas Group $ 5,000,000 $ 6,000,000 $ 9,000,000 $20,000,000
Australia Limited,
ACN 002 174 843
of Level 11, 3
Spring Street,
Sydney, New South
Wales
- ----------------------------------------------------------------------------------------------
TOTAL $50,000,000 $60,000,000 $90,000,000 $200,000,000
</TABLE>
<PAGE>
SCHEDULE 3
LICENCES
<TABLE>
<CAPTION>
MMDS LICENCES
LICENSEE REGION NO. OF LICENCE NOS. DATE OF DATE OF
CHANNELS ISSUE EXPIRY
<S> <C> <C> <C> <C> <C>
Auldana Beach Pty Ltd (Mackay/ 19 1131138 to 04/06/1996 03/06/01
Rockhampton) 1131156 (inc)
Palara Vale Pty Ltd SE Qld 19 1130608 to 12/07/1996 11/07/01
1130623 (inc)
1130625, 1130626,
11306243 (typo)
Orloff Pty Ltd Gold Coast 12 500846 to 12/08/94 11/08/99
500857
(licence no. 500852
printed on
30/08/1995 is
missing - there are
two 500853)
Jacolyn Pty Ltd Gold Coast 5 500814 to 12/08/1994 11/08/99
500818 (inc)
Jacolyn Pty Ltd Sanctuary Cove 19 1131382 26/07/1996 25/07/01
1131384 to
1131401 (inc)
XTEK Pty Ltd Broken Hill 19 1131189 to 17/06/1996 16/06/01
1131207 (inc)
Vermint Grove Pty Ltd Regional Victoria 19 1302277 22/01/1996 21/01/01
. Bendigo 1302278
. Shepparton 1302279
. Ballarat 1302275
. Albury 1302273
. Mt Baw Baw 1302270
. Koroit 1302268
. Mildura 1302266
. Brownhill 1302265
Lookout 1302264
1302263
1302262
1302248
1130353
1130428
1130427
1130426
1130425
1130424
Maxi-Vu Pty Ltd Broome 19 1131811 to 16/10/1996 15/10/01
1131829
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LICENSEE REGION NO. OF LICENCE NOS. DATE OF DATE OF
CHANNELS ISSUE EXPIRY
<S> <C> <C> <C> <C> <C>
Carnarvon 19 1131811 to 16/10/1996 15/10/01
1131829 (inc)
Karratha 19 1131811 to 16/10/1996 15/10/01
1131829 (inc)
Newman 19 1131811 to 16/10/96 15/10/01
1131829 (inc)
Port Hedland 11 1131825 to 16/10/96 15/10/01
1131829 (inc)
1131815
1131816
1131818
1131820
1131822
1131824
Minorite Pty Ltd Alice Springs 16 1130476 to 27/02/1996 26/02/01
1134080 (inc)
1130482,
1130484 to
1130493 (inc)
Keansburg Pty Ltd Cairns 11 500871 to 12/08/1994 11/08/99
500881
Lystervale Pty Ltd Mt Isa 19 1130326 to 21/12/1995 20/12/00
1130334 (inc)
1130347,
1130340 to
1130345 (inc)
1130337,
1130338,
1130335
Grovern Pty Ltd Townsville 19 1130222 to 15/11/1195 14/11/00
1130240 (inc)
Kidillia Pty Ltd Spencer Gulf Area 1130631 to 26/03/1996 25/03/01
1130649 (inc)
Yanover Pty Ltd Port Douglas 19 1131049
1131051
1131052
1131055
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LICENSEE
REGION NO. OF LICENCE NOS. DATE OF DATE OF
CHANNELS ISSUE EXPIRY
<S> <C> <C> <C> <C> <C>
1131057 27/05/1996 26/05/01
1131059
1131061
1131063
1131065
1131066
1131069
1131070
1131072
1131074
1131076
1131078
1131081
1131083
1131084
Yanover Pty Ltd Cairns 5 500862 to 500866 12/08/1994 11/08/99
(inc)
Carryton Pty Ltd Renmark/Loxton 19 1131157 to 04/06/96 03/06/01
1131175 (inc)
Dovevale Pty Ltd Mt Gambier 19 1131050 24/05/96 23/05/01
1131053
1131054
1131056
1131058
1131060
1131062
1131064
1131067
1131068
1131071
1131073
1131075
1131077
1131079
1131080
1131082
1131085
1131086
</TABLE>
BROADCAST LICENCES
<TABLE>
<CAPTION>
COMPANY NO. OF LICENCES TYPE OF LICENCE
<S> <C> <C>
Selectra Pty Ltd 50 s.96BSA (non-satellite)
Vinatech Pty Ltd 50 s.96 BSA (non-satellite)
</TABLE>
<PAGE>
SCHEDULE 4
DOCUMENTARY CONDITIONS PRECEDENT
1. A certified copy of the Memorandum and Articles of Association of each
Obligor, Salstel Holdings and Salstel Investments.
2. A certified copy of a resolution or resolutions of the directors of the
Borrower approving the Facility and authorising:
(a) the execution by the Borrower of this Agreement and of any of the
Original Securities to be given by the Borrower; and
(b) a person or persons to sign Bills, notices, certificates or other
documents in connection with the Facility on behalf of the Borrower.
3. A certified copy of a resolution or resolutions of each Original Guarantor
approving the giving of the guarantee by that Guarantor in this Agreement
and authorising:
(a) the execution by the Original Guarantor of this Agreement and of any
of the Original Securities to be given by that Original Guarantor; and
(b) a person or persons to sign Bills, notices, certificates or other
documents in connection with the Facility on behalf of the Guarantor.
4. Evidence, satisfactory to the Facility Agent, that the powers of attorney
(if any) used to execute any of the Transaction Documents on behalf of any
Relevant Person have been or will be registered.
5. A certified copy of the signatures of all persons authorised to sign on
behalf of the Borrower and the Original Guarantors.
6. A copy of the Certificate of Registration issued by the Australian
Securities Commission in relation to each of the Original Securities.
7. Replies to all requisitions of the Facility Agent and its solicitors
relating to the Facility and the Original Securities.
8. A certified copy or originals of each of the Material Contracts duly
executed and stamped (if required).
9. A certified copy of (and of all applications for) any and all approvals,
consents, licences, exemptions and other requirements (whether governmental
requirements or otherwise) required for each Obligor to
carry on its business or to enter into or perform its obligations under the
Transaction Documents.
10. An opinion, addressed to the Facility Agent and the Banks, of the legal
advisers to the Facility Agent and the Banks as to such matters relating to
the Obligors and/or the Transaction Documents as the Facility Agent may
require.
<PAGE>
11. An opinion, addressed to the Facility Agent on behalf of the Banks as to the
enforceability of the Transaction Documents to which UIH Austar, Inc. is a
party against UIH Austar, Inc..
12. The Business Plan.
13. Evidence, satisfactory to the Agent, that each Bank has subscribed for and
the Borrower has issued each Bank with Stock (as defined in the Debenture
Stock Trust Deed).
14. Evidence that all insurance policies are in existence as required under this
Agreement and any of the Securities and where applicable, that the Security
Agent's interest has been noted thereon and if requested certified copies of
each such insurance policy.
15. Acknowledgements that any notices of any increases in the limits of the
Securities listed in paragraphs (a) and (b) of the definition of Original
Securities have been received.
16. Duly signed registration or filings forms (if any) required to be completed
in relation to the increases referred to in paragraph 15.
17. A certificate in respect of Part 3.2A of the Corporations Law from the
Borrower and each other member of the Group for the purposes of Part 3.2A of
the Corporations Law.
For the purposes of this Schedule, "CERTIFIED" means a copy certified to be such
by a director, secretary or officer of the Borrower.
<PAGE>
SCHEDULE 5
FORMS OF UTILISATION NOTICE
To: Chase Securities Australia Limited
From: AUSTAR Entertainment Pty. Limited Date: [ ]
UTILISATION NOTICE (ADVANCE).
FACILITY AGREEMENT DATED [ ]
Dear Sirs
We hereby give you notice pursuant to clause 4.1 of the above Facility Agreement
that we require an Advance to be made to us under the Facility Agreement, as
follows
(a) Utilisation Date: [ ]
(b) Amount: [ ]
(c) Interest Period: [ ]
(d) Tranche Designation: [ ]
(e) Purpose: [ ]
Payment instructions with respect to the proceeds of the Advance are as follows:
[ ]
Terms used in this Utilisation Notice and defined in the Facility Agreement have
the same meaning in this Utilisation Notice as in the Facility Agreement.
We confirm that no Event of Default or Potential Event of Default has occurred
and is continuing or would result from the borrowing of the proposed Advance.
We also confirm that the representations, warranties and undertakings in clauses
16 (except for clauses 16.2(c), (d), (e) and (f)) and 17 of the Facility
Agreement have been complied with and the statements in those clauses are
correct as at the date of this Utilisation Notice.
Yours faithfully
[Authorised Signatory]
For and on behalf of AUSTAR Entertainment Pty. Limited
<PAGE>
SCHEDULE 6
ACCESSION AGREEMENT
THIS ACCESSION AGREEMENT is dated the [ ] day of , 19
and made BETWEEN [ ] (the "ADDITIONAL GUARANTOR"), AUSTAR ENTERTAINMENT
PTY. LIMITED (the "BORROWER"), [ ] (each an "EXISTING
GUARANTOR"), Chase Securities Australia Limited in its capacity as Facility
Agent under the Facility Agreement referred to in Recital (A) hereof and on
behalf of the Banks parties to and defined as such in such Facility Agreement,
and [ ] in its capacity as Security Agent.
WHEREAS:
(A) By and upon and subject to the terms of a facility agreement (the "FACILITY
AGREEMENT", which term includes any supplements and amendments thereto which
may at any time be made in relation thereto and also any Substitution
Certificates and Accession Agreements) dated [ ] made between the
Borrower and Guarantors as therein defined, the several banks parties
thereto as Banks and Chase Securities Australia Limited as Facility Agent
and Chase Securities Australia Limited as Security Agent, a revolving
working capital facility, an amortising cash advance facility and an
amortising term loan facility were made available to the Borrower (as
defined in the Facility Agreement).
(B) Each of the entities expressed to be party hereto, whether directly or
through signature hereof by the Facility Agent or the Borrower on its
behalf, is a party to the Facility Agreement either by having been an
original party thereto or pursuant to an Accession Agreement or a
Substitution Certificate to which it is party or otherwise.
(C) The Additional Guarantor wishes to become party to the Facility Agreement as
a Guarantor pursuant to the procedure established in clause 21 of the
Facility Agreement by the execution of this Accession Agreement.
(D) It is the intention of the parties that this Accession Agreement shall take
effect as a deed.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS
Terms used herein which are defined in or to which a meaning or construction
is assigned by or in the Facility Agreement shall, unless otherwise defined
herein, have the same meaning and construction herein as therein.
2. AGREEMENTS, CONFIRMATIONS AND REPRESENTATIONS
(a) The Additional Guarantor hereby:
(i) confirms that it has received a copy of the Facility Agreement
together with such other documents and information as it has
required in connection herewith and therewith;
<PAGE>
(ii) agrees to become, with effect from the date of this Accession
Agreement, a Guarantor under the Facility Agreement, agrees to
be bound in that capacity with effect from such date by the
terms of the Facility Agreement and undertakes accordingly to
perform its obligations as a Guarantor thereunder;
(iii) confirms the accuracy of the information set out under its name
at the end of this Accession Agreement;
(iv) represents and warrants as an Obligor to the Banks and the
Agents in the terms of clause 16 (other than paragraphs
16.2(c), (d), (e) and (f)) of the Facility Agreement by
reference to the facts and circumstances existing at the date
hereof; and
(v) confirms that it has not relied on the Banks or the Agents to
assess or inform it as to the legality, validity, effect or
enforceability of the Facility Agreement or any other document
referred to therein or the accuracy or completeness of any such
information as is referred to in paragraph (i) above or the
creditworthiness, affairs, condition or status of any of the
parties to the Facility Agreement, or any such other document.
(b) The Borrower, the Existing Guarantor(s), the Agents and the Banks
hereby agree amongst themselves and with the Additional Guarantor that
the Additional Guarantor shall become party to the Facility Agreement
with effect from the date of this Accession Agreement.
3. LAW
This Accession Agreement shall be governed by and construed in accordance
with the laws applying in New South Wales.
IN WITNESS WHEREOF the parties hereto have caused this Accession Agreement to be
duly executed on the date first written above.
SIGNATURES
ADDITIONAL GUARANTOR:
[ ]
BORROWER:
AUSTAR ENTERTAINMENT PTY. LIMITED
for itself and as agent for and on behalf of the Existing Guarantors
By:
AGENT:
CHASE SECURITIES AUSTRALIA LIMITED for itself and as Facility Agent and for and
on behalf of the Security Agent and the Banks.
By:
<PAGE>
SCHEDULE 7
SUBSTITUTION CERTIFICATE
SUBSTITUTION CERTIFICATE made the day of
BY ("EXISTING BANK");
AND ("NEW BANK");
AND Chase Securities Australia Limited for itself and as agent for each
party under the Facility Agreement ("FACILITY AGENT").
WHEREAS
A. The Existing Bank and the New Bank presently have the Commitments specified
in Schedule 1 of this Certificate.
B. The New Bank wishes to assume [some/all] of the Existing Bank's Commitments
under the Facility Agreement.
C. After the Substitution Date the Existing Bank and the New Bank will have the
Commitments specified in the Schedule.
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Certificate:
"BORROWER" means AUSTAR Entertainment Pty. Limited, ACN 068 104 530.
"DEBENTURE STOCK TRUST DEED" means the deed so entitled dated 2 April 1997
entered into by (amongst others) the Borrower and the Facility Agent.
"FACILITY AGREEMENT" means the agreement dated [ ] between
(amongst others) the Borrower and the Facility Agent together with and as
supplemented by all Accession Agreements and Substitution Certificates.
"STOCK" means debenture stock issued pursuant to the Debenture Stock Trust
Deed.
"SUBSTITUTED COMMITMENTS" means the Commitments specified as such in
Schedule 1 of this Certificate.
"SUBSTITUTED OBLIGATIONS" means the obligations and responsibilities
identical to the obligations and responsibilities under the Transaction
Documents of the Existing Bank in relation to the Substituted Commitments.
"SUBSTITUTED PORTION" means the amount of each outstanding Advance specified
as such in Schedule 2 of this Certificate.
<PAGE>
"SUBSTITUTED RIGHTS" means rights, remedies and powers identical to the
rights, remedies and powers under the Transaction Documents of the Existing
Bank in relation to the Substituted Commitments and the Substituted Portion.
"SUBSTITUTION DATE" means the later of the date on which this Certificate is
executed on behalf of the Facility Agent or such later date as the parties
hereto may agree in writing.
"TRUST" means the AUSTAR Security Trust constituted by the Debenture Stock
Trust Deed.
1.2 INTERPRETATION
(a) A reference in this Certificate to "IDENTICAL" obligations and
responsibilities or rights, remedies and powers is a reference to the
character of those obligations and responsibilities, rights, remedies
and powers rather than to the identity of the person obliged to
perform them or entitled to them.
(b) Terms defined or given a special meaning in the Facility Agreement
have the same meaning in this Certificate.
1.3 TRANSACTION DOCUMENTS
This Certificate is a Transaction Document.
2. REPRESENTATION
The Existing Bank represents and warrants to the New Bank that as at the
date of this Certificate the Existing Bank's present Commitments under the
Facility Agreement are as shown in Schedule 1 and the Existing Bank's
participation in outstanding Advances is as shown in Schedule 2 of this
Certificate.
3. SUBSTITUTED OBLIGATIONS
3.1 RELEASE FROM FUTURE OBLIGATIONS
The Existing Bank is released from the Substituted Obligations with effect
on and from the Substitution Date. The Existing Bank shall, however, remain
bound by its obligations and responsibilities under the Transaction
Documents which accrue prior to the Substitution Date save as provided
in clause 5 below.
3.2 ASSUMPTION OF OBLIGATIONS
The New Bank undertakes to the Existing Bank and the Agent that it shall
assume the Substituted Obligations on and from the Substitution Date.
4. SUBSTITUTED RIGHTS
The Existing Bank shall no longer be entitled to the Substituted Rights or
the Substituted Portion and the New Bank shall become entitled to the
Substituted Rights and the Substituted Portion, with effect on and from the
Substitution Date.
<PAGE>
5. EFFECT ON TRANSACTION DOCUMENTS
The Existing Bank, the New Bank and the Facility Agent agree that with
effect on and from the Substitution Date:
(a) the New Bank and each party to each Transaction Document will assume
obligations and responsibilities towards each other, and have rights,
remedies and powers in relation to each other, determined on the basis
that the obligations and responsibilities of the New Bank are the
Substituted Obligations and the rights, remedies and powers of the New
Bank are the Substituted Rights;
(b) the Existing Bank will be released from its obligations and
responsibilities under each of the Transaction Documents accruing on
and after the Substitution Date to the extent of the Substituted
Obligations and it will cease to be entitled to exercise any rights,
remedies or powers under the Transaction Documents arising on or after
the Substitution Date in respect of the Substituted Rights; and
(c) the New Bank will be deemed a party to each Transaction Document to
which the Existing Bank is a party as a Bank with Commitments equal to
the Substituted Commitments.
6. NO EFFECT ON ACCRUED RIGHTS AND OBLIGATIONS
Save as expressly provided herein this Certificate shall not affect the
Existing Bank's rights, remedies and powers arising, and obligations and
responsibilities accrued, prior to the Substitution Date.
7. LIQUEFYING BILLS
Nothing contained in this Certificate releases, relieves or otherwise
affects the obligations and responsibilities and the rights, remedies and
powers, of the Existing Bank in respect of Bills drawn under clause 9 of the
Facility Agreement. The New Bank will not assume any obligations or
responsibilities, or acquire any rights, remedies or powers, in respect of
such Bills.
8. PAYMENTS
8.1 CONSIDERATION
The Existing Bank and the New Bank shall agree separately between themselves
the amounts (if any) payable from one to the other in relation to the
substitution in respect of principal and accrued interest and fees.
8.2 FACILITY AGENT
On and from the Substitution Date the Facility Agent will make all payments
received by it in respect of the Substituted Commitments, Substituted
Obligations, Substituted Rights and Substituted Portion to the New Bank.
<PAGE>
9. INDEPENDENT ASSESSMENT
Without limiting clause 6 of this Certificate, the New Bank agrees that the
provisions of clause 24.13 of the Facility Agreement binds it as if the
reference therein to this "DOCUMENT" included this Certificate and (subject
to any agreement to the contrary between the Existing Bank and New Bank) the
reference therein to the "AGENT" included the Existing Bank.
10. ACKNOWLEDGEMENTS
The New Bank acknowledges that it has received a complete and current copy
of each Transaction Document together with such other documents and
information as it has required in connection therewith.
11. GOVERNING LAW
This Certificate is governed by the laws applying in New South Wales.
12. DEBENTURE STOCK
The New Bank acknowledges that it will not be a beneficiary of the Trust
unless Stock has been issued to it pursuant to the Debenture Stock Trust
Deed. The New Bank will be responsible for applying for Stock and the
Existing Bank will not be liable for any failure of the New Bank to obtain
the benefit of the Securities.
SCHEDULE 1: COMMITMENTS
<TABLE>
<CAPTION>
TRANCHE 1 TRANCHE 2 TRANCHE 3 TOTAL
COMMITMENT COMMITMENT COMMITMENT COMMITMENT
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Existing Bank's $[ ] $[ ] $[ ] $[ ]
present
Commitments
New Bank's $[ ] $[ ] $[ ] $[ ]
present
Commitments
SUBSTITUTED $[ ] $[ ] $[ ] $[ ]
COMMITMENTS
Existing Bank's $[ ] $[ ] $[ ] $[ ]
Commitments
after
substitution
New Bank's $[ ] $[ ] $[ ] $[ ]
Commitments
after
substitution
</TABLE>
<PAGE>
SCHEDULE 2: ADVANCES
<TABLE>
<CAPTION>
TOTAL OUTSTANDING EXISTING BANK'S SUBSTITUTED
PARTICIPATION PORTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Tranche 1 $[ ] $[ ] $[ ]
Advances
Tranche 3 $[ ] $[ ] $[ ]
Advances
</TABLE>
SIGNED as an agreement.
[To be signed by Existing Bank, New Bank and Facility Agent]
<PAGE>
SCHEDULE 8
NOTICE FROM UIH
[LETTERHEAD OF UIH AUSTRALIA/PACIFIC, INC. APPEARS HERE]
[Date]
The Chase Manhattan Bank
AAP Centre
259 George Street
SYDNEY NSW 2000
Attention Mr Jason Lee
Dear Sir
AUSTAR ENTERTAINMENT PTY LIMITED
We refer to:
(a) the Indenture dated 14 May 1996 between UIH Australia/Pacific, Inc. ("UAP")
and American Bank National Association (the "INDENTURE"); and
(b) the terms and conditions of the syndicated senior term debt facility
arranged by The Chase Manhattan Bank ("CHASE") for AUSTAR Entertainment Pty
Limited ("AUSTAR") dated [ ] (the "SENIOR DEBT TERMS").
Having reviewed the Senior Debt Terms and consulted with our lawyers we confirm
that the provision of a financing for AUSTAR in accordance with the Senior Debt
Terms will not cause a breach of the Indenture. We confirm that UAP has
obtained the necessary waivers, consents or amendments from UAP senior note
holders to permit the dividend restriction referred to in clause 17.6(a) of the
Senior Debt Terms.
We acknowledge that Chase will rely on this letter in providing finance to
AUSTAR and confirm that this letter may also be disclosed to and relied on by
prospective syndicate banks which participate in the proposed financing for
AUSTAR.
Signed on behalf of UAP by [ ] with the authority of the directors of UAP.
<PAGE>
SCHEDULE 9
COMPLIANCE CERTIFICATE
TO: Chase Securities Australia Limited (in its capacity as Facility Agent)
ACN 002 888 011
AAP Centre
259 George Street
SYDNEY NSW 2000
FROM: AUSTAR Entertainment Pty. Limited
ACN 068 104 530
Level 13
309 Kent Street
SYDNEY NSW 2000
COMPLIANCE CERTIFICATE
Reference is made to the A$200,000,000 Syndicated Senior Secured Debt Facility
Agreement dated [ ] between (amongst others) AUSTAR
Entertainment Pty. Limited ("COMPANY") and Chase Securities Australia Limited in
its capacity as Facility Agent and Security Agent ("FACILITY AGREEMENT") and all
Accession Agreements and Substitution Certificates entered into in respect of
the Facility Agreement.
Words defined in the Facility Agreement have the same meaning in this
Certificate.
This Certificate is given by the Company on behalf of all Obligors.
1. RATIOS
1.1 SENIOR DEBT/EBITDA*
The ratio of Senior Debt to EBITDA for the Group for the period from [ ]
to [ ] was [ ].
1.2 TOTAL DEBT/EBITDA*
The ratio of Total Debt to EBITDA for the Group for the period from [ ]
to [ ] was [ ].
1.3 EBITDA/INTEREST EXPENSE*
The ratio of EBITDA for the Group to Interest Expense for the period from
[ ] to [ ] was [ ].
1.4 TOTAL SUBSCRIBERS*
<PAGE>
The Total Subscribers as at [ ] was [ ].
1.5 MINIMUM EBITDA*
The EBITDA for the Group for the period from [ ] to [ ]
was [ ].
1.6 EQUITY CONTRIBUTION*
The amount of the Equity Contribution is [ ] which is [ ]%
of the aggregate of the amount of Tranche 2 Advances outstanding and the
amount requested in the most recent Tranche 2 Utilisation Notice.
1.7 ANNUALISED EBITDA*
If the amount of the Advance requested in the most recent Tranche 3
Utilisation Notice were added to existing aggregate outstanding Advances
under the Facilities, the ratio of that sum to the last quarter=s annualised
EBITDA would be [ ].
2. CONDITIONS PRECEDENT
The conditions precedent listed in clauses 3.4 and 3.5* of the Facility
Agreement have been met.
3. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
The representations, warranties and undertakings in clauses 16 (except for
clauses 16.2(c), (d), (e) and (f)) and 17 of the Facility Agreement have
been complied with and the statements in those clauses are correct as at the
date of this Certificate [except as set out below:]*.
We, [ ], being [directors of the Company] certify that the contents of
this Certificate are true and correct as at the date of this Certificate.
............................ ............................
[Name of Director] [Name of Director]
Date: ......................
* delete if inapplicable
<PAGE>
SCHEDULE 10
FORM OF STAMP DUTY CERTIFICATE
To: Chase Securities Australia Limited
Re: Syndicated Senior Secured Debt Facility Agreement dated [ ]
made between (amongst others) AUSTAR Entertainment Pty Limited (the
"BORROWER") and Chase Securities Australia Limited, as Facility Agent and
Security Agent.
The Security Property is certified to be valued and apportioned as set out below
at [insert date].
<TABLE>
<CAPTION>
=========================================================================================================
FIXED CASH DEBTORS PROPERTY TOTAL PERCENTAGE PERCENTAGE
ASSETS OF OVERALL OF
ASSETS AUSTRALIAN
ASSETS
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
N.S.W.
- ---------------------------------------------------------------------------------------------------------
Victoria
- ---------------------------------------------------------------------------------------------------------
W.A.
- ---------------------------------------------------------------------------------------------------------
S.A.
- ---------------------------------------------------------------------------------------------------------
Queensland
- ---------------------------------------------------------------------------------------------------------
Tasmania
- ---------------------------------------------------------------------------------------------------------
A.C.T.
- ---------------------------------------------------------------------------------------------------------
N.T.
- ---------------------------------------------------------------------------------------------------------
Overseas
=========================================================================================================
TOTAL 100% 100%
=========================================================================================================
</TABLE>
There has been an [increase/decrease] in the [value of/proportion of] assets
located in [specify State or overseas].
For and on behalf of the Borrower
.............................................
Authorised Officer
<PAGE>
SIGNED as an agreement.
SIGNED for and on behalf of )
AUSTAR ENTERTAINMENT PTY )
LIMITED, ACN 068 104 530 by ) Robert James Birrell (sgd)
Robert James Birrell ) ...............................
in the presence of: ) (Signature)
Mark Rigotti (sgd)
............................
(Signature of Witness)
Mark Rigotti
............................
(Name of Witness in Full)
SIGNED for and on behalf of )
CTV PTY LIMITED, ACN 064 416 128 )
by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ...............................
(Signature)
Mark Rigotti (sgd)
............................
(Signature of Witness)
Mark Rigotti
............................
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of )
STV PTY LIMITED, ACN 065 312 450 )
by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
(Signature)SIGNED for and on behalf of )
AUSTAR SERVICES PTY LTD, ACN 068 521 880 )
by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
AUSTAR RETAIL PTY LTD, ACN 068 )
521 826 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
SELECTRA PTY LTD, ACN 065 367 )
526 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of )
VINATECH PTY LTD, ACN 065 366 )
314 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
JACOLYN PTY LTD, ACN 064 744 )
869 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
YANOVER PTY LTD, ACN 065 017 )
012 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
KEANSBURG PTY LTD, ACN 064 744 )
887 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of )
ORLOFF PTY LTD, ACN 064 756 190 )
by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
MAXI-VU PTY LTD, ACN 064 795 679 )
by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
PALARA VALE PTY LTD, ACN 068 )
943 500 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
AULDANA BEACH PTY LTD, ACN )
068 943 340 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of )
GROVERN PTY LTD, ACN 068 943 )
402 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
LYSTERVALE PTY LTD, ACN 068 943 )
457 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) .............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
MINORITE PTY LTD, ACN 068 943 )
484 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
VERMINT GROVE PTY LTD, ACN 068 )
943 555 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) .............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of )
KIDILLIA PTY LTD, ACN 068 943 )
608 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
CARRYTON PTY LTD, ACN 068 943 )
573 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
DOVEVALE PTY LTD, ACN 068 943 )
591 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
XTEK BAY PTY LTD, ACN 068 943 )
564 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ..............................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of )
WINDYTIDE PTY LTD, ACN 068 943 )
546 by Robert James Birrell ) Robert James Birrell (sgd)
in the presence of: ) ...........................
(Signature)
Mark Rigotti (sgd)
.............................
(Signature of Witness)
Mark Rigotti
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
CHASE SECURITIES AUSTRALIA LIMITED, ACN )
002 888 011 (in its capacity as Facility ) Anthony Benecke (sgd)
Agent and Security Agent), by ) ...........................
Anthony Benecke in the presence of: ) (Signature)
C Long (sgd)
.............................
(Signature of Witness)
Caroline M Long
.............................
(Name of Witness in Full)
SIGNED for and on behalf of THE CHASE )
MANHATTAN BANK, ARBN 074 112 011, by ) Jason Lee (sgd)
Jason Lee in the presence of: ) ...........................
) (Signature)
Caroline Long (sgd)
.............................
(Signature of Witness)
Caroline M Long
.............................
(Name of Witness in Full)
SIGNED for and on behalf of THE CHASE )
MANHATTAN BANK, ARBN 074 112 011, by ) ...........................
in the presence of: ) (Signature)
(Signature of Witness)
<PAGE>
.............................
(Name of Witness in Full)
SIGNED for and on behalf of TORONTO ) Clive H. Craven (sgd)
DOMINION AUSTRALIA LIMITED, ACN ) .....................................
004 858 020 by Clive H Craven ) (Signature)
in the presence of: )
Caroline Long (sgd)
.............................
(Signature of Witness)
Caroline M Long
.............................
(Name of Witness in Full)
SIGNED for and on behalf of PARIBAS ) Mark Austin (sgd) Michael Cowan (sgd)
GROUP AUSTRALIA LIMITED, ACN ) .....................................
002 174 843 by Michael Cowan/Mark ) (Signature)
Austin in the presence of: )
Caroline Long (sgd)
.............................
(Signature of Witness)
Caroline M Long
.............................
(Name of Witness in Full)
The undersigned LC Banks acknowledge that they have reviewed and approved this
document:
SIGNED for and on behalf of )
DE NATIONALE INVESTERINGSBANK ) Ng Eng Chye (sgd)*
ASIA LIMITED by Ng Eng Chye in the ) ....................................
presence of: ) (Signature)
Jason Lee (sgd)
.............................
(Signature of Witness)
Jason Lee
.............................
(Name of Witness in Full)
SIGNED for and on behalf of )
CANADIAN IMPERIAL BANK OF ) Chin Foo Chun (sgd)*
COMMERCE by Chin Foo Chun in the ) ....................................
presence of: ) (Signature)
Chetan Bhatia (sgd)
.............................
(Signature of Witness)
Chetan Bhatia
.............................
(Name of Witness in Full)
* signed cleaned copies
<PAGE>
Exhibit 12.1 Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31, December 31, Nine Months Ended
1994 1995 1996 September 30, 1997
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Pretax income from continuing operations $(1,674) $(17,233) $(87,986) $(114,420)
Less: losses from less than 50% owned persons 551 4,327 5,414 2,000
Plus: losses from less than 50% owned persons
where the registrant has guaranteed debt 0 0 0 0
------- -------- -------- ---------
(1,123) (12,906) (82,572) (112,420)
Fixed charges:
Interest, whether expensed or capitalized 0 30 20,756 29,676
Amortization of debt expense 0 0 0 0
Rental Expense demonstrated to be interest 0 0 0 0
Preferred stock dividend requirements 0 0 0 0
------- -------- -------- ---------
Total fixed charges 0 30 20,756 29,676
Adjusted earnings (1,123) (12,876) (61,816) (82,744)
Fixed charges 0 30 20,756 29,676
------- -------- -------- ---------
Ratio of earnings to fixed charges -- -- -- --
Dollar amount of coverage deficiency $(1,123) $(12,906) $(82,572) $(112,420)
======= ======== ======== =========
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated March 28, 1997 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,
December 5, 1997
<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,
December 5, 1997
<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,
December 5, 1997
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated 20 February 1996 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
December 5, 1997
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-4
for UIH Australia/Pacific, Inc. 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.
December 5, 1997
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 UIH
Australia/Pacific, Inc. 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, December 5, 1997
Coopers & Lybrand Tahiti
/s/ Jean-Pierre Gosse
-------------------------
Jean-Pierre Gosse
