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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1997
REGISTRATION NO. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
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. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SENIOR NOTE (1) OFFERING PRICE (1) FEE
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<S> <C> <C> <C> <C>
14% Senior Discount Notes due 2006, Series D... $45,000,000 69.00% $31,050,000 $9,409
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the bid and asked price on
November 3, 1997 for the Company's 14% Senior Discount Notes due 2006,
Series C for which the registered notes will be exchanged.
_______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 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 _________________, 1997, 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 __________, 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.
<PAGE>
(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 June 30, 1997, on a pro forma basis after giving effect to the Note Offering,
the consolidated liabilities of the Issuer and its subsidiaries (including trade
payables of subsidiaries) would have been approximately $387.5 million
(including the 1996 Notes and the Notes), substantially all of which, except for
the 1996 Notes and Notes, would have been 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
$144 million based on the September 15, 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
4
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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. In July 1997, FoxTel and
Australis announced a merger of their operations in which News Corp. and
Telstra, FoxTel's shareholders, would obtain a controlling interest in
Australis. The proposed merger has been challenged, however, by the Australian
Competition and Consumer Commission ("ACCC"). The Company believes that such
merger may provide Australis with more stable and substantial capital resources.
Due to the fact that Australis supplies programming to Austar at what the
Company believes are favorable terms, the Company believes Austar will benefit
from Australis having greater financial resources.
WARRANTS
The Company does not expect to 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 will issue to holders of
the 1996 Notes and the Old Notes on November 16, 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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THE EXCHANGE OFFER
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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 ________________, 1997, 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%.
6
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, Holders of Old Notes (other than any Holder who is an "affiliate"
of the Issuer within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided, that such New Notes are acquired in
the ordinary course of the Holders' business and such Holders, other than
brokers-dealers, are not engaged in do not intend to engage in and have no
arrangement or understanding with any person to participate in, a distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes must acknowledge that such Old Notes were
acquired by such broker-dealer as a result of 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 ______________, 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
June 30, 1997, pro forma for the Note
Offering the Issuer and its
subsidiaries would have had an
aggregate of approximately $387.5
million of consolidated liabilities
outstanding (including trade payables
of subsidiaries and the Notes) all of
which except for the Notes, would have
been obligations of the Issuer's
subsidiaries and effectively rank
prior in right of payment to the
Notes. See "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 June 30, 1997, the Issuer's subsidiaries had $87.5
million of indebtedness outstanding (including trade payables). In July 1997,
Austar entered into an A$200 million (approximately $144 million based on the
September 15, 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 June 30, 1997, on a
pro forma basis after giving effect to the Note Offering, the consolidated
liabilities of the Issuer and its subsidiaries (including trade payables of
subsidiaries) would have been approximately $387.5 million (including the 1996
Notes and the Notes), substantially all of which, except for the 1996 Notes and
Notes, would have been 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 $50.3 million
for the six months ended June 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 August 31, 1997, to require approximately
$157.8 million in total (of which the Company's pro rata portion is
approximately $133.1 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. Australis recently announced a proposed merger with
FoxTel, the completion of which may provide Australis with funds to complete the
roll-out of its service. The proposed merger has been challenged, however, by
the ACCC. If such merger does not occur and alternative financing to satisfy
Australis' long-term capital needs is not obtained, 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.
No Dividends. It is not expected that any dividends will be paid on the
Common Stock in the foreseeable future. In addition, the Indenture will limit
the Issuer's ability to pay cash dividends. See "Dividend Policy" and
"Description of Securities--Certain Covenants--Limitation on Restricted
Payments."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on _______________, 1997, 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 beings sent on or about
_____________, 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 __________,
Liquidated Damages will accrue from and including __________. 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 __________, 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
October 31, 1997, the Noon Buying Rate was $0.70 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 Six Months
Ended June 30, 1997...... 0.76 0.77 0.80 0.75
</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 June
30, 1997 and as adjusted to reflect the Note Offering. 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 JUNE 30, 1997
--------------------------------
AS ADJUSTED
FOR THE
ACTUAL NOTE OFFERING
-------------- -------------
(In thousands, unaudited)
<S> <C> <C>
Debt:
1996 Notes......................................................... $ 262,587 $ 262,587
Old Notes.......................................................... -- 29,925
Other long-term debt............................................... 43,114 43,114
Due to parent...................................................... 4,434 4,434
--------- ---------
Total debt....................................................... 310,135 340,060
--------- ---------
Stockholders' equity:
Common stock ($0.01 par value); 1,000 shares authorized;
500 shares issued and outstanding................................ -- --
Additional paid-in capital......................................... 112,485 112,485
Unrealized loss on investment...................................... (3,707) (3,707)
Cumulative translation adjustments................................. (1,526) (1,526)
Accumulated deficit................................................ (177,561) (177,561)
--------- ---------
Total stockholders' equity (deficit)............................. (70,309) (70,309)
--------- ---------
Total capitalization.......................................... $ 239,826 $ 269,751
========= =========
</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 six months ended June 30, 1996 and 1997 and at June 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 SIX MONTHS
DECEMBER 31, ENDED JUNE 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 $ 5,870 $ 30,711
System operating expenses............. -- (3,230) (30,730) (7,014) (21,869)
System selling, general and
administrative expense............... -- (2,482) (24,800) (10,242) (22,805)
Corporate general and
administrative expense............... (659) (920) (1,376) (532) (576)
Depreciation and amortization......... -- (1,003) (36,269) (8,249) (35,736)
Net operating loss.................... (659) (5,752) (68,198) (20,167) (50,275)
Equity in losses of
affiliated companies................. (1,015) (16,379) (5,414) (2,568) (1,443)
Interest expense, net................. -- 127 (16,650) (2,891) (18,183)
Other income (loss), net.............. -- 4,351 90 618 (767)
Minority interests.................... -- 420 2,186 1,605 --
------- -------- --------- -------- ---------
Net loss.............................. $(1,674) $(17,233) $ (87,986) $(23,403) $ (70,668)
------- -------- --------- -------- ---------
Net loss per common share............. $(3,437) $(35,386) $(178,471) $(48,055) $(141,336)
======= ======== ========= ======== =========
Weighted-average number of
common shares outstanding............ 487 487 493 487 500
======= ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------ AS OF
1994 1995 1996 JUNE 30, 1997
------- ------ -------- -------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ -- $ 8,730 $ 19,220 $ 6,859
Short-term investments................ -- -- 18,640 --
Property, plant and equipment, net of
accumulated depreciation............. 1 27,630 193,170 192,969
Total assets.......................... 24,084 99,295 319,323 287,285
Long-term debt........................ -- 11,962 254,155 310,135
Total liabilities..................... 11 21,714 315,276 357,594
Stockholders' equity (deficit)........ 24,073 75,066 4,047 (70,309)
</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. 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 AUGUST 31, 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 $278.4 167,134
Saturn........................... 65% Sept. 1996 31.1 2,763
Telefenua........................ 90% Mar. 1995 16.7 6,236
United Wireless.................. 100% Sept. 1995 6.8 N/A
UNCONSOLIDATED AFFILIATE:
- ------------------------
XYZ.............................. 25% Apr. 1995 $ 12.9 486,319
</TABLE>
(1) For an explanation of the Company's interests in each of the operating
companies, see "Corporate Organizational Structure."
UIH, the Company's parent, provides various management, technical,
administrative, accounting, financial reporting, tax, legal and other services
for the Company pursuant to the terms of a UIH Management Agreement between UIH
and the Company. See "Certain Relationships."
26
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Service and Other Revenue. The Company's service and other revenue
increased $24.8 million for the six months ended June 30, 1997, compared to the
amounts for the six months ended June 30, 1996 as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1997
------ ------
(In thousands)
<S> <C> <C>
AUSTRALIA
Austar......................... $4,127 $28,524
United Wireless................ 5 131
TAHITI
Telefenua...................... 1,738 1,875
NEW ZEALAND
Saturn......................... -- 181
------ -------
Total service and other revenue... $5,870 $30,711
====== =======
</TABLE>
Austar
Service revenue at Austar was $28.5 million for the six months ended
June 30, 1997, compared to $4.1 for the corresponding period in 1996. For
the six months ended June 30, 1997, revenues consisted primarily of service
and installation fees from basic subscribers of $239 million and $3.8
million, respectively, with other revenue totally $758,000. For the six
months ended June 30, 1996, revenues consisted primarily of service and
installation fees from basic subscribers of $2.6 million and $1.15 million,
respectively. The increase in service revenue was primarily due to
subscriber growth (149,495 at June 30, 1997 compared to 29,282 at June 30,
1996) as Austar continues to roll-out its services, which were initially
launched in August 1995.
Telefenua
Telefenua's service revenue increased to $1.9 million from $1.7
million for the six months ended June 30, 1997 and 1996, respectively. The
increase was primarily attributable to subscriber growth (6,080 at June 30,
1997 compared to 4,361 at June 30, 1996).
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported no service revenue for Saturn
for the six months ended June 30, 1996. For the six months ended June 30,
1997, the Company reported service revenue of $181,000, compared with
service revenue for Saturn of $104,000 for the corresponding period in
1996. The increase is primarily due to an increase in subscribers (2,288
at June 30, 1997 compared to 1,125 at June 30, 1996).
System Operating Expense. System operating expense increased $14.9 million
for the six months ended June 30, 1997, compared to the amounts for the six
months ended June 30, 1997.
27
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1997
------ -------
(in thousands)
<S> <C> <C>
Austar........................................ $5,281 $18,466
Telefenua..................................... 1,073 885
Saturn........................................ -- 1,659
United Wireless............................... 660 859
------ -------
Total system operating expense.......... $7,014 $21,869
====== =======
</TABLE>
Austar
The Company reported operating expense from Austar of $18.5 million
for the six months ended June 30, 1997, compared to $5.3 million for the
comparable period in the prior year. For the six months ended June 30,
1997, Austar's operating expense consisted primarily of satellite
programming fees ($9.0 million), salaries and benefits ($3.1 million) and
MMDS spectrum license fees ($1.3 million), with the remainder consisting of
system travel, maintenance, vehicle and customer billing expenses. For the
six months ended June 30, 1996, Austar's operating expense consisted
primarily of salaries and benefits ($2.0 million), satellite programming
fees ($1.0 million) and MMDS spectrum license fees ($688,000), with the
remainder consisting of system travel, maintenance, vehicle and customer
billing expenses. The increase in operating expense in 1997 was primarily
due to the ongoing roll-out of Austar's services and the correspondent
increase in subscribers. Austar is currently experiencing high operating
expenses relative to service revenues 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 increased in service revenues.
Telefenua
Operating expense at Telefenua decreased to $885,000 for the six month
period ended June 30, 1997, from $688,000 $1.1 million for the
corresponding period in 1996. This decrease is primarily due to decreases
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. Telefenua's operating expense
for he six months ended June 30, 1997 consisted primarily of programming-
related expenses ($557,000) with the remainder consisting of payroll-
related costs and technical-related costs. Telefenua's operating expense
for the six months ended June 30, 1996 consisted primarily of programming-
related expenses ($602,000) with the remainder consisting of payroll-
related costs and technical-related costs.
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported no operating expense for Saturn
for the six months ended June 30, 1996. For the six months ended June 30,
1997, the Company reported system operating expense of $1.7 million, for
Saturn compared with system operating expense of $720,000 for the
corresponding period in 1996. For the six months ended June 30, 1997,
system operating expense consisted primarily of payroll ($721,000) and
office expenses related to the system design and engineering work for the
expansion of Saturn's Wellington system and to the provision of service to
existing customers. For the six months ended June 30, 1996, system
operating expense consisted primarily of payroll ($341,000) and office
expenses.
System Selling, General and Administrative Expense. System selling,
general and administrative expense increased and $12.6 million for the six
months ended June 30, 1997, compared to the amounts for the six months ended
June 30, 1996 as follows:
28
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1997
------- -------
(in thousands)
<S> <C> <C>
Austar........................................ $ 8,823 $19,609
Telefenua..................................... 1,268 1,011
Saturn........................................ -- 1,396
United Wireless............................... 151 789
-------- -------
Total system selling, general and
administrative expense................. $10,242 $22,805
======= =======
</TABLE>
Austar
Austar's system selling, general and administrative expense increased
to $19.6 million from $8.8 million for the six months ended June 30, 1997
and 1996, respectively. During the six months ended June 30, 1997, system
selling, general and administrative expense at Austar consisted primarily
of salaries associated with the National Customer Operations Center and
Austar's Sydney corporate headquarters ($6.0 million), marketing costs
related to print, radio and television advertisements ($4.8 million),
office-related expenses including rent and utilities ($3.4 million) and
direct sales commissions ($2.9 million). During the six months ended June
30, 1996, system selling, general and administrative expense at Austar
consisted primarily of salaries associated with the National Customer
Operations Center and Austar's Sydney corporate headquarters ($3.5
million), marketing costs related to print, radio and television
advertisements ($1.9 million), office-related expenses including rent and
utilities ($1.6 million) and direct sales commissions ($1.0 million). The
increase in 1997 was primarily due to the on-going roll-out of Austar's
services. 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.
Telefenua
System selling, general and administrative expense consolidated by the
Company from Telefenua decreased to $1.0 million for the six months ended
June 30, 1997, from $1.3 million for the same period in the prior year.
This decline was primarily due to a reduction in marketing costs during
1997 as well as a weakening of the local currency.
Saturn
The Company began consolidating the results of Saturn effective July
1, 1996. Accordingly, the Company reported no system selling, general and
administrative expense for Saturn for the six months ended June 30, 1996.
Saturn's system selling, general and administrative expense was $1.4
million for the six months ended June 30, 1997 compared to $801,000 for the
comparable period in 1996. For the six months ended June 30, 1997, system
selling, general and administrative expense consisted primarily of
marketing and support salaries and benefits ($721,000) associated with
increased marketing efforts to expand the subscriber base as Saturn's
system expands. For the six months ended June 30, 1996, system selling,
general and administrative expense consisted primarily of marketing and
support salaries and benefits ($341,000).
Corporate General and Administrative Expense. Corporate general and
administrative expense increased $44,000 for the six months ended June 30, 1997,
compared to the amounts for the corresponding period in the prior year.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $27.5 million for the six months ended June 30, 1997, compared
to the amounts for the corresponding period in the prior year. This increase
was primarily attributable to the significant deployment of operating assets and
subscriber growth at Austar during the latter part of 1996 and, to a lesser
extent, in 1997.
Equity in Losses of Affiliated Companies. The Company experienced
decreases in equity in losses of affiliated companies of $1.1 million for the
six months ended June 30, 1997, compared to the corresponding amount for the six
months ended June 30, 1996 as follows:
29
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Saturn (1).................................................. $ 929 $ --
XYZ Entertainment........................................... 1,639 1,443
------ ------
Total equity in losses of affiliated
companies............................................ $2,568 $1,443
====== ======
</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.
Interest Income. Interest income decreased $1.0 million for the six months
ended June 30, 1997 compared to the amount for the corresponding period of 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 $14 million for the six
months ended June 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.
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
If the Company does not consummate an issuance of capital stock resulting
in an Equity Sale on or prior to November 15, 1997, the then holders of the
Notes would be entitled to receive warrants to purchase 3.4% of the common stock
of the Company at an aggregate exercise price of $5.1 million.
The following table sets forth, as of August 31, 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 (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 AUGUST 31, 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.................. $369,800 $369,800 $278,364(3) $278,364(3) $ 91,436(4) $ 91,436
Saturn.................. 69,178 109,700 31,065(5) 51,065(5) 38,113 58,635
Telefenua............... 17,400 17,400 16,737 16,737 663 663
XYZ..................... 14,000 56,000 12,590 50,360 1,410 5,640
United Wireless......... 8,200 8,200 6,761 6,761 1,439 1,439
-------- -------- -------- -------- -------- --------
Total................. $478,578 $561,100 $345,517 $403,287 $133,061 $157,813
======== ======== ======== ======== ======== ========
</TABLE>
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation.
(2) Includes amounts contributed to Austar (approximately $11.1 million) and
Saturn (approximately $2.9 million) by shareholders other than the Company,
which amounts were contributed by such shareholders prior to the acquisition
of their respective interests by the Company.
(3) Does not include the $58.6 million paid by the Company to increase its
economic interest in Austar to approximately 100%. Includes approximately
A$81 million ($62 million converted using the exchange rate on each funding
date) funded under the Austar Bank Facility.
(4) The remaining availability of the A$200 million Austar Bank Facility
(approximately A$119 million or $85.7 million based on the September 15,
1997 exchange rate) is anticipated to be used to meet all or a portion of
these funding requirements.
(5) Does not include the value of shares of common stock exchanged in 1996 for
shares of the Company to increase the Company's interest in Saturn.
In July 1997, SaskTel purchased a 35% equity interest in Saturn by
investing approximately $20 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 $133.1 million, after the effect of the SaskTel investment, in
order to build-out its existing projects over the next four 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 recently completed Bank Facility
and cash on hand, the Company intends to raise additional capital through
capital contributions form its 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 indenture 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 in 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.
During the six months ended June 30, 1997, the Company recognized losses of
$70.7 million of which $35.7 million was from non-cash depreciation and
amortization and $1.4 million from non-cash equity in losses of affiliated
companies. In addition, the Company recorded non-cash accretion of interest in
the Notes of $17.5 million. During the six month period, the Company incurred
related party payables totaling $11.6 million, including loans to Saturn and UIH
Australia/Pacific Finance, Inc. The Company purchased $41.8 million of
property, plant and equipment and experienced a decrease of $28.2 million in
construction payables during the six months ended June 30, 1997. The majority
of this construction activity relates to Austar. Austar also borrowed $39.3
million on an interim financing facility to provide adequate funds for its
operations until the Bank Facility closed. The Company purchased $3.6 million
and sold $22 million of short-term investments, respectively, as part of its
cash management activities for the six month period. The remainder of cash was
primarily used in operations.
During the six months ended June 30, 1996, UIH contributed capital of $10.7
million to the Company and made bridge loans of $15.1 million to Austar and
Telefenua. In addition, the Company raised $225.1 million of gross proceeds
from the 1996 Notes. At that time, the Company acquired $25.0 million of the
Austar bridge loans from UIH with proceeds from the 1996 Notes and converted
those loans (plus accrued interest of $0.6 million) to equity of Austar.
Subsequently, the Company funded an additional $25.0 million to Austar, thereby
increasing the Company's interest in Austar to 96%. Prior to the closing of the
Notes, approximately $5.0 million of the Societe Francaise des Communications et
du Cable S.A. ("SFCC") bridge loans was converted into convertible debentures of
SFCC, which are convertible into preferred stock of SFCC. The remaining SFCC
bridge loans totaling $2.6 million (including accrued interest) will be either
(i) repaid by SFCC, after which time the Company would invest the proceeds of
such repayment as permitted under the Company's indenture, or (ii) converted by
the Company into equity of SFCC. The bridge loans were used to fund the
construction and initial marketing of Austar's and Telefenua's systems. The
Company also made
36
<PAGE>
$10.5 million in capital contributions to Saturn and XYZ Entertainment during
the six months ended June 30, 1996, using capital contributed to it by UIH.
Approximately $43.6 million was used for the purchase of property, plant and
equipment by Austar and Telefenua as these systems are in the process of
building their MMDU systems and satellite systems. The Company also experienced
a related increase in construction payable of $6.52 million during the period.
The Company purchased $70.62 million of short-term investments in connection
with its cash management activities. The remainder was used in operations.
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 June 30, 1997, the Company had
invested over $275 million in its networks and operating infrastructure and had
launched service in each of its markets. As of August 31, 1997, the Company's
multi-channel television operating systems had an aggregate of approximately 1.6
million television homes serviceable and approximately 175,000 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 1,589,000 175,751 100%
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 1,629,252 708,837
========= ========= =======
</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......... 116,030 123,689 129,156 131,068 141,250 149,495 158,152 167,134 175,751
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."
40
<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, a subsidiary of Saskatchewan Telecommunications Holdings
Corporation ("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........ 41 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 487 (97.4%) of the 500 shares of issued and outstanding common
stock of the Company. The remaining 13 shares are owned by Kiwi, the entity
from which the Company acquired the remaining 50% interest in Saturn. Kiwi was
granted a one-time conversion right to exchange its 2.6% interest in the Company
for an equivalent interest in the common stock of UAP.
The Company plans to issue on November 16, 1997, warrants exercisable for
3.4% of its common stock (on a fully converted basis) 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 June 30,1997 (Unaudited).......................... F-6
Consolidated Statements of Operations For the Years
Ended December 31, 1994, 1995 and 1996 and
For the Six Months Ended June 30, 1996 (Unaudited)
June 30, 1997 (Unaudited)................................... F-7
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1994, 1995 and
1996 and For the Six Months Ended June 30, 1997
(Unaudited)................................................. F-8
Consolidated Statements of Cash Flows For the Years
Ended December 31, 1994, 1995 and 1996 and For the
Six Months Ended June 30, 1996 (Unaudited) and
June 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,
---------------------- JUNE 30,
1995 1996 1997
--------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 8,730 $ 19,220 $ 6,859
Short-term investments................ -- 18,640 --
Subscriber receivables................ 138 1,625 1,885
Related party receivables............. 1,907 1,958 2,273
Other current assets.................. 932 2,393 3,564
-------- --------- ---------
Total current assets............ 11,707 43,836 14,581
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 1,077
Property, plant and equipment, net of
accumulated depreciation of $1,217
$31,611, and $52,768, respectively..... 27,630 193,170 192,969
License fees, net of accumulated
amortization of $442, $2,520, and
$3,126, respectively................... 10,693 10,387 8,963
Goodwill, net of accumulated
amortization of $38, $3,835, and
$7,881, respectively................... 45,324 58,134 56,289
Other non-current assets, net,
including $0, $1,600, and $1,600,
respectively, of related party
receivables............................ 1,112 12,424 13,406
-------- --------- ---------
Total assets..................... $ 99,295 $ 319,323 $ 287,285
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities, including $1,488,
$1,575, and $3,353, respectively,
of related party payables.............. $ 7,749 $ 20,468 $ 25,819
Construction payables.................... -- 38,331 8,978
Accrued funding obligation............... 1,834 1,270 1,574
Other current liabilities, including
related party notes of $0, $0,
and $9,998, respectively............... 169 722 11,088
-------- --------- ---------
Total current liabilities.......... 9,752 60,791 47,459
Due to parent............................ 11,095 2,758 4,434
Senior discount notes and other
liabilities............................. 867 251,397 305,701
-------- --------- ---------
Total liabilities............... 21,714 314,946 357,594
-------- --------- ---------
Minority interest in subsidiaries........ 2,515 -- --
Commitments (Note 12)
Stockholders' Equity (Deficit):
Common stock, $.01 par value, 1,000
shares authorized, 487, 500, and 500
shares issued and outstanding,
respectively......................... -- -- --
Additional paid-in capital............ 93,782 112,485 112,485
Unrealized loss on investment......... -- (3,412) (3,707)
Cumulative translation adjustments.... 191 2,197 (1,526)
Accumulated deficit................... (18,907) (106,893) (177,561)
-------- --------- ---------
Total stockholders' equity
(deficit)........................ 75,066 4,377 (70,309)
-------- --------- ---------
Total liabilities and
stockholders' equity (deficit)... $ 99,295 $ 319,323 $ 287,285
======== ========= =========
</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 SIX MONTHS
FOR THE YEARS ENDED ENDED JUNE 30, 1997
DECEMBER 31, (UNAUDITED)
---------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Service and other revenue................ $ -- $ 1,883 $ 24,977 $ 5,870 $ 30,711
System operating expense, including
$85, $610, $787, $165 and $1,321,
respectively, of related party
expenses................................ -- (3,230) (30,730) (7,014) (21,869)
System selling, general and
administrative expense.................. -- (2,482) (24,800) (10,242) (22,805)
Corporate general and administrative
expense, including $659, $918, $750,
$375 and $385, respectively, of
management fees to
related party........................... (659) (920) (1,376) (532) (576)
Depreciation and amortization............ -- (1,003) (36,269) (8,249) (35,736)
------- -------- --------- -------- ---------
Net operating loss................... (659) (5,752) (68,198) (20,167) (50,275)
Equity in losses of affiliated companies. (1,015) (16,379) (5,414) (2,568) (1,443)
Gain on sale of investment in
affiliated company...................... -- 4,132 -- -- --
Interest income.......................... -- 157 4,106 1,317 279
Interest expense......................... -- (30) (20,298) (4,064) (18,384)
Interest expense, related party, net..... -- -- (458) (144) (78)
Other income (expense), net.............. -- 219 90 618 (767)
------- -------- --------- -------- ---------
Net loss before minority interest.... (1,674) (17,653) (90,172) (25,008) (70,668)
Minority interest in subsidiary.......... -- 420 2,186 1,605 --
------- -------- --------- -------- ---------
Net loss............................. $(1,674) $(17,233) $ (87,986) $(23,403) $ (70,668)
======= ======== ========= ======== =========
Net loss per common share................ $(3,437) $(35,386) $(178,471) $(48,055) $(141,336)
======= ======== ========= ======== =========
Weighted average number of common shares
outstanding............................. 487 487 493 487 500
====== ======== ========= ======== =========
</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................. 487 -- -- -- -- -- --
Capital contributions from
parent.................................. -- -- 25,342 -- -- -- 25,342
Cumulative translation
adjustment.............................. -- -- -- -- 405 -- 405
Net loss................................. -- -- -- -- -- (1,674) (1,674)
------ ------ -------- ------- ------- --------- --------
Balances, December 31, 1994.............. 487 -- 25,342 -- 405 (1,674) 24,073
Capital contributions from
parent.................................. -- -- 68,440 -- -- -- 68,440
Change in cumulative
translation adjustment.................. -- -- -- -- (214) -- (214)
Net loss................................. -- -- -- -- -- (17,233) (17,233)
------ ------ -------- ------- ------- --------- --------
Balances, December 31, 1995.............. 487 -- 93,782 -- 191 (18,907) 75,066
Capital contributions from
parent.................................. -- -- 10,903 -- -- -- 10,903
Acquisition of remaining 50%
interest in Saturn...................... 13 -- 7,800 -- -- -- 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.............. 500 $ -- $112,485 $(3,412) $ 2,197 $(106,893) $ 4,377
Unrealized loss on investment
(unaudited)............................. -- -- -- (295) -- -- (295)
Change in cumulative translation
adjustments (unaudited)................. -- -- -- -- (3,723) -- (3,723)
Net loss (unaudited)..................... -- -- -- -- -- (70,668) (70,668)
------ ------ -------- ------- ------- --------- --------
Balances, June 30, 1997
(unaudited)............................. 500 $ -- $112,485 $(3,707) $(1,526) $(177,561) $(70,309)
====== ====== ======== ======= ======= ========= ========
</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 SIX MONTHS
FOR THE YEARS ENDED ENDED JUNE 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) $ (23,403) $(70,668)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization............ -- 1,003 36,269 8,249 35,736
Equity in losses of affiliate
companies, net.......................... 1,015 16,379 5,414 2,568 1,443
Gain on sale of investment in
affiliated company...................... -- (4,132) -- -- --
Minority interest share of losses........ -- (420) (2,186) (1,605) --
Increase (decrease) in technical
assistance agreement
payables................................ -- -- 1,677 (844) 2,966
Loan guarantee fee....................... -- -- (784) -- --
Accretion of interest on senior
discount notes.......................... -- -- 20,067 4,064 17,498
Increase in subscriber receivables....... -- -- (1,487) (1,388) (326)
Increase in other assets................. (1,852) (1,487) (1,512) (5,946) (2,078)
Increase in accounts payable,
accrued liabilities and other........... 11 238 13,185 3,863 6,903
-------- -------- --------- --------- --------
Net cash flows from operating activities. (2,500) (5,652) (17,343) (14,442) (8,526)
-------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments....... -- -- (199,242) (70,627) (3,663)
Proceeds from sale of short-term
investments............................. -- -- 180,602 -- 22,303
Restricted cash deposited................ -- -- -- (10,000) --
Investments in and advances to
affiliated companies and other
investments............................. (22,841) (22,472) (16,204) (10,450) (1,138)
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 -- -- --
Increase in goodwill..................... -- -- -- (218) --
Purchase of property, plant and
equipment............................... (1) (7,648) (187,100) (43,610) (41,776)
Increase (decrease) in construction
payables................................ -- -- 38,331 6,521 (28,163)
-------- -------- --------- -------- --------
Net cash flows from investing activities. (22,842) (34,005) (191,533) (128,384) (52,437)
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent........ 25,342 38,600 10,664 10,707 --
Proceeds from offering of senior
discount notes.......................... -- -- 225,115 225,115 --
Borrowings on bridge loan related party
payables to parent...................... -- 9,927 15,073 15,073 11,633
Payment of bridge loan payable to parent. -- -- (25,000) (25,000) --
Deferred debt offering costs............. -- -- (10,007) (9,411) (1,502)
Borrowing on other debt.................. -- -- 2,465 -- 39,286
Payment on other debt.................... -- -- -- -- (777)
-------- -------- --------- --------- --------
Net cash flows from financing activities. 25,342 48,527 218,310 216,484 48,640
-------- -------- --------- --------- --------
EFFECT OF EXCHANGE RATES ON CASH......... -- (140) 1,056 855 (38)
-------- -------- --------- --------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. -- 8,730 10,490 74,513 (12,361)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. -- -- 8,730 8,730 19,220
-------- -------- --------- --------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD. $ -- $ 8,730 $ 19,220 $ 83,243 $ 6,859
======== ======== ========= ========= =======
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 $ -- $ --
======== ======== ========= ========= ========
$ -- $ -- $ 3,632 $ -- $ 1,707
Assets acquired with capital leases..... ======== ======== ========= ========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash received for interest........... $ -- $ -- $ 262 $ 131 $ 305
======== ======== ========= ========= ========
</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. 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 JUNE 30, 1997 (UNAUDITED)
-----------------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSSES OF TRANSLATION
AFFILIATED COMPANY AFFILIATED COMPANY ADJUSTMENTS TOTAL
-------------------- ----------------------- ----------- -------
XYZ Entertainment... $17,645(4) $(17,755) $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
$1,574 at June 30, 1997. 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 June 30, 1997 and the results of its operations for the six months
ended June 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, JUNE 30, 1997
------------------------ -------------
1995 1996 (UNAUDITED)
------- -------- -------------
<S> <C> <C> <C>
MMDS distribution facilities............ $15,417 $ 57,073 $ 58,423
Cable distribution networks............. 266 12,912 15,922
Subscriber premises equipment and
converters............................. 7,728 129,337 142,983
Furniture and fixtures.................. 255 1,462 2,090
Leasehold improvements.................. 1,582 3,525 3,362
Other................................... 3,599 20,472 22,957
------- -------- --------
28,847 224,781 245,737
Accumulated depreciation................ (1,217) (31,611) (52,768)
------- -------- --------
Net property, plant and equipment....... $27,630 $193,170 $192,969
======= ======== ========
7. SENIOR DISCOUNT NOTES AND OTHER
LIABILITIES
Senior discount notes and other liabilities consists of the following:
AS OF AS OF
DECEMBER 31, JUNE 30, 1997
------------------------ -------------
1995 1996 (UNAUDITED)
------- -------- -------------
The Notes, net of unamortized discount.. $ - $245,182 $262,587
Austar interim financing facility,
including accrued interest of
$0, $0, and $521, respectively......... - - 38,212
Capitalized lease obligations........... 890 4,522 3,846
Mortgage note, interest at 7.885%, 7
year term.............................. 1,252 1,025
Other................................... 124 1,337 930
------- -------- --------
1,014 252,293 306,600
Less current portion.................... (147) (896) (899)
------- -------- --------
$ 867 $251,397 $305,701
======= ======== ========
</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.
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, JUNE 30, 1997
------------------------ -------------
1995 1996 (UNAUDITED)
-------- ------------- -------------
<S> <C> <C> <C>
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 2,086
Telefenua technical assistance
agreement obligations........... 1,168 1,879 2,304
Saturn technical assistance
agreement obligations......... - 1,002 1,514
Other.......................... - 317 1,883
------- ------- -------
12,583 4,333 7,787
Less current portion..... (1,488) (1,575) (3,353)
------- ------- -------
$11,095 $ 2,758 $ 4,434
======= ======= =======
</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$20,000) 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. The proceeds from
the sale are expected to provide a portion of the capital necessary for
completion of the project, and SaskTel's 35% equity interest will reduce the
Company's proportionate share of future fundings.
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"). 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, commencing November 15,
2001. 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. The September 1997 Notes are due May 15, 2006.
If the Company does not consummate an Equity Sale prior to November 16, 1997,
the holders of the May 1996 Notes and the September 1997 Notes (collectively,
the "Notes") will be entitled to receive warrants to purchase 3.4% of the common
stock of the Company, assuming the aggregate fair market value of the Company's
equity is $150,000, or, in certain circumstances, of the Company's immediate
parent. The Company plans to pursue additional sources of funding that may
constitute an Equity Sale. At this time, the Company believes it is unlikely
that it will be successful in concluding an Equity Sale prior to November 16,
1997.
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.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Company's Articles of Incorporation and Article VI of the
Company's Bylaws require the Company to indemnify, to the fullest extent
authorized by applicable law, any person who is or is threatened to be made a
party to any civil, criminal, administrative, investigative, or the action or
proceeding instituted or threatened by reason of the fact that he is or was a
director of the Company or is or was serving at the request of the Company as a
director of another corporation, partnership, joint venture, trust or other
enterprise.
Article V of the Company's Articles of Incorporation provides that, to the
fullest extent permitted by the Colorado Business Corporation Act, directors of
the Company shall not be liable to the Company or any of its stockholders for
damages caused by a breach of a fiduciary duty by such director.
Section 7-109-102 of the Colorado Business Corporation Act authorizes the
indemnification of directors against liability incurred by reason of being a
director and against reasonable expenses (including attorney's fees) in
connection with defending any action seeking to establish such liability if the
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. Directors may not be
indemnified under Section 7-109-102 of the Colorado Business Corporation Act in
connection with (a) a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation or (b) any other proceeding
charging that the director denied an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the director was
adjudged liable on the basis that he derived an improper personal benefit.
Indemnification is also authorized with respect to any criminal action or
proceeding where the officer or director had no reasonable cause to believe his
conduct was unlawful.
The above discussion of the Company's Articles of Incorporation and Bylaws and
Section 7-109-102 of the Colorado Business Corporation Act is intended to be
only a summary and is qualified in its entirety by the full text of each of the
foregoing.
<TABLE>
<CAPTION>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<S> <C>
3.1 Articles of Incorporation of the Issuer, as amended.(1)
3.2 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>
- --------------
* To be filed by Amendment
(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.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore,
II-3
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment of the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by a
final adjudication of such issue.
The Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
securities act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That, for the purposes of determining any liability under the
Securities Act , each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the amount of unsubscribed securities to be purchased, and
the terms of any subsequent reoffering thereof. If any public offering by the
underwriters is to be made on terms differing from those set forth on the cover
page of the prospectus, a post-effective amendment will be filed to set forth
the terms of such offering.
II-4
<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 OCTOBER
1997.
UIH Australia/Pacific, Inc.,
A Colorado corporation
By:/s/ J. Timothy Bryan
-----------------------------------
J. Timothy Bryan, 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 November 5, 1997
- -----------------------------
Gene W. Schneider
* Chief Executive Officer and Director November 5, 1997
- -----------------------------
Michael T. Tries
/s/ J. Timothy Bryan Chief Financial Officer and Director November 5, 1997
- -----------------------------
J. Timothy Bryan,
* Director November 5, 1997
- -----------------------------
Mark L. Schneider
* Controller (Principal Accounting November 5, 1997
- ----------------------------- Officer)
Valerie L. Cover
/s/ J. Timothy Bryan November 5, 1997
- -----------------------------
By: J. Timothy Bryan,
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT 4.1
================================================================================
UIH AUSTRALIA/PACIFIC, INC.,
as Issuer
and
FIRSTAR BANK OF MINNESOTA, N.A.
as Trustee
---------------------
INDENTURE
Dated as of September 23, 1997
-----------------------
$45,000,000
14% Senior Discount Notes due 2006
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Section Indenture Section
================================================================================
<S> <C>
(S) 310(a)(1)............................................... 7.10
(a)(2)............................................... 7.10
(a)(3)............................................... N.A.
(a)(4)............................................... N.A.
(a)(5)............................................... 7.10
(b).................................................. 7.8; 7.10; 10.2
(c).................................................. N.A.
(S) 311(a).................................................. 7.11
(b).................................................. 7.11
(c).................................................. N.A.
(S) 312(a).................................................. 2.5
(c).................................................. 10.3
(S) 313(a).................................................. 7.6
(b)(1)............................................... 7.6
(b)(2)............................................... 7.6; 7.7
(c).................................................. 7.5; 7.6;10.2
(d).................................................. 7.6
(S) 314(a).................................................. 4.6; 4.7; 10.2
(b).................................................. N.A.
(c)(1)............................................... 10.4
(c)(2)............................................... 10.4
(c)(3)............................................... 10.4(c)
(d).................................................. N.A.
(e).................................................. 10.5
(f).................................................. N.A.
(S) 315(a).................................................. 7.1(b)
(b).................................................. 7.5; 10.2
(c).................................................. 7.1(a)
(d).................................................. 7.1(c)
(e).................................................. 6.11
(S) 316(a) (last sentence).................................. 2.9
(a)(1)(A)............................................ 6.5
(a)(1)(B)............................................ 6.4
(a)(2)............................................... N.A.
(b).................................................. 6.7; 9.4
(c).................................................. 9.4
(S) 317(a)(1)............................................... 6.8
(a)(2)............................................... 6.9
(b).................................................. 2.4
(S) 318(a).................................................. 10.1
(c).................................................. 10.1
</TABLE>
- --------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE.....................1
SECTION 1.1 Definitions.................................................1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act..........15
SECTION 1.3 Rules of Construction......................................15
ARTICLE II THE SECURITIES................................................16
SECTION 2.1 Form and Dating............................................16
SECTION 2.2 Execution and Authentication...............................16
SECTION 2.3 Registrar and Paying Agent.................................17
SECTION 2.4 Paying Agent To Hold Money in Trust........................17
SECTION 2.5 Securityholder Lists.......................................17
SECTION 2.6 Transfer and Exchange......................................18
SECTION 2.7 Replacement Securities.....................................18
SECTION 2.8 Outstanding Securities.....................................18
SECTION 2.9 Treasury Securities........................................18
SECTION 2.10 Temporary Securities.......................................19
SECTION 2.11 Cancellation...............................................19
SECTION 2.12 Defaulted Interest.........................................19
SECTION 2.13 CUSIP Number...............................................19
SECTION 2.14 Book-Entry Provisions for Global Securities................19
SECTION 2.15 Special Transfer Provisions................................20
SECTION 2.16 Designation................................................21
ARTICLE III REDEMPTION....................................................22
SECTION 3.1 Notices to Trustee.........................................22
SECTION 3.2 Selection of Securities To Be Redeemed.....................22
SECTION 3.3 Notice of Redemption.......................................22
SECTION 3.4 Effect of Notice of Redemption.............................23
SECTION 3.5 Deposit of Redemption Price................................23
SECTION 3.6 Securities Redeemed in Part................................23
ARTICLE IV COVENANTS.....................................................24
SECTION 4.1 Payment of Securities......................................24
SECTION 4.2 Maintenance of Office or Agency............................24
SECTION 4.3 Corporate Existence........................................24
SECTION 4.4 Payment of Taxes and Other Claims..........................24
SECTION 4.5 Maintenance of Properties; Books and Records;
Compliance with Law........................................25
SECTION 4.6 Compliance Certificates; Notice of Default.................25
SECTION 4.7 Reports....................................................26
SECTION 4.8 Limitation on Restricted Payments..........................26
SECTION 4.9 Limitation on Additional Indebtedness and
Preferred Stock of Restricted Subsidiaries.................28
SECTION 4.10 Business of the Company....................................28
SECTION 4.11 Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.............28
SECTION 4.12 Limitation on Liens........................................29
SECTION 4.13 Disposition of Proceeds of Asset Sales.....................29
SECTION 4.14 Limitation on Transactions with Affiliates.................31
SECTION 4.15 Change of Control..........................................32
SECTION 4.16 Waiver of Stay; Extension of Usury Laws....................33
SECTION 4.17 Maintenance of Insurance...................................33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.18 Limitation on Unrestricted Subsidiaries
and Unrestricted Affiliates................................33
SECTION 4.19 Limitation on Status as Investment Company.................34
SECTION 4.20 Internal Revenue Service Filing............................34
SECTION 4.21 Issuance of Contingent Warrants............................34
ARTICLE V SUCCESSOR CORPORATION.........................................35
SECTION 5.1 Limitation on Mergers, Consolidations or
Sales of Assets............................................35
SECTION 5.2 Successor Entity Substituted...............................36
ARTICLE VI DEFAULT AND REMEDIES..........................................36
SECTION 6.1 Events of Default..........................................36
SECTION 6.2 Acceleration...............................................37
SECTION 6.3 Other Remedies.............................................38
SECTION 6.5 Control by Majority........................................38
SECTION 6.6 Limitation on Suits........................................39
SECTION 6.7 Rights of Holders To Receive Payment.......................39
SECTION 6.8 Collection Suit by Trustee.................................39
SECTION 6.9 Trustee May File Proofs of Claim...........................39
SECTION 6.10 Priorities.................................................40
SECTION 6.11 Undertaking for Costs......................................40
SECTION 6.12 Rights and Remedies Cumulative.............................40
SECTION 6.13 Delay or Omission Not Waiver...............................40
ARTICLE VII TRUSTEE.......................................................40
SECTION 7.1 Duties of Trustee..........................................40
SECTION 7.2 Rights of Trustee..........................................41
SECTION 7.3 Individual Rights of Trustee...............................42
SECTION 7.4 Trustee's Disclaimer.......................................42
SECTION 7.5 Notice of Defaults.........................................42
SECTION 7.6 Reports by Trustee to Holders..............................42
SECTION 7.7 Compensation and Indemnity.................................42
SECTION 7.8 Replacement of Trustee.....................................43
SECTION 7.9 Successor Trustee By Merger, Etc...........................44
SECTION 7.10 Eligibility; Disqualification..............................44
SECTION 7.11 Preferential Collection of Claims Against Company..........44
ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE............................44
SECTION 8.1 Termination of Obligations; Legal and
Covenant Defeasance........................................44
SECTION 8.2 Application of Trust Money.................................46
SECTION 8.3 Repayment to the Company...................................46
SECTION 8.4 Reinstatement..............................................46
SECTION 8.5 Acknowledgment of Discharge by Trustee.....................46
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS...........................47
SECTION 9.1 Without Consent of Holders.................................47
SECTION 9.2 With Consent of Holders....................................47
SECTION 9.3 Compliance with Trust Indenture Act........................48
SECTION 9.4 Revocation and Effect of Consents..........................48
SECTION 9.5 Notation on or Exchange of Securities......................49
SECTION 9.6 Trustee To Sign Amendments, Etc............................49
ARTICLE X MISCELLANEOUS.................................................49
SECTION 10.1 Trust Indenture Act Controls...............................49
SECTION 10.2 Notices....................................................49
SECTION 10.3 Communications by Holders with Other Holders...............50
SECTION 10.4 Certificate and Opinion of Counsel as to
Conditions-Precedent.......................................50
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 10.5 Statements Required in Certificate and
Opinion of Counsel.........................................50
SECTION 10.6 Rules by Trustee, Paying Agent, Registrar..................51
SECTION 10.7 Legal Holidays.............................................51
SECTION 10.8 Governing Law..............................................51
SECTION 10.9 No Recourse Against Others.................................51
SECTION 10.10 Successors.................................................51
SECTION 10.11 Counterparts...............................................51
SECTION 10.12 Severability...............................................51
SECTION 10.13 Table of Contents, Headings, Etc...........................52
SECTION 10.14 No Adverse Interpretation of Other Agreements..............52
SECTION 10.15 Benefits of Indenture......................................52
SECTION 10.16 Independence of Covenants..................................52
EXHIBIT A-1.............................................................A-1(1)
EXHIBIT A-2.............................................................A-2(1)
EXHIBIT B..................................................................B-1
EXHIBIT C..................................................................C-1
EXHIBIT D..................................................................D-1
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
iv
<PAGE>
INDENTURE
INDENTURE dated as of September 23, 1997, between UIH AUSTRALIA/PACIFIC,
INC., a Colorado corporation, as Issuer (the "Company"), and FIRSTAR BANK OF
MINNESOTA, N.A., as Trustee (the "Trustee").
The parties hereto agree as follows for the benefit of each other and for
the equal and ratable benefit of the Holders:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
SECTION 1.1 Definitions.
-----------
"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 Securities and (b) the portion of the
excess of the principal amount of Securities 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 Securities through the date
of determination. It is understood that in the event the Interest Rate
increases as provided in the proviso to the definition thereof, the principal
amount of the Securities will exceed $1,000 at some point prior to May 15, 2001,
and that the principal amount at maturity will exceed $1,000.
"Acquired Indebtedness" means Indebtedness of a person existing at the time
such person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by such person and not incurred in connection with, or in
anticipation of, such person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" of any specified person means any other person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Members" has the meaning provided in Section 2.14.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of the Company 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 Company 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 Company 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 Company'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.
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"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 Company or any
Restricted Subsidiary in any other person, or any acquisition or purchase of
Capital Stock of any other person by the Company 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 Company or any Restricted
Subsidiary, or (ii) any acquisition by the Company 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
Company 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 Company or any
Restricted Subsidiary pertaining to a Related Business (whether by the sale of
Capital Stock or otherwise), (iii) any assets of the Company or any Restricted
Subsidiary which constitute substantially all of an operating unit or line of
business of the Company and the Restricted Subsidiaries, (iv) any other property
or asset of the Company or any Restricted Subsidiary outside of the ordinary
course of business or (v) any direct or indirect interests of the Company 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 Company or one or
more of the Restricted Subsidiaries that is governed under Article V hereof 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
Company or any Restricted Subsidiary, as the case may be. For purposes of
Section 4.13 hereof 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
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Company or any Restricted Subsidiary.
"Asset Sale Offer" has the meaning provided in Section 4.13.
"Asset Sale Offer Payment Date" has the meaning provided in Section 4.13.
"Australis" means Australis Media Limited.
"Australis Guarantee" means the guarantee by UIH AML of the obligations of
Australis Holdings Pty Limited under its bank facility pursuant to the Guarantee
Facility dated as of May 9, 1996, among Publishing and Broadcasting Limited,
Publishing and Broadcasting (Finance) Limited, Lenfest Communications, Inc.,
Guinness Peat Group PLC, UIH AML and Toronto Dominion Australia Limited,
substantially as such Guarantee Facility is in effect on the Issue Date.
"Australis Warrants" means the options to purchase capital stock of
Australis issued to UIH AML by Australis in connection with the making of the
Australis Guarantee.
"Average Life to Stated Maturity" means, with respect to any Indebtedness
or Preferred Stock, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from such date
to the date or dates of each successive scheduled principal or other return of
capital (including, without limitation, any sinking fund requirements) of such
Indebtedness or Preferred Stock multiplied by (b) the amount of each such
principal or other payment by (ii) the sum of all such principal or other
payments.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar federal,
state or foreign law for the relief of debtors.
"Board" means the Board of Directors of the Company.
"Board of Directors" means with respect to any Person, the Board of
Directors of such Person or any committee of such Board of Directors authorized
to act for it hereunder.
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"Board Resolution" means with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, a Sunday or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"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 this 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 Company) 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
Company; or (b) the Company 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 Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company 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 Company as a Restricted Payment
under this Indenture and (ii) no "person" or "group" (excluding Permitted
Holders) owns more than 50% of the total Voting Stock of the Company; or (c)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of the Company (together with any new directors
whose election by the Board of the Company or whose nomination for election by
the stockholders of the Company 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
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the Company then in office; provided that to the extent that one or more
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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.
"Change of Control Date" has the meaning provided in Section 4.15.
"Change of Control Offer" has the meaning provided in Section 4.15.
"Change of Control Payment" has the meaning provided in Section 4.15.
"Change of Control Payment Date" has the meaning provided in Section 4.15.
"Common Stock" means any Capital Stock other than Preferred Stock.
"Company" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and, thereafter,
means the successor.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for corporation, local, foreign and other income taxes of the Company
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 Company 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 Company 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 Company or any Restricted Subsidiary,
income of the Company 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 Company 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 Company
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 Company 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 Company
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 Company and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with U.S. GAAP; (iv) amortization of
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the Company 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 Company 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
Company and the Restricted Subsidiaries.
"consolidation" means, with respect to the Company, the consolidation of
the accounts of the Restricted Subsidiaries with those of the Company, 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 Company. 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 Company 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
Company or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official charged with maintaining possession or control over property
for one or more creditors.
"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 Securities (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 Securities (plus any applicable premium
thereon).
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designation" has the meaning provided in Section 4.18.
"Disinterested Director" means, with respect to any transaction or series
of transactions, a member of the Board of the Company 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
Securities.
"Equity Sale" means the sale or sales by the Company subsequent to the
Issue Date of its Capital Stock (other than Disqualified Stock) for aggregate
gross cash proceeds of at least $70 million.
"Event of Default" has the meaning provided in Section 6.1.
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"Excess Proceeds" has the meaning provided in Section 4.13.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Company's 14% Series B Senior Discount Notes due
2006 (the terms of which are identical to the Series A Securities except that
the Exchange Notes shall be registered under the Securities Act, and shall not
contain the restrictive legend on the face of the form of Series A Securities)
issued pursuant to this Indenture.
"Exchange Offer" means the exchange offer to be filed with the SEC relating
to the Exchange Notes pursuant to the Registration Rights Agreement.
"Exercise Price" means the number of dollars equal to (x) 4,500,000 divided
by (x) the number of Warrants of the Company or Warrants or Parent, as the case
may be, issued pursuant to Section 4.21 hereof.
"Existing Business" means, with respect to any Restricted Subsidiary, (i)
the MMDS, cable television, satellite direct to home or telecommunications
business, as the case may be, of such Restricted Subsidiary existing on the
Issue Date and (ii) any MMDS, cable television, satellite direct to home or
telecommunications business constituting a Replacement Asset received by a
Restricted Subsidiary in consideration for a MMDS, cable television, satellite
direct to home or telecommunications business of such Restricted Subsidiary
constituting a portion of the Existing Business of such Restricted Subsidiary.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified in this
Indenture, Fair Market Value shall be determined by the Board acting in good
faith and shall be evidenced by a Board Resolution of the Company delivered to
the Trustee; provided that, for purposes of Section 4.14 and for purposes of the
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third paragraph of Section 4.13, 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.
"Global Security" has the meaning provided in Section 2.2.
"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.
"Holder" or "Securityholder" means a Person in whose name a Security is
registered. The Holder of a Security will be treated as the owner of such
Security for all purposes.
"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
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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 Company constituting Capital Stock (other than Disqualified Stock);
provided, however, that such convertible debentures or similar instruments, (x)
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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
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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 Section 4.9 in determining
the principal amount of any Indebtedness (1) to be incurred by the Company or a
Restricted Subsidiary or which is outstanding at any date, (x) the principal
amount of any Indebtedness which provides that an amount less than the principal
amount at maturity thereof shall be due upon any declaration of acceleration
thereof shall be the accreted value thereof at the date of determination and (y)
effect shall be given to the impact of any Currency Agreements with respect to
such Indebtedness and (2) outstanding at any time under any Currency Agreement
of the Company or any Restricted Subsidiary shall be the net payment obligation
under such Currency Agreement at such time.
"Indenture" means this Indenture as amended or supplemented from time to
time pursuant to the terms hereof.
"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 Company or any of its Affiliates
and (ii) which, in the judgment of the Board of the Company is otherwise
independent with respect to the Company 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.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest," when used with respect to any Security, means (x) the amount of
all interest accruing on such Security, including all interest accruing
subsequent to the occurrence of any events specified in Sections 6.1(h) and (i)
or which would have accrued but for any such event plus (y) from and after any
date on which Liquidated Damages become payable pursuant to the Registration
Rights Agreements, such Liquidated Damages.
"Interest Payment Date," when used with respect to any Security, means the
stated maturity of an installment of interest specified in such Security.
"Interest Rate" means, at any time, 14.00% per annum; provided, that if an
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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 an Equity Sale, the
"Interest Rate" shall be increased by 0.75% 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
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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 date on which the Series C Securities are originally
issued.
"Legal Holiday" means any day other than a Business Day.
"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.
"Liquidated Damages" has the meaning assigned to such term pursuant to the
Registration Rights Agreement.
"Maturity Date" means, when used with respect to any Security, the date
specified in such Security as the fixed date on which the final installment of
principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to Section 6.2 or any Asset Sale Offer or Change
of Control Offer).
"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 Company 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 Section 4.13 and (v) appropriate amounts to be
provided by the Company 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 Company 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 Company delivered to
the Trustee.
"Offering Memorandum" means the Offering Memorandum dated September 16,
1997 pursuant to which the Securities were offered, and any supplement thereto.
"Officer" means the Chairman, the President, any Vice President, the Chief
Financial Officer, the Chief Executive Officer, the Chief Operating Officer, the
Treasurer, the Secretary or the Controller of the Company.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee, which may include counsel to the Company.
"Pari Passu Indebtedness" means any Indebtedness of the Company which ranks
pari passu in right of payment with the Securities.
- ---- ------
"Paying Agent" has the meaning provided in Section 2.3.
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"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 Securities and this Indenture;
(b) Indebtedness of the Company and/or of any Restricted Subsidiary
outstanding on the Issue Date;
(c) Indebtedness of any Restricted Subsidiary to the extent the
proceeds of such Indebtedness are utilized to finance the construction of the
networks for the Existing Business of such Restricted Subsidiary (including the
purchase of equipment for use in and the installation and construction costs
related to the construction of such networks), in the licensed service areas of
such Restricted Subsidiary existing on the Issue Date or to support the
operations or working capital requirements related to any such Existing
Business; provided that the aggregate principal amount of Indebtedness incurred
after the 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 Company 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 Company after the Issue Date invested
in such Existing Business;
(d) Indebtedness of the Company 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,
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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 the 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 Company
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 Company
after the Issue Date invested in such Existing Business;
(e) Indebtedness of the Company 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 Company 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 Company invested in such Related
Business and (y) cash proceeds of issuances of Capital stock (other than
Disqualified Capital Stock) of the Company invested in such Related Business.
(f) (i) Indebtedness or Preferred Stock of any Restricted Subsidiary
owed or issued to and held by the Company or a Restricted Subsidiary and (ii)
Indebtedness of the Company owed to and held by any Restricted
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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 Company or a Restricted Subsidiary
referred to in this clause (f) to any person other than the Company 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 Company 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 Company 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 Company and/or any
Restricted Subsidiary relating to (i) Indebtedness of the Company or any
Restricted Subsidiary (which Indebtedness (x) bears interest at fluctuating
interest rates and (y) is otherwise permitted to be incurred under Section 4.9)
and/or (ii) Indebtedness for which a lender has provided a commitment in an
amount reasonably anticipated to be incurred by the Company 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
Company;
(h) Indebtedness of the Company and/or any Restricted Subsidiary under
Currency Agreements relating to (i) Indebtedness of the Company 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 Company or any Restricted Subsidiary; provided that
--------
such Currency Agreements do not increase the Indebtedness or other obligations
of the Company 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
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shall any Restricted Subsidiary incur Indebtedness under any Currency Agreement
under this clause (h) relating to Indebtedness or obligations of the Company;
(i) Indebtedness of the Company and/or any Restricted Subsidiary in
respect of performance bonds of the Company or any Restricted Subsidiary or
surety bonds provided by the Company 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 Company 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 Company or any Restricted Subsidiary); provided, however, that
-------- --------
such Indebtedness, (x) provides that payments thereon are subordinated in right
of payment to all liabilities of such Restricted Subsidiary, (y) provides that
upon a winding up or liquidation of such Restricted Subsidiary such
Indebtedness shall only entitle the holder thereof to a pro rata portion of the
distributions available to holders of Common Stock of such Restricted Subsidiary
upon such liquidation or winding-up and (z) provides that interest thereon shall
only be paid if a distribution is made to holders of the Common Stock of such
Restricted Subsidiary and such interest shall be in an amount that the holder of
such Indebtedness would have received if all of the Indebtedness of such
Restricted Subsidiary issued pursuant to this clause (j) had been converted into
shares of Common Stock of such Restricted Subsidiary in accordance with the
terms thereof;
(k) Indebtedness of the Company and/or any Restricted Subsidiary to
the extent it represents a replacement, renewal, refinancing or extension of
outstanding Indebtedness of the Company or any Restricted Subsidiary incurred
pursuant to the proviso of Section 4.9(a) or clause (a), (b) (other than
Indebtedness which is to be repaid from the net proceeds from the sale of the
Securities as described under "Use of Proceeds" in the Offering Memorandum) or
(c), (d) or (e) of this definition; provided that (i) Indebtedness of the
--------
Company 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
10
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Indebtedness of the Company, 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 Company 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 Section 4.13; (e) any Investment in another person in exchange for Capital
Stock (other than Disqualified Stock) of the Company; (f) loans and advances to
employees of the Company 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 Company 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 Company 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 Company or a
Restricted Subsidiary; (c) Liens on property of a person existing at the time
such person is merged into or consolidated with the Company or any Restricted
Subsidiary; provided that such Liens were in existence prior to the
--------
contemplation by the Company of such merger or consolidation and do not extend
to any assets other than those of the person merged into or consolidated with
the Company; (d) Liens on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary provided that such Liens were in
--------
existence prior to the contemplation by the Company of such acquisition; (e)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (f) Liens existing on the Issue Date; (g) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
--------
appropriate provision as shall be required in conformity with U.S. GAAP shall
have been made therefor; and (h) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary with respect to obligations
that do not exceed $2,000,000 at any one time outstanding and that (A) are not
incurred in connection with the borrowing of money or the obtaining of advances
of credit (other than trade credit in the ordinary course of business) and (B)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Restricted Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity, including
any predecessor of any such entity.
"Physical Security" has the meaning provided in Section 2.2.
"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.
"Private Placement Legend" means the first paragraph of the legend
initially set forth on the Securities in the form set forth on Exhibit A-1.
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"Pro Rata Share" means a fraction, (i) the numerator of which is the
Accreted Value of Securities outstanding on the applicable purchase date and
(ii) the denominator of which is the sum of (x) the aggregate Accreted Value or
of Securities 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 Company (or any person of
which the Company is a direct subsidiary) which has been registered under the
Securities Act.
"Purchase Agreement" means the Purchase Agreement dated as of September 16,
1997 by and among the Company and the Initial Purchaser.
"Purchase Money Financing" means Indebtedness of the Company or any
Restricted Subsidiary incurred to finance the purchase (other than pursuant to
an Asset Acquisition) of any assets by Company (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.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
in Rule 144A under the Securities Act.
"Redemption Date" means, with respect to any Security, the Maturity Date of
such Security or the date on which such Security is to be redeemed by the
Company pursuant to the terms of the Securities.
"Registered Exchange Offer" means the offer to exchange the Exchange Notes
for all of the outstanding Series A Securities in accordance with the
Registration Rights Agreement.
"Registrar" has the meaning provided in Section 2.3.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated the Issue Date between the Company and the Initial Purchaser.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business in which the Company 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).
"Replacement Asset" has the meaning provided in Section 4.13.
"Restricted Affiliate" means, with respect to the Company, 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 Company, and (ii) which has been
designated in a Board Resolution as a Restricted Affiliate based on a
determination by the Board that the Company 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 this Indenture that are
applicable to Restricted Subsidiaries. The Company 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
Company or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Company (other than dividends or
distributions payable solely in Capital Stock (other than
12
<PAGE>
Disqualified Stock) of the Company or in options, warrants or other rights to
purchase Capital Stock (other than Disqualified Stock) of the Company); (ii) the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company (other than any such Capital Stock owned by the Company 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 Company or an Investment by the
Company 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 Security" has the meaning set forth in Rule 144(a)(3) under the
Securities Act; provided that the Trustee shall be entitled to request and
--------
conclusively rely upon an Opinion of Counsel with respect to whether any
Security is a Restricted Security.
"Restricted Subsidiary" means (i) any Subsidiary of the Company that has
not been designated by the Board of the Company, by a Board Resolution delivered
to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 4.18, and (ii) any Restricted Affiliate.
"Revocation" has the meaning set forth under Section 4.18.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series C Securities and the Exchange Notes, as
amended or supplemented from time to time in accordance with the terms hereof
that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"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 Company and/or any Restricted Subsidiary, (B) term loans
(including term loans provided by way of bankers' acceptances, bills of exchange
or endorsements) to the Company and/or any Restricted Subsidiary, (C) revolving
loans to the Company 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.
"Series C Securities" means the Company's 14% Series C Senior Discount
Notes due 2006, issued pursuant to this Indenture, as amended or supplemented
from time to time pursuant to the terms of this Indenture.
"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
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shall not include (x) any Subsidiary of the Company, (y) any Permitted Holder or
(z) any Person that is an Affiliate of the Company.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.
"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.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb) as in effect on the date of this Indenture; provided, however, that in
--------- --------
the event the Trust Indenture Act of 1939 is amended after such date, "TIA"
means, to the extent required by such amendment, the Trust Indenture Act of 1939
as so amended.
"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 Company 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 Company or a Restricted Subsidiary).
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"Trust Officer" means an officer or assistant officer of the Trustee
assigned to the Corporate Trustee Administration Department or similar
department performing corporate trust work, or any successor to such department
or, in the case of a successor trustee, an officer assigned to the department,
division or group performing the corporate trust work of such successor.
"UIH" means United International Holdings, Inc. and its subsidiaries other
than the Company and the Company's subsidiaries.
"UIH AML" means UIH AML, Inc., a Colorado corporation, that is a wholly
owned, indirect subsidiary of the Company.
"Unrestricted Affiliate" means any controlled Affiliate of the Company
other than a Restricted Affiliate.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with Section 4.18. Any such designation may
be revoked by a Board Resolution of the Company delivered to the Trustee,
subject to the provisions of Section 4.18. Saturn and United Wireless and the
Subsidiaries of the Company that hold the Company's interest in Saturn and
United Wireless, shall initially be Unrestricted Subsidiaries under this
Indenture. The Company's interest in XYZ Entertainment will be transferred to a
Subsidiary to be designated as an Unrestricted Subsidiary after such transfer.
"U.S. Dollar Equivalent" means, with respect to any monetary amount in a
currency other than the U.S. dollar, at any time for the determination thereof,
the amount of U.S. dollars obtained by converting such foreign currency involved
in such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as quoted by Reuters at
approximately 11:00 a.m. (New York time) on the date not more than two business
days prior to such determination. For purposes of determining whether any
Indebtedness can be incurred (including Permitted Indebtedness), any Investment
can be made and any Affiliate Transaction can be undertaken (a "Tested
Transaction"), the "U.S. Dollar Equivalent" of such Indebtedness, Investment or
Affiliate Transaction shall be determined on the date incurred, made or
undertaken and no subsequent change in the U.S. Dollar Equivalent shall cause
such Tested Transaction to have been incurred, made or undertaken in violation
of this 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 Section 4.8 and Section 4.9, U.S. GAAP
shall mean such generally accepted accounting principles and practices as
adopted by the Company on the Issue Date and as are consistent with those set
forth in the Offering Memorandum.
"U.S. Government Obligations" means direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
payment of which guarantee or obligation the full faith and credit of the United
States is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
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"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.
"Warrant" means a warrant of the Company issued by the Company pursuant to
the terms of the Warrant Agreement.
"Warrant Agent" means Firstar Bank of Minnesota, N.A. until a successor
replaces it in accordance with the Warrant Agreement and thereafter means such
successor.
"Warrant Agreement" means the warrant agreement to be entered into by and
between the Company and the Warrant Agent pursuant to Section 4.21 in the form
attached hereto as Exhibit E.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company 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 Company, 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 Company in XYZ Entertainment, the Net Cash
Proceeds of which have been distributed to the Company, 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 Company'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.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.
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Whenever this Indenture refers to a provision of the TIA, the provision
shall be deemed incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
(a) "Commission" means the SEC;
(b) "indenture securities" means the Securities;
(c) "indenture security holder" means a Securityholder;
(d) "indenture to be qualified" means this Indenture;
(e) "indenture trustee" or "institutional trustee" means the
Trustee; and
(f) "obligor" on the indenture securities means the Company or
any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings so assigned to them therein.
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SECTION 1.3 Rules of Construction.
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is exclusive;
(c) words in the singular include the plural, and words in the
plural include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
Subdivision; an d
(f) unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with U.S. GAAP as in effect from time to time, applied on
a basis consistent with the most recent audited consolidated financial
statements of the Company.
(g) "$" means United States dollars.
ARTICLE II
THE SECURITIES
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SECTION 2.1 Form and Dating.
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The Series C Securities and the Exchange Notes and the Trustee's
certificate of authentication with respect thereto shall be substantially in the
form set forth in Exhibits A-1 and A-2 annexed hereto, respectively, which are
hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, rule,
usage or agreement to which the Company is subject. Each Security shall be
dated the date of its issuance and shall show the date of its authentication.
The terms and provisions contained in the Securities shall constitute, and are
expressly made, a part of this Indenture.
SECTION 2.2 Execution and Authentication.
----------------------------
Two Officers shall execute the Securities on behalf of the Company by
either manual or facsimile signature. The Company's seal shall be impressed,
affixed, imprinted or reproduced on the Securities and may be in facsimile form.
If a Person whose signature is on a Security as an Officer no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until the Trustee manually signs the
certificate of authentication on the Security. The signature shall be conclusive
evidence that the Security has been authenticated under this Indenture.
The Trustee shall authenticate Series C Securities for original issue in an
aggregate principal amount at maturity not to exceed $45,000,000, upon receipt
of an Officers' Certificate of the Company. In addition, on or prior to the
date of the Registered Exchange Offer, the Trustee or an authenticating agent
shall authenticate Exchange Notes (including any Private Exchange Notes (as
defined in the Registration Rights Agreement) which will be in the form of
Exhibit A-2 but which shall have the restrictive legend contained in Exhibit A-
1) to be issued at the time of the Registered Exchange Offer in the aggregate
principal amount at maturity of up to $45,000,000 upon receipt of an Officer's
Certificate of the Company. In each case, the Officers' Certificate shall
specify the amount of
16
<PAGE>
Securities to be authenticated, the names of the Persons in which such
Securities shall be registered and the date on which such Securities are to be
authenticated and shall be signed by two Officers directing the Trustee to
authenticate such Securities and certifying that all conditions precedent to the
issuance of such Securities contained herein have been complied with. The
aggregate principal amount at maturity of Securities outstanding at any time may
not exceed $45,000,000 except (x) as provided in Section 2.7 or (y) as required
by Section 2.17 to give effect to an increase in the Interest Rate in an Equity
Sale has not been consummated on or prior to May 15, 1997.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. Such authenticating agent shall have the same
authenticating rights and duties as the Trustee in any dealings hereunder with
the Company or with any Affiliate of the Company.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
Securities offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global securities in registered
form, substantially in the form set forth in Exhibit A-1, deposited with the
Trustee, as custodian for the Depository, and shall bear the legend set forth on
Exhibit B ("Global Securities"). The aggregate principal amount of any Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Securities offered and sold in reliance on any exemption from registration
under the Securities Act other than as described in the preceding paragraph
shall be issued, and Securities offered and sold in reliance on Rule 144A may be
issued, in the form of certificated Securities in registered form in
substantially the form set forth in Exhibit A-1 (the "Physical Securities").
SECTION 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency (which shall be located in
the Borough of Manhattan in the City of New York, State of New York) where
Securities may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, City of New York, State of New York) where Securities may be
presented for payment (the "Paying Agent") and an office or agency where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may have one or more co-
registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent. The Company may act as its own Paying
Agent, except that for the purposes of payments on account of principal on the
Securities pursuant to Sections 4.13 and 4.15, neither the Company nor any
Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which shall incorporate the provisions of the
TIA. The agreement shall implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
or fails to give the foregoing notice, the Trustee shall act as such and shall
be entitled to appropriate compensation in accordance with Section 7.7.
The Company initially appoints the Trustee as Registrar and Paying Agent
and agent for service of notices and demands in connection with the Securities.
SECTION 2.4 Paying Agent To Hold Money in Trust.
-----------------------------------
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company in making any such payment. Money held in
trust by the Paying Agent need not be segregated except as required by law and
in no event shall the Paying Agent be liable for any interest on any money
received by it
17
<PAGE>
hereunder. The Company at any time may require the Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed and the Trustee
may at any time during the continuance of any Event of Default, upon written
request to the Paying Agent, require such Paying Agent to pay forthwith all
money so held by it to the Trustee and to account for any funds disbursed. Upon
making such payment, the Paying Agent shall have no further liability for the
money delivered to the Trustee.
SECTION 2.5 Securityholder Lists.
--------------------
The Trustee shall preserve the names and addresses of the Securityholders
and otherwise comply with TIA (S)312(a). If the Trustee is not the Registrar,
the Company shall furnish or cause the Registrar to furnish to the Trustee
before each Interest Payment Date, and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of the Securityholders.
SECTION 2.6 Transfer and Exchange.
---------------------
When Securities are presented to the Registrar or a co-Registrar with a
request from the Holder of such Securities to register the transfer or to
exchange them for an equal principal amount of Securities of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested; provided that every Security presented or surrendered for
registration of transfer or exchange shall be duly endorsed or be accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Registrar, duly executed by the Holder thereof or his attorneys duly authorized
in writing. To permit registrations of transfers and exchanges, the Company
shall issue and execute and the Trustee shall authenticate new Securities
evidencing such transfer or exchange. No service charge shall be made to the
Securityholder for any registration of transfer or exchange. The Company may
require from the Securityholder payment of a sum sufficient to cover any
transfer taxes or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Section 2.10, 4.13, 4.15 or 9.5 (in which events the Company will be
responsible for the payment of such taxes). The Trustee shall not be required
to exchange or register the transfer of any Security for a period of 15 days
immediately preceding the first mailing of notice of redemption of Securities to
be redeemed or of any Security selected, called or being called for redemption
except, in the case of any Security where public notice has been given that such
Security is to be redeemed in part, the portion thereof not to be redeemed.
SECTION 2.7 Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Registrar or the Trustee or
if the Holder of a Security of any series claims that the Security has been
lost, destroyed or wrongfully taken, the Company shall issue and the Trustee
shall authenticate a replacement Security of the same series if the Holder of
such Security furnishes to the Company and to the Trustee evidence reasonably
acceptable to them of the ownership and the destruction, loss or theft of such
Security. If required by the Trustee or the Company, an indemnity bond shall be
posted, sufficient in the judgment of the Company or the Trustee, as the case
may be, to protect the Company, the Trustee or any Agent from any loss that any
of them may suffer if such Security is replaced. The Company may charge such
Holder for the Company's expenses in replacing such Security and the Trustee may
charge the Company for the Trustee's expenses in replacing such Security. Every
replacement Security shall constitute an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.8 Outstanding Securities.
----------------------
The Securities outstanding at any time shall be all Securities that have
been authenticated by the Trustee except for (a) those cancelled by it, (b)
those delivered to it for cancellation, (c) those described in this Section 2.8
as not outstanding. A Security does not cease to be outstanding because the
Company or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser in whose hands such Security is a legal, valid
---- ----
and binding obligation of the Company.
18
<PAGE>
If the Paying Agent holds, in its capacity as such, on any Maturity Date or
on any optional redemption date money sufficient to pay all accrued interest and
principal with respect to such Securities payable on that date and is not
prohibited from paying such money to the Holders thereof pursuant to the terms
of this Indenture, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9 Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any declaration of acceleration or notice of
default or direction, waiver or consent or any amendment, modification or other
change to this Indenture, Securities owned by the Company or any Subsidiary or
an Affiliate of the Company shall be deemed not to be outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Securities that a Trust Officer of the
Trustee knows are so owned shall be so disregarded. The Company shall notify
the Trustee, in writing, when it or any of its Affiliates repurchases or
otherwise acquires Securities, of the aggregate principal amount of such
Securities so repurchased or otherwise acquired.
SECTION 2.10 Temporary Securities.
--------------------
Until definitive Securities are prepared and ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company reasonably considers appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until such exchange, such temporary Securities shall be entitled to
the same rights, benefits and privileges as the definitive Securities.
SECTION 2.11 Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Securities surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall (subject to the record-retention requirements of the Exchange Act) dispose
of cancelled Securities unless the Company directs the Trustee to return such
Securities to the Company, and, if so disposed, shall deliver a certificate of
disposition thereof to the Company. The Company may not reissue or resell, or
issue new Securities to replace, Securities that the Company has redeemed or
paid, or that have been delivered to the Trustee for cancellation.
SECTION 2.12 Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus, to the extent permitted by law, any
interest payable on the defaulted interest, to the Persons who are
Securityholders on a subsequent special record date. Such record date shall be
the fifteenth day next preceding the date fixed by the Company for the payment
of defaulted interest, whether or not such day is a Business Day. At least 15
days before the subsequent special record date, the Company shall mail (or cause
to be mailed) to each Securityholder a notice that states the record date, the
payment date and the amount of defaulted interest to be paid. Notwithstanding
the foregoing, any interest which is paid prior to the expiration of the 30-day
period set forth in Section 6.1(a) shall be paid to Holders of Securities as of
the regular record date for the interest payment date for which interest has not
been paid. Notwithstanding the foregoing, the Company may make payment of any
defaulted interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange.
SECTION 2.13 CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number, and if so,
such CUSIP number shall be included in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
--------
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the
19
<PAGE>
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company will promptly notify the Trustee
of any change in the CUSIP number.
SECTION 2.14 Book-Entry Provisions for Global Securities.
-------------------------------------------
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.15. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor depositary is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request from
the Depository to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion of
the beneficial interest in any Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Securities are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b), the Global Securities
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Securities, an equal aggregate principal amount of
Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c)
of Section 2.15, bear the legend regarding transfer restrictions applicable to
the Physical Securities set forth in Exhibit A-1.
(f) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.15 Special Transfer Provisions.
---------------------------
(a) Transfers to Non-QIB Institutional Accredited Investors and
-----------------------------------------------------------
Non-U.S. Persons. The following provisions shall apply with respect to the
- -----------------
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
20
<PAGE>
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is after May 15,
1999 or (y) (1) in the case of a transfer to a Person purporting to be an
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit C hereto or (2) in the
case of a transfer to a Person purporting to be a Non-U.S. Person, the
proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Security, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the Registrar's
procedures, whereupon (a) the Registrar shall reflect on its books and
records the date and (if the transfer does not involve a transfer of
outstanding Physical Securities) a decrease in the principal amount of a
Global Security in an amount equal to the principal amount of the
beneficial interest in a Global Security to be transferred, and (b) the
Company shall execute and the Trustee shall authenticate and deliver one or
more Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a Person purporting to be a QIB (excluding transfers to
Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided for
on the form of Security stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Security for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and aware that the sale
to it is being made in reliance on Rule 144A and is acknowledges that it
has received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the Global Security, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect on
its books and records the date and an increase in the principal amount of
the Global Security in an amount equal to the principal amount of the
Physical Securities to be transferred, and the Trustee shall cancel the
Physical Securities so transferred.
(c) Private Placement Legend. Upon the registration of transfer,
------------------------
exchange or replacement of Securities not bearing the Private Placement Legend,
the Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the registration of transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar shall deliver
only Securities that bear the Private Placement Legend unless (i) the
circumstances contemplated by paragraph (a)(i)(x) of this Section 2.15 exist,
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act or (iii) such
Security has been sold pursuant to an effective registration statement under the
Securities Act.
(d) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.14 or this Section 2.15 for a
period of two years at which time such letters, notices and other written
21
<PAGE>
communications shall be turned over to the Company. The Company shall have the
right to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
SECTION 2.16 Designation.
-----------
(a) The Indebtedness evidenced by the Securities is hereby
irrevocably designated as "senior indebtedness" or such other term denoting
seniority (i) for all purposes of the provisions defining subordination
contained in agreements that provide that the Indebtedness of the Company issued
pursuant to such agreements is subordinate to Indebtedness designated as senior
indebtedness and (ii) for the purposes of any future Indebtedness of the Company
which the Company expressly makes subordinate to any senior indebtedness or such
other term denoting seniority. In connection with the issuance of any such
future subordinated Indebtedness, the Company shall take all necessary steps to
effectuate the foregoing.
(b) The Exchange Notes, the Private Exchange Notes and the Series
C Securities shall vote and consent together on all matters as one class, and
neither the Exchange Notes, the Private Exchange Notes or the Series C
Securities will have the right to vote or consent as a separate class on any
matter.
SECTION 2.17 Increased Principal Amount.
--------------------------
It is understood that if the Interest Rate on the Securities is at any time
increased pursuant to the proviso of the definition of Interest Rate, at some
time prior to May 15, 2001, the aggregate principal amount at maturity of the
Securities will exceed $45,000,000. In the event that the Interest Rate is at
any time so increased, the Company shall (i) within 30 days of the increase in
the Interest Rate, give notice to the Trustee and Holders of such increase and
(ii) within 60 days after the earlier of (x) the reduction of the Interest Rate
to 14% pursuant to the definition of Interest Rate or (y) May 15, 2001, give
notice to all Holders and within 60 days after such notice issue to Holders new
Securities which shall bear such increased principal amount at maturity, rounded
to the nearest whole dollar. The Company shall comply with the provisions of
Section 2.2 in issuing such new Securities.
ARTICLE III
REDEMPTION
----------
SECTION 3.1 Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of the
Securities, it shall notify the Trustee and the Paying Agent in writing of the
Redemption Date and the principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section 3.1 at
least 45 days before the Redemption Date (unless a shorter notice shall be
satisfactory to the Trustee), together with an Officers' Certificate stating
that such redemption will comply with the conditions contained herein and in the
Securities.
SECTION 3.2 Selection of Securities To Be Redeemed.
--------------------------------------
If less than all of the Securities are to be redeemed, the Trustee shall
select Securities to be so redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which the Securities are
listed or, if the Securities are not listed on a national securities exchange,
on a pro rata basis, by lot or in such other fair and reasonable manner chosen
at the discretion of the Trustee; provided that, with respect to redemptions
--------
made pursuant to the second paragraph of Section 5 of each of the Securities,
such redemptions shall be made on a pro rata basis (with such adjustments as may
be deemed appropriate by the Trustee so that only Securities in denominations of
$1,000 in principal amount or integral multiples of $1,000 shall be redeemed).
The Trustee shall make the selection from the Securities outstanding and
not previously called for redemption. Securities in denominations of $1,000 may
only be redeemed in whole. The Trustee may select for redemption portions
22
<PAGE>
(equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption. The Trustee shall promptly notify the
Company in writing of the Securities selected for redemption and, in the case of
any Security selected for partial redemption, the principal amount of each
certificate selected for redemption.
SECTION 3.3 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail or cause the mailing of a notice of redemption by first-
class mail to each Holder of Securities to be redeemed at such Holder's address
as it appears on the Securities register maintained by the Registrar with a copy
to the Trustee and any Paying Agent; provided that, if such notice relates to a
--------
redemption pursuant to paragraph 5 of the Securities with the net proceeds of a
Public Equity Offering or an investment by a Strategic Equity Investor, the
Company shall mail or cause the mailing of such notice not later than 60 days
after the consummation thereof.
The notice shall identify the Securities to be redeemed and shall state:
(a) the Redemption Date;
(b) the redemption price to be paid;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price and accrued interest, if any;
(e) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders of such
Securities is to receive payment of the redemption price upon surrender to the
Paying Agent of the Securities to be redeemed;
(f) If any Security is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Security to be redeemed and that, on or after the Redemption Date, upon
surrender of such Security, a new Security or Securities in aggregate principal
amount equal to the unredeemed portion thereof will be issued without charge to
the Securityholder;
(g) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be redeemed,
as well as the aggregate principal amount of Securities to be redeemed; and
(h) the CUSIP number, if any.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense.
SECTION 3.4 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price plus accrued interest to the Redemption Date, but interest installments
whose Interest Payment Date is on or prior to such Redemption Date will be
payable on the relevant Interest Payment Dates to the Holders of record at the
close of business on the relevant record dates referred to in the Securities.
SECTION 3.5 Deposit of Redemption Price.
---------------------------
23
<PAGE>
On the Business Day prior to the Redemption Date, the Company shall deposit
with the Paying Agent in immediately available funds U.S. Legal Tender
sufficient to pay the redemption price of and accrued interest on all Securities
or portions thereof to be redeemed on that date.
If any Security surrendered for redemption in the manner provided in the
Securities shall not be so paid on the Redemption Date due to the failure of the
Company to deposit sufficient funds with the Paying Agent, interest will
continue to accrue from and including the Redemption Date until such payment is
made on the unpaid principal and, to the extent lawful, on any interest not paid
on such unpaid principal, in each case at the date and in the manner provided in
the Securities.
SECTION 3.6 Securities Redeemed in Part.
---------------------------
Upon surrender to the Paying Agent of a Security that is redeemed in part,
the Company shall execute and the Trustee shall authenticate for the Holder a
new Security equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV
COVENANTS
---------
SECTION 4.1 Payment of Securities.
---------------------
The Company shall pay or cause to be paid the principal of and interest and
premium, if any, on the Securities on the dates and in the manner provided in
the Securities. Principal, interest and premium, if any, shall be considered
paid on the date due if the Paying Agent, if other than the Company, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, interest and premium, if any, then due.
The Company shall pay interest on overdue principal, interest and premium,
if any, at the rate of interest born by the Securities to the extent lawful.
SECTION 4.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Securities may be surrendered
for registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
--------
however, that no such designation or rescission shall in any manner relieve the
- -------
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee set
forth in Section 10.2 as one such office or agency of the Company in accordance
with Section 2.3.
SECTION 4.3 Corporate Existence.
-------------------
24
<PAGE>
Subject to Article V hereof, the Company shall do or cause to be done, at
its own cost and expense, all things necessary to, and will cause each of its
Restricted Subsidiaries to, preserve and keep in full force and effect the
corporate existence and rights (charter and statutory), licenses and/or
franchises of the Company and each of its Restricted Subsidiaries; provided that
--------
the Company shall not be required to preserve any such right, license or
franchise, or the corporate existence of any of its Restricted Subsidiaries, if
in the judgment of the Board of Directors of the Company (i) such preservation
or existence is not desirable in the conduct of business of the Company or such
Restricted Subsidiary and (ii) the loss of such right, license or franchise or
the dissolution of such Restricted Subsidiary is not adverse in any material
respect to the Holders.
SECTION 4.4 Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings and
for which adequate U.S. GAAP reserves have been established.
SECTION 4.5 Maintenance of Properties; Books and Records; Compliance
--------------------------------------------------------
with Law.
- --------
(a) The Company shall and shall cause each of its Restricted
Subsidiaries to, at all times cause all properties used or useful in the conduct
of its business to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with all necessary
equipment, and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto; provided that nothing in
--------
this Section 4.5 shall prevent the Company or any Restricted Subsidiary from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is either (i) in
the ordinary course of business, (ii) in the reasonable and good faith judgment
of the Board of Directors of the Company or the Restricted Subsidiary concerned,
as the case may be, desirable in the conduct of the business of the Company or
such Restricted Subsidiary, as the case may be, or (iii) otherwise permitted by
this Indenture.
(b) The Company shall and shall cause each of its Subsidiaries to keep
proper and true books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Company and each Subsidiary of the Company, and reflect on its financial
statements adequate accruals and appropriations to reserves, all in accordance
with U.S. GAAP consistently applied to the Company and its Subsidiaries taken as
a whole.
(c) The Company shall and shall cause each of its Subsidiaries to
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would materially adversely
affect the business, earnings, prospects, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
SECTION 4.6 Compliance Certificates; Notice of Default.
------------------------------------------
(a) The Company shall deliver to the Trustee, within 90 days after the
end of its fiscal year, an Officers' Certificate of the Company complying with
Section 314(a)(4) of the TIA stating (i) that a review of the activities of the
Company and the activities of its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and the Securities and (ii) that, to the best
knowledge of such Officer after due inquiry, the Company has kept, observed,
performed and fulfilled each and every covenant and other obligation contained
in this Indenture and the Securities and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof and has not
failed to comply with any other obligation hereunder (or, if a Default, Event of
Default or failure to comply with any other obligation hereunder shall have
occurred, describing with particularity all such Defaults, Events of Default or
failures to comply with any other obligation hereunder of which such Officer may
have knowledge, including, but not limited to, their status and what action the
Company is taking or proposes to take with respect thereto).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Company shall deliver to
the Trustee within 120 days after the end of each fiscal year
25
<PAGE>
a written statement by the Company's independent certified public accountants
stating (A) that their audit examination has included a reading of the relevant
provisions of this Indenture and the Securities as they relate to accounting
matters, and (B) whether, in connection with their audit examination, any
Default or Event of Default has come to their attention as they relate to
accounting matters and if such a Default or Event of Default has come to their
attention, specifying the nature and period of existence thereof; provided that,
--------
without any restriction as to the scope of the audit examination, such
independent certified public accountants shall not be liable by reason of any
failure to obtain knowledge of any such Default or Event of Default that would
not be disclosed in the course of an audit examination conducted in accordance
with generally accepted auditing standards.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.7 Reports.
-------
(a) From and after the date on which the Exchange Offer Registration
Statement is required to be effective pursuant to the terms of the Registration
Rights Agreement, the Company shall deliver to the Trustee and mail to each
Holder, within 15 days after the filing of the same with the SEC, copies of its
annual report and of the information, documents and other reports, if any, which
the Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act. The Company shall also comply with the other provisions of
TIA Section 314(a).
(b) If the Company ceases to be subject to the requirements of such
Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC, to
the extent permitted, and distribute to the Trustee and to each Holder copies of
the quarterly and annual financial information that would have been required to
be contained in a filing with the SEC on forms 10-Q and 10-K and all current
reports that would be required to be filed with the SEC on form 8-K had the
Company been subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act. All such financial information shall include consolidated
financial statements (including footnotes) prepared in accordance with U.S.
GAAP. Such annual financial information shall also include an opinion thereon
expressed by an independent accounting firm of established national reputation.
All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." The financial and other information to be distributed to Holders
shall be filed with the Trustee and mailed to the Holders at their respective
addresses appearing in the register of the Securities maintained by the
Registrar, within 120 days after the end of the Company's fiscal year and within
60 days after the end of each of the first three quarters of each such fiscal
year. Such information shall be made available by the Company to securities
analysts and prospective investors upon request. In addition, the Company shall
furnish to the Holders and to securities analysts and to prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
SECTION 4.8 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall 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 Company would be able to incur $1.00 of
Indebtedness under the proviso of Section 4.9(a); and
(iii) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or made
on or after the May 14, 1996 (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 Company
determined for the period commencing on the May 14, 1996 and ending on the
last day of the latest fiscal quarter for which consolidated financial
statements of Company are available preceding the date of such Restricted
Payment plus (b) the aggregate net cash proceeds
26
<PAGE>
received by the Company either (x) as capital contributions to the Company
after the May 14, 1996 or (y) from the issue or sale (other than to a
Restricted Subsidiary of the Company) of its Capital Stock (other than
Disqualified Stock) on or after the May 14, 1996 plus (c) the aggregate net
proceeds received by the Company from the issuance (other than to a
Restricted Subsidiary of Company) on or after the May 14, 1996 of its
Capital Stock (other than Disqualified Stock) upon the conversion of, or
exchange for, Indebtedness of the Company or a Restricted Subsidiary plus
(d) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the May 14, 1996 for cash,
(including upon a Revocation after the May 14, 1996 of any Designation made
after the May 14, 1996 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 Company 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 Company 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 Company 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.
(b) The provisions of Section 4.8(a) shall not prohibit (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at such date of declaration, such payment would comply with the provisions of
Section 4.8(a); (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 Company (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 Company) of, shares of Capital
Stock of the Company (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 Section 4.8(a); (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 Company) of (x) Capital Stock (other than Disqualified Stock) of the
Company, provided that any such net cash proceeds pursuant to the immediately
--------
preceding clause (x) are excluded from clause (iii)(b) of Section 4.8(a), 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 Company) of (x) Capital Stock
(other than Disqualified Stock) of the Company provided that any such net cash
--------
proceeds pursuant to the immediately preceding clause (x) are excluded from
clause (iii)(b) of Section 4.8(a) 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 Company 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 Company 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 with all investments in Unrestricted
Subsidiaries and
27
<PAGE>
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 Company 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 Company or (2) issue or sale of
capital Stock (other than Disqualified Stock) of the Company, 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 Section 4.8(b) or (y)
which the Company could not have made without including such net cash proceeds
in clause (iii)(b) of Section 4.8(a) 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
Company 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 Company 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 Company issued pursuant to and in compliance with
Section 4.9; (x) so long as no Default shall have occurred and be continuing,
following compliance with Section 4.13 with respect to the sale of the Company's
direct or indirect interest in XYZ Entertainment, the payment of dividends by
the Company 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 Company of interests in Saturn not owned (directly or
indirectly) by the Company on the Issue Date, provided that the consideration
--------
paid by the Company in such acquisition shall consist solely of Capital Stock
(other than Disqualified Capital Stock) of the Company and (b) the contribution
of such interests acquired by the Company in accordance with subclause (a) of
this clause (xii) to an Unrestricted Subsidiary. In determining the amount of
Restricted Payments permissible under this Section 4.8, 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.
SECTION 4.9 Limitation on Additional Indebtedness and Preferred Stock of
------------------------------------------------------------
Restricted Subsidiaries.
- -----------------------
(a) (i) the Company shall not, and shall 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 Company shall not permit any Restricted Subsidiary to
issue any Preferred Stock except for, in each case, Permitted Indebtedness and
Preferred Stock; provided that (A) the Company 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 Company are available preceding the
28
<PAGE>
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.
(b) The Company shall not, directly or indirectly, in any event incur
any Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated to any other Indebtedness of the Company
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinated to the Securities to
the same extent and in the same manner as such Indebtedness is subordinated to
such other Indebtedness of the Company.
(c) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur 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 (including any right to take
enforcement action against such Unrestricted Subsidiary).
SECTION 4.10 Business of the Company.
-----------------------
The Company shall not, and shall not permit any of its Subsidiaries or
controlled Affiliates to, be principally engaged in any business or activity
other than a Related Business.
SECTION 4.11 Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Restricted Subsidiaries.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries 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 Company or any Restricted Subsidiary;
(b) pay any Indebtedness owed to the Company or a Restricted
Subsidiary;
(c) make any Investment in the Company or any Restricted Subsidiary;
or
(d) transfer any of its property or assets to the Company or to any
Restricted Subsidiary, except for:
(i) any such customary encumbrance or restriction contained in
a security document creating a Lien permitted under this 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
29
<PAGE>
(v) any such encumbrance or restriction imposed in any
agreement governing Senior Bank Financing; provided no such encumbrance or
--------
restriction shall, so long as no default shall exist under such agreement,
prevent the payment of amounts to the Company required for it to meet its
operating expenses (including, without limitation, payments under the
Securities and this Indenture).
SECTION 4.12 Limitation on Liens.
-------------------
The Company 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.
SECTION 4.13 Disposition of Proceeds of Asset Sales.
--------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
make any Asset Sale unless (a) the Company 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
Company 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
Company 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 Company'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 Company'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 Company 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 Company or such Restricted
Subsidiary may invest such Net Cash Proceeds in any manner not prohibited by
this 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 Company shall make an offer to purchase (an "Asset Sale Offer"),
from all Holders of the Securities, Securities 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 Company
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 Company will only be required to make an offer to purchase
Securities 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 Securities tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds available for such offer, the
Company and the Restricted Subsidiaries may use such deficiency (the
"Deficiency") for general corporate purposes permitted under this Indenture. If
the aggregate purchase price for the Securities validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds available for such
offer, Securities 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.
30
<PAGE>
Notwithstanding the two immediately preceding paragraphs, (a) up to the XYZ
Distribution Amount of the Net Cash Proceeds from any Asset Sale of the
Company'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 Section 4.13 and (b) the Company 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 Company 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.
At such time as the Company determines to make an Asset Sale Offer, it
shall so notify the Trustee in writing. Within 15 days thereafter, it shall mail
or cause the Trustee to mail (in the Company's name and at its expense) notice
of an Asset Sale Offer to the Holders of the Securities at their last registered
addresses with a copy to the Trustee and the Paying Agent. The Asset Sale Offer
shall remain open from the time of mailing for at least 20 Business Days and
until the close of business on the third Business Day prior to the Asset Sale
Offer Payment Date. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Asset Sale
Offer. The notice, which shall govern the terms of the Asset Sale Offer, shall
state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 4.13;
(ii) the purchase price (including the amount of accrued
interest, if any, or the Accreted Value) for each Security and the Asset
Sale Offer Payment Date;
(iii) that any Security not tendered or accepted for payment
will continue to accumulate Accreted Value or accrue interest, as the case
may be, in accordance with the terms thereof;
(iv) that any Security accepted for payment pursuant to the
Asset Sale Offer shall cease to accrete or accrue interest, as the case may
be, after the Asset Sale Offer Payment Date unless the Company shall fail
to make payment therefor;
(v) that Holders electing to have Securities purchased
pursuant to an Asset Sale Offer will be required to surrender their
Securities to the Paying Agent at the address specified in the notice prior
to 5:00 p.m., New York City time, on the third Business Day immediately
preceding the Asset Sale Offer Payment Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee
and the Paying Agent;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City time,
on the third Business Day immediately preceding the Asset Sale Offer
Payment Date, a telex or facsimile transmission (confirmed by overnight
delivery of the original thereof) or letter setting forth the name of the
Holder, the principal amount of Securities the Holder delivered for
purchase, the Security certificate number (if any) and a statement that
such Holder is withdrawing his election to have such Securities purchased;
(vii) that if Securities in a principal amount in excess of
the Excess Proceeds are tendered pursuant to the Asset Sale Offer, the
Company shall purchase Securities on a pro rata basis among the Securities
--- ----
tendered (with such adjustments as may be deemed appropriate by the Trustee
so that only Securities in denominations of $1,000 in principal amount at
maturity or integral multiples of $1,000 shall be acquired);
(viii) that Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(ix) the instructions that Holders must follow in order to
tender their Securities.
On or before the Asset Sale Offer Payment Date, the Company shall (I)
accept for payment the Securities or portions thereof to be purchased pursuant
to the Asset Sale Offer, (ii) deposit with the Paying Agent money, in
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immediately available funds, in an amount sufficient to pay the purchase price
of all Securities or portions thereof so tendered and accepted and (iii) deliver
to the Trustee the Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof tendered to and accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Asset Sale Offer on the first Business Day
following the Asset Sale Offer Payment Date. To the extent the Asset Sale Offer
is not fully subscribed to by such Holders, the Company may retain such
unutilized portion of the Excess Proceeds. The Paying Agent shall promptly
deliver to the Company the balance of any moneys held by the Paying Agent after
payment to the Holders of Securities as aforesaid.
If the Company is required to make an Asset Sale Offer, the Company 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 Securities
are listed.
SECTION 4.14 Limitation on Transactions with Affiliates.
------------------------------------------
The Company shall not, and shall 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 Company or any beneficial holder of 10% or more of any class of
Capital Stock of the Company or any officer or director of the Company or any
Subsidiary (each an "Affiliate Transaction"), except on terms that are fair and
reasonable to the Company, 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 Company, such approval to be evidenced by a Board Resolution (delivered
to the Trustee) stating that the Board of the Company (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 Section 4.8, the Company must obtain a written opinion
(delivered to the Trustee) from an Independent Financial Advisor stating that
the terms of such Affiliate Transaction to the Company, 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 Section
4.14 shall not apply to (i) transactions between or among the Company and/or any
of the Restricted Subsidiaries, (ii) any dividend permitted by Section 4.8,
(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 Company.
SECTION 4.15 Change of Control.
-----------------
Upon the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall make and shall keep open
for at least 20 Business Days an offer (a "Change of Control Offer") to each
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Holder of Securities to repurchase on a Business Day (the "Change of Control
Payment Date") not later than 60 days following the Change of Control Date, all
of such Holder's Securities at a purchase price equal to 101% of the Accreted
Value thereof on the date of purchase (if prior to May 15, 2001) or 101% of the
aggregate principal amount thereof, together with accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase (if on or after
May 15, 2001) (in either case, the "Change of Control Payment"). Not less than
28 days nor more than 45 days before the Change of Control Payment Date, the
Company shall mail a notice to each Holder stating:
(a) that the Change of Control Offer is being made pursuant to
this Section 4.15 and that all Securities tendered will be accepted for payment;
(b) the Change of Control Payment Date and the amount of the
Change of Control Payment;
(c) that any Securities not tendered will continue to accrete or
accrue interest, as the case may be, in accordance with the terms hereof;
(d) that, unless the Company defaults in the payment of the Change
of Control Payment, all Securities accepted for payment pursuant to the Change
of Control Offer shall cease to accrete or accrue interest, as the case may be,
after the Change of Control Payment Date;
(e) that Holders electing to have any Securities purchased
pursuant to a Change of Control Offer will be required to surrender the
Securities, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Securities completed, to the Paying Agent at the address
specified in the notice prior to 5:00 p.m., New York City time, on or prior to
the Change of Control Payment Date;
(f) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than 5:00 p.m., New York City time, on or
prior to the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Securities delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Securities purchased; and
(g) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered, which unpurchased portion must be equal
to $1,000 in principal amount at maturity or an integral multiple thereof.
On the Change of Control Payment Date, the Company shall (i) accept for
payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so tendered and accepted
and (iii) deliver to the Trustee the Securities so accepted together with an
Officers' Certificate setting forth the Securities or portions thereof tendered
to and accepted for payment by the Company. The Paying Agent shall promptly
mail or deliver to the Holders of Securities so accepted payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof. The
Company will publicly announce the results of the Change of Control Offer not
later than the first Business Day following the Change of Control Payment Date.
If the Company is required to make a Change of Control Offer, the Company
shall 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 Securities are listed.
SECTION 4.16 Waiver of Stay; Extension of Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Securities as contemplated herein
or in the Securities, wherever enacted, now or at any time hereafter in force,
or that
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may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.17 Maintenance of Insurance.
------------------------
The Company shall, and shall cause each of its Subsidiaries to, keep at all
times all of their respective properties and assets which are of an insurable
nature (as determined by reference to industry standards) insured reasonably and
appropriately as prudent business judgment would require against loss or damage
and shall obtain such other reasonable and appropriate insurance as is required
or so appropriate for the nature of the business and other risks encountered by
the Company and its Subsidiaries, in each case with insurers reasonably and in
good faith believed by the Company to be responsible and financially sound, to
the extent that insurance of a similar character and nature is usually so
obtained by corporations similarly situated and that are at any such time
conducting business substantially similar to that of the Company and its
Subsidiaries in accordance with prudent business practices.
SECTION 4.18 Limitation on Unrestricted Subsidiaries and Unrestricted
--------------------------------------------------------
Affiliates.
- ----------
(a) The Company may designate (i) any Subsidiary of the Company
as an "Unrestricted Subsidiary" hereunder 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 Company would be permitted under this 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.
(b) Subject to Section 4.18(c), in the event of any Designation
permitted under Section 4.18(a), the Company shall be deemed to have made an
Investment constituting a Restricted Payment pursuant to Section 4.8 for all
purposes under this Indenture in the Designation Amount. If at any time a
person designated as a Restricted Affiliate under this Indenture ceases to
constitute a Restricted Affiliate for any reason, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
4.8 for all purposes under this Indenture in an amount equal to the Fair Market
Value of such person at such time.
(c) Notwithstanding Sections 4.18(a) and 4.18(b), the Company
shall be permitted to transfer its indirect interest in XYZ Entertainment to a
Subsidiary and designate such Subsidiary as an "Unrestricted Subsidiary"
hereunder without satisfaction of Section 4.18(a)(B), and such designation shall
not result in the Company having been deemed to have made any Investment
constituting a Restricted Payment hereunder.
(d) (i) The Company shall not and shall not permit any
Restricted Subsidiary to, at any time (x) provide credit support for, or a
guarantee of, any Indebtedness of any Unrestricted Subsidiary or Unrestricted
Affiliate, as the case may be (including any undertaking, agreement or
instrument evidencing such Indebtedness), (y) be directly or indirectly liable
for any Indebtedness of any Unrestricted Subsidiary or Unrestricted Affiliate,
as the case may be, or (z) be directly or indirectly liable for any Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary or Unrestricted
Affiliate, as the case may be (including any right to take enforcement action
against such Unrestricted Subsidiary or Unrestricted Affiliate, as the case may
be), except in the case of clause (x) or (y) to the extent permitted under
Section 4.8, and (ii) no Unrestricted Subsidiary or Unrestricted Affiliate shall
at any time guarantee or otherwise provide credit support for any obligation of
the Company or any Restricted Subsidiary.
(e) The Company 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:
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(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 this Indenture.
(f) On the Issue Date, each of Saturn, YXZ 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 this Indenture. After the Issue Date,
all Designations and Revocations under this Section 4.18 must be evidenced by
Board Resolutions of the Company delivered to the Trustee certifying compliance
with this Section 4.18.
SECTION 4.19 Limitation on Status as Investment Company.
------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries or
controlled Affiliates to, conduct its business in a fashion that would cause the
Company 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.
SECTION 4.20 Internal Revenue Service Filing.
-------------------------------
The Company shall file Internal Revenue Service Form 8281, Information
Return for Publicly Offered Original Issue Discount Instruments, with the
Internal Revenue Service within 30 days of the date of this Indenture and shall
mail a copy of such filing to the Trustee within 15 days after such filing with
the Internal Revenue Service.
SECTION 4.21 Issuance of Contingent Warrants.
-------------------------------
(a) If the Company does not effect an Equity Sale on or prior to
November 15, 1997, the Company shall issue to Holders of the Securities the
Warrants, which shall be exercisable at the Exercise Price for 0.4% of the
Common Stock of the Company (determined on a fully diluted basis as of the date
of such issuance after giving effect to the exercise or conversion of all
securities exercisable or convertible into Common Stock, including the exercise
of such Warrants); provided that the Company shall not be required to issue the
---------
Warrants if the holder of all of the Capital Stock of the Company (x) is a
corporation ("Parent") duly organized and validly existing under the laws of the
State of Colorado or the State of Delaware, (y) has no material assets or
liabilities other than all of the outstanding Capital Stock of the Company and
(z) issues, on or prior to November 15, 1997, warrants exercisable at the
Exercise Price for 0.4% of the Common Stock of Parent to Holders of the
Securities (determined on the same fully diluted basis set forth above).
(b) The Warrants shall be issued pursuant to the Warrant
Agreement or the warrants of Parent shall be issued pursuant to a warrant
agreement substantially identical to the Warrant Agreement (with appropriate
conforming changes), as the case may be.
(c) The Warrants or the warrants of Parent, as the case may be,
shall be issued to Holders of record as of November 1, 1997 pro rata, based upon
the aggregate principal amount of Securities held by such Holders as of November
1, 1997.
(d) The Common Stock of the Company or Parent issued pursuant to
Section 4.21(a) shall conform in all material respects to the description
thereof contained in the Offering Memorandum under the caption "Description of
Capital Stock."
ARTICLE V
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SUCCESSOR CORPORATION
---------------------
SECTION 5.1 Limitation on Mergers, Consolidations or Sales of Assets.
--------------------------------------------------------
The Company shall 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
Company shall 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 Company and its Subsidiaries, taken as a whole, to
any person or persons, unless:
(a) the Company 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 Company) shall
expressly assume all of the obligations of the Company under the Securities and
this 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 Company or the
surviving entity (assuming such surviving entity's assumption of the Company's
obligations under the Securities and this Indenture), as the case may be, would
be able to incur $1.00 of Indebtedness under the proviso of Section 4.9(a);
(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 Company 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 Article V and that all conditions precedent in this Indenture relating
to the transaction or series of transactions have been satisfied.
SECTION 5.2 Successor Entity Substituted.
----------------------------
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,
Section 5.1, the surviving entity shall succeed to, and be substituted for, and
may exercise every right and power of the Company under this 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 Section 4.8(a), the Cumulative Adjusted Available
Cash Flow of any persons other than the Company and the Restricted Subsidiaries
shall only be included for periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets.
For all purposes of this Indenture and the Securities (including the
provisions of this Article V and of Section 4.8, Section 4.9 and Section 4.12),
Subsidiaries of any Surviving Entity will, upon such transaction or series of
transactions, become Restricted Subsidiaries or Unrestricted Subsidiaries as
provided pursuant to Section 4.18 and all Indebtedness, and all Liens on
property or assets, of the Company 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.
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ARTICLE VI
DEFAULT AND REMEDIES
--------------------
SECTION 6.1 Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of interest on the Securities when it
becomes due and payable and continuance of such default for a period of 30 days
or more;
(b) default in the payment of the principal of, or premium, if
any, on the Securities when due, at maturity, upon redemption or otherwise
(including pursuant to a Change of Control Offer or an Asset Sale Offer);
(c) failure to make a Change of Control Offer or an Asset Sale
Offer within the time periods specified in Sections 4.15 or 4.13, respectively,
or default in the performance, or breach, of any provision of Article V;
(d) default in the performance, or breach, of any covenant in this
Indenture (other than defaults specified in clause (a), (b) or (c) above), and
continuance of such default or breach for a period of 30 days after written
notice to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount at maturity of the
outstanding Securities (in each case, when such notice is deemed received in
accordance with this Indenture);
(e) 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 Company 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;
(f) 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 Company 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 Company or any Restricted Subsidiary having an aggregate Fair Market
Value, individually or in the aggregate, of $5,000,000 (or, to the extent non-
U.S. dollar denominated, the U.S. Dollar Equivalent thereof) or more or shall
have exercised any right under applicable law or applicable security documents
to take ownership of any such assets in lieu of foreclosure;
(g) 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 Company 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;
(h) the Company or any Restricted Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding to wind up or
liquidate;
(ii) consents to the entry of an order for relief against it
in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property;
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(iv) makes a general assignment for the benefit of its
creditors or any class thereof or files, enters into or makes a proposal or
scheme of arrangement involving the rescheduling or composition or
compromise of its indebtedness;
(v) files an answer or consent seeking reorganization or
relief; or
(vi) shall generally not pay its debts as such debts become
due or shall admit in writing its inability to pay its debts generally;
(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Restricted
Subsidiary as a debtor in an involuntary case or proceeding;
(ii) appoints a Custodian of the Company or any Restricted
Subsidiary or a Custodian for all or substantially all of their respective
properties; or
(iii) orders the liquidation, winding up or placement in
official management of the Company or any Restricted Subsidiary;
and in each case the order or decree remains unstayed and in effect for 60
days; or
(j) [intentionally omitted]
SECTION 6.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
paragraph (h) or paragraph (i) of Section 6.1 with respect to the Company)
occurs and is continuing, then the Trustee or the Holders of at least 25% in
principal amount at maturity of the outstanding Securities 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 Securities shall, declare the
Default Amount of, and any accrued and unpaid interest on, all outstanding
Securities to be immediately due and payable and upon any such declaration such
amounts (plus, in the case of an Event of Default that is the result of an
action by the Company or any of its Restricted Subsidiaries intended to avoid
restrictions on or premiums related to redemptions of the Securities contained
in this Indenture or the Securities, an amount of premium that would have been
applicable pursuant to the Securities or as set forth in this Indenture) shall
become immediately due and payable. If an Event of Default specified in
paragraph (h) or paragraph (i) of Section 6.1 with respect to the Company occurs
and is continuing, then the Default Amount of, and any accrued and unpaid
interest on, all outstanding Securities (plus, in the case of an Event of
Default that is the result of an action by the Company or any of its Restricted
Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Securities contained in this Indenture or the Securities, an
amount of premium that would have been applicable pursuant to the Securities or
as set forth in this Indenture) 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. Upon payment of such Default Amount (plus, in the case of an Event
of Default that is the result of an action by the Company or any of its
Restricted Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Securities contained in this Indenture or the Securities, an
amount of premium that would have been applicable pursuant to the Securities or
as set forth in this Indenture), all of the Company's obligations under the
Securities and this Indenture, other than obligations under Section 7.7, shall
terminate. The Holders of a majority in principal amount at maturity of the
Securities then outstanding by notice to the Trustee may rescind an acceleration
and its consequences if (i) all existing Events of Default, other than the non-
payment of the principal and interest on the Securities which have become due
solely as a result of such declaration of acceleration, have been cured or
waived, (ii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and (iv) prior to such rescission the Company shall have
paid or deposited with the
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Trustee all sums paid or advanced by the Trustee hereunder and all other amounts
due the Trustee and its agents and counsel under Section 7.7. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of the
Accreted Value of, principal of or interest or Liquidated Damages on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Securities in respect of which such judgment has been recovered.
SECTION 6.4 Waiver of Past Default.
----------------------
Subject to Sections 6.7 and 9.2, prior to the declaration of acceleration
of the maturity of the Securities, the Holder or Holders of not less than a
majority in principal amount at maturity of the Securities at the time
outstanding by written notice to the Company and the Trustee may waive on behalf
of all the Holders any past Default under this Indenture and its consequence,
except a Default in the payment of the Default Amount of, principal of or
interest on any Security or a Default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Security affected pursuant to Section 9.2.
SECTION 6.5 Control by Majority.
-------------------
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it, including, without limitation, any remedies provided for in
Section 6.3. However, the Trustee may refuse to follow any direction that
conflicts with law, the Securities or this Indenture, or that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder or
that may involve the Trustee in personal liability. The Trustee may take any
other action reasonably deemed proper in good faith by the Trustee which is not
inconsistent with such direction.
SECTION 6.6 Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this Indenture
or the Securities unless:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue a remedy;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 30 days
after receipt of the request and the offer of indemnity; and
(e) during such 30-day period the Holders of at least a majority
in principal amount of the then outstanding Securities do not give the Trustee a
direction which is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
39
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SECTION 6.7 Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of the Accreted Value of or the principal of and
interest on a Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, is absolute and unconditional and shall not be impaired
or affected without the consent of such Holder.
SECTION 6.8 Collection Suit by Trustee.
--------------------------
If an Event of Default occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Securities for the whole amount of the Accreted
Value of or the principal and accrued interest remaining unpaid, together with
interest on overdue principal and, to the extent that payment of such interest
is lawful, interest on overdue installments of interest, in each case at the
interest rate and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee shall be entitled and empowered to file such proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Securityholders allowed in any judicial proceedings relative to the Company
or any of its Subsidiaries (or any other obligor upon the Securities), its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10 Priorities.
----------
If the Trustee collects any money pursuant to this Article VI, it shall pay
out such money in the following order:
First: to the Trustee for amounts due under Section 7.7;
Second: to Holders for amounts due and unpaid on the Securities for
Accreted Value or principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for Accreted Value or principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Securityholders pursuant to this
Article VI.
SECTION 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder
40
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pursuant to Section 6.7, or a suit by any Holder, or group of Holders, holding
in the aggregate more than 10% in principal amount of the outstanding
Securities.
SECTION 6.12 Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.13 Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article VI or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
ARTICLE VII
TRUSTEE
-------
SECTION 7.1 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.4 or 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
41
<PAGE>
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) Except with respect to Sections 4.1, 4.6 and 4.20 hereof, the
Trustee shall have no duty to inquire as to the performance of the Company's
covenants in Article IV hereof. In addition, the Trustee shall not be deemed to
have knowledge of any Default or Event of Default except (i) any Event of
Default occurring pursuant to Sections 4.1, 4.6, 4.20 and 6.1(a) hereof or (ii)
any Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
SECTION 7.2 Rights of Trustee.
-----------------
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent (other
than the negligence or willful misconduct of an agent who is an employee of the
Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or any Affiliate
of the Company with the same right it would have if it were not Trustee.
However, in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.4 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities or any
money paid to the company or upon the Company's direction under any provision of
this Indenture, it shall not be
42
<PAGE>
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or any statement in the Securities or any other document in
connection with the sale of the Securities or pursuant to this Indenture other
than its certificate of authentication.
SECTION 7.5 Notice of Defaults.
------------------
If a Default or an Event of Default with respect to the Securities occurs
and is continuing and is known to a Trust Officer of the Trustee, the Trustee
shall mail to each Holder a notice of the Default or Event of Default within 30
days after it occurs or, if later, within 10 days after such Default or Event of
Default becomes known to the Trustee, unless such Default or Event of Default
has been cured in accordance with TIA (S) 313(c). Except in the case of a
Default or Event of Default arising pursuant to Section 6.1(a) or 6.1(b), the
Trustee may withhold the notice to the Holders if and so long as a committee of
its Trust Officers determines in good faith that withholding the notice is in
the interest of the Holders.
SECTION 7.6 Reports by Trustee to Holders.
-----------------------------
Within 60 days after each November 15 beginning with the November 15
following the date of this Indenture, and for so long as Securities remain
outstanding, the Trustee shall mail to the Holders of the Securities a brief
report dated as of such reporting date that complies with TIA (S) 313(a) (but if
no event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA (S) 313(b). The Trustee shall also transmit by mail all
reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Securities shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Securities are listed in accordance with TIA (S) 313(d).
The Company shall promptly notify the Trustee when the Securities are listed on
any stock exchange.
SECTION 7.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.7) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
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<PAGE>
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
SECTION 7.8 Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.8.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Securities of
a majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Securities of at least 10% in principal amount of the then
outstanding Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Security who has
been a Holder of a Security for at least six months, fails to comply with
Section 7.10, such Holder of a Security may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Securities. The retiring Trustee shall promptly transfer all
property held by it as a Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.8, the Company's obligation under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.9 Successor Trustee By Merger, Etc.
--------------------------------
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation if otherwise eligible hereunder without any further act
shall be the successor Trustee, provided, such corporation shall be otherwise
--------
qualified and eligible under this Article VII.
SECTION 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1) and (2). The Trustee shall have a combined capital and
surplus of at least $50,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA (S) 310(b); provided
---------
that there shall be excluded from the operation of TIA (S) 310(b)(1) any
indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding if
the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. The
provisions of TIA (S) 310 shall apply to the Company, as obligor of the
Securities.
44
<PAGE>
SECTION 7.11 Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
----------------------------------
SECTION 8.1 Termination of Obligations; Legal and Covenant Defeasance.
---------------------------------------------------------
(a) This Indenture shall cease to be of further effect (except
that the Company's obligations under Section 7.7 and the Trustee's and the
Paying Agent's obligations under Sections 8.3 and 8.4 shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Securities that have been replaced or
paid) to the Trustee for cancellation and the Company has paid all sums payable
hereunder. In addition, the Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
with respect to the Securities, elect to have either Section 8.1(b) or 8.1(c) be
applied to all outstanding Securities upon compliance with the conditions set
forth below in this Article VIII.
(b) Upon the Company's exercise under Section 8.1(a) of the
option applicable to this Section 8.1(b), the Company shall be deemed to have
been discharged from its obligations with respect to all outstanding Securities
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.2 and the other Sections of
this Indenture referred to in clauses (i) and (ii) below, and to have satisfied
all its other obligations under such Securities and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder:
(i) the rights of Holders of outstanding Securities to
receive payments in respect of the principal of, premium, if any, and
interest on such Securities when such payments are due, or on the
redemption date, as the case may be, (ii) the Company's obligations with
respect to such Securities under Sections 2.4, 2.6, 2.7, 2.10, 4.2 and 4.3,
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith and (iv)
this Article VIII. Subject to compliance with this Article VIII, the
Company may exercise its option under this Section 8.1(b) notwithstanding
the prior exercise of its option under Section 8.1(c) with respect to the
Securities.
(c) Upon the Company's exercise under Section 8.1(a) of the
option applicable to this Section 8.1(c), the Company shall be released from its
obligations under the covenants contained in Sections 2.16, 4.5, 4.6, 4.7, 4.8,
4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.17 and 4.18 and Article V with
respect to the outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Securities shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Securities shall not be deemed outstanding for accounting
purposes). For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.1(c) or (d), as the case may be, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby.
(d) The following shall be the conditions to the application of
either Section 8.1(b) or 8.1(c) to the outstanding Securities:
45
<PAGE>
(i) the Company irrevocably deposits, or causes to be
deposited, with the Trustee, in trust for the benefit of the Holders
pursuant to an irrevocable trust and security agreement in form and
substance reasonably satisfactory to the Trustee (A) U.S. Legal Tender, (B)
U.S. Government Obligations or (C) a combination thereof, in an amount
sufficient after payment of all Federal, state and local taxes or other
charges or assessments in respect thereof payable by the Trustee, which
through the payment of interest and principal will provide, not later than
one day before the due date of payment in respect of the Securities, U.S.
Legal Tender in an amount which, in the opinion of a nationally recognized
firm of independent certified public accountants expressed in a written
certification thereof (in form and substance reasonably satisfactory to the
Trustee) delivered to the Trustee, is sufficient to pay the Accreted Value
of or the principal of and interest on the Securities then outstanding on
the dates on which any such payments are due and payable in accordance with
the terms of this Indenture and of the Securities; provided that (y) the
--------
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said
Accreted Value or principal and interest with respect to the Securities and
(z) such money or the proceeds of such U.S. Government Obligations shall
have been on deposit with the Trustee for a period of at least 90 days;
(ii) no Default or Event of Default shall have occurred or
be continuing on the date of such deposit and such deposit will not result
in a Default or Event of Default under this Indenture or a breach or
violation of, or constitute a default under, any other instrument to which
the Company or any Subsidiary of the Company is a party or by which it or
its property is bound;
(iii) the Company shall have delivered to the Trustee an
Opinion of Counsel from independent counsel reasonably satisfactory to the
Trustee accompanied by a ruling of the Internal Revenue Service issued to
the Company or based on a change in law occurring after the date hereof to
the effect that the Holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and
will be subject to Federal income tax in the same amounts and in the same
manner and at the same time as would have been the case if such deposit and
defeasance had not occurred;
(iv) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the
deposit, such U.S. Legal Tender or the proceeds of such U.S. Government
Obligations will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditor rights
generally; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each in form and substance
reasonably satisfactory to the Trustee, each stating that all conditions
precedent relating to either the Legal Defeasance under Section 8.1(b) or
the Covenant Defeasance under Section 8.1(c), as the case may be, have
been complied with as contemplated by this Section 8.1(d); provided,
--------
however, that no deposit under clause (i) above shall be effective to
-------
terminate the obligations of the Company under the Securities or this
Indenture prior to 90 days following any such deposit.
The Company will pay any taxes or other expenses incurred by any trust
created pursuant to this Article VIII.
SECTION 8.2 Application of Trust Money.
--------------------------
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S.
Government Obligations deposited with it pursuant to Section 8.1, and shall
apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of the Accreted
Value of or the principal of and interest on the Securities. The Trustee shall
be under no obligation to invest said U.S. Legal Tender or U.S. Government
Obligations except as it may agree with the Company.
SECTION 8.3 Repayment to the Company.
------------------------
Subject to Section 8.1, the Trustee and the Paying Agent shall promptly pay
to the Company upon request any excess U.S. Legal Tender or U.S. Government
Obligations held by them at any time and thereupon shall be relieved from all
liability with respect to such money. The Trustee and the Paying Agent shall
pay to the Company upon request
46
<PAGE>
any money held by them for the payment of Accreted Value, principal or interest
that remains unclaimed for two years; provided that the Trustee or such Paying
--------
Agent, before being required to make any payment, may at the expense of the
Company cause to be published once in a newspaper of general circulation in the
City of New York or mail to each Holder entitled to such money notice that such
money remains unclaimed and that after a date specified therein which shall be
at least 30 days from the date of such publication or mailing any unclaimed
balance of such money then remaining will be repaid to the Company. After
payment to the Company, Securityholders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person.
SECTION 8.4 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or
U.S. Government Obligations in accordance with Section 8.1 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.1 until such time as the Trustee or Paying Agent is permitted to apply
all such U.S. Legal Tender or U.S. Government Obligations in accordance with
Section 8.1; provided that if the Company has made any payment of interest on or
--------
principal of any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the U.S. Legal Tender or U.S. Government Obligations
held by the Trustee or Paying Agent.
SECTION 8.5 Acknowledgment of Discharge by Trustee.
--------------------------------------
After (a) the conditions of Section 8.1 have been satisfied, (b) the
Company has paid or caused to be paid all other sums payable hereunder by the
Company and (c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (a), above, relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.1.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
SECTION 9.1 Without Consent of Holders.
--------------------------
Without the consent of any Holders, the Company, when authorized by
resolutions of its Board of Directors (copies of which shall be delivered to the
Trustee) and the Trustee may amend or supplement this Indenture or the
Securities without notice to any Holder for any of the following purposes:
(a) to cure any ambiguity, defect or inconsistency herein;
provided that such amendment or supplement does not adversely affect the rights
- --------
of any Holder in any respect;
(b) to make any change that would provide any additional rights
or benefits to Holders of the Securities;
(c) to provide for collateral for the Securities;
(d) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to evidence the succession in accordance with Article V
hereof of another Person to the Company and the assumption by any such successor
of the covenants of the Company herein and in the Securities; or
47
<PAGE>
(g) to make any other change that does not adversely affect the
rights of any Holder; provided that in making such change, the Trustee may rely
--------
upon an Opinion of Counsel stating that such change does not adversely affect
the rights of any Holder.
SECTION 9.2 With Consent of Holders.
-----------------------
Subject to Section 6.7 and the provisions of this Section 9.2, the
Company, when authorized by resolution of its Board of Directors (copies of
which shall be delivered to the Trustee), and the Trustee may amend or
supplement this Indenture with the written consent of the Holders of at least a
majority in aggregate principal amount at maturity of the Securities then
outstanding. Subject to Section 6.7 and the provisions of this Section 9.2, the
Holders of, in the aggregate, at least a majority in principal amount at
maturity of the then outstanding Securities affected may waive compliance by the
Company with any provision of this Indenture without notice to any other
Securityholder. However, without the consent of each Securityholder affected, an
amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may
not:
(a) reduce the principal amount at maturity of, extend the fixed
maturity of, or alter the redemption provisions of, the Securities 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;
(b) change the currency in which any Securities or any premium
or the accrued interest thereon is payable;
(c) reduce the percentage in principal amount at maturity
outstanding of Securities who must consent to an amendment, supplement or waiver
or consent to take any action under this Indenture or the Securities;
(d) impair the right to institute suit for the enforcement of
any payment on or with respect to the Securities;
(e) waive a default in payment with respect to the Securities;
(f) reduce the rate or extend the time for payment of interest
on the Securities;
(g) alter the obligation to purchase the Securities 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;
(h) affect the ranking of the Securities in a manner adverse to
the holder of any Securities.
(i) make any change in Section 6.4, 6.7 or this Section 9.2;
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
In connection with any amendment, supplement or waiver under this Article
IX, the Company may, but shall not be obligated to, offer to any Holder who
consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities shall
be set forth in a supplemental indenture that complies with the TIA as then in
effect.
48
<PAGE>
SECTION 9.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of that Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to his Security or portion of a Security. Such revocation shall be effective
only if the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective. Notwithstanding the above,
nothing in this paragraph shall impair the right of any Securityholder under
(S)316(b) of the TIA.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver which record date shall be at least 10 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the second and third sentences of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders after such record date. Such
consent shall be effective only for actions taken within 90 days after such
record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Securityholder unless it makes a change described in any of clauses (a)
through (h) of Section 9.2. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it.
SECTION 9.5 Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may (in accordance with the specific direction of the Company) request
the Holder of the Security to deliver it to the Trustee. The Trustee may (in
accordance with the specific direction of the Company) place an appropriate
notation on the Security about the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Security shall issue and the Trustee shall authenticate a new
Security that reflects the changed terms. Failure to make the appropriate
notation or issue a new Security shall not affect the validity and effect of
such amendment, supplement or waiver.
SECTION 9.6 Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article IX if the amendment, supplement or waiver does not
adversely affect the rights, duties or immunities of the Trustee. If it does,
the Trustee may, but need not, sign it. In signing any amendment, supplement or
waiver, the Trustee shall be entitled to receive, if requested, an indemnity
reasonably satisfactory to it and to receive, and shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
the execution of any amendment, supplement or waiver authorized pursuant to this
Article IX is authorized or permitted by this Indenture. The Company may not
sign an amendment until its Board of Directors approves it.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 Trust Indenture Act Controls.
----------------------------
The provisions of TIA (S) (S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by the above paragraph, the imposed duties shall control.
49
<PAGE>
SECTION 10.2 Notices.
-------
Any notice or communication shall be sufficiently given if in writing and
delivered in person or mailed by first-class mail or by telecopier, followed by
first-class mail, or by overnight service guaranteeing next-day delivery,
addressed as follows:
(a) if to the Company:
UIH AUSTRALIA/PACIFIC, INC.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: Chief Executive Officer
Telecopier Number: (303) 796-7220
with, in the case of any notice or communication furnished pursuant to
Article VI, a copy to:
Holme Roberts & Owen LLP
1700 Lincoln Street, #4100
Denver, Colorado 80203
Attention: Garth B. Jensen, Esq.
Telecopier Number: (303) 866-0200
(b) if to the Trustee:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101-1860
Attention: Corporate Trust Administration Department
Telecopier Number: (612) 229-6415
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Security-holder, including any
notice delivered in connection with TIA (S) 310(b), TIA (S) 313(c), TIA (S)
314(a) and TIA (S) 315(b), shall be mailed to such Holder, first-class postage
prepaid, at his address as it appears on the registration books of the Registrar
and shall be sufficiently given to such Holder if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.3 Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c)
SECTION 10.4 Certificate and Opinion of Counsel as to Conditions-
---------------------------------------------------
Precedent.
- ---------
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee (a) an Officers' Certificate in form and substance
50
<PAGE>
reasonably satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with (which officer signing
such certificate may rely, as to matters of law, on an Opinion of Counsel), (b)
an Opinion of Counsel in form and substance reasonably satisfactory to the
Trustee stating that, in the opinion of counsel, all such conditions have been
complied with (which counsel, as to factual matters, may rely on an Officers'
Certificate and certificates of public officials) and (c) where applicable, a
certificate or opinion by an independent certified public accountant
satisfactory to the Trustee that complies with TIA (S) 314(c).
SECTION 10.5 Statements Required in Certificate and Opinion of Counsel.
---------------------------------------------------------
Each certificate and Opinion of Counsel with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or
rendering such Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in such
certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 10.6 Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Securityholders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.7 Legal Holidays.
--------------
If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
SECTION 10.8 Governing Law.
-------------
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE
SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY AGREES
TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE
SECURITIES.
SECTION 10.9 No Recourse Against Others.
--------------------------
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Securities.
SECTION 10.10 Successors.
----------
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
51
<PAGE>
SECTION 10.11 Counterparts.
------------
The parties may sign any number of counterparts of this Indenture. Each
such counterpart shall be an original, but all of them together represent the
same agreement.
SECTION 10.12 Severability.
------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SECTION 10.13 Table of Contents, Headings, Etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, and are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 10.14 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 10.15 Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture or the Securities.
SECTION 10.16 Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture shall be given independent
effect so that if any particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or
otherwise be within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
[Signatures on following page]
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
UIH AUSTRALIA/PACIFIC, INC.,
as Issuer
By: /s/ J. Timothy Bryan
--------------------------------
Name: J. Timothy Bryan
Title: Chief Financial Officer
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
FIRSTAR BANK OF MINNESOTA, N.A.
as Trustee
By: /s/ Frank P. Leslie III
--------------------------------
Name: Frank P. Leslie III
Title: Vice President
53
<PAGE>
EXHIBIT A-1
-----------
[FORM OF SERIES C SECURITY]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY
MAY NOT BE OFFERED, SOLD ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY
IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c) OR (d), BASED UPON AN
OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OR
ANY SECURITY ISSUED IN EXCHANGE FOR OR IN SUBSTITUTION HEREOF OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, AS OF THE ISSUE
DATE, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH
$1,000 PRINCIPAL AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS $665.00; (2)
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $335.00; (3) THE ISSUE DATE IS
SEPTEMBER 23, 1997; (4) THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS
12.79% IF AN EQUITY SALE IS CONSUMMATED ON SEPTEMBER 23, 1997 OR 13.54% IF AN
EQUITY SALE IS NOT CONSUMMATED PRIOR TO MATURITY. THESE AMOUNTS ARE SUBJECT TO
CHANGE.
A-1(1)
<PAGE>
No. $__________
UIH AUSTRALIA/PACIFIC, INC.
14% SERIES C SENIOR DISCOUNT NOTE DUE 2006
UIH AUSTRALIA/PACIFIC, INC. promises to pay to
or registered assigns the principal sum of
Dollars on May 15, 2006.
Interest Payment Dates: May 15 and November 15,
commencing November 15, 2001
Record Dates: May 1 and November 1
By:
-------------------------------------
Authorized Signature
By:
-------------------------------------
Authorized Signature
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the 14% Series C Senior Discount Notes due 2006 referred to
in the within-mentioned Indenture.
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
By:
-------------------------------------
Authorized Signatory
A-1(2)
<PAGE>
(REVERSE OF SECURITY)
14% SERIES C SENIOR DISCOUNT NOTE DUE 2006
1. Interest. UIH AUSTRALIA/PACIFIC, INC., a Colorado corporation (the
--------
"Company", which term shall include any successor thereto in accordance with the
Indenture), promises to pay, until the principal hereof is paid or made
available for payment, interest on the Accreted Value at the Interest Rate.
Cash interest on the Securities will accrue from and including the most recent
date to which interest has been paid or, if no interest has been paid, from and
including November 15, 2001. Cash interest shall be payable in arrears on May
15 and November 15 (each an "Interest Payment Date"), commencing November 15,
2001. Cash interest will be computed on the basis of a 360-day year of twelve
full 30- day months. "Accreted Value" means, as of any date of determination,
the sum (rounded to the nearest whole dollar) of (a) the initial offering price
for each $1,000 principal amount at maturity of Securities and (b) the portion
of the excess of the principal amount of Securities over such initial offering
price 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
Securities through the earlier of (x) the date of determination and (y) May 15,
2001; "Interest Rate" means, at any time, 14% per annum; provided that if an
Equity Sale has not been consummated on or prior to May 15, 1997, then from (and
including) such date through (but excluding) the date of the consummation of an
Equity Sale, the "Interest Rate" shall be increased by 0.75% per annum.
Capitalized terms used herein without definition have the meanings set forth in
the Indenture.
2. Method of Payment. The Company will pay cash interest on the
-----------------
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the May 1 or November 1 next preceding
the Interest Payment Date. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal, premium, if any,
and cash interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. At the Company's option,
interest may be paid by check mailed to the registered address of the Holder of
this Security.
3. Paying Agent and Registrar. Initially, American Bank National
--------------------------
Association (the "Trustee", which term shall include any successor thereto in
accordance with the Indenture) will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice.
4. Indenture. The Company issued the Securities under an Indenture dated
---------
as of September 23, 1997 (the "Indenture") between the Company and the Trustee.
This Security is one of an issue of Securities of the Company issued under the
Indenture. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as amended from time to time. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and such Act for a statement of them. Capitalized terms used
herein and not otherwise defined have the meanings set forth in the Indenture.
The Securities are general unsecured senior obligations of the Company limited
in aggregate principal amount at maturity to $45,000,000 except (x) as provided
in Section 2.7 of the Indenture or (y) as required to give effect to an increase
in the Interest Rate if an Equity Sale has not been consummated on or prior to
May 15, 1997.
5. Optional Redemption. The Securities will be redeemable, in whole or
-------------------
in part, at any time on or after May 15, 2001 at the option of the Company, 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%
</TABLE>
A-1(3)
<PAGE>
<TABLE>
<S> <C>
2002.................. 104.67%
2003.................. 102.33%
2004 and thereafter... 100.00%
</TABLE>
Notwithstanding the foregoing, on or prior to May 15, 1999, the Company 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 Company (or any person of which the
Company 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
Securities from the holders of Securities, 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 Securities are outstanding immediately thereafter;
provided, further, that in the case of a Public Equity Offering by, or an
- -------- -------
investment by a Strategic Equity Investor in, a person of which the Company is a
direct Subsidiary, such person contributes to the capital of the Issuer net cash
proceeds in an amount sufficient to redeem Securities 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 Company shall send the redemption notice not
later than 60 days after the consummation thereof.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
--------------------
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. If any Security is to be
redeemed in part only, the notice of redemption that relates to such Security
shall state the portion of the principal amount thereof to be redeemed. On and
after the Redemption Date, unless the Company defaults in making the redemption
payment, interest ceases to accrue on or Accreted Value ceases to accumulate on,
as the case may be, Securities or portions thereof called for redemption.
7. Offers to Purchase. Sections 4.13 and 4.15 of the Indenture provide
------------------
that after an Asset Sale, or upon the occurrence of a Change of Control, and
subject to further limitations contained therein, the Company shall make an
offer to purchase certain amounts of Securities in accordance with the
procedures set forth in the Indenture.
8. Denominations, Transfer, Exchange. The Securities are in registered
---------------------------------
form without coupons in denominations of $1,000 and integral multiples of
$1,000. A Holder may register the transfer of or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay to
it any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Security or portion
of a Security selected for redemption, or register the transfer of or exchange
any Securities for a period of 15 days before a selection of Securities to be
redeemed.
9. Persons Deemed Owners. The Holder of a Security may be treated as the
---------------------
owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or interest
---------------
remains unclaimed for two years, the Trustee or Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to the money
must look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
11. Amendment, Supplement, Waiver. The Company and the Trustee may,
-----------------------------
without the consent of the Holders of any outstanding Securities, amend, waive
or supplement the Indenture or the Securities for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act of
1939 or making any other change that does not adversely affect the rights of any
Holder. Other amendments and modifications of the Indenture or the Securities
may be made by the Company and the Trustee with the consent of the Holders of
not less than a majority of the aggregate principal amount of the outstanding
Securities, subject to certain exceptions requiring the consent of the Holders
of the particular Securities to be affected.
12. Successor Corporation. When a successor corporation assumes all the
---------------------
obligations of its predecessor under the Securities and the Indenture and the
transaction complies with the terms of Article V of the Indenture, the
predecessor corporation will, subject to certain exceptions, be released from
those obligations.
A-1(4)
<PAGE>
13. Defaults and Remedies. Events of Default include: default in payment
---------------------
of interest on, or Liquidated Damages, if any, with respect to, any Security for
30 days; default in payment of principal or Accreted Value, as the case may be,
of or premium on the Securities at maturity, or upon acceleration, redemption or
otherwise; failure by the Company to comply with certain provisions of the
Indenture; failure by the Company for 30 days after written notice to it from
the Trustee or Holders of at least 25% in principal amount at maturity of the
then outstanding Securities to comply with any of its other agreements in the
Indenture or the Securities; certain defaults under other Indebtedness; certain
final judgments that remain undischarged for 60 days after being entered; and
certain events of bankruptcy or insolvency with respect to the Company and its
Restricted Subsidiaries. If an Event of Default occurs and is continuing, then
the Trustee or the Holders of at least 25% in principal amount at maturity of
the then outstanding Securities may and the Trustee upon request of the Holders
of not less than 25% in principal amount at maturity of the outstanding
Securities shall, declare the Default Amount of, and any accrued and unpaid
interest on, all outstanding Securities to be immediately due and payable and
upon any such declaration such amounts (plus, in the case of an Event of Default
that is the result of an action by the Company or any of its Restricted
Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Securities contained in the Indenture or the Securities, an
amount of premium that would have been applicable pursuant to the Securities or
as set forth in the Indenture) shall become immediately due and payable, except
that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Securities become due and payable
immediately without further action or notice. Holders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (except a Default or an Event of Default
in payment of principal or interest and the failure to make payment when
required by Sections 4.13 and 4.15 or the failure by the Company to observe the
provisions of Article V of the Indenture) if and so long as a committee of its
Trust Officers determines in good faith that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
14. Restrictive Covenants. The Indenture imposes certain limitations on
---------------------
the ability of the Company and its Subsidiaries to, among other things, make
Restricted Payments, incur additional Indebtedness and issue preferred stock,
pay dividends and make distributions, make Restricted Investments, create
certain Liens, engage in certain businesses, enter into certain transactions
with Affiliates, sell assets, or enter into certain mergers and consolidations.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
15. Trustee Dealings with Company. The Trustee, in its individual any
-----------------------------
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
16. No Recourse Against Others. No past, present or future director,
--------------------------
officer, employee, incorporator or stockholder of the Company, as such, shall
have any liability for any obligations of the Company under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
17. Discharge. The Company's obligations pursuant to the Indenture will
---------
be discharged, except for certain specified obligations, subject to the terms of
the Indenture, upon the payment of all the Securities or upon the irrevocable
deposit with the Trustee of U.S. Legal Tender or U.S. Government Obligations
sufficient to pay when due principal or the interest on the Securities to
maturity or redemption, as the case may be.
18. Authentication. This Security shall not be valid until the Trustee
--------------
signs the certificate of authentication on the other side of this Security.
19. Registration Rights. Pursuant to the Registration Rights Agreement,
-------------------
the Company will be obligated to consummate an exchange offer pursuant to which
the Holder of this Security shall have the right to exchange this Security for
Securities of a separate series issued under the Indenture (or a trust indenture
substantially identical to the Indenture in accordance with the terms of the
Registration Rights Agreement) which have been registered under the
A-1(5)
<PAGE>
Securities Act, in like principal amount and having identical terms as this
Security. The Holders of the Securities shall be entitled to receive certain
additional interest payments in the event such exchange offer is not consummated
and upon certain other conditions, all pursuant to and in accordance with the
terms of the Registration Rights Agreement.
20. Abbreviations. Customary abbreviations may be used in the name of a
-------------
Securityholder or an assignee, such as: TEN COM (= tenants in common), TENANT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
UIH AUSTRALIA/PACIFIC, INC.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: Chief Executive Officer
A-1 (6)
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
-----------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) May 15, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A thereunder.
or
- --
[ ] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the conditions of
transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.15 of the Indenture shall have
been satisfied.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1 (7)
<PAGE>
Date: Your signature:
---------------- -----------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
- -------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
---------------------- ------------------------------------------------
NOTICE: To be executed by an executive officer
A-1 (8)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 4.13 or 4.15 of the Indenture, check the Box: [_]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 4.13 or 4.15 of the Indenture, state the amount:
$
-------------
Date: Your Signature:
------------------------- -----------------------------
(Sign exactly as your name appears on the other side of
this Security)
Signature Guarantee:
-----------------------
A-1 (9)
<PAGE>
EXHIBIT A-2
------------
[FORM OF SERIES D SECURITY]
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS SECURITY IS
BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY, (1) THE ISSUE PRICE IS $665.00; (2) THE AMOUNT OF ORIGINAL ISSUE
DISCOUNT IS $335.00; (3) THE ISSUE DATE IS SEPTEMBER 23, 1997; AND (4) THE YIELD
TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 12.79% IF AN EQUITY SALE IS
CONSUMMATED ON SEPTEMBER 23, 1997 OR 13.54% IF AN EQUITY SALE IS NOT CONSUMMATED
PRIOR TO MATURITY.
No. [ ] $[ ]
UIH AUSTRALIA/PACIFIC, INC.
14% SERIES D SENIOR DISCOUNT NOTE DUE 2006
UIH AUSTRALIA/PACIFIC, INC. promises to pay to
or registered assigns the principal sum of
Dollars on May 15, 2006.
Interest Payment Dates: May 15 and November 15, commencing November 15, 2001
Record Dates: May 1 and November 1
By:
-------------------------------------
Authorized Signature
By:
-------------------------------------
Authorized Signature
Dated: September 23, 1997
CERTIFICATE OF AUTHENTICATION
This is one of the 14% Series D Senior Discount Notes due 2006 referred to
in the within-mentioned Indenture.
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
By:
----------------------------------------
Authorized Signatory
A-2 (1)
<PAGE>
(REVERSE OF SECURITY)
14% SERIES D SENIOR DISCOUNT NOTE DUE 2006
1. Interest. UIH AUSTRALIA/PACIFIC, INC., a Delaware corporation (the
--------
"Company", which term shall include any successor thereto in accordance with the
Indenture), promises to pay, until the principal hereof is paid or made
available for payment, interest on the Accreted Value at the Interest Rate.
Cash interest on the Securities will accrue from and including the most recent
date to which interest has been paid or, if no interest has been paid, from and
including November 15, 2001. Cash interest shall be payable in arrears on May
15 and November 15 (each an "Interest Payment Date"), commencing November 15,
2001. Cash interest will be computed on the basis of a 360-day year of twelve
full 30- day months. "Accreted Value" means, as of any date of determination,
the sum (rounded to the nearest whole dollar) of (a) the initial offering price
for each $1,000 principal amount at maturity of Securities and (b) the portion
of the excess of the principal amount of Securities over such initial offering
price 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
Securities through the earlier of (x) the date of determination and (y) May 15,
2001; "Interest Rate" means, at any time, 14% per annum; provided that if an
Equity Sale has not been consummated on or prior to May 15, 1997, then from (and
including) such date (but excluding) the date of the consummation of an Equity
Sale, the "Interest Rate" shall be increased by 0.75% per annum. Capitalized
terms used herein without definition have the meanings set forth in the
Indenture.
2. Method of Payment. The Company will pay cash interest on the
-----------------
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the May 1 or November 1 next preceding
the Interest Payment Date. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal, premium, if any,
and cash interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. At the Company's option,
interest may be paid by check mailed to the registered address of the Holder of
this Security.
3. Paying Agent and Registrar. Initially, American Bank National
--------------------------
Association (the "Trustee", which term shall include any successor thereto in
accordance with the Indenture) will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice.
4. Indenture. The Company issued the Securities under an Indenture dated
---------
as of September 23, 1997 (the "Indenture") between the Company and the Trustee.
This Security is one of an issue of Securities of the Company issued under the
Indenture. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code (S) (S) 77aaa-77bbbb) as amended from time to time. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and such Act for a statement of them. Capitalized terms used
herein and not otherwise defined have the meanings set forth in the Indenture.
The Securities are general unsecured senior obligations of the Company limited
in aggregate principal amount at maturity to $45,000,000 except (x) as provided
in Section 2.7 of the Indenture or (y) as required to give effect to an increase
in the Interest Rate if an Equity Sale has not been consummated on or prior to
May 15, 1997.
5. Optional Redemption. The Securities will be redeemable, in whole or
-------------------
in part, at any time on or after May 15, 2001 at the option of the Company, 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>
A-2 (2)
<PAGE>
Notwithstanding the foregoing, on or prior to May 15, 1999, the Company
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 Company (or any person of which
the Company 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 Securities from the holders of Securities, 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 Securities are outstanding immediately
thereafter; provided, further, that in the case of a Public Equity Offering by,
-------- -------
or an investment by a Strategic Equity Investor in, a person of which the
Company is a direct Subsidiary, such person contributes to the capital of the
Issuer net cash proceeds in an amount sufficient to redeem Securities 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 Company shall send the redemption
notice not later than 60 days after the consummation thereof.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
--------------------
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. If any Security is to be
redeemed in part only, the notice of redemption that relates to such Security
shall state the portion of the principal amount thereof to be redeemed. On and
after the Redemption Date, unless the Company defaults in making the redemption
payment, interest ceases to accrue on or Accreted Value ceases to accumulate on,
as the case may be, Securities or portions thereof called for redemption.
7. Offers to Purchase. Sections 4.13 and 4.15 of the Indenture provide
------------------
that after an Asset Sale, or upon the occurrence of a Change of Control, and
subject to further limitations contained therein, the Company shall make an
offer to purchase certain amounts of Securities in accordance with the
procedures set forth in the Indenture.
8. Denominations, Transfer, Exchange. The Securities are in registered
---------------------------------
form without coupons in denominations of $1,000 and integral multiples of
$1,000. A Holder may register the transfer of or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay to
it any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities for a
period of 15 days before a selection of Securities to be redeemed.
9. Persons Deemed Owners. The Holder of a Security may be treated as the
---------------------
owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or interest
---------------
remains unclaimed for two years, the Trustee or Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to the money
must look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
11. Amendment, Supplement, Waiver. The Company and the Trustee may,
-----------------------------
without the consent of the Holders of any outstanding Securities, amend, waive
or supplement the Indenture or the Securities for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
maintaining the qualification of the Indenture under the Trust Indenture Act of
1939 or making any other change that does not adversely affect the rights of any
Holder. Other amendments and modifications of the Indenture or the Securities
may be made by the Company and the Trustee with the consent of the Holders of
not less than a majority of the aggregate principal amount of the outstanding
Securities, subject to certain exceptions requiring the consent of the Holders
of the particular Securities to be affected.
12. Successor Corporation. When a successor corporation assumes all the
---------------------
obligations of its predecessor under the Securities and the Indenture and the
transaction complies with the terms of Article V of the Indenture, the
predecessor corporation will, subject to certain exceptions, be released from
those obligations.
13. Defaults and Remedies. Events of Default include: default in payment
---------------------
of interest on, or Liquidated Damages, if any, with respect to, any Security for
30 days; default in payment of principal or Accreted Value, as the case may be,
of or premium on the Securities at maturity, or upon acceleration, redemption or
otherwise; failure by the Company to comply with certain provisions of the
Indenture; failure by the Company for 30 days after written notice to
A-2 (3)
<PAGE>
it from the Trustee or Holders of at least 25% in principal amount at maturity
of the then outstanding Securities to comply with any of its other agreements in
the Indenture or the Securities; certain defaults under other Indebtedness;
certain final judgments that remain undischarged for 60 days after being
entered; and certain events of bankruptcy or insolvency with respect to the
Company and its Restricted Subsidiaries. If an Event of Default occurs and is
continuing, then the Trustee or the Holders of at least 25% in principal amount
at maturity of the then outstanding Securities may and the Trustee upon request
of the Holders of not less than 25% in principal amount at maturity of the
outstanding Securities shall, declare the Default Amount of, and any accrued and
unpaid interest on, all outstanding Securities to be immediately due and payable
and upon any such declaration such amounts (plus, in the case of an Event of
Default that is the result of an action by the Company or any of its Restricted
Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Securities contained in the Indenture or the Securities, an
amount of premium that would have been applicable pursuant to the Securities or
as set forth in the Indenture) shall become immediately due and payable, except
that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Securities become due and payable
immediately without further action or notice. Holders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders notice of any
continuing Default or Event of Default (except a Default or an Event of Default
in payment of principal or interest and the failure to make payment when
required by Sections 4.13 and 4.15 or the failure by the Company to observe the
provisions of Article V of the Indenture) if and so long as a committee of its
Trust Officers determines in good faith that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
14. Restrictive Covenants. The Indenture imposes certain limitations on
---------------------
the ability of the Company and its Subsidiaries to, among other things, make
Restricted Payments, incur additional Indebtedness and issue preferred stock,
pay dividends and make distributions, make Restricted Investments, create
certain Liens, engage in certain businesses, enter into certain transactions
with Affiliates, sell assets, or enter into certain mergers and consolidations.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
15. Trustee Dealings with Company. The Trustee, in its individual or any
-----------------------------
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
16. No Recourse Against Others. No past, present or future director,
--------------------------
officer, employee, incorporator or stockholder of the Company, as such, shall
have any liability for any obligations of the Company under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
17. Discharge. The Company's obligations pursuant to the Indenture will
---------
be discharged, except for certain specified obligations, subject to the terms of
the Indenture, upon the payment of all the Securities or upon the irrevocable
deposit with the Trustee of U.S. Legal Tender or U.S. Government Obligations
sufficient to pay when due principal or the interest on the Securities to
maturity or redemption, as the case may be.
18. Authentication. This Security shall not be valid until the Trustee
--------------
signs the certificate of authentication on the other side of this Security.
19. Registration Rights. Pursuant to the Registration Rights Agreement,
-------------------
the Company will be obligated to consummate an exchange offer pursuant to which
the Holder of this Security shall have the right to exchange this Security for
Securities of a separate series issued under the Indenture (or a trust indenture
substantially identical to the Indenture in accordance with the terms of the
Registration Rights Agreement) which have been registered under the Securities
Act, in like principal amount and having identical terms as this Security. The
Holders of the Securities shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
A-2 (4)
<PAGE>
20. Abbreviations. Customary abbreviations may be used in the name of a
-------------
Securityholder or an assignee, such as: TEN COM (= tenants in common), TENANT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
UIH AUSTRALIA/PACIFIC, INC.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: Chief Executive Officer
A-2 (5)
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
agent to transfer this Security on the
------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
books of the Company. The agent may substitute another to act for him.
Date: Your signature:
----------------------- ------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:
--------------------------------------
A-2 (6)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 4.13 or 4.15 of the Indenture, check the Box: [_]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 4.13 or 4.15 of the Indenture, state the amount:
$
---------------
Date: Your Signature:
------------------------- --------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:
---------------------------
A-2 (7)
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY
IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
---------
Form of Certificate to Be
Delivered in Connection With
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_______________, ___
FIRSTAR BANK OF MINNESOTA, N.A.
Attention: Corporate Trust Administration Department
Re: UIH Australia/Pacific, Inc. (the "Company")
14% Senior Discount Notes due 2006
(the "Securities")
------------------
Dear Sirs:
In connection with our proposed purchase of $[ ] aggregate principal
amount of the Securities, we confirm that:
1. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture dated
as of September 23, 1997, relating to the Securities (the "Indenture") and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the Securities have not been registered under the
Securities Act, and we agree, on our own behalf and on behalf of each account
for which we acquire any Securities, that such Securities may be offered,
resold, pledged or otherwise transferred only (i) to a person whom we reasonably
believe to be a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or in accordance with
another exemption from the registration requirements of the Securities Act (and,
unless such transfer occurs in a transaction meeting the requirements of Rule
144A, based upon an opinion of counsel if the Company so requests), (ii) to the
Company or (iii) pursuant to an effective registration statement, and, in each
case, in accordance with any applicable securities laws of any State of the
United States or any other applicable jurisdiction. We understand that the
registrar will not be required to accept for registration of transfer any
Securities, except upon presentation of evidence satisfactory to the Company
that the foregoing restrictions on transfer have been complied with. We further
understand that the Securities purchased by us will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph. We further agree to provide to any person
acquiring any of the Securities from us a notice advising such person that
resales of the Securities are restricted as stated herein.
3. We understand that, on any proposed resale of any Securities, we will
be required to furnish to you and the Company such certification, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Securities purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any accounts
for which we are acting are each able to bear the economic risk of our or its
investment, as the case may be.
C-1
<PAGE>
5. We are acquiring the Securities purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
----------------------
Authorized Signature
C-2
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be Delivered
In Connection with Transfers
Pursuant to Regulation S
------------------------
- -----------, ---
FIRSTAR BANK OF MINNESOTA, N.A.
Attention: Corporate Trust Administration Department
Re: UIH Australia/Pacific, Inc. (the "Company")
14% Senior Discount Notes due 2006
(the "Securities")
---------------
Dear Sirs:
In connection with our proposed sale of $[ ] aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States, or (b) the
transaction was executed in, on or through the facilities of a designated off-
shore securities market and neither we nor any person acting on our behalf knows
that the transaction has been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions applicable
to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
----------------------------------
Authorized Signature
D-1
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EXHIBIT 5.1
[Letterhead of Holme Roberts & Owen, LLP]
November 5, 1997
Board of Directors
UIH Australia/Pacific, Inc.
4643 South Ulster Street, #1300
Denver, Colorado 80237
Re: UIH Australia/Pacific, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
As counsel for UIH Australia/Pacific, Inc., a Colorado corporation (the
"Company"), we have examined the above-referenced Registration Statement on Form
S-4 under the Securities Act of 1933, as amended (the "Registration Statement"),
that the Company is filing with respect to the offer to exchange 14% Senior
Discount Notes due 2006, Series D (the "New Notes") for all outstanding 14%
Senior Discount Notes due 2006, Series C (the "Old Notes").
We have examined the Company's Articles of Incorporation, as amended, By-laws
and the record of its corporate proceedings and have made such other
investigation as we have deemed necessary in order to express the opinion set
forth below.
Based on such investigation, it is our opinion that the New Notes, when
exchanged for the Old Notes, will be legally issued and will constitute binding
obligations of the Company.
We hereby consent to all references to us in the Registration Statement and all
amendments to the Registration Statement. We further consent to the use of this
opinion as an exhibit to the Registration Statement.
Holme Roberts & Owen LLP
By: /s/ Garth B. Jensen
-------------------------------
Garth B. Jensen, Partner
<PAGE>
EXHIBIT 8.1
November 6, 1997
UIH Australia/Pacific, Inc.
4643 South Ulster Street
Denver, Colorado 80237
Re: Exchange of 14% Senior Discount Notes Due 2006, Series C, for 14% Senior
Discount Notes Due 2006, Series D
Ladies and Gentlemen:
This opinion is given in connection with the proposed offering by UIH
Australia/Pacific, Inc., a Colorado corporation (the "Company"), of its 14%
Senior Discount Notes Due 2006, Series D, in exchange for its 14% Senior
Discount Notes Due 2006, Series C, issued on September 23, 1997, as described in
the registration statement on Form S-4 to be filed with the Securities and
Exchange Commission on November 6, 1997 (the "Registration Statement").
Capitalized terms used in this letter that are not otherwise defined herein have
the same meaning given to them in the Registration Statement.
Our opinion 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. Our opinion also is based on the facts set forth in the
Registration Statement, the Note Documents (as that term is defined in the
representation letter, dated November 6, 1997, from you), which we assume set
forth the complete agreement among the parties with respect to the Notes), and
on certain representations from you with respect to factual matters, which
representations we have not independently verified. We assume that all Note
Documents have been or will be properly executed and will be valid and binding
when executed.
We have prepared the discussion included in the Registration Statement under the
caption "Certain United States Federal Income Tax Considerations." It is our
opinion that the discussion under that caption describes the material United
States federal income tax consequences expected to result to the Holders,
subject to the conditions, limitations, and assumptions described therein.
The discussion does not cover all aspects of federal taxation that may be
relevant to, or the actual tax effect that any of the matters described therein
will have on, any particular Holder, and it does not address foreign, state, or
local tax
<PAGE>
UIH Australia/Pacific, Inc.
November 6, 1997
Page 2
consequences. The discussion does not cover the tax consequences that might be
applicable to Holders that are 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). The discussion
does not address the federal income tax consequences that may result from a
modification of the Notes.
Our opinion may change if the applicable law changes, if any of the facts with
respect to the Notes (as included in the Registration Statement, the Note
Documents, and the representations made by you) are inaccurate, incomplete or
change, or if the conduct of the parties is materially inconsistent with the
facts reflected in the Registration Statement, the Note Documents, or the
representations.
Our opinion represents only our legal judgment based on current law and the
facts as described above. Our opinion has no binding effect on the Internal
Revenue Service or the courts. The Service may take a position contrary to our
opinion, and if the matter is litigated, a court may reach a decision contrary
to the opinion.
We hereby consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name therein.
Very truly yours,
HOLME ROBERTS & OWEN LLP
By: /s/ Robert J. Welter
------------------------------
Robert J. Welter, Partner
<PAGE>
EXHIBIT 10.2
UIH AUSTRALIA/PACIFIC, INC.
$45,000,000
14% Series C Senior Discount Notes due 2006
of UIH Australia/Pacific, Inc.
PURCHASE AGREEMENT
September 16, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Ladies & Gentlemen:
UIH Australia/Pacific, Inc. (the "Company"), a Colorado corporation, hereby
confirms its agreement with you as set forth below.
1. Issuance of Notes. The Company proposes to issue and sell to
Donaldson, Lufkin & Jenrette Securities Corporation (the "Purchaser")
$45,000,000 in aggregate principal amount at maturity of the Company's 14%
Series C Senior Discount Notes due 2006 (the "Series C Notes"). The Series C
Notes will be issued pursuant to the terms of an indenture (the "Indenture")
between the Company and Firstar Bank of Minnesota, N.A., as trustee (the
"Trustee").
The Series C Notes will be offered and sold to you pursuant to an exemption
from the registration requirements under the Securities Act of 1933, as amended
(the "Act"). The Company has prepared disclosure material dated September 16,
1997 (the "Offering Memorandum"), relating to the Company and the Series C
Notes.
Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Indenture.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Act, the Series C Notes
(and all securities issued in exchange therefor or in substitution thereof)
shall bear the following legend:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
<PAGE>
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED ONLY (1)(a) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c) OR
(d), BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (2) TO
THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY
OR ANY SECURITY ISSUED IN EXCHANGE FOR OR IN SUBSTITUTION HEREOF OF THE
RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
You have advised the Company that you will make offers (the "Exempt
Resales") of the Series C Notes purchased hereunder on the terms set forth in
the Offering Memorandum, as amended or supplemented, solely to persons whom you
reasonably believe to be "qualified institutional buyers," as defined in Rule
144A under the Act ("QIBs"). The QIBs that purchase the Series C Notes from the
Purchaser in the initial placement thereof are referred to herein as the
"Eligible Purchaser." The Purchaser will offer the Series C Notes to such QIBs
initially at a price equal to 66.50% of the principal amount at maturity
thereof. Such price may be changed by the Purchaser at any time without notice.
Holders (including subsequent transferees) of the Series C Notes will have
the registration rights set forth in the registration rights agreement to be
dated the Closing Date (as defined below) between the Company and the Purchaser
(the "Registration Rights Agreement") in substantially the form of Exhibit A
hereto, for so long as such Series C Notes constitute "Transfer Restricted
Securities" (as defined in the Registration Rights Agreement). Pursuant to the
Registration Rights Agreement, the Company will agree to file with the
Securities and Exchange Commission (the "Commission"), under the circumstances
and on the terms set forth therein, (i) a registration statement under the Act
(the "Exchange Offer Registration Statement") relating to the 14% Series D
Senior Discount Notes due 2006 (the "Exchange Notes" and together with the
Series C Notes, the "Securities") to be offered in exchange for the Series C
Notes (the "Exchange Offer"), and (ii) a shelf registration statement pursuant
to Rule 415 under the Act (the "Shelf Registration Statement") relating to the
resale by certain holders of the Series C Notes, and to use its best efforts to
cause such Registration Statements to be declared effective. Pursuant to the
Registration Rights Agreement, the Company will file a registration statement
(the "Registration Statement") for the purpose of registering the Exchange Notes
under the Act.
This Purchase Agreement (this "Agreement"), the Securities, the Indenture,
the Registration Rights Agreement and the warrant agreement in the form attached
to the Indenture as Exhibit E to the Indenture (the "Warrant Agreement") are
hereinafter referred to collectively as the "Transaction Documents."
2. Agreements to Sell and Purchase. On the basis of the representations
and warranties contained in this Agreement, and subject to its terms and
conditions, the Company agrees to issue and sell to you, and the Purchaser
agrees to purchase from the Company
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<PAGE>
the Series C Notes. The aggregate purchase price for the Series C Notes shall be
65.17% of their principal amount at maturity (the "Purchase Price").
3. Delivery and Payment. Delivery to the Purchaser of and payment for
the Series C Notes shall be made at 9:00 a.m., New York City time, on September
23, 1997 (the "Closing Date") at the offices of Skadden, Arps, Slate, Meagher &
Flom, LLP, 919 Third Avenue, New York, New York 10022, or such other time or
place as you and the Company shall designate.
One or more of the Series C Notes in definitive form, registered in the
name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), having
an aggregate principal amount corresponding to the aggregate principal amount of
the Series C Notes sold pursuant to Exempt Resales to QIBs (collectively, the
"Master Note") shall be delivered by the Company to you (or as you direct),
against payment by you of the Purchase Price therefor. On the Closing Date,
payment shall be made to the Company by wire transfer in immediately available
funds to such accounts with such financial institutions as the Company may
direct; provided, however, that, in the event that the Purchaser advance to the
Company the Purchase Price, but the closing does not take place prior to 1:30
p.m. New York City time on the Closing Date, or such later time as you and the
Company shall agree, the Company shall reimburse the Purchaser following the
Closing Date for one day's interest for each day (beginning with the Closing
Date and either (i) ending on, but not including, the date of the actual closing
if it occurs prior to 1:30 p.m. New York City time, or (ii) ending on, and
including, the business day immediately following the actual closing if it
occurs after 1:30 p.m. New York City time) accrued on the Purchase Price at the
Federal funds rate (on the Closing Date), plus 50 basis points. The Master Note
and Definitive Securities shall be made available to you for inspection not
later than 9:30 a.m. on the business day immediately preceding the Closing Date.
The parties hereto agree that in connection with the sale of the Series C Notes,
interest on the Series C Notes shall be deemed to commence to accrue on the
Closing Date notwithstanding the date of the actual closing hereunder.
4. Agreements of the Company. The Company agrees with each of you as
follows:
(a) To advise you promptly and, if requested by the Purchaser, confirm
such advice in writing, (i) of the issuance by any state securities commission
of any stop order suspending the qualification or exemption from qualification
of any of the Series C Notes for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state securities commission
or other regulatory authority, and (ii) of any change in the Company's condition
(financial or otherwise), business, prospects, properties, net worth or results
of operations, or of the happening of any event that makes any statement of a
material fact made in the Offering Memorandum untrue or that requires the making
of any additions to or changes in the Offering Memorandum in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. The Company shall use its best efforts to prevent the issuance
of any stop order or order suspending the qualification or exemption of any of
the Series C Notes under any state securities or Blue Sky laws, and if at any
time any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption of any of the Series C Notes
under any state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish you, without charge, with as many copies of the Offering
Memorandum, and any amendments or supplements thereto, as you may reasonably
request. The Company consents to the use of the Offering Memorandum, and any
amendments and supplements thereto, by you in connection with offers or sales of
the Series C Notes.
(c) Not to amend or supplement the Offering Memorandum prior to the
Closing Date, unless you shall previously have been advised thereof and shall
not have objected thereto after being furnished a copy thereof. The Company
shall promptly prepare, upon your request, any amendment or supplement to the
Offering Memorandum that may be necessary or advisable in connection with Exempt
Resales.
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(d) If, after the date hereof, any event shall occur as a result of which,
in the reasonable judgment of the Company or in the reasonable judgment of
either of you or of your counsel, it becomes necessary to amend or supplement
the Offering Memorandum in order to make the statements therein, in the light of
the circumstances when the Offering Memorandum is delivered to an Eligible
Purchaser which is a prospective purchaser, not misleading, or if it is
necessary to amend or supplement the Offering Memorandum to comply with
applicable law, forthwith to prepare an appropriate amendment or supplement to
the Offering Memorandum so that the statements therein as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Offering Memorandum will comply with
applicable law.
(e) To cooperate with you and your counsel in connection with the
qualification of the Securities under the securities or Blue Sky laws of such
jurisdictions as you may request and to continue such qualification in effect
for as long as may be necessary to complete the distribution of the Exempt
Resales; provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of process
in suits or taxation, other than as to matters and transactions relating to the
Exempt Resales, in any jurisdiction where it is not now so subject.
(f) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement becomes effective or is terminated, to pay all
costs, expenses, fees and taxes incident to and in connection with: (i) the
printing, processing, filing, distribution and delivery of the Offering
Memorandum (including, without limitation, financial statements and exhibits)
and all amendments and supplements thereto, (ii) the printing, processing,
execution, distribution and delivery of this Agreement, the other Transaction
Documents, any memoranda describing state securities or Blue Sky laws and all
other agreements, memoranda, correspondence and other documents printed,
distributed and delivered in connection herewith and with the offer or sale of
the Securities, (iii) the issuance and delivery by the Company of the
Securities, (iv) the qualification of the Securities for offer and sale under
the securities or Blue Sky laws of the several states (including, without
limitation, the fees and disbursements of your counsel relating to such
registration or qualification and memoranda relating thereto and any filing fees
in connection therewith), (v) furnishing such copies of the Offering Memorandum,
and all amendments and supplements thereto, as may be reasonably requested for
use in connection with Exempt Resales, (vi) the preparation of certificates for
the Securities (including, without limitation, printing and engraving thereof),
(vii) the fees, disbursements and expenses of the Company's counsel and
accountants, all expenses and listing fees in connection with the application
for quotation of the Series C Notes in the National Association of Securities
Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (ix) all
fees and expenses (including fees and expenses of counsel) of the Company in
connection with approval of the Securities by DTC for "book-entry" transfer, (x)
the performance by the Company of its other obligations under this Agreement and
the other Transaction Documents and (xi) the rating of the Securities by
investment rating agencies.
(g) To use the proceeds from the sale of the Series C Notes in the manner
described in the Offering Memorandum under the caption "Use of Proceeds."
(h) Not to claim voluntarily, and to resist actively any attempts to claim,
the benefit of any usury laws against the holders of any Securities.
(i) To do and perform all things required to be done and performed under
this Agreement by it on, prior to, or after the Closing Date and to use its best
efforts to satisfy all conditions precedent on its part to the delivery of the
Series C Notes.
(j) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act), other than the
Series C Notes, in a manner that would require the registration under the Act of
the sale to you or Eligible Purchaser of the Series C Notes.
(k) For so long as any of the Securities remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make
available to any holder and any prospective purchaser of such Securities from
such holder, the information required by Rule 144A(d)(4) under the Act.
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(l) Except as otherwise permitted under the Act, it will not, and will not
authorize or permit any person acting on its behalf to, solicit any offer to buy
or offer to sell the Securities by means of any form of general solicitation or
general advertising (as such terms are used in Regulation D under the Act) or in
any manner involving a public offering within the meaning of Section 4(2) of the
Act.
(m) To use its best efforts to cause the Exchange Offer to be made on the
appropriate form to permit registration of the Series D Notes to be offered in
exchange for the Series C Notes and to comply with all applicable Federal and
state securities laws in connection with the Exchange Offer.
(n) To comply with all of its agreements set forth in the Transaction
Documents, and all agreements set forth in the representation letter of the
Company to DTC relating to the approval of the Series C Notes by DTC for "book-
entry" transfer.
(o) To use its best efforts to effect the inclusion of the Series C Notes
in PORTAL.
(p) During a period of five years following the date of this Agreement, to
deliver to each of you promptly upon their becoming available, copies of all
current, regular and periodic reports filed by the Company with the Commission
or any securities exchange or with any governmental authority succeeding to any
of the Commission's functions.
5. Representations and Warranties. (a) The Company represents and
warrants to each of you that:
(i) The Offering Memorandum has been prepared in connection with the
Exempt Resales. The Offering Memorandum does not, and any supplement or
amendment thereto, if any, prepared by the Company will not, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (i) shall not
apply to statements in or omissions from the Offering Memorandum (or any
supplement or amendment thereto) made in reliance upon and in conformity
with information relating to you furnished to the Company in writing by you
expressly for use therein. The Company acknowledges for all purposes under
this Agreement that the statements set forth in the last paragraph on the
cover page, the stabilization legend appearing as the first paragraph on
page 2 and in the third full paragraph and the fourth sentence of the
fourth paragraph appearing under the caption "Plan of Distribution" in the
Offering Memorandum constitute the only written information furnished to
the Company by you expressly for use in the Offering Memorandum (or any
amendment or supplement thereto) pertaining to any arrangement or agreement
with respect to any party other than you. No stop order preventing the use
of the Offering Memorandum, or any amendment or supplement thereto, or any
order asserting that any of the transactions contemplated by this Agreement
are subject to the registration requirements of the Act or the applicable
laws of any other jurisdiction, has been issued.
(ii) When the Series C Notes are issued and delivered pursuant to this
Agreement, none of the Series C Notes will be of the same class (within the
meaning of Rule 144A under the Act) as securities of the Company that are
listed on a national securities exchange registered pursuant to the
Exchange Act or that are quoted in a United States automated interdealer
quotation system.
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(iii) Each of (A) the Company, (B) Salstel Media Holdings Pty Limited
("SMH") and Salstel Media Investments Pty Limited ("SMI" and together with
SMH and each entity in which either SMH or SMI holds a direct or indirect
investment in capital stock, debentures or other equity interests,
"Salstel") and (C) the corporations in which the Company has a direct or
indirect investment (other than (x) Australis Media Limited ("Australis")
and (y) Salstel) (the "Corporate Subsidiaries") and (D) UIH-SFCC, L.P.
("SFCC") and UIH-SFCC Holdings, L.P. ("SFCC Holdings," and together with
SFCC, the "Partnerships," and together with the Corporate Subsidiaries, the
"Subsidiaries") has been duly organized, is validly existing as a
corporation or a limited partnership, as the case may be, in good standing
under the laws of its respective jurisdiction of formation, has all
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is currently being conducted
and as described in the Offering Memorandum, and is duly qualified and in
good standing as a foreign corporation authorized to do business in each
jurisdiction or place in which the nature of its business or its ownership,
leasing or operation of its respective properties and assets or the conduct
of its business requires such qualification.
(iv) Schedule I hereto is a complete and accurate list of every
partnership, corporation or other business enterprise in which the Company
has a direct or indirect investment. All of the outstanding capital stock,
debentures and other equity interests of each of the Company and each of
the Subsidiaries and of Salstel has been duly authorized and validly
issued, is fully paid and nonassessable and was not issued in violation of
any preemptive or similar rights (whether provided pursuant to any
certificate of incorporation, by-laws, memorandum and articles of
incorporation, partnership agreement or similar organizational document
(each, an "Organizational Document") or contractually) and the Company's
indirect or direct ownership interest or investment with respect to each
Subsidiary and Salstel and Australis is in all material respects as
described in the Offering Memorandum and all such capital stock, debentures
or other equity interests are owned by the Company free and clear of any
security interest, claim, lien, limitation on voting rights or encumbrance,
equities and claims or restrictions on transferability, or the payment of
dividends or distributions on such capital stock, debentures or other
equity interests, except as set forth in the Offering Memorandum. There
are no outstanding subscriptions, rights, warrants, calls, commitments of
sale or options to acquire, or instruments convertible into or exchangeable
for, any such shares of capital stock, other equity interest or debentures
of such Subsidiaries or Salstel, except as disclosed in the Offering
Memorandum. The Company holds, directly or indirectly, a majority of the
outstanding securities presently entitled to vote for the election of
directors of each of CTV and STV and currently has the right to designate
five of the six directors of each of CTV and STV.
(v) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each
of the other Transaction Documents and, in each case, to consummate the
transactions contemplated thereby, including, without limitation, the
corporate power and authority to authorize, issue, sell and deliver the
Securities as contemplated by this Agreement or, in the case of the Series
D Notes, as contemplated by the Registration Rights Agreement, and to
perform its obligations hereunder and thereunder.
(vi) This Agreement has been duly and validly authorized, executed
and delivered by the Company and constitutes the valid and legally binding
agreement of the Company and is enforceable against the Company in
accordance with its terms.
(vii) The Indenture has been duly and validly authorized by the
Company and, when duly executed and delivered by the Company, will be a
valid and legally binding obligation of the Company, enforceable against
the Company in accordance with its terms. The Indenture, when executed and
delivered, will conform to the summary description thereof in the Offering
Memorandum.
(viii) The Series C Notes have been duly and validly authorized for
issuance and sale to you by the Company pursuant to this Agreement and,
when issued and authenticated in accordance with the terms of the Indenture
and delivered against payment therefor in accordance with the terms hereof,
will be valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture. The Series C Notes, when issued, authenticated
and delivered, will conform to the description thereof in the Offering
Memorandum.
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(ix) The Series D Notes have been duly and validly authorized for
issuance by the Company, and when issued and authenticated in accordance
with the terms of the Indenture and the Registration Rights Agreement will
be valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture.
(x) The Registration Rights Agreement has been duly and validly
authorized by the Company and, when duly executed and delivered by the
Company, will be the valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms. The
Registration Rights Agreement, when executed and delivered, will conform to
the description thereof in the Offering Memorandum.
(xi) The Warrant Agreement has been duly authorized by the Company.
(xii) Neither the Company nor Salstel nor any of the Subsidiaries is
in violation of its respective Organizational Documents. Neither the
Company nor any Subsidiary is in default in the performance of any bond,
debenture, note, indenture, mortgage, deed of trust, license or other
agreement or instrument to which it is a party or by which it is bound or
to which any of its assets or properties is subject, or is in violation of
any law, statute, rule, regulation, judgment or court decree applicable to
any of them or their respective assets or properties, including, without
limitation, the following laws of the Commonwealth of Australia: the
Australian Corporations Law, the Broadcasting Services Act, the
Telecommunications Act and the Foreign Acquisitions and Takeovers Act and
there exists no condition that, with notice, the passage of time or
otherwise, would constitute a default under any such document or
instrument, except for such defaults or violations as would not
individually or in the aggregate be reasonably likely to have a Material
Adverse Effect. Each of the Subsidiaries that is incorporated in or was
formed in the Commonwealth of Australia or any political subdivision
thereof (collectively, the "Australian Subsidiaries") and, to the best
knowledge of the Company, Salstel, complies in all material respects with
the terms and conditions of all decisions, binding policies, authorizations
and licenses announced, rendered, granted or regulated, as the case may be,
by the Australian Broadcasting Authority ("ABA"), the Spectrum Management
Agency (the "SMA"), the Australian Competition and Consumer Commission (the
"ACCC"), the Foreign Investment Review Board (the "FIRB") and the
Australian Telecommunications Authority ("AUSTEL"), in each case, with
respect to the operation of the businesses of the Company and the
Australian Subsidiaries and Salstel, including, without limitation, the
Broadcasting Services Act 1992 (the "BSA"), the Radiocommunications Act
1992 (the "RCA"), the Telecommunications Act 1991 (the "TCA"), the Trade
Practices Act (the "TPA"), the Australian Foreign Acquisitions and
Takeovers Act 1975 (the "FATA") and the regulations, by-laws, orders and
binding instructions enacted or issued under the authority of such acts,
except for such defaults or noncompliance as would not individually or in
the aggregate be reasonably likely to have a Material Adverse Effect.
Neither the Company nor any of the Subsidiaries is an "associate" of SMH or
SMI; neither the Company nor any of the Subsidiaries has a "substantial
interest" in either CTV or STV; the Company, together with all "associates"
of the Company, does not have an "aggregate substantial interest" in either
CTV or STV, as all such quoted terms are defined in the FATA. No action
has been taken or, to the knowledge of the Company, is threatened or
contemplated by the Treasurer of Australia with respect to any matter
referred to under the caption "Risk Factors--Foreign Acquisitions and
Takeovers Act/Investment Company Act Considerations" in the Offering
Memorandum.
(xiii) The SMH/SMI Agreements (as defined in the Offering Memorandum)
are legal and validly binding agreements. The Company has taken no action
and, to the best knowledge of the Company, Salstel has taken no action and
there exist no condition that would cause the SMH/SMI Agreements to become
invalid or the Company to lose the benefits thereof, except as described in
the Offering Memorandum.
(xiv) The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents, the issuance and sale of the
Securities as contemplated by this Agreement and the Offering Memorandum,
and the consummation of the transactions contemplated hereby and thereby
will not violate, conflict with or constitute a breach of any of the terms
or provisions of, or a default (or an event that with notice or the lapse
of time, or both, would constitute a default) under, or require consent
under, or result in the imposition of a lien or encumbrance on any assets
or properties of the Company or any of the Subsidiaries, or an acceleration
of indebtedness pursuant to, (A) the Organizational Documents of the
Company or any of the Subsidiaries, (B) any bond, debenture, note,
indenture, mortgage, deed of trust, license or other
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agreement or instrument to which the Company or any of the Subsidiaries is
a party or by which any of them or their property is or may be bound, (C)
any law, statute, rule or regulation applicable to the Company, any of the
Subsidiaries or any of their assets or properties, or (D) any judgment,
order or decree of any court, regulatory body, administrative or other
governmental agency, authority or official having jurisdiction over, the
Company or any of the Subsidiaries or their assets or properties, except
for such conflicts, breaches or violations as would not individually or in
the aggregate be reasonably expected to result in a material adverse effect
on the condition (financial or otherwise), business, properties, net worth,
results of operations or prospects of the Company and the Subsidiaries and
Salstel, taken as a whole (a "Material Adverse Effect"). No consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency is required for the execution,
delivery and performance of this Agreement and the other Transaction
Documents by the Company and the consummation of the transactions
contemplated hereby and thereby, except such as have been obtained and made
(or, in the case of the Registration Rights Agreement, will be obtained and
made under the Act, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and United States state securities or Blue Sky laws and
regulations or such as may be required by the NASD). No consents or waivers
from any other person are required for the execution, delivery and
performance of this Agreement and the other Transaction Documents by the
Company and the consummation of the transactions contemplated hereby and
thereby, other than such consents and waivers as have been obtained, or
except where the failure to obtain such consents or waivers would not
individually or in the aggregate be reasonably expected to have a Material
Adverse Effect.
(xv) There is (A) no legal, regulatory or governmental action, suit
or proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the knowledge of
the Company, threatened or contemplated to which the Company or any of the
Subsidiaries is a party or to which the business or property of the Company
or any of the Subsidiaries is subject, (B) no statute, rule, regulation or
order that has been enacted, adopted or issued by any governmental agency
or that has been proposed by any governmental body, (C) no injunction,
restraining order or order of any nature by a federal or state court or
foreign court of competent jurisdiction to which the Company or any of the
Subsidiaries is subject issued that, in the case of clauses (A), (B) and
(C) above, (x) might, singly or in the aggregate, result in a Material
Adverse Effect, (y) would interfere with or adversely affect the issuance
of the Securities or (z) in any manner draw into question the validity of
this Agreement or the other Transaction Documents.
(xvi) No action has been taken and no statute, rule or regulation or
order has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Securities; no injunction, restraining order
or order of any nature by a federal or state court of competent
jurisdiction has been issued that prevents the issuance of the Securities
or suspends the sale of the Securities in any jurisdiction referred to in
Section 4(e) hereof; and no action, suit or proceeding is pending affecting
or, to the knowledge of the Company, threatened against the Company or any
of the Subsidiaries before any court or arbitrator or any governmental
body, agency or official which, if adversely determined, would prohibit,
interfere with or adversely affect the issuance or marketability of the
Securities or in any manner draw into question the validity of any of the
Transaction Documents; and every request of the Company by any securities
authority or agency of any jurisdiction for additional information has been
complied with in all material respects.
(xvii) None of the Company or the Subsidiaries has violated any
federal, state or local law relating to discrimination in hiring, promotion
or pay of employees which might result, singly or in the aggregate, in a
Material Adverse Effect.
(xviii) None of the Company or the Subsidiaries has violated any
environmental, safety or similar law or regulation applicable to it or its
business or property relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), lacks any permit, license or other
approval required of them under applicable Environmental Laws or is
violating any term or condition of such permit, license or approval, in
each case, which might result, singly or in the aggregate, in a Material
Adverse Effect.
(xix) Each of the Company and the Subsidiaries has (A) good and
marketable title to all of the properties and assets described in the
Offering Memorandum as owned by it, free and clear of all liens, charges,
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encumbrances and restrictions, except such as are described in the Offering
Memorandum or as would not have a Material Adverse Effect, (B) peaceful and
undisturbed possession under all material leases to which it is party as
lessee, (C) all licenses (including, without limitation, all microwave
multipoint distribution transmission system ("MMDS") and cable transmission
and broadcast licenses), certificates, permits, authorizations, approvals,
franchises and other rights from, and has made all declarations and filings
with, all federal, state and local authorities, all self-regulatory
authorities and all courts and other tribunals necessary to engage in the
business currently conducted by it in the manner described in the Offering
Memorandum (each an "Authorization") and (D) no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking
any such Authorization, except as described in the Offering Memorandum.
All such Authorizations are valid and in full force and effect and the
Company and each of the Subsidiaries are in compliance in all respects with
the terms and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities having jurisdiction with respect
thereto and no event has occurred that allows, or after notice or lapse of
time would allow, revocation or termination thereof or result in any other
material impairment of the rights of the holder of any such permit; and,
except as described in the Offering Memorandum, none of such permits
contains any restriction that is materially burdensome to the Company or
any of the Subsidiaries. The descriptions contained in the Offering
Memorandum of statutes, rules, regulations and other laws applicable to the
Company and the Subsidiaries are accurate and complete in all material
respects. All leases to which the Company or any of the Subsidiaries is a
party are valid and binding and no default has occurred and is continuing
thereunder, except such as are described in the Offering Memorandum or such
as would not individually or in the aggregate be reasonably expected to
have a Material Adverse Effect.
(xx) Each of the Company and the Subsidiaries owns or possesses all
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names, in each case to the extent
disclosed in the Offering Memorandum as being material to the business of
the Company or the Subsidiaries (collectively, the "Intellectual Property")
to the extent currently employed by it in connection with the businesses
now operated by them, and neither the Company nor any of the Subsidiaries
has received any notice of infringement of or conflict with asserted rights
of others with respect to any of the Intellectual Property. To the
knowledge of the Company, the use of such Intellectual Property in
connection with the business and operations of the Company or the
Subsidiaries does not infringe on the rights of any person.
(xxi) All tax returns required to be filed by the Company or any of
the Subsidiaries, in all jurisdictions, have been so filed. All taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due or claimed to be due from such entities or that are due
and payable have been paid, other than those being contested in good faith
and for which adequate reserves have been provided or those currently
payable without penalty or interest. Neither the Company nor any of the
Subsidiaries knows of any material proposed additional tax assessments
against it.
(xxii) Neither the Company nor any of the Subsidiaries is now or
after the sale of the Series C Notes to be sold by the Company hereunder
and the application of the proceeds from such sale as described in the
Offering Memorandum under the caption "Use of Proceeds" will be (i) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or analogous foreign laws and regulations, or
(ii) a "holding company" or a "subsidiary company" or an "affiliate" of a
holding company within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or analogous foreign laws and regulations.
(xxiii) There are no holders of securities of the Company or any
other person who, by reason of the execution by the Company of this
Agreement or any other Transaction Document to which it is a party or the
consummation of the transactions contemplated hereby and thereby, have the
right, which has not been waived, to request or demand that the Company
register securities of the Company or any of the Subsidiaries held by them
under the Act or analogous foreign laws and regulations. There is no
holder of any security of the Company or any other person who has the
right, contractual or otherwise, to cause the Company to sell or otherwise
issue to it, or to permit it to underwrite the sale of, the Securities or
any other securities of the Company covered by the Offering Memorandum.
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(xxiv) The Company and each of the Subsidiaries for which such
information is provided in the Offering Memorandum had at the date hereof,
an authorized and outstanding capitalization as set forth in the Offering
Memorandum. Except as described in the Offering Memorandum, there are no
outstanding options, warrants or other rights calling for the issuance of,
or any commitment, plan or arrangement to issue, any shares of capital
stock of the Company or any Subsidiary or any security convertible into or
exchangeable or exercisable for capital stock of the Company or any
Subsidiary. Except as disclosed in the Offering Memorandum (or any
amendment or supplement thereto), subsequent to the respective dates as of
which such information is given in the Offering Memorandum (or any
amendment or supplement thereto), neither the Company nor any of the
Subsidiaries has incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Company and the Subsidiaries taken as a
whole, and there has not been any change in the capital stock or material
increase in the short-term debt or long-term debt of the Company or any of
the Subsidiaries, or any change or any development that has, or that may
reasonably be expected to have, a Material Adverse Effect, or any discovery
of any change or development that may be reasonably expected to have any
such Material Adverse Effect.
(xxv) Except as disclosed in the Offering Memorandum, there are no
mortgages, charges or security arrangements nor any consensual encumbrances
or other consensual arrangements which restrict (A) the ability of any
Subsidiary to pay dividends or make any other distributions on the shares
of capital stock or other equity interests of or on the debentures of such
Subsidiary to the Company or to any Subsidiary, (B) the ability of the
Company or any of the Subsidiaries to pay any indebtedness owed to the
Company or any Subsidiary, (C) the ability of the Company or any of the
Subsidiaries to make any loans or advances to, or investments in, the
Company or any Subsidiary or (D) the ability of the Company or any of the
Subsidiaries to transfer any of its property or assets to the Company or
any Subsidiary.
(xxvi) Neither the Company nor any of the Subsidiaries nor, to the
Company's knowledge, any employee, agent, co-investor or partner of the
Company or any Subsidiary has made any payment of funds of the Company or
any Subsidiary or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Offering Memorandum.
(xxvii) The Company has complied with all provisions of Florida H.B.
1771 codified as Section 517.075 of the Florida statutes, and all
regulations promulgated thereunder, relating to issuers doing business with
the Government of Cuba or with any person or any affiliate located in Cuba.
(xxviii) The Company has no commitments to fund entities that are not
direct or indirect subsidiaries of the Company.
(xxix) Each certificate signed by any officer of the Company on
behalf of the Company and delivered to the Purchaser or counsel for the
Purchaser at the Closing shall be deemed to be a representation and
warranty by the Company to each Purchaser as to the matters covered
thereby.
(xxx) The Company and each of the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that: (A) transactions are executed in accordance with management's general
or specific authorizations; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(C) access to assets is permitted only in accordance with management's
general or specific authorization and (D) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
(xxxi) The Company and each of the Subsidiaries maintain insurance
covering their properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company and each
of the Subsidiaries and their respective businesses. Neither the Company
nor any of the Subsidiaries has received notice from any insurer or agent
of such insurer that substantial capital improvements or other expenditures
will have to be made in
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order to continue such insurance. All such insurance is outstanding and
duly in force on the date hereof and will be outstanding and duly in force
on the Closing Date.
(xxxii) None of the Company or the Subsidiaries has (A) taken,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price
of any security of the Company or any of the Subsidiaries to facilitate the
sale or resale of the Securities or (B) since September 8, 1997 (Y) sold,
bid for, purchased or paid any person any compensation for soliciting
purchases of, the Securities or (Z) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company or any of the Subsidiaries.
(xxxiii) No registration under the Act of the Series C Notes is
required for the sale of the Series C Notes to the Purchaser as
contemplated hereby or for Exempt Resales to the Eligible Purchaser,
assuming (A) that the persons who buy the Series C Notes in the Exempt
Resales are QIBs and (B) the accuracy of the Purchaser's representations
regarding the absence of general solicitation in connection with the sale
of the Series C Notes to the Purchaser and the Exempt Resales described
herein. No form of general solicitation or general advertising was used by
the Company or any of its representatives in connection with the offer and
sale of any of the Series C Notes or in connection with Exempt Resales,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising. No securities
of the same class as the Series C Notes have been issued and sold by the
Company within the six-month period immediately prior to the date hereof.
(xxxiv) The Offering Memorandum, as of its date, and each amendment
or supplement thereto, as of its date, contains all the information
specified in, and meets the requirements of, Rule 144A(d)(4) under the Act.
(xxxv) Subsequent to the respective dates as of which information
is given in the Offering Memorandum and up to the Closing Date, except as
set forth in the Offering Memorandum, none of the Company or the
Subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material to the Company and its subsidiaries taken as
a whole, nor entered into any transaction not in the ordinary course of
business. There has not been, singly or in the aggregate, any material
adverse change, or any development which may reasonably be expected to
involve a material adverse change, in the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of the
Company and its subsidiaries, taken as a whole (a "Material Adverse
Change") and there have not been dividends or distributions of any kind
declared, paid or made by the Company or any of the Subsidiaries on any
class of its capital stock or debentures.
(xxxvi) Neither the Company nor any agent thereof acting on behalf
of it has taken, and none of them will take, any action that might cause
this Agreement or the issuance or sale of the Securities to violate
Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of
the Board of Governors of the Federal Reserve System or analogous foreign
laws and regulations.
(xxxvii) The accountants Arthur Andersen LLP and Arthur Andersen,
each of which has audited certain of the financial statements which are
included and summarized in the Offering Memorandum, are independent
certified public accountants under Rule 101 of the AICPA's Code of
Professional Conduct and its interpretations and rulings. The financial
statements, together with related schedules and notes, included in the
Offering Memorandum (and any amendment or supplement thereto) present
fairly the respective financial positions, results of operations and
changes in financial positions of the Company and each Subsidiary, in each
case, for which such financial statements are so included, on the basis
stated in the Offering Memorandum at the respective dates or for the
respective periods to which they apply; such financial statements and
related schedules and notes have been prepared in accordance
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with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data included in the Offering
Memorandum (and any amendment or supplement thereto) are accurately
presented in all material respects and prepared on a basis consistent with
such financial statements and the books and records of the Company and the
Subsidiaries.
(xxxviii) Immediately prior to and after the Closing Date, the
present fair saleable value of the assets of the Company and its
subsidiaries, taken as a whole, will exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of each such person as they
become absolute and matured. The assets of the Company, immediately after
the Closing Date, will not constitute unreasonably small capital to permit
it to carry out its business as conducted or as proposed to be conducted.
The Company does not intend to, nor does it believe that it will, incur
debts beyond its ability to pay such debts as they mature. Upon the
issuance of the Series C Notes, the present fair saleable value of the
assets of the Company will exceed the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company as they become absolute
and matured. The assets of the Company, upon the issuance of the Series C
Notes, will not constitute unreasonably small capital to carry out its
business as now conducted, including the capital needs of the Company,
taking into account the projected capital requirements and the capital
availability of the Company.
(xxxix) Except as otherwise disclosed in the Offering Memorandum,
there are no contracts, agreements or understandings between the Company or
any of the Subsidiaries and any person that would give rise to a valid
claim against the Company, any of the Subsidiaries or the Purchaser for a
brokerage commission, finder's fee or like payment in connection with the
issuance, purchase and sale of the Securities.
The Company acknowledges that the Purchaser and, for purposes of the
opinions to be delivered to the Purchaser pursuant to Section 7 hereof, counsel
to the Company and counsel to the Purchaser will rely upon the accuracy and
truth of the foregoing representations and hereby consents to such reliance.
(b) The Purchaser represents and warrants to the Company and agrees that:
(i) The Purchaser is a QIB, with such knowledge and experience in
financial and business matters as are necessary in order to evaluate the
merits and risks of an investment in the Series C Notes.
(ii) The Purchaser (A) is not acquiring the Series C Notes with a
view to any distribution thereof that would violate the Act or the
securities laws of any state of the United States or any other applicable
jurisdiction and (B) will be reoffering and reselling the Series C Notes
only to QIBs in reliance on the exemption from the registration
requirements of the Act.
(iii) No form of general solicitation or general advertising has been
or will be used by the Purchaser or any of its representatives in
connection with the offer and sale of any of the Series C Notes, which
would render unavailable to the Company reliance upon the exemption from
the registration requirements of the Act afforded by Section 4(2) thereof,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising.
(iv) The Purchaser agrees that, in connection with the Exempt
Resales, it will solicit offers to buy the Series C Notes only from, and
will offer to sell the Series C Notes only to, QIBs. Such Purchaser further
agrees (A) that it will offer to sell the Series C
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Notes only to, and will solicit offers to buy the Series C Notes only from,
QIBs who in purchasing such Series C Notes will be deemed to have
represented and agreed that they are purchasing such Series C Notes for
their own accounts or accounts with respect to which they exercise sole
investment discretion and that they or such accounts are QIBs, and they are
aware that the sale to them is being made in reliance on an exemption from
the registration requirements of the Act, and they are acquiring such
Series C Notes for investment and not with a view to, or for offer or sale
in connection with, any distribution (within the meaning of the Act) or
fractionalization thereof or with any intention of reselling the Series C
Notes or any part thereof, subject to any requirement of law that the
disposition of their property or the property of such investor account or
accounts be at all times within their control and subject to their ability
to resell such Series C Notes pursuant to Rule 144, 144A, Regulation S or
other exemption from registration available under the Act, and (B) that, in
the case of such QIBs, such QIBs will be deemed to have acknowledged that
the Series C Notes have not been and will not be registered under the Act
and may not be sold except as permitted below, and (C) that, in the case of
such QIBs, such QIBs will be deemed to have agreed that if they should
sell, pledge or otherwise transfer the Series C Notes prior to the third
anniversary of the later of the original issuance of the Series C Notes or
the sale thereof by any affiliate (within the meaning of Rule 144 under the
Act or any successor rule thereto, an "Affiliate") of the Company (computed
in accordance with paragraph (d) of Rule 144 under the Act) or if they were
at the date of such transfer or during the three months preceding such date
of transfer an Affiliate of the Company, they would do so in compliance
with any applicable state securities or "Blue Sky" laws and only (v) to the
Company, (w) in accordance with Rule 144A (as indicated by the box checked
by the transferor on the form of assignment on the reverse of the Series C
Notes certificate), (x) pursuant to any exemption from registration in
accordance with Regulation S under the Act (as indicated by the box checked
by the transferor on the form of assignment on the reverse of the Series C
Notes certificate), or (y) any other applicable exemption under the
securities laws and (D) that, in the case of such QIBs, such QIBs will be
deemed to have acknowledged that they have received the information, if
any, requested by them, have had full opportunity to review such
information and have received all additional information necessary to
verify such information and that they (I) are able to fend for themselves
in the transactions contemplated by the Offering Memorandum, (II) have such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of their prospective investment in the
Securities and (III) have the ability to bear the economic risks of their
prospective investment and can afford the complete loss of such investment.
(v) Such Purchaser also understands that the Company and, for purposes
of the opinions to be delivered to you pursuant to Section 7 hereof,
counsel to the Company and counsel to the Purchaser will rely upon the
accuracy and truth of the foregoing representations and hereby consents to
such reliance.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless (i) the Purchaser
and (ii) each person if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) the Purchaser (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person"), and (iii) the respective officers, directors, partners, employees,
representatives and agents of the Purchaser or any controlling person (any
person referred to in clause (i), (ii), or (iii) may hereinafter be referred to
as an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and expenses
(including, without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such
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losses, claims, damages, liabilities or expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to such Purchaser
furnished in writing to the Company by the Purchaser expressly for use therein.
The foregoing indemnity agreement shall be in addition to any liability which
the Company may otherwise have.
(b) If any action, suit or proceeding (including any governmental
investigation) shall be brought against any Indemnified Person with respect to
which indemnity may be sought against the Company, such Indemnified Person shall
promptly notify the Company in writing (provided, that the failure to give such
notice shall not relieve the Company of its obligations pursuant to this
Agreement) and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person and
payment of all fees and expenses. Any Indemnified Person shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Company, (ii) the Company shall
have failed to assume the defense and employ counsel or (iii) the named parties
to any such action (including any impleaded parties) include both such
Indemnified Person and the Company and such Indemnified Person shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Company, in
which case the Company shall not have the right to assume the defense of such
action on behalf of such Indemnified Person, it being understood, however, that
the Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all such Indemnified Persons, which firm shall be designated
in writing by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). The
Company shall not be liable for any settlement of any such action effected
without its written consent but if settled with the written consent of the
Company, the Company agrees to indemnify and hold harmless any Indemnified
Person from and against any loss or liability by reason of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(c) The Purchaser agrees to indemnify and hold harmless the Company, its
directors, officers and any person controlling the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Indemnified Person but only
with reference to information relating to such Indemnified Person furnished in
writing by or on behalf of such Indemnified Person expressly for use in the
Offering Memorandum. In case any action shall be brought against the Company,
any of its directors, any such officer or any person controlling the Company
based on the Offering Memorandum and in respect of which indemnity may be sought
against any Purchaser, the Purchaser shall have the rights and duties given to
the Company (except that if the Company shall have assumed the defense thereof,
such Purchaser shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of such Purchaser), and the Company, its
directors, any such officers and any person controlling the Company shall have
the rights and duties given to the Purchaser, by Section 6(b) hereof.
(d) If the indemnification provided for in this Section 6 is unavailable to
an indemnified party in respect of any losses, claims, damages, liabilities or
judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the Purchaser
on the other hand from the offering of the Series C Notes or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Purchaser on the other hand in connection with the
statements or
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omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Purchaser on the other
hand shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company, and the total
discounts received by the Purchaser, bear to the total price to investors of the
Series C Notes.The relative fault of the Company on the one hand and the
Purchaser on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Company
on the one hand or the Purchaser on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Purchaser agree that it would not be just and equitable
if contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, the Purchaser (or related
Indemnified Person) shall not be required to contribute any amount in excess of
the amount by which the total discounts received by it in connection with the
sale of the Series C Notes pursuant to this Agreement exceeds the amount of any
damages which the Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(e) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 6 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 6 and the
representations and warranties of the Company and of the Purchaser set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of the Purchaser or any person
controlling such Purchaser, the Company, its directors or officers, or any
person controlling the Company, (ii) acceptance of any Series C Notes and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to the Purchaser or any person controlling the Purchaser, or to the
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution, and reimbursement
agreements contained in this Section 6.
7. Conditions of Purchaser's Obligations. The obligations of the
Purchaser under this Agreement are subject to the satisfaction of each of the
following conditions:
(a) All of the representations and warranties of the Company contained in
this Agreement shall be true and correct on the date hereof and on the Closing
Date with the same force and effect as if made on and as of the date hereof and
the Closing Date, respectively. The Company shall have performed or complied
with all of the agreements herein contained and required to be performed or
complied with by it at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and copies distributed
to the Purchaser not later than 10:00 a.m. New York City time on the date of
this Agreement or at such later date and time as to which you may agree, and no
stop order suspending the qualification or exemption from qualification of any
of the Series C Notes in any jurisdiction shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(c) No action shall have been taken and no statute, rule, regulation or
order shall have been enacted, adopted or issued by any governmental agency
which would, as of the Closing Date, prevent the issuance or sale of any of the
Series C Notes; no action, suit or proceeding shall be pending against or
affecting or, to the knowledge of the
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Company, threatened against, the Company or any of the Subsidiaries or Salstel
before any court or arbitrator or any governmental body, agency or official
that, if adversely determined, would prohibit, interfere with or adversely
affect the issuance or sale of the Series Notes or would have a Material Adverse
Effect or in any manner draw into question the validity of any of the
Transaction Documents; and no stop order, injunction, restraining order, or
order of any nature preventing the use of the Offering Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Act shall have been issued.
(d) Since the dates as of which information is given in the Offering
Memorandum, (i) there shall not have been any material change, or any
development that is reasonably likely to result in a material change, in the
capital stock or the long-term debt, or material increase in the short-term
debt, of the Company or any of the Subsidiaries or Salstel from that set forth
in the Offering Memorandum, (ii) no dividend or distribution of any kind shall
have been declared, paid or made by the Company or any of the Subsidiaries or
Salstel on any class of its capital stock, and (iii) neither the Company nor any
of the Subsidiaries nor Salstel shall have incurred any liabilities or
obligations, direct or contingent, that are material, individually or in the
aggregate, to the Company and its Subsidiaries and Salstel taken as a whole, and
that are required to be disclosed on a balance sheet in accordance with
generally accepted accounting principles and are not disclosed on the latest
balance sheet included in the Offering Memorandum. Since the date hereof and
since the dates as of which information is given in the Offering Memorandum,
there shall not have been any Material Adverse Change.
(e) You shall have received certificates, dated the Closing Date, signed
by (i) the President or any Vice President and (ii) a principal financial or
accounting officer of the Company confirming, as of the Closing Date, the
matters set forth in paragraphs (a), (b), (c) and (d) of this Section 7.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and your counsel), dated the Closing Date, of Holme Roberts & Owen LLP,
United States counsel for the Company, to the effect that:
(i) Each of the Company and each of the corporate Subsidiaries
incorporated in the United States (collectively, the "U.S. Corporate
Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of Colorado, has all requisite
power and authority to own, lease and operate its assets and properties and
to carry on its business as it is currently being conducted and as
described in the Offering Memorandum and each of UIH-SFCC, L.P. and UIH-
SFCC Holdings, L.P. (the "Partnerships" and, together with the U.S.
Corporate Subsidiaries, the "U.S. Subsidiaries") has been duly formed and
is validly existing as a limited partnership under the laws of Colorado and
has the requisite power and authority to own, lease and operate its assets
and properties and to carry on its business as it is currently being
conducted and as described in the Offering Memorandum, and is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction or place in which the ownership, leasing and
operation of its property and the conduct of its business requires such
qualification, except where failure to be so qualified would not
individually or in the aggregate be reasonably likely to have a Material
Adverse Effect.
(ii) All the outstanding shares of capital stock or other equity
interest of each of the U.S. Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights (whether provided pursuant to
Organizational Documents or, to the best knowledge of such counsel, after
due inquiry, contractually), and, except as set forth in the Offering
Memorandum, are owned by the Company directly, or indirectly through one of
the U.S. Subsidiaries, free and clear, to the best knowledge of such
counsel after due inquiry, of any security interest, lien, adverse claim,
equity or other encumbrance.
(iii) The authorized and outstanding capital stock of the Company is
as set forth in the balance sheet at June 30, 1997 included in the Offering
Memorandum; and the Company's ownership interest with respect to each of
the U.S. Subsidiaries is as described in the Offering Memorandum. All of
the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, and are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights (whether
pursuant to the Company's Organizational Documents or, to the best
knowledge of such counsel, after due inquiry, contractually). The capital
stock of the Company conforms as to legal matters in all material respects
to the description thereof in the Offering Memorandum.
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(iv) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under each of the Transaction
Documents and to consummate the transactions contemplated thereby,
including, without limitation, with the corporate power and authority to
issue, sell and deliver the Securities as contemplated by this Agreement
and to perform its obligations hereunder and thereunder.
(v) The Company has duly and validly authorized, executed and
delivered this Agreement, and this Agreement is enforceable against the
Company in accordance with its terms, except as enforcement of rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws or principles of public policy and subject to the
qualification that the enforceability of the Company's obligations
hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and by general equitable principles. This
Agreement conforms as to legal matters in all material respects to the
summary description thereof in the Offering Memorandum.
(vi) The Company has duly and validly authorized, executed and
delivered the Indenture and (assuming the due authorization, execution and
delivery thereof by the Trustee) the Indenture is the valid and legally
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except (A) as such enforcement may be limited by
(y) bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally, or (z) general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity, and (B) to the
extent that a waiver of rights under any usury laws may be unenforceable.
The Indenture conforms as to legal matters in all material respects to the
summary description thereof in the Offering Memorandum.
(vii) The Series C Notes have been duly and validly authorized for
issuance and sale to you by the Company pursuant to this Agreement and,
when issued and authenticated in accordance with the terms of the Indenture
and delivered against payment therefor in accordance with the terms hereof,
will be the valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms and entitled
to the benefits of the Indenture, except (A) as such enforcement may be
limited by (y) bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights and
remedies generally, or (z) general principles of equity, regardless of
whether enforcement is sought in a proceeding at law or in equity, and (B)
to the extent that a waiver of rights under any usury laws may be
unenforceable. The Series C Notes, when issued, authenticated and
delivered, will conform as to legal matters in all material respects to the
summary description thereof in the Offering Memorandum.
(viii) The Series D Notes have been duly and validly authorized for
issuance by the Company and, when issued and authenticated in accordance
with the terms of the Indenture and the Registration Rights Agreement, will
be valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture, except (A) as such enforcement may be limited by
(y) bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally, or (z) general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity, and (B) to the
extent that a waiver of rights under any usury laws may be unenforceable.
(ix) The Registration Rights Agreement has been duly and validly
authorized, executed and delivered by the Company, and is a valid and
legally binding obligation of the Company, enforceable against the Company
in accordance with its terms, except (A) as such enforcement may be limited
by (y) bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally and (z) general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity and (B) such
counsel need express no opinion as to the enforceability of the
indemnification or contribution provisions contained in Section 7 of the
Registration Rights Agreement. The Registration Rights Agreement conforms,
as to legal matters, in all material respects to the summary description
thereof in the Offering Memorandum.
(x) The Warrant Agreement has been duly and validly authorized by
the Company. The Warrant Agreement conforms as to legal matters in all
material respects to the summary description thereof in the Offering
Memorandum.
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(xi) When the Series C Notes are issued and delivered pursuant to
this Agreement, none of the Series C Notes will be of the same class
(within the meaning of Rule 144A under the Act) as securities of the
Company that are listed on a national securities exchange registered under
Section 6 of the Exchange Act or that are quoted in a United States
automated inter-dealer quotation system.
(xii) Neither the Company nor any of the U.S. Subsidiaries is in
violation of its respective Organizational Documents, or to the best of
such counsel's knowledge after reasonable inquiry, is in material default
in the performance of any obligation, agreement or condition contained in
any permit or any bond, debenture, note or other evidence of indebtedness,
except as disclosed in the Offering Memorandum.
(xiii) Registration of the Series C Notes under the Act or
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended, is not required in connection with the offer, sale and delivery of
the Series C Notes to the Purchaser or the initial placement of the Series
C Notes by the Purchaser pursuant to the terms of this Agreement, it being
understood that in rendering this opinion such counsel may assume the
accuracy of the representations of the Purchaser and the Company contained
herein and that the offer, sale and delivery of the Series C Notes have
been made as contemplated by this Agreement and the Offering Memorandum.
(xiv) The execution, delivery and performance by the Company of each
of the Transaction Documents, the issuance and sale of the Securities, and
the consummation of the transactions contemplated hereby and thereby, will
not violate, conflict with or constitute a breach of any of the terms or
provisions of, or a default (or an event that with notice or the lapse of
time, or both, would constitute a default) under, or require consent under,
or result in the imposition of a lien or encumbrance on any assets or
properties of the Company or any of its subsidiaries, or an acceleration of
indebtedness pursuant to, (A) the Organizational Documents of the Company
or any of its subsidiaries, (B) any bond, debenture, note, indenture,
mortgage, deed of trust, license or other agreement or instrument, known to
such counsel after reasonable inquiry, to which the Company or any of its
subsidiaries is a party or by which any of them or their property is or may
be bound, (C) any U.S. law, statute, rule or regulation applicable to the
Company, any of the U.S. Subsidiaries or any of their assets or properties,
or (D) any judgment, order or decree of any U.S. court or governmental
agency or U.S. authority, known to such counsel after reasonable inquiry,
having jurisdiction over the Company, any of the U.S. Subsidiaries or their
assets or properties, except such conflicts or violations as would not
individually or in the aggregate be reasonably expected to have a Material
Adverse Effect. No consent, approval, authorization or order of, or
filing, registration, qualification, license or permit of or with, any
court or governmental agency, body or administrative agency in the United
States is required for the execution, delivery and performance of this
Agreement or the other Transaction Documents, except (subject to clause
(xiii) above) such as have been obtained prior to the date hereof (or, in
the case of the Registration Rights Agreement, are planned to be obtained
or made under the Act, the Trust Indenture Act and state securities or Blue
Sky laws and regulations or such as may be required by the NASD). In
rendering the opinions required in this clause (xiv), such counsel may rely
on the accuracy of the representations of the Purchaser and the Company
contained in this Agreement. No consents or waivers from any other person
are required for the execution, delivery and performance of this Agreement
and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, other than such consents and
waivers as have been obtained, or except where the failure to obtain such
consents or waivers would not individually or in the aggregate be
reasonably expected to have a Material Adverse Effect.
(xv) To the best knowledge of such counsel, after reasonable
inquiry, no action has been taken and no statute, rule or regulation or
order has been enacted, adopted or issued by any U.S. governmental agency
that prevents the issuance of the Securities, no injunction, restraining
order or order of any nature by a United States federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Securities and no action, suit or proceeding is pending against or
affecting or threatened against the Company or any of the U.S. Subsidiaries
before any court or arbitrator or any governmental body, agency or official
which, if adversely determined, would prohibit, interfere with or adversely
affect the issuance or marketability of the Securities or in any manner
draw into question the validity of any Transaction Document.
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(xvi) To the best knowledge of such counsel after reasonable
inquiry, neither the Company nor any of the U.S. Subsidiaries is in
violation of any law, ordinance, administrative or other governmental rule
or regulation applicable to the Company or any of the U.S. Subsidiaries or
of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the U.S. Subsidiaries, except for
such violations as would not individually or in the aggregate be reasonably
likely to have a Material Adverse Effect.
(xvii) Neither the Company nor any of its subsidiaries is now, nor,
after the sale of Series C Notes to be sold by it hereunder and the
application of the proceeds from such sales as described in the Offering
Memorandum under the caption "Use of Proceeds," will they be (i) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act, or (ii) a "holding
company" or a "subsidiary company" or an "affiliate" of a holding company
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(xviii) The statements in the Offering Memorandum, insofar as they
are descriptions of contracts, agreements or other legal documents, or
refer to statements of law or legal conclusions, are accurate and complete
in all material respects and present fairly the information required to be
shown, to the extent governed by the laws of jurisdictions on which such
counsel expresses an opinion.
(xix) There is (A) to the knowledge of such counsel, after
reasonable inquiry, no legal, regulatory or governmental action, suit or
proceeding before or by any court, arbitrator or governmental agency, body
or official, domestic or foreign, now pending or, to the knowledge of such
counsel, threatened or contemplated to which the Company or any of the U.S.
Subsidiaries is a party or to which the business or property of the Company
or any of the U.S. Subsidiaries is subject, (B) no law, statute, rule,
regulation or order that has been enacted, adopted or issued by any
governmental agency or that has been proposed by any governmental body, to
the extent governed by the laws of jurisdictions on which such counsel
expresses an opinion, (C) to the knowledge of such counsel, after
reasonable inquiry, no injunction, restraining order or order of any nature
by a federal or state court of competent jurisdiction to which the Company
or any of the U.S. Subsidiaries is subject issued that, in the case of
clauses (A), (B) and (C) above, (x) might, singly or in the aggregate,
result in a Material Adverse Effect, (y) would interfere with or adversely
affect the issuance of the Securities or (z) in any manner draw into
question the validity of this Agreement or the other Transaction Documents.
(xx) To the best knowledge of such counsel, there are no holders of
securities of the Company who, by reason of the execution by the Company of
this Agreement or any other Transaction Document or the consummation of the
transactions contemplated hereby or thereby, have the right to request or
demand that the Company register under the act or analogous foreign laws
and regulations securities held by them.
(xxi) Prior to the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, the Indenture is not
required to be qualified under the Trust Indenture Act.
(xxii) The Offering Memorandum, as of its date, and each amendment or
supplement thereto, if any, as of its date (except for the financial
statements, including the notes thereto, and supporting schedules and other
financial, statistical, and accounting data included therein or omitted
therefrom, as to which no opinion need be expressed), contains all the
information specified in, and meeting all the requirements of, Rule
144A(d)(4) under the Act.
(xxiii) To the best knowledge of such counsel after reasonable
inquiry, except as described in the Offering Memorandum, there are no
outstanding options, warrants or other rights calling for the issuance of,
and such counsel does not know of any commitment, plan or arrangement to
issue, any shares of capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of the
Company.
(xxiv) To the best knowledge of such counsel after reasonable
inquiry, except as described in the Offering Memorandum, there is no holder
of any security of the Company or any other person (other than the
Purchaser) who has the right, contractual or otherwise, to cause the
Company to sell or otherwise
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issue to them, or to permit them to underwrite the sale of, the Securities
or the right to have any other securities of the Company included in the
Offering Memorandum or the right to require registration under the Act of
any securities of the Company.
(xxv) The issuance and sale of the Securities pursuant to the terms
of this Agreement will not violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(xxvi) The statements in the Offering Memorandum under the headings
"Risk Factors--International Tax Risks," "--Original Issue Discount
Consequences," and "Exchange Offer; Registration Rights" (second
paragraph), insofar as they constitute statements of law or legal
conclusions are accurate in all material respects.
In addition, such counsel shall state that it has generally reviewed and
discussed with certain officers and other representatives of the Company,
representatives of the independent public accountants for the Company, your
representatives and your counsel the preparation of the Offering Memorandum and
the statements contained therein and, although such counsel has not
independently verified the accuracy, completeness or fairness of such statements
(except as indicated above), such counsel advises you that, on the basis of the
foregoing, no facts came to its attention that caused it to believe that the
Offering Memorandum (as amended or supplemented, if applicable) as of the date
of the Offering Memorandum or at the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without limiting the
foregoing, such counsel may further state that they assume no responsibility
for, and have not independently verified, the accuracy, completeness or fairness
of, and express no view as to, the financial statements, notes and schedules and
other financial or statistical data included in the Offering Memorandum.
The opinions of such counsel described in this subsection shall be rendered
to you at the request of the Company and shall so state therein. In rendering
such opinions, such counsel may rely (A) as to matters involving the application
of the laws of Australia and New Zealand, upon the opinions of Freehill,
Hollingdale & Page, Australian counsel to the Company and Simpson Grierson, New
Zealand counsel to the Company (which opinions shall be addressed to the
Purchaser and shall be dated and furnished to the Purchaser at the Closing Time
and shall be satisfactory in form and substance to counsel for the Purchaser),
and (B) as to matters of fact (but not as to legal conclusions), to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials.
(g) You shall have received on the Closing Date opinions (in form and
substance satisfactory to you and your counsel) dated the Closing Date, of
Freehill, Holdingdale & Page, Australian counsel to the Company, (A) reaffirming
as of the Closing Date the matters set forth in that certain opinion of such
firm dated April 11, 1996 addressed to you and (B) a further opinion to the
effect that:
(i) Each of the Subsidiaries incorporated in Australia (the
"Australian Subsidiaries") and Salstel is a company duly incorporated and
validly existing under the laws of its jurisdiction of incorporation and is
not in liquidation.
(ii) Each of the Australian Subsidiaries and Salstel has the
corporate power to own, lease and operate assets and property and to
conduct its business as described in the Offering Memorandum.
(iii) All of the issued shares and debentures in each of the
Australian Subsidiaries and Salstel have been duly authorized, validly
issued and are fully paid as to par and premium and the holders of such
shares and debentures are not liable to make further contributions in
respect of such shares and debentures and such shares or debentures were
not issued in violation of any pre-emptive or similar rights whether
pursuant to any Organizational Document or contractually.
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(iv) All of the issued shares and debentures in each of the
Australian Subsidiaries and Salstel are owned beneficially and of record in
the percentages of each such Australian Subsidiaries' and Salstel's total
capital stock and debentures set out in the Offering Memorandum, free of
all liens, encumbrances, equities, limitations on voting rights and claims
or restrictions on transferability or payment of dividends or distributions
upon declaration thereof and provision therefor or upon liquidation or
winding up.
(v) The Australian Subsidiaries have the material permits
necessary to conduct their businesses as subscription television
broadcasters in the manner described in the Offering Memorandum, each
holder of a Broadcasting License or MDS License (or both) has performed its
material obligations under the Broadcasting Licenses or MDS Licenses (or
both) and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination of the Broadcasting Licenses or
the MDS Licenses and each Broadcasting License and MDS License is valid and
in full force and effect and such Broadcasting Licenses and MDS Licenses
together constitute all of the material permits, licences or authorization
required by any governmental body in Australia to conduct such business as
so described.
(vi) Other than as set forth in the Offering Memorandum there are
no legal, regulatory or governmental proceedings pending or threatened to
which any of the Australian Subsidiaries is a party or to which the assets
of the Australian Subsidiaries are subject which, individually or in
aggregate, could reasonably be expected to have a Material Adverse Effect.
(vii) Other than as set forth in the Offering Memorandum none of the
Australian Subsidiaries is in a breach or violation of any of the terms or
provisions of, or in default under (A) any material contract, (B) its
Organizational Documents, or (C) the provisions of the Corporations Law,
the BSA, the FATA or any binding rule or regulation promulgated thereunder
and the Organizational Documents will not cause any of the Australian
Subsidiaries to be in violation or breach of or conflict with (A) any
existing agreements to which an Australian Subsidiary is a party and of
which we are aware, and (B) the provisions of the Corporations Law, the BSA
or FATA, or any binding rule or regulation promulgated thereunder.
(viii) Each Australian Subsidiary is the lessee or sublessee (as the
case may be) of the premises under each material lease and such
Subsidiary's rights under such leases are free and clear of encumbrances
and restrictions, except for such encumbrances or restrictions as would not
individually or in the aggregate be reasonably likely to have a Material
Adverse Effect and is entitled, subject to the rights of the lessor under
the relevant lease to occupy and have quiet enjoyment of the premises the
subject of the lease.
(ix) The statements set out in the Offering Memorandum under the
headings (A) "Risk Factors--Government Regulations; License Renewal"
(second and third paragraphs), (B) "Risk Factors--Foreign Acquisitions and
Takeovers Act/Investment Company Act Considerations," (C) "Regulations--
Australia," (D) "Corporate Organizational Structure--Austar," insofar as
such statements constitute a summary of statutes, rules, regulations or
legal matters provide a fair and accurate summary of such matter.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the federal laws of the United States and the laws
of the State of Colorado, upon the opinion of Holme Roberts & Owen, LLP, United
States counsel to the Company (which opinion shall be addressed to the Purchaser
and shall be dated and furnished to the Purchaser at the Closing Time and shall
be satisfactory in form and substance to counsel for the Purchaser) and (B) as
to matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the Company and the
Subsidiaries and public officials.
(h) You shall have received on the Closing Date an opinion (in form and
substance satisfactory to you and your counsel) dated the Closing Date, of
Simpson Grierson, New Zealand counsel to the Company to the effect that:
(i) Each of the Subsidiaries incorporated in New Zealand (the "New
Zealand Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction
21
<PAGE>
of incorporation, has all requisite corporate power and authority to own,
lease and operate its assets and properties and conduct its business as it
is currently being conducted and as described in the Offering Memorandum.
(ii) Each of the New Zealand Subsidiaries is duly qualified and in
good standing as a foreign corporation authorized under the laws of all New
Zealand jurisdictions where the ownership, leasing and operation of its
respective properties and assets or the conduct of its respective business
requires such qualification.
(iii) All of the outstanding capital stock of each of the New
Zealand Subsidiaries has been duly authorized and validly issued, is fully
paid and nonassessable and was not issued in violation of any preemptive or
similar rights (whether provided pursuant to any Organizational Document
or, to such counsel's knowledge, contractually) and the outstanding shares
of the capital stock owned by UIHNZ of the New Zealand Subsidiaries are
owned beneficially and of record by UIHNZ in the percentages of each such
Subsidiary's total capital stock set forth in the Offering Memorandum, in
each case, free and clear of any security interest, claim, lien, limitation
on voting rights or encumbrance, equities and claims of restrictions on
transferability of, or the payment to UIHNZ of dividends or distributions
on such capital stock, except as set forth in the Offering Memorandum.
(iv) To the knowledge of such counsel, other than as described in
the Offering Memorandum, no legal, regulatory or governmental proceedings
are pending to which any of the New Zealand Subsidiaries is a party or to
which the assets of any of the New Zealand Subsidiaries are subject which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, and no such material proceedings have been
threatened against the Company or any of the New Zealand Subsidiaries or
with respect to any of their respective assets or properties.
(v) To the knowledge of such counsel, none of the New Zealand
Subsidiaries is in violation of its respective Organizational Documents or
is in violation of the Telecommunications Act (New Zealand) or the Commerce
Act or any other law, statute, rule, regulation, judgment or court decree
applicable to any of the New Zealand Subsidiaries.
(vi) To the knowledge of such counsel, each of the New Zealand
Subsidiaries has (i) good and marketable title to all of the properties and
assets described in the Offering Memorandum as owned by it, free and clear
of all liens, charges, encumbrances and restrictions, except such as are
described in the Offering Memorandum or as would not have a Material
Adverse Effect and (ii) peaceful and undisturbed possession under all
leases to which it is a party as lessee. To the knowledge of such counsel,
none of the New Zealand Subsidiaries has violated any Environmental Laws,
lacks any permits, licenses or other approvals required of them under
applicable New Zealand Laws or is violating any terms and conditions of any
such permit, license or approval, nor have any of the New Zealand
Subsidiaries violated any federal, state, local or foreign law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable wage or hour laws, nor any provisions of any New Zealand
employee benefit or retirement laws or the rules and regulations
promulgated thereunder, nor have any of the New Zealand Subsidiaries
engaged in any unfair labor practice, which in each case would result in a
Material Adverse Effect.
(vii) To the knowledge of such counsel, each of the New Zealand
Subsidiaries has (i) obtained all consents, approvals, orders,
certificates, licenses, permits, franchises and other authorizations
(collectively, "Authorizations") of and from, and has made all declarations
and filings with, all governmental and regulatory authorities, all self-
regulatory organizations and all courts and other tribunals necessary to
own, lease, license and use their respective properties and assets and to
conduct their respective businesses in the manner described in the Offering
Memorandum, except to the extent that the failure to so obtain or file,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect and (ii) no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking
any such Authorization. All such Authorizations are valid and in full
force and effect and the Company and its Subsidiaries are in compliance in
all material respects with the terms and conditions of all such
Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto.
22
<PAGE>
(viii) To the knowledge of such counsel, upon consultation with
United States counsel to the Company, there are no material franchises,
contracts, indentures, mortgages, loan agreements, notes, agreements or
other documents to which the Australian Subsidiaries are a party that are
not described in the Offering Memorandum; and the descriptions of such
documents thereto are correct and complete in all material respects.
(ix) The statements in the Offering Memorandum under the headings
"Risk Factors--Government Regulation; License Renewals" (fifth paragraph),
"--Foreign Currency Exchange Rate and Conversion Risks" (penultimate
sentence), "Regulation--New Zealand" and "Corporate Organizational
Structure--Saturn," insofar as such statements constitute a summary of New
Zealand statutes, rules, regulations or legal matters, provide a complete
and correct summary of such statutes, rules, regulations or legal matters
and the information with respect thereto required to be so disclosed (upon
consultation with United States counsel to the Company).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the federal laws of the United States and the State
of Colorado, upon the opinion of Holme Roberts & Owen, LLP, United States
counsel to the Company (which opinion shall be addressed to the Purchaser and
shall be dated and furnished to the Purchaser at the Closing Time and shall be
satisfactory in form and substance to counsel for the Purchaser) and (B) as to
matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the Company and the
Subsidiaries and public officials.
23
<PAGE>
(i) [intentionally omitted]
(j) [intentionally omitted]
(k) You shall have received an opinion, dated the Closing Date, of
Skadden, Arps, Slate, Meagher & Flom ("SASM&F"), your United States counsel, in
form and substance reasonably satisfactory to you, covering such matters as are
customarily covered in such opinions.
(l) At the time this Agreement is executed and delivered by the Company
and on the Closing Date, you shall have received letters, substantially in the
form previously approved by you, from Arthur Andersen LLP and Arthur Andersen,
independent public accountants, with respect to the financial statements and
certain financial information contained in the Offering Memorandum.
(m) SASM&F shall have been furnished with such documents and opinions, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters
24
<PAGE>
referred to in this Section 7 and in order to evidence the accuracy,
completeness or satisfaction in all respects of any of the representations,
warranties or conditions herein contained.
(n) Prior to the Closing Date, the Company shall have furnished to you
such further information, certificates and documents as you may reasonably
request.
(o) The Company and the Trustee shall have entered into the Indenture and
you shall have received executed counterparts of such agreement.
(p) The Company and the Purchaser shall have entered into the Registration
Rights Agreement and you shall received counterparts, conformed as executed,
thereof.
All opinions, certificates, letters and other documents required by this
Section 7 to be delivered by the Company will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and substance
to you and your counsel. The Company will furnish the Purchaser with such
conformed copies of such opinions, certificates, letters and other documents as
they shall reasonably request.
8. [intentionally omitted]
9. Effective Date of Agreement and Termination. This Agreement shall
become effective upon the execution hereof. This Agreement may be terminated at
any time on or prior to the Closing Date by you by notice to the Company if any
of the following has occurred: (i) subsequent to the date information is
provided in the Offering Memorandum, any Material Adverse Change which, in your
judgment, materially impairs the investment quality of the Series C Notes, (ii)
any outbreak or escalation of hostilities or other national or international
calamity or crisis or material adverse change in the financial markets of the
United States or elsewhere, or any other substantial national or international
calamity or emergency if the effect of such outbreak, escalation, calamity,
crisis, material adverse change or emergency would, in your judgment, make it
impracticable or inadvisable to market any of the Series C Notes or to enforce
contracts for the sale of any of the Series C Notes, (iii) any suspension or
limitation of trading generally in securities on the New York Stock Exchange or
in the over-the-counter markets or any setting of minimum prices for trading on
such exchange or markets, (iv) any declaration of a general banking moratorium
by either federal or New York authorities, (v) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs that in your judgment has a material adverse effect on the
financial markets in the United States, and would, in your judgment, make it
impracticable or inadvisable to market any of the Series C Notes or to enforce
contracts for the sale of any of the Series C Notes, (vi) the enactment,
publication, decree, or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which, in
your judgment, would have a Material Adverse Effect, or (vii) any securities of
the Company or any of its subsidiaries shall have been downgraded or placed on
any "watch list" for possible downgrading by any nationally recognized
statistical rating organization.
The indemnities and contribution provisions and other agreements,
representations and warranties of the Company, its officers and directors and of
the Purchaser set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Series C Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of either of the
25
<PAGE>
Purchaser or by or on behalf of the Company, the officers or directors of the
Company or controlling person of the Company, (ii) acceptance of the Series C
Notes and payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Purchaser pursuant to clause
(i) or (vii) of the second paragraph of this Section 9 or because of the failure
or refusal on the part of the Company to comply with the terms or to fulfill any
of the conditions of this Agreement, the Company agrees to reimburse you for all
out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by you. Notwithstanding any termination of this Agreement, the Company
shall be liable for all expenses which it has agreed to pay pursuant to Section
4(f) hereof.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Purchaser, any
Indemnified Person referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The terms "successors and assigns" shall not include a purchaser of any of the
Series C Notes from any of the Purchaser merely because of such purchase.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, UIH
Australia/Pacific, Inc. at 4643 South Ulster Street, Suite 1300, Denver,
Colorado 80237, Attention: Chief Executive Officer, with a copy to Holme
Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado 80203,
Attention: Garth B. Jensen, Esq., and (b) if to the Purchaser, c/o Donaldson,
Lufkin &
26
<PAGE>
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, with a copy to Skadden, Arps, Slate, Meagher &
Flom, 300 South Grand Avenue, Suite 3400, Los Angeles, California 90071-3144,
Attention: Nicholas Saggesse, or in any case to such other address as the
person to be notified may have requested in writing.
This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York as applied to contracts made and to be
performed in such state. This Agreement may be signed in various counterparts
which together shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the Agreement among
the Company and the Purchaser.
Very truly yours,
UIH AUSTRALIA/PACIFIC, INC.
By: /s/ Michael T. Fries
-------------------------------
Name: Michael T. Fries
Title: Chief Executive Officer
Accepted and agreed to as of
the date first above written
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ David Posnick
---------------------------------
Name: David Posnick
Title: Vice President
27
<PAGE>
SCHEDULE I
Subsidiaries
- ------------
Century United Programming Ventures Pty Limited
XYZ Entertainment Pty Limited
UIH Austar, Inc.
CTV Pty Limited
Jacolyn Pty Limited
Yanover Pty Limited
Keansburg Pty Limited
Orloff Pty Limited
Maxi-Vu Pty Limited
Palara Vale Pty Limited
Auldana Beach Pty Limited
Grovern Pty Limited
Lystervale Pty Limited
Minorite Pty Limited
Vinatech Pty Limited
Communications & Entertainment Australia Pty Limited
Communications & Entertainment Services Pty Limited
Communications & Entertainment Retail Pty Limited
Ilona Investments Pty Limited
STV Pty Limited
Vermint Grove Pty Limited
Kidillia Pty Limited
Dovevale Pty Limited
Carryton Pty Limited
Xtek Bay Pty Limited
Windytide Pty Limited
Selectra Pty Limited
Chippawa Pty Limited
UIH New Zealand Holdings, Inc.
Saturn Communications Limited
28
<PAGE>
UIH-SFCC II, Inc.
UIH-SFCC Holdings, L.P.
UIH-SFCC, L.P.
Societe Francaise des Communications et du Cable S.A.
Telefenua S.A.
United Wireless, Inc.
United Wireless Pty Limited
UIH XYZ Holdings, Inc.
UIH AML, Inc.
UIH Australia/Pacific Finance, Inc.
Other Entities
The Company holds certain securities, as described in the Offering Memorandum,
in the following entities, which entities are not "Subsidiaries" for purposes of
this Agreement.
Salstel Media Holdings Pty Limited
Salstel Media Investments Pty Limited
Australis Media Limited
29
<PAGE>
EXHIBIT 10.3
================================================================================
14% SENIOR DISCOUNT NOTES DUE 2006
REGISTRATION RIGHTS AGREEMENT
Dated September 23, 1997
by and among
UIH AUSTRALIA/PACIFIC, INC.
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into this 23rd day
of September, 1997, between UIH Australia/Pacific, Inc., a Colorado corporation
(the "Company") and Donaldson, Lufkin & Jenrette Securities Corporation (the
"Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated September
16, 1997, between the Company and the Purchaser (the "Purchase Agreement"). In
connection with the transactions contemplated by the Purchase Agreement, the
Company has agreed to provide the registration rights provided for in this
Agreement to the Purchaser and its direct and indirect transferees. The
execution of this Agreement is a condition to the closing of the transactions
contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings:
Advice: As defined in the last paragraph of Section 5 hereof.
------
Affiliate: With respect to any specified person, "Affiliate" shall
---------
mean any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
---------
amended, supplemented or modified from time to time in accordance with the terms
hereof.
Business Day: Any day except a Saturday, a Sunday or a day on which
------------
banking institutions in the State of New York generally are authorized or
required by law or other government action to be closed.
Company: As defined in the preamble hereof.
-------
Consummate or consummate: When used to qualify the term "Exchange
------------------------
Offer" shall mean validly and lawfully to issue and deliver the Exchange Notes
pursuant to the Exchange Offer for all Transfer Restricted Notes validly
tendered and not validly withdrawn pursuant thereto in accordance with the terms
of this Agreement.
Consummation Date: The date that is 30 Business Days immediately
-----------------
following the date that a Registration Statement relative to an Exchange Offer,
commenced pursuant to this Agreement, shall have been declared effective by the
SEC.
Effectiveness Period: As defined in Section 3 hereof.
--------------------
Event Date: As defined in Section 4(a) hereof.
----------
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated by the SEC pursuant thereto.
Exchange Date: As defined in Section 2(d) hereof.
-------------
Exchange Offer: An offer to issue, in exchange for any and all of the
--------------
Transfer Restricted Notes, a like aggregate principal amount at maturity of
Exchange Notes, which offer shall be made by the Company pursuant to Section 2
hereof.
Exchange Notes: The 14% Series D Senior Discount Notes due 2006 of
--------------
the Company that are identical to the Notes in all material respects, except
that the provisions regarding restrictions on transfer shall be modified, as
appropriate, and the issuance thereof pursuant to the Exchange Offer shall have
been registered pursuant to an effective Registration Statement in compliance
with the Securities Act.
Exchange Registration Statement: As defined in Section 2(a) hereof.
-------------------------------
Holder: Each registered holder of any Transfer Restricted Notes.
------
Indemnified Person: As defined in Section 7(a) hereof.
------------------
Indenture: The Indenture, dated as of September 23, 1997, between the
---------
Company and Firstar Bank of Minnesota, N.A., as trustee thereunder, pursuant to
which the Notes are being issued, as amended or supplemented from time to time
in accordance with the terms thereof.
Liquidated Damages: As defined in Section 4(a) hereof.
------------------
Notes: The 14% Series C Senior Discount Notes due 2006 of the Company
-----
being issued pursuant to the Indenture.
Participating Broker-Dealer: As defined in Section 2(e) hereof.
---------------------------
Paying Agent: As defined in the Indenture.
------------
person: An individual, partnership, corporation, trust or
------
unincorporated organization, or a government or agency or political subdivision
thereof.
Private Exchange: As defined in Section 2(c) hereof.
----------------
Private Exchange Notes: As defined in Section 2(c) hereof.
----------------------
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a
deposition),whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Transfer Restricted Notes or the
Exchange Notes covered by such Registration Statement, and all other amendments
and supplements to any such prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference, if any, in such prospectus.
Purchaser: As defined in the preamble hereof.
---------
Registration Statement: Any registration statement of the Company
----------------------
that covers any of the Notes or the Exchange Notes pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements
2
<PAGE>
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
---------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 174: Rule 174 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations promulgated by the SEC thereunder.
Shelf Filing Event: As defined in Section 3 hereof.
------------------
Shelf Registration: As defined in Section 3 hereof.
------------------
Shelf Registration Statement: As defined in Section 3 hereof.
----------------------------
Special Counsel: Any special counsel to the Holders, the expenses of
---------------
which Holders will be reimbursed for, pursuant to Section 6.
TIA: The Trust Indenture Act of 1939, as amended.
---
Transfer Restricted Notes: The Notes, upon original issuance thereof,
-------------------------
and at all times subsequent thereto, each Exchange Note as to which Section
3(a)(iii)(B) hereof is applicable upon original issuance and at all times
subsequent thereto and each Private Exchange Note upon original issuance thereof
and at all times subsequent thereto, until in the case of any such Note,
Exchange Note or Private Exchange Note, as the case may be, the earliest to
occur of (i) the date on which such Note has been exchanged by a person other
than a broker-dealer for an Exchange Note pursuant to the Exchange Offer, (ii) a
Registration Statement (other than, with respect to any Exchange Note as to
which Section 3(a)(iii)(B) hereof is applicable, the Exchange Registration
Statement) covering such Note, Exchange Note or such Private Exchange Note has
been declared effective by the SEC and such Note or such Private Exchange Note,
as the case may be, has been disposed of in accordance with such effective
Registration Statement, (iii) the date on which such Note, Exchange Note or
Private Exchange Note, as the case may be, is distributed to the public pursuant
to Rule 144 (or any similar provisions then in effect) or is saleable pursuant
to Rule 144(k) promulgated by the SEC pursuant
3
<PAGE>
to the Securities Act or (iv) the date on which such Note, Exchange Note or
Private Exchange Note, as the case may be, ceases to be outstanding for purposes
of the Indenture.
Trustee: The trustee under the Indenture and if existent, the trustee
-------
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities of the Company are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
Warrant Agreement: The warrant agreement to be entered into by and
-----------------
between the Company and the Warrant Agent (as defined in the Indenture) pursuant
to Section 4.21 of the Indenture.
2. Exchange Offer
--------------
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the Company shall (A) prepare and, on or
prior to 45 days after the date of this Agreement, file with the SEC a
Registration Statement relating to the Exchange Offer under the Securities Act
with respect to an offer by the Company to the Holders to issue and deliver to
such Holders, in exchange for Transfer Restricted Notes (other than Private
Exchange Notes, if any), a like principal amount of corresponding Exchange
Notes, (B) use its best efforts to cause the Registration Statement relating to
the Exchange Offer to be declared effective by the SEC under the Securities Act
on or prior to 120 days after the date of this Agreement, and (C) unless the
Exchange Offer would not then be permitted by a policy of the SEC, commence the
applicable Exchange Offer and use its best efforts to issue, on or prior to the
Consummation Date, the Exchange Notes. The offer and sale of the Exchange Notes
pursuant to the Exchange Offer shall be registered pursuant to the Securities
Act on the appropriate form (the "Exchange Registration Statement") and duly
registered or qualified under all applicable state securities or Blue Sky laws
and will comply with all applicable tender offer rules and regulations of the
Exchange Act and state securities or Blue Sky laws. The Exchange Offer and the
Private Exchange shall not be subject to any condition, other than that the
Exchange Offer and the Private Exchange, as the case may be, does not violate
any applicable law or interpretation of the staff of the SEC. Upon consummation
of the Exchange Offer in accordance with this Section 2, the provisions of this
Agreement shall continue to apply, mutatis mutandis, solely with respect to
Transfer Restricted Notes that are Private Exchange Notes and Exchange Notes
held by Participating Broker-Dealers, and the Company shall have no further
obligation to register Transfer Restricted Notes (other than Private Exchange
Notes and other than in respect of any Exchange Notes as to which clause
3(a)(iii)(B) hereof applies) pursuant to Section 3 hereof. No securities shall
be included in the Registration Statement covering the Exchange Offer other than
the Exchange Notes.
(b) The Company may require each Holder as a condition to its
participation in the Exchange Offer to represent to the Company and its counsel
in writing (which may be contained in the applicable letter of transmittal) that
at the time of the consummation of the Exchange Offer (i) any Exchange Notes
received by such Holder will be acquired in the ordinary course of its business,
(ii) such Holder will have no arrangement or understanding with any person to
participate in the distribution of the Notes or the Exchange Notes within the
meaning of the Securities Act and (iii) such Holder is not an Affiliate of the
Company, or if it is an Affiliate of the Company, it will comply with the
registration and prospectus delivery requirements of the Securities Act, to the
extent applicable.
(c) If, prior to consummation of the Exchange Offer, the Purchaser
holds any Notes acquired by them and having, or which are reasonably likely to
be determined to have, the status of an unsold allotment in the initial
distribution, or any other Holder is not entitled to participate in the Exchange
Offer, the Company upon the request of either the Purchaser or any such Holder
shall, simultaneously with the delivery of the Exchange Notes in the Exchange
Offer, issue and deliver to the Purchaser and any such Holder, in exchange (the
"Private Exchange") for such Notes held by the Purchaser and any such Holder, a
like principal amount of debt securities of the Company that are identical in
all material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are issued pursuant to the same indenture as the Exchange Notes). The
Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
(d) Unless the Exchange Offer would not be permitted by any applicable
law or interpretation of the staff of the SEC, the Company shall commence the
Exchange Offer (within the time periods set forth herein) by mailing the related
exchange offer prospectus and appropriate accompanying documents, including
appropriate letters
4
<PAGE>
of transmittal, to each Holder providing, in addition to such other disclosures
as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Agreement and that all Notes validly tendered will be accepted for
exchange;
(ii) the dates of acceptance for exchange (the "Exchange
Date"), which date shall in no event be later than the Consummation Date
(unless otherwise required by applicable law);
(iii) that Holders electing to have a Note exchanged pursuant to
the Exchange Offer will be required to surrender such Note or $1,000
integral multiple portion thereof, together with the enclosed letters of
transmittal, to the institution and at the address (located in the Borough
of Manhattan, The City of New York) specified in the notice prior to the
close of business on the Exchange Date; and
(iv) that Holders that do not tender all such securities
pursuant to the Exchange Offer will no longer have any registration rights
hereunder with respect to securities not tendered.
Promptly after the Exchange Date, the Company shall:
(i) accept for exchange all Notes or portions thereof validly
tendered and not validly withdrawn pursuant to the Exchange Offer or the
Private Exchange; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by the
Company, and issue, or cause the Trustee under the Indenture to
authenticate and mail to each Holder, an Exchange Note or Private Exchange
Note, as the case may be, equal in principal amount to the principal amount
of the Notes surrendered by such Holder.
(e) The Company and the Purchaser acknowledge that the staff of the
SEC has taken the position that any broker-dealer that owns Exchange Notes that
were received by such broker-dealer for its own account in the Exchange Offer (a
"Participating Broker-Dealer") may be deemed to be an "underwriter" within the
meaning of the Securities Act and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes (other than a resale of an unsold allotment resulting from the
original offering of the Notes).
The Company and the Purchaser also acknowledge that it is the SEC
staff's position that if the Prospectus contained in the Registration Statement
includes a plan of distribution containing a statement to the above effect and
the means by which Participating Broker-Dealers may resell the Exchange Notes,
without naming the Participating Broker-Dealers or specifying the amount of
Exchange Notes owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligations under the
Securities Act in connection with resales of Exchange Notes for their own
accounts, so long as the Prospectus otherwise meets the requirements of the
Securities Act.
In light of the above, notwithstanding the other provisions of this
Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration Statement shall also apply to an Exchange Offer
to the extent, and with such modifications thereto as may be reasonably
requested by the Purchaser or by one or more Participating Broker-Dealers, in
each case as provided in clause (ii) below, as appropriate to expedite or
facilitate the disposition of any Exchange Notes by Participating Broker-Dealers
consistent with the positions of the SEC recited in this Section 2(e); provided
--------
that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Registration Statement, as would otherwise be
contemplated by this Agreement, for a period exceeding one year after the
Consummation Date (as such period may be extended pursuant to the terms of
this Agreement relating to a Shelf Registration) and Participating Broker-
Dealers shall not be authorized by the Company to deliver and shall not
deliver such Prospectus after such period in connection with the resales
contemplated by this Section 2(e); and
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<PAGE>
(ii) the application of the Shelf Registration procedures set
forth in Section 5 of this Agreement to an Exchange Offer, to the extent
not otherwise required by the positions of the staff of the SEC or the
Securities Act, will be in conformity with the reasonable request to the
Company by the Purchaser or by anyone that certifies to the Company in
writing that such person anticipates that it will be a Participating
Broker-Dealer; and provided further that in connection with such
-------- -------
application of the Shelf Registration procedures set forth in Section 5 of
this Agreement to an Exchange Offer, the Company shall be obliged (x) to
deal only with one entity representing the Participating Broker-Dealers,
which shall be the Purchaser unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers and (z) to cause to be
delivered, if requested, customary "cold comfort" letters from the
Company's independent accountants with respect to the Prospectus in the
form existing on the Exchange Date and with respect to any subsequent
amendment or supplement, if any, effected during the period specified in
clause (i) above.
(f) The Purchaser shall have no liability to any person with respect
to any request made pursuant to Section 2(e).
(g) Interest on the Exchange Notes and the Private Exchange Notes
will accrue from (A) the later of (i) the last interest payment date on which
interest was paid on the Notes surrendered in exchange therefor or (ii) if the
Notes are surrendered for exchange on a date in a period which includes the
record date for an interest payment date to occur on or after the date of such
exchange and as to which interest will be paid, the date of such interest
payment date or (B) if no interest has been paid on the Notes, from the date of
the original issuance of the Notes.
(h) The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall vote and consent together on all
matters as one class and that neither the Exchange Notes, the Private Exchange
Notes nor the Notes will have the right to vote or consent as a separate class
on any matter.
3. Shelf Registration
------------------
(a) If (i) the Company is advised in writing by the staff of the SEC
that it is not permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or SEC policy or (ii) the Company has
not consummated the Exchange Offer within 150 days of the date of this Agreement
or (iii) any Holder notifies the Company within 120 days after the date of this
Agreement that (A) due to a change in law or policy it is not entitled to
participate in the Exchange Offer, (B) due to a change in law or policy it may
not resell the 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 (C) it is a broker-dealer that owns Notes (including the
Purchaser who hold Notes as part of an unsold allotment from the original
offering of the Notes) acquired directly from the Company or an Affiliate of the
Company or (iv) any holder of Private Exchange Notes so requests within 120 days
after the consummation of the Private Exchange (each such event referred to in
clauses (i) through (iv), a "Shelf Filing Event"), the Company shall cause to be
filed with the SEC pursuant to Rule 415 a shelf registration statement (the
"Shelf Registration Statement") prior to the later of (a) 90 days after the date
of this Agreement or (b) 30 days after the occurrence of such Shelf Filing
Event, relating to all such Transfer Restricted Notes (the "Shelf Registration")
the Holders of which have provided the information required pursuant to Section
3(b) hereof; provided that if the Company has not consummated the Exchange Offer
--------
within 150 days of the date of this Agreement, then the Company will file the
Shelf Registration Statement on or prior to the 151st day after the date of this
Agreement, and shall use its best efforts to have such Registration Statement
declared effective by the SEC on or prior to 60 days after such Shelf
Registration Statement is required to be filed. In such circumstances, the
Company shall use its best efforts to keep the Shelf Registration continuously
effective under the Securities Act, until (A) 36 months following the date of
this Agreement (subject to extension pursuant to the last paragraph of Section 5
hereof) or (B)if sooner, the date immediately following the date that all
Transfer Restricted Notes covered by the Shelf Registration have been sold
pursuant thereto (the "Effectiveness Period"); provided that the Effectiveness
--------
Period shall be extended to the extent required to permit dealers to comply with
the applicable prospectus delivery requirements of Rule 174 and as otherwise
provided herein.
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<PAGE>
(b) No Holder may include any of its Transfer Restricted Notes in any
Shelf Registration Statement pursuant to this Agreement unless and until such
Holder furnishes to the Company in writing, within 20 Business Days after
receipt of a request therefor, such information as the Company may reasonably
request for use in connection with any Shelf Registration Statement or
Prospectus or preliminary prospectus included therein. No Holder shall be
entitled to Liquidated Damages pursuant to Section 4 hereof unless and until
such Holder shall have provided all such reasonably requested information. Each
Holder as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading.
(c) If Warrants are issued, the Company shall file the Warrant Shelf
Registration Statement (as defined in the Warrant Agreement) under the
Securities Act covering the Warrant Shares (as defined in the Warrant Agreement)
and, if required under applicable law, the Warrants (as defined in the Warrant
Agreement) and shall use its best efforts to cause the Warrant Shelf
Registration Statement to be declared effective by the SEC on or prior to the
date of issuance of the Warrants
4. Liquidated Damages
------------------
(a) The parties hereto agree that the Holders will suffer damages if
the Company fails to fulfill its obligations pursuant to Section 2 or Section 3,
as applicable, and that it would not be feasible to ascertain the extent of such
damages. Accordingly, in the event that (i) the applicable Registration
Statement is not filed with the SEC on or prior to the date specified for such
filing in this Agreement, (ii) the applicable Registration Statement has not
been declared effective by the SEC on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
consummated within 30 Business Days after the date on which the Registration
Statement relating to the Exchange Offer was declared effective or (iv) the
applicable Registration Statement is filed and declared effective but shall
thereafter cease to be effective without being succeeded immediately by any
additional Registration Statement covering either the Notes or the Exchange
Notes, as the case may be, which has been filed and declared effective (each
such event referred to in clauses (i) through (iv), an "Event Date"), the
Company agrees to pay, as liquidated damages, and not as a penalty, to each
Holder, an additional amount (the "Liquidated Damages") equal to (A) during the
first 90-day period beginning on, and including, the Event Date, an amount equal
to 0.5% per annum of the Accreted Value (as defined in the Indenture) of
Transfer Restricted Notes held by such Holder and (B) during each subsequent 90-
day period immediately following the final day of the prior 90-day period, a
percentage of the Accreted Value of Transfer Restricted Notes held by such
Holder calculated at the rate per annum applicable in the immediately preceding
90-day period plus 0.5%, provided that, the rate at which Liquidated Damages are
--------
calculated shall not exceed 2.5% per annum, and, in all cases, ending on, but
excluding (w) in the case of clause (i) above, the date on which the applicable
Registration Statement is filed, (x) in the case of clause (ii) above, the date
on which the applicable Registration Statement is declared effective, (y) in the
case of clause (iii) above, the date on which the Exchange Offer is consummated
or (z) in the case of clause (iv) above, the date on which the applicable
Registration Statement again becomes effective, as the case may be.
(b) The Company shall notify the Trustee and Paying Agent under the
Indenture immediately upon the happening of each and every Event Date. The
Company shall pay the Liquidated Damages due on the Transfer Restricted Notes by
depositing with the Paying Agent (which shall not be the Company for these
purposes), in trust, for the benefit of the Holders thereof, at least one
Business Day prior to the applicable payment date specified in the following
sentence, sums sufficient to pay the Liquidated Damages then due. The
Liquidated Damages due shall be payable on each May 15 and November 15 to
Holders of record of Transfer Restricted Notes on the May 1 or November 1,
respectively, next preceding such payment date. Each obligation to pay
Liquidated Damages shall be deemed to accrue from and including the applicable
Event Date.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 4 constitute a reasonable estimate of the damages that will be
suffered by Holders by reason of the happening of any event described in clauses
(i) through (iv) of Section 4(a).
5. Registration Procedures
-----------------------
7
<PAGE>
In connection with the Company's registration obligations hereunder, the
Company shall effect such registrations on the appropriate form available for
the sale of the Transfer Restricted Notes or Exchange Notes, as applicable, to
(i) permit the sale of Exchange Notes and (ii) in the case of a Shelf
Registration, permit the sale of Transfer Restricted Notes in accordance with
the method or methods of disposition thereof specified by the Holders of a
majority in aggregate principal amount at maturity of Transfer Restricted Notes,
and pursuant thereto the Company shall as expeditiously as possible:
(a) In the case of a Shelf Registration, no fewer than 5 Business Days
prior to the initial filing of a Registration Statement or Prospectus and no
fewer than two Business Days prior to the filing of any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), furnish to the Holders, their Special
Counsel and the managing underwriters, if any, copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Holders,
their Special Counsel and such underwriters, if any, and cause the officers and
directors of the Company, counsel to the Company and independent certified
public accountants to the Company to respond to such inquiries as shall be
necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act; provided, however, that the Company shall not be deemed to have
-------- -------
kept a Registration Statement effective during the applicable period if it
voluntarily takes or fails to take any action that results in selling Holders of
the Transfer Restricted Notes covered thereby not being able to sell such
Transfer Restricted Notes pursuant to Federal securities laws during that period
(and the time period during which such Registration Statement is required to
remain effective hereunder shall be extended by the number of days during which
such selling Holders are not able to sell Transfer Restricted Notes). The
Company shall not file any such Shelf Registration Statement or related
Prospectus or any amendments or supplements thereto which the Holders of a
majority of the Transfer Restricted Notes, their Special Counsel, or the
managing underwriters, if any, shall reasonably object on a timely basis;
(b) Prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to keep
such Registration Statement continuously effective for the applicable time
period; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement as so amended or in such Prospectus as so supplemented;
(c) Notify the Holders of Transfer Restricted Notes to be sold or, in
the case of an Exchange Offer, tendered for, their Special Counsel and the
managing underwriters, if any, promptly (and in the case of an event specified
by clause (i)(A) of this paragraph in no event fewer than two Business Days
prior to such filing), and (if requested by any such Person), confirm such
notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment is proposed to be filed, and, (B) with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) in the case of a Shelf Registration, of any request by the SEC
or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information, (iii) of the issuance by the SEC, any state securities commission,
any other governmental agency or any court of any stop order, order or
injunction suspending or enjoining the use or the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time any of the representations and warranties of the Company
contained in any agreement (including any underwriting agreement) contemplated
hereby cease to be true and correct in all material respects, (v) of the receipt
by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Transfer Restricted
Notes or Exchange Notes for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, and (vi) of the happening of any
event or information becoming known that makes any statement made in such Shelf
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such Shelf Registration Statement,
Prospectus or documents so that, in the case of the Shelf Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, not misleading, and that in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
8
<PAGE>
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of any order enjoining or suspending the use or
effectiveness of a Registration Statement or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Transfer
Restricted Notes or Exchange Notes for sale in any jurisdiction, at the earliest
practicable moment;
(e) If a Shelf Registration is filed pursuant to Section 3 hereof and
if requested by the managing underwriters, if any, or the Holders of a majority
in aggregate principal amount at maturity of the Transfer Restricted Notes being
sold in connection with such offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, and such Holders agree should be included therein, and
(ii) make all required filings of such Prospectus supplement or such post-
effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
-------- -------
required to take any action pursuant to this Section 5(e) that would, in the
opinion of counsel for the Company, violate applicable law;
(f) Furnish to each Holder, their Special Counsel and each managing
underwriter, if any, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
each Holder (including those previously furnished or incorporated by reference)
as soon as practicable after the filing of such documents with the SEC;
(g) Deliver to each Holder, their Special Counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons reasonably request; and the Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders and the underwriters, if any, in connection with
the offering and sale of the Transfer Restricted Notes covered by such
Prospectus and any amendment or supplement thereto;
(h) Prior to any public offering of Transfer Restricted Notes and
prior to the consummation of the Exchange Offer, use its best efforts to
register or qualify or cooperate with the Holders of Transfer Restricted Notes
to be sold or tendered for, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Transfer Restricted Notes or
Exchange Notes for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder or underwriter reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Notes or Exchange Notes covered by the applicable Registration
Statement;
(i) In connection with any sale or transfer of Transfer Restricted
Notes that will result in such securities no longer being Transfer Restricted
Notes, cooperate with the Holders and the managing underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Notes or Exchange Notes to be sold, which certificates shall
not bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company and to enable such Transfer Restricted Notes
or Exchange Notes to be in such denominations and registered in such names as
the managing underwriters, if any, or Holders may request at least two Business
Days prior to any sale of Transfer Restricted Notes or Exchange Notes;
(j) Use its best efforts to cause the offering of the Transfer
Restricted Notes and Exchange Notes covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof or the underwriters,
if any, to consummate the disposition of such Transfer Restricted Notes and
Exchange Notes, except as may be required solely as a consequence of the nature
of such selling Holder's business, in which case the Company will cooperate in
all reasonable respects with the filing of such Registration Statement and the
granting of such approvals;
(k) Upon the occurrence of any event contemplated by Paragraph
5(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including, if appropriate, a post-effective amendment, to each Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be
9
<PAGE>
incorporated therein by reference, and file any other required document so that,
as thereafter delivered, such Prospectus will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(l) Prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Notes or Exchange Notes, as applicable, to
provide a CUSIP number for the Transfer Restricted Notes and Exchange Notes, as
applicable;
(m) If a Shelf Registration is filed pursuant to Section 3 hereof,
enter into such agreements (including an underwriting agreement in form, scope
and substance as is customary in underwritten offerings) and take all such other
reasonable actions in connection therewith (including those reasonably requested
by the managing underwriters, if any, or the Holders of a majority in aggregate
principal amount at maturity of the Transfer Restricted Notes being sold) in
order to expedite or facilitate the disposition of such Transfer Restricted
Notes, and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders of
such Transfer Restricted Notes and the underwriters, if any, with respect to the
business of the Company and its subsidiaries (including with respect to
businesses or assets acquired or to be acquired by any of them), and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, in form, substance and
scope as are reasonable and customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested; (ii) obtain
an opinion of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and Special Counsel to the Holders) addressed to
each selling Holder and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) use its best efforts to obtain customary "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed (where reasonably
possible) to each selling Holder and each of the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings;
(iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 8 hereof
(or such other provisions and procedures acceptable to Holders of a majority in
aggregate principal amount of the Transfer Restricted Notes covered by such
Registration Statement and the managing underwriters, if any); and (v) deliver
such documents and certificates as may be reasonably requested by the Holders of
a majority in aggregate principal amount at maturity of the Transfer Restricted
Notes being sold, their Special Counsel and the managing underwriters, if any,
to evidence the continued validity of the representations and warranties made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company;
(n) In the case of a Shelf Registration, make available for inspection
by a representative of the Holders of Transfer Restricted Notes being sold, any
underwriter participating in any such disposition of Transfer Restricted Notes,
if any, and any attorney, consultant or accountant retained by such selling
Holders or underwriter, at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries (including with respect to
business and assets acquired or to be acquired to the extent that such
information is available to the Company), and cause the officers, directors,
agents and employees of the Company and its subsidiaries (including with respect
to business and assets acquired or to be acquired to the extent that such
information is available to the Company) to supply all information in each case
reasonably requested by any such representative, underwriter, attorney,
consultant or accountant in connection with such Shelf Registration; provided,
however, that such Persons shall first agree in writing with the Company that
any information that is reasonably and in good faith designated by the Company
in writing as confidential at the time of delivery of such information shall be
kept confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information is
required by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of any Registration Statement or
the use of any prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard
10
<PAGE>
by such Person or (iv) such information becomes available to such Person from a
source other than the Company and such source is not bound by a confidentiality
agreement;
(o) Provide an indenture trustee for the Transfer Restricted Notes and
the Exchange Notes, as the case may be, and cause the Indenture to be qualified
under the TIA not later than the effective date of the first Registration
Statement relating to the Transfer Restricted Notes or the Exchange Notes, as
applicable; and in connection therewith, cooperate with the trustee under the
Indenture and the Holders, to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the terms of
the TIA; and execute, and use its best efforts to cause such trustee to execute,
all customary documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable the Indenture to
be so qualified in a timely manner;
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to their security holders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act), no later than 45
days after the end of any 12-month period (or 90 days after the end of any 12-
month period if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which Transfer Restricted Notes are sold to underwriters in a
firm commitment or reasonable efforts underwritten offering and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter after the effective date of a Registration Statement, which
statement shall cover said period, consistent with the requirements of Rule 158;
(q) In the case of a Shelf Registration, use its best efforts to cause
the Transfer Restricted Notes to be rated with the appropriate rating agencies,
if so requested by the managing underwriters, if any, or the Holders of a
majority in aggregate principal amount at maturity of the Transfer Restricted
Notes;
(r) Cooperate with each seller of Transfer Restricted Notes covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Transfer Restricted Notes and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc.;
(s) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Exchange Notes and/or Transfer
Restricted Notes covered by a Registration Statement contemplated hereby; and
(t) If an Exchange Offer is to be consummated, upon delivery of the
Transfer Restricted Notes by such Holders to the Company in exchange for the
Exchange Notes, the Company shall mark, or caused to be marked, on such Transfer
Restricted Notes that such Transfer Restricted Notes are being cancelled in
exchange for the Exchange Notes; in no event shall such Transfer Restricted
Notes be marked as paid or otherwise satisfied.
The Company may require such seller of Transfer Restricted Notes as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Transfer Restricted Notes as is
required by law to be disclosed in the applicable Registration Statement and the
Company may exclude from such registration the Transfer Restricted Notes of any
seller who fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force, the deletion of the
reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
In the case of a Shelf Registration pursuant to Section 3 hereof, each
Holder agrees by acquisition of such Transfer Restricted Notes that, upon
receipt of any notice from the Company of the happening of any event of the
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<PAGE>
kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(v) or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Transfer Restricted Notes
covered by such Registration Statement or Prospectus until such Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus. If
the Company shall give any such notice, the Effectiveness Period shall be
extended by the number of days during such period from and including the date of
the giving of such notice to and including the date when each seller of Transfer
Restricted Notes covered by such Registration Statement shall have received (x)
the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof or (y) the Advice, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registration Statement is filed or becomes effective and
whether or not any securities are issued or sold pursuant to any Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (B) in
compliance with securities or Blue Sky laws (including, without limitation and
in addition to that provided for in (b) below, fees and disbursements of counsel
for the underwriters or Holders or holders of Exchange Notes in connection with
Blue Sky qualifications and determination of the eligibility of the Transfer
Restricted Notes or Exchange Notes for investment under the laws of such
jurisdictions as the managing underwriters, if any, or Holders of a majority in
aggregate principal amount at maturity of Transfer Restricted Notes may
designate), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Transfer Restricted Notes or Exchange Notes in a form
eligible for deposit with The Depository Trust Company and of printing
Prospectuses if the printing of Prospectuses is required by the managing
underwriters, if any, or by the Holders of a majority in principal amount of the
Transfer Restricted Notes included in or tendered for in connection with any
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders (plus any local counsel, deemed appropriate by the Holders of a majority
in aggregate principal amount at maturity of the Transfer Restricted Notes), in
accordance with the provisions of Section 6(b) hereof, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(m)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) if required, the fees and expenses of any "qualified
independent underwriter" and its counsel, (vii) Securities Act liability
insurance, if the Company desires such insurance, and (viii) fees and expenses
of all other persons retained by the Company. In addition, the Company shall pay
their internal expenses (including, without limitation, all salaries and
expenses of their officers and employees performing legal or accounting duties),
the expense of any annual audit, and the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange.
(b) In connection with any registration hereunder, the Company shall
reimburse the Holders of the Transfer Restricted Notes being registered or
tendered for in such registration for the reasonable fees and disbursements of
not more than one firm of attorneys representing the selling Holders (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount at maturity of the Transfer Restricted Notes.
7. Indemnification
---------------
(a) The Company agrees to indemnify and hold harmless (i) the
Purchaser, each Holder, each holder of Exchange Notes and each Participating
Broker-Dealer, (ii) each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) any of the foregoing
(any of the persons referred to in this clause (ii) being hereinafter referred
to as a "controlling person"), and (iii) the respective officers, directors,
partners, employees, representatives and agents of the Purchaser, each Holder,
each holder of Exchange Notes, each Participating Broker-Dealer or any
controlling person (any person referred to in clause (i), (ii) or (iii) may
hereinafter be referred to as an "Indemnified Person"), from and against any and
all losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary
12
<PAGE>
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of Prospectus or supplement
thereto, in light of the circumstances under which they were made) not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Indemnified Person
furnished in writing to the Company by or on behalf of such Indemnified Person
expressly for use therein; provided that the foregoing indemnity with respect to
--------
any preliminary prospectus shall not inure to the benefit of any Indemnified
Person from whom the person asserting such losses, claims, damages, liabilities
and judgments purchased securities if such untrue statement or omission or
alleged untrue statement or omission made in such preliminary prospectus is
eliminated or remedied in the Prospectus and a copy of the Prospectus shall not
have been furnished to such person in a timely manner due to the wrongful action
or wrongful inaction of such Indemnified Person.
(b) In case any action shall be brought against any Indemnified
Person, based upon any Registration Statement or any such Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company, such Indemnified Person shall promptly notify the
Company in writing and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Person and
payment of all fees and expenses. Any Indemnified Person shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless (i) the employment of such counsel shall have
been specifically authorized in writing by the Company, (ii) the Company shall
have failed to assume the defense and employ counsel or (iii) the named parties
to any such action (including any impleaded parties) include both such
Indemnified Person and the Company and such Indemnified Person shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Company (in
which case the Company shall not have the right to assume the defense of such
action on behalf of such Indemnified Person, it being understood, however, that
the Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all such Indemnified Persons, which firm shall be designated
in writing by such Indemnified Persons, and that all such fees and expenses
shall be reimbursed as they are incurred). The Company shall not be liable for
any settlement of any such action effected without its written consent but if
settled with its written consent, the Company agrees to indemnify and hold
harmless any Indemnified Person from and against any loss or liability by reason
of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(c) In connection with any Registration Statement in which a Holder
is participating, such Holder agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers and any person
controlling the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to each Indemnified Person but only with respect to information
relating to such Indemnified Person furnished in writing by or on behalf of such
Indemnified Person expressly for use in such Registration Statement. In any such
case in which any action shall be brought against the Company, any of its
directors, any such officer or any person controlling the Company based on such
Registration Statement and in respect of which indemnity may be sought against
any Indemnified Person, the Indemnified Person shall have the rights and duties
given to the Company (except that if the Company shall have assumed the defense
thereof, such Indemnified Person shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person),
and the Company, its directors, any such officers and any person controlling the
Company shall have the rights and duties given to the Indemnified Person, by
Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and each
Indemnified Person on the other hand from the
13
<PAGE>
offering of the Notes or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and each such Indemnified Person
on the other hand in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and each such Indemnified Person on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or such Indemnified Person and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
---
rata allocation (even if the Indemnified Person were treated as one entity for
- ----
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the net profit received by it in connection with the sale of the
Notes contemplated by this Agreement exceeds the amount of any damages which
such Indemnified Person has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Indemnified Persons' obligations to
contribute pursuant to this Section 7(d) are several in proportion to the
respective amount of Notes included in any such Registration Statement by each
Indemnified Person and not joint.
8. Rules 144 and 144A
------------------
The Company shall use its best efforts to file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner
and, if at any time it is not required to file such reports but in the past had
been required to or did file such reports, it will, upon the request of any
Holder, make available other information as required by, and so long as
necessary to permit, sales of its Transfer Restricted Notes pursuant to Rule
144A. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed
to require the Company to register any of its securities pursuant to the
Exchange Act.
9. Underwritten Registrations
--------------------------
If any of the Transfer Restricted Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Holders of a majority in aggregate principal amount at maturity
of such Transfer Restricted Notes included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such Transfer Restricted Notes on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. Subject to Section 4 hereof, the Company and
each Holder agree that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of any of the provisions of this
Agreement and
14
<PAGE>
hereby further agrees that, in the event of any action for specific performance
in respect of such breach, it shall waive the defense that a remedy at law would
be adequate.
(b) No Inconsistent Agreements. The Company will not enter into any
--------------------------
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The Company has not previously entered into any agreement
granting any registration rights with respect to any of its debt securities to
any person. Without limiting the generality of the foregoing, without the
written consent of the Holders of a majority in aggregate principal amount at
maturity of the then outstanding Transfer Restricted Notes, the Company shall
not grant to any person the right to request the Company to register any of
their debt securities under the Securities Act unless the rights so granted are
subject in all respects to the prior rights of the Holders set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement.
(c) No Piggyback on Registrations. The Company shall not grant to any
-----------------------------
of its security holders (other than the Holders in such capacity) the right to
include any securities of the Company in any Shelf Registration or Exchange
Offer other than Transfer Restricted Notes.
(d) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Holders
of not less than a majority of the then outstanding aggregate principal amount
at maturity of Transfer Restricted Notes; provided, however, that, for the
-------- -------
purposes of this Agreement, Transfer Restricted Notes that are owned, directly
or indirectly, by the Company or an Affiliate of the Company are deemed not
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of a majority in aggregate principal amount at
maturity of the Transfer Restricted Notes being sold by such Holders pursuant to
such Registration Statement; provided, however, that the provisions of this
-------- -------
sentence may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(e) Notices. All notices and other communications provided for herein
-------
shall be made in writing by hand-delivery, next-day air courier, certified
first-class mail, return receipt requested, telex or facsimile:
(i) if to the Company, as provided in the Purchase Agreement,
(ii) if to the Purchaser, as provided in the Purchase Agreement,
or
(iii) if to any other person who is then a registered Holder, to
the address of such Holder as it appears in the Note register of the
Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given: when delivered by hand, if personally
delivered; one business day after being timely delivered to a next-day air
courier; five business days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Notwithstanding the foregoing, no transferee shall have any of the
rights granted under this Agreement until such transferee shall acknowledge its
rights and obligations hereunder by a signed written statement of such
transferee's acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
15
<PAGE>
(h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
(i) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provisions of this Agreement, or where any provision hereof or thereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
UIH AUSTRALIA/PACIFIC, INC.
By: /s/ Michael T. Fries
-------------------------------
Name: Michael T. Fries
Title: Chief Executive Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ David Posnick
--------------------------------
Name: David Posnick
Title: Vice President
16
<PAGE>
================================================================================
EXHIBIT 10.15
SUBSCRIPTION AND INVESTMENT AGREEMENT
DATED JULY 21, 1997
AMONG
SASKTEL HOLDING (NEW ZEALAND) INC.
SASKATCHEWAN TELECOMMUNICATIONS HOLDING CORPORATION,
UIH NEW ZEALAND HOLDINGS, INC.
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
AND
SATURN COMMUNICATIONS LIMITED
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
<S> <C>
ARTICLE 1 - DEFINITIONS........................................................................................ 1
ARTICLE 2 - PURCHASE AND SALE.................................................................................. 3
2.01 Closing....................................................................................... 3
2.02 Subscription for Stock........................................................................ 3
2.03 Purchase Price................................................................................ 3
2.04 Issue of Investor Shares...................................................................... 4
ARTICLE 3 - REPRESENTATIONS AND WARRANTIESOF UIH AND THE COMPANY............................................... 5
3.01 Organization, Corporate Power and Authorization............................................... 5
3.02 No Violation.................................................................................. 6
3.03 Company Capitalization........................................................................ 6
3.04 Financial Statements.......................................................................... 7
3.05 Taxes......................................................................................... 8
3.06 Litigation.................................................................................... 8
3.07 Licenses...................................................................................... 9
3.08 Assets........................................................................................ 9
3.09 Contracts..................................................................................... 9
3.10 Compliance with Laws.......................................................................... 9
3.11 Consents...................................................................................... 9
3.12 Brokers....................................................................................... 9
3.13 Transactions with UIH......................................................................... 9
3.14 Director, Officer and Employee Matters........................................................ 10
3.15 Insurance..................................................................................... 10
3.16 Subsidiaries.................................................................................. 10
3.17 Intellectual Property......................................................................... 10
3.18 Environmental................................................................................. 10
3.19 Information About System...................................................................... 11
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF INVESTOR......................................................... 12
4.01 Authority..................................................................................... 12
4.02 No Violation.................................................................................. 12
4.03 Brokers....................................................................................... 12
ARTICLE 5 - CONDUCT PENDING THE CLOSING........................................................................ 13
5.01 Business in Ordinary Course................................................................... 13
5.02 Books and Records............................................................................. 13
5.03 Representations and Warranties................................................................ 13
5.04 Full Access................................................................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.05 Conditions.................................................................................... 13
ARTICLE 6 - CONDITIONS OF INVESTOR'S OBLIGATIONS............................................................... 13
6.01 Corporate Action.............................................................................. 13
6.02 Receipt of Consents........................................................................... 14
6.03 Performance................................................................................... 14
6.04 Representations and Warranties True and Complete.............................................. 14
6.05 No Legal Proceedings.......................................................................... 14
6.06 Interconnect Agreement........................................................................ 14
6.07 Investor Consents and Approvals............................................................... 14
6.08 Conversion of Certain Indebtedness............................................................ 14
ARTICLE 7 - CONDITIONS OF THE COMPANY'S AND UIH'S OBLIGATIONS.................................................. 15
7.01 Corporate Action.............................................................................. 15
7.02 Receipt of Consents........................................................................... 15
7.03 Performance by Investor....................................................................... 15
7.04 Truth of Representations and Warranties....................................................... 15
7.05 No Legal Proceedings.......................................................................... 15
ARTICLE 8 - DELIVERIES BY THE PARTIES.......................................................................... 15
8.01 Company Deliveries at Closing................................................................. 15
8.02 UIH Deliveries at Closing..................................................................... 16
8.03 Investor Deliveries at Closing................................................................ 16
8.04 Shareholders Agreement........................................................................ 17
8.05 Technical Assistance Agreement................................................................ 17
ARTICLE 9 - MUTUAL COVENANTS................................................................................... 17
9.01 Compliance with Conditions.................................................................... 17
9.02 Confidentiality............................................................................... 17
9.03 Annual Budget and Long-Range Plan of the Company.............................................. 18
9.04 Repayments to UIH............................................................................. 18
ARTICLE 10 - SURVIVAL.......................................................................................... 18
10.01 Survival...................................................................................... 18
10.02 Indemnification............................................................................... 18
ARTICLE 11 - GUARANTEES........................................................................................ 18
11.01 UAP Guarantee................................................................................. 18
11.02 STHC Guarantee................................................................................ 18
11.03 General....................................................................................... 19
ARTICLE 12 - TERMINATION....................................................................................... 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 13 - NOTICES........................................................................................... 19
ARTICLE 14 - MISCELLANEOUS..................................................................................... 20
14.01 Further Assurances............................................................................ 20
14.02 Headings...................................................................................... 20
14.03 Counterparts.................................................................................. 21
14.04 Amendments.................................................................................... 21
14.05 Assignment.................................................................................... 21
14.06 Entire Agreement.............................................................................. 21
14.07 No Waiver..................................................................................... 21
14.08 Severability.................................................................................. 21
14.09 Governing Law................................................................................. 21
</TABLE>
Schedules
3.04(c) Transactions since Interim Balance Sheet
3.06 Litigation
3.08 Tangible Personal Property; Real Property;
Third-Party Interests in Assets
3.09 Contracts
3.11 Consents
3.13 Amounts Owed to UIH and Affiliates
3.14 Director, Officer and Employee Matters
3.15 Insurance
3.16 Subsidiaries
3.17 Intellectual Property
3.18(d) Contaminants
3.18(e) Environmental Permits
3.18(f) Environmental Proceedings
3.19(a) System Information
3.19(b) System Construction Estimation Procedure
Exhibits
A Form of New Constitution
B Form of Shareholders Agreement
C Form of Opinion of Company Counsel
D Form of Opinion of UIH Counsel
E Form of Opinion of Investor Counsel
F Form of Technical Assistance Agreement
G Initial Annual Budget [To be attached]
<PAGE>
SUBSCRIPTION AND INVESTMENT AGREEMENT
This Subscription and Investment Agreement, dated as of July 21, 1997, is
among SaskTel Holding (New Zealand) Inc., a Saskatchewan corporation
("Investor"), Saskatchewan Telecommunications Holding Corporation, a
Saskatchewan Crown corporation ("STHC"), UIH New Zealand Holdings, Inc., a
Colorado corporation ("UIH"), UIH Asia/Pacific Communications, Inc., a Delaware
corporation ("UAP") and Saturn Communications Limited, a company incorporated
under the New Zealand Companies Act 1993 (the "Company").
RECITALS
A. Investor is a wholly owned subsidiary of STHC. Investor desires to
subscribe for, and the Company desires to issue and sell, such number of
ordinary shares of the Company as will entitle Investor to hold 35% of the share
capital of the Company for the consideration and on the terms and conditions set
forth herein.
B. UIH is an indirect wholly owned subsidiary of UAP. UIH holds 500,000
shares of the Company's issued ordinary shares, which represent 100% of the
issued shares of capital stock of the Company. Prior to the Closing, UIH will
be issued 150,000 additional ordinary shares.
C. UAP and STHC have agreed to guarantee certain of the covenants,
representations and warranties made herein by their respective subsidiaries.
D. In connection with Investor's subscription and investment pursuant to
this Agreement, UIH, Investor and the Company shall execute and deliver a
shareholders agreement.
AGREEMENT
ARTICLE 1 - DEFINITIONS
As used herein, the following terms have the following meanings (terms
defined in the singular to have the same meanings when used in the plural and
vice versa):
- ----------
Affiliate: The same meaning as set forth in the Shareholders Agreement.
---------
Agreement: This Subscription and Investment Agreement including the
---------
Exhibits attached hereto.
Assets: All of the properties, assets, privileges, rights, interests,
------
claims and goodwill of the Company, real and personal, tangible and intangible,
of every type and description, whether owned or leased or otherwise possessed,
used, held for use or usable in the Company's business.
<PAGE>
Contaminant: Any substance which when released to the natural environment
-----------
is likely to cause, immediately or at some future time, material harm or
degradation to the natural environment or risk to human health.
Contract: All material contracts, mortgages, deeds of trust, bonds,
--------
leases, licenses, notes, franchises, certificates, options, warrants, rights, or
other such instrument, document or written agreement, to which the Company is a
party, or by which the Company or a material portion of its Assets is or may be
bound.
Environmental Requirements: Any New Zealand law, regulation or by-law
--------------------------
relating to environmental protection, dangerous goods or poisons, chemicals,
toxic substances, wastes or pesticides.
Judgment: Any judgment, writ, order or decree of or by any court, judge,
--------
justice or magistrate, including any bankruptcy court or judge, and any order of
or by any governmental authority.
Law: The common law and any statute, ordinance, or other law, rule,
---
regulation, binding order, in each case having legally binding effect, enacted,
promulgate or made by any New Zealand governmental authority or court thereof.
Licenses: Franchises, licenses, permits, operating authorizations and
--------
approvals from government or other authorities, and all material rights-of-way,
necessary to construct, own and operate lawfully multi-channel television and
business and residential telephony systems in a specified geographical area.
Lien: Any security agreement, conditional sale or other title retention
----
agreement, any lease, consignment or bailment given for security purposes, any
lien, charge, mortgage, pledge, option, encumbrance, of any kind, which (i)
creates or confers or purports to create or confer an interest in property to
secure payment or performance of a liability, obligation or claim, or which
retains or reserves or purports to retain or reserve such an interest for such
purpose, (ii) grants to any person the right to purchase or otherwise acquire,
or obligates any person to sell or otherwise dispose of, or otherwise results or
may result in any person acquiring, any property or interest in property, (iii)
restricts or may restrict the transfer of any property.
New Constitution. Constitution of the Company substantially in the form
----------------
attached hereto as Exhibit A, to be adopted pursuant to Section 6.01(a).
Person: Any natural person, corporation, general or limited partnership,
------
joint venture, trust, association, unincorporated entity of any kind,
governmental or local authority or any other entity.
Primary Properties: The Properties owned or leased by the Company but
------------------
excluding the real property easements and other rights granted to the Company
for use in the construction and use of its network.
2
<PAGE>
Properties: The real properties set forth in Schedule 3.08.
----------
Real Property: All realty, towers, fixtures, easements, rights-of-way,
-------------
leasehold and other interests in real property, buildings, improvements and
construction-in-progress owned, leased, occupied, used or held for use by the
Company.
Restriction: Any agreement, option, warrant, escrow, proxy, buy-sell
-----------
agreement, power of attorney or other Contract, arrangement or understanding,
which (i) results or may result in any person acquiring, any shares of the
Company's stock, any of the proceeds of, or any distributions paid or payable
with respect to, any of the shares, or any interest in such shares, or proceeds
or distributions, (ii) restricts or may restrict the transfer of, or the
exercise of any rights of the enjoyment of any benefits arising by reason of
ownership of, any such shares, proceeds or distributions or (iii) creates or may
create a Lien affecting such Shares, proceeds or distributions.
Shareholders Agreement: Shareholders Agreement substantially in the form
----------------------
attached hereto as Exhibit B, executed by the parties pursuant to Section 8.04.
Technical Assistance Agreement: Technical Assistance Agreement
------------------------------
substantially in the form attached hereto as Exhibit E, executed by Investor and
the Company pursuant to Section 8.05.
Title Document: Any deed, grant of easement, certificate of title or other
--------------
document which confirms and vests title or ownership of any property or any
interest in property--real, personal or intangible--in the Company.
ARTICLE 2 - PURCHASE AND SALE
2.01 Closing. The Closing of the transaction contemplated hereby shall
-------
be held on the later of July 23, 1997, or the date on which Investor has
received approval from the Overseas Investment Commission, or such earlier date
specified by UIH and Investor in writing (the "Closing Date").
2.02 Subscription for Stock. Subject to the conditions specified in
----------------------
Section 6.01 hereof, on the Closing Date, the Company shall offer Investor, and
Investor shall accept such offer, the allotment to Investor of 350,000 ordinary
shares in the Company (the "Initial Investor Shares") so that Investor holds 35%
of all the ordinary shares in the Company on issue. Subject to the conditions
specified in Section 2.03(b)(i), the Company shall offer Investor, and Investor
shall accept such offer, the allotment to Investor of one additional ordinary
share (the "Remaining Investor Share").
2.03 Purchase Price. (a) The subscription price for the Initial
--------------
Investor Shares shall be payable in U.S. dollars and shall be equal to the sum
of NZ$29,945,828 (using the arithmetic average of the bid and ask conversion
rate specified by Reuters Wire Service at 10 a.m. (Saskatchewan time) on the
Closing Date) payable by wire transfer at closing to the bank account designated
in writing by the Company.
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(b) The subscription price for the Remaining Investor Share shall be
payable in U.S. dollars and shall be equal to the sum of NZ$1,346,154 (using the
arithmetic average of the bid and ask conversion rate specified by Reuters Wire
Service at 10 a.m. (Saskatchewan time) on the business day prior to the Closing
Date), which shall be used to purchase an interest bearing term deposit or such
other security that the Investor and UIH may agree upon which shall be delivered
on the Closing Date to the solicitors for the Investor to be held in trust and
delivered:
(i) to the Company upon written notification from the Investor
and UIH (which the parties hereby agree to deliver upon the occurrence of
such events) confirming that the Company has achieved one of the following
milestones:
(A) 35% CATV penetration rate on or before
December 31, 1999. Penetration rate shall be defined as the
average number of paying subscribers in any given calendar
month divided by the average number of homes passed for that
month; or
(B) the Company has secured the right to
offer Sky programming including without limitation
the Sky sports channel any time before December 31,
1998, based upon industry standard terms and
conditions for the provision of such programming.
(It being agreed that it is not mandatory that the
Company execute a contract for the provision of Sky
programming in order to achieve this milestone but
the Company must have the option to offer such
programming should the Board, including nominees of
both Shareholders elect to do so); or
(C) earnings before interest, taxes,
depreciation and amortization (EBITDA) for the
Company equal or exceed NZ$10.5 million for the
calendar year ending December 31, 1999, based on
audited financial statements for the said period.
(ii) to the Investor if such solicitors have not
received the written notification referred to in Section 2.03
(b)(i)(a, b or c) by the later of (A) 10 business days following
receipt by the Company of audited financial statements for the
year ended December 31, 1999, or (B) March 1, 2000; or
(iii) as the Investor and UIH may jointly direct such
solicitors in writing.
2.04 Issue of Investor Shares. (a) Upon receipt of the initial
------------------------
portion of subscription price in accordance with Section 2.03(a), the Company
shall:
(i) issue the Initial Investor Shares to Investor;
4
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(ii) deliver to the Investor a share certificate in
respect of the Initial Investor Shares;
(iii) enter the name of Investor as the holder of the
Initial Investor Shares in the Register of Members of the
Company; and
(iv) as soon as practicable, file all necessary
documents recording the issue of the Initial Investor Shares with
the Registrar of Companies.
(b) Upon the occurrence of the events described in Section 2.03(b)(i),
including delivery of the remaining portion of the subscription price, the
Company shall:
(i) issue the Remaining Investor Share to Investor;
(ii) deliver to the Investor a share certificate in
respect of the Remaining Investor Share;
(iii) enter the name of Investor as the holder of the
Remaining Investor Share in the Register of Members of the
Company; and
(iv) as soon as practicable, file all necessary
documents recording the issue of the Remaining Investor Share
with the Registrar of Companies.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
OF UIH AND THE COMPANY
To induce Investor to enter into this Agreement, UIH and the Company
jointly and severally represent and warrant to Investor as follows, except that
the Company makes no representation or warranty with respect to the matters set
forth in Sections 3.01(b) and 3.02(b):
3.01 Organization, Corporate Power and Authorization.
-----------------------------------------------
(a) The Company is a corporation duly organized and validly existing
under the laws of New Zealand. The Company has full corporate power and
authority to enter into this Agreement and the Shareholders Agreement, to
perform its obligations under this Agreement and the Shareholders Agreement and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Shareholders Agreement and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate or other actions on the
part of the Company and its shareholders, except for the consents and actions
contemplated by Section 6.01. This Agreement and any agreement, instrument,
certificate or other document executed by the Company pursuant to this
Agreement, including the Shareholders Agreement, has been, or prior to the
Closing will be, duly executed by the Company and is, or when so executed will
be, the legal, valid and binding obligations of the Company enforceable in
accordance with their respective terms, except insofar as
5
<PAGE>
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies.
(b) UIH is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado. UIH is a wholly owned
subsidiary of UIH Australia/Pacific, Inc., which in turn is a wholly owned
subsidiary of UAP. United International Properties, Inc., a wholly owned
subsidiary of United International Holdings, Inc. ("UIHI"), owns 98.0% of the
issued and outstanding common stock of UAP. UIHI, a Delaware corporation, is a
publicly traded company with securities quoted on the Nasdaq National Market
System. UIH has full corporate power and authority to enter into this Agreement
and the Shareholders Agreement, to perform its obligations under this Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by it have been duly and validly authorized by all
necessary corporate or other actions on the part of UIH. This Agreement and any
agreement, instrument, certificate or other document executed or delivered
pursuant to this Agreement, including the Shareholders Agreement, has been, or
prior to the Closing will be, duly executed and delivered by UIH and is, or when
so executed and delivered will be, the valid and binding obligation of UIH
enforceable in accordance with their respective terms, except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies.
(c) The Company has all requisite corporate and other power and
authority to carry on its business as currently conducted and to own, lease, use
and operate its properties at the places currently located and in the manner
currently used and operated.
3.02 No Violation.
------------
(a) The Company's execution and delivery of this Agreement, its
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby will not violate any provision of Law and will
not, with or without the giving of notice or the passage of time, conflict with
or result in any breach of any of the terms or conditions of, or constitute a
default under, the Constitution of the Company, or under any agreement, contract
or other instrument to which the Company is bound. The Company has obtained all
consents, governmental or otherwise, necessary for its execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except for the consents and actions contemplated by Section
6.01.
(b) UIH's execution and delivery of this Agreement, its performance
of its obligations hereunder and the consummation of the transactions
contemplated hereby will not violate any provision of Law and will not, with or
without the giving of notice or the passage of time, conflict with or result in
any breach of any of the terms or conditions of, or constitute a default under,
the articles of incorporation or bylaws of UIH, or under any agreement, contract
or other instrument to which UIH is bound.
6
<PAGE>
3.03 Company Capitalization.
----------------------
(a) The authorized capital stock of the Company consists of 500,000
ordinary shares, all of which shares have been duly and validly issued and fully
paid as of the date hereof. UIH is the registered and beneficial owner of all
such issued shares. The Company plans to issue to UIH an additional 150,000
ordinary shares in connection with the repayment or conversion of indebtedness
pursuant to Section 6.08. No preemptive rights exist as to such shares. No
other shares or equity securities of the Company (including, without limitation,
any options, rights, warrants to purchase or subscribe for, or any commitment or
obligation of any kind to issue, any shares) have been issued, authorized,
reserved for a particular purpose or held as treasury stock. Neither UIH nor
the Company is a party to any agreement that grants to any person the right to
purchase or otherwise acquire any shares of stock of the Company, or otherwise
restricting, limiting, or in any manner affecting their issuance pursuant to the
terms of this Agreement.
(b) When issued at the closing pursuant to the terms hereof, the
Initial Investor Shares will be duly issued and fully paid. Following the
issuance of the Initial Investor Shares, the Initial Investor Shares will
represent a 35% equity interest in the Company. The Initial Investor Shares
will not be subject to any Liens, charges or other encumbrances or Restrictions,
and the Company has not taken any action that would result in the imposition of
any such lien, charge or other encumbrance or Restriction.
3.04 Financial Statements.
--------------------
(a) The Company has delivered to Investor the following financial
statements (the "Financial Statements"): (i) the audited balance sheets of the
Company as of December 31, 1994, 1995 and 1996, and the profit and loss account
and statement of cash flows of the Company for the years ended December 31,
1994, 1995 and 1996; and (ii) the unaudited balance sheet of the Company as of
June 30, 1997, (the "Interim Balance Sheet") and the related unaudited
statements of operations, stockholders' equity and cash flows (the "Interim
Financial Statements").
(b) The Financial Statements are complete and accurate in all
material respects, present fairly the financial position and the results of
operations of the Company as of the respective dates and for the periods
indicated, are consistent with the books and records of the Company and have
been prepared in accordance with generally accepted accounting principles as
used in New Zealand on a consistent basis throughout the periods involved. The
bookkeeping and accounting records of the Company are complete and accurate in
all material respects and fairly reflect the financial transactions of the
Company.
(c) Since the date of the Interim Balance Sheet, except as disclosed
in Schedule 3.04(c), (i) there has not been (A) any material adverse change in
the business prospects, operations, assets, liabilities (actual or contingent),
earnings or financial or other condition of the Company, or (B) any change in
the authorized or actual capitalization of the Company and (ii) the Company has
not (A) incurred any liability, actual or contingent (other than current
liabilities for operating expenses incurred in the ordinary course of business),
(B) entered into, or committed to enter into, any material transaction other
than the transactions contemplated by this Agreement (or
7
<PAGE>
transactions in the ordinary course of business), (C) declared or paid any
dividend or distribution on its capital stock or acquired any stock of any other
Person; or (D) acquired or disposed of or committed to acquire or dispose of any
of its material assets (except in the ordinary course of business and as fully
disclosed in Schedule 3.04(c) to this Agreement).
(d) Except as disclosed in the Financial Statements and except to
the extent that full provision has been made therefor with respect to any
taxable gain arising on the disposal of an asset, no asset is included in the
Financial Statements at a value that if it had been obtained on the disposal or
deemed disposal of the asset at the relevant balance sheet date, a taxable gain
would have arisen or accrued in an amount exceeding NZ$100,000 in the aggregate
for all such assets.
(e) The net loss of the Company as set forth on the income and loss
statement for the year ended December 31, 1996, has not, except as disclose in
such Financial Statement, been effected to a material extent by inconsistencies
of accounting practices, by the inclusion of non-recurring items of income or
expense, by transactions entered into otherwise than on normal commercial terms
or by any other factors rendering such net loss exceptionally high or low.
3.05 Taxes. (a) The Company has duly and timely filed all tax
-----
returns and reports required to be filed by it. All such tax returns and tax
reports are true, correct and complete and present fairly and accurately the
information required to be shown therein. The Company has paid all taxes as
shown on such returns and reports or as otherwise payable by them to all taxing
authorities and full provision has been made for all taxation liability to be
assessed on the Company or for which it may become accountable for with respect
to distributions made or deemed under any relevant taxation legislation to be
made on or before the last day of the taxable period for which the most recent
tax returns have been filed.
(b) The accrual for taxes reflected in the Financial Statements is,
in the aggregate, adequate to cover any and all national, local or foreign tax
liabilities (whether or not disputed) of the Company for the period covered by
such Financial Statements and for all tax liabilities arising out of
transactions entered into or states of fact existing prior to the date of the
Interim Balance Sheet, and have been calculated in accordance with accounting
principles and standards generally accepted by relevant taxing authorities and
such principles and standards have been consistently applied.
(c) There are no pending or threatened claims for tax deficiencies,
penalties or interest asserted against the Company by any taxing authority.
There are no agreements or waivers extending the time for the assessment of any
tax or tax deficiency against the Company.
(d) The Company made deductions from employee compensation in
compliance with all applicable law and all amount due to be paid prior to the
date hereof to any taxation authority with respect to such deductions have been
paid.
(e) The tax loss carry-forwards as set out in the Company's tax
return for the fiscal year ended December 31, 1995, and for subsequent periods
have not been transferred by the Company and are eligible to offset future
earnings of the Company, to the extent allowed by applicable law.
8
<PAGE>
3.06 Litigation. Except as set forth in Schedule 3.06, there are no
----------
actions, proceedings, claims or investigations filed or, to the best of UIH's or
the Company's knowledge, threatened or pending by or before any court,
arbitrator or administrative agency to which the Company is a party in which an
adverse determination might adversely affect the Company or a material portion
of any of the Company's assets or rights or that questions the validity of this
Agreement or seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement. To the best of UIH's and the Company's
knowledge, there are no circumstances likely to lead to any legal action, claim
proceeding or arbitration, nor is the Company likely to be prosecuted for any
criminal offense. With respect to the Hirini Contractors Limited ("Hirini")
matter listed in Schedule 3.06, the Company has conducted a reasonable
investigation necessary for it to make the following representation. The
Company hereby confirms that no representations, waivers or agreements have been
made by management of the Company that would amend, alter or supplement the
Hirini construction contract dated December 6, 1996, which is the only agreement
among the parties.
3.07 Licenses. The Company has provided to Investor true and correct
--------
copies of all Licenses issued in connection with the business of the Company.
3.08 Assets. Schedule 3.08 attached hereto is a true and complete list of
------
(a) all of the material tangible personal property owned by the Company, and (b)
all of the real property occupied or used by the Company. Except has set forth
on Schedule 3.08 attached hereto, (a) the Company has not created any
debentures, charges, pledges, security interests or any other encumbrances with
respect to any of its Assets, and (b) no third party has any interest in the
Assets.
3.09 Contracts. Schedule 3.09 attached hereto contains a true and correct
---------
list of all of the Contracts to which the Company is a party. To the best
knowledge of UIH and the Company, following careful review, the Company is not
in material default or breach of any Contracts or other instruments to which its
is a party or by which it is bound and there exist no fact which, after notice
or lapse of time or both, would constitute a material default or breach and all
such Contracts and instruments are in full force, according to the terms
thereof, and the Company is entitled to the benefits therefrom.
3.10 Compliance with Laws. The Company has complied in all material
--------------------
respects with all Laws in respect of the conduct of its business and ownership,
possession, maintenance and operation of its properties and Assets.
3.11 Consents. Except as set forth on Schedule 3.11, there are no
--------
consents or other authorizations required to be obtained for the transactions
contemplated by this Agreement to be consummated.
3.12 Brokers. Neither the Company nor UIH has employed or retained any
-------
broker, agent or finder, or agreed to pay any fee, commission or similar payment
to any such person, on account of this Agreement or the transactions
contemplated hereby with respect to which Investor would be liable.
9
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3.13 Transactions with UIH. Except as set forth on Schedule 3.13 attached
---------------------
hereto, there are no Contracts, or any outstanding claims, liabilities or
accounts due or owing from the Company to UIH, UAP or any of their Affiliates
with respect any agreements in existence, between the Company and UIH, UAP or
any of their Affiliates including, without limitation, the Technical Assistance
Agreement.
3.14 Director, Officer and Employee Matters. Except as set forth on
--------------------------------------
Schedule 3.14 attached hereto, (a) there are no employment agreements,
consulting agreements, non-competition agreements, deferred compensation
agreements or similar agreements between the Company and any of its directors,
officers and employees, (b) there are no amounts owing to any present director
or any person who has been a director of the Company since July 9, 1994, other
than remuneration due or for reimbursement of business expenses, and (c) there
are no accrued and unpaid bonuses or any deterred compensation arrangements with
respect to any employee or officer of the Company.
3.15 Insurance. Schedule 3.15 attached hereto sets forth a true and
---------
correct list of all insurance policies held by the Company and attached to
Schedule 3.15 are certificates of insurance with respect to such policies. All
premiums with respect to such insurance policies have been duly paid to date. To
the best knowledge of the Company and UIH, all such policies are in force and
are not voidable on account of any act, omission or non-disclosure on the part
of the insured party.
3.16 Subsidiaries. Except as listed on Schedule 3.16 attached hereto, (a)
------------
the Company has no subsidiaries (as such term is defined in the New Zealand
Companies Act 1993) or any ownership interest in any other company or
partnership, and (b) there are no funding obligations with respect to any such
subsidiaries or ownership interests in any other company or partnership.
3.17 Intellectual Property. Except as disclosed on Schedule 3.17 attached
---------------------
hereto, to the best knowledge of the Company and UIH after due inquiry, there
are no legal impediments that prevent the Company carrying on its business under
the names currently used as part of it principle business operations. To the
best knowledge of UIH and the Company, following careful review, the Company is
not in material default or breach of any licenses or other agreements granting
the Company rights to use the intellectual property used by the Company in
carrying on its business (the "Intellectual Property Agreements") and there
exists no fact which, after notice or lapse of time or both, would constitute a
material default or breach and all such licenses and agreements are in full
force, according to the terms thereof. To the best knowledge of the Company and
UIH, the intellectual property rights granted to the Company pursuant to the
Intellectual Property Agreements (assuming that the licensors of such rights
have the right and authority to license such rights) or otherwise held by the
Company are sufficient for the Company to carry on its business substantially as
it is currently being conducted.
3.18 Environmental.
-------------
(a) All Primary Properties are in a condition that is free of all
contamination including, without limitation, any patent or latent environmental
contamination of the atmosphere air, sub-soil groundwater or surface waters
within or adjacent to such Primary Properties.
10
<PAGE>
(b) No hazardous materials and no other materials intended for use or
generated in the business of the Company have been or are used stored treated or
otherwise disposed of by the Company in violation of applicable Environmental
Requirements.
(c) All hazardous materials removed or emitted from the Primary
Properties were and are documented transported and disposed of in compliance
with all applicable Environmental Requirements.
(d) Except as set forth in Schedule 3.18(d), the Company has not been
responsible for any spill, discharge, leak, emission, injection, disposal,
escape, leaching, dumping or release on, under, or from any of the Properties or
into the environment surrounding such properties of any Contaminants. To the
best knowledge of UIH and the Company, there has not been any spill, discharge,
leak, emission, injection, disposal, escape, leaching, dumping or release on,
under, or from any of the Properties.
(e) The permits, consents, licenses, approvals, registrations,
certificates and authorization required under any and all Environmental
Requirements ("Environmental Permits"), the person or entity to whom it was
issued and the duration of the Environmental Permit are set forth in Exhibit
3.18(e) and the Company has previously delivered to Investor, true, accurate and
complete copies of all such Environmental Permits. There is no agreement or
consent order to which the Company is a party in relation to any environmental
matter which has not been disclosed.
(f) Except as set forth in Schedule 3.18(f), to the best of the
Company's or UIH's knowledge, (i) there never has been pending or threatened
against the Company proceedings based on or related to an Environmental Permit
or an Environmental Requirement nor to the best of either of their knowledge any
proceedings based on any allegation that the Company is in breach of any
Environmental Permit or any Environmental Requirement, (ii) there have been no
orders decisions or judgments issued which have not been fully complied with and
cleared, investigations conducted or other proceedings taken or threatened by
any governmental body or other regulatory authority or threatened in writing by
any person under or pursuant to any applicable Environmental Requirements with
respect to the business of the Company, and (iii) the Company has not received
any written communications which have not been fully complied with and cleared
concerning alleged violations of Environmental Requirements or claims with
respect to Environmental Requirements in connection with the business of the
Company.
3.19 Information About System. (a) Schedule 3.19(a) attached hereto
------------------------
contains the number of homes passed by activated network, number of basic
subscribers, the Company's current rates for basic service, the number of
subscribers subscribing at a rate below the standard rate for basic subscription
service, and a list of the multi-channel television programing channel lineup,
in each case as of the date referenced in such schedule, of the Company's system
in the Wellington area.
(b) Schedule 3.19(b) attached hereto sets forth the procedure used by
the Company in estimating the percentages of aerial and underground construction
of the Wellington system, which procedure the Company believes to be reasonable
given the facts and circumstances of the Company's business.
11
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ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF INVESTOR
To induce UIH and the Company to enter into this Agreement, Investor
represents and warrants to UIH and the Company as follows:
4.01 Authority. Investor is a corporation duly organized, validly
---------
existing, and in good standing, under the laws of Saskatchewan. Investor is a
wholly owned subsidiary of STHC. Investor has full corporate power and authority
to enter into this Agreement and the Shareholders Agreement, to perform its
obligations under the Agreement and the Shareholders Agreement and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Shareholders Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action by Investor. This
Agreement is, and the other instruments and documents to be executed and
delivered by Investor pursuant hereto, including the Shareholders Agreement, on
or prior to the Closing will be, duly executed and delivered by Investor and is,
or when so executed and delivered, will be legal, valid and binding obligations
of Investor, enforceable in accordance with their respective terms, except
insofar as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies.
4.02 No Violation.
------------
(a) Investor's execution and delivery of this Agreement, its
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby will not violate any provision of law and will
not, with or without the giving of notice or the passage of time, conflict with
or result in any breach of any of the terms or conditions of, or constitute a
default under, the articles of incorporation, bylaws or other governing
documents of Investor or under any agreement, contract or other instrument to
which Investor is bound. Investor has obtained all consents, governmental or
otherwise, necessary for its execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
(b) There are no parties to any contract to which Investor is a party
or by which Investor is bound whose approval or consent, or with whom the filing
of any certificate, notice, application, report or other document, is legally or
contractually required, or is otherwise necessary, in connection with the
execution, delivery or performance of this Agreement or any of the Additional
Agreements by Investor.
4.03 Brokers. Investor has not employed or retained any broker, agent
-------
or finder, or agreed to pay any fee, commission or similar payment to any such
person, on account of this Agreement or the transactions contemplated hereby
with respect to which the Company or UIH would be liable.
12
<PAGE>
ARTICLE 5 - CONDUCT PENDING THE CLOSING
Pending the Closing, and except as otherwise consented to or approved by
Investor in writing, the Company and UIH each agree as follows:
5.01 Business in Ordinary Course. The Company shall conduct its business
---------------------------
diligently, in good faith and in the ordinary course, consistent with past
practices, and will not engage in any transaction, including, without
limitation, entering into or amending any Contract, incurring any liability or
obligation (absolute or contingent), or making any advance of expenditure, other
than in the ordinary course of business, nor change in any material respect its
business policies or practices.
5.02 Books and Records. The Company will bring its minute book current
-----------------
and thereafter will maintain its books, accounts and records in the usual,
regular and ordinary manner, in accordance with generally accepted accounting
principles and good business practice.
5.03 Representations and Warranties. The Company will not take any action
------------------------------
or omit to take any action which would or might result in any of the
representations and warranties made in Article 3 being untrue or incomplete in
any material respect.
5.04 Full Access. Upon reasonable notice the Company shall afford to
-----------
Investor, and its attorneys, accountants and other authorized representatives,
full access during regular working hours to its offices, properties, personnel,
books and records, in order that Investor may have full opportunity to make such
reasonable investigations as it shall desire to make of the affairs of the
Company. The Company will cause its officers, accountants, attorneys, employees
and agents to cooperate with Investor and to make full disclosure to Investor of
such additional information regarding the Company as Investor or its agents may
reasonably request. In exercising its rights pursuant to this Section 5.04,
Investor shall not interfere in the operation of the Company's business.
5.05 Conditions. The Company and UIH shall use their respective best
----------
efforts to cause the conditions specified in Article 6 to be satisfied as
promptly as practicable.
ARTICLE 6 - CONDITIONS OF INVESTOR'S OBLIGATIONS
The obligations of Investor to complete the transactions provided for
herein are subject to all of the following conditions, any of which may be
waived in writing by Investor:
6.01 Corporate Action. The following shall have occurred:
----------------
(a) The adoption of the New Constitution, substantially in the form
attached hereto as Exhibit A, or such other form as is agreed between UIH and
Investor.
(b) The approval of UIH, as sole shareholder of the Company, pursuant
to the New Constitution with respect to the issuance of the Investor Shares and
any other approval to the
13
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issue of the Investor Shares considered necessary or desirable in the sole
discretion of the Board of Directors of the Company.
(c) The approval of the Board of Directors of the Company in
accordance with the New Constitution with respect to the issuance of the
Investor Shares.
(d) The giving by the Board of Directors of the Company of any
certificate required under Section 47 of the Company's Act 1993 of New Zealand
and the New Constitution.
(e) The Company shall procure the ratification by its Board of
Directors and Shareholders of all actions taken by the Company since July 9,
1994 which could have required the approval of the Company's Board.
6.02 Receipt of Consents. All of the approvals and consents described
-------------------
in Schedule 3.11 and approval from the Overseas Investment Corporation shall
have been obtained prior to the Closing, and shall be in full force and effect
and all filings or other actions described in Schedule 3.11 shall have been made
in accordance with all applicable requirements.
6.03 Performance. The Company and UIH shall have performed and
-----------
complied in all material respects with all agreements, covenants and conditions
hereunder to be performed and complied with by either of them at or prior to the
Closing.
6.04 Representations and Warranties True and Complete. Each of the
------------------------------------------------
representations and warranties of UIH and the Company contained herein shall be
true and complete in all material respects when made and as of the Closing, with
the same effect as if made at and as of the time of Closing.
6.05 No Legal Proceedings. There shall be no legal proceedings that
--------------------
challenge the transactions contemplated by this Agreement or would otherwise
materially adversely affect the business, operations, condition (financial or
otherwise) or prospects of the Company.
6.06 Interconnect Agreement. The Company and Telecom New Zealand shall
----------------------
have entered into an interconnect agreement providing the Company with the
ability to provide local loop telephony services to subscribers in its operating
area.
6.07 Investor Consents and Approvals. Investor shall have obtained all
-------------------------------
necessary approvals and consents required for it to consummate the transactions
contemplated in this Agreement, including without limitation, the approval of
the board of directors of Investor, the Crown Investment Corporation of
Saskatchewan and any other necessary governmental and cabinet approvals.
6.08 Conversion of Certain Indebtedness. All loans to and indebtedness of
----------------------------------
the Company owing to UIH, UAP or their Affiliates other than those listed on
Part B of Schedule 3.13 attached hereto, shall have been converted into equity
of the Company, or repaid by the Company with
14
<PAGE>
amounts contributed by UIH, and all charges over the assets of the Company shall
have been released.
ARTICLE 7 - CONDITIONS OF THE COMPANY'S
AND UIH'S OBLIGATIONS
The obligations of the Company and UIH to complete the transactions
provided for herein are subject to all of the following conditions, any of which
may be waived in writing by the Company and UIH:
7.01 Corporate Action. The conditions specified in Section 6.01 hereof
----------------
shall have occurred.
7.02 Receipt of Consents. All of the approvals and consents described
-------------------
in Schedule 3.11 and approval from the Overseas Investment Corporation shall
have been obtained prior to the Closing, and shall be in full force and effect.
7.03 Performance by Investor. Investor shall have performed and complied
-----------------------
with all covenants, agreements and conditions to be performed and complied with
by it hereunder at or prior to the Closing.
7.04 Truth of Representations and Warranties. Each of representations
---------------------------------------
and warranties of Investor contained herein shall be true and complete in all
material respects of the date hereof and as of the Closing with the same effect
as if then made when made and as of the Closing.
7.05 No Legal Proceedings. There shall be no legal proceedings that
--------------------
challenge the transactions contemplated by this Agreement.
ARTICLE 8 - DELIVERIES BY THE PARTIES
8.01 Company Deliveries at Closing. At the Closing, the Company shall
-----------------------------
deliver to Investor:
(a) The certificates evidencing the Investor Shares pursuant to
Section 2.04(b).
(b) Duly certified copies of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement, the Shareholders Agreement and by the Company and the actions
contemplated by Section 6.01(c), which resolutions shall be in full force and
effect at and as of the Closing.
(c) Evidence that all consents and approvals listed on Schedule 3.11
have been obtained and are in full force and effect.
15
<PAGE>
(d) A certificate, signed by the Company's chief executive officer
dated as of the Closing Date, representing and warranting to Investor (i) that
all representations and warranties of the Company made in the Agreement are true
and correct on and as of the Closing Date with the same effect as if then made
and (ii) that all conditions to Investor's obligations at the Closing set forth
in the Agreement have been satisfied.
(e) An opinion of Sean Wynne, corporate counsel to the Company, dated
the Closing Date, addressed to Investor in substantially the form attached
hereto as Exhibit C.
8.02 UIH Deliveries at Closing. At the Closing, UIH shall deliver to
-------------------------
Investor:
(a) Duly certified copies of resolutions of the Board of Directors of
UIH authorizing the execution, delivery and performance of this Agreement and
the Shareholders Agreement by UIH, which resolutions shall be in full force and
effect at and as of the Closing.
(b) A certificate signed by UIH's Chief Executive Officer dated as of
the Closing Date, representing and warranting to Investor (i) that all
representations and warranties of UIH made in the Agreement are true and correct
on and as of the Closing Date with the same effect as if then made and (ii) that
all conditions to Investor's obligations of the Company set forth in the
Agreement have been satisfied.
(c) Evidence that the condition specified in Section 6.08 shall have
occurred, and all charges over the Company's assets shall have been released.
(d) An opinion of Holme Roberts & Owen LLP, UIH's counsel, dated the
Closing Date, addressed to Investor in substantially the form attached hereto as
Exhibit D.
8.03 Investor Deliveries at Closing. At the Closing, Investor shall
------------------------------
deliver to the Company and, in the case of items listed in Section 8.03(b), (c):
(a) The Subscription Price pursuant to Section 2.03.
(b) A certificate signed by Investor's president, dated as of the
Closing representing and certifying to the Company (i) that all representations
and warranties of Investor made in this Agreement are true and correct on and as
of the Closing Date with the same effect as if then made and (ii) that all
conditions to the Company's obligations at the closing set forth in the
Agreement have been satisfied.
(c) Duly certified copies of resolutions of the Boards of Directors
of Investor authorizing the execution, delivery and performance of this
Agreement and the Shareholders Agreement by them, which resolutions shall be in
full force and effect at and as of the Closing.
(d) Evidence that the consent of the Overseas Investment Commission
has been obtained and is in full force and effect.
16
<PAGE>
(e) An opinion of D.K. Burnett, corporate counsel to STHC, dated the
Closing Date, addressed to Investor in substantially the form attached hereto as
Exhibit E.
(f) Designation of the two directors of the Company nominated by
Investor as contemplated in the Shareholders Agreement.
8.04 Shareholders Agreement. At the Closing, Investor, UIH and the
----------------------
Company shall execute and deliver to each other the Shareholders Agreement,
substantially in the form of Exhibit A attached hereto.
8.05 Technical Assistance Agreement. At the Closing, Investor and the
------------------------------
Company shall execute and deliver to each other the Technical Assistance
Agreement, substantially in the form of Exhibit F attached hereto.
ARTICLE 9 - MUTUAL COVENANTS
9.01 Compliance with Conditions. Each of the parties hereto covenants
--------------------------
and agrees with the other parties hereto to exercise its best efforts and the
utmost good faith to perform, comply with and otherwise satisfy each and every
one of the conditions to be satisfied by such party hereunder.
9.02 Confidentiality.
---------------
(a) General. Any information or documents that either party to this
-------
Agreement provides to the other, or that a party develops in the course of
completing the transactions contemplated by this Agreement, with the exception
of publicly available data or as otherwise required under management agreements
with Affiliates of the parties, shall be treated as confidential and proprietary
and shall not be disclosed to any third parties without the consent of the
Company, UIH and Investor. The parties will attempt to identify confidential
information specifically as such. In addition, except as allowed in Section
9.02(b) below, each party agrees not to make any disclosure of this Agreement,
the Shareholders Agreement, the Technical Assistance Agreement or their contents
or any related activities without the consent of the other party.
(b) Public Announcements. Neither the Company, UIH nor Investor
--------------------
shall issue any press release or make any other public disclosure relating to
the transactions contemplated by this Agreement without the prior consent of the
other and without consulting the other about the content and timing of such
release or announcement.
(c) Disclosure for U.S. Securities Purposes. Notwithstanding any
---------------------------------------
other provision of this Section 9.2 to the contrary, no party shall be limited
in its ability to make such public announcements or disclosures as it may
consider necessary or appropriate pursuant to the reporting requirements or
other disclosure obligations under U.S. securities laws or other applicable law,
on the condition that the party making an announcement or disclosure shall give
the other party at least forty-eight hours' notice before making it, to the
extent legally possible.
17
<PAGE>
(d) Effect of Failure to Close: If this Agreement is terminated
--------------------------
prior to closing, the obligations under Section 9.02 shall continue for a period
of two years after the date of this Agreement.
9.03 Annual Budget and Long-Range Plan of the Company. Investor and UIH
------------------------------------------------
shall in good faith prepare no later than 45 days after the Closing the initial
annual budget and long-range plan of the Company, including funding requirements
for the completion of construction of the system in Wellington being constructed
by the Company. Upon completion, such annual budget and long range plan shall be
attached hereto as Exhibit G.
9.04 Repayments to UIH. Investor and UIH shall cause the Company as soon
-----------------
as reasonably possible, but no later than 30 days after the Closing, to repay to
UIH and its Affiliates the amounts identified in paragraphs 1 and 2 of Part B of
Schedule 3.13.
ARTICLE 10 - SURVIVAL
10.01 Survival. The provisions of Section 9.02 and this Article 10 shall
--------
survive the Closing and will not terminate except as expressly provided therein.
No party hereto may make any claim, other than in respect to the representations
and warranties set forth in Sections 3.01 and 3.03(b) of this Agreement, after
the first anniversary of the Closing Date.
10.02 Indemnification. Each party shall defend, indemnify and hold
---------------
harmless the other parties from and against any claim, liability, obligation,
loss, damage, assessment, judgment, cost or expense (including, without
limitation, reasonable attorneys' fees and costs and expenses reasonably
incurred in investigating, preparing, defending against or prosecuting any
litigation or claim), in connection with any action, suit, proceeding or demand
materially relating to any breach or failure of any written representation or
warranty or covenant of such indemnifying party contained in this Agreement or
in any certificate, instrument of transfer or other document or agreement
executed by such indemnifying party in connection with this Agreement.
ARTICLE 11 - GUARANTEES
11.01 UAP Guarantee. In consideration of the Investor entering into and
-------------
acting in accordance with this Agreement, UAP (as principle obligor and not
merely as a surety) unconditionally and irrevocably guarantees and as a
continuing obligation the proper and punctual performance by UIH and the Company
of (a) all of their respective obligations under or pursuant to this Agreement,
including the obligations under Section 10.02 hereof; and (b) its respective
funding obligation under Section 3.2.1 of the Shareholders Agreement.
11.02 STHC Guarantee. In consideration of the Investor entering into
--------------
and acting in accordance with this Agreement, STHC (as principle obligor and not
merely as a surety) unconditionally and irrevocably guarantees and as a
continuing obligation the proper and punctual performance by Investor of (a) all
of its respective obligations under or pursuant to this Agreement,
18
<PAGE>
including the obligations under Section 10.02 hereof; and (b) its respective
funding obligation under Section 3.2.1 of the Shareholders Agreement.
11.03 General. The liability of UAP and STHC hereunder shall not be
-------
discharged or impaired but any amendment or variation of this Agreement, any
release of, or granting of time or other indulgence to UIH, Investor, the
Company or any third party (or any of them), any liquidation, administration,
receivership or winding up of UIH, Investor or the Company or by any other act
or omission or any other elements or circumstances whatsoever which would or
might operate to impair or discharge the liability of UAP and STHC under this
Article 11.
ARTICLE 12 - TERMINATION
This Agreement may be terminated before the Closing:
(a) by mutual written consent of the Investor and UIH at any time
prior to the Closing;
(b) by Investor through written notice to UIH if there has been a
material breach by UIH or the Company in their respective representations,
warranties or covenants set forth herein;
(c) by Investor through written notice to UIH if any of the
conditions set forth in Article 6 of this Agreement has not been satisfied on or
before December 31, 1997;
(d) by UIH or the Company through written notice to Investor if there
has been a material breach by Investor in its representations, warranties or
covenants set forth herein; and
(e) by UIH or the Company through written notice to Investor if any
of the conditions set forth in Article 7 of this Agreement has not been
satisfied on or before December 31, 1997.
ARTICLE 13 - NOTICES
All notices, demands, requests or other communications to be sent by one
party to the other hereunder or required by law shall be in writing and shall be
deemed to have been validly given or served by delivery of the same in person to
the intended addressee, by facsimile transmission to such party at the facsimile
number set forth for such party on the signature pages below, or by depositing
the same with Federal Express or another reputable private international courier
service for the soonest business day delivery offered by such courier service to
the intended addressee at its address set forth on the signature page below, or
at such other address or telecopy number as may be designated by such party.
19
<PAGE>
To the Company:
Saturn Communications Limited
75 The Esplanade, Petone
P.O. Box 38-600
Wellington, New Zealand
Attention: Chief Executive Officer
Telecopy No: (644) 915-5100
To Investor:
SaskTel Holding (New Zealand) Inc.
2121 Saskatchewan Drive
Regina, Saskatchewan Canada S4P 342
Attention: President
Telecopy No: (306) 359-7475
To UIH:
UIH New Zealand Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
U.S.A.
Attention: Chief Executive Officer
Telecopy No.: (303) 770-4207
Any notice, demand or other communication so addressed to the relevant
party shall be deemed to have been delivered (a) if delivered in person, when
actually delivered to the relevant address; (b) if given by courier, on the
fifth business day (of the sending party) after submitted to the courier with
appropriate delivery instructions; or (c) if given or made by facsimile, when
dispatched if the transmission report has the correct number or pages and
correct facsimile number of the recipient on it.
ARTICLE 14 - MISCELLANEOUS
14.01 Further Assurances. The parties shall make, execute and deliver such
------------------
other documents as may be reasonably necessary or proper to consummate the
transactions contemplated by this Agreement.
14.02 Headings. The article and section headings in this Agreement are for
--------
convenience only and shall not be used in its interpretation or considered part
of this Agreement.
20
<PAGE>
14.03 Counterparts. This Agreement may be executed in any number of
------------
counterparts or counterpart signature pages, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
14.04 Amendments. No provision of this Agreement shall be altered,
----------
amended, revoked or waived except by an instrument in writing signed by
Investor, UIH and the Company and designated as an amendment, revocation or
waiver.
14.05 Assignment. This Agreement and all agreements made and entered
----------
into in connection with this Agreement shall be binding upon and inure to the
benefit of the Company, UIH and Investor. None of Investor, UIH or Company
shall assign any of their rights under this Agreement or delegate their duties
hereunder unless they obtain the prior written consent of the other parties,
except that Investor may, upon notice to the Company assign, in whole or in
part, its rights and obligations under this Agreement to an Affiliate.
14.06 Entire Agreement. This Agreement embodies the entire agreement
----------------
between the parties concerning the subject matter hereof and replaces and
supersedes any prior and contemporaneous negotiations, agreements and
understandings among the parties.
14.07 No Waiver. The failure or delay of any party at any time or from
---------
time to time to exercise any right under or enforce any provision of this
Agreement shall not be construed as implying a waiver of such provision or of
the right of that party to exercise or enforce it subsequently. No single or
partial exercise of any right under this Agreement shall preclude the further or
full exercise of the right. No waiver of any default on any one occasion shall
constitute a waiver of any subsequent or other default.
14.08 Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Notwithstanding the foregoing, the Company and Investor shall negotiate in good
faith or attempt to agree on the terms of a mutually satisfactory provision to
replace any invalid or unenforceable provision.
14.09 Governing Law. This Agreement shall be governed by New Zealand
-------------
law.
21
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date set
forth above.
INVESTOR:
--------
SASKTEL HOLDINGS (NEW ZEALAND) INC.
By:_____________________________________________
Donald R. Ching, Chairman of the Board
By:_____________________________________________
D.J. Bassen, President
UIH:
---
UIH NEW ZEALAND HOLDINGS, INC.
By:/s/ Michael T. Fries
---------------------------------------------
Michael T. Fries, Chief Executive Officer
COMPANY:
-------
SATURN COMMUNICATIONS LIMITED
By:/s/ Michael T. Fries
---------------------------------------------
Michael T. Fries, Director
UAP:
---
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
By:/s/ Michael T. Fries
---------------------------------------------
Michael T. Fries, Chief Executive Officer
22
<PAGE>
STHC:
----
SASKATCHEWAN TELECOMMUNICATIONS
HOLDING CORPORATION, INC.
By:/s/ Donald R. Ching
---------------------------------------------
Donald R. Ching, President and Chief Executive Officer
By: /s/ W.L. Baldwin
--------------------------------------------
Its:____________________________________________
23
<PAGE>
[Exhibits B and F are included elsewhere in this Registration Statement;
Other Exhibits and Schedules Omitted]
<PAGE>
AMENDMENT NO. 1 TO SUBSCRIPTION AND INVESTMENT AGREEMENT
Dated as of September 3, 1997
Among
SaskTel Holding (New Zealand) Inc.
Saskatchewan Telecommunications Holding Corporation
UIH New Zealand Holdings, Inc.
UIH Asia/Pacific Communications, Inc.
and
Saturn Communications Limited
25
<PAGE>
AMENDMENT NO. 1 TO SUBSCRIPTION AND INVESTMENT AGREEMENT
THIS AMENDMENT NO. 1 to the Subscription and Investment Agreement, dated as of
September 3, 1997, is among SaskTel Holding (New Zealand) Inc., Saskatchewan
Telecommunications Holdings Corporation, UIH New Zealand Holdings, Inc., UIH
Asia/Pacific Communications, Inc., and Saturn Communications Limited.
RECITALS
A. The parties have entered into a Subscription and Investment Agreement dated
as of July 21, 1997 (the "Original Agreement").
B. The parties now wish to amend a provision of the Original Agreement by
executing this Amendment No. 1 to the Subscription and Investment Agreement
(the "Amendment") as follows:
AGREEMENT
1. Capitalized terms used in this Amendment shall have the same meaning as
those used in the Original Agreement.
2. The parties agree to amend the Original Agreement by deleting Section 9.03
of the Original Agreement in its entirety and replace with the following
provisions:
"9.03 Annual Budget and Long Range Plan of the Company. Investor and UIH
------------------------------------------------------
shall in good faith prepare no later than October 10, 1997 the initial
annual budget and long-range plan of the Company, including funding
requirements for the completion of construction of the system in Wellington
being constructed by the Company. Upon completion, such annual budget and
long range plan shall be attached hereto as Exhibit G."
26
<PAGE>
================================================================================
EXHIBIT 10.16
SHAREHOLDERS AGREEMENT
DATED JULY 23, 1997
AMONG
UIH NEW ZEALAND HOLDINGS, INC.,
SASKTEL HOLDING (NEW ZEALAND), INC.
AND
SATURN COMMUNICATIONS LIMITED
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1 GENERAL........................................................... 1
1.1 Business.......................................................... 1
1.2 Term.............................................................. 2
Article 2 DEFINITIONS....................................................... 2
Article 3 PURCHASE OF SHARES AND FINANCING.................................. 3
3.1 Initial Sharing Ratios............................................ 3
3.2 Additional Purchases and Financing for Wellington System. 3
3.3 Default; Remedies................................................. 5
3.4 Financing of Expansion Systems.................................... 5
3.5 Borrowing......................................................... 6
3.6 No Additional Share Purchases..................................... 7
3.7 Share Issuance.................................................... 7
Article 4 MANAGEMENT........................................................ 7
4.1 Management........................................................ 7
4.2 Board of Directors................................................ 7
4.3 Certain Matters to be Voted Upon by the Board..................... 8
4.4 Certain Matters to be Voted Upon by Shareholders.................. 10
4.5 Financial Statements.............................................. 11
4.6 Dividend Policy................................................... 11
Article 5 TRANSFER OF SHARES; RIGHT OF FIRST REFUSAL........................ 12
5.1 Transfers......................................................... 12
5.2 Right of First Offer.............................................. 12
5.3 Transfers to Affiliates and Third Parties......................... 13
5.4 Recognition of Transfers.......................................... 13
5.5 Liquidity......................................................... 13
5.6 Tag-Along Rights.................................................. 14
5.7 Change of Control of Shareholder.................................. 14
Article 6 BANKRUPTCY OR DISSOLUTION OF A SHAREHOLDER........................ 15
6.1 Bankruptcy or Dissolution of a Shareholder........................ 15
6.2 Purchase Price.................................................... 15
Article 7 NON-COMPETITION................................................... 16
7.1 Non-Competition................................................... 16
7.2 Development Opportunities......................................... 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Article 8 TERMINATION...................................................... 16
8.1 Termination...................................................... 16
8.2 Liquidation...................................................... 16
Article 9 NOTICES.......................................................... 17
Article 10 CONFIDENTIALITY.................................................. 17
Article 11 ARBITRATION...................................................... 18
Article 12 GENERAL PROVISIONS............................................... 18
12.1 Representations and Warranties................................... 18
12.2 Covenant of Shareholders......................................... 18
12.3 Entire Agreement................................................. 18
12.4 Conflict with Constitution....................................... 18
12.5 Amendment........................................................ 19
12.6 Severability..................................................... 19
12.7 Specific Performance............................................. 19
12.8 Governing Law.................................................... 19
12.9 Assignment....................................................... 19
12.10 Survival......................................................... 19
</TABLE>
Exhibits
- --------
A Technical Assistance Agreements
B Long Range Plan [To be added]
C Material Contracts
ii
<PAGE>
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "Agreement") is entered into, as of July
23, 1997, by and among UIH New Zealand Holdings, Inc., a Colorado corporation
("UIH"), SaskTel Holding (New Zealand), Inc., a Saskatchewan corporation
("SaskTel"), and Saturn Communications Limited, a company incorporated under the
New Zealand Companies Act 1993 (the "Company").
RECITALS
A. The Company operates and is completing the construction of a multi-
channel television/telephony system to serve approximately 135,000 homes in the
greater Wellington area (the "Wellington System"). The Company plans to operate
Core Businesses (as defined below) in other markets in New Zealand outside its
current operating area (collectively, the "Expansion Systems").
B. UIH is a wholly owned subsidiary of UIH Australia/Pacific, Inc. which,
in turn, is a wholly owned subsidiary of UIH Asia/Pacific Communications, Inc.
C. SaskTel is a wholly owned subsidiary of Saskatchewan
Telecommunications Holding Corporation, a Saskatchewan Crown Corporation
incorporated pursuant to The Saskatchewan Telecommunications Holding Corporation
Act.
D. UIH and SaskTel (collectively, the "Shareholders" and individually,
the "Shareholder") are, as of the date hereof, the only shareholders in the
Company.
E. The Shareholders desire to enter into this Agreement to establish
certain rights and obligations among themselves.
AGREEMENT
In consideration of the mutual promises contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
GENERAL
1.1 Business. The business of the Company (the "Company Businesses")
--------
shall be the construction and operation of wireline and wireless networks for
the provision of multi-channel television, telephony and data services in New
Zealand (the "Core Businesses"), and may also include programming and other
businesses related to the Core Businesses.
1
<PAGE>
1.2 Term. The Agreement shall be effective as of the date first above
----
written and shall continue until terminated in accordance with the provisions of
Article 8 herein.
ARTICLE 2
DEFINITIONS
Affiliate of a person shall mean any entity (including, without limitation,
---------
any person, partnership, corporation, limited liability company or other
entity), which, directly or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with the person. For
purposes of this Agreement, the only Affiliates of SaskTel shall be (a)
Saskatchewan Telecommunications Holding Corporation ("STHC"), (b) any entity
controlled by STHC, or (c) any entity controlled by Crown Investment Corporation
of Saskatchewan that is engaged in a telecommunications business.
Board shall mean the Board of Directors of the Company.
-----
Control means effective management control of the person, including,
-------
without limitation, control through the power to elect a sufficient number of
directors or to appoint a sufficient number of senior managers to obtain
control, or similar powers. A person shall be rebuttably presumed to control
another person or entity if it owns 50% or more of the beneficial interest or
the voting power of the appropriate entity or has the right to appoint 50% or
more of the board of directors (or similar body of such entity) or the directors
carrying more than 50% of the votes of such board.
Controlled Affiliate shall mean with respect to any person, an Affiliate
--------------------
"Controlled" by such person.
Project Finance shall mean bank indebtedness, indebtedness borrowed from
---------------
sources other than the Shareholders or proceeds from the sale of capital stock
of any Controlled Affiliate of the Company (other than sales of such capital
stock to the Company or the Shareholders) incurred or sold for the purpose of
financing the construction, operating losses and working capital for any Company
Business developed or acquired by the Company or its Controlled Affiliates.
Relative Sharing Ratio shall mean, with respect to each Shareholder that
----------------------
participates in a given transaction, the ratio of said Shareholder's Sharing
Ratio divided by the total sum of the Sharing Ratios of all Shareholders
participating in the transaction.
Sharing Ratio of each Shareholder shall at any time be the sum of the votes
-------------
associated with each share of capital stock of the Company held by such
Shareholder plus the votes associated with each share of capital stock of the
Company that would be issued upon conversion of any convertible debt held by
such Shareholder, divided by the sum of (x) the total votes associated with all
outstanding shares of capital stock of the Company, plus (y) the total votes
associated with all shares
2
<PAGE>
of capital stock of the Company that would be issued upon conversion of all
outstanding convertible debt held by the Shareholders.
ARTICLE 3
PURCHASE OF SHARES AND FINANCING
3.1 Initial Sharing Ratios. As of the date hereof, the Company has issued
----------------------
and outstanding a total of 1,000,000 ordinary shares which are owned by the
Shareholders as follows:
<TABLE>
<CAPTION>
Initial
Number of Sharing
Shareholder Shares Ratio
----------- --------- -------
<S> <C> <C>
UIH 650,000 65%
SaskTel 350,000 35%
--------- ---
Total 1,000,000 100%
</TABLE>
3.2 Required Additional Purchases and Financing for Wellington System.
-----------------------------------------------------------------
3.2.1 As set forth in the initial budget of the Company (the
"Initial Budget"), to be completed pursuant to the terms of the Subscription and
Investment Agreement dated as of July 21, 1997, among the parties, as may be
amended from time to time, it is the Shareholders' intention that the funds
necessary to complete construction of the Wellington System, beyond the funds
initially invested by SaskTel in the Company (including those additional funds
invested by SaskTel and UIH pursuant to this Section 3.2.1), will be provided by
Project Financing. Within 15 days of receipt of notice from the Board, UIH shall
invest up to NZ$5,000,000 in the Company and SaskTel shall invest up to
NZ$2,692,308 in the Company (collectively, the "Additional Shareholder
Investment"), each in proportion to their respective Initial Sharing Ratios, and
the Company shall issue to each Shareholder in consideration for such Additional
Shareholder Investment, the number of shares of capital stock of the Company
equal to the amount invested divided by the price per share at which SaskTel
acquired its initial interest in the Company (NZ$85.56).
3.2.2 Following the Additional Shareholder Investment, if the
Board in good faith determines that Project Financing is insufficient or
unavailable, the Board may, by notice to the Shareholders, request that the
Shareholders purchase additional shares of common stock to be issued by the
Company (the "New Shares"), in accordance with the funding methodology approved
by the Board in the Initial Budget for completion of construction of the
Wellington System if Project Financing is unavailable; provided that the Board
shall issue capital calls for payment of all unpaid amounts due to the Company
on outstanding shares prior to issuing any capital call in which the
Shareholders are requested to purchase New Shares. Any Board notice requiring
funding in excess of that contemplated in the Initial Budget shall require the
express approval of a director nominated by each Shareholder pursuant to Section
4.3(f). The allocable portion of any additional equity
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funding required to be contributed by the Shareholders pursuant to this Section
3.2.2 shall be made in accordance with the Shareholders' Sharing Ratios at the
time of such funding request. The Board's notice shall set out the proposed
total number of New Shares to be issued and purchased, together with the
proposed purchase price per share, noting the amount of the additional equity
funding required for the proposed number of shares to be purchased by each
Shareholder. Within 15 days after the receipt of such notice, each Shareholder
that wishes to subscribe for and purchase its allocated shares of such New
Shares shall execute and deliver to the Company, with a copy delivered to the
other Shareholder, a subscription agreement by which such Shareholder obligates
itself to purchase all or a portion of its allocated share of such New Shares at
the price per share set forth in the Board's notice (the "Subscription
Obligation"). Each Shareholder who executes a Subscription Obligation shall be
obligated to purchase the number of shares stated therein on or before the later
of (i) 15 days after the receipt by the Company of such Shareholder's
Subscription Obligation or (ii) the purchase date for such shares set forth in
the Shareholder's Subscription Obligation (the "Subscription Obligation Funding
Date").
3.2.3 Any Shareholder that executes a Subscription Obligation may
in such Subscription Obligation undertake also to purchase, at the price per
share determined pursuant to Section 3.2.4, the whole or part of the portion of
the New Shares purchasable by the other Shareholder not delivering a
Subscription Obligation. If the purchase price is determined pursuant to
Section 3.2.4(b) and is higher than the purchase price set forth in the Board's
notice delivered pursuant to Section 3.2.2, the Shareholder making such
undertaking shall have the right to cancel such undertaking, by written notice
to the Company, within three days of receipt of the Company's notice of the
purchase price determined pursuant to Section 3.2.4(b).
3.2.4 The price per share shall be as follows:
(a) If all of the Shareholders subscribe for and purchase
their allocated shares of the New Shares, then the price per share shall be as
set forth in the Board's notice.
(b) If either of the Shareholders fails to subscribe for
and purchase any portion of its allocated share of the New Shares in accordance
with the funding methodology approved by the Board, then the price per share
shall be determined by the fair market value of the Company's shares as agreed
upon by the Shareholders. If the Shareholders are unable to agree upon the fair
market value of the Company's shares within 30 days of the Board's notice (the
"Appraisal Commencement Date"), the fair market value shall be determined by an
appraisal pursuant to the procedures set forth in this Section 3.2.4(b). The
Shareholders shall attempt to agree upon a qualified appraiser of international
reputation with experience in the multi-channel television/telephony industry (a
"Qualified Appraiser") to perform the appraisal in accordance with the
provisions of this Section 3.2.4(b). If the Shareholders are unable to mutually
agree upon the Qualified Appraiser on or prior to the 10th day following the
Appraisal Commencement Date, each Shareholder shall appoint one Qualified
Appraiser, which appointment shall be made on or prior to the 15th day following
the Appraisal Commencement Date, and shall notify the other Shareholder of such
appointment. If a Shareholder fails to make such appointment on or before the
15th day following the Appraisal Commencement Date, the appraisal shall be made
by the single Qualified
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Appraiser appointed by the other Shareholder. The fair market value of the
Company's shares shall be determined by the Qualified Appraisers and, if two
such Qualified Appraisers are appointed and the respective appraisals are within
10% of each other, for the purposes of this Section 3.2.4(b), the fair market
value of the shares shall be the average of the two appraisals. If the
appraisals are not within 10% of each other, the two appraisers shall select a
third Qualified Appraiser who shall calculate the value of the shares
independently, and the fair market value of the shares shall be the average of
the two values arrived at by the Qualified Appraisers that are closest to each
other in amount. In determining the fair market value of the shares, no discount
or premium shall be applied with respect to whether the interest being valued
represents a minority or a majority of the total shares outstanding. The Company
hereby agrees to make available to the Qualified Appraisers all of the books and
records of the Company and such other information as the Qualified Appraisers
shall reasonable request in order to ascertain the fair market value of the
shares.
3.2.5 The Shareholders agree that they will cause the Constitution
of the Company to be amended to authorize the issuance of additional shares of
preferred or common stock, all as required to implement the purpose of this
Section 3.2 and to carry out the approved funding methodology for the specific
investment adopted by the Board. In no event shall a Shareholder take any
action unreasonably to block a capital call on the Shareholders as described
above.
3.3 Default; Remedies. If any Shareholder does not execute a Subscription
-----------------
Obligation or if any Shareholder that has executed a Subscription Obligation
fails to purchase on or before the Subscription Obligation Funding Date any of
its subscribed for New Shares in accordance with the funding methodology
approved by the Board, the Other Shareholder may, but shall not be required to,
purchase any such unsold New Shares at a price equal to 90% of the price
determined pursuant to Section 3.2.4(b) on or before the 15th day following (i)
the Subscription Obligation Funding Date, or (ii) if the purchase price is
determined pursuant to Section 3.2.4(b) following the Subscription Obligation
Funding Date, receipt of notice of the purchase price determined pursuant to
Section 3.2.4(b).
3.4 Financing of Expansion Systems.
------------------------------
3.4.1 The parties intend that the Company will continue to pursue
the development of the Expansion Systems. If the Company pursues development of
a specific Expansion System, the parties will use their best efforts to secure
Project Financing for the specific Expansion System.
3.4.2 If (i) the Board in good faith determines that the
anticipated Project Financing for any specific Expansion System is insufficient
to fully fund the estimated cost of the development of such Expansion System, or
(ii) the directors appointed by SaskTel pursuant to Section 4.1.2 do not vote to
approve the development of such Expansion System, then the Company, by the
unanimous approval of the directors appointed by UIH pursuant to Section 4.1.2
("Expansion System Approval"), may continue to pursue the development of such
Expansion System and fund such development by the issuance of New Shares
pursuant to the procedures specified in Section 3.2. If the Company chooses to
continue to pursue the development of such Expansion System, SaskTel shall have
the right to make the election specified in Section 3.4.3.
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3.4.3 Upon the occurrence of the events specified in Section
3.4.2, and if SaskTel does not purchase New Shares for the funding of such
Expansion System, SaskTel shall have the right to require the Company to, and,
upon receipt of written notice of SaskTel's exercise of such right, the Company
shall form a subsidiary ("Newco") and contribute all of its interest in the
Wellington System and associated assets (including the right to use the name
"Saturn" and associated
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trademarks in the Wellington area) and direct employees of the Wellington System
to Newco promptly, efficiently and in a manner to cause no disruption to the
Wellington System, and shall pay Newco an amount equal to Saturn's cost with
respect to the assets and development costs retained by Saturn for systems other
than the Wellington System. The Company and Newco shall negotiate in good faith
and with no disruption of the daily operations of the Wellington System a
Technical Assistance Agreement pursuant to which the Company shall be engaged to
provide management and support services (including administration, finance,
accounting, legal, human resources, subscriber management, marketing and similar
services) for the day-to-day operations of Newco and the Wellington System
consistent with such services provided to the Wellington System as a part of the
Company. Nothing in such Technical Assistance Agreement shall take away those
duties, powers of responsibilities of the Board of Directors of Newco set forth
in Sections 4.2 and 4.3 hereof. Pursuant to Section 4.3(o) hereof, approval of
such Technical Assistance Agreement shall require approval of a director
nominated by each Shareholder. If the parties are unable to agree on terms of
such Technical Assistance Agreement, either party may refer any dispute with
respect to such Technical Assistance Agreement pursuant to Article 11. The
Company shall be compensated for its services under such agreement in an amount
to be agreed upon in good faith by the Shareholders consistent with amounts then
paid by the Company for similar management services. Immediately upon such
contribution, SaskTel shall then exchange all of its interest in the Company for
an equity percentage interest in Newco equal to SaskTel's Sharing Ratio in the
Company. The Company and SaskTel shall execute a Shareholders Agreement with
respect to Newco that provides SaskTel with the similar rights granted to
SaskTel pursuant to this Agreement. The right granted to SaskTel pursuant to
this Section 3.4.3 shall terminate with respect to any specific Expansion
System, if SaskTel does not deliver to the Company and UIH written notice of its
election to exercise the right granted pursuant to this Section 3.4.3 within 90
days of the date of the Expansion System approval. SaskTel hereby acknowledges
that if it does not subscribe for the New Shares pursuant to Section 3.4.2 or
exercise its election pursuant to this Section 3.4.3, its interest in the
Company will be diluted as contemplated by Section 3.2.
3.5 Borrowing. The parties intend that Project Financing required to fund
---------
the Company's business shall be obtained by outside borrowing, and, to the
extent that outside loans at reasonable rates are not obtainable without
Shareholders' aid, by additional equity contributions. It is the intention of
the parties that if the Shareholders agree to give guarantees in order to enable
the Company to obtain outside loans approved by the Board, then said guarantees
shall be given, or otherwise arranged by the Shareholder pro rata to each
Shareholder's Sharing Ratio, and such guarantees shall be on terms and
conditions acceptable to the respective Shareholder. The parties recognize and
agree that if guarantees cannot be given by the Shareholders pro rata, then one
or more Shareholders may, from time to time, extend loans or guarantees to or on
behalf of the Company to which equity rights in the Company may be attached, as
may be agreed upon by all parties. Notwithstanding the above, neither
Shareholder shall be under any obligation to make any such guarantees or loans.
3.6 No Additional Share Purchases. Except as required in this Article 3,
-----------------------------
no Shareholder shall be required to purchase additional shares of the Company or
to advance any money, property or credit to the Company.
7
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3.07 Share Issuance. All shares issued to UIH shall be Group A Shares and
--------------
all shares issued to SaskTel shall be Group B Shares, in each case as defined in
the Company's Constitution.
ARTICLE 4
MANAGEMENT
4.1 Management.
----------
4.1.1 The management of the Company shall be entrusted with day-
to-day business operations of the Company in accordance with the authority
granted to management by the Company's Constitution and within the authority
delegated to management by the Board; provided that the Board may not authorize
management to take any action not specified in the Annual Budget or Long-Range
Plan approved by the Board.
4.1.2 The parties hereby acknowledge that the Company and each of
UIH and SaskTel are parties to Technical Assistance Agreements, pursuant to
which each of UIH and SaskTel perform certain services on behalf of the Company.
Such Technical Assistance Agreements also address the seconding and appointment
of various executive officers of the Company by the Shareholders as well as
compensation for such services. Pursuant to the Technical Assistance Agreement
with SaskTel, SaskTel shall have the right to designate the following employees
of the Company: Chief Technology Officer, Controller and Switch Manager. So
long as each Shareholder has a Sharing Ratio of 20% or greater, all fees (but
not reimbursed costs) paid under such Technical Assistance Agreements with
respect for periods after the date hereof, shall be shared between the
Shareholders on an equal (50%/50%) basis. Copies of the Technical Assistance
Agreements are attached hereto as Exhibit A.
4.2 Board of Directors.
------------------
4.2.1 The Board shall have sole responsibility and authority for
the conduct of the business of the Company, and, subject to the provisions of
Sections 4.3 and 4.4 and any restrictions imposed by law, shall have all power
and authority necessary or desirable to carry out its decisions and actions.
4.2.2 The Board shall consist of at least five and not more than
six directors. During the term of this Agreement, the members of the Board shall
be appointed by the Shareholders such that any Shareholder owning any whole
integer multiple of 15% of the total shares issued and outstanding shall have
the right to appoint one director for each whole integer multiple of 15% owned.
Appointments and removals of directors and alternate directors shall be made by
notice to the Company and the other Shareholder. The Board shall meet at least
once per calendar quarter, and may meet at such other times as is necessary or
appropriate, in each case provided that a quorum is present and otherwise in
accordance with the Company's Constitution. The chairman shall be named from
among the members of the Board and shall be named by a majority vote of the
members
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of the Board. The chairman shall not have any special rights or voting
power, but shall have only such authority as is expressly provided in the
Company's Constitution. Each Director shall serve at the pleasure of the
appointing Shareholder, and any Director appointed by a Shareholder may be
removed by that Shareholder at any time, and a replacement Director may be
appointed by such Shareholder.
4.2.3 The Board shall appoint an Executive Committee (the
"Executive Committee") consisting of one or more representatives (which may or
may not be directors) of each of UIH and SaskTel and including the Chief
Executive Officer of the Company. Subject to restrictions imposed by New
Zealand law, the Executive Committee shall have the full power of the Board to
take any action other than with respect to those matters specified in Section
4.3. Any matters not approved by the unanimous approval of all of the members
of the Executive Committee shall be referred to the Board for its vote. The
Executive Committee shall meet at least once per month, and may meet such other
times as is necessary or appropriate, in each case provided that a quorum is
present and otherwise in accordance with the Company's Constitution.
4.2.4 The Executive Committee and the Board may conduct meetings
via telephone or similar equipment by which all persons participating in the
meeting can hear each other at the same time.
4.2.5 A quorum of the Board must include a majority of the
directors, who may participate in the Board meeting either in person, by
representation by alternate directors or by means of a telephone or similar
equipment by which all persons participating in the meeting can hear each other
at the same time. In addition, for such time as each Shareholder has a Sharing
Ratio of 20% or greater, a quorum must include at least one board member
appointed by each Shareholder.
4.2.6 The voting power or number of votes of a director shall be
the same as the Sharing Ratio in the Company held by the Shareholder appointing
the director. Where the Shareholder has the right to appoint more than one
director: (i) the directors so appointed shall in aggregate have only the voting
power of the number of shares held by such Shareholder, and (ii) if the
directors so appointed disagree, the director nominated to do so by the
Shareholder shall exercise all the votes of the directors appointed by such
Shareholder. In the event of disagreement on any proposal, other than those
matters specified in Section 4.3 as to which the procedures of Section 4.3 shall
apply, the concurring votes of directors appointed by Shareholders holding a
majority of the Sharing Ratio of the Company shall constitute a decision of
directors and shall be binding.
4.2.7 Members of the Board and the Executive Committee shall not
be entitled to compensation from the Company for their services as such, but
shall be reimbursed by the Company for out-of-pocket travel, lodging, food and
incidental expenses incurred in connection with attendance at Board meetings and
Executive Committee meetings, upon submission of appropriate evidence of
expenses and other documentation reasonably requested by the Company.
4.3 Certain Matters to be Voted Upon by the Board. Notwithstanding
---------------------------------------------
anything else contained in this Agreement, during such time as the Sharing Ratio
of each Shareholder is 20% or
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greater, the Company may not take any of the following actions without the
approval of the Board of the Company including express approval of a director
nominated by each of the Shareholders:
(a) Entering into or conducting any business other than the Company
Businesses or any material change in the nature of the Company Businesses.
(b) The adoption of, and any material amendments to, the annual
budget of the Company (the "Annual Budget") and any material amendments to the
long-range plan (a copy of which is attached hereto as Exhibit B); provided,
however, that if an agreement cannot be reached on a proposed Annual Budget the
Board shall continue to operate the Company on a going concern basis and the
Annual Budget for such year shall be deemed to be the Annual Budget for the
previous year, except that amounts for capital expenditures shall be consistent
with the most recent long-term plan of the Company approved by the Board.
(c) Except as otherwise provided in the Annual Budget, the incurrence
of any operating expense or capital expenditure greater than NZ$100,000.
(d) The acquisition or sale of assets by the Company with a value
exceeding NZ$1,000,000 or the sale or disposition of all or substantially all of
the capital stock of the Company.
(e) Entering into any long-term credit facility or similar credit
facility in an amount exceeding NZ$1,000,000, or any amendments thereto if such
amendment would be less favorable to the Company or if such amendment increases
the amount of credit available under such facility to an amount greater than
NZ$1,000,000, or the provision by the Company of any loans in excess of
NZ$50,000 to any person.
(f) Except as otherwise provided in the Initial Annual Budget or any
subsequent Annual Budgets, any variation in the authorized or issued share
capital of the Company or in the rights attached thereto, including issuing any
new shares, any public offering of shares or the creation of any option or other
rights to subscribe for shares or to convert any interest into shares in the
capital of the Company.
(g) An amendment to the Constitution of the Company.
(h) Any merger, consolidation or amalgamation involving the Company
or all or substantially all of its Controlled Affiliates, on the one hand, and a
third party, on the other hand, other than any mergers, consolidations or
amalgamations in connection with a transaction otherwise permissible by Section
4.3(d) above.
(i) The increase or decrease of the amount of dividend required to be
declared and paid pursuant to Section 4.6 hereof and the Company's Constitution.
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(j) The amendment of any of the contracts listed on Exhibit C attached
hereto ("Material Contracts") or any subsequent agreement designated by a
majority of the Board of Directors as a Material Contract.
(k) Entering into any agreement or authorizing any action by the
Company that, in the good faith determination of any two directors, has a
reasonable probability of subjecting the Company to exposure of liabilities in
excess of NZ$500,000 under applicable environmental laws.
(m) Ratification of any collective agreement between the Company and
its employees.
(n) The appointment, removal or material change in duties of any of
the Company's chief executive officer, chief financial officer, chief technical
officer or other persons seconded by the Shareholders to the Company
(collectively, the "Senior Management").
(o) Entering into any agreement between the Company, on the one hand,
and either Shareholder, any of such Shareholder's Affiliates, any director of
the Company or any member of Senior Management of the Company, on the other
hand, or any non-arm's length transaction and any amendments to such agreements
if such amendments provide for terms less favorable to the Company.
(p) The fixing of any remuneration or bonus to be paid to any members
of the Board or the Senior Management of the Company or any amendments thereto
on terms less favorable to the Company.
(q) Liquidation of the Company.
(r) A proposal with respect to the appointment, reappointment or
dismissal of the Company's independent auditors.
(s) Selection or significant change of the site location of the
Company's telephony services switch and selection of the switch vendor.
(t) Except as otherwise contemplated by the Annual Budget and long-
range plan entering into or amending any interconnect agreements.
(u) Determination of spending levels and other thresholds beyond which
management may not take any action without prior Board or Executive Committee
approval.
(v) Incorporation of subsidiaries of the Company and authorization of
the actions listed in this Section 4.3 with respect to subsidiaries of the
Company.
(w) The purchase of any real property, other than easements and other
real property rights granted to the Company for use in its business.
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4.4 Certain Matters to be Voted Upon by Shareholders. Except as otherwise
------------------------------------------------
contemplated by this Agreement, the Company and the Shareholders may not take
any of the following actions without the approval of each of UIH and SaskTel:
(a) Any variation in the authorized or issued share capital of the
Company or in the rights attached thereto, including issuing any new shares, any
public offering of shares or the creation of any option or other rights to
subscribe for shares or to convert any interest into shares in the capital of
the Company.
(b) An amendment to the Constitution of the Company.
(c) Liquidation of the Company.
(d) Any merger, consolidation or amalgamation involving the Company or
all or substantially all of its Controlled Affiliates, on the one hand, and a
third party, on the other hand, other than any mergers, consolidations or
amalgamations in connection with a transaction otherwise permissible by Section
4.3(d) above.
4.5 Financial Statements. As soon as practicable, but in any event within
--------------------
45 days after the end of each fiscal year (currently commencing on January 1 and
ending on December 31) of the Company, the Company will prepare and furnish the
Shareholders with complete and detailed financial statements of the Company for
such fiscal year, prepared in U.S. Dollars in accordance and compliance with
United States generally accepted accounting principles, and audited and
certified by the Company's auditors. As soon as practicable, but in any event
within 30 days of the end of each calendar quarter, the Company will prepare and
furnish the Shareholders with such financial statements for such calendar
quarter, being unaudited or reviewed by the Company's auditors. The Company
shall use its best efforts to prepare and deliver to the Shareholders draft
annual financial statements no later than 21 days after the end of each fiscal
year. The Company shall use its best efforts to prepare and deliver to the
Executive Committee and to the Board monthly operating reports, including
applicable financial statement information, within 10 days after the end of each
month. The Company shall furnish to the Executive Committee and to the Board
such additional financial statements and reports as requested. In addition to
the foregoing, the Company shall prepare and keep financial statements as
required by applicable New Zealand law.
4.6 Dividend Policy. The Shareholders agree to declare and cause the
---------------
Company to pay within 30 days after the approval of the audited financial
statements of the Company by the Shareholders in general meeting, by way of
dividend, such dividend as may be approved by the Board pursuant to Section
4.3(i). If the Board, pursuant to Section 4.3(i), is unable to agree on the
dividend amount for any given year, the Shareholders agree to cause the Company
to pay a dividend equal to 50% of the Company's profits available for the
purposes of distribution in accordance with the rules and regulations governing
such distribution, subject to: (i) any restrictions imposed by lenders to the
Company; (ii) not increasing the borrowing of the Company or its Controlled
Affiliates to enable it to make such distribution unless the Board determines
otherwise; (iii) the Company
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having repaid its full loans made by Shareholders together with all interest
thereon; and (iv) any limitations imposed by New Zealand law.
ARTICLE 5
TRANSFER OF SHARES; RIGHT OF FIRST REFUSAL
5.1 Transfers. Upon five days prior written notice to the other
---------
Shareholder, a Shareholder shall be entitled to sell, assign or otherwise
dispose of any Shares or options in the Company, to an Affiliate of such
Shareholder subject to (a) the provisions of Section 5.3 or to a person other
than an Affiliate of such Shareholder pursuant to the provisions of Section 5.2,
and (b) the provisions of Section 5.7.
5.2 Right of First Offer.
--------------------
5.2.1 If a Shareholder proposes to sell, assign, or otherwise
dispose of any of its shares in the Company (the "Offered Shares"), such
Shareholder (the "Offering Shareholder") shall first make a written offer to
sell the Offered Shares to the other Shareholder ("Other Shareholder").
5.2.2 For a period of 30 days following receipt of the written
offer provided under Section 5.2.1, the Other Shareholder shall have the right
to negotiate to acquire all but not less than all of the Offered Shares from the
Offering Shareholder. After the 30-day negotiating period, if the Offering
Shareholder and the Other Shareholder agree on terms and conditions to purchase
all of the Offered Shares, the Other Shareholder shall consummate the purchase
of such Offered Shares within 90 days.
5.2.3 If the Other Shareholder does not elect to purchase all of
the Offered Shares, then the Offering Shareholder may transfer all of the
Offered Shares to any third party, on terms and conditions no less favorable
than the last offer made by the Other Shareholder and subject to the conditions
set forth in this Section 5.2.3. If any of the following conditions is not
satisfied, then the Offering Shareholder must again comply with the provisions
of Sections 5.2.1 and 5.2.2 and this Section 5.2.3 before transferring any
shares:
(i) such transfer to a third party must be on terms no
less favorable to the Offering Shareholder than to those originally stated in
the offer;
(ii) the transfer to a third party must close within 90
days after the expiration of the 30-day negotiating period under Section 5.2.2
(subject to delays reasonably beyond the control of the Offering Shareholder in
obtaining required approvals or permits); and
(iii) the transfer shall be subject to Section 5.3.
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5.2.4 Upon consummation of any sale by the Offering Shareholder
pursuant to Section 5.2.3, the Offering Shareholder shall promptly notify the
Other Shareholder as to the circumstances thereof, including the date of the
sale, and the price of Offered Shares sold, and the identity of the purchaser.
5.2.5 If the proposed transfer to a third party is on terms that
are not more favorable to the Offering Shareholder than those originally stated
in the offer, the Other Shareholder shall have 30 days to exercise a right of
first refusal to purchase all of the Offered Shares on the same terms as is
offered by the third party. The Other Shareholder shall consummate the purchase
of such Offered Shares within 90 days.
5.3 Transfers to Affiliates and Third Parties. No transfer of Shares by a
-----------------------------------------
Shareholder otherwise permitted by this Agreement shall be effective unless such
transferee, including any Affiliate of such Shareholder, agrees to be bound by
the provisions of this Agreement (including this Article 5) or and so confirms
by executing and delivering to the Company and the other Shareholders a signed
copy of this Agreement.
5.4 Recognition of Transfers. The Company shall not cause or permit the
------------------------
transfer of any Shares to be made on its books unless the transfer is permitted
by this Agreement and has been made in accordance with its terms.
5.5 Liquidity.
---------
5.5.1 After the fifth anniversary of the date hereof, either
Shareholder (the "Offering Shareholder") may offer by written notice to sell all
of its interests, by way of shares or otherwise, in the Company to the other
pursuant to the procedures set forth in Sections 5.2.1 and 5.2.2. If the
Offering Shareholder and the other Shareholder cannot agree on a price for the
sale of the entirety of the Offering Shareholder's interests within the period
specified in Section 5.2.2, then, at the sole election of the Selling
Shareholders, (i) the Selling Shareholder (A) may transfer all of its interests
in the Company to a third party pursuant to Sections 5.2.3, 5.2.4 and 5.2.5 and
(B) failing such sale within a 90 day period, the Selling Shareholder may
proceed with the alternative specified in clause (ii), or (ii) a Qualified
Appraiser selected in the manner set forth in Section 3.2.4(b) shall establish
the fair market value of the whole Company as an ongoing business. Within 10
days after the price has been determined by the appraiser selected, the Offering
Shareholder may give notice in writing to the other Shareholder that the offer
has been withdrawn.
5.5.2 If the Offering Shareholder does not withdraw its offer,
then the Offering Shareholder shall be entitled to require that the other
Shareholder sell all of its interest in the Company, together with all of the
Offering Shareholder's interest in the Company, to a buyer at a total price that
is not less than the fair market value of the interests as determined by the
Qualified Appraiser, to be allocated between the sellers in accordance with
their respective interests. Each Shareholder may participate on equal footing
with other third parties in bidding for all of the Shares of the Company, in the
manner applicable to the third-party bidders generally.
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5.5.3 The estimate of the fair market value of the Company
established by the Qualified Appraiser in connection with the liquidity option
shall be valid for a period of six months from the date it is presented to the
Shareholders. If a buyer has not been found prior to the expiration of this
six-month period, then the Offering Shareholder may no longer continue to
require the other Shareholder to sell its interest in the Company unless the
procedure described in Section 5.5.1 is repeated; provided, however, that no
Shareholder may initiate the liquidity option pursuant to this Section 5.6 more
than once during any 12-month period.
5.5.4 If a Shareholder acquires the Shares of the Company pursuant
to Section 5.5.2 ("Purchased Shares") and within six months of such acquisition
date (the "Liquidity Date") sells all of the Shares of the Company to a person
other than an Affiliate, such Shareholder shall pay to the Shareholder from
which the Shares were acquired pursuant to Section 5.5.2 an amount equal to (i)
the percentage obtained by dividing the number of Purchased Shares by the total
number of Shares of the Company outstanding on the Liquidity Date, multiplied by
(ii) the total purchase price paid for all of the Shares of the Company less the
sum of (A) the fair market value of the Company determined pursuant to Section
5.5.1, plus (B) all amounts contributed to the Company by such Shareholder since
the Liquidity Date, reduced by (C) all amounts distributed by the Company or
paid as dividends to such Shareholder since the Liquidity Date.
5.6 Tag-Along Rights.
----------------
5.6.1 Subject to the provisions of Section 5.2, the Shareholders
agree, subject to the terms and conditions set forth herein, that should either
Shareholder receive one or more bona fide offers upon specific terms and
conditions that it intends to accept (a "Purchase Offer") from any person to
purchase such Shareholder's interest in the Company, such Shareholder shall
promptly notify the other Shareholder of the terms and conditions of such
Purchase Offer.
5.6.2 The other Shareholder shall have the right, exercisable upon
notice to the selling Shareholder within 30 days after receipt of the notice
pursuant to Section 5.6.1, to participate, in whole or in part, in the sale of
the interest in the Company by the selling Shareholder pursuant to the specified
terms and conditions of such Purchase Offer. If the purchaser is unwilling to
purchase all of the interests in the Company so offered by the other
Shareholder, the interest the selling Shareholder may sell pursuant to such
Purchase Offer shall be reduced so that the interests sold by the Shareholders
shall be proportionate to their Relative Sharing Ratios.
5.6.3 The tag-along rights under this Section 5.6 shall not
pertain or apply to (i) any bona fide pledge of Company interest that creates a
mere security interest, or (ii) transfers to any Affiliate of the selling
Shareholder.
5.7 Change of Control of Shareholder. If any event occurs or is scheduled
--------------------------------
to occur whereby UIH would cease to be Controlled, directly or indirectly, by
UIH Australia/Pacific, Inc. or SaskTel would cease to be Controlled directly or
indirectly by SaskTel Holding Co., whether by operation of law or otherwise,
then such Shareholder (the "Selling Shareholder") shall immediately give notice
to the other Shareholder of any such change of Control. Unless the other
Shareholder
15
<PAGE>
consents thereto upon the change of Control of the Selling Shareholder, then the
other Shareholder shall have the irrevocable option to purchase all, but not
less than all, of the Selling Shareholder's interest in the Company at a price
equal to Fair Market Value as determined by Section 3.2.4(b) as at the date of
such change of Control. Upon the change of Control as aforesaid, the Selling
Shareholder shall be deemed to have made an offer to sell its interest in the
Company to the other Shareholder at the price as set out above. The other
Shareholder may elect to acquire all of the Selling Shareholder's interest in
the Company within 90 days of a price having been established and communicated
to the other Shareholder; otherwise the Selling Shareholder shall be entitled to
retain its interest in the Company.
ARTICLE 6
BANKRUPTCY OR DISSOLUTION OF A SHAREHOLDER
6.1 Bankruptcy or Dissolution of a Shareholder.
------------------------------------------
6.1.1 In the event of the dissolution or bankruptcy of a
Shareholder, the other Shareholder (the "Other Shareholder") may elect to
purchase, in accordance with the procedure set forth in Sections 6.1.4 and 6.2
below, the entire interest of the dissolved or bankrupt Shareholder (the
"Selling Shareholder") in the Company. A Shareholder shall cease to be a
Shareholder as of the date of its dissolution or bankruptcy and shall have only
the right to receive distributions made by the Company prior to the purchase of
the Shareholder's entire interest, and the rights provided for under this
Article 6 and under Section 7.2, as the case may be, after that date.
6.1.2 A Shareholder shall be considered bankrupt if a petition in
bankruptcy has been filed by or against the Shareholder and has not been
dismissed within 120 days after such filing, the Shareholder has made an
assignment for the benefit of creditors or the Shareholder has taken any action
for relief under any statute or rule relating to insolvency.
6.1.3 Prior to the receipt of written notice of the dissolution or
bankruptcy of a Shareholder (the "Written Notice"), the Company and the Other
Shareholder may treat such dissolved or bankrupt Shareholder ("Selling
Shareholder") as the owner of shares in the Company.
6.1.4 The Company shall promptly notify the Other Shareholder of
the Company's receipt of the Written Notice. The Other Shareholder shall have a
right to purchase all but not less than all of the interest of the Selling
Shareholder, for the purchase price determined pursuant to Section 6.2.
6.2 Purchase Price.
--------------
6.2.1 The purchase price for the Selling Shareholder's interest
shall be the amount agreed to by the legal representative of the Selling
Shareholder and the other Shareholder or, if they
16
<PAGE>
cannot agree, shall be the fair market value of the Selling Shareholder's
interest in the Company as determined by an appraisal of said interest pursuant
to the procedures set forth in Section 3.2.4(b).
6.2.2 The purchase price due to the legal representatives of the
Selling Shareholder for the Selling Shareholder's interest in the Company shall
be paid in full at the closing. The closing shall be held within 30 days after
the computation of the purchase price is completed under Section 6.2.1. At the
closing, which shall be held at the principal place of business of the Company,
the legal representative of the Other Shareholder shall be paid the purchase
price and shall deliver to the purchaser a duly executed instrument of transfer
and assignment, transferring and assigning good and marketable title to such
interest in the Company, which title shall be free of any debts, liens,
attachments, pledges or any other encumbrances, as well as any other documents
and instruments necessary or appropriate under applicable law to convey to the
purchaser all of the interest of the Selling Shareholder in the Company and its
assets.
ARTICLE 7
NON-COMPETITION
7.1 Non-Competition. Each Shareholder hereby agrees that during the term
---------------
of this Agreement and for a period of six months after the termination of this
Agreement it will refrain, and will cause its Affiliates to refrain, from
owning, managing, operating or controlling a Core Business that operates in New
Zealand and directly competes with the Core Businesses of the Company, without
the written approval of the other Shareholder.
7.2 Development Opportunities. Should any Shareholder or any of its
-------------------------
Affiliates discover, develop or be offered an opportunity to acquire a business
that constitutes a Core Business that does not violate the provisions of Section
7.1 (a "Development Opportunity"), such Shareholder will first offer such
Development Opportunity to the Company. If the Board does not promptly pursue
such Development Opportunity, the Shareholder discovering, developing or being
offered such Development Opportunity and its Affiliates shall be free to pursue
such Development Opportunity, and neither the Company nor the other Shareholder
shall have any right, claim or interest in or to any revenues resulting
therefrom.
ARTICLE 8
TERMINATION
8.1 Termination. This Agreement shall terminate upon the liquidation of
-----------
the Company under Section 8.2, the Company's Constitution or the laws of New
Zealand governing the formation and liquidation of corporations. In case of the
liquidation of the Company, a proper accounting shall be made from the date of
the last previous accounting to the date of liquidation.
17
<PAGE>
8.2 Liquidation. The Shareholders shall cause the Constitution of the
-----------
Company to provide that upon the dissolution and liquidation of the Company, all
proceeds from the liquidation shall be distributed in the following order or
priority: (i) to the payment of debts and liabilities of the Company to third
parties and the expenses of liquidation; (ii) to the setting up of such reserves
as the liquidator may reasonably deem necessary for any contingent liabilities
of the Company; (iii) to the payment of debt owed to any Shareholder; and (iv)
to the Shareholders pro rata in accordance with the paid-up portion of their
Relative Sharing Ratios.
ARTICLE 9
NOTICES
All notices, demands, requests or other communications to be sent by one
party to the other hereunder or required by law shall be in writing and shall be
deemed to have been validly given or served by delivery of the same in person to
the intended addressee, by facsimile transmission to such party at the facsimile
number set forth for such party on the signature pages below, or by depositing
the same with Federal Express or another reputable private international courier
service for the soonest business day delivery offered by such courier service to
the intended addressee at its address set forth on the signature page below, or
at such other address or telecopy number as may be designated by such party.
Any notice, demand or other communication so addressed to the relevant
party shall be deemed to have been delivered (a) if delivered in person, when
actually delivered to the relevant address; (b) if given by courier, on the
fifth business day (of the sending party) after submitted to the courier with
appropriate delivery instructions; or (c) if given or made by facsimile, when
dispatched if the transmission report has the correct number of pages and
correct facsimile number of the recipient on it.
For purposes of this Agreement, Denver, Colorado time shall be used in the
calculation of any notice period. With the start of any notice period being
deemed to commence on the date, Denver time, that such action occurred,
regardless of in which time zone such action occurred, and the notice period
being deemed to end at the end of the day, Denver time, of the last day of the
requisite period following the deemed start date.
ARTICLE 10
CONFIDENTIALITY
This Agreement and any business, financial, technical or other information
or documents received from the Company, from the other Shareholders or from
Affiliates of a Shareholder, shall be treated as confidential and proprietary
("Confidential Information"), provided that Confidential Information does not
include (i) information that enters the public domain other than as a result of
18
<PAGE>
the breach of this Agreement; and (ii) information required to be disclosed by
law or the valid order of a court of competent jurisdiction. No Shareholder or
the Company shall disclose to third parties any Confidential Information
received from any other Shareholder or the Company unless it has first obtained
the written consent of the other Shareholder; provided that no consent shall be
required for the disclosure of Confidential Information under appropriate
secrecy agreements to Affiliates, agents, consultants, auditors, attorneys,
investors or lenders of the Company or a Shareholder solely for use in the
business of the Company. No Shareholder or the Company shall issue any press
release or make any other public disclosure relating to this Agreement or the
transactions contemplated by this Agreement without the prior written consent of
the other Shareholder. The foregoing, however, shall not limit any
Shareholder's or the Company's ability to make such public announcements or
disclosures as it may consider necessary or appropriate pursuant to the
reporting requirements under U.S. securities laws or other applicable law.
ARTICLE 11
ARBITRATION
Having regard to the high degree of good faith which must exist among the
Shareholders, the Shareholders agree to use their best efforts to ensure that
disputes between them are settled equitably and amicable and without resort to
arbitration. Notwithstanding the above, in the event of any differences or
disputes or whatever nature arising from this Agreement or any other matter
related thereto which cannot be settled by direct negotiation between the
Shareholders, such differences or disputes shall be referred to arbitration by a
single arbitrator to be agreed by the Shareholders or, if no agreement is
reached within 30 days, appointed by the then acting president of the Wellington
District Law Society. Any such arbitration shall be conducted subject to and in
accordance with the New Zealand Arbitration Act 1908 as amended or any successor
legislation.
ARTICLE 12
GENERAL PROVISIONS
12.1 Representations and Warranties. Each Shareholder represents and
------------------------------
warrants to the Company and to the other Shareholder that it is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation; that its execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action on its part; and that this Agreement when executed shall be
binding and enforceable in accordance with its terms.
12.2 Covenant of Shareholders. The Shareholders shall cause any
------------------------
provision of this Agreement that should be a part of the Constitution of the
Company to be incorporated in the Constitution of the Company within a
reasonable time following the execution of this Agreement
19
<PAGE>
and shall execute and deliver all powers of attorney, proxies and other
certificates, documents and agreements required to carry out the intent and
accomplish the purposes of this Agreement.
12.3 Entire Agreement. This Agreement embodies the entire
----------------
understanding and agreement among the parties concerning their respective rights
concerning the Shares and the Company and supersedes any and all prior
negotiations, understandings or agreements in regard thereto.
12.4 Conflict with Constitution. In the event of any conflict between
--------------------------
the provisions of this Agreement and the provisions of the Constitution of the
Company, the provisions of this Agreement shall take priority and apply to the
exclusion of the relevant provisions of the Constitution.
12.5 Amendment. This Agreement may not be amended, nor may any rights
---------
hereunder be waived except by an instrument in writing signed by the party
sought to be charged with such amendment or waiver.
12.6 Severability. If any provision of this Agreement is held to be
------------
unenforceable or illegal in one or more jurisdictions in which the Company or
the Shareholders are conducting business, such provisions shall remain in full
force and effect in all other jurisdictions, and (except to the extent to which
the illegality or unenforceability of such provision makes it impossible or
impractical for the parties to carry out the purposes of this Agreement in any
jurisdiction), the other provisions of this Agreement shall not be affected by
any such holding and shall remain in full force and effect in all jurisdictions.
12.7 Specific Performance. The parties acknowledge that (a) the
--------------------
rights of the parties hereunder and their shares, options and preemptive rights
for shares in the Company are unique, (b) the parties will not have any adequate
remedy at law if any party (the "Breaching Party") shall fail to perform any of
its obligations hereunder, and (c) the nonbreaching parties shall have the
right, in addition to any other rights they may have, to specific enforcement of
this Agreement if the Breaching Party shall fail to perform any of its
obligations hereunder.
12.8 Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of New Zealand and, subject to the
provisions of Article 11 hereof, the parties hereby agree to submit to the
jurisdiction of the Courts of New Zealand with respect to any disputes arising
under the Agreement.
12.9 Assignment. This Agreement shall be binding upon and will inure
----------
to the benefit of the parties hereto and their respective successors and
permitted assigns. A party shall be entitled to assign its rights and
obligations hereunder to any party to whom it transfers all of its interest in
the Company in accordance with the provisions of this Agreement.
12.10 Survival. The provisions of Articles 10 and 11 shall survive
--------
termination of this Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, which may be
executed in any number of counterparts, to be effective as set forth above.
UIH NEW ZEALAND HOLDINGS, INC.
By:/s/ Michael T. Fries
----------------------------------------------
Michael T. Fries, Chief Executive Officer
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
U.S.A.
Attn: Chief Executive Officer
Fax: (303) 770-4207
SASKTEL HOLDING (NEW ZEALAND), INC.
By:/s/ Donald R. Ching
----------------------------------------------
Donald R. Ching, Chairman of the Board
By:/s/ D. J. Bassen
----------------------------------------------
D.J. Bassen, President
2121 Saskatchewan Drive
Regina, Saskatchewan
Canada S4P 3Y2
Attn: President
Fax: (306) 359-7475
SATURN COMMUNICATIONS LIMITED
By:/s/ Michael T. Fries
----------------------------------------------
Michael T. Fries, Director
75 The Esplanade, Petone
P.O. Box 38-600
Wellington, New Zealand
Attn: Chief Executive Officer
Fax: (644) 915-5100
21
<PAGE>
[Exhibit A filed elsewhere in this Registration Statement]
[Other Exhibits Omitted]
A-1
<PAGE>
EXHIBIT 10.31
AMENDMENT NO. 1 TO
TECHNICAL ASSISTANCE AGREEMENT
This Amendment No. 1 to Technical Assistance Agreement is made as of July
23, 1997, among Saturn Communications Limited (the "Company"), a corporation
incorporated under the laws of New Zealand, formerly known as Kiwi Cable Co.,
Ltd., and UIH Asia/Pacific Communications, Inc. ("UIH"), a Delaware corporation,
as successor-in-interest to United International Holdings, Inc., and amends the
Technical Assistance Agreement dated as of July 8, 1994 among the parties (the
"Agreement").
In consideration of the mutual promises contained herein, the parties agree
as follows:
1. The Agreement is hereby amended to change all references to "Todd
International, Ltd." and "Todd" to "SaskTel Holding (New Zealand) Inc." and
"SaskTel," respectively.
2. Section 4.5 of the Agreement is hereby amended to read in its entirety
as follows:
4.5 Public Relations
----------------
UIH shall assist the Company with its governmental and community
relations.
3. Section 7.3 is hereby amended to read in its entirety as follows:
7.3 UIH shall be entitled to receive a fee (the "Fee") of (a) 2.5%
of the gross revenues so long as SaskTel owns at least 20% or greater of the
Company or (b) if SaskTel owns less than 20% of the Company, the percentage of
the gross revenues equal to (i) 5% minus (ii) 5 multiplied by SaskTel's
ownership percentage interest in the Company.
4. The first sentence of Section 9 is hereby amended to read in its
entirety as follows:
This agreement shall be effective upon July 8, 1994, and shall expire
on July 23, 2007, or unless terminated earlier in accordance with Section
10 below.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be
executed by their duly authorized representatives as of the date first set forth
above:
SATURN COMMUNICATIONS, LTD.
By:/s/ Michael T. Fries
----------------------------
Michael T. Fries, Director
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
By:/s/ Michael T. Fries
----------------------------
Michael T. Fries, Chief Executive
Officer
2
<PAGE>
EXHIBIT 10.32
TECHNICAL ASSISTANCE AGREEMENT
THIS AGREEMENT is made as of July 23, 1997.
BETWEEN
(1) SATURN COMMUNICATIONS LIMITED, a corporation incorporated under the
laws of New Zealand whose registered office is at P.O. Box 354, Paraparaumu, New
Zealand (the "Company").
(2) SASKTEL HOLDING (NEW ZEALAND) INC., a Saskatchewan corporation, the
principal executive office of which is at 2121 Saskatchewan Drive, Regina,
Saskatchewan, Canada, S4P 3Y2 ("SaskTel").
WHEREAS
(A) SaskTel, through its own personnel and through personnel made available
to it by its Affiliates, has extensive experience in designing, engineering,
constructing, marketing, and managing telephone networks in Canada and the
United Kingdom; and
(B) The Company owns, operates, and is completing construction of wireline
and wireless networking for the provision of multi-channel television, telephony
and data services in New Zealand (the "Network") and in connection therewith the
Company wishes to obtain the benefit of SaskTel's experience and assistance with
respect to the administrative and technical operations of the telephony and data
services portion of the Network on the terms and conditions hereinafter
appearing.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS AND INTERPRETATIONS
1.1 In this Agreement unless the context otherwise requires:
"Affiliate" of a person shall mean any entity (including, without
---------
limitation, any person, partnership, corporation, limited liability company or
other entity), which, directly or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with the person. For
purposes of this Agreement, the only Affiliates of SaskTel shall be (a)
Saskatchewan Telecommunications Holding Corporation ("STHC"), (b) any entity
controlled by STHC, or (c) any entity controlled by Crown Investment Corporation
of Saskatchewan that is engaged in a telecommunications business.
"Company" shall mean the Company or any operating subsidiary of the
-------
Company which will design, build and operate broadband networks and pursuant to
which a multi-channel television, telephony and data service shall be provided
to its customers.
<PAGE>
"Exchange" shall mean all telephone switch central office equipment
--------
including, without limitation, the building, associated power, air conditioning,
electrical, etc.
"Gross Revenues" shall mean the consolidated gross revenues of the
--------------
Company from services sold to subscribers or other customers in the ordinary
course of business, including, without limitation, subscriber fees, installation
fees, disconnection fees, pay channel fees and advertising revenue, but not
including customer deposits, consultancy fees, financial income and gain from
the sale of any asset, net of sales taxes, value added taxes and similar taxes,
determined in accordance with the accounting rules of New Zealand as amended
from time to time.
"Related Entity" of a party shall refer to any entity in which such
--------------
party holds a beneficial interest, directly or through one or more
intermediaries.
2. APPOINTMENT
The Company hereby appoints SaskTel, along with UIH Asia/Pacific
Communications, Inc. ("UAP"), as a technical adviser to provide services with
respect to the design, construction, operation, maintenance, administration and
marketing and programming of the telephony, broadcast and data services portion
of the Network, and SaskTel hereby accepts such engagement pursuant to the
provisions of this Agreement.
3. GENERAL DUTIES OF SASKTEL
3.1 From time to time, on its own initiative and additionally, when
reasonably requested by the Company's Board of Directors or Executive Committee
of the Board of Directors, SaskTel shall, through its officers, employees,
agents and other personnel, provide technical assistance to the Company in
accordance with the terms of this Agreement.
3.2 SaskTel shall devote its best effort to carrying out the advisory
and consultancy functions specified in this Agreement, and shall perform its
duties hereunder in a professional, expert and diligent manner and in accordance
with the same standards SaskTel customarily applies in the operation or
management of telephony, broadcast and data networks owned or managed by SaskTel
or its Affiliates.
3.3 SaskTel agrees to provide whatever personnel (whether employed
directly by SaskTel or any of its Affiliates or Related Entities) as are
reasonably required to fulfill its obligations under this Agreement, and agrees
that, as reasonably required by the Company, such personnel shall provide the
services called for by this Agreement on-site at the Systems or the offices of
the Company in New Zealand.
-2-
<PAGE>
4. SPECIFIC DUTIES OF SASKTEL
From time to time as reasonably requested by the Company, SaskTel, and in
cooperation with UAP, shall provide, through advice, consultation and other
means, technical assistance to the Company with respect to the matters described
below:
4.1 MARKETING FOR COMPANY
SaskTel shall, provide advice regarding marketing, selling and
advertising functions, including assistance and advice with respect to:
(a) the development of sales procedures and reporting functions;
(b) incentive programs;
(c) training of sales personnel;
(d) brochures and advertising programs;
(e) customer complaint handling;
(f) billing, rates and tariffs;
(g) promotional offers and other sales techniques;
(h) research and analysis;
(i) regulatory issues; and
(j) advice on selection and packaging of basic and pay channels.
4.2 SUBSCRIBER MANAGEMENT AND INFORMATION SYSTEMS
SaskTel will assist the Company in the design, planning,
acquisition, implementation, operation and monitoring of all phases of the
Information Technology associated with the Network. This will include, but not
be limited to, the following:
(a) Addressable Control System which directly control, manage
and maintain the Exchange and transmission equipment attached to the Network;
(b) Computer Aided Design and Drafting which assists Network
designers in engineering the Network;
(c) Project Management System which tracks materials, time and
money associated with the construction phase of the project;
-3-
<PAGE>
(d) Purchasing and Material Acquisition which functions to
control material acquisition, handling and issuance;
(e) Accounting including Nominal Ledger, Payables, Receivables,
Payroll, Budgeting, Fixed Assets, and Management Reporting;
(f) Office Systems including word processing, planning, graphics
and electronic mail systems;
(g) Subscriber Management and Billing;
(h) Facilities management system;
(i) Customer care management system;
(j) Call distribution management system; and
(k) Miscellaneous Related Systems such as Vehicle Management,
Advertising sales and Tracking Systems, Automated Telephone Response Units,
Status Monitoring Systems, and others which directly connect and interact with
various systems mentioned above.
4.3 PERSONNEL AND TRAINING
(a) SaskTel shall provide advice regarding the establishment of
standards and methods for the selection, training, monitoring and work safety of
the personnel involved in the operation, maintenance and administration of the
telephony, broadcast and data services portion of the Network.
(b) From time to time, as reasonably requested by the Company,
SaskTel shall:
(i) Provide training for officers, employees or agents of
the Company;
(ii) Assign personnel to undertake advisory, training or
operational duties in the Company, in each case subject to the direct
supervision of the Company or its representatives; and/or
(iii) Assist the Company in the identification and
evaluation of candidates with the relevant experience for senior management
positions.
(c) The Company shall at all times and at the cost of the
Company maintain relevant insurance for all employees and personnel of SaskTel
providing on-site services, covering both personal damages and third party
liability.
-4-
<PAGE>
4.4 DESIGN, CONSTRUCTION, INSTALLATION AND MAINTENANCE OF THE NETWORK
AND CUSTOMER PREMISE EQUIPMENT
(a) SaskTel shall, in consultation with the Company, assist in
all aspects of the design and construction of the Network, and shall give advice
regarding the implementation of such plan.
(b) The items to be considered by SaskTel in assisting the
Company in developing and implementing the design and construction of the
Network shall include, without limitation, the following matters:
(i) The type of equipment to be used in the construction
of the telephony, broadcast and data services portion of the Network;
(ii) Recommendations as to manufacturers and the equipment
to be provided by them;
(iii) Appropriate costs and expenditures;
(iv) Terms of contracts for purchase and installation of
equipment;
(v) Mapping of the operating areas using computerized
design techniques;
(vi) The use of electronics and/or fiber optics for both
above ground and underground installations;
(vii) Advice in selecting contractors;
(viii) Recommendations on methods to be used by
contractors to build the Network;
(ix) Acceptability of prices and bids for construction;
(x) Policies for supervision of construction work and
scheduling of construction work;
(xi) Techniques and methods for conduit and cable
placement;
(xii) Advice in the location and installation of the
Exchange and other transmission or reception equipment and the selection and
purchase thereof;
(xiii) Advice in selecting and applying for spectrum; and
-5-
<PAGE>
(xiv) Techniques and methods for the installation and
maintenance for the Exchange, transmission and customer premises equipment.
4.5 PROGRAMMING
SaskTel shall assist the Company with the filling of the array of
television channels of the Systems through the selection of programming offered
by international sources.
4.6 PUBLIC RELATIONS
SaskTel shall assist the Company with its governmental and community
relations.
5. APPOINTMENT AND SECONDMENT OF CERTAIN OFFICERS
During the term of this Agreement, SaskTel shall have the right to
designate the persons who serve as the Chief Technology Officer, Controller and
Switch Engineer of the Company, including persons chosen as replacements upon
any resignation of such persons from such positions. SaskTel shall consult with
the Company to determine whether the Company shall employee such persons
directly or whether such persons shall be seconded from employment of SaskTel or
its Affiliates.
6. OFFICE WORK SPACE AND OTHER ASSISTANCE
To the extent reasonably required for the provision of SaskTel's services
pursuant to this Agreement, the Company shall furnish to any of SaskTel's
employees and personnel who are temporarily in New Zealand, at the sole cost and
expense of the Company, adequate office or other work space, computers, and
secretarial, clerical or other assistance. Likewise, the Company will make
available to SaskTel's employees who are performing services under this
Agreement access to all records, equipment, and areas within the control of the
Company as may be reasonably requested by such personnel. SaskTel undertakes
not to use any facilities or assistance provided by the Company hereunder other
than for the sole purpose of performing its obligations pursuant to this
Agreement.
7. INDEPENDENT CONTRACTOR
In the performance of its duties and responsibilities under this Agreement,
SaskTel shall be and shall act solely as an independent contractor, and nothing
contained in this Agreement or in the relationship of the Company and SaskTel
shall constitute or be construed to be or to create a partnership or joint
venture between the Company and SaskTel.
-6-
<PAGE>
8. FEES AND PAYMENT
8.1 During the period of this Agreement, the Company shall reimburse
SaskTel for all expenses reasonably incurred by its employees and personnel in
the provision of services pursuant to this Agreement ("Expenses"), which
Expenses shall include the following:
(a) Travel, meal and lodging expenses, either in New Zealand or
elsewhere;
(b) Salary and reasonable administrative expenses, including
expenses with respect to the persons seconded for SaskTel or its Affiliates
pursuant to Section 5, which shall include without limitation, bonuses, cost-of-
living adjustments, reimbursement for leave days, pension, disability, medical
and life insurance and other benefits consistent with those provided by SaskTel,
vehicle, relocation and repatriation expenses and other coasts associated with
international ex patriate employees; and
(c) Fees and expenses of advisors, consultants and independent
contractors (such as accountants, market consultants and attorneys) engaged by
SaskTel with the written consent of the Company.
8.2 Thirty days after the end of each calendar month, SaskTel shall
supply to the Company a report of the above-mentioned Expenses and the Company
shall pay SaskTel for such Expenses within 30 days after the receipt of such
report.
8.3 SaskTel shall be entitled to receive a fee (the "Fee") of (a) 2.5
percent (2.5%) of the gross revenues so long as SaskTel owns at least 20% or
greater of the Company or (b) if SaskTel owns less than 20% of the Company, the
percentage of the gross revenues equal to 5 multiplied by SaskTel's ownership
percentage interest in the Company.
8.4 The Fee shall be paid within 45 days following the end of the
month for which the Fee is due.
8.5 All payments due under this Clause shall be made in Canadian
dollars strictly in accordance with this Clause.
8.6 All payments made to SaskTel hereunder shall be by means of
official telegraphic transfer remittance, mail transfer remittance or banker's
cheque to an account established at bank(s) designated by SaskTel.
9. WARRANTY AND INDEMNITY
The Company shall indemnify and keep SaskTel fully indemnified from and
against any loss, claim or damage incurred by SaskTel or the Company as a result
of any action or claim brought against it by any third party in respect of the
provision by SaskTel of the services stipulated under this Agreement.
-7-
<PAGE>
10. DURATION
This Agreement shall be effective upon the date hereof, and shall expire on
a date ten years thereafter, or unless terminated earlier in accordance with
Section 11 below. Thereafter, unless terminated earlier in accordance with
Section 11 below, this Agreement shall be continued from year to year unless
SaskTel or the Company provides written notice to the other party ninety (90)
days prior to the end of such yearly extension.
11. TERMINATION
11.1 This Agreement shall forthwith terminate with respect to one
party upon written notice of termination to it by the other party if the first
party is in breach of its material obligations hereunder (including but not
limited to the payment of any sums due hereunder) and such breach, if capable of
remedy, has not been remedied at the expiry of thirty (30) days following
written notice to that effect having been served on such party by the other
party indicating the steps required to be taken to remedy the failure.
11.2 This Agreement may be terminated by SaskTel or the Company upon
sixty (60) days written notice in the event SaskTel or an Affiliate of SaskTel,
no longer has an equity interest in the Company.
12. CONFIDENTIALITY
Each party hereto acknowledges that, in connection with the services to be
provided by SaskTel hereunder, it may receive confidential and proprietary
information of a business, financial, technical or other type, from the other
party or from an Affiliate of the other party. The Company agrees that any such
information that it receives is to be used by the Company only for exploitation
of the Network. SaskTel agrees that any such information that it receives will
be used only for the performance of its obligations hereunder. Without limiting
the generality of the foregoing, neither party shall commercially exploit any
confidential proprietary information for purposes other than those contemplated
by this Agreement. Each party shall use its best efforts to keep confidential
all information of a proprietary nature that it receives in connection with this
Agreement; provided, however, that the party's respective obligations under this
Clause shall not relate to any matter falling within the public domain otherwise
than by reason of a breach of this Agreement by the party that has received the
information. The provisions of this Clause shall be binding upon the
affiliates, partners, officers, directors, shareholders, employees and agents of
the parties, and shall survive the termination of this Agreement.
13. MISCELLANEOUS
13.1 No variation of this Agreement shall be effective unless in
writing and signed by or on behalf of all of the parties.
13.2 If any term or provision of this Agreement shall be held to be
illegal or unenforceable, in whole or in part, under any enactment or rule of
law, such term or provision or
-8-
<PAGE>
part shall to that extent be deemed not to form part of this Agreement and the
enforceability of the remainder of this Agreement shall not be affected.
13.3 All notices, demands, requests or other communications to be
sent by one party to the other hereunder or required by law shall be in writing
and shall be deemed to have been validly given or served by delivery of the same
in person to the intended addressee, by facsimile transmission to such party at
the facsimile number set forth for such party on the signature pages below, or
by depositing the same with Federal Express or another reputable private
international courier service for the soonest business day delivery offered by
such courier service to the intended addressee at its address set forth below,
or at such other address or telecopy number as may be designated by such party.
Any notice, demand or other communication so addressed to the relevant
party shall be deemed to have been delivered (a) if delivered in person, when
actually delivered to the relevant address; (b) if given by courier, on the
fifth business day (of the sending party) after submitted to the courier with
appropriate delivery instructions; or (c) if given or made by facsimile, when
dispatched if the transmission report has the correct number of pages and
correct facsimile number of the recipient on it.
For purposes of this Agreement, Denver, Colorado time shall be used in
the calculation of any notice period. With the start of any notice period being
deemed to commence on the date, Denver time, that such action occurred,
regardless of in which time zone such action occurred, and the notice period
being deemed to end at the end of the day, Denver time, of the last day of the
requisite period following the deemed start date.
To the Company: Saturn Communications Limited
75 The Esplanade
Petone, P.O. Box 38-600
Wellington, New Zealand
Attention: Chief Executive Officer
Facsimile: (644) 915-5100
To SaskTel: SaskTel Holding (New Zealand), Inc.
2121 Saskatchewan Drive
Regina, Saskatchewan
Canada S4P 3Y2
Attention: President
Facsimile: (306) 359-7475
13.4 No failure or delay by any party in exercising any right, power
or remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of the same preclude any further exercise thereof or
the exercise of any other right, power or remedy. Without limiting the
foregoing, no waiver by any party of any breach of any provision hereof shall be
deemed to be a waiver of any subsequent breach of that or any other provision
hereof.
-9-
<PAGE>
13.5 No party shall be entitled to assign this Agreement or its
rights or obligations hereunder save as expressly provided herein or with the
written consent of the other parties; however this Agreement may be assigned by
SaskTel to an Affiliate.
13.6 This Agreement shall be governed by the laws of New Zealand.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
SATURN COMMUNICATIONS LIMITED
By:/s/ Michael T. Fries
----------------------------------
Michael T. Fries, Director
SASKTEL HOLDING (NEW ZEALAND), INC.
By:/s/ Donald R. Ching
----------------------------------
Donald R. Ching, Chairman of the
Board
By:/s/ D. J. Bassen
----------------------------------
D.J. Bassen, President
-10-
<PAGE>
EXHIBIT 10.37
================================================================================
WARRANT AGREEMENT
Dated as of November 15, 1997
by and between
UIH AUSTRALIA/PACIFIC, INC.
and
FIRSTAR BANK OF MINNESOTA, N.A.,
as Warrant Agent
================================================================================
<PAGE>
WARRANT AGREEMENT
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Appointment of Warrant Agent................................. 1
SECTION 2. Issuance of Warrants......................................... 1
SECTION 3. Warrant Certificates......................................... 1
SECTION 4. Execution of Warrant Certificates............................ 1
SECTION 5. Registration of Transfers and Exchanges...................... 2
SECTION 6. Registration and Countersignature............................ 2
SECTION 7. Terms of Warrants; Exercise of Warrants...................... 2
SECTION 8. Reports...................................................... 4
SECTION 9. Payment of Taxes............................................. 4
SECTION 10. Mutilated or Missing Warrant Certificates.................... 4
SECTION 11. Reservation of Warrant Shares................................ 4
SECTION 12. Obtaining Stock Exchange Listings............................ 5
SECTION 13. Adjustment of Exercise Price and Number of
Warrant Shares Issuable...................................... 5
(a) Adjustment for Change in Capital Stock....................... 5
(b) Adjustment for Rights Issue.................................. 6
(c) Adjustment for Other Distributions........................... 6
(d) Adjustment for Common Stock Issue............................ 7
(e) Adjustment for Convertible Securities Issue.................. 8
(f) [Reserved]................................................... 9
(g) Consideration Received....................................... 9
(h) When De Minimis Adjustment May Be Deferred................... 9
(i) When No Adjustment Required.................................. 9
(j) Notice of Adjustment......................................... 10
(k) Voluntary Reduction.......................................... 10
(l) Notice of Certain Transactions............................... 10
(m) Reorganization of the Company................................ 10
(n) Determination Final.......................................... 11
(o) Warrant Agent's Disclaimer................................... 11
(p) When Issuance or Payment May Be Deferred..................... 11
(q) Adjustment in the Number of Shares........................... 11
(r) Form of Warrants............................................. 12
SECTION 14. No Dilution or Impairment.................................... 12
SECTION 15. Fractional Interests......................................... 12
SECTION 16. Notices to Warrant Holders................................... 12
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 17. Merger, Consolidation or Change of Name of
Warrant Agent............................................... 13
SECTION 18. Warrant Agent............................................... 14
SECTION 19. Registration................................................ 15
(a) Shelf Registration of Warrant Shares........................ 15
(b) Registration Expenses....................................... 15
(c) Blackout Privilege.......................................... 15
(d) Liquidated Damages.......................................... 15
(e) Remedies.................................................... 16
SECTION 20. [Reserved].................................................. 16
SECTION 21. Merger, Consolidation or Change of Name of
Warrant Agent............................................... 16
SECTION 22. Change of Warrant Agent..................................... 16
SECTION 23. Notices to the Company and Warrant Agent.................... 16
SECTION 24. Supplements and Amendments.................................. 17
SECTION 25. Successors.................................................. 17
SECTION 26. Termination................................................. 17
SECTION 27. Governing Law; Jurisdiction................................. 17
SECTION 28. Benefits of This Agreement.................................. 17
SECTION 29. Counterparts................................................ 18
SECTION 30. Further Assurances.......................................... 18
</TABLE>
- ----------------------
* This table of Contents does not constitute a part of this Agreement or have
any bearing upon the interpretation of any of its terms or provisions.
-ii-
<PAGE>
This WARRANT AGREEMENT, dated as of November 15, 1997, is by and between
UIH Australia/Pacific, Inc., a Colorado corporation (the "Company"), and Firstar
Bank of Minnesota, N.A., an association organized and existing under the laws of
the United States of America, as Warrant Agent (the "Warrant Agent").
RECITALS
--------
WHEREAS, the Company has entered into an indenture (the "Indenture"),
dated September 23, 1997, with Firstar Bank of Minnesota, N.A., as trustee (the
"Trustee"), pursuant to which the Company has issued $45,000,000 principal
amount of its 14% Senior Discount Notes due 2006 (the "Notes"); and
WHEREAS, Section 4.21 of the Indenture provides that in the event the
Company does not effect an Equity Sale (as defined in the Indenture) the Company
is required to issue to the holders of the Notes Warrants (the "Warrants") to
purchase up to 0.4% of the common stock, par value $.01/per share, of the
Company (the "Common Stock") on a fully diluted basis after a giving effect to
the exercise of the Warrants; and
WHEREAS, each Warrant entitles the holder of the Warrant, upon exercise to
receive from the Company, as adjusted as provided herein, one fully paid and
nonassessable share of Common Stock of the Company at the Exercise Price (as
defined herein); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant certificates and other matters as provided herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
----------------------------
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Issuance of Warrants. Warrants shall be issued originally by
--------------------
the Company to the extent required by Section 4.21 of the Indenture.
SECTION 3. Warrant Certificates. The certificates evidencing the
--------------------
Warrants to be delivered pursuant to this Agreement shall be in registered form
only and shall be substantially in the form set forth in Exhibit A attached
hereto.
SECTION 4. Execution of Warrant Certificates. Warrant certificates shall
---------------------------------
be signed on behalf of the Company by its Chairman of the Board, Chief Executive
Officer, Chief Financial Officer or President and Secretary or an Assistant
Secretary. Each such signature upon the Warrant certificates may be in the form
of a facsimile signature of the present or any future Chairman of the Board,
Chief Executive Officer, Chief Financial Officer or President and Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant
certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, Chief
Executive Officer, Chief Financial Officer or President and Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
certificates shall be countersigned and delivered or disposed of, he or she
shall have ceased to hold such office. The seal of the Company may be in the
form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise eproduced on the Warrant certificates.
In case any officer of the Company who shall have signed any of the Warrant
certificates shall cease to be such officer before the Warrant certificates so
signed shall have been countersigned by the Warrant Agent, or disposed of by the
Company, such Warrant certificates nonetheless may be countersigned and
delivered or disposed of as though such person had not ceased to be such officer
of the Company; and any Warrant certificate may be signed on
<PAGE>
behalf of the Company by any person who, at the actual date of the execution of
such Warrant certificate, shall be a proper officer of the Company to sign such
Warrant certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant certificates shall be dated the date of countersignature by the
Warrant Agent.
SECTION 5. Registration of Transfers and Exchanges. The Warrant Agent
---------------------------------------
shall from time to time register the transfer of any outstanding Warrant
certificates upon the records to be maintained by it for that purpose, upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Warrant Agent, duly executed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, a new
Warrant certificate shall be issued to the transferee(s) and the surrendered
Warrant certificate shall be canceled by the Warrant Agent. Canceled Warrant
certificates shall thereafter be disposed of by the Company in accordance with
applicable law.
Warrant certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Warrant Agent at its office for another Warrant
certificate or other Warrant certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant certificates surrendered for
exchange shall be canceled by the Warrant Agent. Such canceled Warrant
certificates shall then be disposed of by the Company in accordance with
applicable law.
No service change shall be made for any transfer or exchange of Warrant
certificates or any issuance of Warrant certificates in connection with a
Separation, but the Company may require payment of a sum sufficient to cover any
stamp or other governmental charge or tax that may be imposed in connection with
any such transfer or exchange.
The Warrant Agent is hereby authorized to countersign, in accordance with
the provisions of this Section 5, the Warrant certificates required pursuant to
the provisions of this Section 5.
SECTION 6. Registration and Countersignature. The Warrant Agent, on
---------------------------------
behalf of the Company, shall number and register the Warrant certificates in a
register as they are issued by the Company (the "Warrant Register").
Warrant certificates shall be countersigned manually by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. The Warrant
Agent shall, upon written instructions of the Chairman of the Board, Chief
Executive Officer, President or the Chief Financial Officer of the Company,
initially countersign and deliver Warrants entitling the holders thereof to
purchase not more than the number of Warrant Shares referred to above in the
second recital hereof and shall countersign and deliver Warrants as otherwise
provided in this Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary.
SECTION 7. Terms of Warrants; Exercise of Warrants. Subject to the terms
---------------------------------------
of this Agreement, each Warrant holder shall have the right, which may be
exercised on or after the date hereof until 5:00 p.m., New York City, New York
time on May 15, 2006 (the "Expiration Date"), to exercise each Warrant and
receive from the Company the number of fully paid and nonassessable Warrant
Shares which the holder may at the time be entitled to receive on exercise of
such Warrants and payment of the Exercise Price (as herein defined) then in
effect for such Warrant Shares; provided, however, that no Warrant holder shall
-------- -------
be entitled to exercise such holder's Warrants at any time unless, at the time
of exercise, (i) a registration statement under the Securities Act of 1933, as
amended (the "Act"), relating to the Warrant Shares has been filed with, and
declared effective by, the Securities and Exchange Commission (the "SEC"), and
no stop order suspending the effectiveness of such registration statement has
been issued by the SEC or (ii) the issuance of the Warrant Shares is permitted
pursuant to an exemption from the registration requirements of the Act; and
provided, further, that if the Company or a holder of Warrants reasonably
- -------- -------
believes that the exercise of any Warrant requires prior compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder, any such exercise shall be contingent upon such prior
compliance. Each Warrant, when exercised will entitle the holder thereof to
purchase one (1) fully paid and nonassessable share of Common Stock at the
Exercise Price (as defined in the Indenture). Each Warrant not exercised prior
to the Expiration Date shall become void and all rights
-2-
<PAGE>
thereunder and all rights in respect thereof under this Agreement shall cease as
of such time. No adjustments as to dividends will be made upon exercise of the
Warrants.
A Warrant may be exercised upon surrender to the Company at the principal
office of the Warrant Agent of the certificate or certificates evidencing the
Warrants (or fractional interests in Warrants) to be exercised with the form of
election to purchase on the reverse thereof duly filled in and signed, which
signature shall be guaranteed by an "eligible guarantor" as defined in the
regulations promulgated under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, as adjusted as herein provided,
for each Warrant Share. Payment of the aggregate Exercise Price shall be made
(i) in United States dollars or (ii) by certified or official bank check payable
to the order of the Company or (iii) by tendering Notes having an Accreted Value
(as defined in the Indenture) at the time of tender equal to the Exercise Price
or (iv) by tendering Warrants having a Fair Market Value equal to the Exercise
Price or (v) with any combination of (i), (ii), (iii), or (iv). "Fair Market
Value" or "Current Market Value" per Warrant or per share of Common Stock or of
any other security at any date shall be (1) if the security is not listed on a
National Securities Exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, (i) the value of the security determined
reasonably and in good faith by the Board of Directors of the Company and
certified in a board resolution which shall be certified by the Secretary or an
Assistant Secretary of the Company and filed with the Warrant Agent, based on
the most recently completed arm's-length transaction between the Company and a
person other than an Affiliate (as defined in Rule 144 under the Act) of the
Company and the closing of which occurs on such date or shall have occurred
within the four months preceding such date, (ii) if no such transaction shall
have occurred on such date or within such four-month period, the value of the
security most recently determined as of a date within the four months preceding
such date by a nationally recognized investment banking firm or appraisal firm
which is not an Affiliate of the Company ("Independent Financial Advisor") or
(iii) if neither clause (i) nor (ii) is applicable, the value of the security
determined as of such date by an Independent Financial Advisor, or (2) if the
security is listed on a National Securities Exchange or quoted on the National
Association of Securities Dealers Automated Quotation System, the average of the
daily closing bid prices for each Business Day during the period commencing 15
Business Days before such date and ending on the date one day prior to such date
or, if the security has been listed on a National Securities Exchange or quoted
on the National Association of Securities Dealers Automated Quotation System for
less than 15 consecutive Business Days before such date, then the average of the
daily closing bid prices for all of the Business Days before such date for which
daily closing bid prices are available. If the closing bid is not determinable
for at least 10 Business Days in such period, the Current Market Value of the
security shall be determined as if the security was not listed on a National
Securities Exchange or quoted on the National Association of Securities Dealers
Automated Quotation System.
If the Notes are surrendered in payment of the Exercise Price, the Warrant
Agent shall deliver such Notes to the Company and the Company shall deliver such
Notes to the Trustee for cancellation and the Trustee shall notify the Company
in writing whether such Notes were in good form and, if such Notes were in good
form the Company shall notify the Warrant Agent in writing that the Company has
received full and proper payment of the Exercise Price.
Subject to the provisions of Section 9 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
holder and in such name or names as the Warrant holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 15
hereof; provided, however, that if any consolidation, merger or lease or sale of
-------- -------
assets is proposed to be effected by the Company as described in subsection (m)
of Section 13 hereof, or a tender offer or an exchange offer for shares of
Common Stock of the Company shall be made, upon such surrender of Warrants and
payment of the Exercise Price as aforesaid, the Company shall, as soon as
possible, but in any event not later than two business days thereafter, issue
and cause to be delivered the full number of Warrant Shares issuable upon the
exercise of such Warrants in the manner described in this sentence together with
cash as provided in Section 15 hereof. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
No fractional shares shall be issued upon exercise of any Warrants in accordance
with Section 15 hereof.
The Warrants shall be exercisable, at the election of the holders thereof,
either in full or from time to time in part (in whole shares) and, in the event
that a certificate evidencing Warrants is exercised in respect of fewer than all
of the Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate
-3-
<PAGE>
evidencing the remaining Warrant or Warrants will be issued, and the Warrant
Agent is hereby irrevocably authorized to countersign and to deliver the
required new Warrant certificate or certificates pursuant to the provisions of
this Section and of Section 4 hereof, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrant certificates duly
executed on behalf of the Company for such purpose.
All Warrant certificates surrendered upon exercise of Warrants shall be
canceled by the Warrant Agent. Such canceled Warrant certificates shall then be
disposed of by the Company in accordance with applicable law. The Warrant Agent
shall account promptly to the Company with respect to Warrants exercised and
concurrently pay to the Company all monies or surrender to the Company all Notes
received by the Warrant Agent for the purchase of the Warrant Shares through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the holders during normal
business hours at its office. The Company shall supply the Warrant Agent from
time to time with such numbers of copies of this Agreement as the Warrant Agent
may request.
SECTION 8. Reports. So long as any of the Warrants remain outstanding,
-------
the Company shall cause copies of all quarterly and annual financial reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) that the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act ("SEC Reports") to be filed with the Warrant Agent and mailed to
the holders of Warrants, in each case, within 15 days after filing with the SEC.
If the Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall nonetheless continue to cause SEC Reports,
comparable to those that it would be required to file pursuant to Section 13 or
15(d) of the Exchange Act if it were then subject to the requirements of either
such Section, to be so filed with the SEC for public availability (unless the
SEC will not accept such a filing) and with the Warrant Agent and mailed to the
holders of Warrants, in each case, within the same time periods as would have
applied (including under the preceding sentence) had the Company then been
subject to the requirements of Section 13 or 15(d) of the Exchange Act. The
Company shall make all such information available to investors, securities
analysts and broker dealers who request it in writing.
SECTION 9. Payment of Taxes. No service charge shall be made to any
----------------
holder of a Warrant for any exercise, exchange or registration of transfer of
Warrant certificates, and the Company will pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants; provided, however that the Company shall not be required to pay any
-------- -------
Tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant certificates or any certificates of Warrant Shares in a
name other than that of the registered holder of a Warrant certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 10. Mutilated or Missing Warrant Certificates. If any of the
-----------------------------------------
Warrant certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue and the Warrant Agent may countersign, in exchange
and substitution for and upon cancellation of the mutilated Warrant certificate,
or in lieu of and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant certificate and indemnity and security thereof, if requested, also
satisfactory to them. Applicants for such substitute Warrant certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
SECTION 11. Reservation of Warrant Shares. The Company will at all
------------------------------
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock, for the purpose of
enabling it to satisfy any obligation to issue Warrant Shares upon exercise of
Warrants, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of all outstanding Warrants.
The Company or the transfer agent of the Common Stock (the "Transfer
Agent") and every subsequent transfer agent of any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required
-4-
<PAGE>
for such purpose. The Company will keep a copy of this Agreement on file with
the Transfer Agent and with every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such Transfer Agent the stock certificates
required to honor outstanding Warrants upon exercise thereof in accordance with
the terms of this Agreement. The Company will supply such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in section 15 hereof. The
Company will furnish such Transfer Agent a copy of all notices of adjustments
and certificates related thereto, transmitted to each holder pursuant to Section
16 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 13 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take all corporate action necessary, in
the opinion of its counsel (which may be counsel employed by the Company), in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will be, upon payment of the Exercise Price and issuance
thereof, fully paid, nonassessable, free of preemptive rights and free from all
taxes, liens, charges and security interests with respect to the issue thereof.
SECTION 12. Obtaining Stock Exchange Listings. The Company shall also
---------------------------------
from time to time take all action necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the Nasdaq National Market or such other principal securities exchanges,
interdealer quotation systems and markets within the United States of America,
if any, on which other shares of Common Stock are then listed or quoted.
SECTION 13. Adjustment of Exercise Price and Number of Warrant Shares
---------------------------------------------------------
Issuable. The Exercise Price and the number of Warrant Shares issuable upon the
- --------
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 13. For purposes of this
Section 13, "Common Stock" means the Common Stock and any other stock of the
Company, however designated, for which the Warrants may be exercisable.
(a) Adjustment for Change in Capital Stock.
--------------------------------------
If the Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into
a greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common stock in shares of
its capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any
shares of its capital stock,
then the Exercise Price and the number and kind of shares of capital stock of
the Company issuable upon the exercise of a Warrant (as in effect immediately
prior to such action) shall be proportionately adjusted so that the holder of
any Warrant thereafter exercised may receive the aggregate number and kind of
shares of capital stock of the Company which he would have owned immediately
following such action if such Warrant had been exercised immediately prior to
such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
-5-
<PAGE>
If after an adjustment a holder of a Warrant upon exercise may receive
shares of two or more classes or series of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes or series of capital stock. After such allocation, the exercise
privilege and the Exercise Price of each class or series of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 13.
Such adjustment shall be made successively whenever any event listed above
shall occur.
(b) Adjustment for Rights Issue.
---------------------------
If the Company distributes any rights, options or warrants to all holders
of its Common Stock entitling them for a period expiring within 60 days after
the record date mentioned below to purchase shares of Common Stock or securities
convertible into, or exchangeable or exercisable for, Common Stock at a price
per share (or with an initial conversion, exchange or exercise price) less than
the Fair Market Value per share on that record date, the Exercise Price shall be
adjusted in accordance with the following formula:
O + N x P
-----
E' = E x M
---------
O + N
where:
E'= the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Fair Market Value per share of Common Stock on the record date.
The adjustment shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
options or warrants. If at the end of the period during which such rights,
options or warrants are exercisable, not all rights, options or warrants shall
have been exercised, the Exercise Price shall be immediately readjusted to what
it would have been if "N" in the above formula had been the number of shares
actually issued.
(c) Adjustment for Other Distributions.
----------------------------------
If the Company distributes to all holders of its Common Stock any of its
assets (including cash), debt securities, preferred stock or any rights or
warrants to purchase debt securities, assets or other securities of the Company,
the Exercise Price shall be adjusted in accordance with the following formula:
E' = E x M - F
-------
M
where:
E'= the adjusted Exercise Price.
E = the current Exercise Price.
-6-
<PAGE>
M = the Fair Market Value per share of Common Stock on the record date
mentioned below.
F = the fair market value on the record date of the assets, securities,
rights or warrants applicable to one share of Common Stock, as determined
pursuant to Section 13(g).
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This subsection (c) does not apply to rights, options or warrants referred
to in subsection (b) of this Section 13.
(d) Adjustment for Common Stock Issue.
---------------------------------
If the Company issues shares of Common Stock for a consideration per share
less than the Fair Market Value per share of Common Stock on the date the
Company fixes the offering price of such additional shares, the Exercise Price
shall be adjusted in accordance with the formula:
P
--
E' = E x O + M
-----
A
where:
E'= the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Fair Market Value per share of Common Stock on the date of
issuance of such additional shares.
A = the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (a), (b) and
(c) of this Section 13,
(2) the exercise of Warrants or other warrants outstanding on the
date of this Agreement, or the conversion or exchange of other securities
convertible or exchangeable for Common Stock,
(3) Common Stock issued to the Company's employees, consultants
or directors under bona fide benefit plans adopted by the Board of
Directors and approved by the holders of Common stock when required by law,
if such common stock would otherwise be covered by this subsection (d) (but
only to the extent that the aggregate number of shares excluded hereby and
issued after the date of this Agreement shall not exceed 10% of the Common
Stock outstanding at the time of issuance),
(4) Common Stock issuable upon the exercise of rights or warrants
issued to the holders of Common Stock,
-7-
<PAGE>
(5) Common Stock issued to shareholders of any person which
merges into the Company in proportion to their stock holdings of such
person immediately prior to such merger, upon such merger,
(6) Common Stock issued in a bona fide public offering pursuant
to a firm commitment underwriting,
(7) Common Stock issued in a bona fide private placement through
a placement agent which is a member firm of the National Association of
Securities Dealers, Inc. to Persons that are not Affiliates (as defined in
the Indenture) of the Company (except to the extent that any discount from
the current market price attributable to restrictions on transferability of
the Common Stock, as determined in good faith by the Board of Directors and
described in a Board resolution which shall be filed with the Warrant
Agent, shall exceed 20%), or
(8) Common Stock issued to Affiliates of the Company
simultaneously with, and resulting in at least the same net proceeds per
share of Common Stock to the Company as, an issuance referred to in
paragraphs (6) or (7) of this Section 13(d).
(e) Adjustment for Convertible Securities Issue.
-------------------------------------------
If the Company issues any securities convertible into or exchangeable for
Common Stock (other than securities issued in transactions described in
subsections (a), (b) and (c) of this Section 13) for a consideration per share
of Common Stock initially deliverable upon conversion or exchange of such
securities less than the Fair Market Value per share on the date of issuance of
such securities, the Exercise Price shall be adjusted in accordance with this
formula:
P
--
E' = E x O + M
-----
O + D
where:
E'= the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the Fair Market Value per share on the date of issuance of such
securities.
D = the maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for such securities at the initial conversion
or exchange rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This subsection (e) does not apply to:
-8-
<PAGE>
(1) convertible securities issued to shareholders of any person
which merges into the Company, or with a subsidiary of the Company, in
proportion to their stock holdings of such person immediately prior to such
merger, upon such merger,
(2) convertible securities issued in a bona fide public offering
pursuant to a firm commitment underwriting,
(3) convertible securities issued in a bona fide private
placement through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any
discount from the current market price attributable to restrictions on
transferability of Common Stock issuable upon conversion, as determined in
good faith by the Board of Directors and described in a Board resolution
which shall be filed with the Warrant Agent, shall exceed 20%),
(4) convertible securities issued to Affiliates of the Company
simultaneous with, and resulting in at least the same net proceeds per
share of Common Stock to the Company as, an issuance referred to in
paragraphs (2) or (3) of this Section 13(e), or
(5) stock options issued to the Company's employees, consultant
or directors.
(f) [Reserved].
----------
(g) Consideration Received.
----------------------
For purposes of any computation respecting consideration received pursuant
to subsections (d) and (e) of this Section 13, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
by (x) an Independent Financial Advisor at any time when the Common Stock
of the Company is not listed on a National Securities Exchange or quoted on
the National Association of Securities Dealers Automated Quotation System,
whose determination shall be conclusive, and (y) by the Board in good faith
at any time under the Common Stock of the Company is so listed or quoted as
described in a Board resolution which shall be filed with the Warrant
Agent; and
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(h) When De Minimis Adjustment May Be Deferred.
------------------------------------------
No Adjustment in the Exercise Price need be made unless the adjustment
would require an increase or decrease of at least 1% in the Exercise Price. Any
adjustments that are not made shall be carried forward and taken into account in
any subsequent adjustment.
All calculations under this Section 13 shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
(i) When No Adjustment Required.
---------------------------
-9-
<PAGE>
No adjustment need be made for a transaction referred to in subsections
(a), (b), (c), (d) or (e) of this Section 13 if Warrant holders are to
participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
No adjustment need be made for rights to purchase Common Stock pursuant to
any of the Company's plans for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value, or from par value
to no par value, or from no par value to par value, of the Common Stock.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
(j) Notice of Adjustment.
--------------------
Whenever the Exercise Price is adjusted, the Company shall provide the
notices required by Section 16 hereof.
(k) Voluntary Reduction.
-------------------
The Company from time to time may, as the Board of Directors deems
appropriate, reduce the Exercise Price by any amount for any period of time if
the period is at least 20 days and if the reduction is irrevocable during the
period; provided, however, that in no event may the Exercise Price be less than
------- -------
the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
15 days before the date the reduced Exercise Price takes effect. The notice
shall state the reduced Exercise Price and the period it will be in effect.
A reduction of the Exercise Price pursuant to this Section 13(k), other
than a reduction which the Company has irrevocably committed will be in effect
for so long as any Warrants are outstanding, does not change or adjust the
Exercise Price otherwise in effect for purposes of subsections (a), (b), (c),
(d) and (e) of this Section 13.
(l) Notice of Certain Transactions.
------------------------------
If:
(1) The Company takes any action that would require an adjustment
in the Exercise Price pursuant to subsections (a), (b), (c), (d) or (e) of
this Section 13 and if the Company does not arrange for Warrant holders to
participate pursuant to subsection (i) of this Section 13;
(2) the Company takes any action that would require a
supplemental Warrant Agreement pursuant to subsection (m) of this Section
13; or
(3) there is a liquidation or dissolution of the Company,
the Company shall mail to Warrant holders a notice stating the proposed
record date for a dividend or distribution or the proposed effective date
of a subdivision, combination, reclassification, consolidation, merger,
transfer, lease, liquidation or dissolution. The Company shall mail the
notice at least 15 days before such date. Failure to mail the notice or any
defect in it shall not affect the validity of the transaction.
(m) Reorganization of the Company.
-----------------------------
(1) If the Company consolidates or mergers with or into, or
transfers or leases all or substantially all its assets to, any person,
upon consummation of such transaction, the Warrants shall automatically
become exercisable for the kind and amount of securities, cash or other
assets which the holder
-10-
<PAGE>
of a Warrant would have owned immediately after the consolidation, merger,
transfer or lease if the holder had exercised the Warrant immediately
before the effective date of the transaction. Concurrently with the
consummation of such transaction, the corporation formed by or surviving
any such consolidation or merger if other than the Company, or the person
to which such sale or conveyance shall have been made (any such person, the
"Successor Guarantor"), shall enter into a supplemental Warrant Agreement
so providing and further providing for adjustments which shall be as nearly
equivalent as may be practical to the adjustments provided for in this
Section 13. The Successor Guarantor shall mail to Warrant holders a notice
describing the supplemental Warrant Agreement. If the issuer of securities
deliverable upon exercise of Warrants under the supplemental Warrant
Agreement is an affiliate of the formed, surviving, transferee or lessee
corporation, that issuer shall join in the supplemental Warrant Agreement.
(2) Notwithstanding paragraph (1) of this Section 13(m), in the
case of any merger, reverse stock split, or other transaction in which the
publicly held Common Stock shall be converted into the right to receive a
consideration consisting solely of cash, (A) this Warrant Agreement and
each Warrant shall terminate and (B) each holder of a Warrant, without
having to take any other action than the surrendering of such Warrant to
the Company, shall receive an amount equal to the amount (if any) by which
the price per share payable to, or which would be received by, any public
holder of Common Stock in connection with such transaction exceeds the
Exercise Price effective at that time.
(3) If this subsection (m) applies, subsections (a), (b), (c),
(d) and (e) of this Section 13 do not apply.
(n) Determination Final.
-------------------
Any determination that the Company or the Board of Directors or an
Independent Financial Advisor must make pursuant to subsection (a), (c), (d),
(e), (g) or (i) of this Section 13 is conclusive.
(o) Warrant Agent's Disclaimer.
--------------------------
The Warrant Agent has no duty to determine when an adjustment under this
Section 13 should be made, how it should be made or what it should be. The
Warrant Agent has no duty to determine whether any provisions of a supplemental
Warrant Agreement under subsection (m) of this Section 13 are correct. The
Warrant Agent makes no representation as to the validity or value of any
securities or assets issued upon exercise of Warrants. The Warrant Agent shall
not be responsible for the Company's failure to comply with this Section 13.
(p) When Issuance or Payment May Be Deferred.
----------------------------------------
In any case in which this Section 13 shall require that an adjustment in
the Exercise Price be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event (i) issuing to
the holder of any Warrant exercised after such record date the Warrant Shares
and other capital stock of the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Exercise Price and (ii) paying
to such holder any amount in cash in lieu of a fractional share pursuant to
Section 15 hereof; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional Warrant Shares, other capital stock and cash upon the
occurrence of the event requiring such adjustment.
(q) Adjustment in the Number of Shares.
----------------------------------
Upon each adjustment of the Exercise Price pursuant to this Section 13,
each Warrant outstanding prior to the making of the adjustment in the Exercise
Price shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
N' = N x E
---
E'
-11-
<PAGE>
where:
N'= the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number of Warrant Shares previously issuable upon exercise of a
Warrant by payment of the Exercise Price prior to adjustment.
E'= the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(r) Form of Warrants.
----------------
Irrespective of any adjustments in the Exercise Price or the number or kind
of shares purchasable upon the exercise of the Warrants, Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
SECTION 14. No Dilution or Impairment. (a) If any event shall occur as
-------------------------
to which the provisions of Section 13 are not strictly applicable but the
failure to make any adjustment would adversely affect the purchase rights
represented by the Warrants in accordance with the essential intent and
principles of such Section, then, in each such case, the Company shall appoint
an Independent Financial Advisor, which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 13, necessary to preserve, without dilution,
the purchase rights, represented by this Warrant. Upon receipt of such opinion,
the Company will promptly mail a copy thereof to the holders of the Warrants and
shall make the adjustments described therein.
(b) The Company will not, by amendment of its certificate of
incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrants, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrants against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (1) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock on the exercise of the Warrants from time
to time outstanding and (2) will not take any action which results in any
adjustment of the Exercise Price if the total number of Warrant Shares issuable
after the action upon the exercise of all of the Warrants would exceed the total
number of shares of Common Stock then authorized by the Company's certificate of
incorporation and available for the purposes of issue upon such exercise. A
consolidation, merger, reorganization or transfer of assets involving the
Company covered by Section 13(m) shall not be prohibited by or require any
adjustment under this Section 14.
SECTION 15. Fractional Interests. The Company shall not be required to
--------------------
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 15,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall notify the Warrant Agent in writing of the amount to be paid in
lieu of the fraction of a Warrant Share and concurrently pay or provide to the
Warrant Agent for payment to the Warrant holder an amount in cash equal to the
product of (i) such fraction of a Warrant Share and (ii) the difference of the
Fair Market Value of a share of Common Stock over the Exercise Price.
SECTION 16. Notices to Warrant Holders. Upon any adjustment of the
--------------------------
Exercise Price pursuant to Section 13 hereof, the Company shall within 15 days
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company (who may be the regular auditors of the Company)
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the
-12-
<PAGE>
number of Warrant Shares (or portion thereof) issuable after such adjustment in
the Exercise Price, upon exercise of a Warrant and payment of the adjusted
Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein, and (ii) cause to be given to each
of the registered holders of the Warrant certificates at such registered
holder's address appearing on the Warrant Register written notice of such
adjustments by first-class mail, postage prepaid. Where appropriate, such notice
may be give in advance and included as a part of the notice required to be
mailed under the other provisions of this Section 16.
In case:
(a) The Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
(b) The Company shall authorize the distribution to all holders
of shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in shares of Common Stock or distributions
referred to in subsection (a) of Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or a tender offer or exchange offer for
shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) The Company proposes to take any action (other than actions
of the character described in Section 13(a)) which would require an adjustment
of the Exercise Price pursuant to Section 14; then the Company shall cause to be
filed with the Warrant Agent and shall cause to be given to each of the
registered holders of the Warrant certificates at his address appearing on the
Warrant register, at least 20 days (or 10 days in any case specified in clause
(a) or (b) above) prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, by first-class
mail, postage prepaid, a written notice stating (i) the date as of which the
holders of record of shares of Common Stock to be entitled to receive any such
rights, options, warrants or distribution are to be determined, or (ii) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 16 or any defect therein shall not affect the legality or validity of
any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, lease, dissolution, liquidation or winding up, or the vote upon any
action.
Nothing contained in this Agreement or in any of the Warrant certificates
shall be construed as conferring upon the holders thereof the right to vote or
to consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter,
or any rights whatsoever as shareholders of the Company.
SECTION 17. [Reserved].
----------
-13-
<PAGE>
SECTION 18. Warrant Agent. The Warrant Agent undertakes the duties and
-------------
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant
certificates shall be taken as statements of the Company. The Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrant
certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this Agreement
or in the Warrant certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant certificate in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant certificate for any action taken
in reliance on any Warrant certificate, certificate of shares, notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties. The Warrant Agent shall not be bound
by any notice or demand, or any waiver, modification, termination or revision of
this Agreement or any of the terms hereof, unless evidenced by a writing between
the Company and the Warrant Agent.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes
(including withholding taxes) and governmental charges and other charges of any
kind and nature incurred by the Warrant Agent in the execution, delivery and
performance of its responsibilities under this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution, delivery and performance of its responsibilities under
this Agreement except as a result of its negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more registered holders of Warrant
certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
certificates or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent and any recovery of judgment shall
be for the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
-14-
<PAGE>
(g) Except as required by law, the Warrant Agent, and any
stockholder, director, officer or employee of the Warrant Agent, may buy, sell
or deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for
the Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything which it may do or refrain
from doing in connection with this Agreement except for its own negligence or
bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant certificate to make or cause to be
made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or with
respect to the method employed in making the same. The Warrant Agent shall not
be accountable with respect to the validity or value or the kind or amount of
any Warrant Shares or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or with respect to whether
any such Warrant Shares or other securities will when issued be validly issued
and fully paid and nonassessable, and makes no representation with respect
thereto.
SECTION 19. Registration.
------------
(a) Shelf Registration of Warrant Shares. The Company shall
------------------------------------
have caused to be filed prior to the date hereof pursuant to rule 415 under the
Act a shelf registration statement on the appropriate form (the "Warrant Shelf
Registration Statement") covering the issuance of the Warrant Shares and, to the
extent applicable, the Warrants, and shall have caused such Warrant Shelf
Registration Statement to become effective by the date hereof. The Company shall
use its best efforts to keep such Warrant Shelf Registration Statement
continuously effective until 30 days after the Expiration Date.
(b) Registration Expenses. All expenses incident to the
---------------------
Company's performance of or compliance with this Agreement will be borne by the
Company, regardless of whether a Warrant Shelf Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses; (ii) all fees and expenses of compliance with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Warrant Shares and printing of Prospectuses),
messenger and delivery services and telephone calls; (iv) all fees and
disbursements of counsel for the Company; (v) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance); and (vi) the Company's internal expense (including, without
limitation, all salaries and expenses of their officers and employees performing
legal or accounting duties), the expenses of any annual audit, rating agency
fees and the fees and expenses of any person, including special experts,
retained by the Company.
(c) Blackout Privilege. Notwithstanding the foregoing, during
------------------
any consecutive 365-day period, the Company shall have the privilege to suspend
availability of the Warrant Shelf Registration Statement for up to two
consecutive 30-day periods, except for the consecutive 30-day period immediately
prior to the Expiration Date, if the Company's Board of Directors determines in
the exercise of its reasonable judgment that there is a valid business purpose
for such suspension.
(d) Liquidated Damages. If the Shelf Registration Statement:
------------------
(i) has not been declared effective by the SEC on or prior to the date hereof,
or (ii) following the date hereof, shall cease to be effective without being
restored to effectiveness by amendment or otherwise within 10 Business Days
(each such event referred to in clauses (i) and (ii), a "Shelf Registration
Default") other than for such period in which the Shelf Registration Statement
shall cease to be effective as a result of post-effective amendment to
incorporate annual filings which the Company is required to file with the SEC,
provided the Company in good faith attempts to cause such Shelf Registration
Statement to be declared effective as soon as practicable, to the extent
permitted by applicable law, the Company shall pay as liquidated
-15-
<PAGE>
damages and not as a penalty during the first 90-day period immediately
following the occurrence, and during the continuance, of such Shelf Registration
Default, an aggregate amount equal to $750 per week to be paid pro rata to
registered holders of Warrants for each week or portion thereof that the Shelf
Registration Default continues. To the extent permitted by applicable law, the
amount of the liquidated damages will increase by an additional $750 per week
with respect to each subsequent 90-day period until all Shelf Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $3,750
per week. All accrued liquidated damages shall be paid to record holders of
Warrants by the Company by wire transfer of immediately available funds, or by
mailing a federal funds check, on each May 15 and November 15. Following the
cure of all Shelf Registration Defaults relating to any Warrants, the accrual of
liquidated damages with respect to such security will cease.
All obligations of the Company set forth in the preceding paragraph that
are outstanding with respect to any Warrants at the time such security has been
effectively registered under the Act shall survive until such time as all
registration requirements with respect to such security shall have been
satisfied in full.
(e) Remedies. In the event of a breach by the Company of any
--------
of its obligations under this Agreement, each holder of Warrants, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages pursuant to Section 19(d), will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
SECTION 20. [Reserved].
----------
SECTION 21. Merger, Consolidation or Change of Name of Warrant Agent.
--------------------------------------------------------
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
all or substantially all of the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
warrant agent under the provisions of Section 22. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, and in case at that time any of the Warrant certificates shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the predecessor Warrant Agent; and in case at
that time any of the Warrant certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant certificates either
in the name of the predecessor Warrant Agent or in the name of the successor to
the Warrant Agent; and in all such cases such Warrant certificates shall have
the full force and effect provided in the Warrant certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant certificates shall have been countersigned but not
delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant certificates either in its prior name or in its changed
name, and in all such cases such Warrant certificates shall have the full force
and effect provided in the Warrant certificates and in this Agreement.
SECTION 22. Change of Warrant Agent. If the Warrant Agent shall become
-----------------------
incapable of acting as Warrant Agent or shall resign as provided below, the
Company shall appoint a successor to such Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such incapacity by the Warrant Agent or by the registered
holders of a majority of Warrant certificates, then the registered holder of any
Warrant certificate may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to such Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company. The holders of
a majority of the unexercised Warrants shall be entitled at any time to remove
the Warrant Agent and appoint a successor to such Warrant Agent. Such successor
to the Warrant Agent need not be approved by the Company or the former Warrant
Agent. After appointment the successor to the Warrant Agent shall be vested
with same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the former
Warrant Agent shall deliver and transfer to the
-16-
<PAGE>
successor to the Warrant Agent any property at the time held by it hereunder and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Failure to give any notice provided for in this Section 22,
however, or any defect therein, shall not affect the legality or validity of the
appointment of a successor to the Warrant Agent.
The Warrant Agent may resign at any time and be discharged from the
obligations hereby created by so notifying the Company in writing at least 30
days in advance of the proposed effective date of its resignation. If no
successor Warrant Agent accepts the engagement hereunder by such time, the
Company shall act as Warrant Agent.
SECTION 23. Notices to the Company and Warrant Agent. Any notice or
----------------------------------------
demand authorized by this Agreement to be given or made by the Warrant Agent or
by the registered holder of any Warrant certificate to or on the Company shall
be sufficiently given or made when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
UIH Australia/Pacific, Inc.
4643 South Ulster Street
Denver, Colorado 80237
Attention: Chief Financial Officer
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Garth B. Jensen, Esq.
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder(s) of any Warrant certificate to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent at the
Warrant Agent Office as follows:
Firstar Bank of Minnesota, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101-1860
Attention: Frank P. Leslie III
Notice may also be given by facsimile transmission (effective when receipt
is acknowledged) or by overnight delivery service (effective the next business
day).
SECTION 24. Supplements and Amendments. The Company and the Warrant
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrant certificates in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Warrant Agent may deem necessary or desirable and which shall not in any
way materially adversely affect the interests of the holders of Warrant
certificates. Any amendment or supplement to this Agreement that has a material
adverse effect on the interests of holders shall require the written consent of
registered holders of a majority of the then outstanding Warrants (excluding
Warrants held by the Company or any of its Affiliates). The consent of each
holder of a warrant affected shall be required for any amendment pursuant to
which the Exercise Price would be increased or the number of Warrant Shares
purchasable upon exercise of Warrants would be decreased (other than in
accordance with Section 13 or 15 hereof).
SECTION 25. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 26. Termination. This Agreement shall terminate at 5:00 p.m.,
-----------
New York, New York time on May 15, 2006. Notwithstanding the foregoing, this
Agreement will terminate on such earlier date on which all
-17-
<PAGE>
outstanding Warrants have been exercised. The provisions of Section 18 hereof
shall survive such termination, and the provisions of Section 19 hereof shall
survive for 30 days after such termination.
SECTION 27. Governing Law; Jurisdiction. This Agreement and each
---------------------------
Warrant certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and any federal court located in such state in
connection with any action, suit or proceeding arising out of or relating to
this Agreement.
SECTION 28. Benefits of This Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant certificates any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant certificates.
SECTION 29. Counterparts. This Agreement may be executed in any number
------------
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 30. Further Assurances. From time to time on and after the date
------------------
hereof, the Company shall deliver or cause to be delivered to the Warrant Agent
such further documents and instruments and shall do and cause to be done such
further acts as the Warrant Agent shall reasonably request (it being understood
that the Warrant Agent shall have no obligation to make such request) to carry
out more effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected hereunder.
[Signature Page Follows]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of.the.day.and year first above written.
UIH AUSTRALIA/PACIFIC, INC
By: /s/ J. Timothy Bryan
-------------------------------
J. Timothy Bryan
Chief Financial Officer
FIRSTAR BANK OF MINNESOTA, N.A.
By: /s/ Frank P. Leslie III
-------------------------------
Authorized Signatory
-19-
<PAGE>
EXHIBIT A
EXERCISABLE ON OR BEFORE MAY 15, 2006
Form of Warrant Certificate
[Face]
[Unless and until it is exchanged in whole or in part for Warrants in
certificated form, this Warrant may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of the Depository Trust Company, a New York corporation ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]*
No. ____ _______Warrants
Warrant Certificate
UIH AUSTRALIA/PACIFIC, INC.
This Warrant Certificate certifies that _______________, or registered
assigns, is the registered holder of _______________ Warrants expiring May 15,
2006 (the "Warrants"), to purchase shares of the Common Stock, par value $.01
(the "Common Stock"), of UIH Australia/Pacific, Inc., a Colorado corporation
("the Company"). Each Warrant entitles the holder upon exercise to receive from
the Company, at any time from 9:00 a.m. on the date hereof to 5:00 p.m. New
York, New York time on May 15, 2006, one (1) fully paid and nonassessable share
of Common Stock (each a "Warrant Share") at the Exercise Price payable (i) in
United States dollars, (ii) by certified or official bank check to the order of
the Company, (iii) by tendering Notes having an Accreted Value at the time of
tender equal to the Exercise Price, (iv) by tendering Warrants having a Fair
Market Value equal to the Exercise Price at the office or agency of the Warrant
Agent, but only subject to the conditions set forth herein and in the Warrant
Agreement referred to herein. The Exercise Price and number of Warrant Shares
issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement. All
capitalized terms not defined herein shall have the meanings assigned to such
terms in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York, New York Time on May
15, 2006 and to the extent not exercised by such time such warrants shall become
void.
Reference is hereby made to the further provision of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purpose have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent, as such term is used in the Warrant Agreement.
This Warrant Certificate shall be governed and construed in accordance with
the internal laws of the State of New York.
- ----------------------
* This paragraph is to be included only if the Warrant is in global form.
A-1
<PAGE>
IN WITNESS WHEREOF, UIH Australia/Pacific, Inc. has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary,
each by a facsimile of his signature, and has caused a facsimile of its
corporate seal to be affixed hereunto or imprinted hereon.
Dated:
UIH AUSTRALIA/PACIFIC, INC.
By:
-----------------------------
Authorized Signatory
By:
-----------------------------
Authorized Signatory
(seal)
Countersigned:
FIRSTAR BANK OF MINNESOTA, N.A.,
as Warrant Agent
By:
-----------------------------
Authorized Signatory
A-2
<PAGE>
Form of Warrant Certificate
[Reverse]
THE COMMON STOCK, PAR VALUE $.01, OF THE COMPANY (THE "COMMON STOCK") FOR
WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES ABSENT REGISTRATION UNDER THE SECURITIES AND EXCHANGE ACT OF 1933,
AS AMENDED (THE "ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM REGISTRATION REQUIREMENTS. ACCORDINGLY, NO
WARRANT HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY
TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER
THE ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT (THE "WARRANT SHARES") HAS BEEN FILED WITH, AND DECLARED
EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND NO
STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS
BEEN ISSUED BY THE SEC OR (ii) THE ISSUANCE OF THE WARRANT SHARES IS
PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT.
By accepting this Warrant certificate, each holder shall be bound by all of the
terms and provisions of the Warrant Agreement ( a copy of which is available on
request to the Company or the warrant Agent) as fully and effectively as if such
holder had signed the same.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring May 15, 2006 entitling the holder upon
exercise to receive shares of Common Stock of the Company (the "Common Stock"),
and are issued or to be issued pursuant to a Warrant Agreement dated as of
November 15, 1997 (the "Warrant Agreement"), duly executed and delivered by the
Company to Firstar Bank of Minnesota, N.A., as warrant agent (the "Warrant
Agent"), which Warrant Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Warrant Agent, the Company and the holders (the worlds "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants.
Warrants may be exercised at any time from 9:00 a.m. on the date hereof to
5:00 p.m. New York, New York time on May 15, 2006. The holder of Warrants
evidenced by this Warrant Certificate may exercise them by surrendering this
Warrant Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the Exercise Price (i)
in United States dollars or (ii) by certified or official bank check payable to
the order of the Company or (iii) by tendering Notes having an Accreted Value
(as defined in the Indenture) at the time of tender equal to the Exercise Price
or (iv) by tendering Warrants having a Fair Market Value equal to the Exercise
Price or (v) with any combination of (i), (ii), (iii), or (iv) at the office of
the Warrant Agent. In the event that upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. No adjustment shall be made for any dividends on any Common Stock
issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
A-3
<PAGE>
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) hereon as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and the Company and the Warrant
Agent shall not be affected by any notice to the contrary.
A-4
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ________ shares of Common
Stock and herewith (check item) tenders payment for such shares to the order of
UIH Australia/Pacific, Inc. in the amount of $ _____ per share of Common Stock
in accordance with the terms hereof, as follows:
[_] $___________ in cash or by certified or official bank check to the
order of the Company;
[_] by surrender of Notes with an aggregate Accreted Value $______ ; or
[_] by surrender of Warrants having a Fair Market Value of $______.
Capitalized terms have the meanings assigned to such terms in the Warrant
Agreement.
The undersigned requests that a certificate for such shares be registered
in the name of __________________, whose address is ___________________________
and that such shares be delivered to __________________________ whose address
is _________________________________________.
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
_____________________, whose address is _______________________, and that such
Warrant Certificate be delivered to _______________________ , whose address is
__________________________________.
Date:
Your Signature: __________________________
(Sign exactly as your name appears on the
face of this Warrant)
Signature Guarantee:
____________________________
Signature Guaranteed
Participant in a recognized
Signature Guarantee
Medallion Program (or other
signature guarantor program
reasonably acceptable to the
Warrant Agent)
A-5
<PAGE>
ASSIGNMENT FORM
To assign this Warrant, fill in the form below: (I) or (we) assign and transfer
this Warrant to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________ to transfer this
Warrant on the books of the Company. The agent may substitute another to act for
him.
________________________________________________________________________________
Date: _____________________
Your Signature:
--------------------------
(Sign exactly as your name appears on the
face of this Warrant)
Signature Guarantee:
----------------------------------
Signature Guaranteed
Participant in a recognized
Signature Guarantee
Medallion Program (or other
signature guarantor program
reasonably acceptable to the
Warrant Agent)
A-6
<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,
November 6, 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,
November 6, 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,
November 6, 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
November 6, 1997
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-4
and in each Prospectus constituting part of this Registration Statement our
report dated March 15, 1996 on the financial statement of XYZ Entertainment Pty
Limited included in each Prospectus. We also consent to the reference to our
firm under the caption "Experts" in each Prospectus included in the Registration
Statement.
November 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, November 6, 1997
Coopers & Lybrand Tahiti
/s/ Jean-Pierre Gosse
-------------------------
Jean-Pierre GOSSE
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gene W. Schneider, Michael T. Fries and
J. Timothy Bryan, and each of them, his or her attorneys-in-fact, with full
power of substitution, for him or her in any and all capacities, to sign a
registration statement to be filed with the Securities and Exchange Commission
(the "Commission") on Form S-4 in connection with the registration by UIH
Australia/Pacific, Inc., a Colorado corporation (the "Company"), of its 14%
Senior Discount Notes due 2006, Series D (the "New Notes") to be exchanged for
the Company's existing 14% Senior Discount Notes due 2006, Series C, and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Commission; and to sign all documents in connection with the qualification and
sale of the New Notes with Blue Sky authorities; granting unto said attorneys-
in-fact full power and authority to perform any other act on behalf of the
undersigned required to be done in the premises, hereby ratifying and confirming
all that said attorneys-in-fact may lawfully do or cause to be done by virtue
hereof.
Date: October 30, 1997
/s/ Gene W. Schneider
------------------------------------
Gene W. Schneider
Date: October 30, 1997
/s/ Michael T. Fries
------------------------------------
Michael T. Fries
Date: October 30, 1997
/s/ J. Timothy Bryan
------------------------------------
J. Timothy Bryan
Date: October 30, 1997
/s/ Mark L. Schneider
------------------------------------
Mark L. Schneider
Date: October 30, 1997 /s/ Valerie L. Cover
------------------------------------
Valerie L. Cover
