UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 333-05017
UIH Australia/Pacific, Inc.
(Exact name of registrant as specified in its charter)
State of Colorado 84-1341958
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4643 South Ulster Street, #1300
Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 770-4001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The Company has no publicly-trading shares of capital stock. As of March 29,
1999, the Company had 17,810,249 shares of common stock outstanding.
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UIH AUSTRALIA/PACIFIC, INC.
1998 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
Number
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PART I
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Item 1. Business.................................................................................... 2
Item 2. Properties.................................................................................. 18
Item 3. Legal Proceedings........................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......................................... 19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 20
Item 6. Selected Financial Data..................................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 32
Item 8. Financial Statements and Supplementary Data................................................. 35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 35
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 56
Item 11. Executive Compensation...................................................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 62
Item 13. Certain Relationships and Related Transactions.............................................. 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 63
</TABLE>
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PART I
ITEM 1. BUSINESS
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(a) GENERAL DEVELOPMENT OF BUSINESS
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UIH Australia/Pacific, Inc. (the "Company") is a leading provider of
multi-channel television services in Australia, New Zealand and Tahiti. Through
its Australian operating companies CTV Pty Limited and STV Pty Limited
(collectively, "Austar"), the Company is the largest provider of multi-channel
television services in regional Australia, where it operates multi-channel
multi-point distribution systems ("MMDS") and markets a satellite-delivered
direct-to-home ("DTH") service in franchise areas encompassing approximately 2.1
million television homes, or 30.0% of the total Australian market. In addition,
the Company, through its 65.0%-owned New Zealand operating company Saturn
Communications Limited ("Saturn"), is constructing a wireline cable and
telephony system in and around Wellington, New Zealand, a market representing
approximately 141,000 television homes. The Company's other assets include a
25.0% interest in XYZ Entertainment Pty Limited ("XYZ Entertainment"), a
programming company that provides five channels to the Australian multi-channel
television market; up to a 90.0% economic interest in Telefenua S.A.
("Telefenua"), the only provider of multi-channel television services in Tahiti,
with MMDS in a market of 31,000 television homes; and a 100% interest in United
Wireless Pty Limited ("United Wireless"), an Australian company providing
wireless mobile data services primarily in Sydney and Melbourne.
The Company, a Colorado corporation and a wholly-owned subsidiary of UIH
Asia/Pacific Communications, Inc. ("UAP"), which is an indirect 98.0%-owned
subsidiary of United International Holdings, Inc. (together with all of its
subsidiaries other than the Company and the Company's subsidiaries, "UIH"), was
formed on October 14, 1994. Immediately prior to the May 1996 offering of the
Company's 14.0% senior discount notes due 2006 (the "May 1996 Notes"), certain
subsidiaries of UIH that held interests in Australia, New Zealand and Tahiti
were merged with and into the Company. The information in this annual report on
Form 10-K has been prepared 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,
New Zealand and Tahiti since inception. The Company, as presented in this
manner, commenced operations in January 1994 when UIH began its
development-related activities in the Asia/Pacific region. UIH transferred the
net assets of the above mentioned subsidiaries, including capitalized
development costs and investments in affiliated companies, to the Company. The
Company, in turn, reflected these transfers as capital contributions from the
parent company.
HISTORY OF ACQUISITIONS
In 1994, the Company acquired, through directly and indirectly held interests,
an effective 50.0% economic interest in two newly-formed companies that
constitute Austar. In December 1995, the Company acquired from other
shareholders of Austar an additional interest in Austar, thereby increasing its
total economic interest in Austar to 90.0%. In May 1996, as a result of
additional equity contributions, the Company's economic interest in Austar was
increased to 94.0%, which was subsequently increased to 96.0%. In October 1996,
the Company acquired the remaining 4.0% economic interest in Austar. In July
1998, Austar acquired certain Australian pay television assets of East Coast
Television Pty Limited ("ECT"), an affiliate of Century Communications Corp.
("Century"), for $6.2 million of UIH's newly-created Series B Convertible
Preferred Stock ("Series B Preferred Stock"). ECT's subscription television
business includes subscribers and certain MMDS licenses and transmission
equipment serving the areas in and around Newcastle, Gossford, Wollongong and
Tasmania.
In July 1994, the Company acquired a 50.0% interest in Saturn, which at the time
owned only a small cable television system outside of Wellington. Since the
Company's initial investment, Saturn has begun construction of a hybrid fiber
coaxial ("HFC") cable network planned to pass 141,000 homes in the greater
Wellington area. In July 1996, the Company acquired the remaining 50.0% interest
in Saturn in exchange for a 2.6% interest in the Company, which was exchanged
for a 2.0% interest in UAP in May 1997. In July 1997, SaskTel Holdings (New
Zealand) Inc. ("SaskTel") purchased a 35.0% equity interest in Saturn by
investing approximately New Zealand $("NZ$")29.9 million ($19.6 million) for its
shares (the "Saturn Transaction").
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In October 1994, the Company and Century formed XYZ Entertainment, each
retaining a 50.0% interest. In June 1995, the Company and Century formed the
50/50 joint venture Century United Programming Ventures Pty Limited ("CUPV") to
hold their investments in XYZ Entertainment. In September 1995, a 50.0% interest
in XYZ Entertainment was sold to a third party, thereby diluting the Company's
indirect interest in XYZ Entertainment to 25.0%. In September 1998, UAP (the
Company's parent) acquired the assets in CUPV held by Century.
In September 1995, the Company purchased a 100% interest in United Wireless. The
Company has since continued the development and funding of United Wireless'
business.
RELATIONSHIP WITH UIH
The Company is an indirect, 98.0%-owned subsidiary of UIH, a global broadband
communications provider of video, voice and data services with operations in
over 20 countries throughout the world. In addition to the Company, UIH's
operations include its interest in United Pan-Europe Communications N.V.
("UPC"), the largest privately-owned multi-channel television operator in
Europe, as well as its other investments in Europe, Asia and Latin America. As
of December 31, 1998, UIH's networks reached 9.4 million homes and served 4.4
million video subscribers, over 138,000 telephony access lines and 20,000
broadband data accounts.
ORGANIZATION OF COMPANY
The following chart summarizes the organizational structure of the Company. The
interests indicated below are summaries of the approximate direct and indirect
economic interests of the Company in its principal businesses. Some of the
Company's interests in such operating companies are held through various
partnerships and holding companies and the Company's voting rights with respect
to certain of such operating companies differ from the economic interest
indicated in the chart. See Item 1(c) "Corporate Organizational Structure."
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UIH Australia/Pacific, Inc.
Operating Ownership
System Principal Business Percentage
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Austar Regional Australia, MMDS and DTH multi-channel systems 100.0%
United Wireless Australia, wireless mobile data services 100.0%
Telefenua Tahiti and Moorea, MMDS 90.0%
Saturn Greater Wellington, New Zealand area, wireline cable/telephony system 65.0%
XYZ Entertainment Australian programming 25.0%
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(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
The Company operates in the multi-channel television and telecommunications
industry through investing in, acquiring and managing multi-channel television,
telephony and programming operations. The Company's reportable segments are the
primary countries in which it operates: Australia, New Zealand and Tahiti. These
reportable segments are managed separately because each country presents
different marketing strategies and technology issues as well as distinct
economic climates and regulatory constraints. For additional information
applicable to this Item, see Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 13 to the consolidated
financial statements contained in Item 8 "Financial Statements and Supplementary
Data."
(c) NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
OVERVIEW
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 and markets a DTH service in
franchise areas encompassing approximately 2.1 million television homes, or
30.0% of the total Australian market. In addition, the Company, through its
65.0%-owned New Zealand
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operating company Saturn, is constructing a wireline cable and telephony system
in and around Wellington, New Zealand, a market representing approximately
141,000 television homes. The Company's other assets include a 25.0% interest in
XYZ Entertainment, a programming company that provides five channels to the
Australian multi-channel television market; up to a 90.0% economic interest in
Telefenua, the only provider of multi-channel television services in Tahiti,
with MMDS in a market with 31,000 television homes; and a 100% interest in
United Wireless, an Australian company providing wireless mobile data services
primarily in Sydney and Melbourne.
The Company believes that it is well-positioned to capitalize on the rapidly
increasing demand for multi-channel television and telephony services in
Australia and New Zealand. As of December 31, 1998, excluding project-level
financing, the Company had invested $380.8 million in its networks and operating
infrastructure and had launched service in each of its markets. As of December
31, 1998, the Company's multi-channel television operating systems had an
aggregate of approximately 2.1 million television homes serviceable and
approximately 301,000 subscribers, compared to approximately 1.6 million
television homes serviceable and approximately 206,000 subscribers as of
December 31, 1997 (with a substantial majority of such growth resulting from
Austar's expansion). During this same period, programming subscribers of XYZ
Entertainment increased from approximately 577,000 at December 31, 1997 to
approximately 700,000 at December 31, 1998. While the Company expects that a
substantial portion of its expected growth will come from the continued
development of Austar, the Company is also anticipating significant growth by
its New Zealand multi-channel television and telephony business and its
programming business, each of which the Company believes has attractive growth
prospects.
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The following table sets forth certain unaudited operating data:
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As of December 31, 1998
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Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Serviceable Lines Penetration Interest
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Multi-channel TV Subscribers:
Austar......................... 2,085,000 2,083,108 288,721 13.9% 100.0%
Saturn......................... 141,000 40,950 6,010 14.7% 65.0%
Telefenua...................... 31,000 20,128 6,125 30.4% 90.0%
--------- --------- -------
Total........................ 2,257,000 2,144,186 300,856
========= ========= =======
Telephony Lines:
Saturn (1)..................... 141,000 35,935 7,360 20.5% 65.0%
========= ========= =======
Programming Subscribers:
XYZ Entertainment.............. N/A(2) N/A 699,867(3) N/A 25.0%
========= ========= =======
As of December 31, 1997
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Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Serviceable Lines Penetration Interest
------------ ----------- ------------ ----------- ---------
Multi-channel TV Subscribers:
Austar......................... 1,635,000 1,589,000 196,205 12.3% 100.0%
Saturn......................... 141,000 23,518 3,059 13.0% 65.0%
Telefenua...................... 31,000 20,128 6,304 31.3% 90.0%
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Total........................ 1,807,000 1,632,646 205,568
========= ========= =======
Programming Subscribers:
XYZ Entertainment.............. N/A(2) N/A 577,205(3) N/A 25.0%
========= ========= =======
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(1) In April 1998, Saturn launched business and residential telephony
services in the Wellington, New Zealand area.
(2) The Company expects that XYZ Entertainment's programming package will
be marketed to virtually all of Australia's 6.5 million television
households by Australian multi-channel television providers.
(3) This figure represents the total estimated subscribers to the
five-channel XYZ Entertainment package.
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AUSTAR (AUSTRALIA)
Austar is the largest provider of multi-channel television services in regional
Australia. Austar's market of 2.1 million homes in Australia represents
households outside Australia's six largest cities. Austar experiences
competition for pay television services in only 3.0% of its market.
In 1998, the pay television industry in Australia underwent significant upheaval
brought about by the bankruptcy of Australis Media Limited ("Australis").
Speculation surrounding Australis' financial condition early in the year
culminated in this company being placed in the hands of receivers in May 1998.
Austar had received the majority of its basic programming channels through
Australis ("the Galaxy package") and had also relied on Australis for the
provision of a satellite signal to its subscribers. Following the collapse of
Australis, new program contracts were negotiated directly with program suppliers
and a joint venture was negotiated with Cable and Wireless Optus Limited
("Optus") for the provision and operation of a satellite platform.
Another significant event was Austar's purchase of ECT in July 1998 consisting
of approximately 9,000 subscribers as well as various transmission equipment and
MMDS licenses. Furthermore, Austar was able to access an additional 0.5 million
households located in ECT's operating area on the east coast of Australia and in
the state of Tasmania. Austar began sales and marketing initiatives in these
regions in August 1998.
OPERATING AND GROWTH STRATEGY. Due to the relatively small size and low housing
densities, which characterize Austar's markets, Austar is primarily utilizing
MMDS and DTH wireless technologies to deliver its service. In its metropolitan
markets, Austar offers both an MMDS service and a DTH service (where the MMDS
signal cannot be received). Austar constructs and owns the MMDS transmission
facilities and installs and retains ownership of all the in-home subscriber
equipment. In its non-metropolitan markets, Austar is marketing only the DTH
service and installs and retains ownership of the in-home subscriber equipment.
Approximately 70.0% of the television homes in Austar's service area are in
metropolitan markets with sufficient size and density 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
services. Because MMDS service is less expensive to install than DTH, Austar
services customers in these metropolitan markets with its MMDS service whenever
possible. Approximately 30.0% of homes in these metropolitan markets, however,
are out of the line of sight of Austar's MMDS networks. There are less densely
populated areas outside its metropolitan markets that are more effectively
serviced by DTH technology. In addition, Austar has constructed a wireline cable
network in Darwin, a market containing approximately 27,000 serviceable homes,
where dense vegetation makes an MMDS service impractical.
The deployment of MMDS networks in combination with DTH has allowed Austar to
roll out its service quickly and achieve rapid subscriber growth. Austar
believes that the ability to be the first provider of multi-channel television
services in its markets has allowed it 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.
See "Austar - Competition."
As of December 31, 1998, Austar had launched service in all of its metropolitan
and non-metropolitan markets. The following table sets forth the summary
operating statistics in Austar's markets:
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As of December 31,
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1998 1997 1996
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Homes in service area:
Metropolitan homes.................... 1,527,000 1,103,000 997,000
Non-metropolitan homes................ 558,000 532,000 532,000
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Total............................... 2,085,000 1,635,000 1,529,000
========= ========= =========
Net annual gain in basic subscribers.... 92,516 92,758 98,243
Total basic subscribers................. 288,721 196,205 103,447
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Austar has entered into contracts with a number of service companies to install
MMDS receivers, DTH satellite dishes and set-top decoders.
Currently, variable installation and equipment costs for each MMDS and DTH
subscriber are approximately $378 and $648 per subscriber, respectively. These
subscriber costs are partially offset by the Company's metropolitan and
non-metropolitan installation charges of $10 to $50 and $75, respectively.
Austar retains ownership of all MMDS and DTH customer premises equipment.
PRICING. In September 1998, Austar began tiering the services provided to its
customers. The ability to tier the majority of channels became available
following the collapse of Australis through which Austar had previously
purchased programming. The Company believes Austar's ability to tier services is
a valuable tool in ensuring its product meets customer value expectations, as
they are able to select programming in accordance with their interests. Tiering
also provides customers with a lower basic entry point that both enhances sales
opportunities and helps reduce the level of customer churn. At December 31,
1998, Austar's pricing was:
MMDS DTH
A$ A$
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Basic Service........................ 31.95 35.95
Movie Tier........................... 10.95 10.95
World Movies......................... 6.95 6.95
Adults Only (Pay per Night).......... 6.95 6.95
Pay-per-View Events.................. 24.95 24.95
MARKETING; CUSTOMER SUPPORT. Austar has focused its marketing and sales efforts
to support its strategy of rapid penetration of its markets. Austar has
developed a comprehensive marketing and sales organization consisting of an
average of over 250 direct sales representatives and over 250 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 over 3,000 subscriptions per week. The sales force at
Austar's National Customer Operations Centre ("NCOC") is currently generating
sales of approximately 3,250 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. Incoming calls from all of Austar's markets are
directed to the NCOC where customer service representatives provide sales and
service information. The NCOC currently handles an average of approximately
5,000 calls per day but has scalable capacity to handle at least 7,000 calls per
day. The NCOC facility currently employs over 250 customer service
professionals, which Austar intends to increase as its subscriber base grows in
its franchise areas.
Austar's monthly "churn" (calculated as total disconnects as a percentage of
average subscribers) averaged 3.9% during 1998, 4.2% during 1997 and 5.4% during
1996. Austar believes that this ratio is likely to continue to decline in the
future, although there can be no such assurances. Factors which Austar believes
will contribute to the decline in customer churn include: the continued
enhancement of the price value relationship as more content is added and the
existing content improves, the tiering of services and tailoring packages to
customers, a further reduction in the level of product sampling in a maturing
market, the introduction in 1998 of customer contracts and improved customer
communications combined with loyalty programs.
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PROGRAMMING. Following the Australis bankruptcy, Austar was able to negotiate
new program contracts with existing and new program suppliers. This gave Austar
the ability to enhance the program line-up and tier services. To promote this
initiative, a re-launch of Austar's service took place in October 1998. Since
the re-launch, Austar's basic DTH package consists of the following channels:
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Channel Programming Genre
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Fox Sports I....................... sports
Fox Sports II...................... sports/exclusive Rugby League games
TV-1............................... general entertainment
Discovery.......................... documentary, adventure, history & lifestyle
Nickelodeon/Nick at Nite........... children's and family entertainment
Arena.............................. general entertainment
Channel [V]........................ music video
Lifestyle.......................... personal and home improvement
Thecomedychannel................... comedy
Weather 21 (1)..................... weather station
BBC World (1)...................... world news
CNBC............................... business news
CNN International.................. international
Sky Racing......................... horse racing
National Geographic................ documentaries
TNT (1)............................ library movies
Cartoon Network.................... cartoons
CMT................................ country music videos
TVSN (1)........................... shopping
Main Attraction (1)................ pay-per-view events
The following programming is available on various tiered bases:
World Movies....................... foreign language
Adults Only (1).................... adult viewing
Showtime........................... premium feature movies
Encore............................. library movies (covering 60's, 70's, 80's & classics)
Movie One (1)...................... premium feature movies
Movie Extra (1).................... premium & library movies
Movie Greats (1)................... library movies
Movie Vision....................... premium and classic movies
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Austar also offers an eight-channel "Digital Radio" service to its DTH
customers.
(1) Not available to MMDS subscribers.
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FOXTEL PROGRAMMING AGREEMENT. In May 1998, Austar and Foxtel Management Pty
Limited ("Foxtel") negotiated a programming agreement with a term ending
December 2007. Under the Foxtel Programming Agreement, Foxtel provides Austar
with TV-1, Showtime and Encore. Showtime and Encore broadcast new release and
classic movies (from the film libraries of Fox Studios, Paramount Pictures,
Sony/Columbia and Universal Studios) and are purchased as a package. The
programming rights are exclusive to Austar throughout its service region (except
for cable subscribers). In a separate agreement with Foxtel, two sports
channels, Fox Sports I and II, are purchased. Fox Sports is a joint venture with
Fox and Liberty Sports, and provides coverage of both international and local
sporting events. Fox's live sports programming includes rights to certain
international cricket and live/delayed telecast rights to Rugby League, Rugby
Union, English Premier League (and other European/Global soccer), as well as the
National Australian Basketball League, US Major League Baseball, NBA and NFL.
OPTUS PROGRAMMING AGREEMENT. Austar currently sources Movie Vision under a
program supply agreement with Optus Vision Pty Limited ("Optus Vision") which
consists of three 24-hour channels comprising premium and classic movies from
MGM, Disney, Warner and Dreamworks. The agreement expires 2007 and is on a
non-exclusive basis.
SATELLITE PLATFORM JOINT VENTURE. Prior to 1998, Austar had contracted with
Australis by way of a franchise agreement for the majority of its basic
programming channels and for the provision of a satellite signal to its
subscribers. Australis had in turn contracted with Optus Network Pty Limited
("Optus Network") for the use of transponders on the Optus B3 satellite. The
Optus B3 satellite has 15 transponders, 7 of which deliver high performance
digital beams with the capacity to deliver up to 14 digital pay television
channels. In anticipation of Australis's collapse, UIH held negotiations with
Optus Network for the establishment and operation of a satellite platform joint
venture. During 1998, when Australis went into receivership, satellite
transmission platforms were effected without any loss of signal to Austar's DTH
or MMDS subscribers. Futhermore, in the later half of 1998, the Satellite
Platform Joint Venture successfully negotiated an agreement which would allow
Foxtel to become a customer of the joint venture. In practice, the management of
the platform is conducted jointly among UIH, Optus Network and Foxtel. A
contract for the establishment and management of the Satellite Platform
encompassing all three parties was signed in December 1998.
OTHER AUSTAR PROGRAMMING. Austar purchases five channels from XYZ Entertainment.
The five channels are Discovery, Nickelodeon, Lifestyle, Channel [V] and Arena.
XYZ Entertainment's program suppliers include Fox, Viacom, Discovery
Communications and Nickelodeon. Additional programming is sourced from a number
of independent sources, and includes CMT, CNN, TNT, Sky Racing and
Thecomedychannel. This programming is sourced at price levels the Company
believes are competitive. In addition, UIH has established separate joint
ventures for the production and supply to Austar of a weather (Weather 21) and
adults only channel.
The programming agreements with Foxtel, Optus Vision, XYZ Entertainment and
other distributors provide Austar subscribers access to all available
significant programming content in Australia. The Company believes that both
Foxtel and Optus Vision derive significant benefits from their relationship with
Austar, including their ability to receive programming revenues without build-
out costs and an ability to meet their own minimum subscriber targets under
certain programming agreements.
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 kilometre in Australia's largest cities). As a
result, Austar believes that its metropolitan markets generally do not have
sufficient density to justify the construction of competitive wireline cable
systems. While the Company believes household densities could potentially
support wireline cable construction in areas representing approximately 20.0% of
Austar's total franchise homes, the relatively small size of these markets
reduces the attractiveness of constructing a competitive cable network. In
addition, Austar, as a licensed subscription television provider, is authorized
to build wireline cable systems in its markets and, where appropriate, could
construct wireline cable systems.
With the exception of the Foxtel cable television system currently extending
into Austar's 116,000-home Gold Coast metropolitan market, Austar does not
currently have any operational subscription television competitors in its
markets. At December 31, 1998, Austar had 23,000 subscribers in the Gold Coast
and estimates that Foxtel has 13,000 subscribers in this market.
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Approximately 558,000 of Austar's 2.1 million franchise homes are in
non-metropolitan markets that 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. Austar has the
exclusive right from its programming suppliers to market key movie, sports and
general entertainment programming in these non-metropolitan markets. In
addition, Austar believes it has an additional competitive advantage in offering
DTH service in these markets because over 50.0% of its serviceable homes are
within a 50 kilometer radius of its metropolitan markets, where it has available
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.
MANAGEMENT AND EMPLOYEES. Austar's senior management includes five UIH
employees. 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 5.0% of its gross revenues through
the term of the agreement, for the provision of various management and technical
services. In addition, Austar reimburses UIH for certain direct costs incurred
by UIH, including the salaries and benefits relating to the senior management
team.
As of December 31, 1998, Austar had over 700 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 65.0% of Saturn, which launched service on the initial portions
of its HFC network that will allow it to provide multi-channel television
services as well as business and residential telecommunications services in the
greater Wellington area, encompassing 141,000 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 late
1999. Saturn launched a full complement of telephone services to both
residential and business markets in April 1998. As of December 31, 1998,
Saturn's activated networks passed approximately 41,000 homes and provided
service to approximately 13,000 subscribers, including cable and telephone. In
addition, Saturn has secured additional rights to use existing poles to attach
its network cable in markets representing 500,000 homes, subject to local
planning approval, and is exploring the possibility of expanding its networks
and services to these markets.
MARKET OVERVIEW. The Company believes that New Zealand, a market of 1.2 million
homes, is attractive for a new local operator that can provide combined video,
voice and data services over a high bandwidth network. New Zealand has a
demographic profile similar to Australia including high per capita income and
strong television, VCR, PC and cellular telephone penetration rates. Wellington
City has over 50.0% PC penetration and over 20.0% of homes subscribing to the
internet. In addition, New Zealand imposes virtually no pricing regulation and
only limited program content regulation and permits operators to offer combined
and bundled multi-channel television, telephony service and internet access over
one network. There is currently only one significant multi-channel television
provider that offers a five-channel UHF-delivered subscription service and one
other local phone service provider.
OPERATING AND GROWTH STRATEGY. Saturn is constructing a 750MHz HFC network
designed to service 500 homes per node with each home drop overlaid with copper
telephony plant. This architecture allows the integrated delivery of pay
television, telephony, internet access, high speed data and future interactive
services. The majority of Saturn's plant, approximately 1,600 kilometers, will
be constructed on aerial utility poles which generally allow for quicker and
more cost-effective network construction than underground wireline. In addition,
because Wellington zoning generally permits only a single additional
communications cable on its aerial utility poles, Saturn's status as first
operator on such poles may limit use of these poles by other communications
providers. Saturn has an interconnect agreement that allows it to provide local
residential and business telephone services. Because the only significant
multi-channel television competitor in the Wellington market offers a
UHF-delivered service that is limited to only five channels, and an expensive 20
channel satellite service, management believes it will be able to build a
significant customer base by offering an attractive basic programming line-up of
10
<PAGE>
over 25 channels at competitive prices, as well as pay-per-view movies, local
and long distance telephony services and internet services. Saturn also provides
local and long distance telephone service to business customers as well as
enhanced services such as Centrex and a cable modem service. By bundling
subscription television, telephony and internet services, Saturn is able to
offer pricing discounts across all services, which is proving to be a key
competitive advantage over competitors that offer only one of these services.
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 25 channels and 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>
TV1, TV2, TV3, TV4................. general entertainment (retransmitted)
ONTV............................... Saturn community channel
BBC World.......................... world news
CNBC............................... world financial news
CNN International.................. world news
MCM................................ music video
Discovery.......................... science and nature
National Geographic................ culture and nature
Animal Planet...................... animal entertainment
TNT................................ classic movies
Cartoon Network.................... children's cartoon programming
Trackside.......................... TAB racing
Kidzone............................ local children's programming
Weather Channel.................... live weather from NZ MetService
Program Guide...................... programming line-up
TVSN............................... shopping
CMTV............................... country music video
Elijah Television.................. non-denominational religious programming
Worldnet........................... U.S. information service news and science
Saturn SportsNet................... local/international sports
The Golf Channel................... 24 hours of golf events/news
Saturn Showcase.................... Saturn programming channels (split screen)
</TABLE>
Saturn also offers 19 channels of new release pay-per-view ("PPV") movies,
branded Saturn Home Cinema provided by four leading Hollywood studios. Saturn
has been achieving over 100% PPV buy rates per subscriber.
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<PAGE>
TELEPHONY SERVICES. Saturn offers a full, feature rich telephone service that is
a competitive alternative to Telecom New Zealand ("Telecom"), the incumbent
telephony provider.
Residential Services:
---------------------
Local access
Long distance
Full suite of switched based features (e.g., voicemail, call waiting,
last number dialed, etc.)
Dial-up internet access
Business Telephony Services:
----------------------------
Local access
Long distance service
Full suite of switch based features
Centrex services
High speed cable modem service
PRICING. With its unique bundle of services, Saturn can offer a number of
attractive multiple service bundles, ranging from an entry level package of
cable television service, plus local telephone access and free local calls, for
NZ$27 per month to a package of two telephone lines (free local calls), cable
television service and unlimited internet usage for NZ$53 per month. Saturn is
able to offer a savings of 30.0% based on a customer buying the services from
multiple providers. These bundles are proving a very effective means to drive
penetration and increase revenue per home. Sky TV ("Sky"), Saturn's primary
competitor, charges subscribers a monthly rate of approximately NZ$31 for five
channels of UHF programming with a one-time installation fee of NZ$29 per
subscriber. Sky's digital satellite service is more expensive and has an
installation fee of NZ$350. Saturn's residential and business telephony services
are priced 10.0% to 15.0% below Telecom's standard rates even though Telecom is
offering range discounts. The Company believes that Saturn's internet rates are
some of the most price competitive in the country.
MARKETING; CUSTOMER SUPPORT. Saturn's marketing strategy uses promotion
techniques proven in existing subscription television markets such as the U.S.
and Europe, including direct sales campaigns (door-to-door selling), direct mail
and telemarketing supported by a mass media brand awareness program. Saturn
already enjoys very high and positive brand awareness in the market. There is
considerable interest in purchasing its products and services. Direct sales have
proven to be the most effective technique in other new build markets,
particularly in areas where multi-channel television is in its introductory
stage. Each of these techniques aims to communicate the selling points of the
telephone service, cable television and internet services and in particular the
advantages of purchasing multiple services from one provider. Homes are released
for marketing on a node by node basis as construction is completed, which allows
for 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 the bundled offering and to capitalize on the value,
quality and customer service advantages associated with a one-stop service
provider. Saturn has established a national customer services center at its
corporate headquarters in Wellington. The 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 the sales force in a targeted sales approach in future
marketing campaigns.
COMPETITION. Saturn's major telephony competitor is Telecom, New Zealand's
largest telecommunications service provider with nearly a 100% share of local
loop revenues, 75.0% of national and international toll revenues and 90.0% of
cellular revenues. During 1996 and 1997, Telecom constructed an HFC network to
70,000 homes in various parts of New Zealand and began offering a pay TV
service. In 1998, Telecom discountinued its pay television service and Telecom
now appears to be pursuing an asymmetrical digital subscriber line ("ADSL")
strategy for high speed internet access.
There are currently four broadcast networks in New Zealand as well as several
other free-to-air regional channels. The largest provider of subscription
television services in New Zealand is Sky, which operates a five-channel
encrypted UHF subscription television service and has recently launched a
20-channel digital satellite service. Although Sky offers a popular sports
channel on an exclusive basis, the Company believes Sky does not currently offer
value and programming diversity or television/telephony bundling that Saturn
offers.
12
<PAGE>
MANAGEMENT AND EMPLOYEES. UIH has appointed three of its employees to senior
management positions at Saturn including Saturn's chief executive officer.
Saturn reimburses UIH for certain direct costs incurred by UIH, including the
salaries and benefits relating to these senior management positions. In
addition, Saturn and UAP are parties to a technical assistance agreement,
pursuant to which Saturn pays UAP a monthly fee equal to 2.5% of its gross
revenues for the provision of various technical, administrative and operational
services.
As of December 3l, 1998, Saturn had approximately 260 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 ENTERTAINMENT (AUSTRALIAN PROGRAMMING)
In October 1994, the Company and Century formed XYZ Entertainment, each
retaining a 50.0% interest. In June 1995, the Company and Century formed the
50/50 joint venture, CUPV, to hold their investments in XYZ Entertainment. In
September 1995, a 50.0% interest in XYZ Entertainment was sold to a third party,
thereby diluting the Company's indirect interest in XYZ Entertainment to 25.0%.
In September 1998, UAP (the Company's parent) acquired the assets in CUPV held
by Century.
Through its interest in XYZ Entertainment, the Company provides five channels
(the "XYZ Channels") which consist of the following:
<TABLE>
<CAPTION>
Channel Programming Genre
------- -----------------
<S> <C>
Discovery................................................ documentary, adventure, history and lifestyle
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 and
library movies
Lifestyle................................................ personal and home improvement
</TABLE>
XYZ Entertainment provides the XYZ Channels to a subsidiary of Austar, which in
turn supplies them to Austar and Foxtel. The XYZ Channels are available to the
majority of Australia's approximately six million television households,
including all households marketed via MMDS and DTH by Austar and Foxtel. The XYZ
Channels are also distributed to Foxtel for cable distribution pursuant to a
carriage agreement between Foxtel and Austar that has been warranted to XYZ
Entertainment as having a term through 2020. XYZ Entertainment's agreement with
Austar provides for fixed per subscriber prices. The Company understands the
cable carriage agreement between Austar and Foxtel provides for substantial
minimum subscriber guarantees. XYZ Entertainment currently receives monthly
revenues of $3.15 per MMDS or DTH subscriber and $4.15 per Foxtel cable
subscriber. Austar also has an agreement for the distribution of the XYZ
channels to Optus Vision, although distribution has yet to commence. As of
December 31, 1998, the XYZ Channels were distributed to approximately 700,000
multi-channel television subscribers.
OPERATING AND GROWTH STRATEGY. XYZ Entertainment 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 manages Arena
and the Lifestyle channel; the Company and Foxtel manage Channel [V]; and the
Company, together with Nickelodeon Australia, Inc. ("Nickelodeon"), manage the
Nickelodeon/Nick at Nite channel. Each of these channels reports to a board
comprised of the Company and Foxtel executives. The Discovery Channel is managed
by Discovery Asia and distributed by XYZ Entertainment.
XYZ Entertainment is focusing its marketing efforts on creating, building and
supporting channel identification and brand awareness. XYZ Entertainment's goal
is to acquire quality programming that will engender viewer loyalty. In
addition, XYZ Entertainment offers advertising on each of the XYZ Channels.
13
<PAGE>
ACQUISITION OF PROGRAMMING. In July 1995, XYZ Entertainment and Discovery Asia
executed a 12-year exclusive carriage agreement whereby a localized version of
the Discovery Channel replaced the existing documentary channel developed by XYZ
Entertainment. The Company believes that as a result of this arrangement, XYZ
Entertainment is able to offer subscribers higher quality programming at a lower
cost to XYZ Entertainment. XYZ Entertainment and Nickelodeon, a division of
Viacom, are jointly producing and distributing an Australian version of
Nickelodeon/Nick at Nite, which XYZ Entertainment began distributing in October
1995. XYZ Entertainment pays a monthly per subscriber license distribution fee
that is shared equally by Nickelodeon and XYZ Entertainment. XYZ Entertainment
acquires programming and produces interstitials for Arena, Lifestyle and Channel
[V]. XYZ Entertainment has acquired a supply of programming for Arena and
Lifestyle at prices its management considers to be favorable. XYZ Entertainment
is pursuing supply agreements and potential joint venture arrangements with a
number of other international programming suppliers.
In March 1997, XYZ Entertainment 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
Entertainment's music video channel under a license arrangement with the
international music video channel, Channel [V]. The arrangement, which has a
10-year term, allows XYZ Entertainment to use the Channel [V] trademarks,
interstitial materials and management and gives it access to Channel [V]'s
favorable record programming arrangements. XYZ Entertainment has agreed to pay a
management fee of approximately $0.7 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 5.0% for the third through the tenth years. After the third
year, CVMN shall have a one-year option to acquire a 20.0% interest in Channel
[V] at a price equal to XYZ Entertainment'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 December 31, 1998, XYZ Entertainment had 79 employees and the
Nickelodeon joint venture had 21 employees. The programming joint venture, CUPV,
had 14 employees who provided management services to XYZ Entertainment.
TELEFENUA (TAHITI)
The Company has an up to 90.0% economic interest in Telefenua, which operates a
16 channel MMDS in a franchise area that, as of December 31, 1998, included
approximately 20,000 serviceable homes. Telefenua is currently expanding its
network by selectively adding beam benders and repeaters that will allow its
signal to reach substantially all of the approximately 31,000 homes in its
franchise areas. Telefenua had approximately 6,100 subscribers as of December
31, 1998, representing a 30.4% penetration rate. The Company is in litigation
with its partners. During the fourth quarter of 1998, the Company determined it
had suffered an other-than-temporary loss of control over Telefenua, which
resulted in the deconsolidation of Telefenua at that time. See Item 3 "Legal
Proceedings".
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, 99.0% and 66.0%, 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.
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. 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. UAP and Telefenua are parties to a technical
assistance agreement, whereby UAP has agreed to provide technical,
administrative and operational assistance to Telefenua for reimbursement of
expenses and a fee equal to 2.0% of Telefenua's gross revenue. Telefenua also
has a similar technical assistance agreement with the Societe Francaise des
Communications et du Cable S.A. ("SFCC"), Telefenua's immediate parent. Although
UAP has assumed all of SFCC's rights and obligations under this agreement, SFCC
is still entitled to receive from Telefenua 0.5% of Telefenua's gross revenues
14
<PAGE>
through the term of the agreement. The Company and Telefenua are currently in a
dispute concerning services to be provided under the technical assistance
agreement. See Item 3 "Legal Proceedings".
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
The Company owns a 100% economic interest in United Wireless which operates a
nationally linked public wireless data network in Australia. United Wireless
holds a unique position in the Australian market place as the only dedicated
owner and operator of a packet-switched wireless data network.
BACKGROUND. The United Wireless network operates on Mobitex packet-switched
technology, developed and licensed by Ericsson. Mobitex is a packet-switched
technology designed specifically for data transmission. Today there are 24 other
Mobitex public networks in operation throughout the world in addition to a
number of private networks.
MARKET OVERVIEW. Australia has a rapidly expanding telecommunications markets,
though most activity is in wireless voice communications, rather than data.
Today there are two carriers operating wireless data networks, United Wireless
and Telstra. There are also three carriers operating GSM voice networks which
indirectly compete with United Wireless in the wireless data industry.
OPERATING AND GROWTH STRATEGY. The United Wireless network covers all
metropolitan areas of Australia's mainland cities and major regional centers.
Currently, United Wireless has deployed 25 base stations and is deploying
additional stations over the next 12 months to increase its geographic coverage
as well as addressing "black-spots" in existing coverage. United Wireless'
network will cover an estimated 85.0% of the Australian population by the end of
1999.
MARKETING AND CUSTOMERS. United Wireless' targeted vertical markets are the
transportation industry for fleet management requirements and the utility, fire
and vending industries for fixed telemetry applications, including remote
monitoring and reading of meters, fire panels, vending machines and other
similar applications.
REVENUE AND PRICING. The majority of United Wireless' revenues to date has been
on modem sales, connection revenues and monthly access and usage fees charged on
a per terminal basis. The average telemetry customer pays approximately $17 per
subscriber per month whereas in the transportation industry the average monthly
revenue is approximately $56 per subscriber per month.
SALES. United Wireless has sales teams in Sydney, Melbourne and Brisbane whose
approach has a two-pronged focus. The first are end-users in the transportation,
utilities, fire and vending industries. United Wireless approaches these
end-users with turn-key solutions for their wireless data communications
requirements with system integrators brought in afterwards as value added
partners to install, integrate and manage the end-solution. The second sales
approach is to target and recruit systems integrators as value added partners
who would act as the primary interface with potential customers. These system
integrators develop specific customer applications which utilize United
Wireless' network for their data transmission requirements.
COMPETITION. United Wireless believes that the Mobitex network technology
provides certain advantages over other operating platforms including the
following: (i) superior transmission quality and over-air data integrity, (ii)
broader redundancy and security capabilities, (iii) larger base station coverage
areas, (iv) lower maintenance and support requirements and (v) reduced
communication costs associated with packet wireless technology.
In Australia, GSM is the major wireless network technology that competes with
United Wireless. At present three carriers operate GSM networks - Telstra, Optus
and Vodafone - and a fourth carrier, One Tel will be entering the market in the
next twelve months. All, however, market their wireless data capabilities as a
secondary focus to their voice capabilities.
Telstra is the only other operator of a packet-switched data network in
Australia, offering the DataTAC network. DataTAC focuses on electronic funds
transfer at point of sale ("EFTPOS") as its core business and does not compete
with United Wireless in its core transportation market or in its telemetry
markets.
15
<PAGE>
In the transportation market, United Wireless also competes against traditional
trunk radio networks, although United Wireless has an inherently superior
technology for the transmission of data, especially where global position
systems ("GPS") based requirements are specified.
MANAGEMENT AND EMPLOYEES. UAP and United Wireless are parties to a technical
assistance agreement, pursuant to which UAP has agreed to provide technical,
administrative and operational assistance to United Wireless and UAP receives a
management fee equal to 5.0% of the gross revenue of United Wireless through
December 2007. UIH has appointed the Chief Executive Officer of United Wireless,
pursuant to the terms of this agreement. All costs related to the employment of
this individual are reimbursed to UIH by United Wireless.
As of December 31, 1998, United Wireless had 21 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 as follows: (i) 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 MMDS
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 Network 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 Network Satellite footprint. Since this signal will be
transmitted at a high power level and frequency utilizing MPEG II digital
technology, its reception can be accomplished with a relatively small (26-35
inch) dish mounted on a rooftop or in the yard for the households located within
the innermost satellite transmission footprint and with a slightly larger (35-47
inch) dish for the households located outside the innermost footprint. Austar is
using DTH transmission technology for homes in its MMDS markets that are not
reachable by its MMDS signals as well as for homes in its franchise areas where
household densities do not support the construction of MMDS systems. Due to
satellite coverage limitations, DTH service is currently not available in
Tahiti. In New Zealand, Sky launched satellite services to New Zealand via the
Optus Network Satellite in the second half of 1998.
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 an 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.
16
<PAGE>
EMPLOYEES
The Company has no employees. Certain management, technical, administrative,
accounting, tax, legal, financial reporting and other services for the Company
are currently provided by UIH and UAP pursuant to the terms of a management
agreement. In addition, UIH supplies certain employees to Austar, Saturn and
United Wireless pursuant to technical assistance agreements with such operating
companies. See Item 13 "Certain Relationships and Related Transactions."
CORPORATE ORGANIZATIONAL STRUCTURE
The Company is a holding company with no operations of its own. The Company
holds majority economic interests in all of its operating companies other than
XYZ Entertainment. Below is a summary of the Company's ownership interests in
its operating companies.
AUSTAR
The Company holds a combined 100% economic interest in Austar, through direct
and indirect holdings of convertible debentures and ordinary shares. The Company
holds approximately 15.0% of the ordinary shares of Austar, which accounts for
an approximately 0.3% economic interest. The Company holds all of Austar's
convertible debentures, which accounts for an approximately 97.8% economic
interest. In addition, through the Company's holdings of certain debentures of
Salstel Media Holdings Pty Limited ("SMH") and Salstel Media Investments Pty
Limited ("SMI"), which in turn hold ordinary shares of Austar, UAP has an
additional effective 1.9% economic interest. Through contractual arrangements
and pursuant to the terms of Austar's charter documents, the Company has the
right to appoint all of the six voting directors of each company.
SATURN
In 1994, the Company acquired a 50.0% interest in Saturn, a New Zealand
corporation. In July 1996, the Company acquired the remaining 50.0% interest in
Saturn in exchange for a 2.6% common equity interest in the Company, which was
exchanged for a 2.0% interest in UAP in May 1997. In July 1997, SaskTel
purchased a 35.0% equity interest in Saturn, reducing the Company's interest in
Saturn to 65.0%.
TELEFENUA
UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership wholly-owned by the
Company, is the general partner of a limited partnership (the "Partnership")
that owns 100% of the preferred stock of SFCC, representing approximately 40.0%
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 90.0% of the distributions made by SFCC
until UIH-SFCC has received the return of its investment plus a 20.0% cumulative
compounded annual return, 75.0% of distributions until it has received the
return of its investment plus a 40.0% cumulative compounded annual return and
64.0% of distributions thereafter. Once UIH-SFCC's total equity investment
exceeds $10.0 million, further equity investments would not be entitled to the
90.0% and 75.0% distributions. Instead, equity investments above $10.0 million,
to the extent not matched pro rata by the Company's partners, would increase the
64.0% that UIH receives after the preferential distributions are made on the
first $10.0 million. As of December 31, 1996, UIH-SFCC had also advanced $7.0
million as a bridge loan to SFCC, approximately $5.0 million of which was
converted into convertible debentures of SFCC, which are convertible into
preferred stock of SFCC. During 1997, UIH-SFCC converted approximately $3.2
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. The Company is involved in litigation with its
partners in the Partnership. During the fourth quarter of 1998, the Company
determined it had suffered an other-than-temporary loss of control over
Telefenua, which resulted in the deconsolidation of Telefenua at that time.
See Item 3 "Legal Proceedings".
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<PAGE>
UNITED WIRELESS
United Wireless is a wholly-owned subsidiary of the Company.
XYZ ENTERTAINMENT
The Company has an indirect 25.0% interest in XYZ Entertainment through its
50.0% interest in CUPV, an Australian corporation owned equally by the Company
and UAP. CUPV holds a 50.0% interest in XYZ Entertainment.
For a discussion of risks associated with foreign operations, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
----------------------------------------------------------------------------
For information applicable to this Item, see the notes to the consolidated
financial statements contained in Item 8 "Financial Statements and Supplementary
Data."
ITEM 2. PROPERTIES
- -------------------
The Company's executive offices are located in Denver, Colorado, in space leased
by UIH and provided to the Company through the UAP Management Agreement as
described in Item 13 "Certain Relationships and Related Transactions." In
management's opinion, these facilities are sufficient to meet the current and
foreseeable future needs of its operating companies.
Austar leases office space in Sydney for its administrative offices and has
established four regional offices in leased space in certain areas where it has
launched service. Austar also leases locations for smaller local offices in most
of its markets to handle local customer maintenance, marketing and installation.
In addition, Austar leases facilities to house the head-end facility and
transmitter tower in each of its markets. The NCOC is located in leased
facilities in the Gold Coast. Generally, these Austar facilities are leased with
terms of three to six years, with renewal options in many instances. Austar
believes that its leased facilities are sufficient for its foreseeable needs and
that it has access to a sufficient supply of additional facilities in its
various markets, should it require more space.
Saturn owns a head-end/switching and operations facility in Petone, located
north of Wellington. Saturn also leases office and warehouse facilities for its
headquarters in Petone. This lease expires in 2001 with a six-year renewal
option.
XYZ Entertainment currently uses a portion of Foxtel's broadcasting facilities
located in Sydney. XYZ Entertainment pays its proportionate share of Foxtel's
leasing costs (based on space utilized). The Company believes this arrangement
results in operational cost savings. XYZ Entertainment believes its facilities
are sufficient for the foreseeable future.
Telefenua owns office space in Punaania, Tahiti. This facility also contains the
customer service center and the head-end equipment for the system, including
equipment for the receipt of satellite delivered programming and local
broadcasts as well as play-back of taped programming. Telefenua compiles its
16-channel service at this facility and then transmits from its MMDS broadcast
tower located on the island of Moorea.
United Wireless leases corporate office space in Sydney and has a leased
regional sales office in Melbourne.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
Other than as described below, the Company is not a party to any material legal
proceedings, nor is it currently aware of any 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 (in French Polynesia) had legally
challenged the decree and authority of the Conseil Superieur de l'Audiovisuel
18
<PAGE>
("CSA") to award Telefenua the authorizations to operate an MMDS service 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
then brought an action in French court seeking cancellation of the MMDS licenses
awarded by the CSA to Telefenua. On November 25, 1998, the Conseil d' Etat
cancelled the MMDS licenses awarded to Telefenua. Telefenua is in the process of
seeking a new authorization. The Company has no reason to believe that a new
authorization will not be granted. If Telefenua does not obtain a new
authorization, 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 July 14, 1998, UIH SFCC filed a complaint in the United States District Court
for the District of Colorado, for damages for breach of contract, breach of
fiduciary duty and to enforce UIH SFCC's rights as General Partner in UIH SFCC
LP, a Colorado Limited Partnership which owns an interest in SFCC, the 100%
parent of Telefenua. The three defendants are Loic Brigato, Winfred Anderson and
Yoshiko Payne, limited partners of UIH SFCC LP. On September 27, 1998, UIH filed
a parallel action in the District Court for the State of Colorado. Specifically,
the complaints allege that the defendants have refused to abide by the terms of
the Partnership Agreement and have taken actions highly detrimental to
Telefenua. UIH SFCC seeks monetary damages, a decree of specific performance
requiring defendants to perform their obligations and a constructive trust over
defendants' partnership interest. Defendants have filed in the federal court
action a motion to dismiss the complaint for lack of subject matter
jurisdiction. There has been no decision issued as of this date. The Company
intends to vigorously defend its position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- --------------------------------------------------------------------------------
Upon its formation, the Company issued 100 shares of common stock to UAP's
predecessor. In July 1996, the Company issued 387 additional shares of common
stock to UAP as a stock dividend and 13 shares of common stock to Kiwi Cable
Company BVI, Inc. ("Kiwi") in exchange for Kiwi's 50.0% interest in Saturn. In
May 1997, UAP acquired the remaining 13 shares of the Company from Kiwi in
exchange for a 2.0% interest in UAP. At that time, UAP owned all of the 500
shares of issued and outstanding common stock of the Company. In November 1997,
the Company effected a stock split whereby the 500 shares of common stock then
outstanding were exchanged for 13,864,941 shares of common stock. On November
17, 1997, pursuant to the terms of the indentures governing the May 1996 Notes
and the September 1997 private placement of $45.0 million aggregate principal
amount of senior discount notes (the "September 1997 Notes") (collectively, the
"Notes"), the Company issued warrants to purchase a total of 488,000 shares of
its common stock to the holders of the Notes. Neither the common stock nor the
warrants are listed on any exchange. On October 14, 1998, the Company issued
3,945,308 shares of its capital stock to UAP (the "Equity Sale") related to
cumulative gross equity contributions to the Company of $70.0 million through
that date.
The Company has paid no cash dividends since formation. The Company is a holding
company with no independent operations of its own and, as such, its ability to
pay cash dividends is dependent upon distributions from its operating companies.
Such distributions are limited by contractual or other obligations of such
operating companies. In addition, the ability of the operating companies to
distribute funds may be limited by the current or future regulations of the
countries in which they are located.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The following selected consolidated financial data as of and for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 have been derived from the
Company's audited consolidated financial statements. The data set forth below is
qualified by reference to and should be read in conjunction with the Company's
audited consolidated financial statements including the notes and Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service and other revenue............................ $ 89,819 $ 68,961 $ 24,977 $ 1,883 $ --
System operating expense............................. (71,149) (52,703) (22,865) (3,230) --
System selling, general and administrative expense... (49,738) (50,006) (32,665) (2,482) --
Corporate general and administrative expense......... (5,696) (3,306) (1,376) (920) (659)
Depreciation and amortization........................ (97,140) (80,802) (36,269) (1,003) --
Interest expense and other, net...................... (62,088) (47,792) (14,374) 4,898 --
Share in results of affiliated companies, net........ (10,299) (2,408) (5,414) (16,379) (1,015)
---------- ---------- ---------- ---------- ----------
Net loss............................................. $ (206,291) $ (168,056) $ (87,986) $ (17,233) $ (1,674)
========== ========== ========== ========== ==========
Basic and diluted net loss per common share.......... $ (14.02) $ (12.12) $ (6.44) $ (1.28) $ (0.12)
========== ========== ========== ========== ==========
Weighted-average number of shares outstanding........ 14,718,857 13,864,941 13,670,832 13,504,453 13,504,453
========== ========== ========== ========== ==========
Other Data:
Capital expenditures................................. $ 71,466 $ 101,135 $ 187,100 $ 7,648 $ 1
As of December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(In thousands)
Balance Sheet Data:
Cash, cash equivalents, restricted cash and
short-term liquid investments...................... $ 944 $ 25,089 $ 37,860 $ 8,730 $ --
Property, plant and equipment, net................... $ 122,968 $ 183,101 $ 193,170 $ 27,630 $ 1
Total assets......................................... $ 216,032 $ 279,032 $ 319,323 $ 99,295 $ 24,084
Senior discount notes and other long-term debt....... $ 424,726 $ 387,094 $ 250,057 $ 742 $ --
Total liabilities.................................... $ 510,661 $ 431,769 $ 315,276 $ 21,714 $ 11
Total stockholder's (deficit) equity................. $ (294,629) $ (164,153) $ 4,047 $ 75,066 $ 24,073
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis of the Company's financial condition and
results of operations covers the years ended December 31, 1998, 1997 and 1996
and should be read in conjunction with the Company's condensed consolidated
financial statements and related notes thereto included elsewhere herein. Such
consolidated financial statements provide additional information regarding the
Company's financial activities and condition.
Certain statements in this Report may constitute "forward-looking statements"
within the meaning of the federal securities laws. Such forward-looking
statements may include, among other things, statements concerning the Company's
plans, objectives and future economic prospects, expectations, beliefs, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
(or entities in which the Company has interests), or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, changes in television viewing preferences and habits by
subscribers and potential subscribers, their acceptance of new technology,
programming alternatives and new services offered by the Company, the Company's
ability to secure adequate capital to fund system growth and development, risks
inherent in the change over to the Year 2000 (including the Company's projected
state of readiness and expected contingency plans for possible worst case
scenarios), risks inherent in investment and operations in foreign countries,
changes in government regulation, changes in the nature of key strategic
relationships with partners and joint venturers, and other factors referenced in
this Report. These forward-looking statements speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based. Any statements contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations in this Report related
to Year 2000 are hereby denominated as "Year 2000 Statements" within the meaning
of the Year 2000 Information and Readiness Disclosure Act.
INTRODUCTION
The Company currently holds (i) an effective 100% economic interest in Austar,
(ii) a 65.0% interest in Saturn, (iii) a 25.0% interest in XYZ Entertainment,
(iv) an up to 90.0% economic interest in Telefenua and (v) a 100% interest in
United Wireless. Following its July 1996 acquisition of the remaining 50.0%
interest in Saturn, the Company began consolidating the results of operations of
Saturn, which had previously been accounted for using the equity method of
accounting. The Company's interest in Saturn was reduced to 65.0% in July 1997
with the Saturn Transaction. Due to a change in an accounting principle,
effective January 1, 1998, the Company discontinued consolidating the results of
operations of Saturn and returned to the equity method of accounting. However,
the Company is currently discussing alternatives which would allow for the
consolidation of Saturn. The Company accounts for its interest in XYZ
Entertainment using the equity method of accounting. During the fourth quarter
of 1998, the Company determined it had suffered an other-than-temporary loss of
control over Telefenua, which resulted in the deconsolidation of Telefenua
effective October 1, 1998. See Item 3 "Legal Proceedings".
In connection with the offering of the May 1996 Notes, UIH merged into the
Company UIH's subsidiaries that held 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 ownership interest in multi-channel television,
programming and mobile data companies in Australia, New Zealand and Tahiti since
inception. The Company, as presented in this manner, commenced operations in
January 1994 when UIH began its development-related activities in the
Asia/Pacific region. UIH transferred the net assets of the related subsidiaries,
including capitalized development costs and investments in affiliated companies,
to the Company. The Company reports on the basis of generally accepted
accounting principles in the United States ("U.S. GAAP") and recognizes its
proportionate share of affiliated company income (loss) on the basis of U.S.
GAAP results.
UAP, the Company's parent, provides various management, technical,
administrative, accounting, financial reporting, tax, legal and other services
for the Company pursuant to the terms of a management agreement between UAP and
the Company. In addition, UAP provides similar services to the Company's
operating systems, pursuant to the terms of various technical assistance
agreements with such operating systems. See Item 13 "Certain Relationships and
Related Transactions."
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had invested a total of approximately
$416.8 million in its projects. These fundings do not include project-level
financing or amounts contributed by shareholders other than the Company.
<TABLE>
<CAPTION>
SOURCES OF FUNDINGS: As of
December 31,
1998
--------------
(In thousands)
<S> <C>
Senior discount notes proceeds, net of offering costs.. $244,652
Cash contributions and other equity from parent(1)..... 167,853
Interest income........................................ 4,316
--------
Total................................................ $416,821
========
USES OF FUNDINGS: As of
December 31,
1998
--------------
(In thousands)
Austar(1).............................................. $320,144
Saturn................................................. 39,435
Telefenua.............................................. 16,738
XYZ Entertainment...................................... 16,481
United Wireless........................................ 10,161
Other.................................................. 13,862
--------
Total................................................ $416,821
========
(1) Includes issuance/use of $29.8 million and $6.2 million in
convertible preferred stock in 1995 and 1998, respectively, to
acquire interests in Australia.
</TABLE>
The Company is responsible for its proportionate share of the capital
requirements of the operating companies. The Company has funded its
proportionate share to date with capital contributed by UIH and UAP and proceeds
from private debt offerings and has reduced its proportionate share to date with
subsidiary bank debt and strategic partner contributions. Through the private
placement of the May 1996 Notes, the Company raised total gross proceeds of
approximately $225.1 million. These notes will accrete to an aggregate principal
amount of $447.4 million at maturity. Through the private placement of the
September 1997 Notes, the Company raised total gross proceeds of approximately
$29.9 million. These notes will accrete to an aggregate principal amount of
$45.4 million at maturity. Effective May 16, 1997, the interest rate on these
notes increased by an additional 0.75% per annum to 14.75%. On October 14, 1998,
the Company consummated the Equity Sale, reducing the interest rate from 14.75%
to 14.0% per annum.
AUSTAR
In July 1997, Austar secured the Austar Bank Facility in the amount of A$200.0
million ($122.5 million as of December 31, 1998) to fund Austar's subscriber
acquisition and working capital needs. The Austar Bank Facility consists of
three sub-facilities: (i) A$50.0 million revolving working capital facility,
(ii) A$60.0 million cash advance facility and (iii) A$90.0 million term loan
facility. All of Austar's assets are pledged as collateral for the Austar Bank
Facility. In addition, pursuant to the Austar Bank Facility, Austar cannot pay
any dividends, interest or fees under its technical assistance agreements prior
to December 31, 2000. Subsequent to December 31, 2000, Austar will be permitted
to make these types of payments, subject to certain debt to cash flow ratios. As
of December 31, 1998, Austar had drawn the entire amount of the working capital
facility and the cash advance facility totaling A$110.0 million ($67.4 million
converted using the December 31, 1998 exchange rate). The working capital
facility is fully repayable on June 30, 2000. The cash advance facility is fully
repayable pursuant to an amortization schedule beginning December 31, 2000 and
ending June 30, 2004.
In September 1998, Austar secured the New Austar Bank Facility commitment, of
which the first A$200.0 million is intended to refinance the Austar Bank
Facility by April 1999 and the remaining A$200.0 million is available upon the
contribution of additional equity on a 2:1 debt-to-equity basis. The commitment
has been extended to April 30, 1999 and management expects to close this
financial transaction by mid-April 1999. In the interim, Austar has received a
supplemental amendment to the existing Austar Bank Facility which allows Austar
to draw under the A$90.0 million Term Loan Facility at an increased interest
22
<PAGE>
rate of 2.25% above the professional market rate in Australia. All other terms
and conditions of the Austar Bank Facility remain unchanged. As of December 31,
1998, Austar had drawn A$60.0 million ($36.7 million converted using the
December 31, 1998 exchange rate) on the Term Loan Facility for a total
outstanding balance of A$170.0 million. Subsequent to year-end, an additional
A$30.0 million was borrowed against the Term Loan Facility which, along with the
A$60.0 million draw, is payable in full in April 1999.
The Company expects the need for additional funding for Austar in the future.
The amount of capital needed is dependent primarily upon three factors: (i) the
number of new subscribers added; (ii) the level of churn, that is, the level of
existing subscribers who disconnect from Austar's service; and (iii) the mix of
DTH satellite compared to MMDS installations. Substantially all fixed costs
required to operate Austar's service have already been incurred. The average
cost to install a subscriber includes variables such as equipment, marketing and
sales costs, and installation fees. The average cost of a subscriber who
disconnects is reduced by the recovery of certain equipment (principally
converters), and is further reduced if a new subscriber is installed in a
previously disconnected home. Austar plans to continue to expand and add
subscribers; however, the timing of such expansion and the funds required for
such expansion are largely variable. Based upon current plans and budgeted
churn, Austar will require approximately $112.4 million to continue on its
current expansion path from January 1, 1999 through December 31, 1999. The
required capital for 1999 will be funded substantially by the New Austar Bank
Facility (assuming that the Austar Bank Facility will be refinanced by the New
Austar Bank Facility by April 1999). The remaining sources of funds for such
expansion may include the raising of private or public equity by the Company or
its subsidiaries and/or continued investment by UIH and UAP. Even though the
Company believes that these financings will be successful, if the New Austar
Bank Facility is not closed, the Company believes that committed financial
support from UIH combined with, if necessary, reductions in planned capital
expenditures, are sufficient to sustain its operations through at least
mid-2000.
SATURN
In July 1997, SaskTel purchased a 35.0% equity interest in Saturn by investing
NZ$29.9 million (approximately $19.6 million) directly into Saturn for its
newly-issued shares. In November 1998, Saturn secured a syndicated senior debt
facility in the amount of NZ$125.0 million ($66.0 million as of December 31,
1998) (the "Saturn Bank Facility") to fund the completion of Saturn's network.
Of this amount, NZ$83.3 million has been subscribed for by financial
institutions. Until Saturn obtains irrevocable commitments in the form of equity
funding or additional underwriting commitments for the balance of NZ$41.7
million, the maximum that may be drawn down is NZ$73.0 million ($38.5 million as
of December 31, 1998). If Saturn is successful in obtaining the necessary
commitments from other financing sources, Saturn may borrow an additional
NZ$10.3 million from the initial syndicate of banks. If Saturn is not successful
in obtaining the necessary commitments, the outstanding balance will be due May
31, 1999. As of December 31, 1998, Saturn had drawn NZ$40.0 million ($21.1
million as of December 31, 1998) on the loan facility at a rate of approximately
8.12% per annum. The eight-year debt facility has an interest rate of 3.0% over
the current base rate upon drawdown. Subsequent to year-end, NZ$8.0 million was
borrowed for a total outstanding balance of NZ$48.0 million.
The Company expects the need for additional funding for Saturn in the future.
Saturn's capital needs include approximately $37.2 million for the completion of
the network required by Saturn to offer cable television and telephony services
and approximately $4.8 million until Saturn has sufficient cash flows to cover
its operations and the capital required to install customers, although there can
be no assurance that further additional capital will not be required. The
sources of funds for such expansion may include the Saturn Bank Facility, the
raising of private or public equity by the Company or its subsidiaries and/or
continued investment by UIH and SaskTel. Even though the Company believes that
this financing will be successful, the Company believes that committed financial
support from UIH combined with, if necessary, reductions in planned capital
expenditures, are sufficient to sustain its operations through at least
mid-2000.
OTHER
The Company expects that the aggregate future funding requirements for XYZ
Entertainment and United Wireless are less than $2.0 million for 1999.
The indentures governing UIH's senior secured discount notes due February 2008
and the Company's Notes (collectively, the "Indentures") place restrictions on
the Company and its restricted subsidiaries with respect to incurring additional
debt. 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 Indentures. The restrictions imposed by the UIH Indentures will be
eliminated upon the retirement of UIH's notes at their maturity in February
2008, and the restrictions imposed by the Company's Indentures will be
eliminated upon the retirement of the Company's Notes at their maturity in May
2006. In addition, pursuant to the Austar Bank Facility, Austar cannot pay any
dividends, interest on debentures and subordinated debt, or fees under its
23
<PAGE>
technical assistance agreements prior to December 31, 2000. Subsequent to
December 31, 2000, Austar will be permitted to make these types of payments,
subject to certain debt to cash flow ratios.
On November 17, 1997, pursuant to the terms of the indentures governing the
Notes, the Company issued warrants to purchase a total of 488,000 shares of its
common stock, which represented 3.4% of its common stock. The warrants are
exercisable at a price of $10.45 per share which would result in gross proceeds
of approximately $5.1 million, if exercised. The warrants are exercisable
through May 15, 2006.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
The Company incurred a net loss during the year ended December 31, 1998 of
$206.3 million, which included non-cash items such as depreciation and
amortization expense totaling $97.1 million and accretion of interest on the
Notes and amortization of deferred financing costs totaling $49.5 million.
Cash and cash equivalents decreased $12.1 million from $12.3 million as of
December 31, 1997 to $0.2 million as of December 31, 1998. Principal sources of
cash during the year ended December 31, 1998 included cash contributions from
parent of $58.9 million, borrowings on the Austar Bank facility of $39.5
million, proceeds from the sale of short-term investments of $12.3 million and
other sources totaling $0.3 million.
During the year ended December 31, 1998, cash was used principally for the
purchase of property, plant and equipment totaling $71.5 million to continue new
subscriber connections and the build-out of existing projects, the funding of
operating activities of $23.8 million, investments in affiliated companies and
acquisition of assets of $11.4 million, the deconsolidation of Saturn of $9.9
million, the payment of capital leases and other debt of $3.3 million and other
investing and financing uses of $3.2 million.
YEAR ENDED DECEMBER 31, 1997
The Company incurred a net loss during the year ended December 31, 1997 of
$168.1 million, which includes non-cash items such as depreciation and
amortization expense totaling $80.8 million and accretion of interest on the
Notes and amortization of deferred financing costs totaling $38.7 million.
Cash and cash equivalents decreased $6.9 million from $19.2 million as of
December 31, 1996 to $12.3 million as of December 31, 1997. Principal sources of
cash during the year ended December 31, 1997 included borrowings on the Austar
Bank Facility of $85.2 million, gross proceeds from the issuance of the
September 1997 Notes of $29.9 million, the purchase of a 35.0% interest in
Saturn by SaskTel for $19.6 million, borrowings from parent of $10.0 million,
cash contributions from parent of $7.9 million and net proceeds from the net
decrease in short-term investments of $6.3 million.
During the year ended December 31, 1997, cash was used principally for the
purchase of property, plant and equipment of $101.1 million to continue the
build-out of existing projects, primarily at Austar, a decrease in construction
payables of $29.6 million, investments in the Company's affiliated companies of
$3.3 million, deferred financing costs and other uses totaling $6.9 million and
the funding of operating activities of $24.9 million during the year.
YEAR ENDED DECEMBER 31, 1996
The Company incurred a net loss during the year ended December 31, 1996 of $88.0
million, which includes non-cash items such as depreciation and amortization
expense totaling $36.3 million and accretion of interest on the Notes and
amortization of deferred financing costs totaling $20.3 million.
Cash and cash equivalents increased $10.5 million from $8.7 million as of
December 31, 1995 to $19.2 million as of December 31, 1996. Principal sources of
cash during this period included gross proceeds from the issuance of the May
1996 Notes of $225.1 million, an increase in construction payables of $38.4
million, borrowings of $17.5 million and cash contributions from parent of $10.7
million.
During the year ended December 31, 1996, cash was used principally for the
purchase of property, plant and equipment of $187.1 million to construct
24
<PAGE>
Austar's and Telefenua's systems, repayments on related party debt of $25.0
million, the purchase of net short-term investments of $18.6 million,
investments in the Company's affiliated companies of $16.2 million, deferred
financing costs and other uses totaling $9.0 million, the purchase of the
approximately 4.0% remaining economic interest in Austar for $7.9 million and
the funding of operating activities of $17.4 million during the year.
RESULTS OF OPERATIONS
SELECTED SYSTEM OPERATING DATA. The following table displays selected system
operating data in Austar's local currency:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Austar (A$):
Service and other revenue............................ 136,072 86,470 26,852
System operating expense (1)......................... (105,183) (58,053) (33,702)
System selling, general and administrative expense... (75,169) (57,900) (23,330)
Adjusted EBITDA (2).................................. (37,981) (26,027) (29,770)
Capital expenditures................................. 96,162 100,149 157,315
</TABLE>
(1) Includes management fees of A$6.3 million, A$3.5 million and A$0.4 million,
respectively.
(2) Adjusted EBITDA represents net loss, as determined using United States
generally accepted accounting principles, plus net interest expense, income
tax expense, depreciation, amortization, minority interest, management fee
expense, currency exchange gains (losses) and other non-operating income
(expense) items. Industry analysts generally consider adjusted EBITDA to be
an appropriate measure of the performance of multi-channel television
operations. Adjusted EBITDA should not be considered as an alternative to
net income, cash flows or any other generally accepted accounting principle
measure of performance or liquidity as an indicator of an entity's
operating performance.
SERVICE AND OTHER REVENUE. The Company's service and other revenue (including
installation revenues) increased $20.8 million and $44.0 million for the years
ended December 31, 1998 and 1997, respectively, compared to the corresponding
amounts in the prior years as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Austar................................................. $85,199 $63,848 $21,244
Saturn................................................. -- 473 110
Telefenua.............................................. 3,411 4,118 3,513
United Wireless........................................ 257 522 110
Other.................................................. 952 -- --
------- ------- -------
Total service and other revenue................... $89,819 $68,961 $24,977
======= ======= =======
</TABLE>
AUSTAR
Service and other revenue at Austar increased $21.4 million, or 33.5%,
from $63.8 million for the year ended December 31, 1997 to $85.2
million for the year ended December 31, 1998. On a functional currency
basis, Austar's service and other revenue increased A$49.6 million,
from A$86.5 million for the year ended December 31, 1997 to A$136.1
million for the year ended December 31, 1998, a 57.3% increase. These
increases were primarily due to subscriber growth (288,721 at December
31, 1998 compared to 196,205 at December 31, 1997) as Austar continued
to roll-out its services. The U.S. dollar increases occurred despite
the negative impact of approximately $15.0 million due to fluctuation
in exchange rates between the years ended December 31, 1998 and 1997.
Service and other revenue at Austar increased $42.6 million, or
200.9%, from $21.2 million for the year ended December 31, 1996 to
$63.8 million for the year ended December 31, 1997. This increase was
primarily due to subscriber growth from an average of approximately
54,000 subscribers during 1996 to an average of approximately 150,000
subscribers during 1997, as Austar continued to roll-out its services.
25
<PAGE>
SATURN
The Company discontinued consolidating the results of Saturn's
operations effective January 1, 1998. Accordingly, the Company
reported no service and other revenue from Saturn for the year ended
December 31, 1998.
The Company began consolidating the results of Saturn's operations
effective July 1, 1996. Accordingly, the Company reported no service
and other revenue from Saturn during the first half of 1996. Service
and other revenue at Saturn increased $0.4 million, or 400.0% from
$0.1 million for the year ended December 31, 1996 to $0.5 million for
the year ended December 31, 1997. This increase was primarily due to
growth in subscribers from an average of approximately 1,300
subscribers during 1996 to an average of approximately 2,400
subscribers during 1997.
SYSTEM OPERATING EXPENSE. The Company's operating expenses increased $18.4
million and $29.8 million for the years ended December 31, 1998 and 1997,
respectively, compared to the corresponding amounts in the prior years as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Austar................................................. $65,289 $42,792 $17,990
Saturn................................................. -- 4,015 1,344
Telefenua.............................................. 1,751 2,040 2,118
United Wireless........................................ 1,301 1,789 1,413
Other.................................................. 2,808 2,067 --
------- ------- -------
Total system operating expense.................... $71,149 $52,703 $22,865
======= ======= =======
</TABLE>
AUSTAR
Operating expense for Austar increased $22.5 million, or 52.6%, from
$42.8 million for the year ended December 31, 1997 to $65.3 million
for the year ended December 31, 1998. On a functional currency basis,
Austar's operating expense increased A$47.1 million, from A$58.1
million for the year ended December 31, 1997 to A$105.2 million for
the year ended December 31, 1998, an 81.1% increase. These increases
were primarily due to a $2.0 million increase in satellite programming
costs resulting from the May 1998 agreements with Foxtel and Optus
Vision to obtain additional programming rights in connection with the
receivership of Australis as well as additional satellite platform
costs associated with the May 1998 joint venture with Optus Vision
($0.7 million). The Company expects that the restructuring of
programming costs for certain channels will result in somewhat higher
costs in the near term for these channels which will be offset by
lower costs in the long-term when compared to Austar's previous
agreements with Australis. The remainder of the increase between
periods was due to an increase in salaries and benefits related to the
additional personnel necessary to support Austar's establishment of
local and state offices in its markets and an increase in customer
subscriber management expense related to volume increases in
telephone, billing and collection costs. The U.S. dollar increases
were positively impacted by approximately $12.1 million due to
fluctuation in exchange rates between the years ended December 31,
1998 and 1997.
The Company reported an increase in system operating expense from
Austar of $24.8 million, or 137.8%, from $18.0 million for the year
ended December 31, 1996 to $42.8 million for the year ended December
31, 1997. This increase was primarily due to an increase in satellite
programming fees and copyright costs, which corresponds to the
increase in subscribers and additional basic programming services; an
increase in salaries and benefits related to the additional personnel
necessary to support Austar's launch of local and state offices in its
markets; and an increase in customer subscriber management expenses
related to the volume increases in telephone, billing and collection
costs. The remainder of the increase related to increases in system
travel, maintenance, vehicle costs and management fees.
Austar expects operating expense as a percentage of service revenue to
decline in future periods because a significant portion of Austar's
distribution facilities and network costs, such as local and state
26
<PAGE>
office staffing levels, operating costs and wireless license costs,
have already been incurred and are fixed in relation to changes in
subscriber volumes. Other system operating expense, such as certain
costs related to programming and subscriber management expense, will
vary in direct proportion to the number of subscribers.
In September 1997, the Company commenced transponder fee payments for
a satellite service fee of approximately $0.4 million per month as
part of its five-year agreement with Optus Networks. In May 1998, a
subsidiary of Austar began billing the joint venture between Austar
and Optus Networks for the transponder rental. The Company eliminates
all related party accounts in consolidation.
SATURN
The Company discontinued consolidating the results of Saturn's
operations effective January 1, 1998. Accordingly, the Company
reported no system operating expense from Saturn for the year ended
December 31, 1998.
The Company began consolidating the results of Saturn's operations
effective July 1, 1996. Accordingly, the Company reported no system
operating expense from Saturn during the first half of 1996. System
operating expense at Saturn increased $2.7 million or 207.7% from $1.3
million for the year ended December 31, 1996 to $4.0 million for the
year ended December 31, 1997. This increase was primarily due to an
increase in personnel expenses in order to support Saturn's build-out
of its HFC network in the Wellington area.
SYSTEM SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. The Company's system
selling, general and administrative expense decreased $0.3 million and increased
$17.3 million for the years ended December 31, 1998 and 1997, respectively,
compared to the corresponding amounts in the prior years as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Austar................................................. $46,986 $42,810 $26,948
Saturn................................................. -- 3,581 2,008
Telefenua.............................................. 1,710 2,063 2,586
United Wireless........................................ 1,042 1,552 1,123
------- ------- -------
Total system selling, general and administrative
expense......................................... $49,738 $50,006 $32,665
======= ======= =======
</TABLE>
AUSTAR
System selling, general and administrative expense for Austar
increased $4.2 million, or 9.8%, from $42.8 million for the year ended
December 31, 1997 to $47.0 million for the year ended December 31,
1998. On a functional currency basis, Austar's selling, general and
administrative expense increased A$17.3 million, from A$57.9 million
for the year ended December 31, 1997 to A$75.2 million for the year
ended December 31, 1998, a 29.9% increase. This increase was primarily
due to an increase in salaries as a result of additional personnel
necessary to support the increase in subscribers and an increase in
marketing costs. The U.S. dollar increases were positively impacted by
approximately $8.4 million due to fluctuation in exchange rates
between the years ended December 31, 1998 and 1997.
System selling, general and administrative expense for Austar
increased $15.9 million, or 59.1%, from $26.9 million for the year
ended December 31, 1996 to $42.8 million for the year ended December
31, 1997. This increase was primarily due to an increase in salaries
associated with the NCOC and Austar's corporate headquarters as a
result of additional personnel necessary to support the increase in
subscribers, an increase in marketing costs related to print, radio
and television advertisements associated with subscriber acquisition
and retention and an increase in direct sales commissions due to
subscriber growth. In addition, Austar experienced certain one-time
charges for the restructuring and consolidation of various regional
offices.
27
<PAGE>
Austar expects system selling, general and administrative expense as a
percentage of service revenue to decline in future periods because a
significant portion of Austar's infrastructure costs, such as the
NCOC, its corporate management staff and media-related marketing
costs, have already been incurred and are fixed in relation to changes
in subscriber volumes. Other system selling, general and
administrative expense relating to commissions and acquisition costs
is expected to vary in relation to the number of customer sales and
installations.
SATURN
The Company discontinued consolidating the results of Saturn's
operations effective January 1, 1998. Accordingly, the Company
reported no system selling, general and administrative expense from
Saturn for the year ended December 31, 1998.
The Company began consolidating the results of Saturn's operations
effective July 1, 1996. Accordingly, the Company reported no system
selling, general and administrative expense from Saturn during the
first half of 1996. Saturn's system selling, general and
administrative expense increased $1.6 million, or 80.0%, from $2.0
million for the year ended December 31, 1996 to $3.6 million for the
year ended December 31, 1997. This increase was primarily due to
increases in direct sales commissions due to subscriber growth as well
as marketing and promotion costs for subscriber acquisition.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. The Company's corporate general
and administrative expense increased $2.4 million, or 72.7%, from $3.3 million
for the year ended December 31, 1997 to $5.7 million for the year ended December
31, 1998. This increase related to the allocation of UIH corporate general and
administrative expense to the Company in the form of capital contributions,
based on increased activity at the operating system level. Management believes
that this method of allocating costs is reasonable.
The Company's corporate general and administrative expense increased $1.9
million, or 135.7%, from $1.4 million for the year ended December 31, 1996 to
$3.3 million for the year ended December 31, 1997. This increase was primarily
due to an increase in the allocation of UIH corporate general and administrative
expenses to the Company, based on increased activity at the operating system
level.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$16.3 million and $44.5 million for the years ended December 31, 1998 and 1997,
respectively, compared to the corresponding amounts in the prior years.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Austar................................................. $95,403 $76,913 $33,446
Saturn................................................. -- 2,033 800
Telefenua.............................................. 1,100 1,212 1,382
United Wireless........................................ 637 644 641
------- ------- -------
Total depreciation and amortization............... $97,140 $80,802 $36,269
======= ======= =======
</TABLE>
AUSTAR
Depreciation and amortization expense for Austar increased $18.5
million, or 24.1%, from $76.9 million for the year ended December 31,
1997 to $95.4 million for the year ended December 31, 1998. On a
functional currency basis, Austar's depreciation and amortization
expense increased A$43.4 million, from A$99.6 million for the year
ended December 31, 1997 to A$143.0 million for the year ended December
31, 1998, a 43.6% increase. These increases were primarily due to the
larger fixed asset base due to the significant deployment of operating
assets to meet subscriber growth as well as an increase in
depreciation expense related to subscriber disconnects. The U.S.
dollar increases were positively impacted by approximately $14.9
million due to fluctuation in exchange rates between the years ended
December 31, 1998 and 1997.
Depreciation and amortization expense from Austar increased $43.5
million, or 130.2% from $33.4 million for the year ended December 31,
1996 to $76.9 million for the year ended December 31, 1997. This
28
<PAGE>
increase was primarily due to the larger fixed asset base due to the
significant deployment of operating assets to meet subscriber growth
as well as an increase in expense related to subscriber disconnects.
SATURN
The Company discontinued consolidating the results of Saturn's
operations effective January 1, 1998. Accordingly, the Company
reported no depreciation and amortization expense from Saturn for the
year ended December 31, 1998. The Company began consolidating the
results of Saturn's operations effective July 1, 1996. Accordingly,
the Company reported no depreciation and amortization expense from
Saturn during the first half of 1996. Depreciation and amortization
expense for Saturn increased $1.2 million, or 150.0%, from $0.8
million for the year ended December 31, 1996 to $2.0 million for the
year ended December 31, 1997. This increase was primarily due to the
larger fixed asset base as Saturn continues to build-out its HFC
network in the Wellington area.
SHARE IN RESULTS OF AFFILIATED COMPANIES. The Company recognized an increase in
share in results of affiliated companies of $7.9 million for the year ended
December 31, 1998 and a decrease in share in results of affiliated companies of
$3.0 million for the year ended December 31, 1997, compared to the corresponding
amounts in the prior years as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
XYZ Entertainment...................................... $ 55 $(2,408) $(4,484)
Saturn................................................. (10,354) -- (930)
------- ------- -------
Total share in earnings (losses) of affiliated
companies....................................... $(10,299) $(2,408) $(5,414)
======== ======= =======
</TABLE>
XYZ ENTERTAINMENT
Share in losses from XYZ Entertainment decreased $2.5 million, or
104.2%, from $2.4 million for the year ended December 31, 1997 to
earnings of $0.1 million for the year ended December 31, 1998. This
decrease was primarily attributable to higher revenue resulting from
XYZ Entertainment's subscriber increase.
Share in losses from XYZ Entertainment decreased $2.1 million, or
46.7%, from $4.5 million for the year ended December 31, 1996 to $2.4
million for the year ended December 31, 1997. This decrease was
primarily attributable to higher revenue, resulting from XYZ
Entertainment's subscriber increase, and overall reductions in
staffing levels during 1997.
SATURN
Due to a change in an accounting principle, effective January 1, 1998,
the Company discontinued consolidating the results of operations of
Saturn and returned to the equity method of accounting. The results of
operations of Saturn were consolidated from July 1, 1996 through
December 31, 1997.
PROVISION FOR LOSSES ON MARKETABLE EQUITY SECURITIES AND INVESTMENT RELATED
COSTS. In October 1998, as a result of an other-than-temporary loss of control
of Telefenua, the Company recorded a reserve for the remaining balance in its
investment of $4,384. In December 1997, based on the financial difficulties and
potential insolvency of Australis, the Company determined that the loss relating
to its investment in Australis was other than temporary. As a result, the
Company recorded a provision for this loss of $4,784 for the year ended December
31, 1997.
INTEREST INCOME. Interest income decreased $1.4 million from $1.6 million for
the year ended December 31, 1997 to $0.2 million for the year ended December 31,
1998. The decrease was attributable to reduced cash and short-term liquid
investment balances.
Interest income decreased $3.9 million, or 70.9%, from $5.5 million for the year
ended December 31, 1996 to $1.6 million for the year ended December 31, 1997.
This decrease was primarily due to reduced cash and short-term liquid investment
balances related to the funding of the Company's investments in affiliated
companies.
29
<PAGE>
INTEREST EXPENSE. Interest expense, including related party expense, increased
$12.7 million, or 28.9%, from $44.0 million for the year ended December 31, 1997
to $56.7 million for the year ended December 31, 1998. This increase was
primarily due to continued accretion on the Notes at 14.75% during most of 1998
compared to 14.0% for 1997. In addition, interest expense related to the Austar
Bank Facility, which was secured in July 1997, was $7.5 million in 1998 compared
to $4.0 million in 1997.
Interest expense, including related party expense, increased $21.8 million, or
98.2%, from $22.2 million for the year ended December 31, 1996 to $44.0 million
for the year ended December 31, 1997. This increase was primarily due to the
accretion of interest on the September 1997 Notes and the accretion of interest
for an entire year on the May 1996 Notes. The Notes currently accrete interest
at a rate of 14.0% compounded semi-annually. The interest rate increased from
14.0% to 14.75% on May 16, 1997, but was reduced back to 14.0% per annum on
October 14, 1998, when the Company consummated the Equity Sale.
YEAR 2000 CONVERSION
The Company's multi-channel television, programming and telephony operations are
heavily dependent upon computer systems and other technological devices with
embedded chips. Such computer systems and other technological devices may not be
capable of accurately recognizing dates beginning on January 1, 2000. This
problem could cause miscalculations, resulting in the Company's multi-channel
television and telephony systems or programming services malfunctioning or
failing to operate.
YEAR 2000 PROGRAM. In response to possible Year 2000 problems, the Board of
Directors of UIH established a Task Force to assess the impact that potential
Year 2000 problems may have on company-wide operations, including the Company
and its operating companies, and to implement necessary changes to address such
problems. The Task Force reports directly to the UIH Board. In creating a
program to minimize Year 2000 problems, the Task Force identified certain
critical operations of the business of the Company. These critical operations
are service delivery systems, field and headend devices, customer service and
billing systems and corporate management and administrative operations (e.g.,
cash flow, accounts payable and accounts receivable, payroll and building
operations).
The Task Force has established a three-phase program to address potential Year
2000 problems:
(a) Identification Phase: Identify and evaluate computer systems and other
devices (e.g., headend devices, switches and set top boxes) on a system
by system basis for Year 2000 compliance.
(b) Implementation Phase: Establish a database and evaluate the information
obtained in the Identification Phase, determine priorities, implement
corrective procedures, define costs and ensure adequate funding.
(c) Testing Phase: Test the corrective procedures to verify that all
material compliance problems will operate on and after January 1, 2000,
and develop, as necessary, contingency plans for material operations.
As of March 9, 1999, 83.0% of the operating systems of the Company have
completed the Identification Phase and the Task Force is working on the
Implementation Phase for these systems. The Task Force has researched almost
79.0% of the items identified by the Company during the Identification Phase as
to Year 2000 compliance. Of the items researched, 74.0% are either compliant or
can be easily remediated without significant cost to the Company. Currently, the
Task Force expects to complete its research on substantially all of the items
identified by mid-1999. Based on current data to date, the computer systems for
all corporate operations are expected to be in compliance with Year 2000 by
mid-1999 and should not require material remediation or replacement.
The Task Force has targeted mid-1999 for commencement of the Testing Phase. At
this time, the Company anticipates that all material aspects of the program will
be completed before January 1, 2000. Currently, UIH is managing the program with
its internal Task Force. During the Implementation Phase, the Task Force will
also evaluate the need for external resources to complete the Implementation
Phase and implement the Testing Phase. In the event the Task Force elects to use
external resources, such resources may not, however, be available.
In addition to its program, UIH is a member of a Year 2000 working group, which
has 12 cable television companies and meets under the auspices of Cable Labs.
The dialogue with the other cable operators has assisted UIH in developing its
Year 2000 program. Part of the agenda of the working group is to develop test
procedures and contingency plans for critical components of operating systems
for the benefit of all of its members.
30
<PAGE>
THIRD PARTY DEPENDENCIES. The Company believes its largest Year 2000 risk is its
dependency upon third-party products. Two significant areas on which the
Company's systems depend upon third-party products are programming and telephony
interconnects. The Company does not have the ability to control such parties in
their assessment and remediation procedures for potential Year 2000 problems.
Should these parties not be prepared for Year 2000, their systems may fail and
the Company would not be able to provide its services to its customers. The
Company is in the process of communicating with these parties on the status of
their Year 2000 compliance programs in an effort to prevent any possible
interruptions or failures. To date, responses to such communications have been
limited and the responses received state only that the party is working on Year
2000 issues and does not have a definitive position at this time. As a result,
the Company is unable to assess the risk posed by its dependence upon such third
parties' systems. The Task Force is considering certain limited contingency
plans, including preparing back-up programming and stand-by power generators.
Such contingency plans may not, however, resolve the problem in a satisfactory
manner. With respect to other third-party systems, each operating system is
responsible for inquiring of their vendors and other entities with which they do
business (e.g., utility companies, financial institutions and facility owners)
as to such entities' Year 2000 compliance programs.
The Task Force is working closely with the manufacturers of the Company's
headend devices to remedy any Year 2000 problems assessed in the headend
equipment. Recent information from the two primary manufacturers of such
equipment indicate that most of the equipment used in the Company's operating
systems are not date sensitive. Where such equipment needs to be upgraded for
Year 2000 issues, such vendors are upgrading without charge. These upgrades are
expected to be completed before year-end 1999, but such a process is not wholly
within the control of the Company or its systems. With respect to billing and
customer care systems, the Company uses standard billing and customer care
programs from several vendors. The Task Force is working with such vendors to
achieve Year 2000 compliance for all systems. On an overall basis, the Task
Force continues to analyze the Year 2000 program and will revise the program as
necessary throughout 1999, including procedures it undertakes with respect to
third parties to ensure their Year 2000 compliance.
COSTS OF COMPLIANCE. The Task Force has not yet determined the full cost of its
Year 2000 program and its related impact on the financial condition of the
Company. In the course of its business, the Company has made substantial capital
adjustments over the past few years in improving its systems, primarily for
reasons other than Year 2000. Because these upgrades also resulted in Year 2000
compliance, replacement and remediation costs have been low. The Task Force has
identified certain replacement and remediation costs for the Company which are
currently estimated at $0.2 million. Although no assurance can be made, the
Company believes that the known Year 2000 compliance issues can be remedied
without a material financial impact. No assurance can be made, however, as to
the total cost for the Year 2000 program until all of the data has been
gathered. In addition, the Company can not predict the financial impact it will
incur if Year 2000 problems are caused by third parties upon which its systems
are dependent or experienced by entities in which it holds investments. The
failure of any one of these parties to implement Year 2000 procedures could have
a material adverse impact on the operations and financial condition of the
Company.
31
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- --------------------------------------------------------------------
INVESTMENT PORTFOLIO
The Company does not use derivative financial instruments in its non-trading
investment portfolio. The Company places its cash and cash equivalent
investments in highly liquid instruments that meet high credit quality standards
with original maturities at the date of purchase of less than three months. The
Company also places its short-term investments in liquid instruments that meet
high credit quality standards with original maturities at the date of purchase
of between three and twelve months. The Company also limits the amount of credit
exposure to any one issue, issuer or type of instrument. These investments are
subject to interest rate risk and will fall in value if market interest rates
increase, however, the Company does not expect any material loss with respect to
its investment portfolio.
The table below provides information about the Company's non-trading investment
portfolio, including cash flows and related weighted-average fixed interest
rates by expected maturity dates.
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------------
$ Amount Rate Fair Value
-------- ----- ----------
Maturity Fiscal Year 1999 (In thousands, except interest rates)
<S> <C> <C> <C>
Cash and cash equivalents................................... $181 2.75% $181
Short-term liquid investments............................... 763 4.93% 763
---- ----
Total portfolio........................................ $944 4.51% $944
==== ====
</TABLE>
IMPACT OF FOREIGN CURRENCY RATE CHANGES
The Company is exposed to foreign exchange rate fluctuations related to the
operating subsidiaries' monetary assets and liabilities and the financial
results of foreign subsidiaries when their respective financial statements are
translated into U.S. dollars during consolidation. The Company's exposure to
foreign exchange rate fluctuations also arises from intercompany charges such as
the cost of equipment, management fees and certain other charges. These
intercompany accounts are predominantly denominated in the functional currency
of the foreign subsidiary.
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. Foreign currency rate changes
also affect the Company's share in results of its minority-owned affiliates such
as XYZ Entertainment and Saturn.
The spot rates for the countries in the Australia/Pacific region are shown below
for the Australian and New Zealand dollars per one U.S. dollar.
Australia New Zealand
--------- -----------
December 31, 1998..................... 1.6332 1.8939
December 31, 1997..................... 1.5378 1.7161
December 31, 1996..................... 1.2583 1.4156
In general, the Company and the operating companies do not execute hedge
transactions to reduce the Company's exposure to foreign currency exchange rate
risk. Accordingly, the Company may experience economic loss and a negative
impact on earnings and equity with respect to its holdings solely as a result of
foreign currency exchange rate fluctuations.
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.
32
<PAGE>
INTEREST RATE SENSITIVITY
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates, primarily debt obligations. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars (May 1996 and September 1997 Notes) and Australian dollars (Austar
Bank Facility).
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------
Book Value Fair Value
---------- ----------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C>
Long-term and short-term debt:
Fixed rate USD Denominated..................... $356,640 $246,433
Average interest rate........................ 14.00% 20.71%
Variable rate A$ Denominated................... $104,090 $104,090
Average interest rate........................ 6.75% 6.75%
</TABLE>
The table below presents principal cash flows and related weighted-average
interest rates by expected maturity dates for the Company's debt obligations.
The information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars (May 1996 and September 1997 Notes) and Australian dollars (Austar
Bank Facility).
<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
------ ------ ------ ------ ------ ---------- -------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term and short-term debt:
Fixed rate USD Denominated........... -- -- -- -- -- $356,640 $356,640
Average interest rate.............. -- -- -- -- -- 14.00% 14.00%
Variable rate A$ Denominated......... $36,738 -- -- -- -- $ 67,352 $104,090
Average interest rate.............. 6.75% -- -- -- -- 6.75% 6.75%
</TABLE>
Interest rate swap agreements are used by the Company from time to time, to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on the Company's assessment of the market, and
generally are used to convert the floating rate debt to fixed rate debt.
Interest differentials paid or received under these swap agreements are
recognized over the life of the contracts as adjustments to the effective yield
of the underlying debt, and related amounts payable to, or receivable from, the
counterparties are included in the consolidated balance sheet. Currently, the
Company has two interest rate swaps to manage interest rate exposure on the
Austar Bank Facility. These swap agreements expire in 2002 and effectively
convert an aggregate principal amount of A$50.0 million ($30.6 million as of
December 31, 1998) of variable rate, long-term debt into fixed rate borrowings.
As of December 31, 1998, the weighted-average fixed rate under these agreements
was 7.94% compared to a weighted-average variable rate on the Austar Bank
Facility of 6.75%. As a result of these swap agreements, interest expense was
increased by approximately A$0.6 million ($0.4 million) during 1998.
Fair values of the interest rate swap agreements are based on the estimated
amounts that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. As of December 31, 1998, the Company
estimates it would have paid approximately A$1.3 million ($0.8 million) to
terminate the agreements.
33
<PAGE>
The table below provides information about the Company's interest rate swaps.
The table presents notional amounts and weighted-average interest rates by
expected (contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contract. The information is
presented in U.S. dollar equivalents (in thousands), which is the Company's
reporting currency. The instrument's actual cash flows are denominated in
Australian dollars.
<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
------ ------ ------ ------ ------ ---------- -------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Variable to fixed..... -- -- -- $30,615 -- -- $30,615
Average pay rate %.... 8.00% 8.00% 8.00% 8.00% -- -- 8.00%
Average receive rate % 6.75% 6.75% 6.75% 6.75% -- -- 6.75%
</TABLE>
34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements of the Company are filed under this Item
as follows:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
UIH AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................................................. 36
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. 37
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996............... 38
Consolidated Statements of Stockholder's (Deficit) Equity for the Years Ended December 31, 1998,
1997 and 1996.......................................................................................... 39
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996............... 40
Notes to Consolidated Financial Statements............................................................... 41
</TABLE>
The financial statement schedules required by Regulation S-X are filed under
Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UIH Australia/Pacific, Inc.:
We have audited the accompanying consolidated balance sheets of UIH
Australia/Pacific, Inc. (a Colorado corporation and wholly-owned subsidiary of
UIH Asia/Pacific Communications, Inc.) and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of operations, stockholder's
(deficit) equity and cash flows for the years ended December 31, 1998, 1997 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 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, 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, 1998 and 1997, and the results of their operations and their cash
flows for the years ended December 31, 1998, 1997 and 1996 in conformity with
generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, effective
January 1, 1998, the Company changed its method of accounting for its investment
in its 65%-owned subsidiary, Saturn Communications Limited.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 1999
36
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
As of December 31,
-------------------
1998 1997
ASSETS -------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents................................................................................. $ 181 $ 12,344
Restricted cash........................................................................................... -- 420
Short-term liquid investments............................................................................. 763 12,325
Subscriber receivables.................................................................................... 6,322 2,548
Related party ............................................................................................ 746 1,942
Other receivables......................................................................................... 736 1,220
Prepaids and other current assets......................................................................... 4,615 2,185
-------- --------
Total current assets................................................................................. 13,363 32,984
Investments in and advances to affiliated companies, accounted for under the equity method, net............. 24,597 --
Property, plant and equipment, net of accumulated depreciation of $147,511 and $78,179, respectively........ 122,968 183,101
Goodwill and other intangible assets, net of accumulated amortization of $17,512 and $11,817, respectively.. 42,559 48,708
Deferred financing costs, net of accumulated amortization of $3,237 and $1,306, respectively................ 11,675 13,393
Other non-current assets.................................................................................... 870 846
-------- --------
Total assets......................................................................................... $216,032 $279,032
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Accounts payable.......................................................................................... $ 5,426 $ 4,055
Accrued liabilities....................................................................................... 28,522 19,372
Construction payables..................................................................................... 1,076 6,008
Related party payables.................................................................................... 3,665 1,596
Related party note payable................................................................................ -- 4,999
Current portion of notes payable.......................................................................... 36,738 --
Current portion of other long-term debt................................................................... 2,189 1,825
-------- --------
Total current liabilities............................................................................ 77,616 37,855
Due to parent............................................................................................... 6,578 5,394
Senior discount notes....................................................................................... 356,640 309,123
Other long-term debt........................................................................................ 68,086 77,971
Other long-term liabilities................................................................................. 1,741 1,426
-------- --------
Total liabilities.................................................................................... 510,661 431,769
-------- --------
Commitments and contingencies (Notes 14 and 15)
Minority interest in subsidiary............................................................................. -- 11,416
-------- --------
Stockholder's deficit
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding............... -- --
Common stock, $0.01 par value, 30,000,000 shares authorized, 17,810,249 and 13,864,941 shares
issued and outstanding, respectively................................................................... 178 139
Additional paid-in capital............................................................................... 215,624 139,621
Accumulated deficit...................................................................................... (481,240) (274,949)
Other cumulative comprehensive loss...................................................................... (29,191) (28,964)
-------- --------
Total stockholder's deficit................................................................................. (294,629) (164,153)
-------- --------
Total liabilities and stockholder's deficit................................................................. $216,032 $279,032
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
For the Years Ended
December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service and other revenue................................................................ $ 89,819 $ 68,961 $ 24,977
System operating expense, including related party expense of
$4,124, $3,291 and $788, respectively.................................................. (71,149) (52,703) (22,865)
System selling, general and administrative expense....................................... (49,738) (50,006) (32,665)
Corporate general and administrative expense, including management fee to
related party of $853, $790 and $750, respectively..................................... (5,696) (3,306) (1,376)
Depreciation and amortization............................................................ (97,140) (80,802) (36,269)
---------- ---------- ----------
Net operating loss.................................................................. (133,904) (117,856) (68,198)
Interest income, including related party income of $0, $425, and $1,438,
respectively........................................................................... 207 1,569 5,544
Interest expense, including related party expense of $1,079, $1,730, and $1,896,
respectively........................................................................... (56,705) (43,994) (22,194)
Provision for losses on marketable equity securities and investment related costs........ (4,462) (4,784) --
Other (expense) income, net.............................................................. (1,128) (1,601) 90
---------- ---------- ----------
Net loss before other items......................................................... (195,992) (166,666) (84,758)
Share in results of affiliated companies, net............................................ (10,299) (2,408) (5,414)
Minority interest in subsidiary.......................................................... -- 1,018 2,186
---------- ---------- ----------
Net loss............................................................................ $ (206,291) $ (168,056) $ (87,986)
========== ========== ==========
Basic and diluted net loss per common share.............................................. $ (14.02) $ (12.12) $ (6.44)
========== ========== ==========
Weighted-average number of common shares outstanding..................................... 14,718,857 13,864,941 13,670,832
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
(Stated in thousands, except share amounts)
Other
Cumulative Total
Common Stock Additional Components of Sum of
-------------------- Paid-In Accumulated Comprehensive Comprehensive
Shares Amount Capital Deficit Income(Loss)(1) Income(Loss) Total
---------- -------- ---------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996............... 13,504,453 $135 $ 93,647 $ (18,907) $ 191 $ (18,716) $ 75,066
=========
Cash contributions from parent.......... -- -- 10,903 -- -- -- 10,903
Acquisition of remaining 50.0%
interest in New Zealand subsidiary.... 360,488 4 7,796 -- -- -- 7,800
Unrealized loss on investment........... -- -- -- -- (3,412) (3,412) (3,412)
Change in cumulative translation
adjustments........................... -- -- -- -- 1,676 1,676 1,676
Net loss................................ -- -- -- (87,986) -- (87,986) (87,986)
---------
Total comprehensive loss................ -- -- -- -- -- $ (89,722) --
---------- ---- -------- --------- -------- ========= ---------
Balances, December 31, 1996............. 13,864,941 139 112,346 (106,893) (1,545) 4,047
Cash contributions from parent.......... -- -- 7,863 -- -- -- 7,863
Non-cash contributions from parent...... -- -- 9,749 -- -- -- 9,749
Gain on sale of stock by New
Zealand subsidiary................... -- -- 5,985 -- -- -- 5,985
Issuance of warrants to purchase
common stock.......................... -- -- 3,678 -- -- -- 3,678
Provision for loss on marketable
equity securities, net................ -- -- -- -- 3,412 3,412 3,412
Change in cumulative translation
adjustments........................... -- -- -- -- (30,831) (30,831) (30,831)
Net loss................................ -- -- -- (168,056) -- (168,056) (168,056)
---------
Total comprehensive loss................ -- -- -- -- -- $(195,475) --
---------- ---- -------- --------- -------- ========= ---------
Balances, December 31, 1997............. 13,864,941 139 139,621 (274,949) (28,964) (164,153)
Cash contributions from parent.......... -- -- 58,947 -- -- -- 58,947
Non-cash contributions from parent...... -- -- 17,095 -- -- -- 17,095
Issuance of capital stock to
parent related to cumulative
cash capital contributions............ 3,945,308 39 (39) -- -- -- --
Change in cumulative translation
adjustments........................... -- -- -- -- (227) (227) (227)
Net loss................................ -- -- -- (206,291) -- (206,291) (206,291)
---------
Total comprehensive loss................ -- -- -- -- -- $(206,518) --
---------- ---- -------- --------- -------- ========= ---------
Balances, December 31, 1998............. 17,810,249 $178 $215,624 $(481,240) $(29,191) $(294,629)
========== ==== ======== ========= ======== =========
(1) As of December 31, 1996, the components of Other Cumulative Comprehensive
Income (Loss) include $1,867 and $(3,412) for foreign currency translation
adjustments and unrealized loss on investment, respectively. As of December
31, 1997 and 1998, Other Cumulative Comprehensive Income (Loss) represents
foreign currency translation adjustments.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
For the Years Ended
December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................. $(206,291) $(168,056) $(87,986)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization.......................................................... 97,140 80,802 36,269
Share in results of affiliated companies, net.......................................... 10,299 2,408 5,414
Allocation of expense accounted for as capital contributions by parent................. 4,622 1,949 --
Provision for losses on marketable equity securities and investment related costs...... 4,462 4,784 --
Minority interest share of losses...................................................... -- (1,018) (2,186)
Accretion of interest on senior notes and amortization of deferred financing costs..... 49,508 38,747 20,270
Increase in subscriber receivables..................................................... (4,062) (1,375) (1,487)
Decrease (increase) in related party receivables....................................... 1,305 (316) (51)
(Increase) decrease in other assets.................................................... (5,719) 68 (1,461)
Increase in technical assistance agreement payables.................................... 8,193 7,375 1,677
Increase in accounts payable, accrued liabilities and other............................ 16,701 9,725 12,122
--------- --------- --------
Net cash flows from operating activities................................................. (23,842) (24,907) (17,419)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments................................................ (763) (15,988) (199,242)
Sale of short-term liquid investments.................................................... 12,325 22,303 180,602
Restricted cash released (deposited)..................................................... -- (420) --
Investments in and advances to affiliated companies and acquisition of assets............ (11,389) (3,272) (16,204)
Purchase of additional interest in Australian investment................................. -- -- (7,920)
Deconsolidation of New Zealand subsidiary................................................ (9,881) -- --
Purchase of property, plant and equipment................................................ (71,466) (101,135) (187,100)
Increase (decrease) in construction payables............................................. (2,007) (29,621) 38,407
--------- --------- --------
Net cash flows from investing activities................................................. (83,181) (128,133) (191,457)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed from parent............................................................. 58,947 7,863 10,664
Cash contributed from minority interest partner.......................................... -- 19,566 --
Proceeds from offering of senior discount notes.......................................... -- 29,925 225,115
Borrowings on related party payable to parent............................................ -- 9,998 15,073
Payment on bridge loan payable to parent................................................. -- -- (25,000)
Deferred financing costs................................................................. (473) (5,643) (10,007)
Borrowings of other debt................................................................. 39,519 85,210 2,465
Payment of capital leases and other debt................................................. (3,326) (490) --
--------- --------- --------
Net cash flows from financing activities................................................. 94,667 146,429 218,310
--------- --------- --------
EFFECT OF EXCHANGE RATES ON CASH......................................................... 193 (265) 1,056
--------- --------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS......................................... (12,163) (6,876) 10,490
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................... 12,344 19,220 8,730
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................. $ 181 $ 12,344 $ 19,220
========= ========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash capital contributions from parent............................................... $ 12,473 $ 7,800 $ --
========= ========= ========
Gain on issuance of shares by New Zealand subsidiary..................................... $ -- $ 5,985 $ --
========== ========= ========
Non-cash issuance of warrants to purchase common stock................................... $ -- $ 3,678 $ --
========= ========= ========
Non-cash stock issuance for purchase of 50.0% interest in New Zealand subsidiary......... $ -- $ -- $ 7,800
========= ========= ========
Increase in unrealized loss on investment................................................ $ -- $ (985) $ (3,412)
========= ========= ========
Assets acquired with capital leases...................................................... $ 1,299 $ 548 $ 3,632
========= ========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................................................................... $ 5,323 $ 1,239 $ --
========= ========= ========
Cash received for interest............................................................... $ 144 $ 796 $ 3,578
========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
40
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(Monetary amounts stated in thousands)
1. ORGANIZATION AND BACKGROUND
UIH Australia/Pacific, Inc. (the "Company"), a wholly-owned subsidiary of UIH
Asia/Pacific Communications, Inc. ("UAP"), which is in turn an indirect
98.0%-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.
The following chart presents a summary of the Company's significant investments
in multi-channel television, programming and telephony operations as of December
31, 1998.
********************************************************
* UIH *
********************************************************
*
100% *
*
********************************************************
* United International Properties, Inc. ("UIPI") *
********************************************************
*
98% *
*
********************************************************
* UAP *
********************************************************
*
100% *
*
********************************************************
* The Company *
********************************************************
*
*
*
********************************************************
* CTV Pty Limited and STV Pty Limited *
* (collectively, "Austar")(Australia) 100% *
* United Wireless Pty Limited *
* ("United Wireless") ("Australia") 100% *
* Telefenua S.A. ("Telefenua")(Tahiti) 90% *
* Saturn Communications Limited ("Saturn") *
* (New Zealand) 65% *
* XYZ Entertainment Pty Limited *
* ("XYZ Entertainment")(Australia) 25% *
********************************************************
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries have experienced net losses since formation. As
of December 31, 1998, the Company's working capital and projected operating
cashflow are not sufficient to fund its expenditures and to service its
indebtedness over the next 12 months.
A substantial portion of the Company's investments to date relate to its
investment in Austar, which is comprised primarily of multi-channel multi-point
distribution systems ("MMDS") and direct-to-home ("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, 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 expand Austar's customer base and build-out
the Company's other projects, the Company will need a significant amount of
additional capital. As of December 31, 1998, the Company had a net working
capital deficit of $60,588, excluding related party payables of $3,665. The
working capital deficit includes $36,738 of bank debt for Austar which the
Company expects will be refinanced by the end of April 1999 upon execution of
the new credit facility at Austar.
41
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Due to the nature of the Company's operations, the Company is generally able to
slow the rate of subscriber connections at Austar and network construction at
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 premises equipment, which are controllable by
the Company based upon the rate of new subscriber connections.
In late 1998, Austar received a supplemental amendment to the existing senior
syndicated term debt facility in the amount of Australian $("A$")200,000
($122,459 as of December 31, 1998) (the "Austar Bank Facility") which allows
Austar to draw on the A$90,000 Term Loan Facility. As of December 31, 1998,
Austar had drawn A$60,000 under the Term Loan Facility and the remaining
A$30,000 was drawn subsequent to year end. Austar also received a new bank
underwriting commitment for an A$400,000 senior secured debt facility (the "New
Austar Bank Facility"), which is intended to refinance the Austar Bank Facility
by April 30, 1999 (see Note 8). If the New Austar Bank Facility does not close,
the Term Loan portion of the Austar Bank Facility (A$90,000) will be due April
30, 1999. The Company remains reliant upon the continued financial and
management support of its immediate controlling entity, UAP, and its ultimate
controlling entity, UIH. The Company believes it will close the New Austar and
Saturn Bank Facilities by April 30, 1999 and also continues to investigate other
potential financial alternatives. However, even if such new facilities are not
finalized, the Company believes that committed 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 mid-
2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest. 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. The
Company discontinued consolidating the results of operations from Saturn due to
a change in an accounting principle effective January 1, 1998. However, the
Company is currently discussing alternatives which would allow for the
consolidation of Saturn. Effective October 1, 1998, the Company discontinued
consolidating the results of operations of Telefenua due to an
other-than-temporary loss of control and began using the equity method of
accounting (See Note 15). All significant intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents include cash and investments with original maturities
of less than three months. Short-term liquid investments include certificates of
deposit, commercial paper and government securities which have maturities
greater than three months. Short-term liquid investments are classified as
available-for-sale and reported at fair market value.
RESTRICTED CASH
Cash held as collateral for letters of credit is classified based on the
expected expiration of such facilities.
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
20.0% to 50.0%, its investments are held through a combination of voting common
stock, preferred stock, debentures or convertible debt and/or 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
42
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 its cost over its proportionate interest in each affiliate's net
tangible assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of property, plant and equipment are charged to expense
as incurred. All MMDS/DTH subscriber equipment and capitalized installation
labor is depreciated over three years. Upon disconnection of a MMDS or DTH
subscriber, the remaining book value of the subscriber equipment, excluding
converters which are recovered upon disconnection, and the unamortized portion
of capitalized labor are written off and accounted for as additional
depreciation expense. MMDS distribution facilities and cable distribution
networks are depreciated using the straight-line method over estimated useful
lives of five to ten years.
With respect to the Company's cable distribution networks, initial subscriber
installation costs are capitalized and depreciated over a period no longer than
the depreciation period used for cable television plant or the term of the
license agreement. All installation fees and related costs with respect to
reconnect are recognized in the statement of operations in the period in which
the reconnection occurs.
Office equipment, furniture and fixtures, building and leasehold improvements
are depreciated using the straight-line method over estimated useful lives of
three to ten years.
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.
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized using the straight-line method over 15
years. The acquisition of MMDS licenses has been recorded at cost, and
amortization expense is computed using the straight-line method over the term of
the license. In Australia, the cost to acquire these licenses for a five-year
period is being amortized over the remaining license period. The licenses are
renewable every five years.
RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset if the
asset is expected to be held and used, which would generally be computed using
discounted cash flows. Measurement of an impairment loss for an asset held for
sale would be based on fair market value less estimated costs to sell.
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial 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, which are expensed. To the extent installation fees exceed
direct selling costs, the excess fees are deferred and amortized over the
average contract period. All installation fees and related costs with respect to
reconnections and disconnections are recognized in the statement of operations
in the period in which the reconnection or disconnection occurs because
reconnection fees are charged at a level equal to or less than related
reconnection costs.
43
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 asset and liability method 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, liabilities and loss carryforwards 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 if
management believes it more likely than not that they will not be realized.
STOCKHOLDER'S DEFICIT
Gains realized as a result of stock sales by the Company's subsidiaries are
recorded in the statement of operations, except for any transactions which must
be credited directly to equity in accordance with the provisions of Staff
Accounting Bulletin No. 51 ("SAB 51").
On October 14, 1998, the Company issued 3,945,308 shares of its capital stock to
UAP (the "Equity Sale") related to cumulative gross equity contributions to the
Company of $70,000 through that date.
BASIC AND DILUTED LOSS PER SHARE
"Basic loss per share" is determined by dividing net loss available to common
shareholders by the weighted-average number of common shares outstanding during
each period. "Diluted earnings per share" includes the effects of potentially
issuable common stock, but only if dilutive. The treasury stock method, using
the average price of the Company's common stock for the period, is applied to
determine dilution from options and warrants. The if-converted method is used
for convertible securities. Because of reported losses, there are no differences
between basic and diluted loss per share amounts for the Company for any of the
years presented. The only potentially dilutive securities excluded as
antidilutive were the warrants issued in November 1997 (see Note 9).
COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an enterprise
(i) classify items of other comprehensive income (loss) by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income (loss) separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Company adopted SFAS 130 effective January 1, 1998.
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 period-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 that result in unrealized gains or losses are
referred to as translation adjustments. Cumulative translation adjustments are
recorded within other cumulative comprehensive income (loss) in the consolidated
statements of stockholder's deficit.
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.
44
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 item below cash flows from financing activities.
NEW ACCOUNTING PRINCIPLES
The American Institute of Certified Public Accountants recently issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
which is required to be adopted by affected companies for fiscal years beginning
after December 15, 1998. SOP 98-5 defines start-up and organization costs, which
must be expensed as incurred. The Company does not expect the adoption of SOP
98-5 to have a material effect on its financial position or results of
operations.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair market value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company is currently assessing the
effect of this new standard.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. ACQUISITIONS AND DISPOSITIONS
In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a 35.0%
equity interest in Saturn by investing approximately New Zealand $("NZ$")29,900
($19,566) directly into Saturn for its newly-issued shares (the "Saturn
Transaction"). The Saturn Transaction resulted in a SAB51 gain of $5,985, which
was credited directly to paid-in capital.
In July 1998, Austar acquired certain Australian pay television assets of East
Coast Television Pty Limited ("ECT"), an affiliate of Century Communications
Corp. ("Century"), for $6,155 of UIH's newly-created Series B Convertible
Preferred Stock ("Series B Preferred Stock"). ECT's subscription television
business includes subscribers and certain MMDS licenses and transmission
equipment serving the areas in and around Newcastle, Gossford, Wollongong and
Tasmania.
45
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM LIQUID
INVESTMENTS
<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------------------------------
Short-term
Cash and Cash Restricted Liquid
Equivalents Cash Investments Total
------------- ----------- ------------ -------
<S> <C> <C> <C> <C>
Cash................................. $181 $ -- $ -- $181
Certificates of deposit.............. -- -- -- --
Commercial paper..................... -- -- 406 406
Government securities................ -- -- 357 357
---- ---- ---- ----
Total............................. $181 $ -- $763 $944
==== ==== ==== ====
As of December 31, 1997
--------------------------------------------------
Short-term
Cash and Cash Restricted Liquid
Equivalents Cash Investments Total
------------- ----------- ------------ -------
<S> <C> <C> <C> <C>
Cash................................ $12,344 $420 $ -- $12,764
Certificates of deposit............. -- -- 8,399 8,399
Commercial paper.................... -- -- 3,926 3,926
------- ---- ------- -------
Total............................ $12,344 $420 $12,325 $25,089
======= ==== ======= =======
</TABLE>
5. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Losses of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- -------------------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Saturn............................ $49,808 $(23,138) $(2,881) $ -- $23,789
XYZ Entertainment................. 19,363 (18,666) 111 -- 808
Telefenua......................... 18,599 (14,215) -- (4,384)(1) --
------- -------- ------- ------- -------
Total.......................... $87,770 $(56,019) $(2,770) $(4,384) $24,597
======= ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Losses of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- -------------------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
XYZ Entertainment................. $18,610 $(18,720) $110 $-- $--
======= ======== ==== === ===
</TABLE>
(1) The Company has reserved the remaining balance of the Telefenua
investment of $4,384 due to the uncertainty of realization (See Note
15).
46
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
<S> <C>
Current assets............................................. $ 4,071
Non-current assets......................................... 59,242
-------
Total assets............................................ $63,313
=======
Current liabilities........................................ $33,608
Non-current liabilities.................................... 19
Shareholders' equity....................................... 29,686
-------
Total liabilities and shareholders' equity.............. $63,313
=======
For the Year Ended December 31, 1998
------------------------------------
Revenue.................................................... $ 1,693
Expenses................................................... (16,934)
--------
Net loss................................................ $(15,241)
========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Subscriber premises equipment and converters............... $187,247 $160,413
MMDS distribution facilities............................... 54,725 55,093
Cable distribution networks................................ 2,009 16,770
Office equipment, furniture and fixtures................... 9,810 10,813
Buildings and leasehold improvements....................... 2,841 5,647
Other...................................................... 13,847 12,544
-------- --------
270,479 261,280
Accumulated depreciation................................ (147,511) (78,179)
-------- --------
Net property, plant and equipment....................... $122,968 $183,101
======== ========
</TABLE>
7. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Austar..................................................... $55,805 $51,552
Saturn..................................................... -- 6,100
Other...................................................... 4,266 2,873
------- -------
60,071 60,525
Accumulated amortization................................ (17,512) (11,817)
------- -------
Net goodwill and other intangible assets................ $42,559 $48,708
======= =======
</TABLE>
8. CURRENT PORTION OF NOTES PAYABLE
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Austar Bank Facility (See Note 10)......................... $36,738 $ --
------- ----
Total notes payable..................................... $36,738 $ --
======= ====
</TABLE>
47
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SENIOR DISCOUNT NOTES
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
May 1996 Notes (as defined below), net of
unamortized discount...................................... $321,687 $278,662
September 1997 Notes (as defined below), net of
unamortized discount...................................... 34,953 30,461
-------- --------
Total senior discount notes............................. $356,640 $309,123
======== ========
</TABLE>
MAY 1996 NOTES
The 14.0% senior notes, which the Company issued in May 1996 at a discount from
their principal amount of $443,000 (the "May 1996 Notes"), had an accreted value
of $321,687 as of December 31, 1998. On and after May 15, 2001, cash interest
will accrue and will be payable semi-annually on each May 15 and November 15,
commencing November 15, 2001. The May 1996 Notes are due May 15, 2006. Effective
May 16, 1997, the interest rate on these notes increased by an additional 0.75%
per annum to 14.75%. On October 14, 1998, the Company consummated the Equity
Sale resulting in gross proceeds to the Company of $70,000 which reduced the
interest rate from 14.75% to 14.0% per annum. Due to the increase in the
interest rate effective May 16, 1997 until consummation of the Equity Sale, the
May 1996 Notes will accrete to a principal amount of $447,418 on May 15, 2001,
the date cash interest begins to accrue. The quoted fair market value of these
notes was approximately $223,700 and $292,380 as of December 31, 1998 and 1997,
respectively.
SEPTEMBER 1997 NOTES
The 14.0% senior notes, which the Company issued in September 1997 at a discount
from their principal amount of $45,000 (the "September 1997 Notes"), had an
accreted value of $34,953 as of December 31, 1998. On and after May 15, 2001,
cash interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The September 1997 Notes are due May
15, 2006. Effective September 23, 1997, the interest rate on these notes
increased by an additional 0.75% per annum to 14.75%. On October 14, 1998, the
Company consummated the Equity Sale, reducing the interest rate from 14.75% to
14.0% per annum. Due to the increase in the interest rate effective September
23, 1997 until consummation of the Equity Sale, the September 1997 Notes will
accrete to a principal amount of $45,448 on May 15, 2001, the date cash interest
begins to accrue. The quoted fair market value of these notes was approximately
$22,700 and $29,700 as of December 31, 1998 and 1997, respectively.
On November 17, 1997, pursuant to the terms of the indentures governing the May
1996 Notes and the September 1997 Notes (collectively, the "Notes"), the Company
issued warrants to purchase 488,000 shares of its common stock, which
represented 3.4% of its common stock. The warrants are exercisable at a price of
$10.45 per share which would result in gross proceeds of approximately $5,100
upon exercise. The warrants are exercisable through May 15, 2006. The warrants
were valued at $3,678 and have been reflected as an additional discount to the
Notes on a pro-rata basis and as an increase in additional paid-in capital.
10. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Austar Bank Facility (as defined below).................... $67,352 $71,531
Vendor financed equipment at Saturn........................ -- 3,730
Capital leases and other................................... 2,923 4,535
------- -------
70,275 79,796
Less current portion.................................... (2,189) (1,825)
------- -------
Total other long-term debt.............................. $68,086 $77,971
======= =======
</TABLE>
48
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AUSTAR BANK FACILITY
In July 1997, Austar secured a senior syndicated term debt facility in the
amount of A$200,000 ($122,459 as of December 31, 1998) to fund Austar's
subscriber acquisition and working capital needs. The Austar Bank Facility
consists of three sub-facilities: (i) A$50,000 revolving working capital
facility, (ii) A$60,000 cash advance facility and (iii) A$90,000 Term Loan
Facility. All of Austar's assets are pledged as collateral for the Austar Bank
Facility. In addition, pursuant to the Austar Bank Facility, Austar can not (a)
pay any dividends, (b) make any payments of interest on the Company's Notes or
(c) pay any fees under its technical assistance agreements prior to December 31,
2000. Subsequent to December 31, 2000, the payments in (a), (b) and (c) above
may be made, subject to certain debt to cash flow ratios. As of December 31,
1998, Austar had drawn the entire amount of the working capital facility and the
cash advance facility totaling A$110,000 ($67,352 converted using the December
31, 1998 exchange rate). The working capital facility is fully repayable on June
30, 2000. The cash advance facility is fully repayable pursuant to an
amortization schedule beginning December 31, 2000 and ending June 30, 2004.
In September 1998, Austar secured the New Austar Bank Facility commitment, of
which the first A$200,000 is intended to refinance the Austar Bank Facility in
April 1999 and the remaining A$200,000 is available upon the contribution of
additional equity on a 2:1 debt-to-equity basis. The commitment has been
extended to April 30, 1999 and management expects to close this financial
transaction by mid-April 1999. In the interim, Austar has received a
supplemental amendment to the existing Austar Bank Facility which allows Austar
to draw under the A$90,000 Term Loan Facility at an increased interest rate of
2.25% above the professional market rate in Australia. All other terms and
conditions of the Austar Bank Facility remain unchanged. As of December 31,
1998, Austar had drawn A$60,000 ($36,738 converted using the December 31, 1998
exchange rate) on the Term Loan Facility for a total outstanding balance of
A$170,000. Subsequent to year-end an additional A$30,000 was borrowed against
the Term Loan Facility which, along with the A$60,000 draw, is payable in full
in April 1999.
DEBT MATURITIES
The Company's maturities of its other long-term debt are as follows:
1999....................................................... $ 2,189
2000....................................................... 734
2001....................................................... --
2002....................................................... --
2003 and thereafter........................................ 67,352
-------
$70,275
=======
OTHER FINANCIAL INSTRUMENTS
Interest rate swap agreements are used by the Company from time to time, to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on the Company's assessment of the market, and
generally are used to convert the floating rate debt to fixed rate debt.
Interest differentials paid or received under these swap agreements are
recognized over the life of the contracts as adjustments to the effective yield
of the underlying debt, and related amounts payable to, or receivable from, the
counterparties are included in the consolidated balance sheet. Currently, the
Company has two interest rate swaps to manage interest rate exposure on the
Austar Bank Facility. These swap agreements expire in 2002 and effectively
convert an aggregate principal amount of A$50.0 million ($30.6 million as of
December 31, 1998) of variable rate, long-term debt into fixed rate borrowings.
As of December 31, 1998, the weighted-average fixed rate under these agreements
was 7.94% compared to a weighted-average variable rate on the Austar Bank
Facility of 6.75%. As a result of these swap agreements, interest expense was
increased by approximately A$0.6 million ($0.4 million) during 1998.
Fair values of the interest rate swap agreements are based on the estimated
amounts that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. As of December 31, 1998, the Company
estimates it would have paid approximately A$1.3 million ($0.8 million) to
terminate the agreements.
11. RELATED PARTY
Effective May 1, 1996, the Company and UIH Management, Inc. ("UIH Management"),
an indirect wholly-owned subsidiary of UIH, executed a 10-year management
services agreement (the "Management Agreement"), pursuant to which UIH
Management performs certain administrative, accounting, financial reporting and
other services for the Company, which has no separate employees of its own. For
the first four months of 1996, UIH Management allocated approximately $250 for
49
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
such services. Pursuant to the Management Agreement, the management fee was $750
for the first year (beginning May 1, 1996), and it increases on each anniversary
date of the Management Agreement by 8.0% per year. Effective March 31, 1997, UIH
Management assigned its rights and obligations under the Management Agreement to
UAP, the Company's immediate parent, and extended the agreement for 20 years
from that date (the "UAP Management Agreement"). For the years ended December
31, 1998, 1997 and 1996, the Company recorded $853, $790 and $750, respectively,
in related party management fees. The Company is also allocated a portion of
UIH's indirect overhead costs such as administrative, accounting, financial
reporting and other services. These costs are recorded as a deemed capital
contribution in the Company's financial statements. For the years ended December
31, 1998, 1997 and 1996, the Company recorded $4,622, $1,949 and $0,
respectively, in corporate general and administrative expense allocated from
UIH.
UIH Management executed a 10-year technical assistance agreement with Austar
pursuant to which it provided various management and technical services. This
agreement is renewable for up to an additional 15 one-year terms. Under the
agreement dated October 12, 1994, UIH Management was to receive a management fee
equal to 5.0% of Austar's total revenue, less certain deductions, for the first
two years, 4.0% for the next six years, 3.0% for the following two years and
2.0% thereafter. Effective March 31, 1997, UIH Management assigned its rights
and obligations under this agreement to UAP. In addition, the management fee was
revised to remain at 5.0% of Austar's gross revenue throughout the remaining
term of the agreement. Austar's chief operating officer and director of sales,
marketing and programming are employees of UIH that have been seconded to
Austar. In addition, UIH has appointed three other management personnel and all
six directors. Austar reimburses UIH for certain direct costs incurred by UIH,
including salaries and benefits relating to these senior management positions.
Telefenua and SFCC, the parent company of Telefenua, executed a 10-year
technical services agreement on January 11, 1995, whereby SFCC would provide
technical, administrative and operational assistance to Telefenua encompassing
the following areas: (i) engineering, design, construction and equipment
purchasing; (ii) marketing, selling and advertising; (iii) accounting, billing
and subscriber management systems and (iv) personnel management and training for
a fee equal to 5.5% of Telefenua's gross revenue through 1996, 3.5% of gross
revenue during 1997 and 2.5% thereafter. SFCC would also be reimbursed for all
direct and indirect costs associated with the services it provided. Effective
January 11, 1995, SFCC assigned all of its rights and obligations to UIH
Management, except that SFCC retained the right to receive 0.5% of Telefenua's
gross revenues through the term of the agreement. Accordingly, Telefenua would
pay UIH Management fees of 5.0%, 3.0% and 2.0% of Telefenua's gross revenues
over the same periods. Effective March 31, 1997, UIH Management assigned its
rights and obligations under this agreement to UAP. Telefenua reimburses UIH for
certain direct costs incurred by UIH. The Company and Telefenua are currently in
a dispute concerning services to be provided under the technical assistance
agreement.
Saturn and UIH executed a technical services agreement pursuant to which UIH
provided technical, administrative and operational assistance to Saturn
encompassing the following areas: (i) engineering, design, construction and
equipment purchasing; (ii) marketing, pricing and packaging of services; (iii)
selection of programming and negotiations with suppliers and (iv) accounting,
billing and subscriber management systems. UIH receives a management fee equal
to 5.0% of Saturn's gross revenue through July 1999. Effective March 31, 1997,
UIH assigned all its rights and obligations under this agreement to UAP. In
connection with SaskTel's investment in Saturn on July 23, 1997, the management
fee payable to UAP was reduced to 2.5% of Saturn's gross revenue and the
management fee payable to SaskTel became 2.5% of Saturn's gross revenue under a
similar agreement. The chief executive officer is an employee of UIH that has
been seconded to Saturn. Saturn reimburses UIH for certain direct costs incurred
by UIH, including salaries and benefits relating to this senior management
position.
United Wireless and UAP executed a technical services agreement, commencing
January 1, 1997, pursuant to which UAP has agreed to provide technical,
administrative and operational assistance to United Wireless encompassing the
following areas: (i) design, engineering and construction of the network; (ii)
marketing and sales of the service; (iii) network management, customer
management and information systems and (iv) personnel and training. UAP receives
a management fee equal to 5.0% of the gross revenue of United Wireless through
December 2007. The chief executive officer is an employee of UIH that has been
seconded to United Wireless. United Wireless reimburses UIH for certain direct
costs incurred by UIH, including salaries and benefits relating to this senior
management position.
50
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Included in the due to parent payable is the following:
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Austar technical assistance agreement obligations, including deferred......
management fees of $5,973 and $2,248, respectively (1) (2)................ $8,347 $2,629
Telefenua technical assistance agreement obligations....................... -- 2,659
Saturn technical assistance agreement obligations.......................... -- 406
United Wireless technical assistance agreement obligations................. 605 487
Payable to parent for management fees and interest on note payable(2)...... 1,056 723
Other...................................................................... 235 86
------ ------
10,243 6,990
Less current porton..................................................... (3,665) (1,596)
------ ------
$6,578 $5,394
====== ======
</TABLE>
(1) The management fees have been deferred until December 31, 2000 due to
restrictions under the Austar Bank Facility. Subsequent to that date,
Austar will be permitted to make these types of payments, subject to
certain debt to cash flow ratios.
(2) UAP has the option of converting these management fees into equity.
As of December 31, 1997, UIPI had loaned $4,999 to UIH Australia/Pacific
Finance, Inc., a wholly-owned subsidiary of the Company. This loan accrued
interest at 15.0% and was due on demand. In December 1998, UIPI contributed the
amount of the loan, plus interest, totaling $6,242 into equity in the Company.
12. INCOME TAXES
In general, a U.S. 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 10.0% to 50.0% 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 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 U.S. between its domestic 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 May 1996 Notes, 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 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) will be accounted for as a deemed capital
distribution or contribution. 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 U.S. federal and state tax purposes even though
the Company records its allocable share of affiliate income (losses) for
51
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $13,000 and
$10,000 as of December 31, 1998 and 1997, respectively) in investments in
affiliated companies who, in turn, have equity investments in foreign
corporations.
The Company's United States tax net operating losses, totaling approximately
$12,100 at December 31, 1998, expire beginning in 2004 through 2014. The
significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
--------- --------
<S> <C> <C>
Basis differences in property, plant and equipment............................ $ 1,367 $ 1,074
Accrued interest expense on the Notes......................................... 32,885 17,435
U.S. tax net operating loss carryforward...................................... 4,615 1,338
Basis difference in marketable equity securities.............................. 1,696 1,818
Tax net operating loss carryforward of consolidated foreign subsidiaries(1)... 107,856 67,412
--------- --------
Deferred tax asset............................................................ 148,419 89,077
Valuation reserve............................................................. (148,419) (89,077)
--------- --------
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.
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,
--------------------------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Expected income tax benefit at the U.S. statutory rate of 35.0%.............. $(72,202) $(58,820) $(30,795)
Tax effect of permanent and other differences:
Change in valuation reserve............................................... 64,624 56,060 27,663
State tax, net of federal benefit......................................... (6,189) (5,042) (3,520)
International rate differences............................................ (1,251) (615) (181)
Non-deductible interest accretion on the Notes............................ 2,605 2,145 973
Amortization of outside basis differences................................. 1,412 1,570 1,324
Amortization of licenses.................................................. 1,819 1,312 625
Book/tax basis differences associated with foreign equity investments..... 3,914 915 2,111
Non-deductible expenses and other......................................... 5,268 2,475 1,800
-------- -------- --------
Total income tax expense (benefit)........................................... $ -- $ -- $ --
======== ======== ========
</TABLE>
13. SEGMENT INFORMATION
Operating segments are components of an enterprise for which separate financial
information is available and is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company's reportable segments are the various countries in
which it operates multi-channel television, programming and/or telephony
operations. These reportable segments are managed separately because each
country presents different marketing strategies and technology issues as well as
distinct economic climates and regulatory constraints. The Company has selected
the following reportable segments: (i) Australia, including the Company's
investments in Austar and United Wireless, (ii) New Zealand, including the
Company's investment in Saturn, (iii) Tahiti, including the Company's investment
in Telefenua, and (iv) Corporate and Other, including various holding companies
and eliminations.
52
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's segment information is as follows:
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998
----------------------------------------------------------
Corporate
Australia New Zealand Tahiti and Other Total
--------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service and other revenue................................... $ 86,864 $ -- $ 3,411 $ (456) $ 89,819
Systems operating expense, including management fees of
$3,953, $0, $171, $0 and $4,693, respectively............. $ (69,854) $ -- $(1,751) $ 456 $ (71,149)
Selling, general and administrative expense................. $ (48,028) $ -- $(1,710) $ (5,696) $ (55,434)
Adjusted EBITDA (1)......................................... $ (27,065) $ -- $ 121 N/A N/A
Depreciation and amortization............................... $ (96,040) $ -- $(1,100) $ -- $ (97,140)
Interest income, including related party income............. $ 74 $ -- $ 52 $ 81 $ 207
Interest expense, including related party expense........... $ (7,461) $ -- $ (888) $(48,356) $ (56,705)
Provision for loss on marketable equity securities
and investment related costs.............................. $ -- $ -- $ -- $ (4,462) $ (4,462)
Equity in earnings of affiliated companies, net............. $ 55 $(10,354) $ -- $ -- $ (10,299)
Net loss.................................................... $(142,408) $(10,354) $(1,997) $(51,532) $(206,291)
Cash and cash equivalents................................... $ 181 $ -- $ -- $ -- $ 181
Property, plant and equipment, net.......................... $ 122,968 $ -- $ -- $ -- $ 122,968
Total assets................................................ $ 181,169 $ 23,789 $ -- $ 11,074 $ 216,032
</TABLE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1997
----------------------------------------------------------
Corporate
Australia New Zealand Tahiti and Other Total
--------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service and other revenue................................... $ 64,370 $ 473 $ 4,118 $ -- $ 68,961
Systems operating expense, including management fees of
$2,558, $435, $298, $0 and $3,291, respectively........... $ (46,648) $(4,015) $(2,040) $ -- $ (52,703)
Selling, general and administrative expense................. $ (44,362) $(3,581) $(2,063) $ (3,306) $ (53,312)
Adjusted EBITDA (1)......................................... $ (24,082) $(6,688) $ 313 N/A N/A
Depreciation and amortization............................... $ (77,557) $(2,033) $(1,212) $ -- $ (80,802)
Interest income, including related party income............. $ 80 $ 380 $ 41 $ 1,068 $ 1,569
Interest expense, including related party expense........... $ (4,031) $ (23) $(1,343) $(38,597) $ (43,994)
Provision for loss on marketable equity securities
and investment related costs.............................. $ -- $ -- $ -- $ (4,784) $ (4,784)
Equity in losses of affiliated companies, net............... $ -- $ -- $ -- $ (2,408) $ (2,408)
Net loss.................................................... $(108,133) $(6,930) $(4,304) $(48,689) $(168,056)
Cash and cash equivalents................................... $ 1,262 $ 9,881 $ 246 $ 955 $ 12,344
Property, plant and equipment, net.......................... $ 147,871 $26,484 $ 8,746 $ -- $ 183,101
Total assets................................................ $ 202,325 $43,349 $11,359 $ 21,999 $ 279,032
</TABLE>
53
<PAGE>
UIH AUSTRALIA PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1996
----------------------------------------------------------
Corporate
Australia New Zealand Tahiti and Other Total
--------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service and other revenue................................... $ 21,354 $ 110 $ 3,513 $ -- $ 24,977
Systems operating expense, including management fees of
$649, $89, $375, $0 and $1,113, respectively.............. $(19,403) $(1,344) $(2,118) $ -- $(22,865)
Selling, general and administrative expense................. $(28,071) $(2,008) $(2,586) $ (1,376) $(34,041)
Adjusted EBITDA (1)......................................... $(25,471) $(3,153) $ (816) N/A N/A
Depreciation and amortization............................... $(34,087) $ (800) $(1,382) $ -- $(36,269)
Interest income, including related party income............. $ 287 $ 32 $ -- $ 5,225 $ 5,544
Interest expense, including related party expense........... $ (915) $ -- $(1,011) $(20,268) $(22,194)
Equity in losses of affiliated companies, net............... $ -- $ -- $ -- $ (5,414) $ (5,414)
Net loss.................................................... $(58,274) $(4,126) $(4,230) $(21,356) $(87,986)
Cash and cash equivalents................................... $ 7,787 $ 410 $ 213 $ 10,810 $ 19,220
Property, plant and equipment, net.......................... $166,012 $16,309 $10,849 $ -- $193,170
Total assets................................................ $236,259 $25,655 $14,386 $ 43,023 $319,323
</TABLE>
(1) Adjusted EBITDA represents net loss, as determined using United States
generally accepted accounting principles, plus net interest expense, income
tax expense, depreciation, amortization, minority interest, management fee
expense, currency exchange gains (losses) and other non-operating income
(expense) items. Industry analysts generally consider adjusted EBITDA to be
an appropriate measure of the performance of multi-channel television
operations. Adjusted EBITDA should not be considered as an alternative to
net income or to cash flows or to any other generally accepted accounting
principle measure of performance or liquidity as an indicator of an
entity's operating performance.
14. COMMITMENTS
The Company has MMDS and programming license fees and programming commitments
due annually as follows:
1999......................................... $ 38,310
2000......................................... 45,658
2001......................................... 51,541
2002......................................... 54,583
2003 and thereafter.......................... 57,152
--------
$247,244
========
The Company has operating lease obligations as follows:
1999......................................... $2,464
2000......................................... 606
2001......................................... 495
2002......................................... 149
2003 and thereafter.......................... 22
------
$3,736
======
54
<PAGE>
UIH AUSTRALIA PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A subsidiary of Austar has a five-year agreement with Optus Networks to lease a
54MHz transponder. Pursuant to the agreement, which commenced September 1, 1997,
Austar will pay approximately $370 per month in satellite service fees to Optus
Networks. Satellite fees payable annually are approximately as follows:
1999......................................... $ 4,440
2000......................................... 4,440
2001......................................... 4,440
2002......................................... 2,960
-------
$16,280
=======
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. The
bonus is based on the performance of the respective company and the 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 1998, 1997 and
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.
15. CONTINGENCIES
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 (in French Polynesia) had legally
challenged the decree and authority of the Conseil Superieur de l'Audiovisuel
("CSA") to award Telefenua the authorizations to operate an MMDS service 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
then brought an action in French court seeking cancellation of the MMDS licenses
awarded by the CSA to Telefenua. On November 25, 1998, the Conseil d' Etat
cancelled the MMDS licenses awarded to Telefenua. Telefenua is in the process of
seeking a new authorization. The Company has no reason to believe that a new
authorization will not be granted. If Telefenua does not obtain a new
authorization, 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 July 14, 1998, UIH SFCC filed a complaint in the United States District Court
for the District of Colorado, for damages for breach of contract, breach of
fiduciary duty and to enforce UIH SFCC's rights as General Partner in UIH-SFCC
LP, a Colorado Limited Partnership which owns an interest in SFCC, the 100%
parent of Telefenua. The three defendants are Loic Brigato, Winfred Anderson and
Yoshiko Payne, limited partners of UIH-SFCC LP. On September 27, 1998, UIH filed
a parallel action in the District Court for the State of Colorado. Specifically,
the complaints allege that the defendants have refused to abide by the terms of
the Partnership Agreement and have taken actions highly detrimental to
Telefenua. UIH-SFCC seeks monetary damages, a decree of specific performance
requiring defendants to perform their obligations and a constructive trust over
defendants' partnership interest. Defendants have filed in the federal court a
motion to dismiss the complaint for lack of subject matter jurisdiction. There
has been no decision issued as of this date. The Company intends to vigorously
defend its position.
55
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
MANAGEMENT
The directors and officers of the Company and the key employees of the operating
companies and other management of the Company and their ages and positions are
set forth below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
The Company:
Gene W. Schneider 72 Chairman of the Board and Chief Executive Officer
Michael T. Fries 36 President and Director
John C. Porter 41 Chief Operating Officer
Operating Companies:
Bruce Mann 43 Sales, Marketing and Programming Director, Austar
Robert J. Birrell 36 Finance Director, Austar
Jack B. Matthews 47 Chief Executive Officer, Saturn
Joseph P. Gatto, Jr. 52 Chief Executive Officer, United Wireless
Other Management:
Kevin Ong 43 Vice President--Finance
Ellen P. Spangler 50 Vice President and Secretary
Valerie L. Cover 42 Controller
</TABLE>
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 and Chief Executive Officer
since October 1998. He has served as Chairman of the Board of Directors of UIH
since May 1989 and as its Chief Executive Officer since October 1995. From May
1989 until November 1991, Mr. Schneider served as Chairman of United Artists
Entertainment Company ("United Artists"), then the third-largest U.S. cable
television company. He was a 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 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. Mr. Schneider is also Chairman of the Board of Advance Display
Technologies, Inc..
MICHAEL T. FRIES has served as President of the Company and UAP since their
respective formations, and as a Director of the Company and UAP since November
1996. He served as Chief Executive Officer of the Company from November 1996
until September 1998. Prior to becoming President of the Company, Mr. Fries
served as Senior Vice President, Development, of UIH, in which capacity he was
responsible for managing UIH's acquisitions and new business development
activities since March 1990, including UIH's expansion into the Asia/Pacific,
Latin America and European markets. Mr. Fries is also a member of the
Supervisory Board of UPC.
JOHN C. PORTER has served as Chief Operating Officer of UAP since January 1997,
and has served as the Managing Director of Austar Entertainment Pty Limited,
which became an indirect subsidiary of the Company in 1997, since July 1997.
From March 1995 until January 1997, Mr. Porter served as Chief Operating Officer
for Austar Entrtainment Pty Limited, where he was responsible for the design and
deployment of such company's multi-channel multi-point distribution
system/satellite/cable television network. Prior to joining Austar Entertainment
Pty Limited, Mr. Porter served as the President of the Ohio Division of Time
Warner, Inc., which had over 250,000 cable customers.
56
<PAGE>
OPERATING COMPANIES
BRUCE MANN has served as Sales, Marketing and Programming Director of Austar
since joining that company in April 1995. Mr. Mann is responsible for the
development of Austar's marketing, sales and programming 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. 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 the 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, an entrepreneurial business marketing sophisticated video
and voice processing systems. Mr. Matthews has over 14 years of U.S.
multi-channel television industry experience.
JOSEPH P. GATTO, JR. has been the Chief Executive Officer of United Wireless
since May 1996. From May 1995 to May 1996, Mr. Gatto served as the Vice
President-Development of UAP, focusing on telecommunications business
development within the Asia/Pacific region. Prior to joining UAP, 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 served
in various sales and marketing capacities for U.S. and Asian telecommunications
and technology companies for the past 26 years.
OTHER MANAGEMENT
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 a Director with Jones Intercable, Inc. and the Treasurer
of Jones International, Limited, where he was responsible for financial
operations and various accounting functions.
ELLEN P. SPANGLER has served as Vice President and Secretary of the Company
since July 1997. Ms. Spangler is responsible for the legal operations of the
Company. Ms. Spangler also serves as Senior Vice President of Business and Legal
Affairs and Secretary of UIH, a position she has held since December 1996. From
February 1991 to December 1996, Ms. Spangler was Vice President and Assistant
Secretary of UIH. Prior to joining UIH in January 1991, she served as Director
of Business Affairs, Programming, at Tele-Communications, Inc. ("TCI") from 1987
to 1991, and as Acquisitions Counsel at TCI from 1984 to 1987.
VALERIE L. COVEr has served as Controller for the Company since its formation in
October 1994. Ms. Cover is responsible for the accounting and financial
reporting functions of the Company. She has served as Controller of UIH since
joining UIH in October 1990 and became a Vice President of UIH in December 1996.
Prior to joining UIH, she was Director of Corporate Accounting at United Artists
from May 1989 until October 1990 and Manager of Financial Reporting at United
Cable from June 1986 until May 1989.
57
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- ---------------------------------
All of the officers of the Company are employed by UIH, the indirect 98.0%
stockholder of the Company. The Company pays no separate compensation to these
officers; however, the Company and UIH Management are parties to the Management
Agreement, pursuant to which the Company pays UIH Management a management fee
for certain services provided to the Company. Effective March 31, 1997, UIH
Management assigned its rights and obligations under the Management Agreement to
UAP in the UAP Management Agreement. UIH Management and UAP also became parties
to a similar management agreement (the "UIH Management Agreement") effective
March 31, 1997.
Certain members of senior management of Austar, Saturn and United Wireless are
U.S. 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. Gene W. Schneider, the Company's
Chairman and Chief Executive Officer, is also the Chairman and Chief Executive
Officer of UIH and spends only a portion of his time on matters pertaining to
the Company and its operations. Michael T. Fries, the Company's President, 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 and Fries are 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 and Fries, UAP pays a management fee to UIH under the UIH Management
Agreement for certain services, including those of Messrs. Schneider and Fries,
performed on behalf of the Company.
SUMMARY COMPENSATION TABLE
- --------------------------
The following table sets forth the compensation paid during the years ended
December 31, 1998, 1997 and 1996 to the Company's Chief Executive Officer and
the four most highly compensated executive officers of the Company and the
operating companies, whose annual salary and bonus exceeded $100,000 for the
year ended December 31, 1998. In addition, the information in this section
reflects compensation received by the named executive officers for all services
performed for the Company, UAP, UIH and their respective affiliates:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- --------------
Other Securities
Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation(1) Options (#)(2) Compensation
- --------------------------- ------ -------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider 1998 $450,000(3) $ -- $ -- 287,500(4) $5,512(5)
Chief Executive Officer 1997 $369,904(3) $ -- $ -- 250,000(6) $5,398(5)
1996 $346,827(3) $ -- $ -- 100,000(7) $5,398(5)
Michael T. Fries 1998 $300,000(3) $250,000 $25,000 625,000(8) $5,632(5)
President 1997 $245,346(3) $ -- $ -- 350,000(9) $5,398(5)
1996 $230,577(3) $ -- $ -- 10,000(10) $5,398(5)
John C. Porter 1998 $245,913(3) $ 30,000 $60,081 250,000(11) $5,632(5)
Chief Operating Officer 1997 $218,972(3) $ 60,000 $47,142 200,000(12) $5,398(5)
1996 $195,986(3) $ 42,402 $35,509 -- $5,398(5)
Bruce Mann 1998 $181,457 $ 41,470 $21,839 245,000(13) $5,296(14)
Sales, Marketing and 1997 $160,770 $ 45,900 $24,476 50,000(15) $4,884(14)
Programming Director (Austar) 1996 $148,481 $ 29,106 $22,539 -- $4,885(14)
Jack B. Matthews 1998 $155,000 $ -- $19,725 -- $5,170(16)
Chief Executive Officer (Saturn) 1997 $154,731 $ 29,000 $19,753 4,000(17) $4,854(16)
1996 $144,808 $ 15,000 $16,206 -- $4,841(16)
</TABLE>
58
<PAGE>
(1) Amounts represent additional cash compensation relating to overseas
assignment.
(2) Amounts represent the number of options with respect to shares of Class A
Common Stock of UIH, UAP, United Pan-Europe Communications ("UPC") and UIH
Latin America ("ULA") granted to such executives as officers and employees
of UIH.
(3) Amounts represent total compensation paid by UIH for duties performed with
respect to the Company and other operations of UIH.
(4) Includes phantom stock options for 125,000 shares granted by UPC on
September 24, 1998, and valued at $18.00 per share. Such phantom stock
options vest evenly over 48 months with vesting having commenced April 1,
1997 and expire October 8, 2008. Includes phantom stock options for 62,500
shares granted by UAP on October 8, 1998, and valued at $10.00 per share.
Such phantom stock options vest evenly over 48 months commencing on the
date of grant and expire October 8, 2008. Also includes UIH options granted
on October 8, 1998 to acquire 100,000 shares of Class A Common Stock at a
purchase price of $8.3125 per share. Such options vest evenly over 48
months commencing on the date of grant and expire October 8, 2008. For
information concerning the award of stock options by UIH included herein,
see "Option Grants Table" below.
(5) Amounts consist of matching employer contributions made by UIH under UIH's
employee 401(k) plan of $4,800, $4,750 and $4,750 for the years ended
December 31, 1998, 1997 and 1996, respectively, with the remainder
consisting of term life insurance premiums paid by UIH for such officer's
benefit.
(6) Includes phantom stock options for 125,000 shares granted by UAP on June 6,
1997, and valued at $10.00 per share. Such phantom options vest evenly over
48 months commencing on the date of grant and expire June 6, 2007. Includes
phantom stock options for 125,000 shares granted by ULA on June 6, 1997,
and valued at $4.26 per share. Such phantom options vest evenly over 48
months commencing on the date of grant and expire June 6, 2007.
(7) Includes UIH options granted on December 20, 1996 to acquire 100,000 shares
of Class A Common Stock at a purchase price of $12.75 per share. Such
options vest evenly over 48 months commencing on the date of grant and
expire December 20, 2006.
(8) Includes phantom stock options for 175,000 shares granted by UAP on October
8, 1998, and valued at $10.00 per share. Such phantom stock options vest
evenly over 48 months commencing on the date of grant and expire October 8,
2008. Includes phantom stock options for 300,000 shares granted by ULA on
September 18, 1998, and valued at $8.98 per share. Such phantom stock
options vest evenly over 48 months commencing on the date of grant and
expire September 18, 2008. Includes phantom stock options for 50,000 shares
granted by UPC on September 18, 1998, and valued at $20.35 per share. Such
phantom stock options vest evenly over 48 months commencing on the date of
grant and expire September 18, 2008. Also includes UIH options granted on
September 18, 1998 to acquire 100,000 shares of Class A Common Stock at a
purchase price of $10.375 per share. Such options vest evenly over 48
months commencing on the date of grant and expire September 18, 2008. For
information concerning the award of stock options by UIH included herein,
see "Option Grants Table" below.
(9) Includes phantom stock options for 350,000 shares granted by UAP on June 6,
1997, and valued at $10.00 per share. Such phantom stock options vest
evenly over 48 months commencing on the date of grant and expire June 6,
2007.
(10) Includes UIH options granted on December 20, 1996 to acquire 10,000 shares
of Class A Common Stock at a purchase price of $12.75 per share. Such
options vest evenly over 48 months commencing on the date of grant and
expire December 20, 2006.
(11) Includes phantom stock options for 225,000 shares granted by UAP on October
8, 1998, and valued at $10.00 per share. Such phantom stock options vest
evenly over 48 months with vesting having commenced on June 8, 1996 for
125,000 shares and the balance commencing on date of grant, and expire
October 8, 2008. Also includes UIH options granted December 18, 1998 to
acquire 25,000 shares of Class A Common Stock at a purchase price of
$10.375 per share. Such options vest evenly over 48 months commencing on
the date of grant and expire December 18, 2008. For information concerning
the award of stock options by UIH included herein, see "Option Grants
Table" below.
(12) Includes phantom stock options for 200,000 shares granted by UAP on June 6,
1997, and valued at $10.00 per share. Such phantom stock options vest
evenly over 48 months commencing on the date of grant and expire June 6,
2007.
(13) Includes phantom stock options for 225,000 shares granted by UAP on October
8, 1998, and valued at $10.00 per share. Such phantom stock options vest
evenly over 48 months with vesting having commenced on June 8, 1996 for
125,000 shares and the balance commencing on date of grant and expire
October 8, 2008. Also includes UIH options granted on December 18, 1998 to
acquire 20,000 shares of Class A Common Stock at a purchase price of
$10.375 per share. Such options vest evenly over 48 months commencing on
the date of grant and expire December 18, 2008. For information concerning
the award of stock options by UIH included herein, see "Option Grants
Table" below.
59
<PAGE>
(14) Amounts consist of matching employer contributions made by UIH under UIH's
employee 401(k) plan of $4,464, $4,236 and $4,237 for the years ended
December 31, 1998, 1997 and 1996, respectively, with the remainder
consisting of term life insurance premiums paid by UIH for Mr. Mann's
benefit.
(15) Includes phantom stock options for 50,000 shares granted by UAP on June 6,
1997, and valued at $10.00 per share. Such phantom stock options vest
evenly over 48 months commencing on the date of grant and expire June 6,
2007.
(16) Amounts consist of matching employer contributions made by UIH under UIH's
employee 401(k) plan of $4,428, $4,206 and $4,193 for the years ended
December 31, 1998, 1997 and 1996, respectively, with the remainder
consisting of term life insurance premiums paid by UIH for Mr. Matthew's
benefit.
(17) Includes UIH options granted on December 20, 1997 to acquire 4,000 shares
of Class A Common Stock at a purchase price of $10.875 per share. Such
options vest evenly over 24 months commencing on the date of grant and
expire December 20, 2007.
OPTION GRANTS TABLE
- -------------------
Messrs. Schneider, Fries, Porter, Mann and Matthews, as employees of UIH, have
been granted options to acquire stock of UIH and its subsidiaries. The following
tables set forth information concerning options to purchase shares of UIH Class
A Common Stock granted to these executives during 1998 as well as the value of
unexercised options held by such executives as of December 31, 1998. No such
executive has exercised any options during the year ended December 31, 1998. The
Company has not granted any options to acquire its stock.
<TABLE>
<CAPTION>
Option Grants in Last Year(1)
Individual Grants
------------------------------------------------------------------ Potential Realizable Value
Number of Percentage of at Assumed Annual Rates
Securities Total Options of Stock Price Appreciation
Underlying Granted to Exercise Market Price for Option Term (2)
Options Employees in Price on grant Expiration ----------------------------
Name Granted (#) Last Year(3) ($/Sh) Date ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ------------- --------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gene W. Schneider 100,000 27.8% $ 8.3125 $ 8.3125(4) 10/08/08 $522,769 $1,324,798
Michael T. Fries 100,000 27.8% $10.3750 $10.3750(5) 09/18/08 $652,478 $1,653,508
John C. Porter 25,000 7.0% $10.3750 $18.2500(6) 12/18/08 $163,120 $ 413,377
Bruce Mann 20,000 5.6% $10.3750 $18.2500(6) 12/18/08 $130,496 $ 330,702
Jack B. Matthews -- -- -- -- -- -- --
</TABLE>
(1) The stock options granted during 1998 vest in equal monthly increments over
the four-year period following the date of grant. Vesting of the options
granted would be accelerated upon a change of control of UIH as defined in
UIH's 1993 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 Class A Common Stock, continued employment of the
optionee through the term of the options, and other factors.
(3) Based on all options to purchase Class A Common Stock granted to employees
of the Company and UIH during the year ended December 31, 1998.
(4) Represents the closing market price per share of the Class A Common Stock
on Nasdaq on October 8, 1998.
(5) Represents the closing market price per share of the Class A Common Stock
on Nasdaq on September 18, 1998.
(6) Represents the closing market price per share of the Class A Common Stock
on Nasdaq on December 18, 1998.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION TABLE
- ------------------------------------------------------------
The following table sets forth information concerning unexercised options for
UIH Class A Common Stock held by officers named in the Summary Compensation
Table above as of December 31, 1998.
60
<PAGE>
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Year and Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Year-End (#) Options at Year-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
Gene W. Schneider.................................. 239,167 / 150,833 $1,955,577 / $1,390,673
Michael T. Fries................................... 161,875 / 103,125 $1,465,157 / $ 879,844
John C. Porter..................................... 0 / 25,000 $ 0 / $ 221,875
Bruce Mann......................................... 0 / 20,000 $ 0 / $ 177,500
Jack B. Matthews................................... 2,000 / 2,000 $ 16,750 / $ 16,750
</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 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, Messrs. Porter,
Mann and Matthews continue to have such an employment agreement with UIH. The
agreements with Porter and Mann terminate on October 8, 2002. Matthews'
agreement terminated January 1, 1999, however, a current contract is under
negotiation. These employment agreements provide for an annual base salary of
$252,500 for Porter, $200,000 for Mann and $165,000 for Matthews, and
eligibility for an annual bonus of up to a fixed percentage of the base salary,
based on the performance of their respective entities as well as the
individual's performance. All are entitled to participate in UIH employee
benefits. In addition, Mr. Matthews is eligible to receive a project award based
on company defined targets over the term of his compensation agreement. His base
salary is reviewed annually.
COMPENSATION OF DIRECTORS
All of the directors of the Company are also directors or officers of UIH, UAP
and/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, United Wireless and XYZ
Entertainment and, as part of their duties, may determine the compensation of
those operating companies' employees. However, none of the employees of such
operating companies are directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation eliminate 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
61
<PAGE>
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
UAP owns 100% of the 17,810,249 shares of issued and outstanding common stock of
the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
RELATIONSHIP WITH UAP AND UIH
The Company is currently a direct, wholly-owned subsidiary of UAP, which is an
indirect, 98.0%-owned subsidiary of UIH. The Company's operations to date have
been funded by capital contributions from UIH and UAP as well as proceeds from
the Notes, minority shareholder contributions and subsidiary bank debt.
The Company and UAP are parties to 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, the management
fee was $750,000 for the first year of such agreement (beginning May 1, 1996),
and it increases on each anniversary date of the UAP Management Agreement by 8%
per year. The management fee for the first year of the UAP Management Agreement
was calculated based on 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. The percentage those
hours constituted of the respective employees' annual work hours was then
multiplied by the employment cost to UIH for such employees.
Each of Austar, Saturn, Telefenua and United Wireless are parties to technical
assistance agreements with UAP, pursuant to which the operating companies
receive certain technical assistance in connection with such operating
companies' design, development, construction, marketing and operation of their
respective multi-channel television systems. Fees paid under these technical
assistance agreements are a percentage (currently between 2.5% and 5.0%) of
gross revenues generated by the operating companies plus reimbursements for
costs associated with the seconded employees. As of December 31, 1998, Austar,
Saturn, Telefenua and United Wireless had accrued fees due to parent under their
technical assistance agreements of $8.3 million, $1.1 million, $3.1 million and
$0.6 million, respectively.
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 20.0%). 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.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a)(1) Financial Statements
<TABLE>
<CAPTION>
INCLUDED IN PART II OF THE REPORT: Page
Number
------
<S> <C>
UIH AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................................................. 36
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. 37
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996............... 38
Consolidated Statements of Stockholder's Deficit for the Years Ended December 31, 1998,
1997 and 1996.......................................................................................... 39
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996............... 40
Notes to Consolidated Financial Statements............................................................... 41
(a)(2) Financial Statement Schedules
INCLUDED IN PART IV OF THE REPORT:
(i) Financial Statement Schedules required to be filed
UIH AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................................................. S-1
Schedule I - Condensed Financial Information of the Registrant (Parent only)............................. S-2
</TABLE>
(ii) Separate Financial Statements and Related Schedules
None.
(a) (3) Exhibits
3.1 Articles of Incorporation of the Registrant, as amended. (1)
3.2 By-Laws of the Registrant. (1)
4.1 The Indenture dated as of May 14, 1996, between the Issuer and
American Bank National Association. (1)
4.2 The Indenture dated as of September 23, 1997, between the Issuer
and Firstar Bank of Minnesota, N.A. (2)
4.3 Warrant Agreement dated as of November 15, 1997, between the
Issuer and Firstar Bank of Minnesota, N.A. (1)
4.4 The Articles of Incorporation, as amended, and By-Laws of the
Registrant are included as Exhibits 3.1 and 3.2. (1)
10.1 Memorandum of Variation dated December 21, 1995 to the
Subscription and Securityholders Agreement, among United
International Holdings, Inc., ("UIH"), UIH Australia, Inc.
("UIHA"), Salstel Media Holdings Pty Limited ("SMH"), Australis
Media Limited ("Australis") and CTV Pty Limited ("CTV"). (1)
10.2 Memorandum of Variation dated December 21, 1995 to the
Subscription and Securityholders Agreement dated October 12,
1994, among UIH, UIH Australia II, Inc. ("UIHA II"), Salstel
Media Investment Pty Limited ("SMI"), Australis and STV Pty
Limited ("STV"). (1)
63
<PAGE>
10.3 Memorandum of Variation dated April 4, 1996 to the CTV
Securityholders Agreement, among UIH ,UIHA, Australis, SMH and
CTV. (1)
10.4 Memorandum of Variation dated April 4, 1996 to the STV
Securityholders Agreement, among UIH, UIHA II, Australis, SMI and
STV. (1)
10.5 Agreement dated December 21, 1995, among UIH, UIHA and SMH. (1)
10.6 Amending Agreement dated April 4, 1996 to CTV Securityholders
Agreement, among UIH, UIHA and SMH. (1)
10.7 Agreement dated December 21, 1995, among UIH, UIHA II and SMI.
(1)
10.8 Amending Agreement dated April 4, 1996 to the STV Securityholders
Agreement, among UIH, UIHA II and SMI. (1)
10.9 Subscription and Investment Agreement dated July 21, 1997, among
SaskTel Holdings (New Zealand), Inc. ("SaskTel"), Saskatchewan
Telecommunications Holding Corporation, UIH New Zealand Holdings,
Inc. ("UIHNZ"), UIH Asia/Pacific Communications, Inc. ("UAP") and
Saturn Communications Limited ("Saturn"), as amended. (2)
10.10 Shareholders Agreement dated July 23, 1997, among SaskTel, UIHNZ
and Saturn. (2)
10.11 XYZ Shareholders Agreement dated September 6, 1995, among Century
United Programming Ventures Pty Limited ("CUPV"), Foxtel
Management Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited
("XYZ"), Century United Programming Ventures ("CPVC") and the
Issuer. (1)
10.12 Shareholders Deed dated June 30, 1995, among Century
Communications Corporation, CPVC, UIH, the Issuer and CUPV. (1)
10.13 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)
10.14 Master Agreement dated January 11, 1995, between UIH-SFCC L.P.
and the Societe Francaise des Communications et du Cable S.A.
("Societe"). (1)
10.15 Shareholder's Agreement dated January 11, 1995, among UIH-SFCC
L.P. and the shareholders named therein. (1)
10.16 A$200,000,000 Syndicated Senior Secured Debt Facility Agreement
dated July 31, 1997, among Austar Entertainment Pty Limited
("Austar"), Chase Securities Australia Limited, the Guarantors
named herein and the financial institutions named herein. (3)
10.17 Syndicated Senior Secured Debt Facility Agreement, dated November
5, 1998 by and among Saturn Communications Limited, as the
Borrower, Kiwi Cable Company Limited, as Guarantor, each
financial institution specified as a bank in Schedule 1 attached
thereto, and Toronto Dominion Australia Limited, as the Agent.
10.18 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and
East Coast Pay Television Pty Limited ("ECT"). (1)
10.19 Technical Assistance Agreement dated October 12, 1994, between
CTV and United International Management, Inc. ("UIMI"). (1)
64
<PAGE>
10.20 Technical Assistance Agreement dated October 12, 1994, between
STV and UIMI. (1)
10.21 Technical Assistance Agreement dated July 8, 1994, between Saturn
and UIH. (1)
10.22 Amendment No. 1 to Technical Assistance Agreement dated July 23,
1997, between Saturn and UAP. (2)
10.23 Technical Assistance Agreement dated July 23, 1997, between
SaskTel and Saturn. (2)
10.24 Technical Assistance Agreement dated January 11, 1995, between
Telefenua S.A. and Societe. (1)
10.25 Assignment of Rights and Delegation of Duties under Technical
Assistance Agreement dated January 11, 1995, between Societe and
UIMI. (1)
10.26 Management Agreement dated May 1, 1996, between UIH Management,
Inc. and the Registrant. (1)
10.27 Tax Allocation Agreement dated May 8, 1996, among UIH, UAP and
the Issuer. (1)
12.1 Statement re: Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants--Arthur Andersen LLP
(UIH Australia/Pacific, Inc.).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
- ----------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-4 (SEC File No. 333-05017) filed on May 31, 1996.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-4 (SEC File No. 333-39707) filed on November 6, 1997.
(3) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-4 (SEC File No. 333-39707) filed on
December 5, 1997.
(b) Reports on Form 8-K filed during the quarter:
None.
65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UIH Australia/Pacific, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of UIH Australia/Pacific, Inc. included in
this Form 10-K and have issued our report thereon dated March 29, 1999. Our
audit was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The following schedule is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements as indicated in our report with respect thereto and, in our opinion,
based on our audits, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 1999
S-1
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
PARENT ONLY
SCHEDULE 1
Condensed Financial Information of the Registrant
(Stated in thousands, except share and per share amounts)
As of December 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................................... $ -- $ 955
Short-term liquid investments.................................................................. 763 12,325
Related party receivables and costs to be reimbursed........................................... 327 738
Other current assets........................................................................... 3 195
-------- --------
Total current assets........................................................................ 1,093 14,213
Investments in and advances to affiliated companies, accounted for under the equity method....... 52,801 122,247
Deferred financing costs, net of accumulated amortization of $1,215 and $624, respectively....... 9,173 9,757
Other non-current assets......................................................................... -- 77
-------- --------
Total assets................................................................................ $ 63,067 $146,294
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Related party payables......................................................................... $ 1,056 $ 723
Accounts payable............................................................................... -- 195
Accrued liabilities............................................................................ -- 406
-------- --------
Total current liabilities................................................................... 1,056 1,324
Senior discount notes............................................................................ 356,640 309,123
-------- --------
Total liabilities........................................................................... 357,696 310,447
Stockholder's deficit
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000 shares authorized, 17,810,249 and 13,864,941
shares issued and outstanding, respectively................................................. 178 139
Additional paid-in capital..................................................................... 215,624 139,621
Accumulated deficit............................................................................ (481,240) (274,949)
Other cumulative comprehensive loss............................................................ (29,191) (28,964)
-------- --------
Total stockholder's deficit................................................................. (294,629) (164,153)
-------- --------
Total liabilities and stockholder's deficit...................................................... $ 63,067 $146,294
======== ========
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
PARENT ONLY
SCHEDULE 1
Condensed Information as to the Operations of the Registrant
(Stated in thousands)
For the Years Ended December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Corporate general and administrative expense, including management
fees to related party of $853, $790 and $750, respectively.............. $ (5,689) $ (3,189) $ (1,173)
--------- --------- --------
Net operating loss................................................... (5,689) (3,189) (1,173)
Interest income........................................................... 81 643 3,505
Interest expense.......................................................... (48,108) (38,115) (20,270)
Other expense, net........................................................ (836) (559) (59)
--------- --------- --------
Net loss before other item........................................... (54,552) (41,220) (17,997)
Share in losses of affiliated companies, net.............................. (151,739) (126,836) (69,989)
--------- --------- --------
Net loss............................................................. $(206,291) $(168,056) $(87,986)
========= ========= ========
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
PARENT ONLY
SCHEDULE 1
Condensed Information as to the Cash Flows of the Registrant
(Stated in thousands)
For the Years Ended
December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $(206,291) $(168,056) $(87,986)
Adjustments to reconcile net loss to net cash flows from operating activities:
Share in results of affiliated companies, net................................. 151,739 126,836 69,989
Allocation of expense accounted for as capital contributions by parent........ 4,622 1,949 --
Accretion of interest on senior notes and amortization of deferred
financing costs............................................................. 48,108 38,115 20,270
(Increase) decrease in related party receivables and other assets............. 603 1,768 (2,112)
Increase in accounts payable, accrued liabilities and other................... 2,332 2,210 70
--------- --------- --------
Net cash flows from operating activities........................................ 1,113 2,822 231
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments....................................... (763) (15,988) (199,242)
Sale of short-term liquid investments........................................... 12,325 22,303 180,602
Investments in and advances to affiliated companies and other investments....... (72,570) (61,024) (171,553)
--------- --------- --------
Net cash flows from investing activities........................................ (61,008) (54,709) (190,193)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed from parent.................................................... 58,947 7,863 10,664
Proceeds from offering of senior discount notes................................. -- 29,925 225,115
Borrowings on related party payable to parent................................... -- 4,999 --
Payment on bridge loan payable to parent........................................ -- -- (25,000)
Deferred financing costs........................................................ (7) (755) (10,007)
--------- --------- --------
Net cash flows from financing activities........................................ 58,940 42,032 200,772
--------- --------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................ (955) (9,855) 10,810
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................. 955 10,810 --
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................ $ -- $ 955 $ 10,810
========= ========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash capital contributions from parent...................................... $ 12,473 $ 7,800 $ 25,000
========= ========= ========
Gain on issuance of shares by New Zealand subsidiary............................ $ -- $ 5,985 $ --
========= ========= ========
Non-cash issuance of warrants to purchase common stock.......................... $ -- $ 3,678 $ --
========= ========= ========
Non-cash stock issuance for purchase of 50.0% interest in New Zealand subsidiary $ -- $ -- $ 7,800
========= ========= ========
Increase in unrealized loss on investment....................................... $ -- $ (985) $ (3,412)
========= ========= ========
</TABLE>
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on this 31 day of March 1999.
UIH Australia/Pacific, Inc.
a Colorado corporation
By: /S/ Valerie L. Cover
---------------------------------
Valerie L. Cover
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report to be signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title of Position
Signature Held With the Registrant
- --------- ------------------------
<S> <C> <C>
*
- ---------------------------------
Gene W. Schneider Chairman of the Board and March 31, 1999
Chief Executive Officer
*
- ---------------------------------
Michael T. Fries Director and President March 31, 1999
/S/ Valerie L. Cover
- ---------------------------------
Valerie L. Cover Controller (Principal
Accounting Officer) March 31, 1999
* By: /S/ Valerie L. Cover
---------------------------
Valerie L. Cover
Attorney-in-fact
</TABLE>
66
CONFORMED COPY
Syndicated Senior Secured Debt Facility Agreement
Date: 5 November 1998
Saturn Communications Limited
Borrower
Kiwi Cable Company Limited
Guarantor
Each Financial Institution specified as a Bank in Schedule 2
Bank
Toronto Dominion Australia Limited
Agent
<PAGE>
TABLE OF CONTENTS
Clause Page
1. DEFINITIONS AND INTERPRETATION 1
1.1 Definitions 1
1.1 Interpretation 14
1.2 Joint and several liability 15
1.3 Guarantor at date of Agreement 15
1.4 Voting 15
1.5 Inconsistency 15
2. THE FACILITY 15
2.1 Facility 15
2.2 Banks' Commitments 15
2.3 Several obligations 16
2.4 Several interests 16
2.5 Purpose 16
2.6 Termination 16
2.7 Nature of Borrower=s rights and obligations hereunder 16
3. CONDITIONS PRECEDENT 17
3.1 Conditions precedent to the first Utilisation 17
3.2 Conditions precedent to all Utilisations 18
3.3 Waiver 18
3.4 Agent not liable 18
3.5 Agent satisfied 19
4. UTILISATIONS 19
4.1 Notice 19
4.2 Maximum Utilisation Amount 19
4.3 Contents of Utilisation Notice 19
4.4 Requirements of Utilisation Notice 20
4.5 Agent Notify Banks 20
4.6 Making of Advances 20
4.7 Disbursement 20
4.8 Agent's right to vary 20
5. COMMITMENTS 21
5.1 Cancellation of Commitments 21
5.2 Voluntary Cancellation 21
5.3 Reduction consequent on Repayment or Prepayment 21
5.4 Limitations 21
6. REPAYMENT AND PREPAYMENTS 21
6.1 Repayment of Advances 21
(i)
<PAGE>
Page
6.2 Voluntary Prepayment 22
6.3 Agent to notify Banks 23
6.4 Mandatory Prepayment 23
6.5 Application of Mandatory Prepayment 24
6.6 Date for Prepayment 24
6.7 No Redrawings 24
7. INTEREST 24
7.1 Interest Periods 24
7.2 Restrictions on Selection 24
7.3 Calculation of Interest 25
7.4 Payment of Interest 25
8. INTEREST ON OVERDUE AMOUNTS 25
8.1 Payment of Interest 25
8.2 Accrual of Interest 25
9. BILL RELIQUIFICATION 26
9.1 Drawing of Bills 26
9.2 Attorney 26
9.3 Appointment Revoked 26
9.4 Indemnity 26
9.5 Notice 26
10. FEES 27
10.1 Commitment Fee 27
10.2 Underwriting Fee 27
10.3 Agency Fees 27
10.4 Margin 27
11. PAYMENTS 28
11.1 Payment to Agent 28
11.2 Merger 28
11.3 Conversion of Foreign Currency receipts to Dollars 28
11.4 Costs of Conversion 28
11.5 Application 28
11.6 Foreign Currency indemnity 29
11.7 Insufficient payment 29
11.8 Anticipatory payments 29
11.9 Rounding 30
(ii)
<PAGE>
Page
12. TAXES 30
12.1 No deduction for Taxes and no set-off or counterclaim 30
12.2 Payment net of Taxes 30
12.3 Funding 31
12.4 Termination 32
13. ILLEGALITY 32
14. INCREASED COST 32
15. MITIGATION 33
15.1 Mitigation 33
15.2 Replacement of Bank 34
15.3 Costs and Expenses 34
16. REPRESENTATIONS AND WARRANTIES 34
16.1 General representations and warranties 34
16.2 Information representations and warranties 36
16.3 Corporate representations and warranties 37
16.4 Representations and warranties repeated 37
17. UNDERTAKINGS 38
17.1 Duration and Benefit 38
17.2 Information 38
17.3 Security Value 40
17.4 Liabilities 42
17.5 Use of Funds 43
17.6 Dividends and Share Capital 44
17.7 Intellectual Property Rights 44
17.8 Insurances 45
17.9 Licences 47
17.10 Material Contracts 48
17.11 Security Property 48
17.12 General undertakings 49
18. FINANCIAL AND OPERATING RATIOS 51
18.1 Operating Ratios 51
18.2 Financial Ratios 51
18.3 Compliance Certificate 52
(iii)
<PAGE>
Page
19. DEFAULT AND TERMINATION 52
19.1 Events of Default 52
19.2 Agent's rights upon Event of Default 55
20. GUARANTEE AND INDEMNITY 55
20.1 Guarantee 55
20.2 Indemnity 55
20.3 Performance of Obligations 56
20.4 Liability as Guarantor and indemnifier 56
20.5 Principal obligation 56
20.6 Absolute liability 56
20.7 Unconditional liability 56
20.8 No obligation to gain consent 59
20.9 No marshalling 59
20.10 Void or voidable transactions 59
20.11 Insolvency 59
20.12 No set-off, counterclaim, etc. 60
20.13 Restriction on Guarantor's dealings 60
20.14 Release of Obligor 60
20.15 Conditions precedent 60
20.16 Claim on the Guarantors 61
20.17 Subrogation 61
20.18 General waiver by Guarantors 61
20.19 Judgment 61
21. ADDITIONAL GUARANTORS AND SECURITY 61
21.1 Additional Guarantors 61
21.2 Security 62
21.3 Additional Security 62
22. RELEASE OF GUARANTORS AND SECURITY 63
22.1 Guarantors 63
22.2 Assets 63
22.3 Conditions for Release 63
22.4 Release of Group Members 64
23. INDEMNITY 64
24. AGENT 64
24.1 Appointment 64
24.2 Relationships 65
24.3 Communications 65
24.4 Instructions of Majority 65
(iv)
<PAGE>
Page
24.5 Amendments 65
24.6 No need for inquiries 66
24.7 Delegation 66
24.8 Agent not bound to Enquire 66
24.9 Default 66
24.10 Agent as Bank 67
24.11 Agent's dealings 67
24.12 Notices and reports 67
24.13 Not responsible 67
24.14 Indemnity 68
24.15 Observe laws 68
24.16 Replacement 68
24.17 No authority 69
24.18 Agent as Trustee 69
25. HEDGING ARRANGEMENTS 69
25.1 Undertakings of Swap Counterparties 69
25.2 Hedging Agreements 70
26. SET-OFF 70
27. PRO RATA SHARING 71
28. EXPENSES AND STAMP DUTIES 72
28.1 Expenses 72
28.2 Levies 72
29. ASSIGNMENTS AND CONFIDENTIALITY 73
29.1 Successors and assigns 73
29.2 Assignments by the Borrower 73
29.3 Banks 73
29.4 Substitution 73
29.5 Bank accession 74
29.6 Increased Costs and Illegality 75
29.7 Sub-participations 75
29.8 Confidentiality 75
30. GOVERNING LAW AND JURISDICTION 76
30.1 Governing law 76
30.2 Jurisdiction 76
31. MISCELLANEOUS 76
31.1 Certificate of Agent 76
31.2 Notices 76
31.3 Continuing obligation 77
(v)
<PAGE>
Page
31.4 Settlement conditional 77
31.5 Further assurance 77
31.6 Attorney 77
31.7 Severability of provisions 78
31.8 Remedies cumulative 78
31.9 Waiver 78
31.10 Consents and approvals 78
31.11 Written waiver, consent and approval 78
31.12 Time of essence 78
31.13 Consultants fees 79
31.14 Moratorium legislation 79
31.15 Binding on each signatory 79
31.16 Counterparts 79
31.17 Entire Agreement 79
32. NO REPRESENTATION BY OR RELIANCE ON THE BANK OR AGENT 79
SCHEDULE 1 - BANKS 81
SCHEDULE 2 - RATIOS 82
SCHEDULE 3 - DOCUMENTARY CONDITIONS PRECEDENT 84
SCHEDULE 4 - FORM OF UTILISATION NOTICE 86
SCHEDULE 5 - ACCESSION AGREEMENT 87
SCHEDULE 6 - SUBSTITUTION CERTIFICATE 89
SCHEDULE 7 - NOTICE FROM UAP 93
SCHEDULE 8 - COMPLIANCE CERTIFICATE 94
SCHEDULE 9 - FORM OF DIRECTOR'S CERTIFICATE 96
SCHEDULE 10 - BANK ACCESSION CERTIFICATE 100
(vi)
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SYD5/638/526914.9
FACILITY AGREEMENT made at Sydney on 5 November 1998
BETWEEN SATURN COMMUNICATIONS LIMITED, NZ Co. No. WN/435672 of 75 The
Esplanade, Petone, Wellington, New Zealand (the "Borrower")
AND KIWI CABLE COMPANY LIMITED, NZ Co. No. WN/647464 of 75 The
Esplanade, Petone, Wellington, New Zealand (the "Original
Guarantor")
AND EACH FINANCIAL INSTITUTION SPECIFIED AS A BANK in Schedule 1
(each a "Bank")
AND TORONTO DOMINION AUSTRALIA LIMITED, ACN 004 858 020 of Level 36,
385 Bourke Street, Melbourne, Victoria as agent for the Banks (in
this capacity the "Agent")
RECITALS
At the request of the Borrower the Banks have agreed, subject to the terms of
this Agreement, to provide the facility described herein to the Borrower.
THE PARTIES AGREE:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement:
"Accession Agreement" means an agreement substantially in the form of
Schedule 5 made pursuant to clause 21.1.
"Accounts" means from time to time:
(a) the latest audited consolidated annual accounts of the Borrower
and each Guarantor;
(b) the latest unaudited consolidated Quarterly accounts of the
Borrower and each Guarantor;
(c) the latest unaudited consolidated monthly management accounts of
the Group; and
(d) any other audited or unaudited consolidated or unconsolidated
accounts (if any) of the Group or any member thereof,
delivered or required to be delivered to the Agent pursuant to this
Agreement, or such of those accounts as the context requires.
"Additional Guarantor" means any entity which becomes a party hereto
as a Guarantor pursuant to an Accession Agreement.
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"Advance" means the principal amount of each borrowing under this
Agreement or the principal amount of such borrowing outstanding from
time to time, as the context requires.
"Adverse Title Retention Arrangement" means any title retention
arrangement entered into with any person in connection with the
acquisition of goods in the course of business on terms that the
vendor=s title is or may be retained in respect of any goods which
have been paid for in full.
"Amortisation Schedule" means the schedule of dates and payments
calculated by the Agent in accordance with clause 6.1.
"Annualised EBITDA" on any date means the EBITDA for the previous
Quarter multiplied by 4.
"Approved Issuer Levy" means in relation to any payment of interest
(as defined in section 86F of the Stamp and Cheque Duties Act 1971)
under or in respect of this Agreement, the levy payable by the
Borrower in accordance with section 86J of the Stamp and Cheque Duties
Act 1971 to enable the payment of such interest to be made to a New
Zealand Non-Resident for tax purposes with a deduction for New Zealand
non resident withholding tax (as defined in Section 0B1) of the Income
Tax Act 1994 at the rate of zero per cent, pursuant to Section NG2(1)
of the Income Tax Act 1994.
"Authorisation" includes any kind of authorisation, permit, consent,
approval, resolution, licence, exemption, permission, recording,
filing or registration required by any Government Agency or any law or
regulation.
"Availability Period" means the period from the date of this Agreement
to close of business in Wellington on 31 December 2000 or such later
date as all the Banks may agree in writing on or after the date
hereof.
"Bank" means each of the following:
(a) each bank or other financial institution whose name is set out in
Schedule 1;
(b) each bank or other financial institution to which rights and/or
obligations under this Agreement are assigned or transferred
pursuant to clause 29;
(c) each bank which executes a Bank Accession Certificate; and
(d) any successor or successors in title to any of the foregoing,
provided that upon (i) termination in full of all the Commitments of
any Bank, and (ii) irrevocable payment in full of all amounts which
may be or become payable to such Bank under the Transaction Documents,
such Bank shall not be regarded as being a Bank for the purposes of
determining whether any provision of any of the Transaction Documents
requiring consultation with or the consent or approval of or
instructions from the Banks or the Majority Banks has been complied
with (together the "Banks").
"Bank Accession Certificate" means a certificate substantially in the
form of Schedule 10 completed and entered into in accordance with
clause 29.5.
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"Banking Day" means a day on which trading banks are open for business
generally in Sydney, Melbourne and Wellington.
"Bill" means a bill of exchange within the meaning given to the
expression "bill of exchange" in the Bills of Exchange Act 1908 of New
Zealand, but does not include a cheque or payment order, and any
reference to the drawing, acceptance, indorsement or other dealing of
or with a Bill refers to a drawing, acceptance, indorsement or other
dealing within the meaning of that Act.
"Bill Rate" in relation to each Interest Period means the rate
(expressed as a percentage per annum) which is the average of the bid
rates shown at approximately 11.00 am Wellington time on page "BKBM"
on the Reuters Screen (or its successor page) on the first day of that
Interest Period for a term approximately equal to the duration of that
Interest Period (or if that Interest Period is subject to marginal
adjustment, for a term equal to the duration of the Interest Period
prior to such adjustment) provided that if such rate is no longer
available or, in the opinion of the Agent such rate becomes
inappropriate, unfair or incapable of application, the Bill Rate shall
mean the rate reasonably determined by the Agent to be the appropriate
equivalent rate having regard to prevailing market conditions.
"Business" means the investment in and provision of voice, video and
data services over the Cable Network and includes any related
activities.
"Business Plan" means the financial model prepared by the Borrower
dated October 1998 and entitled "Saturn Communications Limited -
CATV/Telephony Business Plan", or any revised version of such model,
agreed by the Agent acting on instructions from the Majority Banks to
be the Business Plan for the purposes of the Facility.
"Cable Network" means the Borrower's full-service, broadband
communications network in the greater metropolitan areas of
Wellington.
"Commitment" in relation to a Bank means the amount appearing and
designated as such against that Bank's name in Schedule 1 or in the
Substitution Certificate, Bank Accession Certificate or other document
by which it became a party to or acquired rights under this Agreement
as reduced or increased by substitution or transfer pursuant to clause
29 and any Substitution Certificates to which such Bank is party, and
to the extent not cancelled, reduced or terminated under this
Agreement (collectively the "Total Commitments").
"Compliance Certificate" means a certificate in the form of Schedule 8
signed by two directors of the Borrower or one director and an Officer
of the Borrower and, when given at the end of the financial year, will
be based on audited Accounts.
"Dollar" or "$" means the lawful currency for the time being of New
Zealand.
"DSC" means DSC Finance Corporation, a company incorporated in Texas,
United States of America.
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"EBITDA" for any period means on a consolidated basis net profit after
tax:
(a) plus depreciation, amortisation (including programming
amortisation), other non-cash charges and income taxes accrued
for such period;
(b) plus Interest Expense less interest revenue;
(c) minus (net) extraordinary abnormal and non recurring gains, and
gains or losses from the sale of assets to the extent such items
are included in operating expenses; and
(d) before capitalisation of Operating Expenses.
For the avoidance of doubt, any amounts paid under the Technical
Assistance Agreements shall be treated as an expense.
"Encumbrance" means any mortgage, charge, pledge, lien, encumbrance,
security interest, title retention, preferential right, security trust
arrangement, contractual right of set-off or any other security
agreement or arrangement in favour of any person.
"Environmental Law" means any law relating to the environment, land or
water use, noise, smell, pollution or contamination, toxic or
hazardous substances, waste disposal or conservation (including,
without limitation), the Resource Management Act 1991, and any
consent, audit or notice under any such law.
"Equivalent Billing Units" for any period means the amount of total
Recurring Revenue divided by the greater of:
(a) the average Recurring Revenue per residential Subscriber; and
(b) $30.00 per calendar month,
in that period.
"Event of Default" means any of the events set out or referred to in
clause 19 as an Event of Default.
"Event of Insolvency" means:
(a) a receiver, manager, trustee, administrator or similar officer is
appointed in respect of an Obligor or any asset of an Obligor;
(b) a liquidator or provisional liquidator is appointed in respect of
any Obligor;
(c) any application (not being an application withdrawn or dismissed
within 7 days or an application which the Agent agrees is
frivolous or vexatious and will be dismissed) is made to a court
for an order, or an order is made, or a meeting is convened, or a
resolution is passed, for the purpose of:
(i) appointing a person referred to in paragraphs (a) or (b);
(ii) winding up or dissolving an Obligor; or
(iii) proposing or implementing a scheme of arrangement in
respect of an Obligor;
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<PAGE>
(d) a moratorium of any debts of an Obligor or an official assignment
or a composition or an arrangement (formal or informal) with an
Obligor?s creditors or any similar proceeding or arrangement by
which the assets of an Obligor are subjected conditionally or
unconditionally to the control of an Obligor's creditors is
ordered, declared or agreed to, or is applied for and the
application is not withdrawn or dismissed within 7 days;
(e) an Obligor becomes, or admits in writing that it is, or is
declared to be, is deemed under any applicable law to be,
insolvent or unable to pay its debts;
(f) any writ of execution, garnishee order, mareva injunction or
similar order, attachment, distress or other similar process is
made, levied or issued against or in relation to any asset of an
Obligor in respect of a claim greater than $100,000;
(g) a statutory manager is appointed under the Corporations
(Investigation and Management) Act 1989 in respect of an Obligor,
or any associated person (as that term is defined in that Act) or
an Obligor is declared at risk pursuant to the provisions of that
Act.
"Excess Cash Flow" for any period means all cash inflows during that
period of the Group from whatever source (not including cash proceeds
from new equity and Subordinated Debt issues) less all cash outflows
during that period of the Group (including changes in working capital,
capital expenditure and debt amortisation in accordance with the
Amortisation Schedule but excluding any payments made pursuant to
clause 6.4 and 17.6), determined on a consolidated basis and based on
Quarterly accounts.
"Excluded Taxes" means any Taxes imposed by any jurisdiction on the
overall net income of a Bank but not Taxes:
(a) which are calculated on or by reference to the gross amount of
any payments (without the allowance of any deduction) derived
under this Agreement or any Transaction Document or any other
document referred to in this Agreement or a Transaction Document
by the Bank; or
(b) which are imposed as a result of the Bank being considered a
resident of or organised or doing business in that jurisdiction
solely as a result of it being a party to this Agreement or a
Transaction Document or any transaction contemplated by this
Agreement or a Transaction Document.
"Facility" means the amortising term loan facility referred to in
clause 2.1.
"Financial Liability" means present or future, actual or contingent
indebtedness in respect of financial accommodation, credit or hedging
arrangements, finance leases or hire purchase arrangements or any
guarantee or other assurance in respect of any such indebtedness.
"financial year" means a calendar year ending on 31 December.
5
<PAGE>
"Foreign Currency" means the currency for the time being of any
country other than New Zealand.
"Freehold Mortgage" means the registrable mortgage of the whole of the
estate in fee simple described in Certificate of Title No. 53B-414.
"Government Agency" means any government (or minister thereof),
semi-government authority or department and any agency, authority or
central bank.
"Group" means the Borrower, and each Subsidiary of the Borrower.
"Guarantor" means the Original Guarantor and each Additional Guarantor
(together the "Guarantors").
"Hedging Agreements" means any interest rate or currency hedging
agreement entered into between the Borrower and a Bank.
"Hedging Liabilities" means all present and future liabilities (actual
or contingent) payable or owing by the Borrower to the Swap
Counterparties or any of them under or in connection with the Hedging
Agreements, whether or not matured and whether or not liquidated,
together in each case with:
(a) any novation, deferral or extension of any of those
liabilities permitted by the terms of this Agreement;
(b) any claim for damages or restitution arising out of, by
reference to or in connection with any of the Hedging
Agreements;
(c) any claim flowing from any recovery by the Borrower or a
receiver or liquidator thereof or any other person of a
payment or discharge in respect of any of those liabilities
on the grounds of any Insolvency Provision or otherwise; and
(d) any amounts (such as post-insolvency interest) which would
be included in any of the above but for any discharge,
non-provability, unenforceability or non-allowability of the
same as a result of any Insolvency Provision.
"Homes Serviceable" means homes and businesses which are located
sufficiently close to built and activated segments of the Cable
Network and which require only a standard installation for the
provision of cable and telephony services (in circumstances where it
would be economically viable for the Borrower to make such
installations).
"Information Memorandum" means the memorandum to be prepared by the
Agent on the basis of information supplied by the Obligors to assist
the Agent in obtaining persons to provide financial accommodation
pursuant to the Facility and containing information, financial and
otherwise, regarding Obligors.
"Insolvency Provision" means any law relating to insolvency,
sequestration, liquidation or bankruptcy (including any law relating
to the avoidance of conveyances in fraud of creditors or of
preferences and any law under which a liquidator or trustee in
bankruptcy may set aside or avoid transactions) and any provision of
6
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any agreement, arrangement or scheme, formal or informal, relating to
the administration of any of the assets of any person.
"Insurable Property" means any part of the Security Property which is
of an insurable nature excluding the Cable Network outside of any
buildings housing the technical operations facilities of the Borrower.
"Insurances" means the insurances required to be taken out or
maintained by the Borrower and the Guarantors to comply with the
provisions of this Agreement.
"Intended Obligations" means any payment or other act the making or
doing of which would have formed part of the Obligations but for a
circumstance referred to in clause 20.7(c).
"Interconnection Agreement" means the agreement so called between
Telecom New Zealand Limited and the Borrower dated 20 June 1997.
"Interest Expense" means all Senior Debt interest and financing costs,
whether paid as cash or accrued as a liability on all direct,
contingent (including imputed interest on capital equipment lease
obligations), and other permitted indebtedness of the Group,
determined on a consolidated basis.
"Interest Period" means each period determined in accordance with
clause 7.1.
"Licence" means each licence, certificate, document, registration,
permission, privilege, permit, authority or consent which is issued or
held in connection with or which is necessary in connection with the
business or premises of an Obligor including, without limitation, any
variation or renewal of any of the foregoing.
"Majority Banks" means at any time:
(a) whilst no Advance is outstanding, a Bank or Banks the aggregate
of whose Commitments at the relevant time represent by value more
than 66b% of the Total Commitments at such time; or
(b) if an Advance is then outstanding, a Bank or Banks the aggregate
of whose participation in the Advances outstanding at such time
represent by value more than 66 2/3% of the aggregate of all the
Advances.
"Material Adverse Effect" means any effect which is, or is reasonably
likely:
(a) to be materially adverse to:
(i) the ability of an Obligor to perform its material
obligations under any of the Transaction Documents to which
it is a party; or
(ii) the business, assets, financial condition of the Borrower, a
Guarantor or the Group taken as a whole; and/or
(b) (where the context so admits) to result in any of the Transaction
Documents not being legal, valid and binding on, and enforceable
in accordance with its terms against, any party (other than a
Bank or the Agent) to that Transaction Document and/or (in the
case of any of the Securities) not providing to the Agent for
7
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itself and on behalf of the Banks, perfected, enforceable
security over the assets to be covered by that Security.
"Material Contract" means
(a) Pole and Cabling Duct Agreement between the Borrower and Capital
Power Limited dated 22 September 1995;
(b) Pole and Cabling Duct Agreement between the Borrower and Energy
Direct Corporation Limited dated 28 July 1995;
(c) Pay-Per-View Term Sheet between the Borrower and Warner Bros.;
(d) Pay-Per-View License Agreement between the Borrower and Universal
Studios International B.V. dated 8 April 1997;
(e) Construction Contract between the Borrower, Australian Power
Industries Pty. Limited and Australian Power Industries (NZ)
Limited dated 12 June 1998;
(f) Subscription and Investment Agreement between SaskTel NZ, STHC,
UIHNZ, UAP and the Borrower dated 21 July 1997;
(g) Shareholders Agreement between UIHNZ, SaskTel NZ and the Borrower
dated 23 July 1997;
(h) each Technical Assistance Agreement;
(i) Interconnection Agreement;
(j) Register Agreement between Telecom New Zealand Limited and the
Borrower dated 20 June 1997;
(k) Agreement for the Provision of Number Portability between Telecom
New Zealand Limited and the Borrower dated 27 March 1998;
(l) Operations Centre Lease; and
(m) each other contract entered into by a member of the Group after
the date of this Agreement which is of similar importance to the
net cash flow or operation of the business of the Group as the
contracts listed in paragraphs (a) to (l) of this definition and
which the Agent (acting on the instructions of the Majority
Banks) designates to be a Material Contract by notice to the
Borrower.
"Maximum Monthly Utilisation" means the maximum amount the Borrower
may utilise in any calendar month during the period listed in clause
4.2(b).
"Maximum Utilisation Amount" means the maximum amount the Borrower may
utilise as determined in accordance with clause 4.2.
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"Net Proceeds" means the consideration received by any member or
members of the Group in respect of the disposal to a person not in the
Group of any member of the Group or of all or any part of the
business, undertaking or assets of any member of the Group (including
the amount of any intercompany debt repaid to continuing members of
the Group as a consequence of such disposal), after deduction of all
Taxes applicable on, or to any gain resulting from, the disposal and
of all reasonable costs, fees, expenses and the like properly incurred
by continuing members of the Group in arranging and effecting that
disposal.
"New Zealand Non-Resident" means any person (as that term is defined
in section OB1 of the Income Tax Act 1994) who is not resident (as
that term is defined in section OE1 and OE2 of the Income Tax Act
1994) in New Zealand and/or not engaged in business in New Zealand
through a fixed establishment of New Zealand.
"Nortel" means Nortel New Zealand Limited, a company incorporated in
Wellington.
"Nortel/DSC Debt" means:
(a) the loan made by Nortel to the Borrower pursuant to a facility
agreement dated 29 April 1998; and
(b) the loan by DSC to the Borrower pursuant to a facility agreement
dated 6 March 1998.
"Nortel/DSC Security" means:
(a) the fixed charge over equipment granted by the Borrower in favour
of Nortel pursuant to an instrument dated 29 April 1998;
(b) the fixed charge over equipment granted by the Borrower in favour
of DSC pursuant to an instrument dated 13 July 1997; and
(c) any other security granted in favour of Nortel or DSC by the
Borrower.
"Obligations" means all the liabilities of the Borrower or any
Guarantor to the Agent and the Banks under or by reason of any
Transaction Document and, without limiting the generality of the
foregoing, includes any liabilities which:
(a) are liquidated or unliquidated;
(b) are present, prospective or contingent;
(c) are in existence before or come into existence upon or after
the date of this document;
(d) relate to the payment of money or the performance or omission
of any act;
(e) sound in damages only; or
(f) accrue as a result of an Event of Default,
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and irrespective of:
(i) whether the Borrower or any other Obligor is liable or
obligated solely, or jointly and severally with another
person;
(ii) the circumstances in which the Banks come to be owed each
liability or obligation and in which each liability or
obligation came to be secured by this document, including,
without limitation any assignment of any liability or
obligation or of this document; or
(iii) the capacity in which the Borrower, any other Obligor and
the Banks come to owe or to be owed such liability or
obligation.
"Obligor" means a several reference to the Borrower, each Guarantor,
any other member of the Group which has been required to enter into
(whether or not it has yet entered into) any Accession Agreement
and/or Security and, when used in clause 20, also means any person
from whom a Guarantor, but for any provision of this Agreement, would
be entitled to seek contribution in respect of money paid or payable
by virtue of the guarantee contained herein (together the "Obligors").
"Officer" means chief executive officer, chief financial officer,
company secretary or general legal counsel.
"Operating Expense" means expenses of the Group incurred in the
operation of the business of the Group, determined in accordance with
generally accepted accounting principles.
"Original Securities" means:
(a) Deed of Fixed and Floating Charge in favour of the Agent over the
whole of the assets and undertakings of the Borrower and the
Original Guarantor, dated on or around the date of this
Agreement;
(b) the Freehold Mortgage; and
(c) the Share Mortgage.
"Potential Event of Default" means any event which, with the giving of
notice, lapse of time, satisfaction of a condition or any
determination would be likely to constitute an Event of Default.
"Prescribed Rate" for each Interest Period means the aggregate of the
Bill Rate in relation thereto and the Utilisation Margin.
"Proportion" means the amount of a Bank=s participation in an Advance
in the proportion (applied to the requested amount of the Advance)
which its Commitment bears to the amount of the Total Commitments.
"Quarter" means the period commencing on the date of this Agreement
and ending on 30 September 1998, each succeeding period of 3 months
ending 31 December, 31 March, 30 June and 30 September and the broken
period ending on the date when this Agreement terminates which
commenced on the day immediately following the last preceding Quarter
day.
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"Ratios" means the financial and operating ratios listed in Schedule
2.
"Recurring Revenue" means all Revenue other than connection and
installation fees.
"Related Company" has the meaning given in section 2(3) of the
Companies Act 1993.
"Repayment Date" means each repayment date specified in clause 6.1.
"Revenue" means all revenue of the Borrower other than abnormal or
extraordinary revenue.
"SaskTel NZ" means SaskTel Holding (New Zealand) Inc., a Saskatchewan
corporation.
"Securities" means the Original Securities together with any other
security held by the Agent as agent of the Banks at any time for the
due performance, observance and fulfilment of the Obligations, and
"Security" means each or any one of them as the context requires.
"Security Property" means any property subject to a Security.
"Senior Debt" means all direct and contingent borrowings (excluding
non-financial corporate guarantees) of the Group which are not
subordinated.
"Share Mortgage" means the non recourse Deed of Mortgage in favour of
the Agent dated on or around the date of this Agreement granted by
UIHNZ and SaskTel NZ in respect of the whole of the share capital in
the Borrower and any loans made by UIHNZ or SaskTel NZ to any member
of the Group.
"Shareholder Contribution Deed" means the deed so named dated on or
around the date of this Agreement between the Borrower, UIHNZ, SaskTel
NZ, UAP and STHC.
"STHC" means Saskatchewan Telecommunications Holding Corporation, a
statutory corporation formed under the laws of Saskatchewan.
"Specified Rate" means the aggregate of the Prescribed Rate and 2% per
annum.
"Subordinated Debt" means any indebtedness the payment of which is
subordinated to the Senior Debt.
"Subscriber" means a customer connected to the Cable Network whose
account is current and who has either:
(a) a telephone line rental; or
(b) a cable rental,
and where a customer has both (a) and (b), such customer will be
treated as 2 Subscribers.
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"Subsidiary" in relation to any person, means:
(a) a subsidiary, as defined in section 5 of the Companies Act 1993;
or
(b) an "in-substance subsidiary", in accordance with any approved
financial reporting standard,
of that person.
"Substitution Certificate" means a certificate substantially in the
form of Schedule 6 completed and entered into in accordance with
clause 29.4, and references to "substitutes" shall be construed as
references to persons becoming party to this Agreement pursuant to
Substitution Certificates.
"Swap Counterparty" means any Bank who is a party to a Hedging
Agreement.
"Tax" and "Taxes" mean all income tax, stamp duty and other taxes,
levies, imposts, deductions, charges and withholdings plus interest
thereon and penalties, if any, and charges, fees or other amounts made
on or in respect thereof and "Taxation" shall be construed
accordingly.
"Technical Assistance Agreement" means:
(a) the Technical Assistance Agreement between the Borrower and UAP
(as successor in interest to UIHI) dated 8 July 1994 (as
amended); or
(b) the Technical Assistance Agreement between the Borrower and
SaskTel NZ dated 23 July 1997,
together the "Technical Assistance Agreements".
"Termination Date" means the earlier of:
(a) 30 September 2006, or such other date as is agreed in writing
between the Agent (acting on the instructions of all Banks) and
the Borrower; and
(b) such earlier date on which the Facility is terminated or
cancelled in accordance with this Agreement.
"Total Debt" means the sum of all financial indebtedness of the
Borrower (other than subordinated loans approved by the Banks).
"Total Debt/EBITDA" on any date means the amount of Total Debt divided
by the Annualised EBITDA for the last Quarter.
"Transaction Document" means:
(a) this Agreement (together with each Accession Agreement, Bank
Accession Certificate and Substitution Certificate);
(b) each Hedging Agreement;
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(c) the Shareholder Contribution Deed;
(d) the Tripartite Deed;
(e) each Security; and
(f) each other document to which any Obligor (on the one hand) and
the Agent or a Bank (on the other hand) are parties at any time
that:
(i) relates to any money that is declared by that document to be
part of the Obligations; or
(ii) is expressed to be, or is agreed by the said parties to be,
a Transaction Document for the purposes hereof; and
(g) any other document which is, or which is expressed to be,
collateral or supplemental to any other document that is then a
Transaction Document.
"Tripartite Deed" means the deed so named dated on or about the date
of this Agreement between the Borrower, UIHNZ, SaskTel NZ, UAP, STHC
and the Agent.
"UAP" means UIH Asia/Pacific Communications Inc., a Delaware
corporation.
"UIHI" means United International Holdings Inc., a Delaware
corporation.
"UIHNZ" means UIH New Zealand Holdings, Inc., a Colorado corporation.
"Underwriters" means Toronto Dominion Australia Limited and Paribas.
"Underwriting Letter" means the letter agreement dated on or about the
date of this Agreement between the Borrower and each of the
Underwriters in relation to, among other things, the fees payable
under clauses 10.2 and 10.3 and the Commitments.
"Utilisation" means a utilisation under this Agreement of the
Facility.
"Utilisation Date" means the date on which an Advance is made or,
where the context requires, is proposed to be made.
"Utilisation Margin" means the percentage per annum determined in
accordance with clause 10.4.
"Utilisation Notice" means a notice given under clause 4 in respect of
an Advance.
"Warner Bros." means Warner Bros. International Television
Distribution, a division of Time Warner Entertainment Company, L.P.
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1.1 Interpretation
In this Agreement unless the context indicates a contrary intention:
(a) the expression "person" includes an individual, the estate of an
individual, a body politic, a corporation and a statutory or
other authority or association (incorporated or unincorporated);
(b) a reference to any party includes that party's executors,
administrators, successors, substitutes and assigns, including
any person taking by way of novation and in the case of the Agent
includes any substituted or additional agent or trustee;
(c) a reference to any Transaction Document however described or to
any other document includes the Transaction Document or other
document as amended, novated, supplemented, varied or replaced
from time to time;
(d) a reference to any legislation or to any section or provision
thereof includes any statutory modification or re-enactment or
any statutory provision substituted therefor and all ordinances,
by-laws, regulations and other statutory instruments issued
thereunder;
(e) words importing the singular include the plural (and vice versa)
and words denoting a given gender include all other genders;
(f) headings are for convenience only and do not affect
interpretation;
(g) a reference to a clause or schedule is a reference to a clause or
schedule of this Agreement;
(h) where any word or phrase is given a defined meaning any other
part of speech or other grammatical form in respect of such word
or phrase has a corresponding meaning;
(i) where the day on or by which any sum is payable or any act,
matter or thing is to be done is a day other than a Banking Day,
that sum will be paid and such act, matter or thing will be done
on the immediately preceding Banking Day;
(j) all accounting terms used have the meaning given to those terms
under accounting principles and practices generally accepted in
New Zealand from time to time;
(k) representations, warranties, covenants, undertakings and
agreements made or given in favour of the Agent in their capacity
as Agent enure for the benefit of and, subject to the Transaction
Documents, be capable of enforcement by the Banks and each of
them; and
(l) a reference to a law includes a New Zealand or applicable foreign
law, regulation, rule, directive or policy of any government or
regulatory authority whether or not having the force of law.
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1.2 Joint and several liability
The obligations of the Guarantors under this Agreement will bind each
of them severally and every 2 or more of them jointly and unless the
context indicates a contrary intention, the expression "Guarantors"
will be deemed to include any person who has guaranteed, or in the
future guarantees to the Agent and the Banks the due performance of
the whole or any part of Obligations.
1.3 Guarantor at date of Agreement
The parties acknowledge that there is one Guarantor (being Kiwi Cable
Company Limited) at the date of this Agreement.
1.4 Voting
Any Bank, by written notice to the Agent, may notionally divide any or
all of its Commitment and/or participation in the Advances into
separate amounts to reflect any sub-participation and may vote or
abstain from voting, with respect to any such separate amount, on any
matter separately and differently from its vote or abstention with
respect to any other such separate amount on such matter.
1.5 Inconsistency
In the event of any inconsistency between:
(a) the terms of the Freehold Mortgage (including but not limited to
the Memorandum No. 1995/4004); and
(b) the terms of any Transaction Document (excluding the Freehold
Mortgage),
the terms of the Transaction Documents (excluding the Freehold
Mortgage) will prevail over the terms of the Freehold Mortgage and the
Freehold Mortgage will be read and construed as amended, varied or
supplemented by the Transaction Documents (excluding the Freehold
Mortgage) to the extent of any such inconsistency.
2. THE FACILITY
2.1 Facility
Subject to the terms of this Agreement and in reliance upon the
representations and warranties set out in clause 16, the Banks grant
to the Borrower a term loan facility whereby the Banks, when requested
by the Borrower pursuant to a Utilisation Notice, during the
Availability Period, will make Advances in an aggregate amount which
will not exceed the Commitments.
2.2 Banks' Commitments
Notwithstanding the Maximum Utilisation Amount and Maximum Monthly
Utilisation amounts set out in clause 4.2(b), no Bank is obliged to
participate in the making of an Advance if to do so would cause the
aggregate of its participation in Advances outstanding under this
Agreement to exceed its Commitment.
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2.3 Several obligations
The obligations of each Bank under this Agreement and each Transaction
Document are several. The failure of a Bank to perform its obligations
under this Agreement or a Transaction Document shall not relieve any
other Bank, the Agent or an Obligor of any of its respective
obligations or responsibilities under this Agreement or the
Transaction Documents. The Agent shall not be responsible for the
obligations of any Bank (except for its own obligations, if any, as a
Bank), nor shall any Bank be responsible for the obligations of any
other Bank.
2.4 Several interests
The interests of the Agent and each Bank under this Agreement and each
Transaction Document are several. The amounts due to the Agent on its
own account, the Agent on its own account and to each Bank under this
Agreement or a Transaction Document constitutes a separate and
independent debt.
2.5 Purpose
(a) The Facility will be used to assist in the funding of:
(i) capital expenditure for the building of the Cable Network;
(ii) the establishment and operating costs of the Business; and
(iii) the repayment of the Nortel/DSC Debt.
(b) The Facility will not be used for any other purpose than that
described in clause 2.5(a).
2.6 Termination
The Facility terminates on the Termination Date.
2.7 Nature of Borrower=s rights and obligations hereunder
(a) (Borrower as Agent): Each Obligor (other than the Borrower) by
its execution of this Agreement or an Accession Agreement
irrevocably authorises the Borrower on its behalf to give all
notices and instructions under the Transaction Documents, to
execute on its behalf any Accession Agreement and to make such
agreements capable of being given or made by any Obligor relating
to the Transaction Documents notwithstanding that they may affect
such Obligor, without further reference to or the consent of such
Obligor.
(b) (Borrower's acts binding): Every act, omission, agreement,
undertaking, settlement, waiver, notice or other communication
given or made by the Borrower under this Agreement, or in
connection with this Agreement, (whether or not known to any
other Obligor and whether occurring before or after such other
Obligor became an Obligor under this Agreement) shall be binding
for all purposes on all other Obligors as if the other Obligors
had expressly concurred with the same. In the event of any
conflict between any notices or other communications of the
Borrower and any other Obligor, those of the Borrower shall
prevail.
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3. CONDITIONS PRECEDENT
3.1 Conditions precedent to the first Utilisation
The obligations of each Bank under this Agreement are subject to the
conditions precedent that:
(a) (Transaction Documents): the Agent has received original copies
of this Agreement and the Transaction Documents (other than
Hedging Agreements), duly executed together with an undertaking
by the Borrower (which it hereby gives) that it will pay all
applicable levies and stamp duty when, and if, required;
(b) (Documents): the Agent has received all of the documents listed
in Schedule 3 in form and substance satisfactory to it;
(c) (Fees): all fees referred to in clauses 10.2 and 10.3 and all
other fees and expenses owing to the Banks and their legal
consultants have been paid or confirmation that the Borrower will
pay simultaneously with the first Utilisation those fees and
expenses;
(d) (Shareholder contribution): the Agent has received evidence in
the form of a statement from 2 directors or one director and the
Chief Financial Officer of the Borrower, that SaskTel NZ and
UIHNZ have contributed, in aggregate, not less than $105,000,000
of equity to the Borrower;
(e) (Subscribers): the Agent has received evidence in the form of a
statement from two directors or one director and an Officer of
the Borrower, that as at 1 September 1998, the Group has achieved
and maintains a minimum of 6,000 Subscribers;
(f) (Indenture): the Agent has received a notice substantially in the
form of Schedule 7 from UAP;
(g) (Rollout): the Agent has received evidence in the form of a
statement from 2 directors or one director and an Officer of the
Borrower that as at 1 September 1998 the Cable Network extends to
a minimum of 20,000 Homes Serviceable;
(h) (Hedging policy): the Borrower has a hedging policy in place
satisfactory to the Underwriters to cover its interest rate and
currency exposures under the Transaction Documents;
(i) (Nortel/DSC Debt): the Nortel/DSC Debt has been repaid in full or
confirmation that the Borrower will repay such debt in full
simultaneously with the first Utilisation;
(j) (Nortel/DSC Security): the Nortel/DSC Security will be discharged
simultaneously with the first Utilisation; and
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(k) (Approved Issuer Levy): the Borrower has been granted approved
issuer status.
3.2 Conditions precedent to all Utilisations
The obligations of the Agent and each Bank in respect of each
Utilisation are subject to the Agent being satisfied that at the
Utilisation Date:
(a) (Representations and warranties true): the representations and
warranties listed in clause 16 (except for clauses 16.2(c), (d),
(e) and (f)) are true and correct and will be correct immediately
after the making of the Advance;
(b) (No Event of Default): no Event of Default or Potential Event of
Default is subsisting or will result from the making of the
Advance;
(c) (No Material Adverse Effect): no event has occurred which would
have a Material Adverse Effect;
(d) (No Change in Law): no change has occurred in applicable laws or
regulations which would have a Material Adverse Effect;
(e) (Further Guarantees and Security): all Accession Agreements and
Securities required by the terms of this Agreement to be entered
into on or before such Utilisation Date have been or will on such
Utilisation Date be duly executed and delivered to the Agent
together with all other documents required to be delivered to the
Agent in relation thereto; and
(f) (Compliance with Ratios): it has received evidence satisfactory
to it that:
(i) up to and including 31 December 1999, the Ratios for the
previous month have been met; and
(ii) from 1 January 2000, the Ratios for the previous Quarter
have been met.
3.3 Waiver
The conditions precedent listed in clauses 3.1 and 3.2 may be waived
by the Agent acting on behalf of:
(a) all Banks, in relation to clause 3.1; and
(b) the Majority Banks, in relation to clause 3.2.
3.4 Agent not liable
The Agent shall be deemed to be satisfied with the form and substance
of a document under clause 3.1(b) if to the Agent the document appears
on its face to conform with its description and the Agent shall not be
liable for any cost, loss damage or expense suffered or incurred by
any person as a result of its being so satisfied.
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3.5 Agent satisfied
The Agent will be deemed to be satisfied that the conditions precedent
to Utilisations referred to in clause 3.2 have been met if, prior to
each Utilisation Date, the Agent receives from the Borrower a written
notice certifying that the relevant conditions precedent have been met
and information in support of that certification and the information
appears, on its face, to support the certification made.
4. UTILISATIONS
4.1 Notice
The Borrower may request a Utilisation under the Facility on a Banking
Day by giving written notice of its intention to do so to the Agent.
4.2 Maximum Utilisation Amount
(a) The Borrower may not issue a Utilisation Notice if the making of
the Advance specified therein would exceed the Maximum
Utilisation Amount or the Maximum Monthly Utilisation Amount to
which the Borrower is entitled in accordance with clauses 4.2(b)
below.
(b) Subject to clause 2.2, the Maximum Utilisation Amount and Maximum
Monthly Utilisation during the periods set out below will be as
follows:
Maximum Maximum
Utilisation Monthly
Period Amounts ($) Utilisation ($)
------------------------------ ------------ ---------------
Prior to 1 January 1999 40,000,000 40,000,000
1 January to 31 March 1999 59,000,000 8,000,000
1 April to 30 June 1999 77,000,000 6,000,000
1 July to 30 September 1999 98,000,000 10,000,000
1 October to 31 December 1999 114,000,000 6,000,000
1 January to 31 March 2000 120,000,000 6,000,000
1 April to 31 December 2000 125,000,000 5,000,000
4.3 Contents of Utilisation Notice
Each Utilisation Notice for an Advance shall be in the form of
Schedule 4 and shall specify:
(a) the amount of the Utilisation (which shall not be less than
$1,000,000 and which must be an integral multiple of $500,000);
(b) the proposed Utilisation Date which must be a Banking Day prior
to expiration of the Availability Period;
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(c) the proposed duration of its Interest Period (which must be of
either 1, 2, 3 or 6 months duration);
(d) the proposed purpose to which the Utilisation will be applied:
(e) payment instructions; and
(f) such other particulars as the Agent may from time to time
require.
4.4 Requirements of Utilisation Notice
Each Utilisation Notice shall:
(a) be received by the Agent 4 clear Banking Days before the proposed
Utilisation Date;
(b) be signed by a person duly authorised by the Borrower to do so;
(c) be irrevocable; and
(d) not be given unless the conditions precedent to a Utilisation
will be satisfied or waived on or before the proposed Utilisation
Date.
4.5 Agent Notify Banks
Within 1 Banking Day after its receipt of a Utilisation Notice the
Agent shall notify each Bank.
4.6 Making of Advances
Subject to the terms of this Agreement, each Bank shall, on the
Utilisation Date, make available to the Agent its Proportion in
Dollars for the account of the Borrower. All such amounts shall be
made available to the Agent in accordance with clause 11 for
disbursement to or to the order of the Borrower in accordance with the
provisions of this Agreement.
4.7 Disbursement
Amounts received by the Agent under clause 4.6 shall be applied by it
in accordance with the payment instructions specified in the relevant
Utilisation Notice.
4.8 Agent's right to vary
Without limitation to the rights and powers vested in it under this
Agreement, the Agent may vary any of the times at or by which any act,
matter or thing is to be done under this clause 4 if it determines
that such a variation is necessary or desirable to ensure the
effective operation of the Facility. Any such variation shall be
binding on all parties to this Agreement.
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5. COMMITMENTS
5.1 Cancellation of Commitments
Any part of the Commitments not borrowed hereunder before expiry of
the Availability Period shall be cancelled automatically at close of
business in Wellington on the date of such expiry.
5.2 Voluntary Cancellation
The Borrower may, on giving not less than 30 days' prior written
notice to the Agent (which shall promptly give notice of the same to
the Banks), cancel or reduce the Total Commitments in whole or in part
specified by the Borrower without incurring any penalty or other cost,
provided that such cancellation or reduction may only be effected to
the extent of the amount of the Total Commitments undrawn on that date
and the applicable Commitments of each Bank must be reduced pro rata.
Any such notice by the Borrower shall be irrevocable and shall specify
the date upon which the reduction is to become effective and the
amount of the reduction. No fee, penalty or other amount is payable in
connection with any cancellation hereunder.
5.3 Reduction consequent on Repayment or Prepayment
(a) The Total Commitments shall be reduced (such reduction being
applied pro rata as between all the Commitments) by the amount of
any repayment or prepayment of any Advance made pursuant to
clauses 6.1, 6.2 and 6.4.
(b) An individual Bank's Commitment shall be reduced by the amount of
any prepayment of that Bank's participation in any Advance made
pursuant to any other provision of this Agreement.
5.4 Limitations
Save as expressly provided, any amount of the Total Commitments
cancelled or otherwise extinguished under this Agreement may not be
reinstated. Save as expressly provided neither the Total Commitments
nor any constituent part thereof may be reduced or cancelled under
this Agreement.
6. REPAYMENT AND PREPAYMENTS
6.1 Repayment of Advances
(a) (Calculation of repayments): At the end of the Availability
Period, the Agent will calculate the repayment instalments for
each Repayment Date specified below having regard to the
outstanding Advances at that time ("Total Principal Amount"). The
amount to be repaid on each Repayment Date will be calculated by
multiplying the Total Principal Amount by the percentage set out
opposite the relevant date.
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Repayment Date Repayment %
-------------- -----------
31 December 2001 1.0
31 March 2002 2.0
30 June 2002 2.0
30 September 2002 2.0
31 December 2002 2.0
31 March 2003 3.6
30 June 2003 3.6
30 September 2003 3.6
31 December 2003 3.6
31 March 2004 5.0
30 June 2004 5.0
30 September 2004 5.0
31 December 2004 5.0
31 March 2005 7.0
30 June 2005 7.0
30 September 2005 7.0
31 December 2005 7.0
31 March 2006 8.0
30 June 2006 10.3
30 September 2006 10.3
(b) (Amortisation Schedule): Promptly upon expiry of the Availability
Period (or following any prepayment), the Agent will produce an
Amortisation Schedule in accordance with paragraph (a) (and
taking into account any prepayment where relevant) and will
provide such Amortisation Schedule to the Banks and the Borrower
promptly thereafter.
(c) (Repayment): The Borrower will repay the Advances on the
Repayment Dates in accordance with the Amortisation Schedule
until the Advances outstanding are repaid in full.
6.2 Voluntary Prepayment
(a) The Borrower may prepay an Advance or part thereof on the last
day of its current Interest Period on giving not less than 10
Banking Days' prior written notice to the Agent.
(b) Any notice of prepayment given by the Borrower is irrevocable and
the Borrower is thereby bound to prepay in accordance with the
notice.
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(c) Interest accrued on any amount prepaid under this Agreement shall
be paid at the time of prepayment.
(d) Any prepayment is permanent, and the Facility will be cancelled
to the extent of the prepayment.
(e) Any prepayment under this clause 6.2 will be applied pro rata
against the remaining instalments listed in the Amortisation
Schedule. No fee, penalty other amount is payable in connection
with any prepayment hereunder.
6.3 Agent to notify Banks
Promptly after its receipt of a notice of prepayment the Agent shall
notify each Bank of the voluntary prepayment, the date on which the
voluntary prepayment is to be made and its pro rata share thereof.
6.4 Mandatory Prepayment
(a) (Excess Cash Flow): After 1 January 2001, the Borrower will apply
on a Quarterly basis towards the repayment of the Facility, 50%
of the Excess Cash Flow for the preceding Quarter, with the first
such Quarter ending on 31 March 2001. The amount to be prepaid
will be calculated by the Agent and notified to the Borrower
after receipt of the Quarterly Accounts.
(b) (Disposal): If any member of the Group or any of the assets,
business or undertaking of any member of the Group are disposed
of, the Borrower, unless the Majority Banks shall otherwise
consent in writing, shall apply, or shall procure that there
shall be applied, forthwith an amount equal to the Net Proceeds
arising from the disposal, in or towards prepayment of the
Utilisations in accordance with clause 6.5, provided that the
foregoing shall not apply to Net Proceeds arising from:
(i) a disposal of trading stock in the ordinary course of
trading; or
(ii) a disposal of assets not constituting trading stock which
are to be replaced by other assets being acquired for use
for like purposes and are so replaced within 3 months of the
date of such disposal (save to the extent the Net Proceeds
exceed the acquisition cost of those other assets); or
(iii) any disposal the consideration for which, when taken
together with the consideration for any related disposals or
recoveries, does not exceed $500,000 unless or until the
aggregate thereof exceeds $5,000,000 in any 12 month period.
(c) (Insurance proceeds): At any time during the term of the
Facility, the Borrower must apply in prepayment of any Advances
outstanding at the time all of the proceeds (in excess of
replacement costs) of any property or casualty insurance received
by it, other than business interruption insurance.
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6.5 Application of Mandatory Prepayment
The amounts required to be applied in prepayment pursuant to clause
6.4 shall be applied against the remaining instalments listed in the
Amortisation Schedule in their inverse order of maturity.
6.6 Date for Prepayment
If the Borrower becomes obliged to prepay or procure the prepayment of
any amount under clause 6.4, the prepayment shall be made on the last
day of the next Interest Period to expire.
6.7 No Redrawings
Amounts repaid and prepaid under any provision of this Agreement may
not be reborrowed hereunder.
7. INTEREST
7.1 Interest Periods
(a) Not later than 4 Banking Days before the commencement of each
Interest Period in respect of an Advance, the Borrower will
notify the Agent whether the Interest Period for that Advance is
to be of 1, 2, 3 or 6 months= duration (or such other period as
the Agent may agree to facilitate compliance with clause 7.2(a)).
(b) The first Interest Period in relation to an Advance is the period
commencing on the Utilisation Date for that Advance.
(c) If the Borrower fails to select an Interest Period for an Advance
in accordance with clause 7.1(a), the Interest Period shall be 3
months.
(d) The term of each Interest Period is subject to such marginal
adjustment as the Agent in its discretion determines so that the
first and last days of it are Banking Days and the final Interest
Period terminates on the Termination Date.
7.2 Restrictions on Selection
(a) The Borrower shall, in relation to Advances drawn by it, select
the duration of Interest Periods pursuant to clause 7.1 so as to
ensure that:
(i) no more than 5 different Interest Periods are current at any
one time;
(ii) each date for repayment of part of the Facility will also be
the last day of an Interest Period in relation to an amount
at least equal to the amount due to be paid on such date;
and
(iii) that no Advance shall have an Interest Period expiring after
the Termination Date.
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(b) If it appears to the Agent in good faith that the requirements of
paragraph (a) above will not be met by either the Borrower's
selection of any Interest Period or the operation of clause
7.1(c), the Agent, on behalf of and after consultation with the
Borrower, shall select a different duration for such Interest
Period.
7.3 Calculation of Interest
(a) Interest on each Advance accrues daily and is to be computed on a
daily basis on a year of 365 days. Interest is to be calculated
from and including the first day of an Interest Period but
excluding the last day of the Interest Period.
(b) The rate of interest for each Advance for each Interest Period is
the Prescribed Rate in relation thereto.
(c) The Agent's certificate as to the Prescribed Rate and the
Specified Rate at any time will be conclusive and binding on the
Borrower and the Guarantors in the absence of manifest error on
the face of the certificate.
7.4 Payment of Interest
(a) The Borrower will pay to the Agent for the account of the Banks
the accrued interest in relation to that Advance at the end of
each Interest Period.
(b) The Agent will promptly distribute the interest received by it
from the Borrower among the Banks in accordance with their
Proportions with respect to that Advance.
8. INTEREST ON OVERDUE AMOUNTS
8.1 Payment of Interest
(a) The Borrower and the Guarantors will pay to the Agent for the
account of the Banks interest on all amounts due and payable by
them under or in respect of this Agreement or the Securities and
unpaid, including any interest payable under this clause.
(b) The Agent will distribute the interest received by it from the
Borrower among the Banks in accordance with their Proportions
with respect to that Advance.
8.2 Accrual of Interest
Interest will accrue on all amounts due and payable from day to day
from the due date up to the date of actual payment, before and (as a
separate and independent obligation but without duplication) after
judgment, at the Specified Rate for successive 3 month periods (as if
the same were 3 month Interest Periods) commencing on the date of
default and, if not paid when due, shall itself bear interest in
accordance with this clause.
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9. BILL RELIQUIFICATION
9.1 Drawing of Bills
The Borrower agrees (at the relevant Bank=s cost) to draw Bills in
connection with any Advance made to it in the manner required by any
Bank whenever requested by a Bank to do so except that:
(a) the discounted value of those Bills when added to the aggregate
discounted value of all other Bills drawn under this clause for
the relevant Bank and which are outstanding at any time may not
exceed that Bank's participation in all Advances which are
outstanding;
(b) the obligations of the Borrower as drawer or otherwise under
those Bills are non-recourse; and
(c) Bills are not to be drawn if to do so would cause the Approved
Issuer Levy registration of the Borrower (as an approved issuer)
or the Advances or Bills (as registered securities) to be
cancelled.
9.2 Attorney
The Borrower irrevocably appoints each Bank (severally) as its
attorney to draw Bills in its name or on its behalf under clause 9.1
and agrees to ratify all action taken by any Bank as its attorney
under this clause.
9.3 Appointment Revoked
The requirement to draw Bills under clause 9.1 and the appointment
under clause 9.2 will cease and be revoked without necessity for
notice when all Advances are repaid. Nothing in clause 9.1 or 9.2
requires the Borrower or authorises any Bank as attorney to draw a
Bill which matures after the Termination Date.
9.4 Indemnity
Each Bank (severally) indemnifies the Borrower against loss, cost,
expense or liability on any Bill drawn by the Borrower at the request
of that Bank under clause 9.1 or drawn by that Bank under clause 9.2.
Each Bank agrees to pay the costs of preparation of and all stamp duty
on each Bill drawn at its request under this clause 9. Each indemnity
in this clause 9.4 is a continuing obligation of each Bank (severally)
and survives the termination of this Agreement or the repayment of any
Bill drawn under this clause 9.
9.5 Notice
On request from the Borrower through the Agent (not more often than
once each Quarter) the Banks will notify the Borrower through the
Agent of the total face value of Bills outstanding at that time under
this clause.
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10. FEES
10.1 Commitment Fee
(a) The Borrower will pay in Dollars to the Agent for distribution
among the Banks pro rata to their respective Commitments, a
commitment fee ("Commitment Fee") of 1% per annum on the daily
undrawn balance of the Commitments, during the period from and
including the date of this Agreement until the expiry of the
Availability Period.
(b) The accrued Commitment Fee shall be payable quarterly in arrears
from the date of this Agreement and also on any date on which the
Total Commitments shall be terminated.
(c) The Commitment Fee shall accrue from day to day and be calculated
on the basis of a year of 365 days and for the actual number of
days elapsed.
10.2 Underwriting Fee
The Borrower must pay to the Underwriters an underwriting fee as and
when specified in the Underwriting Letter.
10.3 Agency Fees
The Borrower must pay to the Agent an agency fee as and when specified
in the Underwriting Letter.
10.4 Margin
(a) From the date of this Agreement until and including 31 January
1999, the Utilisation Margin will be 3% per annum. From and
including 1 February 1999 until the Borrower achieves a Total
Debt/EBITDA for the most recent financial Quarter of 6.5 or less,
the Utilisation Margin will be 2.75% per annum and thereafter it
shall be determined in accordance with the following provisions
of this clause.
(b) Subject to paragraph (d) below, the Utilisation Margin will be
set in accordance with the Total Debt/EBITDA for the most recent
financial Quarter as follows:
Total Debt/EBITDA Utilisation Margin
6.50 - 6.00 2.50% pa
5.99 - 5.00 2.25% pa
4.99 - 4.00 2.00% pa
Less than 4.00 1.75% pa
(c) The Total Debt/EBITDA will be calculated quarterly by the Agent
upon receipt of the relevant Accounts showing the results of the
latest financial Quarter. If the Total Debt/EBITDA for the last
Quarter results in a change of Utilisation Margin the Agent will
notify the Borrower and the Banks and the change will take effect
from the date of delivery of the relevant Accounts to the Agent.
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11. PAYMENTS
11.1 Payment to Agent
All payments to be made by any Obligor under any Transaction Document,
or by any Bank under this Agreement (unless expressly provided
otherwise in writing), are to be made to the Agent in Dollars in
immediately available funds not later than 11.00 am Wellington time on
the due date to such accounts as the Agent may from time to time
designate.
11.2 Merger
If the liability of any Obligor to pay any money the payment or
repayment of which forms part of the Obligations becomes merged in any
judgment or order, as an independent obligation the Obligor will pay
to the Agent on behalf of the Banks interest at the rate which is the
higher of that payable under this Agreement and that fixed by or
payable under such judgment or order.
11.3 Conversion of Foreign Currency receipts to Dollars
(a) Notwithstanding the Obligor's obligation under clause to make all
payments in Dollars, if any payment is tendered to the Agent or a
Bank under any Transaction Document in a Foreign Currency, the
Agent or Bank, as the case may be, at its absolute discretion may
accept payment in the Foreign Currency as tendered.
(b) If any payment in a Foreign Currency is tendered to and accepted
by the Agent or Bank, or if any funds are recovered by the Agent
or Bank under any Transaction Document in a Foreign Currency, the
Agent or Bank as the case may be at its absolute discretion may
actually or notionally convert such payment or funds to Dollars
at such time or times as it sees fit and at such rate or rates as
it is, or considers it would be, able to obtain in the market at
the time of such conversion. The amount of Dollars actually or
notionally received after such conversion will be applied in
reduction of the Obligations.
11.4 Costs of Conversion
The Borrower will pay to the Agent or a Bank all commissions and
expenses involved in actually or notionally converting any payment or
receipt in a Foreign Currency into Dollars.
11.5 Application
Each payment received by the Agent for the account of another person
pursuant to clause 4.6 or 11.1 shall:
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(a) in the case of a payment received for the account of the
Borrower, be made available by the Agent to the Borrower by
application, on the date of receipt:
(i) first, in or towards payment of any amounts then due and
payable (and unpaid) by the Borrower under this Agreement;
and
(ii) second, in payment to such account as the Borrower shall
have properly designated for the purpose in the relevant
Utilisation Notice or otherwise in writing; and
(b) in the case of any other payment, be made available by the Agent
to the person for whose account the payment was received on the
date of receipt to such account of the person as that person
shall have previously notified to the Agent for the purposes of
this Agreement.
The Agent shall promptly distribute payments received for the account
of the Banks among the Banks pro rata to their respective entitlements
provided that the Agent may deduct therefrom any amount due to it
pursuant to clause 11.8, 24.14 or 27.
11.6 Foreign Currency indemnity
If Foreign Currency is received by the Agent or a Bank as a result of
a court or tribunal order or as a result of a distribution under an
Insolvency Provision, then as a separate, additional and continuing
liability (notwithstanding such order or distribution) the Borrower
will pay to the Agent or Bank any deficiency in the amount of Dollars
actually received by the Agent or Bank resulting from any variation
between:
(a) the rate of exchange at which the amount of Foreign Currency was
calculated for the purposes of the court or tribunal order or the
distribution; and
(b) the rate of exchange at which the Agent or Bank is able to
purchase Dollars with the amount of Foreign Currency actually
received by the Agent or Bank.
11.7 Insufficient payment
If an amount required to be paid to the Agent under this Agreement is
not paid in full when due, the Agent may apportion such amount between
principal, interest, commission, fees, charges and other amounts
payable under this Agreement in such manner as it may determine and
any such determination shall be binding on each party hereto.
11.8 Anticipatory payments
The Agent will not be obliged to make a payment to a Bank or a
Borrower out of any sum which it is expecting to receive for the
account of the Bank or the Borrower until it has been able to
establish that it has received the sum. The Agent may elect to make
such payment, whereupon to the extent such payment is made but the
Agent does not receive the sum when due in whole or in part:
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(a) each person to which such payment was made shall, on request by
the Agent, immediately refund it to the Agent;
(b) if the person who has failed to pay the sum when due is an
Obligor, interest payable by the Obligor on the amount of the sum
not paid when due and not refunded under clause 11.8(a) shall,
notwithstanding any other provision of this Agreement, belong to
the Agent absolutely; and
(c) if the person who has failed to pay the sum is a Bank, the Bank
will pay interest on the amount of the sum not paid when due and
not refunded under clause 11.8(a) at a rate determined by the
Agent to be equal to its cost of funds.
The provisions of this clause are without prejudice to any rights
which any person may have against the party who fails to pay any sum.
11.9 Rounding
In making any payment under this Agreement, the Agent may round
amounts to the nearest dollar.
12. TAXES
12.1 No deduction for Taxes and no set-off or counterclaim
All payments by the Obligors under any Transaction Document, whether
of principal, interest or other amounts due thereunder, shall be:
(a) free of any set-off or counterclaim; and
(b) without deduction or withholding for any present or future Taxes
unless the Obligor is compelled by law to deduct or withhold the
same.
12.2 Payment net of Taxes
If:
(a) an Obligor is legally compelled to make any deduction or
withholding on account of Taxes (other than Excluded Taxes);
(b) the Agent is legally compelled to make any deduction or
withholding on account of Taxes (other than Excluded Taxes) from
any payment to a Bank;
(c) a Bank does not receive a payment to which it is entitled under
this Agreement or a Transaction Document free and clear of Taxes
(other than Excluded Taxes);
(d) a Bank or the Agent is obliged to pay any Taxes in respect of a
payment made or to be made by an Obligor under this Agreement or
a Transaction Document (other than Excluded Taxes); or
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(e) a Bank is obliged, in respect of financial accommodation
("Funding") raised or proposed to be raised by the Bank to permit
or facilitate its participation in an Advance:
(i) to make any additional payments as a result of any deduction
or withholding from any payment or repayment which the Bank
is obliged to make in respect of the Funding (other than in
respect of Excluded Taxes); or
(ii) to pay any Taxes (other than Excluded Taxes) as a result of
or in connection with the Funding or any payment or
repayment to be made by it in connection with the Funding,
then:
(f) where clause 12.2(a), (b), (c) or (d) apply, the Obligor shall on
demand by the Agent pay to the Agent such additional amounts, by
way of additional interest, as may be necessary to ensure that
the Agent or Bank affected receives when due a net amount (after
payment of any Taxes, other than Excluded Taxes) equal to the
full amount which it would have been entitled to receive and
retain had the deduction or withholding not been made or had the
payment been free and clear of Taxes or had the Agent or Bank not
been obliged to pay any Taxes in respect of the payment; and
(g) where clause 12.2(e) applies in relation to a Bank, the relevant
Obligor shall on demand by the Agent pay to the Agent on account
of the Bank an amount equal to the amount required to be paid, or
paid, in respect of or as a result of any deduction or
withholding or payment of Taxes to which the paragraph applies;
and
(h) in addition to clause 12.2(f), where any Obligor is legally
compelled to make any deduction or withholding on account of
Taxes the relevant Obligor, shall:
(i) pay to the appropriate governmental authority or department
any amount deducted or withheld in respect of Taxes; and
(ii) within 20 Banking Days after making the deduction or
withholding provide to the Agent evidence satisfactory to it
of that payment having been made.
12.3 Funding
(a) The Banks will use their reasonable efforts to raise all Funding
free and clear of Taxes (other than Taxes which may be reduced or
eliminated by the Borrower obtaining approved issuer status). If
a Bank is entitled to make a claim under clause 12.2, the parties
agree to consider in good faith funding arrangements which would
mitigate the Obligor's costs under clause 12.2 as and when the
need arises (including, but not limited to, the use of a fronting
bank in order to avoid making any deduction or withholding or
paying any Taxes as referred to in clause 12.2 as and when the
need arises).
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(b) If a Bank is obliged to make any deduction or withholding or pay
any Taxes as referred to in clause 12.2(e), the Bank will
promptly notify the Agent and the Borrower of that obligation and
its amount.
12.4 Termination
If any Obligor fails to comply with the provisions of clause 12.2 in
relation to a Bank, the Bank may by notice to the Borrower through the
Agent terminate its obligations under this Agreement. Upon such a
notice being given, the Borrower will within 5 Banking Days prepay the
relevant Bank's participation in all affected Utilisations together
with accrued interest thereon and all other money payable under this
Agreement to the Bank. Any such prepayment shall be permanent and the
Facility shall be cancelled to the extent of the prepayment.
13. ILLEGALITY
If any change in applicable law, regulation, treaty or official
directive or in the interpretation or administration thereof by any
governmental authority charged with the administration thereof makes
it unlawful or impossible for a Bank to give effect to its obligations
under this Agreement:
(a) the Bank's obligations under this Agreement will be suspended
immediately for the duration of such illegality or impossibility;
(b) the Bank may by notice to the Borrower through the Agent
terminate its obligations under this Agreement;
(c) if required by or as a result of the applicable event, or if
necessary to prevent or remedy a breach of, or to comply with,
any applicable law, regulation, treaty or official directive, the
Borrower will prepay an amount equal to the Bank's participation
in all Utilisations together with all interest and fees accrued
thereon and such other amounts as are payable to the Bank under
this Agreement in full immediately, or if delay in prepayment
does not compound such breach or affect such compliance, at the
end of the current Interest Period (or such lesser period if the
applicable law, regulation, treaty or official directive
requires); and
(d) the Borrower will indemnify the Bank and notwithstanding
termination of its obligations under this Agreement keep it
indemnified against any cost, loss, damage or expense suffered,
incurred or payable by it as a result of the operation of clause
13(a), (b) and (c) and shall pay to the Agent for the account of
the Bank prior to termination of the Bank's obligations under
this Agreement such amount as the Bank estimates in good faith to
be, then or in the future, payable to it by the Borrower under
this indemnity.
14. INCREASED COST
(a) If by reason of any change in law or in its interpretation or
administration or by reason of compliance with any request from
or requirement of any fiscal, monetary or other authority:
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(i) a Bank incurs a cost as a result of its having entered into
or performed its obligations under the Facility or as a
result of any Advance being outstanding hereunder;
(ii) there is any increase in the cost to a Bank of funding or
maintaining any Utilisation made or to be made hereunder;
(iii) the amount of principal, interest or other amount payable to
a Bank or the effective return to a Bank on the Utilisations
under this Agreement or the anticipated rate of return at
the date of this Agreement on the Bank's overall capital is
reduced; or
(iv) a Bank becomes liable to make any payment (not being a
payment of Tax on its overall net income) on or calculated
by reference to the amount of Utilisations made hereunder or
Bills outstanding hereunder,
then from time to time on notification by the Bank through the
Agent the Borrower shall pay to the Agent on account of the Bank
amounts sufficient to indemnify the Bank against such cost,
increased cost, reduction or liability.
(b) The notification referred to in paragraph (a) above shall set out
in reasonable detail (excluding confidential information) the
basis for the notification.
(c) If a Bank has acted in good faith it is no defence that any such
cost, increased cost, reduction or liability could have been
avoided.
(d) A Bank's certificate as to the amount of, and basis for arriving
at, any such cost, increased cost, reduction or liability is
conclusive and binding on the Borrower and the Guarantors in the
absence of manifest error on the face of the certificate.
15. MITIGATION
15.1 Mitigation
If circumstances arise in respect of any Bank which would, or upon the
giving of notice would, result in the operation of clause 12, 13 or 14
to the detriment of an Obligor:
(a) such Bank shall use best endeavours to promptly notify the Agent
and the Borrower and, upon the request of the Borrower, shall
enter into discussions with the Borrower with a view to
determining what mitigating action might be taken by such Bank,
including discussion of the possibility of a change in its
lending office, a change in the method of funding Advances or a
transfer of its participation in the Facility and its Commitments
to another bank or financial institution; and
(b) at the request of the Borrower, the Agent will enter into
discussions with the Borrower with a view to determining what
mitigating action might be taken by the Agent with respect to the
administration of this Agreement by the Agent,
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PROVIDED THAT nothing in this clause shall oblige any Bank or the
Agent to incur any costs or expenses or to take any action or refrain
from taking any action.
15.2 Replacement of Bank
(a) If such circumstances as are referred to in clause 15.1 shall
arise, the Agent, at the request of the Borrower, will consult
with the Borrower with a view to identifying and approaching
bank(s) and financial institution(s) acceptable to the Borrower
who may be willing to become party to this Agreement as Bank(s)
in replacement for the relevant Bank(s).
(b) If:
(i) such circumstances as are referred to in clauses 12.2 or
14(a) arise in respect of a Bank (the "Relevant Bank"); and
(ii) the Borrower finds a bank or financial institution (the
"Replacement Bank") who is willing to become a party to this
Agreement in replacement of the Relevant Bank,
the Relevant Bank must promptly transfer all of its rights and
obligations under the Transaction Documents in accordance with clause
29.
15.3 Costs and Expenses
Any reasonable costs and expenses incurred by any Bank or the Agent
pursuant to this clause shall be paid by the Borrower within 5 Banking
Days after receipt of a demand specifying the same.
16. REPRESENTATIONS AND WARRANTIES
16.1 General representations and warranties
The Borrower and each Guarantor hereby represents and warrants in
respect of itself only to the Agent and each Bank that:
(a) (Legally binding obligation): each Transaction Document and
Material Contract to which it is a party constitutes a valid and
legally binding obligation of it in accordance with its terms
subject to principles of equity and laws generally affecting
creditor's rights;
(b) (Execution, delivery and performance): the execution, delivery
and performance of each Transaction Document to which it is a
party does not violate any existing law or regulation or any
document or agreement to which it is a party or which is binding
upon it or any of its assets;
(c) (Authorisation): all consents, licences, approvals and
authorisations of every government or local government authority
required under any legislation (including, without limitation,
the Resource Management Act 1991) to be obtained by it in
connection with the execution, delivery and performance of each
Transaction Document to which it is a party and the business (if
any) carried on by it have been obtained and are valid and
subsisting;
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(d) (No litigation): no litigation, arbitration, criminal or
administrative proceedings are current, pending or, to the
knowledge of the Borrower or Guarantor, threatened in which there
is a reasonable likelihood of an adverse determination;
(e) (No Event of Default): no event has occurred which constitutes an
Event of Default or a Potential Event of Default;
(f) (Laws): it has complied with all statutes and regulations
relative to it and the businesses (if any) carried on by it the
non-compliance with which would have a Material Adverse Effect;
(g) (Financial Liabilities): save as disclosed to the Agent prior to
the date of this Agreement or any date on which this
representation and warranty is repeated, it is not in default in
the payment of any sum greater than $100,000, or in the
performance observance of any obligation in respect of any
Financial Liability greater than $500,000, and no event has
occurred which with the giving of notice, lapse of time or other
condition could constitute such a default in respect of any
Financial Liability greater than $500,000;
(h) (No trusts): it is not the trustee of any trust and does not hold
any property subject to or impressed by any trust;
(i) (Title): it is the sole legal and beneficial owner of the
Security Property subject to the Security free and clear of all
Encumbrances other than those of the type referred to in clause
17.3(a) and, in the period from the date of this Agreement to the
first Utilisation Date, the Nortel/DSC Security;
(j) (Intellectual Property Rights):
(i) it owns or has licensed to it all the intellectual property
rights which are material in the context of its business and
which are required by it in order for it to carry on its
business as it is being conducted and it does not, in
carrying on its business and to the best of its knowledge,
infringe any intellectual property rights of any third party
in any material respect;
(ii) none of the intellectual property rights which are material
in the context of its business is, to its knowledge, being
infringed nor, to its knowledge, is there any threatened
infringement of those intellectual property rights, by any
third party;
(k) (Tax liabilities): no material claims are being or are reasonably
likely to be asserted against it with respect to Taxes. It is not
materially overdue in the filing of any Tax returns required to
be filed by it and it has paid all Taxes shown to be due on such
returns or on any assessments made against it ; and
(l) (Material Contracts): save as disclosed to the Agent prior to the
date of this Agreement or any date on which this representation
and warranty is repeated, each of the Material Contracts to which
it is a party is in full force and effect and it is not in breach
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of any material term of any Material Contract to which it is a
party nor, is any other party to any Material Contract in breach
of any such term.
16.2 Information representations and warranties
The Borrower and each Guarantor hereby represents and warrants to the
Agent and each Bank in respect of itself only that:
(a) (Information): all information relating to an Obligor provided to
the Banks by an Obligor or at their direction in connection with
the Facility and each Transaction Document and Material Contract
is true in all material respects and is not, by omission or
otherwise, misleading in any material respect;
(b) (Accounts): the Accounts provided to the Agent:
(i) have been prepared in accordance with accounting principles
and practices generally accepted in New Zealand; and
(ii) give a true and fair view of the financial condition of the
relevant entity as at the date to which such accounts relate
and the results of operations for the accounting period
ending on that date and since that date there has been no
material adverse change in the financial condition of the
Borrower, the Guarantors or the Group as shown in such
accounts which would have a Material Adverse Effect;
(c) (Documents): the documents delivered to the Agent by or on behalf
of any Obligor pursuant to clause 3.1(b) and any other provision
of the Transaction Documents were genuine and in the case of copy
documents, were true, complete and accurate copies, of originals
which have not been amended, varied, supplemented or superseded
in any way;
(d) (Information Memorandum): save as disclosed in writing to the
Agent all material written factual information contained in the
Information Memorandum is true in all material respects at the
date (if any) ascribed thereto in the Information Memorandum, all
expressions of opinion or intention and all forecasts and
projections contained in the Information Memorandum were arrived
at after careful consideration and were based on reasonable
grounds, and so far as it is aware the Information Memorandum as
of its date was not misleading in any material respect and as at
its date did not omit to disclose any matter failure to disclose
which would result in any information contained in the
Information Memorandum being misleading in any material respect
in the context of this Agreement;
(e) (Business Plan): save as disclosed in writing to the Agent all
material factual information contained in the Business Plan is
true in all material respects at the date (if any) ascribed
thereto in the Business Plan or (if none) at the date of the
relevant Business Plan, all expressions of opinion or intention
and all forecasts and projections contained in the Business Plan
were arrived at after careful consideration, were based on
reasonable grounds, and the Business Plan as of its date was not
misleading in any material respect and as at its date did not
omit to disclose any matter failure to disclose which would
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result in any information contained in the Business Plan being
misleading in any material respect in the context of this
Agreement; and
(f) (Recent Events): save as disclosed in writing to the Agent, so
for as it is aware, reasonable enquiry having been made, since
the date of the material contained in the Information Memorandum
and the Business Plan respectively, nothing has occurred of which
it is aware and which is not in the public domain which, as at
the date of this Agreement, renders any of the material
information, expressions of opinion or intention, projections or
conclusions referred to in (d) or (e) above and contained in the
Information Memorandum or the Business Plan inaccurate or
misleading (or in the case of expressions of opinion, conclusions
or projections, other than fair and reasonable) in any material
respect in the context of the Group and the transaction
contemplated by this Agreement.
16.3 Corporate representations and warranties
The Borrower and each Guarantor hereby represents and warrants to the
Agent and each Bank in respect of itself only that:
(a) (Due incorporation): it is duly incorporated and has the
corporate power to own its own property and to carry on its own
business as is now being conducted;
(b) (Constitution): the execution, delivery and performance of each
Transaction Document to which it is a party does not violate its
constitution;
(c) (Corporate power): it has the power, and has taken all corporate
and other action required, to enter into any Transaction Document
to which it is a party and to authorise the execution and
delivery thereof and the performance of its obligations
thereunder; and
(d) (Filings): it has filed all corporate notices and effected all
registrations with the Registrar of Companies or similar office
in its jurisdiction of incorporation and in any other
jurisdiction as required by law, and all such filings and
registrations are current, complete and accurate in all material
respects.
16.4 Representations and warranties repeated
Each representation and warranty contained in clause 16.1, 16.2
(except for paragraphs (c), (d), (e) and (f)) and 16.3 shall be
repeated on the date of each Advance and on each date an interest
payment is due under the Facility with reference to the facts and
circumstances then subsisting, as if made on each such day and each
Quarter the Borrower will deliver a Compliance Certificate to the
Agent in respect of the same.
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17. UNDERTAKINGS
17.1 Duration and Benefit
The undertakings in this Agreement are given for the benefit of the
Agent and each Bank and shall remain in force from and after the date
of this Agreement and so long as any amount is or may be outstanding
under this Agreement or any Commitment is in force. The Agent (acting
at the direction of the Majority Banks) may waive compliance with any
undertaking contained in this clause 17 either for a specific purpose
or generally by providing the Borrower with a letter in writing
specifying the waiver being granted.
17.2 Information
(a) (Financial information): The Borrower and each Guarantor will
ensure that there is delivered to the Agent:
(i) as soon as practicable and in any event not later than 120
days after the close of each of its financial years, a copy
of the consolidated balance sheet and profit and loss
statement for the Group for that financial year certified as
correct by an auditor approved by the Agent it being
acknowledged that Arthur Anderson is acceptable;
(ii) as soon as practicable and in any event not later than 90
days after each half of each of its financial years, a copy
of the consolidated unaudited balance sheet and profit and
loss statement for and the Group for that half-year;
(iii) as soon as practicable and in any event not later than 10
Banking Days after the beginning of each month up to and
including June 2000 and thereafter within 30 days of the
beginning of each Quarter, a copy of the management accounts
of the Group for the preceding month or Quarter (as the case
may be) and a statement of the Subscribers (which includes
reasonable details of new installations and monthly churn
rate) at the end of the preceding month or Quarter (as the
case may be) together with a statement setting out in
sufficient detail any variance from the Business Plan and an
explanation of the reasons for any such variance;
(iv) as soon as practicable and in any event not later than 90
days after the commencement of its financial year, a copy of
the Group=s annual budget and an updated Business Plan; and
(v) promptly such further information regarding its financial
condition and business operations as the Agent from time to
time reasonably requires.
(b) (Compliance with accounting standards): The Borrower and each
Guarantor will ensure that the Accounts (except for management
accounts of the Group given under clause 17.2(a)(iii)) are
prepared in accordance with the relevant constitutional
documents, the Companies Act 1993, the Financial Reporting Act
1993, any applicable statute and all accounting principles and
practices generally accepted in New Zealand consistently applied,
or if not consistently applied, accompanied by details of the
inconsistencies, and shall give a true
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and fair view of its financial condition and the result of its
operations as at the date, and for the period ending on the date,
to which those Accounts are prepared.
(c) (Projections): The Borrower shall ensure that there is delivered
to the Agent in sufficient copies for each of the Banks not later
than the commencement of each financial year, a projected
consolidated balance sheet, profit and loss account, cash flow
statement and rolling monthly cash forecast of the Group for (or
in the case of a balance sheet, as at the end of) the forthcoming
annual financial year, together with details of the principal
assumptions underlying such projections and a description of the
proposed activities of the Group during such period.
(d) (Provision of further information): The Borrower and each
Guarantor will:
(i) (Special resolutions): deliver to the Agent before the date
of the relevant meeting, a copy of any notice calling an
extraordinary general meeting of any Obligor or proposing
any special or extraordinary resolution thereof;
(ii) (Reports to members etc.): deliver to the Agent, upon issue,
a copy of all material reports, accounts, notices and
circulars issued by any Obligor (in order to comply with any
applicable legislative requirement or its constitution) to
any of its members;
(iii) (Certificate of default): as and when required by the Agent,
furnish the Agent with a statement made by 2 directors or 1
director and the Chief Financial Officer of the Borrower
stating whether or not an Event of Default or a Potential
Event of Default has occurred and, if it has, setting out
details thereof and the steps (if any) taken or proposed to
be taken to remedy or cure the same;
(iv) (Evidence of compliance): as and when required by the Agent,
furnish to the Agent proof to the satisfaction of the Agent
that the Obligations of the Borrower and each Guarantor have
been and continue to be performed and observed;
(v) (Business Plan): provide a revised Business Plan to the
Agent whenever there is any change to the timing of the
payments, budgets or assumptions contained therein;
(vi) (Authorisations): deliver to the Agent, Quarterly a copy of
all material Authorisations issued in relation to a Business
in the preceding quarter; and
(vii) (Government Agency): a copy of all material correspondence
with Government Agencies.
(e) (Notification of certain events): The Borrower and each Guarantor
will promptly notify the Agent in writing as soon as it becomes
aware of the occurrence of:
(i) (Event of Default): any Event of Default or Potential Event
of Default;
(ii) (Litigation): any litigation, arbitration, criminal or
administrative proceedings or labour disputes:
A. commenced by an Obligor; or
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B. against an Obligor or any Obligor's property, assets or
revenues that, if decided adversely to the Obligor is
reasonably likely to incur a liability greater than
$500,000, and provide periodic reports on the status
of the litigation;
(iii) (Shutdown): any actual threatened shutdown or suspension of
the cable television service or telephone service operated
by the Group (including as a result of any shutdown of the
Telecom New Zealand Limited network or any inability to
interconnect with that network) except shutdown or
suspension in the ordinary course of business;
(iv) (Material Adverse Effect): any event which would reasonably
be expected to have a Material Adverse Effect;
(v) (Authorised persons): any change in the persons authorised
by it to sign Bills, notices, certificates or other
documents in connection with the Facility, giving specimen
signatures of any new person so authorised and giving to the
satisfaction of the Agent evidence, where requested by the
Agent, of the authority of that person; or
(vi) (Trustee): if any Obligor becomes or is appointed the
trustee of any trust or comes to hold any property subject
to or impressed by any trust.
(f) (Security Property): The Borrower and each Guarantor will
maintain and protect all of its Security Property and will not
take any action that is reasonably likely to result in the
business of the Group not remaining capable of operating in a
manner that will enable the Borrower to meet its obligations.
17.3 Security Value
(a) (Restriction on Encumbrances): No Borrower or Guarantor will
create, permit or suffer to exist any Encumbrance over all or any
of its assets (including the Security Property) except for:
(i) until the first Utilisation Date, the Nortel/DSC Security;
(ii) the Securities;
(iii) liens arising by operation of law in the ordinary course of
day-to-day trading and securing obligations not more than 90
days overdue;
(iv) a banker's lien or right of set-off or combination arising
by operation of law or practice over property or money
deposited with a banker in the ordinary course of the
Obligor's ordinary business;
(v) contractual set off rights in respect of the Borrower=s
transactional banking facilities and arrangements;
(vi) arrangements constituted by retention of title (other than
an Adverse Title Retention Arrangement) in connection with
the acquisition of goods provided the goods are acquired in
the ordinary course of the Obligor's business;
(vii) Encumbrances arising by operation of law in connection with
rights arising in the ordinary and usual course of its
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business in favour of an unpaid seller, the obligations of
the purchaser not being more than 90 days overdue; or
(viii) Encumbrances created by statute in favour of governmental or
semi-governmental authorities or departments securing the
payment of rates or Taxes except as created because of the
failure to duly pay Taxes; or
(ix) Encumbrances existing as at the date of this Agreement in
favour of parties to the Pole and Cabling Duct Agreements
referred to in paragraphs (a) and (b) of the definition of
Material Contracts.
(b) (Transactions similar to security): No Borrower or Guarantor
will:
(i) sell or otherwise dispose of any of its assets on terms
whereby such asset is or may be leased to or re-acquired or
acquired by any member of the Group; or
(ii) sell or otherwise dispose of any of its receivables; or
(iii) except for assets acquired in the ordinary course of
business on the normal commercial terms of the vendor,
purchase any asset on terms providing for a retention of
title by the vendor or on conditional sale terms or on terms
having a like substantive effect to any of the foregoing,
except where such assets are fixed assets, the aggregate
capital value of the item or items acquired or supplied
under the same contract (or under a series of related
contracts) will be less than $100,000 or such other amount
as agreed.
(c) (Adverse Title Retention Arrangements): The Borrower and each
Guarantor will not enter into or allow to exist any Adverse Title
Retention Arrangement in respect of any assets delivered to it in
the course of its business.
(d) (Disposals): No Borrower or Guarantor will, either in a single
transaction or in a series of transactions whether related or not
and whether voluntarily or involuntarily, sell, transfer, assign,
lease or otherwise part with possession of or dispose of:
(i) any shares in any member of the Group;
(ii) all or any other part of its respective assets or
undertaking, other than:
A. disposals in the ordinary course of bsiness of the
Group;
B. disposals of surplus, obsolete or redundant plant and
equipment, not required for the efficient operation of
its business, at fair market value;
C. the expenditure of cash in payment for assets or services
acquired at market value in the course of its business;
D. disposals of assets in exchange for other assets, in the
reasonable opinion of the person effecting the disposal,
comparable or superior as to type, value or quality;
E. disposals of assets to any member of the Group;
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F. disposals of assets for the purposes of replacement of
those assets; or
G. disposals of assets with the prior written consent of the
Agent.
(e) (Pari passu ranking): The Borrower and each Guarantor undertakes
that its obligations under this Agreement rank and will at all
times rank at least pari passu in right and priority of payment
and in point of security (save by reason of and to the extent of
its security afforded thereto by the Securities or, until the
first Utilisation Date, the Nortel/DSC Security) with all its
other present and future unsecured and unsubordinated obligations
(including, without limitation, obligations arising under hedging
arrangements), other than obligations applicable generally to
companies incorporated in its jurisdiction of incorporation which
have priority by operation of law (including, without prejudice
to the generality of the foregoing, in respect of employees'
remuneration, Taxes and like obligations).
17.4 Liabilities
(a) (Restriction on guarantees): No Borrower or Guarantor will,
without the prior consent in writing of the Agent, enter into any
bond, guarantee or indemnity in respect of any Financial
Liabilities in favour of any person other than:
(i) pursuant to the Transaction Documents;
(ii) a guarantee given to a bank to facilitate the operation of
bank accounts of members of the Group maintained with such
Bank on a net balance basis; or
(iii) in respect of any Financial Liabilities permitted under
clause 17.4(c).
(b) (Further restriction on guarantees): No Borrower or Guarantor
will, without the prior consent in writing of the Agent, enter
into any bond, guarantee or indemnity in respect of any
obligation except Financial Liabilities in favour of any person
other than in respect of a member of the Group. For the avoidance
of doubt, it is agreed that take or pay or minimum payment
obligations incurred by a Borrower or a Guarantor are not bonds,
guarantees or indemnities to which this clause 17.4(b) applies.
(c) (Financial Liabilities): No Borrower or Guarantor will create,
incur or be liable for any Financial Liabilities of itself other
than:
(i) under the Transaction Documents;
(ii) indebtedness under transactional banking facilities and
arrangements;
(iii) trade or other similar indebtedness incurred in the ordinary
course of business;
(iv) subordinated loans from its shareholders or any person
approved by the Agent provided that:
A. such loans are on terms and conditions approved by the
Agent; and
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B. the Agent has been granted a limited recourse mortgage
over such loans;
(v) cash backed performance bond facilities up to an aggregate
of $1,000,000 or such larger amount agreed to by the Agent
acting on directions from the Majority Banks;
(vi) under finance leases and trade related letters of credit up
to an aggregate of $2,500,000, but so that Financial
Liabilities under finance leases do not exceed $500,000 at
any time; or
(vii) any Financial Liability approved by the Agent,
and ensure that no indebtedness referred to in paragraph (iv)
above is repaid or repurchased without the prior written consent
of the Agent or until the Facility has been repaid and cancelled
in full.
(d) (Options): No Borrower or Guarantor will, without the prior
consent of the Agent, enter into or permit to subsist any
arrangement whereby any person:
(i) has the right (whether or not exercisable only on a
contingency) to require any member of the Group to purchase
or otherwise acquire any property or any interest in
property; or
(ii) has the right (whether or not exercisable only on a
contingency) to require any member of the Group to sell or
otherwise dispose of any property or interest in property,
other than in the ordinary course of business.
(e) (Treasury Transactions): No Borrower or Guarantor will enter into
any interest rate swap, cap, ceiling, collar or floor or any
currency swap, futures, foreign exchange or commodity contract or
option (whether over the counter or exchange traded) or any
similar treasury transaction, other than in accordance with
clause 17.12(h), spot foreign exchange contracts entered into in
the ordinary course of business and transactions entered into for
the hedging of actual or projected exposures arising in the
ordinary course of ordinary trading activities of the Group or to
meet its obligations under this Agreement.
17.5 Use of Funds
(a) (Repayment of shareholders' loans): No Borrower or Guarantor will
repay, and the Borrower and each Guarantor will procure that no
amount of shareholders= loans to any Obligor will be repaid prior
to the Termination Date without the prior written consent of the
Agent except where the shareholder receiving the repayment is the
Borrower or a Guarantor or where permitted under clause 17.6;
(b) (Loans out): No Borrower or Guarantor will make any loan to any
person save for:
(i) loans made by one member of the Group to another member of
the Group where the recipient of the loan is the Borrower or
a Guarantor;
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(ii) deposits made with banks in the ordinary course of business
as part of its transactional banking facilities and
arrangements; and
(iii) the advance of $1,000,000 made to Australian Power
Industries (NZ) Limited under clause 4.13 of the
Construction Contract referred to in clause (e) of the
definition of Material Contracts.
17.6 Dividends and Share Capital
(a) (Restriction on Dividends): Up to and including 31 December 2001,
the Borrower and each Guarantor undertake not to:
(i) declare, make or pay any dividend, charge, fee or other
distribution (whether in cash or in kind) on or in respect
of its share capital; or
(ii) make any payment of interest or any similar payment in
respect of any shareholder loans; or
(iii) pay any fees under any management agreements or technical
assistance agreements with any Related Company (other than
reimbursement of operating expenses under the Technical
Assistance Agreement).
(b) (Payment of Dividends): From 1 January 2002, if in respect of any
Quarter Total Debt/EBITDA is 4.75 or less, the Borrower may make
payments of the sort described in paragraph (a) above during the
next Quarter or at any time thereafter provided that:
(i) at the time such payments are to be made no Event of Default
or monetary Potential Event of Default has occurred and is
subsisting; and
(ii) the payments by the Borrower in aggregate do not exceed 50%
of the Excess Cash Flow for the Quarter in respect of which
the payment is permitted.
(c) (Share Capital): No Borrower or Guarantor will, without the prior
written consent of the Agent:
(i) redeem, repurchase, defease, retire or repay any of its
share capital, or resolve to do so; or
(ii) issue any share capital to any person unless such share
capital will form part of the Security Property.
17.7 Intellectual Property Rights
(a) (Registrations): The Borrower and each Guarantor will make such
registrations and pay such fees, registration Taxes and similar
amounts as are necessary to keep its registered intellectual
property rights which are material to its business in force and
to record its interest in the intellectual property rights.
(b) (Protection of Rights): The Borrower and each Guarantor will take
such steps as are necessary and commercially reasonable
(including, without limitation, the institution of legal
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proceedings) to prevent third parties infringing those
intellectual property rights referred to in paragraph (a) above
and (without prejudice to paragraph (a) above) take such other
steps as are reasonably practicable to maintain and preserve its
interests in those rights.
(c) (No Abandonment): No Borrower or Guarantor will permit any
registration of any of the intellectual property rights to be
abandoned, cancelled or lapsed or to be liable to any claim of
abandonment for non-use or otherwise except where such
abandonment, cancellation or lapse would not reasonably be
expected to have a Material Adverse Effect.
17.8 Insurances
(a) (Insure): The Borrower and each Guarantor, to the extent that
insurance is generally available in commercial markets, will
insure all Insurable Property against:
(i) loss, theft, damage or destruction; and
(ii) any liability from time to time of the Borrower, the
Guarantors or the Agent in respect of the ownership, use or
occupation of the Insurable Property.
(b) (Terms): All Insurances will:
(i) be taken out with a reputable insurer;
(ii) have the name of the Agent noted as an interested party;
(iii) insure the Borrower's, the Guarantors' and the Agent's
respective insurable interests;
(iv) be for such amounts and cover such risks and contain such
terms and conditions as the Agent reasonably requires; and
(v) not be varied or cancelled without the prior written consent
of the Agent except if replaced with substantially
equivalent insurance;
(c) (Full replacement value): All Insurances against loss, theft,
damage or destruction of the Insurable Property will be for the
full replacement value thereof from time to time unless the Agent
otherwise agrees in writing.
(d) (Policies): All documents relating to the Insurances, including
without limiting the generality of the foregoing, a certified
copy of each proposal form under which the application for
insurance was made, the relevant policies, all renewal
certificates, certificates of currency and endorsement slips, are
to be delivered by the Borrower and each Guarantor to the Agent
immediately upon receipt.
(e) (Maintenance of Insurance and production of policy): The Borrower
and each Guarantor will:
(i) maintain all Insurances;
(ii) duly and punctually pay or cause to be paid all premiums and
other money payable under, and perform, observe and fulfil
the terms of, all Insurances;
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(iii) produce to the Agent the policy of Insurance and the
receipts for the payment of each premium and all other money
payable in respect of each policy (or other evidence of
payment satisfactory to the Agent) at least 14 days before
the due date for renewal thereof; and
(iv) to the extent it is able to do so, ensure that every policy
of Insurance:
A. contains an agreement by the insurer that, notwithstand-
ing the lapse of any policy (except by reason of expirat-
ion in accordance with its terms) or any right of cancel-
lation of the insurer or any cancellation by the
Borrower or a Guarantor (whether voluntary or in-
voluntary), that policy will continue in force for the
benefit of the Agent for at least 30 days after written
notice of cancellation has been sent by certified mail
to the Agent and that no reduction in limits or coverage
in that policy in whole or part will be effected; and
B. insures the Agent's interest up to the limits of the
policy regardless of any breach or violation by the
Borrower or the Guarantor of any warranties, declara-
tions or conditions contained in that policy.
(f) (Full disclosure): The Borrower and each Guarantor will disclose
to the proposed insurer all facts material to the insurer's risk
before entering into the Insurances.
(g) (No liability): The Agent will not incur any liability to the
Borrower or a Guarantor arising out of any failure by the Agent
to effect or renew any Insurance, nor will the Agent incur any
liability arising out of any failure by the insurer for any
reason to meet any claim under any Insurance.
(h) (Option as to payments): If any part of the Insurable Property is
lost, stolen, damaged or destroyed, the sum received under any
Insurance will be applied:
(i) towards the replacement or repair of such Insurable
Property; or
(ii) in or towards repayment or reduction of the Obligations,
and where such loss, theft, damage or destruction of the
Insurable Property would have a Material Adverse Effect, the
application of such sum will be applied, at the option of the
Agent, as specified in (i) or (ii) above.
(i) (Money paid under Insurances): If any money payable under the
Insurances comes into the hands of the Borrower or a Guarantor,
it will be paid in accordance with clause 17.8(i) or to the Agent
immediately.
(j) (Not prejudice Insurances): The Borrower and each Guarantor will
not cause or permit (to the extent it is within its control to do
so) anything to be done which may:
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(i) render any part of the Insurances void, voidable or
otherwise unenforceable;
(ii) hinder or prevent recovery of any money in respect of the
Insurances; or
(iii) cause the premiums and other money payable to any insurer to
be increased.
17.9 Licences
The Borrower and each Guarantor will, and will ensure that each
Obligor will:
(a) (Renew): on or before the time and in the manner prescribed by
the relevant statute for each Licence, apply for and procure the
renewal of the Licence and pay or cause to be paid the renewal
fees and other sums required in respect of the Licence or the
renewal of the Licence within the time allowed and in the manner
prescribed by the statute unless the non renewal of the Licence
would, having regard to all of the circumstances (including the
non renewal of other Licences at any prior time) and taking into
account the cumulative effect of all such previous events and
circumstances, not be reasonably likely to have a Material
Adverse Effect;
(b) (Production of the Licence): upon request, produce to the Agent
each Licence and all receipts for payments in relation to each
Licence unless already delivered to the Agent under clause
17.11(f);
(c) (No cancellation): not do, allow or suffer any act, matter or
thing as a result of which any Licence is or may be surrendered,
forfeited, withdrawn, cancelled, refused or rendered void, or
whereby the holder of any Licence is disqualified permanently or
temporarily from receiving or continuing to hold a Licence except
on surrender and renewals of Licences unless such surrender,
forfeiture, withdrawal, cancellation, refusal, rendering void or
disqualification would, having regard to all of the circumstances
(including but not limited to, the surrender, forfeiture,
withdrawal, cancellation, refusal, rendering void or
disqualification of other Licences at any prior time) and taking
into account the cumulative effect of all such previous events
and circumstances, not be reasonably likely to have a Material
Adverse Effect;
(d) (No transfer): not surrender or concur in the transfer of any
Licence to any person other than to an Obligor where to do so
would have a Material Adverse Effect;
(e) (Comply with statutes): comply with all statutes and all lawful
requirements of every Government Agency in relation to the
Licences if failure to comply would reasonably be expected to
result in a forfeiture, termination, cancellation, fine,
non-renewal or suspension of such Licences; and
(f) (Notice): promptly notify the Agent if any relevant authority
issues any material notice in respect of any Licence or threatens
to suspend or cancel any of the Licences or if it becomes aware
of any enquiry by any relevant authority which could affect any
of the Licences.
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17.9 Material Contracts
(a) (No Changes): The Borrower and each Guarantor will not without
the prior written consent of the Agent (acting on instructions of
the Majority Banks) which consent will not unreasonably be
withheld:
(i) make (whether formally or by conduct) any material amendment
or modification to any of the Material Contracts or waive
compliance with any material provision of any of the
Material Contracts;
(ii) terminate, repudiate, rescind or revoke any Material
Contract;
(iii) except where the Material Contract may be terminated by
another party to it at any time without cause, in which case
this clause 17.10(a)(iii) shall not apply, take or fail to
take any action which could result in the termination of any
of the Material Contracts; or
(iv) assign or novate its interest in any of the Material
Contracts or consent or permit (where its consent or
permission is required) any other party to do the same.
(b) (Protection): The Borrower and each Guarantor will:
(i) comply with the material terms of the Material Contracts;
(ii) take all action reasonably available to them to ensure that
the Material Contracts remain in full force and effect; and
provide the Agent with copies of all material notices served
or received under any of the Material Contracts.
17.11 Security Property
(a) (Good repair): The Borrower and each Guarantor will maintain and
protect the Security Property and keep the same in a good and
tenantable state of repair and in good working order and
condition, and will on being required so to do by the Agent
promptly rectify every material defect in the repair and
condition thereof.
(b) (Outgoings): The Borrower and each Guarantor will duly and
punctually pay when due all outgoings including rent and Taxes
payable by it in respect of the Security Property.
(c) (Not to prejudice): The Borrower and each Guarantor will not do
or (to the extent it is able) permit any act, omission or thing
whereby any part of the Security Property becomes or could be
liable to surrender, forfeiture or cancellation or becomes
prejudiced in any manner or the value of any Security as a
security to the Banks becomes or could be lessened.
(d) (Permit Inspection): The Borrower and each Guarantor will permit
the Agent and any employee, agent or professional adviser of the
Agent, to enter any land or buildings owned or occupied by the
Borrower or the Guarantor at all reasonable times after
reasonable notice, to inspect its condition and to monitor
compliance with the Transaction Documents.
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(e) (Protection of Security Property): The Borrower and each
Guarantor will at the request of the Agent take or defend all
legal proceedings that the Agent considers necessary or desirable
for the preservation, protection or recovery of the Security
Property.
(f) (Documents of title and other securities): The Borrower and each
Guarantor will lodge with the Agent promptly upon request by the
Agent:
(i) all certificates, scrip and other indicia of title or
interest in any shares or securities;
(ii) all negotiable instruments other than cheques;
(iii) all certificates of title to land and all original property
leases;
(iv) all Licences unless delivered under clause 17.9(b);
(v) all other documents of title to the Security Property
immediately on request of the same from the Agent.
17.12 General undertakings
(a) (Perform Obligations): The Borrower and each Guarantor will
perform, fulfil and observe its Obligations.
(b) (Maintain Authorisations): The Borrower and each Guarantor will
obtain, renew, maintain and comply with all Authorisations and
all consents, licences, approvals and authorisation of every
local government authority required under any legislation
(including, without limitation, the Resource Management Act 1991)
necessary in connection with the business (if any) carried on by
it, for the validity and enforceability of the Transaction
Documents and the performance of its obligations hereunder and
thereunder and the effectiveness of each Security as a security
with the stated priority and it will promptly provide copies
thereof to the Agent when these are obtained or renewed.
(c) (Change of business): None of the Borrower or any Guarantor will
make or threaten to make any change in the nature of its
respective business as conducted at the date of this Agreement or
take any action which would result in the business not remaining
capable of operating.
(d) (Any action): No Guarantor will take any action that would result
in the Borrower not remaining capable of operating in a manner
that would enable the Borrower to meet all of its Obligations.
(e) (Mergers): None of the Borrower or any Guarantor will enter into
any merger or consolidation or make any acquisition of any other
person or business except in respect of the assets or shares of a
member of the Group by the Borrower or a Guarantor.
(f) (Administration and liquidation orders etc.): None of the
Borrower or any Guarantor will make or join in making any
application to any court for an administration, liquidation,
receivership, dissolution or other similar order to be made in
relation to any member of the Group.
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(g) (Arm's-length terms): No Borrower or Guarantor will enter into
any transaction with any person otherwise than on (or better
than) arm's-length terms and for full market value, and save for
intercompany loans permitted pursuant to clause 17.5(b).
(h) (Hedging): The Borrower will maintain interest and currency
hedging arrangements with the Banks and will not enter into any
hedging arrangements with a financial institution which is not a
Bank so long as the price and other terms of the arrangements
offered by the Banks are fair and reasonable having regard to the
Facility and the market at the relevant time. The Borrower will
establish and maintain interest hedging to the satisfaction of
the Banks by 30 June 1999. At no time will the Borrower hedge
more than 100% of its actual exposures in any market.
(i) (Constitutional Documents): No Borrower or Guarantor will, save
as required by law, amend or agree to amend its constitutional
documents or by-laws of any member of the Group in any way which
has a Material Adverse Effect.
(j) (Related Entity Transactions): No Borrower or Guarantor will
knowingly enter into any transaction with any shareholder of the
Borrower or any Related Company of any shareholder of the
Borrower without the prior written consent of the Agent (such
consent not to be unreasonably withheld) unless such transaction
is entered into on ordinary commercial terms in the ordinary
course of that company's business.
(k) (Bank Accounts): No Borrower or Guarantor will open or maintain
any account with any branch of any bank or other financial
institution providing like services (other than an account
maintained pursuant to the requirements of the Transaction
Documents) unless the opening and maintenance of such account has
been approved by the Agent except for accounts for transactional
banking facilities and arrangements in the ordinary course of
business, including without limitation its transactional banking
facilities with Bank of New Zealand Limited in place as at the
date of this Agreement and which the Agent hereby approves.
(l) (Compliance with laws): The Borrower and each Guarantor will
comply in all material respects with all applicable laws, rules,
regulations, orders and by-laws of any governmental authority or
local government, whether domestic or foreign having jurisdiction
over it or any of its assets.
(m) (Taxes): The Borrower and each Guarantor will pay all Taxes other
than those contested in good faith (including, without
limitation, the Approved Issuer Levy) due and payable by it.
(n) (Access): Upon notice being given by the Agent, the Borrower and
each Guarantor will procure that any one or more representatives
of the Agent be allowed (at the Agent's risk and expense) to have
access during normal business hours to its assets, books and
records and to inspect the same without disruption or
interference to the operation of those assets, books and records.
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(o) (Environmental Laws): The Borrower and each Guarantor will:
comply with all Environmental Laws affecting its business
(i) where non-compliance with such laws would have a Material
Adverse Effect;
(ii) inform the Agent of any material breach of any Environmental
Law, or any notice or order received by it under any
Environmental Law, which would have a Material Adverse
Effect; and
(iii) provide the Agent upon request, but at the sole cost of the
Borrower or the Guarantor (as the case may be), with
environmental audits and reports in respect of that
company's assets, in a form and from an independent
consultant reasonably acceptable to the Agent where the
Agent, on reasonable grounds, believes that the Borrower or
a Guarantor (as the case may be) is in breach of any
Environmental Law, the consequences of which are likely to
have a Material Adverse Effect.
18. FINANCIAL AND OPERATING RATIOS
18.1 Operating Ratios
(a) Borrower and each Guarantor will ensure that:
(b) Total Debt/Homes Serviceable): as at the end of each month listed
in Part 1 of Schedule 2, Total Debt as at that date divided by
the number of Homes Serviceable as at that date does not exceed
the amount listed in Part 1 of Schedule 2;
(c) (Subscribers or Equivalent Billing Units): as at the end of each
month listed in Part 1 of Schedule 2, either the number of
Subscribers as at that date or Equivalent Billing Units as at
that date is greater than the relevant amount listed in Part 1 of
Schedule 2.
18.2 Financial Ratios
The Borrower and each Guarantor will ensure that:
(a) (EBITDA): until 30 June 2000 in respect of each 3 month period
ending on the date specified in Part 2 of Schedule 2 EBITDA will
not be less than the amount listed in Part 2 of Schedule 2;
(b) (Revenue): until 30 June 2000 in respect of each calender month
ending on the date specified in Part 2 of Schedule 2 Revenue will
not be less than the amount listed in Part 2 of Schedule 2;
(c) (Total Debt/Annualised EBITDA): commencing from the 3 month
period ending 30 June 2000, in respect of each 3 month period
ending on a date specified in Part 3 of Schedule 2, Total Debt as
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at that date divided by Annualised EBITDA will not exceed the
amount listed in Part 3 of Schedule 2 and thereafter will not
exceed 3.50;
(d) (EBITDA/Interest Expense): commencing from the 3 month period
ending 31 March 2001, in respect of each 3 month period ending on
a date specific in Part 3 of Schedule 2, EBITDA divided by
Interest Expense less interest revenue will not be less than the
amount listed in Part 3 of Schedule 2 and thereafter will not be
less than 5.00.
18.3 Compliance Certificate
The Borrower will deliver a Compliance Certificate to the Agent within
10 days after:
(a) until 30 June 2000, the end of each month; and
(b) from 1 July 2000, the end of each Quarter,
(except for Compliance Certificates given at the end of the financial
year which must be given promptly but in any event not later than 120
days from the end of the financial year) and at each Utilisation Date
for a new Advance.
19. DEFAULT AND TERMINATION
19.1 Events of Default
Each of the following events is an Event of Default, whether or not
the cause is beyond the control of the Borrower, the Guarantors or any
other person:
(a) (Failure to pay): the Borrower or a Guarantor does not pay and in
the specified manner, any amount payable by it under any
Transaction Document (except in the case of a failure in the
banking system in which case the Borrower or Guarantor must pay
within 2 Banking Days of being notified by the Agent of such
system failure);
(b) (Failure to comply): the Borrower or Guarantor defaults in fully
performing, observing and fulfilling any provision of any
Transaction Document other than a provision requiring the payment
of money as contemplated by clause 19.1(a), provided that in the
case of a default capable of remedy, that default has not been
remedied within 7 days of the occurrence (or such longer period
agreed by the Agent acting on instructions from Majority Banks);
(c) (Untrue warranty): any representation, warranty or statement
made, repeated or deemed to be made or repeated in any
Transaction Document or in connection with the Facility or under
this Agreement is proved to be untrue in any material respect
when made, repeated or deemed to be made, repeated or furnished
(as the case may be);
(d) (Breach of undertaking): any Obligor breaches any written
undertaking given at any time to the Banks or the Agent or fails
to comply with any condition imposed by the Banks or the Agent in
agreeing to any matter (including any waiver);
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(e) (Default under other transactions):
(i) any Financial Liability greater than $500,000 of any Obligor
becomes, or becomes capable of being declared, prematurely
due and payable as a result of a default or an event of
default howsoever described thereunder;
(ii) any Financial Liability greater than $500,000 of any Obligor
or any sum payable in respect thereof is not paid when due
and payable;
(iii) any Encumbrance securing more than $500,000 over any asset
of an Obligor becomes capable of being enforced as a result
of a default or an event of default howsoever described
thereunder;
(iv) any Obligor defaults in fully performing, observing and
fulfilling any of the terms, covenants and conditions of any
Encumbrance securing more than $250,000 relating to any of
its assets or any Encumbrance relating to any asset of any
Obligor otherwise becomes enforceable;
(v) any Encumbrance securing more than $500,000 which is a
floating security over any asset of any Obligor crystallises
into, or otherwise becomes, a fixed or specific security; or
(vi) any Encumbrance securing more than $500,000 relating to a
Security Property is varied without the prior written
consent of the Agent or comes to secure an aggregate debt or
liability (present or future, actual, contingent or
prospective and on any account whatsoever) that exceeds the
amount previously agreed to by the Agent in writing;
(f) (Event of Insolvency): any Event of Insolvency occurs in respect
of any Obligor;
(g) (Cessation of business): an Obligor ceases, or threatens to
cease, to carry on all or a substantial part of its business or
all or a material part of the Obligor=s business is destroyed,
confiscated, appropriated or resumed or suffers loss or damage
unless insured to the satisfaction of the Agent;
(h) (Void or voidable): any Transaction Document is or becomes or is
claimed by any Obligor to be void, voidable or unenforceable in
whole or in part;
(i) (Illegality): at any time it is unlawful for an Obligor to
perform any of its material obligations under any Transaction
Document;
(j) (Failure to comply with laws): any Obligor fails to duly and
punctually comply with all statutes, regulations and other laws
binding on it where such failure has a Material Adverse Effect;
(k) (Change in ownership): without the prior written consent of the
Agent, acting on instructions from Majority Banks, a Change in
Ownership occurs. For the purpose of this sub-clause "Change in
Ownership" means:
(i) the combined indirect shareholdings in the Borrower of UIHI
and STHC is less than 51%; and/or
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(ii) the indirect shareholding in the Borrower of either UIHI or
STHC falls below 51% of its respective shareholding at the
date of this Agreement.
(l) (Hedging): the Borrower hedges more than 100% of its physical
exposures;
(m) (Reduction in capital): without the prior written consent of the
Agent (acting on instructions from Majority Banks), an Obligor
takes action to reduce its share capital (other than by the
redemption of redeemable preference shares);
(n) (Reserve liability): without the prior written consent of the
Agent, a resolution is passed by the board of the Obligor for the
amalgamation of that Obligor with another company;
(o) (Material Contracts): without the prior written consent of the
Agent (acting on instructions from Majority Banks) an event of
default howsoever described occurs and is continuing under any
Material Contract or any Obligor fails to comply with any
material term of a Material Contract or any Material Contract is
prematurely terminated and (other than in the case of the
Interconnection Agreement) is not replaced with another contract
or set of arrangements reasonably acceptable to the Agent within
30 days or it becomes unlawful for any party to a Material
Contract to perform its obligations and which event of default or
failure to comply or termination without acceptable replacement
or illegality remains unremedied 7 days after the Agent has
requested the Borrower to procure that it be remedied;
(p) (Loss of consents):
(i) any Authorisation, approval, consent, licence (other than
the Licences), exemption, filing or registration or other
requirement necessary:
A. to enable any Obligor to comply with any of its material
obligations under any of the Transaction Documents or any
of the Material Contracts; or
B. for the conduct of its business, is revoked or refused
or does not remain in full force and effect in accordance
with its terms once granted, or is not renewed prior to
its expiry or is adversely modified and that event has
a Material Adverse Effect;
(ii) the authority of any Obligor in the conduct of its business
is wholly or substantially curtailed by any seizure or
intervention by or on behalf of any authority or the ability
of the Group to conduct its business or to determine the
amount it will charge for its services is limited,
restricted or constrained by any Government Authority taking
any action or such Government Authority announces its
intention to take such action in relation to any member of
the Group or any of its assets to an extent greater than
existing at the date of this Agreement and such action has a
Material Adverse Effect;
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(q) (Licences): a breach of any of the Licences occurs and such
breach is not remedied within 30 days or such other period as may
be specified in any notice of breach issued by the relevant
authority and the breach has a Material Adverse Effect; and
(r) (Material change): any event or series of events whether related
or not occurs which has a Material Adverse Effect.
19.2 Agent's rights upon Event of Default
If any Event of Default occurs, at any time thereafter while such
event continues, the Agent may at its option if so authorised by the
Majority Banks and shall upon the direction of the Majority Banks by
written notice to the Borrower:
(a) declare that an Event of Default has occurred; and/or
(b) declare that the Total Commitments and any other obligations of
the Banks or the Agent to the Obligors under the Transaction
Documents shall be cancelled forthwith, whereupon the same shall
be so cancelled and all fees payable in relation to the Total
Commitments shall become immediately due and payable; and/or
(c) declare that the Advances to the Borrower, together with all
interest accrued on those Advances and all other amounts which
form part of the Obligations (as specified in such notice) shall
thenceforth be repayable on demand being made by the Agent (and
in the event of any such demand those Advances, such interest and
such other amounts shall be immediately due and payable); and/or
(d) declare the Advances to the Borrower immediately due and payable,
whereupon they shall become immediately due and payable together
with all interest accrued on those Advances and all other amounts
which form part of the Obligations.
20. GUARANTEE AND INDEMNITY
20.1 Guarantee
Each Guarantor hereby irrevocably and unconditionally guarantees to
the Agent and each Bank (or any of them) the due and punctual
performance in full of the Obligations.
20.2 Indemnity
Each Guarantor as a separate, additional and primary liability hereby
irrevocably and unconditionally agrees to indemnify the Agent and each
Bank and at all times hereafter to keep the Agent and each Bank
indemnified against any failure by the Borrower to duly and punctually
perform its Obligations and Intended Obligations.
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20.3 Performance of Obligations
If the Borrower or a Guarantor or any other person bound to perform or
pay after the expiration of any applicable grace period any Obligation
or Intended Obligation fails to do so in full on the due date
therefor, each Guarantor shall immediately on demand by either of the
Agent or a Bank perform or pay that Obligation or Intended Obligation.
20.4 Liability as Guarantor and indemnifier
Any reference herein to the obligations or liabilities of a Guarantor
shall be construed as a reference to its obligations or liabilities
whether as a Guarantor or indemnifier hereunder and the use of the
expression "Guarantor" herein in relation to a party shall not be
construed as diminishing that party's obligations hereunder as an
indemnifier. The provisions of this clause 20 preserving the liability
of a party hereto as a Guarantor apply mutatis mutandis to any
liability that arises whether in regard to that party's guarantee or
indemnity hereunder.
20.5 Principal obligation
Each obligation of each Guarantor hereunder constitutes a principal,
and not a secondary or ancillary obligation, to the intent that,
without limiting in any way the operation of any of the other
provisions of this clause 20, any limitation on the liability of a
Guarantor which would otherwise arise by reason of its status as a
Guarantor, co-Guarantor, indemnifier or co-indemnifier is hereby
negatived.
20.6 Absolute liability
The liability of each Guarantor hereunder is absolute and is not
subject to the execution of the Transaction Documents (other than this
Agreement) or of any other document by any person or to the
performance of any condition precedent or subsequent, including,
without limiting the generality of the foregoing, as between any
Obligor and the Agent, the Banks or any of them or amongst any 2 or
more Obligors but is subject to non-payment or the non-performance of
an Obligation or Intended Obligation by the principal Obligor.
20.7 Unconditional liability
The liability of each Guarantor hereunder shall not be affected by any
act, omission, matter or thing that would otherwise operate in law or
in equity to reduce or release a Guarantor from its liability
including, without limiting the generality of the foregoing, any of
the following:
(a) (Event of Default): the occurrence of any Event of Default;
(b) (Distributions): the receipt by the Agent or any Bank of any
payment, dividend or distribution under any Insolvency Provision
in relation to the Borrower or any Guarantor;
(c) (Invalidity etc.): any Transaction Document or any payment or
other act the making or doing of which would otherwise have
formed part of the Obligations, or any transaction or document
which would otherwise have given rise to such a payment or other
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act being or becoming or being conceded to be illegal, invalid,
void, voidable, unenforceable or irrecoverable in whole or in
part for any reason whether past, present or future, including,
without limiting the generality of the foregoing:
(i) any statute, other law or principle of equity;
(ii) any act or omission by any person;
(iii) any legal limitation, disability or incapacity of the
Borrower or any Guarantor;
(iv) any improper exercise of a power or authority in relation to
the Borrower or any Guarantor;
(v) any right of the Agent or a Bank to enforce or recover such
document, payment or other act or to exercise any remedy or
right it has for the enforcement or recovery of such
document, payment or other act being suspended or postponed
by order of any court or otherwise; or
(vi) any Insolvency Provision;
(d) (New guarantors): the Agent, Banks or any of them accepting from
any person any guarantee, indemnity or contract of suretyship for
the performance of the whole or any part of the Obligations;
(e) (Time or indulgence): the Agent, Banks or any of them agreeing
with the Borrower or any Guarantor to grant time, waiver or other
indulgence or concession to, or to make any composition or
compromise with the Borrower or any Guarantor;
(f) (Forbearance): the Agent, Banks or any of them forbearing or
neglecting to exercise any remedy or right they have or it has
for the enforcement of any Transaction Document or any other
obligation or liability forming part of the Obligations;
(g) (Laches etc.): any laches, acquiescence or other act, neglect,
default, omission or mistake by the Agent, Banks or any of them;
(h) (Repudiation): the determination, rescission, repudiation or
termination, or the acceptance of any of the foregoing, by the
Agent, Banks, the Borrower or any Guarantor or any of them of any
Transaction Document or any other obligation or liability forming
part of the Obligations;
(i) (Variation): any variation (whether by way of insertion,
deletion, modification, novation or otherwise) to any Transaction
Document or any other obligation or liability forming part of the
Obligations, whether or not such variation is substantial or
material or imposes an additional liability upon or is onerous on
the Borrower or any Guarantor, including without limiting the
generality of the foregoing, any increase in the limit or
extension of the term for, or the imposition of any condition or
variation in the rate of interest in respect of advances or
financial accommodation to the Borrower;
(j) (Release): the full, partial or conditional release or discharge
(whether before or after any demand has been made on the
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Guarantor hereunder) by the Agent, Banks or any of them or by
operation of law, of the Borrower or any Guarantor or any other
person from any Transaction Document or any other obligation or
liability forming part of the Obligations (but without affecting
the validity of any release and discharge of a Guarantor in
accordance with this Agreement);
(k) (Security Property): the release of any property from any
Security or the substitution of any property in place of any
other property now or hereafter the subject of a Security;
(l) (Securities): the Agent, Banks or any of them wasting,
destroying, abandoning, prejudicing or not perfecting,
maintaining, preserving, enforcing or realising or negligently or
not bona fide enforcing or realising any Security;
(m) (Loss of Securities): the failure to obtain any Security or the
loss or impairment of any Security by operation of law or
otherwise, whether or not the same is in breach of an express or
implied condition to obtain or preserve such Security or in
breach of any equitable duty which might otherwise have been
imposed upon the Agent, Banks or any of them;
(n) (Priority of Securities): the Agent, Banks or any of them
agreeing to any order of priorities with respect to any Security
or to any variation of any then previously agreed order of
priority;
(o) (Accounts): the opening or operation of any new account with the
Agent, Banks or any of them by the Borrower or any Guarantor;
(p) (Change of constitution): any change in membership (whether by
death or retirement of an existing member, admission of a new
member or otherwise), in the place of business or in the name of
any partnership, firm or association in which the Borrower or any
Guarantor is a member;
(q) (Transfer): the transfer or assignment of the benefit of any
Transaction Document or of any other obligation or liability
forming part of the Obligations;
(r) (Disclosure): any failure by the Agent, Banks or any of them to
disclose to the Guarantor any material or unusual fact,
circumstance, event or thing whatsoever known to, or ought to
have been known by, the Agent or any Bank relating to or
affecting the Borrower or any Guarantor at any time prior to or
during the currency of any Transaction Document, whether
prejudicial or not to the rights and liabilities of the Guarantor
and whether or not the Agent or any Bank was under any duty to
disclose such fact, circumstance, event or thing to the Guarantor
or the Borrower; or
(s) (Covenant not to take action): the Agent or any Bank entering
into a covenant with the Borrower or any Guarantor not to do all
or any of the following, namely, sue, issue process, sign or
execute judgment, commence proceedings for bankruptcy or
liquidation, participate in any official management, scheme of
arrangement or reconstruction, prove in any bankruptcy or
liquidation or do any other act, matter or thing in respect of
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the liability of the Borrower or that Guarantor (but without
affecting the validity of any waiver given in accordance with
clause 31.11 of this Agreement).
20.8 No obligation to gain consent
Nothing herein shall be construed as a requirement that any Guarantor
consent to or be made aware of any event referred to in clause 20.7,
any transaction between the Agent, Banks or any of them and the
Borrower or any one or more Guarantors or any particulars concerning
any obligation or liability that forms part of the Obligations.
20.9 No marshalling
The Agent and the Banks are under no obligation to marshal or
appropriate in favour of any Guarantor or to exercise, apply, transfer
or recover in favour of any Guarantor any Security or any funds or
assets that they or any of them hold or are entitled to receive or
have a claim upon.
20.10 Void or voidable transactions
If there is upheld, conceded or compromised any claim that a
transaction in any way affecting or relating to the Obligations or the
Securities is void, voidable, unenforceable or irrecoverable the
following provisions apply:
(a) (Restoration of Obligations): if as a result of or in connection
with entering into the transaction the Obligations have been
reduced in any way, then upon such claim being upheld, conceded
or compromised, the Agent and each Bank will be entitled against
each Guarantor to all such rights as it would have had if the
transaction or so much thereof as is held or conceded to be void
or voidable or is foregone on compromise had not taken place;
(b) (Restoration of Security): if as a result of or in connection
with entering into the transaction, or if as a result of the
transaction being held or conceded to be void or unenforceable, a
Bank's rights under any Security have been surrendered, cancelled
or reduced in any way, then upon such claim being upheld,
conceded or compromised, each Guarantor will take all steps and
sign all such documents as may be necessary or convenient to
restore those rights or equivalent rights to the Bank; and
(c) (Costs and expenses): the Guarantors will pay to the Agent and
each Bank all costs and expenses (including legal costs and
expenses as between solicitor and own client) incurred by the
Agent and each Bank in or in connection with any negotiations or
proceedings relating to any such claims.
20.11 Insolvency
No Guarantor will lodge any proof of debt or similar claim under any
Insolvency Provision in relation to the Borrower or any Guarantor in
competition with the Agent or any Bank. Each Guarantor irrevocably
authorises the Agent to prove as its attorney for all money which it
may be entitled to from the Borrower or any Guarantor and to retain
and to carry to a suspense account and appropriate at the discretion
of the Agent (but for the benefit of the Banks) any amount so received
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until with the aid thereof each Bank has been paid 100 cents in the
dollar in respect of the indebtedness of the Borrower or each
Guarantor as the case may be.
20.12 No set-off, counterclaim, etc.
No Guarantor will seek to reduce or avoid its liability under a
Transaction Document by raising any defence, set-off or counterclaim
available to the Agent or the Borrower or any other Guarantor.
20.13 Restriction on Guarantor's dealings
No Guarantor will, without the Agent's prior written consent (which
the Agent may withhold in its discretion):
(a) (No proceedings): institute any proceedings against any other
Obligor;
(b) (No demand): make any demand for, or accept any money in part or
complete satisfaction of, any liability on any account of any
other Obligor other than as permitted under this Agreement or for
a liability arising out of the supply of goods and services by
the Guarantor to that Obligor in the ordinary course of that
Guarantor's ordinary business at a rate and on terms not
exceeding and not more onerous than usually found for the supply
of such goods and services by parties dealing at arm's length;
(c) (No enforcement of Securities): enforce any Encumbrance now or
hereafter held by it (either alone or with others) in respect of
any such liability as aforesaid; or
(d) (No set-off): set-off any money owing by the Guarantor against
any liability owing to the Guarantor by any other Obligor or
permit any Obligor to set off any money owing by the Obligor
against any liability owing to that Obligor by the Guarantor.
20.14 Release of Obligor
Notwithstanding any presumption or principle of law to the contrary,
the Agent may in relation to any Obligor enter into a covenant not to
sue, issue process, sign judgment and execute or commence proceedings
for the bankruptcy or liquidation of any one or more of such resultant
judgment debtors, participate in any official management, scheme of
arrangement or reconstruction, prove in any bankruptcy or liquidation
and do any other act, matter or thing in respect of that Obligor's
liability without thereby in any way impairing or reducing the
liability of any Guarantor or other Guarantor (as the case may be) to
the Agent, the Banks or any of them under this Agreement.
20.15 Conditions precedent
The Agent may waive, dispense with or accept such evidence as in its
absolute discretion it sees fit in relation to the satisfaction of any
condition precedent contained in any Transaction Document or otherwise
for the grant of any advances or financial accommodation to or for the
account of the Borrower, and the Guarantors' liability hereunder shall
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not be affected or in any way impaired by any exercise by the Agent of
that discretion.
20.16 Claim on the Guarantors
(a) The Agent or a Bank shall not make any demand or claim on a
Guarantor under this clause 20 unless the Borrower or a Guarantor
has failed in the due and punctual payment of any of its
Obligations.
(b) Neither the Agent nor a Bank shall be required to make any claim
or demand on the Borrower or on any other Obligor, or to enforce
any Transaction Document or any other right, power or remedy
against any Obligor, before making any demand or claim upon any
Guarantor.
20.17 Subrogation
No Guarantor will seek the transfer to it of any Security which is
subject to an agreed order of priority in the Agent's or any Bank's
hands under any right of subrogation, unless and until it has entered
into a deed under which it undertakes to be bound by the priority
affecting such Security with the other parties to such agreed order of
priority.
20.18 General waiver by Guarantors
The Guarantors expressly waive all rights inconsistent with the
provisions of this Agreement, including all rights as to contribution,
indemnity or subrogation which they might otherwise be entitled to
claim and enforce until the Obligations have been paid in full.
20.19 Judgment
Any judgment obtained against the Borrower is conclusive as against
each Guarantor.
21. ADDITIONAL GUARANTORS AND SECURITY
21.1 Additional Guarantors
(a) The Borrower and each Guarantor shall procure that any wholly
owned member of the Group which is not a Guarantor shall become,
promptly after being required by the Agent on the instructions of
the Majority Banks to become, an Additional Guarantor by entering
into an Accession Agreement, subject to any provision of law
(including but not limited to laws concerning major transactions,
financial assistance or related party transactions) prohibiting
that person from becoming an Additional Guarantor.
(b) Where any such prohibition as is referred to above exists, the
Borrower and each Guarantor shall use its best endeavours
lawfully to overcome the prohibition, and the Agent may (but
shall not be obliged to) agree with the potential Additional
Guarantor concerned limitations on its liability as an Additional
Guarantor under this Agreement and other amendments (applying
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only in relation to that Additional Guarantor) to this Agreement
or to the relevant Accession Agreement.
(c) On each date that an Accession Agreement is entered into the
Borrower shall procure that each of the documents listed in
paragraphs 1, 3, 4, 5, 8 and 9 of Schedule 3 (as appropriate) are
delivered in respect of the Additional Guarantor and the
Accession Agreement in form and substance satisfactory to the
Agent.
21.2 Security
(a) The Borrower and each Guarantor shall execute and deliver to the
Agent such further or additional Securities in such form and in
relation to such of its assets as the Majority Banks shall
require subject to any provision of law prohibiting such person
from entering into such Security.
(b) Where any such prohibition as is referred to above exists, the
Borrower and each Guarantor shall use their best endeavours
lawfully to overcome the prohibition, and the Agent may (but
shall not be obliged to) agree with the relevant Obligor
limitations on the extent of the security granted by it.
(c) The Obligors shall at their own expense execute and do all such
assurances, acts and things as the Agent or the Majority Banks
may require for perfecting or protecting the security intended to
be afforded by the Securities or for facilitating the realisation
in accordance with the Securities of all or any part of the
assets which are subject to the Securities and the exercise of
all powers, authorities and discretions vested in the Agent under
the Securities or in any receiver of all or any part of those
assets and in particular shall execute all transfers,
conveyances, assignments and releases of that property whether to
the Agent or to its nominees and give all notices, orders and
directions which the Agent may think expedient for the purpose of
this clause 21.2(c).
(d) The Obligors shall procure that in relation to each further or
additional Security the relevant Borrower or Guarantor shall do
all things necessary duly to perfect in the jurisdiction of its
incorporation and in the jurisdiction wherein the assets which
are the subject of the further or additional Securities are
located, the security intended to be afforded to the Agent and
the Banks under such further or additional Securities and shall
deliver to the Agent such directors and shareholders resolutions,
legal opinions, notices, certificates or documents of title or
other items as the Agent shall require.
21.3 Additional Security
Notwithstanding clause 21.2(a), the Borrower and each Guarantor shall:
(a) procure that any person who becomes a member of the Group and who
is a wholly owned subsidiary of an Obligor shall execute and
deliver and do all things necessary to be joined to the
Securities; and
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(b) ensure that any Security Property relating to the Securities
referred to in clause 21.3(a) shall be free and clear of any
Encumbrances other than Encumbrances permitted under clause
17.3(a) or the Securities.
22. RELEASE OF GUARANTORS AND SECURITY
22.1 Guarantors
Subject to clause 22.3, at the time of completion of any sale or other
disposal to a person or persons outside (and which will remain
outside) the Group of all of the shares in the capital of any
Guarantor (or of all of the shares in any other member of the Group
such that any Guarantor ceases as a result thereof to be a member of
the Group) and in such other circumstances (if any) as all the Banks
may from time to time agree in writing, such Guarantor shall be
released from all past, present and future liabilities (both actual
and contingent) hereunder and under the Securities to which it is a
party, and the security provided over its assets under the Securities
will be released.
22.2 Assets
Subject to clause 22.3, at the time of completion of any sale or other
disposal to a person or persons outside (and which will remain
outside) the Group of any assets owned by an Obligor over which
security has been created by the Securities to which that Obligor is
party, those assets shall be released from such security.
22.3 Conditions for Release
The release of the guarantees and security referred to in clause 22.1
and 22.2 above shall only occur if:
(a) either:
(i) such disposal will not result directly or indirectly in any
breach of any of the terms of this Agreement; or
(ii) such disposal is being effected at the request of the
Majority Banks in circumstances where any of the security
created by the Securities has become enforceable; or
(iii) such disposal is being effected by enforcement of the
Securities; or
(iv) all Banks agree to the release; and
(b) the Net Proceeds arising out of such disposal will be applied
strictly in accordance with the requirements of this Agreement;
and
(c) any assets to be transferred to other members of the Group before
completion of such disposal shall have been so transferred and
(if so required by the Majority Banks) security over such assets
shall have been granted to the Agent to its satisfaction; and
(d) the Agent shall have executed such documents effecting such
release as shall be reasonably required to achieve such release
as aforesaid (and the Agent shall execute such documents at the
expense of the relevant Obligor promptly upon (and only upon) it
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being satisfied that the conditions in (a), (b) and (c) above are
satisfied or have been waived by all of the Banks).
22.4 Release of Group Members
If any person which is a member of the Group shall cease to be such a
member in consequence of the enforcement of any of the Securities or
in consequence of a disposal of the shares therein effected at the
request of the Majority Banks in circumstances where any of the
security created by the Securities has become enforceable, any claim
which any Obligor may have against such person or any of its
Subsidiaries in or arising out of this Agreement or any of the
Securities (including, without limitation, any claim by way of
subrogation to the rights of the Agent and the Banks against such
person under the Transaction Documents and any claim by way of
contribution or indemnity) shall be released automatically and
immediately upon such person ceasing to be a member of the Group.
23. INDEMNITY
The Borrower shall on demand by the Agent indemnify each Bank against
any loss, cost or reasonable out of pocket expenses which the Bank may
sustain or incur as a consequence of:
(a) any sum payable by the Borrower hereunder not being paid when
due;
(b) the occurrence of any Event of Default or Potential Event of
Default;
(c) an Advance requested in a Utilisation Notice not being provided
for any reason including failure to fulfil any condition
precedent but excluding any default by the Bank claiming an
indemnity pursuant to this paragraph; or
(d) the Bank receiving payments of principal other than on the last
day of an Interest Period or when due for any reason, including,
without limitation, prepayment in accordance with a Transaction
Document.
Such losses, costs or expenses shall include the amount determined in
good faith by the Bank as being any loss including loss of margin,
cost or expense incurred by reason of the liquidation or re-employment
of deposits or other funds acquired or contracted for by the Bank to
fund or maintain any such Advance or amount.
24. AGENT
24.1 Appointment
The Agent is hereby appointed and authorised to act on behalf of each
Bank with power to enter into each Transaction Document and to
exercise such rights, remedies, powers and discretions as are
specifically delegated to them under the Transaction Documents
together with such rights, remedies, powers and discretions as are
incidental thereto. The Agent does not have any duties, obligations or
liabilities to the Banks or any of them beyond those expressly stated
in this Agreement and the Transaction Documents.
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24.2 Relationships
(a) Nothing contained in this Agreement, and no action taken by the
Banks pursuant hereto, shall be deemed to constitute the Banks a
partnership, association, joint venture or other entity.
(b) In performing their respective functions and duties under the
Transaction Documents, the Agent shall act solely on behalf of
the Banks and does not assume and shall not be deemed in any
circumstances whatsoever to have assumed any responsibility,
liability or obligation, towards, or relationship of agency or
trust with, or for, the Obligors.
24.3 Communications
Except where this Agreement otherwise expressly provides, all
communications to be made between an Obligor and the Banks or any of
them concerning the Facility shall be made by or through the Agent.
24.4 Instructions of Majority
Subject to clause 24.5, the Agent must act or refrain from acting in
the exercise of any right or power, or as to any matter not expressly
provided for by this Agreement, in accordance with the instructions of
the Majority Banks and it shall be fully protected in so doing. Any
such instructions shall be binding on all the Banks. In the absence of
any such instructions, the Agent may act or refrain from acting as it
sees fit, provided that it has used reasonable endeavours to obtain
such instructions. In no event, however, shall the Agent be required
to take any action which exposes, or is likely to expose, it to
personal liability unless it is indemnified to its satisfaction, or
which is contrary to this Agreement or any law, regulation or
directive.
24.5 Amendments
If authorised by the Majority Banks, the Agent may (except where any
other authority is required for the same by the express provisions of
the Transaction Documents) grant waivers or consents or (with the
agreement of the Borrower) vary the terms of the Transaction
Documents. Any such waiver, consent or variation so authorised and
effected by the Agent shall be binding on all the Banks and the Agent
shall be under no liability whatsoever in respect of any such waiver,
consent or variation, provided always that, except with the prior
written consent of all the Banks and the Borrower, nothing in this
clause shall authorise:
(a) the extension of any Availability Period; or
(b) any variation of the definition "Majority Banks" in clause 1.1;
or
(c) any extension of the date for, or alteration in the amount or
currency of, or waiver of any payment of principal, interest,
Utilisation Margin, fee, commission or any other amount payable
under any of the Transaction Documents; or
(d) any change to any Bank's Commitment; or
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(e) any variation of clauses 11.5, 12, 27 or this clause 24.5; or
(f) any variation of any provision wherein (before such variation) it
is provided that certain things may not be done without or may be
done with the consent or approval of all the Banks; or
(g) any waiver or consent in relation to, or variation of the
material provisions of, any Security or clause 20 or 21 of this
Agreement; or
(h) (save as otherwise expressly provided for elsewhere in this
Agreement or the relevant Security) any release of the security
provided by any of the Securities over any asset.
24.6 No need for inquiries
No Obligor shall be concerned to inquire as to whether the Agent has
been given any instructions by the Majority Banks or as to the terms
of any instructions so given and may rely on all notices from the
Agent without the need to make further enquiry.
24.7 Delegation
The Agent may from time to time delegate the performance of its duties
and obligations as Agent. The Banks and each Obligor agree that any
delegate of the duties and obligations of the Agent will be entitled
to the benefit of the provisions of this clause 24 as if it were the
Agent and, without limitation, will not be responsible or liable for
any damage, cost, loss or expense they or any of them may suffer or
incur as a result of or in connection with an act or omission or
negligence of the delegate except to the extent arising as a direct
result of the gross negligence or wilful misconduct of the delegate.
24.8 Agent not bound to Enquire
The Agent is not obliged to ascertain or enquire:
(a) either initially or on a continuing basis, as to the credit or
financial condition or affairs of the Obligors or any other
person; or
(b) as to the performance or observance by the Obligors or any other
person of any of the terms of any Transaction Document; or
(c) whether any Event of Default or Potential Event of Default has
occurred.
24.9 Default
The Agent shall not be obliged to make any inquiry as to whether an
Obligor is in breach of, or in default under a Transaction Document or
as to the existence of the Event of Default or Potential Event of
Default and shall not be deemed to have any knowledge of the
occurrence of such a breach, default, Event of Default or Potential
Event of Default unless it has received express written notice thereof
from a Bank or an Obligor, stating that such notice is a "Notice of
Default" and describing the breach, default, Event of Default or
Potential Event of Default. In the event that the Agent receives such
a notice, or otherwise acquires actual notice of an Event of Default
or Potential Event of Default it shall promptly notify the Banks.
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Subject to its being indemnified to its satisfaction, the Agent shall
take such action with respect to an Event of Default as it shall be
directed to take by the Majority Banks. Until the Agent receives such
directions it may (but shall not be obliged) take or refrain from
taking such action as it shall in its absolute discretion deem
advisable in the best interests of the Banks.
24.10 Agent as Bank
With respect to its own rights as a Bank (if any), the Agent shall
have the same rights and powers under each Transaction Document as any
other Bank and may exercise the same as though it were not performing
the duties and functions delegated to it as the Agent and the term
"Banks" shall include the Agent in its individual capacity as a Bank.
24.11 Agent's dealings
The Agent may, without any liability to account to the Banks or any of
them, accept deposits from, lend money to and generally engage in any
kind of banking or financial, trust or other business with any Obligor
as if they were not Agent and may accept fees and other consideration
from any Obligor for services in connection with any Transaction
Document or otherwise without having to account for the same to the
Banks.
24.12 Notices and reports
Promptly after its receipt thereof, the Agent will make available for
examination by each Bank at its address for service of notices and on
request by a Bank provide to the Bank a copy of each report, notice or
other document required under this document or a Transaction Document
to be delivered to the Agent by an Obligor.
24.13 Not responsible
(a) The Agent shall not be responsible to any Bank for failure of an
Obligor to perform its obligations under a Transaction Document,
an Obligor's financial condition, the completeness or accuracy of
any statements, representations or warranties in a Transaction
Document, the Information Memorandum (except statements
authorised by it) or any document delivered under or in
connection with a Transaction Document, the valid execution,
effectiveness, adequacy, genuineness, validity, enforceability or
admissibility in evidence of a Transaction Document or any such
other document or the failure of any party to perform and observe
its obligations under a Transaction Document.
(b) Each Bank acknowledges that it has not relied on any statement,
opinion, forecast or other representation made by the Agent to
induce it to enter into this Agreement or agree to participate in
the Facility whether made in the Information Memorandum or
otherwise and that it has made and (without reliance on the Agent
and based on such documents as it considers appropriate) it will
continue to make its own appraisal of the affairs and financial
condition of each Obligor and its own decisions as to whether or
not to take action under a Transaction Document.
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(c) The Agent will not be obliged on a continuing basis or at a
particular time to provide any Bank with any financial or other
information with respect to an Obligor other than as provided in
clause 24.12.
(d) Without limitation to clause 24.9, the Agent will not be obliged
to keep itself informed as to the performance and observance by
the Obligors of their respective obligations and responsibilities
under this document and the Transaction Documents.
(e) The Agent shall not be liable for any cost, loss, damage or
expense of whatsoever nature suffered or incurred by a Bank or
any other person except to the extent arising as a direct result
of the gross negligence or wilful misconduct of the Agent.
24.14 Indemnity
Each Bank shall reimburse the Agent rateably in accordance with
Commitments (to the extent that it is not reimbursed by the Borrower)
on demand, for charges and expenses incurred by it in connection with
the negotiation, preparation, execution, stamping and registration of
the Transaction Documents, in contemplation of, or otherwise in
connection with, the enforcement or preservation of any rights under a
Transaction Document or in carrying out its duties as Agent under the
Transaction Documents including, in each case, the fees and expenses
of legal and other professional advisers. Each Bank shall indemnify
the Agent rateably in accordance with its Commitments against all
liability, damage, costs, claims and expenses suffered or incurred or
made against the Agent in connection with a Transaction Document, the
performance or purported performance of its duties as Agent under a
Transaction Document or any action taken or omitted to be taken by the
Agent under (or purportedly under) a Transaction Document except to
the extent, however, that such liability, damage, cost, claim or
expense directly results from the Agent's gross negligence or wilful
misconduct.
24.15 Observe laws
The Agent may refrain from doing anything which would or might in its
opinion either be contrary to any relevant law of any relevant
jurisdiction or any official directive or render it liable to any
person and may do anything which in its opinion is necessary to comply
with any relevant law or official directive.
24.16 Replacement
(a) The Agent (the "retiring Agent") may:
(i) resign at any time by giving not less than 20 Banking Days'
written notice thereof to the Banks and the Borrower; and be
(ii) removed from office upon not less than 20 Banking Days'
prior written notice signed by or on behalf of the Majority
Banks.
(b) Upon receipt of a notice of resignation from the retiring Agent,
or the giving of a notice of removal of the retiring Agent, the
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Majority Banks shall have the right, in consultation with the
Borrower, to appoint a successor Agent. In the case only of
resignation of the retiring Agent, if within 20 Banking Days
after the giving of a notice of resignation, no successor Agent
has been appointed, the retiring Agent may, in consultation with
the Borrower, appoint a successor Agent which shall be a
reputable and experienced financier having an office in Sydney,
Melbourne or Wellington.
(c) The resignation or removal of the retiring Agent and the
appointment of the successor Agent shall both become effective
upon the successor Agent notifying the Banks and the Borrower of
its acceptance of such appointment, and specifying for the
purposes of this Agreement an office in Sydney, Melbourne or
Wellington. Upon giving such notification, the successor Agent
shall succeed to and be vested with all the rights, obligations,
powers and duties and privileges of the Agent under the
Transaction Documents in place of the retiring Agent and the
retiring Agent shall be discharged from its duties and
obligations under the Transaction Documents.
(d) The provisions of this clause 24 shall continue in effect for the
benefit of a retiring Agent in respect of any actions taken or
omitted to be taken while the retiring Agent was acting as the
Agent.
24.17 No authority
Each Bank acknowledges and agrees that it does not have authority on
behalf of the other Banks to waive any right or remedy of the Banks or
the Agent or to modify or vary, or agree to modify or vary, any
provision of any Transaction Document.
24.18 Agent as Trustee
(a) The Agent in its capacity as trustee or otherwise shall not be
liable for any failure, omission, or defect in perfecting the
security constituted by the Securities.
(b) The Agent in its capacity as trustee or otherwise may accept
without enquiry such title as an Obligor may have to the property
over which security is intended to be created by the Securities.
(c) Each Bank hereby confirms its approval of the Transaction
Documents and any security created pursuant thereto and hereby
authorises, empowers and directs the Agent (by itself or by such
person(s) as it may nominate) to execute and enforce the same as
trustee or as otherwise provided (and whether or not expressly in
the Banks' names) on its behalf.
25. HEDGING ARRANGEMENTS
25.1 Undertakings of Swap Counterparties
Except as the Majority Banks have previously consented in writing, no
Swap Counterparty will:
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(a) demand (other than as may be necessary in order to exercise any
right to terminate or close out any hedging transaction as
provided in and permitted under clause 25.1(b)) or receive
payment, prepayment or repayment of, or any distribution in
respect of, or on account of, any of the Hedging Liabilities in
cash or in kind, or apply any money or property in or towards the
discharge of any Hedging Liabilities except:
(i) for scheduled payments arising under the terms of the
Hedging Agreements entered into by the Borrower with that
Swap Counterparty; and/or
(ii) for the proceeds of enforcement of the Securities received
and applied in the order permitted by this Agreement;
(b) exercise any right to terminate or close out any hedging
transaction under the Hedging Agreements prior to its stated
maturity (whether by reason of the Borrower becoming a Defaulting
Party thereunder (and as defined therein) or otherwise) unless it
has given written notice to the Agent and:
(i) the Borrower has defaulted on a payment due under the
Hedging Agreements after allowing for any required notice
and any applicable days of grace and such default continues
for more than 7 Banking Days after notice of such default
being given to the Agent; or
(ii) the Agent has declared all or part of the Obligations
prematurely due and payable under clause 19.2; or
(iii) the continued existence of the Hedging Agreements would be
illegal;
(c) discharge all or any part of the Hedging Liabilities by set-off,
any right of combination of accounts or otherwise except if and
to the extent that those Hedging Liabilities are permitted to be
paid under paragraph (a) above; or
(d) permit to subsist or receive any Encumbrance or any financial
support (including without limitation the taking of any
participation, the giving of any guarantee, indemnity or other
assurance against loss, or the making of any deposit or payment)
for, or in respect of, any of the Hedging Liabilities other than
under the Securities or any other Encumbrance or support granted
for the full benefit (save to the extent otherwise required so as
to comply with applicable law) of the Agent and the Banks.
25.2 Hedging Agreements
Each Swap Counterparty will provide to the Agent copies of all
documents constituting the Hedging Agreements to which it is a party
as soon as reasonably practicable.
26. SET-OFF
Each Obligor authorises each Bank at any time after an Event of
Default has occurred and is continuing to apply without prior notice
any credit balance (whether or not then due) to which the Obligor is
at any time entitled on any account at any office of the Bank in or
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towards satisfaction of any sum then due and unpaid from that Obligor
to the Bank and the Obligors each further authorise each Bank without
prior notice at any time after an Event of Default has occurred and is
continuing to set-off any amount owing (whether present or future,
actual, contingent or prospective and on any account whatsoever) by
that Obligor against any liability (whether present, future, actual,
contingent or prospective) of the Obligor hereunder or on any other
account whatsoever. No Bank shall be obliged to exercise any of its
rights under this clause, which shall be without prejudice and in
addition to any right of set-off, combination of accounts, lien or
other right to which it is at any time otherwise entitled (whether by
operation of law, contract or otherwise). Each Bank shall notify the
Agent and the relevant Obligor forthwith upon its exercise of a right
of set-off involving any Obligor giving full details in relation
thereto and the Agent shall inform the other Banks.
27. PRO RATA SHARING
If at any time the proportion which a Bank ("Overpaid Bank") has
received or recovered by set-off or otherwise in respect of its
portion of any sum due from an Obligor to the Banks under the
Transaction Documents is greater (the amount of the excess being
herein referred to as the "excess amount") than the proportion thereof
received or recovered by the Bank receiving or recovering the smallest
or no proportion thereof, then:
(a) the Overpaid Bank shall promptly notify the Agent;
(b) the Overpaid Bank shall, within 10 Banking Days of such
notification, pay to the Agent an amount equal to the excess
amount;
(c) the Agent shall treat such payment as if it were a payment by the
Obligor on account of the sum owed to the Banks as aforesaid; and
(d) at the option of the Overpaid Bank:
(i) subject to clause 27(f), the liability of the Obligor to the
Overpaid Bank shall be increased (or treated as not having
been reduced); or
(ii) the Obligor shall fully indemnify the Overpaid Bank making
such payment for the amount thereof;
provided that:
(e) if a Bank has commenced an action or proceeding in any court to
recover sums owing to it pursuant to this Agreement or a
Transaction Document and as a result thereof, or in connection
therewith, has received an excess amount, the Bank shall not be
required to share any portion of such excess amount with a Bank
which was notified of such legal action or proceeding and which
had the legal right to, but did not, join such action or
proceeding or commence and diligently prosecute a separate action
or proceeding to enforce its rights in the same or another court;
and
(f) if all or a portion of the relevant receipt or payment by or to
an Overpaid Bank is thereafter rescinded or must otherwise be
restored to an Obligor, the Banks shall repay to the Agent for
the account of the Overpaid Bank such amount as shall be
necessary to ensure that (subject to clause 27(e)) all the Banks
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share rateably in the amount of the receipt or payment retained
by the Overpaid Bank and the provisions of clause 27(c) and (d)
shall apply only to the retained amount.
28. EXPENSES AND STAMP DUTIES
28.1 Expenses
The Borrower on demand by the Agent or the Banks will pay to or at the
direction of the Agent or the Banks (as the case may be) all
reasonable out of pocket expenses including legal fees, costs and
disbursements (on a solicitor/own client basis) assessed without the
necessity of taxation, incurred or payable by the Agent or the Banks
(except that the Borrower will only be liable to pay the legal fees
and disbursements of one firm acting for the Agent and Banks and is
not liable to pay any legal fees, costs and expenses incurred by any
Banks instructing separate legal counsel) in connection with:
(a) the preparation and negotiation of the Transaction Documents and
the Securities and any subsequent consent, agreement, approval or
waiver thereunder or amendment thereto;
(b) the execution of the Transaction Documents and the Securities and
any subsequent consent, agreement, approval or waiver thereunder
or amendment thereto;
(c) the enforcement, attempted enforcement or the preservation of any
rights under the Transaction Documents and the Securities
including, without limitation, any expenses incurred in the
evaluation of any matter of material concern to the Agent;
(d) the obtaining of persons to participate in the Facility as Banks
(including, without limitation, advertising, accommodation,
travelling and out-of-pocket expenses); and
(e) the carrying out by the Agent (or any delegate of the Agent) of
any of their duties under the Transaction Documents.
28.2 Levies
(a) (Payment of all duties): The Borrower must pay all levies, stamp,
loan transaction, registration and similar Taxes, including fines
and penalties, financial institutions duty and debits tax which
may be payable to or required to be paid by any appropriate
authority or determined to be payable in connection with the
execution, delivery, performance or enforcement of the
Transaction Documents or any payment, receipt or other
transaction contemplated by them.
(b) (Indemnity): The Borrower will indemnify and keep indemnified the
Agent and each Bank against any loss or liability incurred or
suffered by it as a result of the delay or failure by the
Borrower to pay such Taxes.
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29. ASSIGNMENTS AND CONFIDENTIALITY
29.1 Successors and assigns
This Agreement is binding on and enures to the benefit of each party
hereto and its respective successors and permitted assigns.
29.2 Assignments by the Borrower
The Borrower cannot assign any of its rights under any Transaction
Document without the prior written consent of the Agent acting with
the approval of all the Banks.
29.3 Banks
A Bank may assign all or any of its rights or transfer all or any of
its rights and obligations under the Transaction Documents to another
bank or financial institution at any time if:
(a) it has first consulted with the Borrower regarding the identity
of the new Bank;
(b) any necessary prior Authorisation from any Government Agency or
other department is obtained;
(c) in the case of an assignment of rights only, the Agent has
received notice of the assignment under which the assignee
irrevocably authorises the assignor to act as the assignee's
agent with full power and authority to exercise the rights
assigned and to receive (and give valid receipts for) all money
payable under the Transaction Documents in respect of those
rights;
(d) in the case of a transfer of rights and obligations, such
transfer is effected by a substitution in accordance with clause
29.4;
(e) in the case of an assignment or transfer of part of its rights
and obligations, the Bank assigns or transfer a pro-rata share
the Facility; and
(f) it receives the prior consent of the Agent.
29.4 Substitution
(a) If a Bank wishes to transfer all or any of its rights and
obligations under the Transaction Documents to a bank or
financial institution, it and the proposed transferee shall
execute and deliver to the Agent 4 counterparts of the
Substitution Certificate.
(b) On receipt of a Substitution Certificate the Agent shall (if it
is satisfied that the substitution complies with clause 29.3)
promptly:
(i) notify the Borrower and each other Bank;
(ii) countersign the counterparts on behalf of all other parties
to this Agreement;
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(iii) enter the transfer in a register kept by it (which shall be
conclusive); and
(iv) retain one counterpart and deliver one counterpart to each
of the relevant transferor and transferee and to the
Borrower.
(c) On any such certificate being countersigned by the Agent the
transferor shall be relieved of its obligations to the extent and
from the date specified in such certificate and the transferee
shall be bound by the Transaction Documents to the extent and
from the date stated in the certificate.
(d) Each other party to this Agreement irrevocably authorises the
Agent to sign each such certificate on its behalf and
acknowledges that:
(i) upon such a certificate being signed by the Agent it shall
be deemed for all purposes to have consented to the transfer
of obligations provided for in the certificate; and
(ii) it will continue to be bound by the provisions of the
Transaction Documents accordingly.
(e) Unless the Agent otherwise agrees, no transfer of a Bank's
obligations may be effected while any Utilisation Notice is
current.
29.5 Bank accession
(a) If a bank approved by the Underwriters (acting reasonably)
("Acceding Bank") wishes to become a party to this Agreement and
to provide Commitments in addition to the Commitments of those
Banks existing immediately prior to the proposed accession
("Existing Banks"), the Borrower (on behalf of itself and the
Guarantors) and the Acceding Bank will execute and deliver to the
Agent 3 counterparts of a Bank Accession Certificate.
(b) On receipt of a Bank Accession Agreement the Agent shall
promptly:
(i) notify each Existing Bank of the Acceding Bank and its
proposed Commitment (if they have not already been so
notified);
(ii) countersign the counterparts on behalf of all other parties
to this Agreement;
(iii) enter the accession in a register kept by it; and
(iv) retain one counterpart and deliver one counterpart to each
of the Borrower and the Acceding Bank.
(c) Each other party to this Agreement irrevocably authorises the
Agent to sign each such certificate on its behalf and
acknowledges that:
(i) upon such a certificate being signed by the Agent it shall
be deemed for all purposes to have consented to the
accession provided for in the certificate; and
(ii) it will continue to be bound by the provisions of the
Transaction Documents accordingly.
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(d) Upon the Acceding Bank becoming a Bank pursuant to a Bank
Accession Certificate, each Existing Bank will transfer at par a
portion of the outstanding Advances at that time so that the
Acceding Bank participates in the outstanding Advances pro rata
according to its respective Commitment.
29.6 Increased Costs and Illegality
If any change in lending office of any Bank or assignment or
substitution of or with respect to all or any part of the rights or
obligations of a Bank under this Agreement pursuant to clause 29.3,
29.4 or 29.5 is made which results (or would but for this clause
result) at the time thereof in amounts becoming payable under clauses
12.2 or 14.l, then the assignee or transferee (or, in the case of a
change in lending office, the Bank) shall be entitled to receive such
amounts only to the extent that the assignor or transferor would have
been so entitled had there been no such assignment, transfer or change
in lending office. Nothing in this clause will affect the rights of an
assignee or transferee under clauses 12.2 or 14.1 in relation to
amounts which may become payable after the time of assignment or
transfer. No such assignment or transfer shall be made if the assignee
or transferee would be entitled immediately afterwards to give notice
under clause 13.
29.7 Sub-participations
Any Bank shall be entitled freely to enter into any sub-participation
or other arrangement with any third party relating to the Transaction
Documents which does not transfer to that third party any obligation
and/or any legal or equitable interest in any of the rights arising
under this Agreement.
29.8 Confidentiality
(a) Subject to paragraph (b), no Bank shall disclose any confidential
or unpublished information or documents supplied by an Obligor in
connection with the Transaction Documents which are specifically
indicated by the Obligor to be confidential.
(b) A Bank shall be entitled to disclose any confidential information
or documents:
(i) in any proceeding arising out of or in connection with any
Transaction Document to the extent that such disclosure is
deemed by the Bank necessary to protect its interests;
(ii) if required to do so under a binding order of any Government
Agency or any procedure for discovery in any proceedings;
(iii) if required to do so under any law or any administrative
guideline, directive, request or policy whether or not
having the force of law and, if not having the force of law,
the observance of which is in accordance with the practice
of responsible bankers or financial institutions;
(iv) otherwise as required or permitted by any Transaction
Document;
(v) to its legal advisers and its consultants as long as it
advises them of the confidential nature of the information
or documents or that nature is clear from the circumstances
of the disclosure;
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(vi) to a proposed assignee or transferee or sub-participant with
the prior written consent of the Borrower which consent
shall not unreasonably be withheld or delayed and will be
deemed to have been given if not refused within 15 Banking
Days of a request therefor;
(vii) relating to its level of exposure to any Obligor under any
Hedging Agreement or on any other account, to the Agent or
any other Bank; or
(viii) with the prior written consent of the Borrower.
(c) This clause 29.8 shall survive the termination of this Agreement.
30. GOVERNING LAW AND JURISDICTION
30.1 Governing law
This Agreement is governed by and construed in accordance with the
laws applying in New Zealand.
30.2 Jurisdiction
(a) (Acceptance of jurisdiction): Each of the Obligors irrevocably
submits to and accepts, generally and unconditionally, the
non-exclusive jurisdiction of the courts and appellate courts of
New Zealand with respect to any legal action or proceedings which
may be brought at any time relating in any way to any Transaction
Document.
(b) (No objection to inconvenient forum): Each of the Obligors
irrevocably waives any objection it may now or in the future have
to the venue of any action or proceedings relating to a
Transaction Document including any objection it may now or in the
future have that any such action or proceeding has been brought
in an inconvenient forum.
31. MISCELLANEOUS
31.1 Certificate of Agent
A certificate in writing signed by an officer of the Agent certifying
the amount payable by an Obligor hereunder or stating any other act,
matter or thing relating to any Transaction Document is prima facie
and binding on each Obligor in the absence of manifest error on the
face of the certificate.
31.2 Notices
Any notice or other communication which must be given, served or made
under or in connection with any Transaction Document:
(a) must be in writing in order to be valid;
(b) is sufficient if executed by the party giving, serving or making
the same or on its behalf by any attorney, director, secretary,
other duly authorised officer or solicitor of such party;
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(c) will be deemed to have been duly given, served or made in
relation to a person if it is delivered or posted by prepaid post
to the address, or sent by facsimile to the number of that person
set out herein (or at such other address or number as is notified
in writing by that person to the other parties from time to
time); and
(d) will be deemed to be given, served or made:
(i) (in the case of prepaid post) on the fifth day after the
date of posting;
(ii) (in the case of facsimile) on receipt of a transmission
report confirming successful transmission; and
(iii) (in the case of delivery by hand) on delivery.
31.3 Continuing obligation
Each Transaction Document constitutes a continuing obligation
regardless of any settlement of account, intervening payment, express
or implied revocation or any other matter or thing, until a final
discharge thereof has been given to the Borrower and the Guarantors.
31.4 Settlement conditional
Any settlement or discharge between the Agent, the Banks and the
Borrower and/or the Guarantors is conditional on any security or
payment given or made by the Borrower, any Guarantor or any other
person in relation to the Obligations not being avoided, repaid or
reduced by virtue of any Insolvency Provision. If such security or
payment is so avoided, repaid or reduced, the Agent and the Banks are
entitled to recover the value or amount of such security or payment
avoided, repaid or reduced from the Borrower and the Guarantors
subsequently as if such settlement or discharge had not occurred.
31.5 Further assurance
The Borrower and the Guarantors on demand by the Agent and at the
entire cost and expense of the Borrower and the Guarantors will
perform all such acts and execute all such agreements, assurances and
other documents and instruments as the Agent requires to perfect or
improve the rights and powers afforded, created, or intended to be
afforded or created, by any Transaction Document.
31.6 Attorney
Each Obligor hereby irrevocably appoints:
(a) the Agent and each Bank, severally;
(b) each director and secretary and authorised officer from time to
time of the Agent and each Bank; and
(c) any duly appointed agent of the Agent and each Bank,
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jointly and severally the attorney of the Obligor, in the Obligor's
name and on the Obligor's behalf, at any time from time to time while
an Event of Default subsists and in such manner as the Agent or the
relevant Bank, as the case may be, in its absolute discretion shall
think fit to:
(a) do all acts necessary or proper to further or fully assure any
Transaction Document or any Bill to the Bank; and
(b) do all acts necessary or proper to perfect or improve the rights
and powers afforded or created, or intended to be afforded or
created, by any Transaction Document.
31.7 Severability of provisions
Any provision of any Transaction Document which is illegal, void or
unenforceable will be ineffective to the extent only of such
illegality, voidness or unenforceability without invalidating the
remaining provisions hereof or thereof.
31.8 Remedies cumulative
The rights and remedies conferred by this Agreement on the Agent or
the Banks are cumulative and in addition to all other rights or
remedies available to the Agent or the Banks by law or by virtue of
any Transaction Document.
31.9 Waiver
A failure to exercise or enforce or a delay in exercising or enforcing
or the partial exercise or enforcement of any right, remedy, power or
privilege arising under any Transaction Document by the Agent or the
Banks will not in any way preclude, or operate as a waiver of, any
further exercise or enforcement thereof or the exercise or enforcement
of any other right, remedy, power or privilege thereunder or provided
by law.
31.10 Consents and approvals
Where any act, matter or thing under any Transaction Document depends
on the consent or approval of the Agent or Banks, then unless
expressly provided otherwise therein, that consent or approval may be
given or withheld in the absolute and unfettered discretion of the
Agent or Banks (as the case requires) and may be given subject to such
conditions as the Agent or Banks (as the case requires) thinks fit in
its absolute and unfettered discretion.
31.11 Written waiver, consent and approval
Any waiver, consent or approval given by the Agent under any
Transaction Document will only be effective and only binds the Banks
if it is given in writing, and executed by the Agent or on its behalf
by an officer for the time being of the Agent.
31.12 Time of essence
Time is of the essence in respect of each Obligor's obligations under
the Transaction Documents.
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31.13 Consultants fees
Where the Agent has to make any determination (whether in respect of
an Advance or otherwise), it may employ such consultants or persons as
it thinks fit to assist in making such determination. The Borrower
will reimburse the Agent for all reasonable fees paid by the Agent to
any such consultants or persons upon receipt of a written demand
therefor.
31.14 Moratorium legislation
To the fullest extent permitted by law, the provisions of all statutes
whether existing now or in the future and whether operating directly
or indirectly to lessen or otherwise to vary or affect in favour of
any Obligor any obligation under any Transaction Document, or to delay
or otherwise prevent or prejudicially affect the exercise of any
rights or remedies conferred on the Agent or any Bank under any
Transaction Document, are hereby expressly waived, negatived and
excluded.
31.15 Binding on each signatory
Each Transaction Document is binding on each of the signatories
notwithstanding that any one or more of the named parties hereto does
not execute it, that there is any invalidity, forgery or irregularity
touching its execution or that it is or becomes unenforceable, void or
voidable against a named party.
31.16 Counterparts
This Agreement may be executed in a number of counterparts, all of
which taken together will be deemed to constitute one and the same
document.
31.17 Entire Agreement
To the extent permitted by law, the Transaction Documents and the
Underwriting Letter together embody the entire understanding of the
parties and constitute the entire terms agreed upon between the
parties and supersede any prior agreement (whether or not in writing)
between the parties in relation to the subject matter of this
Agreement.
32. NO REPRESENTATION BY OR RELIANCE ON THE BANK OR AGENT
Each party other than each Bank and the Agent acknowledges that:
(a) no Bank or Agent has any duty to supply that party with
information in relation to or affecting the other or others of
them prior to the date hereof or during the currency of any
Transaction Document;
(b) it has relied upon that party's own inquiries as to the other or
others of them, the nature and extent of the entire relationship
between them and between them and each Bank and the Agent whether
or not recorded in the Transaction Documents, and the nature and
effect of the Transaction Documents; and
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(c) it has not entered into any Transaction Document in reliance on
or as a result of any representation, promise, statement, conduct
or inducement to that party by or on behalf of any Bank or the
Agent or by or on behalf of any Obligor otherwise than as
embodied in the Transaction Documents or as notified in writing
by that party to the Banks and the Agent prior to the date
hereof.
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SCHEDULE 1
BANKS
Name & Commitment
Address for Notices
Toronto Dominion Australia Limited, ACN 004 $41,667,500
858 020
of Level 36, 385 Bourke Street, Melbourne,
Victoria
Attention: Manager Credit Administration
Facsimile: (613) 9670 3779
Paribas, Taipei Branch $41,667,500
(Offshore Banking Unit)
205 TunHua North Road
11th Floor
Taipei, Taiwan 10592
Attention: Manager Operations
Facsimile: (8862) 27 13 1182
Copy Notices to:
Paribas Group Australia Limited
Level 11, 3 Spring Street,
Sydney NSW 2000
Attention: Leo Leslie/
Chrisoula Theos
Facsimile: (612) 9241 5363
TOTAL COMMITMENT $83,335,000
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SCHEDULE 2
RATIOS
PART 1: Operating Ratios
Month Total Debt/Homes Subscribers OR Equivalent
Serviceable Billing Units
December 1998 15,500 19,500
January 1999 950 18,250 24,250
February 1999 1,000 20,750 27,250
March 1999 1,050 24,750 31,750
April 1999 1,050 28,500 36,750
May 1999 1,100 32,750 42,000
June 1999 1,100 36,750 47,500
July 1999 1,100 40,750 52,750
August 1999 1,200 44,500 58,000
September 1999 1,200 48,250 63,250
October 1999 1,200 52,000 68,500
November 1999 1,300 56,000 74,000
December 1999 1,300 60,000 78,750
March 2000 1,200 63,250 93,250
June 2000 1,200 66,500 96,500
PART 2: Financial Ratios pre 30 June 2000
Period Ending Minimum EBITDA Minimum Revenue
31 December 1998 (5,250,000) 850,000
31 January 1999 (4,500,000) 1,150,000
28 February 1999 (3,700,000) 1,250,000
31 March 1999 (2,900,000) 1,500,000
30 April 1999 (2,500,000) 1,750,000
31 May 1999 (2,000,000) 2,000,000
30 June 1999 (1,750,000) 2,250,000
31 July 1999 (1,000,000) 2,500,000
31 August 1999 (750,000) 2,750,000
30 September 1999 (250,000) 3,000,000
31 October 1999 0 3,250,000
30 November 1999 750,000 3,500,000
31 December 1999 1,000,000 3,750,000
31 March 2000 4,250,000 15,250,000
30 June 2000 4,250,000 15,500,000
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PART 3: Financial Ratios post 30 June 2000
3 Month Total Debt/Annualised EBITDA EBITDA/Interest Expense
Period Ending
30 June 2000 6.50 -
30 September 2000 6.25 -
31 December 2000 6.00 -
31 March 2001 5.50 2.00
30 June 2001 5.25 2.00
30 September 2001 5.00 2.00
31 December 2001 4.75 2.00
31 March 2002 4.50 2.50
30 June 2002 4.25 2.50
30 September 2002 4.00 2.50
31 December 2002 4.00 2.50
31 March 2003 3.50 3.00
30 June 2003 3.50 3.00
30 September 2003 3.50 3.00
31 December 2003 3.50 3.00
31 March 2004 3.50 4.00
30 June 2004 3.50 4.00
30 September 2004 3.50 4.00
31 December 2004 3.50 4.00
31 March 2005 3.50 5.00
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SCHEDULE 3
DOCUMENTARY CONDITIONS PRECEDENT
1. A certified copy of the constitutional documents of each Obligor.
2. A certified copy of a resolution or resolutions of the directors of
the Borrower approving the Facility and authorising:
(a) the execution by the Borrower of this Agreement and of any of the
Original Securities to be given by the Borrower; and
(b) a person or persons to sign Bills, notices, certificates or other
documents in connection with the Facility on behalf of the
Borrower.
3. A certified copy of a resolution or resolutions of each Original
Guarantor approving the giving of the guarantee by that Guarantor in
this Agreement and authorising:
(a) the execution by the Original Guarantor of this Agreement and of
any of the Original Securities to be given by that Original
Guarantor; and
(b) a person or persons to sign notices, certificates or other
documents in connection with the Facility on behalf of the
Guarantor.
4. Evidence, satisfactory to the Agent, that the powers of attorney (if
any) used to execute any of the Transaction Documents on behalf of any
Obligor have been or will be registered, if necessary or two originals
of the powers of attorney have been provided.
5. A certified copy of the signatures of all persons authorised to sign
on behalf of the Borrower and the Original Guarantors.
6. A copy of the Original Securities in registrable form.
7. Replies to all requisitions of the Agent and its solicitors relating
to the Facility and the Original Securities.
8. A certified copy or originals of each of the Material Contracts duly
executed and stamped (if required).
9. A certified copy of (and of all applications for) any and all
approvals, consents, licences, exemptions and other requirements
(whether governmental requirements or otherwise) required for each
Obligor to carry on its business or to enter into or perform its
obligations under the Transaction Documents.
10. An opinion, addressed to the Agent and the Banks, of the legal
advisers to the Agent and the Banks as to such matters relating to the
Obligors and/or the Transaction Documents as the Agent may require.
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11. An opinion, addressed to the Agent on behalf of the Banks as to the
enforceability of the Transaction Documents to which SaskTel NZ,
UIHNZ, UAP and STHC is a party against that party.
12. The Business Plan.
13. Evidence that all insurance policies are in existence as required
under this Agreement and any of the Securities and where applicable,
that the Agent's interest has been noted thereon and if requested
certified copies of each such insurance policy.
14. Model audit.
15. Directors certificate in the form of Schedule 9 for the Borrower and
each Guarantor.
For the purposes of this Schedule, "certified" means a copy certified to be such
by a director or Officer of the Borrower.
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SCHEDULE 4
FORM OF UTILISATION NOTICE
To: Toronto Dominion Australia Limited
From: Saturn Communications Limited Date: [ ]
UTILISATION NOTICE (ADVANCE).
Facility Agreement dated [ ]
Dear Sirs
We hereby give you notice pursuant to clause 4.1 of the above Facility Agreement
that we require an Advance to be made to us under the Facility Agreement, as
follows
(a) Utilisation Date: [ ]
(b) Amount: [ ]
(c) Interest Period: [ ]
(d) Purpose: [ ]
Payment instructions with respect to the proceeds of the Advance are as follows:
[ ]
Terms used in this Utilisation Notice and defined in the Facility Agreement have
the same meaning in this Utilisation Notice as in the Facility Agreement.
We confirm that no Event of Default or Potential Event of Default has occurred
and is continuing or would result from the borrowing of the proposed Advance. We
also confirm that the representations, warranties and undertakings in clauses 16
(except for clauses 16.2(c), (d), (e) and (f)) and 17 of the Facility Agreement
have been complied with and the statements in those clauses are correct as at
the date of this Utilisation Notice.
Yours faithfully
[Authorised Signatory]
For and on behalf of Saturn Communications Limited
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SCHEDULE 5
ACCESSION AGREEMENT
THIS ACCESSION AGREEMENT is dated the [ ] day of , 19 and made BETWEEN [ ] (the
"Additional Guarantor"), Saturn Communications Limited (the "Borrower"), [ ]
(each an "Existing Guarantor"), Toronto Dominion Australia Limited in its
capacity as Agent under the Facility Agreement referred to in Recital (A) hereof
and on behalf of the Banks parties to and defined as such in such Facility
Agreement.
WHEREAS:
(A) By and upon and subject to the terms of a facility agreement (the
"Facility Agreement", which term includes any supplements and
amendments thereto which may at any time be made in relation thereto
and also any Substitution Certificates, Bank Accession Certificates
and Accession Agreements) dated [ ] made between the Borrower and
Guarantors as therein defined, the several banks parties thereto as
Banks and Toronto Dominion Australia Limited, as Agent an amortising
term loan facility was made available to the Borrower (as defined in
the Facility Agreement).
(B) Each of the entities expressed to be party hereto, whether directly or
through signature hereof by the Agent or the Borrower on its behalf,
is a party to the Facility Agreement either by having been an original
party thereto or pursuant to an Accession Agreement, Bank Accession
Certificate or a Substitution Certificate to which it is party or
otherwise.
(C) The Additional Guarantor wishes to become party to the Facility
Agreement as a Guarantor pursuant to the procedure established in
clause 21 of the Facility Agreement by the execution of this Accession
Agreement.
(D) It is the intention of the parties that this Accession Agreement shall
take effect as a deed.
NOW IT IS HEREBY AGREED as follows:
1. Definitions
Terms used herein which are defined in or to which a meaning or
construction is assigned by or in the Facility Agreement shall, unless
otherwise defined herein, have the same meaning and construction
herein as therein.
2. Agreements, Confirmations and Representations
(a) The Additional Guarantor hereby:
(i) confirms that it has received a copy of the Facility
Agreement together with such other documents and information
as it has required in connection herewith and therewith;
(ii) agrees to become, with effect from the date of this
Accession Agreement, a Guarantor under the Facility
Agreement, agrees to be bound in that capacity with effect
from such date by the terms of the Facility Agreement and
undertakes accordingly to perform its obligations as a
Guarantor thereunder;
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(iii) confirms the accuracy of the information set out under its
name at the end of this Accession Agreement;
(iv) represents and warrants as an Obligor to the Banks and the
Agent in the terms of clause 16 (other than paragraphs
16.2(c), (d), (e) and (f)) of the Facility Agreement by
reference to the facts and circumstances existing at the
date hereof; and
(v) confirms that it has not relied on the Banks or the Agent to
assess or inform it as to the legality, validity, effect or
enforceability of the Facility Agreement or any other
document referred to therein or the accuracy or completeness
of any such information as is referred to in paragraph (i)
above or the creditworthiness, affairs, condition or status
of any of the parties to the Facility Agreement, or any such
other document.
(b) The Borrower, the Existing Guarantor(s), the Agent and the Banks
hereby agree amongst themselves and with the Additional Guarantor
that the Additional Guarantor shall become party to the Facility
Agreement with effect from the date of this Accession Agreement.
3. Law
This Accession Agreement shall be governed by and construed in
accordance with the laws applying in New Zealand.
IN WITNESS WHEREOF the parties hereto have caused this Accession Agreement to be
duly executed on the date first written above.
SIGNATURES
Additional Guarantor:
[ ]
Borrower:
SATURN COMMUNICATIONS LIMITED
for itself and as agent for and on behalf of the Existing Guarantors
By:
Agent:
TORONTO DOMINION AUSTRALIA LIMITED for itself and as Agent and on behalf of the
Banks.
By:
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SCHEDULE 6
SUBSTITUTION CERTIFICATE
Substitution Certificate made the day of
BY ("Existing Bank");
AND ("New Bank");
AND Toronto Dominion Australia Limited for itself and as agent for each
party under the Facility Agreement ("Agent").
WHEREAS
A. The Existing Bank and the New Bank presently have the Commitments
specified in Schedule 1 of this Certificate.
B. The New Bank wishes to [assume [some/all] of the Existing Bank's
Commitments and] participate in the outstanding Advances under the
Facility Agreement.
C. After the Substitution Date the Existing Bank and the New Bank will
have the Commitments specified in the Schedule.
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Certificate:
"Borrower" means Saturn Communications Limited.
"Facility Agreement" means the agreement dated [ ] between (amongst
others) the Borrower and the Agent together with and as supplemented
by all Accession Agreements, Bank Accession Certificates and
Substitution Certificates.
"Substituted Commitments" means the Commitments specified as such in
Schedule 1 of this Certificate.
"Substituted Obligations" means the obligations and responsibilities
identical to the obligations and responsibilities under the
Transaction Documents of the Existing Bank in relation to the
Substituted Commitments.
"Substituted Portion" means the amount of each outstanding Advance
specified as such in Schedule 2 of this Certificate.
"Substituted Rights" means rights, remedies and powers identical to
the rights, remedies and powers under the Transaction Documents of the
Existing Bank in relation to the Substituted Commitments and the
Substituted Portion.
"Substitution Date" means the later of the date on which this
Certificate is executed on behalf of the Agent or such later date as
the parties hereto may agree in writing.
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1.2 Interpretation
(a) A reference in this Certificate to "identical" obligations and
responsibilities or rights, remedies and powers is a reference to
the character of those obligations and responsibilities, rights,
remedies and powers rather than to the identity of the person
obliged to perform them or entitled to them.
(b) Terms defined or given a special meaning in the Facility
Agreement have the same meaning in this Certificate.
1.3 Transaction Documents
This Certificate is a Transaction Document.
2. REPRESENTATION
The Existing Bank represents and warrants to the New Bank that as at
the date of this Certificate the Existing Bank's present Commitments
under the Facility Agreement are as shown in Schedule 1 and the
Existing Bank's participation in outstanding Advances is as shown in
Schedule 2 of this Certificate.
3. SUBSTITUTED OBLIGATIONS
3.1 Release from Future Obligations
The Existing Bank is released from the Substituted Obligations with
effect on and from the Substitution Date. The Existing Bank shall,
however, remain bound by its obligations and responsibilities under
the Transaction Documents which accrue prior to the Substitution Date
save as provided in clause 5 below.
3.2 Assumption of Obligations
The New Bank undertakes to the Existing Bank and the Agent that it
shall assume the Substituted Obligations on and from the Substitution
Date.
4. SUBSTITUTED RIGHTS
The Existing Bank shall no longer be entitled to the Substituted
Rights or the Substituted Portion and the New Bank shall become
entitled to the Substituted Rights and the Substituted Portion, with
effect on and from the Substitution Date.
5. EFFECT ON TRANSACTION DOCUMENTS
The Existing Bank, the New Bank and the Agent agree that with effect
on and from the Substitution Date:
(a) the New Bank and each party to each Transaction Document will
assume obligations and responsibilities towards each other, and
have rights, remedies and powers in relation to each other,
determined on the basis that the obligations and responsibilities
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of the New Bank are the Substituted Obligations and the rights,
remedies and powers of the New Bank are the Substituted Rights;
(b) the Existing Bank will be released from its obligations and
responsibilities under each of the Transaction Documents accruing
on and after the Substitution Date to the extent of the
Substituted Obligations and it will cease to be entitled to
exercise any rights, remedies or powers under the Transaction
Documents arising on or after the Substitution Date in respect of
the Substituted Rights; and
(c) the New Bank will be deemed a party to each Transaction Document
to which the Existing Bank is a party as a Bank with Commitments
equal to the Substituted Commitments.
6. NO EFFECT ON ACCRUED RIGHTS AND OBLIGATIONS
Save as expressly provided herein this Certificate shall not affect
the Existing Bank's rights, remedies and powers arising, and
obligations and responsibilities accrued, prior to the Substitution
Date.
7. LIQUEFYING BILLS
Nothing contained in this Certificate releases, relieves or otherwise
affects the obligations and responsibilities and the rights, remedies
and powers, of the Existing Bank in respect of Bills drawn under
clause 9 of the Facility Agreement. The New Bank will not assume any
obligations or responsibilities, or acquire any rights, remedies or
powers, in respect of such Bills.
8. PAYMENTS
8.1 Consideration
The Existing Bank and the New Bank shall agree separately between
themselves the amounts (if any) payable from one to the other in
relation to the substitution in respect of principal and accrued
interest and fees.
8.2 Agent
On and from the Substitution Date the Agent will make all payments
received by it in respect of the Substituted Commitments, Substituted
Obligations, Substituted Rights and Substituted Portion to the New
Bank.
9. INDEPENDENT ASSESSMENT
Without limiting clause 6 of this Certificate, the New Bank agrees
that the provisions of clause 24.13 of the Facility Agreement binds it
as if the reference therein to this "Agreement" included this
Certificate and (subject to any agreement to the contrary between the
Existing Bank and New Bank) the reference therein to the "Agent"
included the Existing Bank.
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10. ACKNOWLEDGEMENTS
The New Bank acknowledges that it has received a complete and current
copy of each Transaction Document together with such other documents
and information as it has required in connection therewith.
11. GOVERNING LAW
This Certificate is governed by the laws applying in New Zealand.
Schedule 1: Commitments
Commitment
-------------------------------------------------------------------
Existing Bank's present Commitments $[ ]
New Bank's present Commitments $[ ]
Substituted Commitments $[ ]
Existing Bank's Commitments after substitution $[ ]
New Bank's Commitments after substitution $[ ]
Schedule 2: Advances
Total Outstanding Existing Bank's Substituted
Participation Portion
--------------------------------------------------------------------
Advances $[ ] $[ ] $[ ]
SIGNED as an agreement.
[To be signed by Existing Bank, New Bank and Agent]
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SCHEDULE 7
NOTICE FROM UAP
[LETTERHEAD OF UIH AUSTRALIA/PACIFIC, INC.]
[Date]
Toronto Dominion Australia Limited
Level 36
385 Bourke Street
MELBOURNE VIC 3000
Attention [*]
Dear Sir
SATURN COMMUNICATIONS LIMITED
We refer to:
(a) the Indenture dated as of 14 May 1996 between UIH
Australia/Pacific, Inc. ("UAP") and Firstar Bank of Minnesota N.A.,
as supplemented by a Supplemental Indenture dated as of 30 June
1997 (the "Indentures"); and
(b) the terms and conditions of the syndicated senior term debt
facility arranged by Toronto Dominion Australia Limited ("TDA") for
Saturn Communications Limited ("SCL") dated [ ] (the "Senior Debt
Terms").
Having reviewed the Senior Debt Terms and consulted with our lawyers we confirm
that the provision of a financing for SCL in accordance with the Senior Debt
Terms will not cause a breach either of the Indentures.
We acknowledge that TDA will rely on this letter in providing finance to SCL and
confirm that this letter may also be disclosed to and relied on by prospective
syndicate banks which participate in the proposed financing for SCL.
Signed on behalf of UAP by [ ] with the authority of the directors of UAP.
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SCHEDULE 8
COMPLIANCE CERTIFICATE
TO: Toronto Dominion Australia Limited (in its capacity as Agent)
ACN 004 958 020
Level 36
385 Bourke Street
MELBOURNE VIC 3000
FROM: Saturn Communications Limited
COMPLIANCE CERTIFICATE
Reference is made to the NZ$125,000,000 Syndicated Senior Secured Debt Facility
Agreement dated [ ] between (amongst others) Saturn Communications Limited
("Company") and Toronto Dominion Australia Limited in its capacity as Agent
("Facility Agreement") and all Accession Agreements, Bank Accession Certificates
and Substitution Certificates entered into in respect of the Facility Agreement.
Words defined in the Facility Agreement have the same meaning in this
Certificate.
This Certificate is given by the Company on behalf of all Obligors.
1. RATIOS
1.1 Total Debt/Homes Serviceable Ratio
The ratio of Total Debt to Homes Serviceable for the Group for the
period from [ ] to [ ] was [ ].
1.2 Total Subscribers
The number of Subscribers as at [ ] was [ ].
1.3 Equivalent Billing Units
The Equivalent Billing Units for the Group for the period from [ ]
to [ ] was [ ].
1.4 EBITDA
EBITDA for the Group for the period from [ ] to [ ] was
[ ].]
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1.5 Revenue
The Revenue of the Group for the period from [ ] to [ ]
was [ ].
1.6 Total Debt/Annualised EBITDA
The ratio of Total Debt to Annualised EBITDA for the Group for
the period from [ ] to [ ] was [ ].
1.7 EBITDA/Interest Expense
The ratio of EBITDA to Interest Expense for the Group for the
period from [ ] to [ ] was [ ].
2. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
The representations, warranties and undertakings in clauses 16
(except for clauses 16.2(c), (d), (e) and (f)) and 17 of the
Facility Agreement have been complied with and the statements in
those clauses are correct as at the date of this Certificate
[except as set out below:].
We, [ ], being [directors/director and Chief Financial Officer of
the Company] Certify that the contents of this Certificate are true and correct
as at the date of this Certificate.
........................................ .....................................
Name of Director [Name of Director/Chief Financial
Officer]
Date: ..................................
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SCHEDULE 9
FORM OF DIRECTOR'S CERTIFICATE
[Date]
Toronto Dominion Australia Limited
Level 36
385 Bourke Street
MELBOURNE VIC 3000
Attention: Legal Counsel
I, [name of director], a director of [Saturn Communications Limited/Kiwi Cable
Company Limited] (the "Company") certify as follows:
1. Board resolutions
1.1 The board of directors of the Company (the "Board") has passed
resolutions:
(a) approving the transactions (the "Transaction")
contemplated by the documents listed in the schedule
below (the "Documents"), and the Documents themselves;
and
(b) authorising execution of the Documents by the Company
in the manner in which they have actually been
executed.
1.2 The resolutions were duly passed in writing signed by all of the
directors of the Company entitled to receive notice of a meeting
of the Board.
OR
The resolutions were duly passed at a meeting of the Board:
(a) which was properly convened; and
(b) in respect of which all quorum requirements were duly observed.
1.3 The resolutions remain in full force and effect.
2. Directors' self-interested transactions
To the best of my knowledge and belief after making due enquiry of
all other of the Company's directors (as defined in section 126 of
the Companies Act 1993 (the "Act")), none of the directors of the
Company has an interest (as that term is defined in section 139 of
the Act) in the Transactions.
OR
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After making due enquiry, it has been determined that one or more
of the Company's directors (as defined in section 126 of the
Companies Act 1993 (the "Act")) is, or may be, interested (as that
term is defined in section 139 of the Act) in the Transactions. In
approving the Documents and the Transactions, the Board, after
taking into account all relevant factors, considers that the
Company is receiving or will receive fair value under them.
OR
All of the Company's entitled persons have agreed in writing
(pursuant to section 107(3) of the Act) to the Company's entry into
and performance of the Documents and the Transactions (so that
nothing in sections 140 and 141 of the Act shall apply to the
Transactions). A true and complete copy of the relevant agreement
is attached.
3. Corporate benefit
In approving the Documents and the Transactions, the Board, after
taking into account all relevant factors, has resolved that the
Company's entry into and performance of the Documents and the
Transactions is in the best interests of the Company.
OR
In approving the Documents and the Transactions the Board has:
(a) (after taking into account all relevant factors and
pursuant to an express provision in the Company's
constitution), resolved that the Company's entry into
and performance of the Documents and the Transactions
is in the best interests of the Company's holding
company[; and
(b) (in any case where the Company is not a wholly owned
subsidiary of the Company's holding company) obtained
prior agreement to the Company's entry into and
performance of the Documents and the Transactions from
the Company's shareholders (other than the Company's
holding company)].
4. Shareholder action
It has been determined that the Transactions are a "major
transaction" for the purposes of section 129 of the Act.
Accordingly all of the shareholders of the Company have by special
resolution (a true and complete copy of which is attached):
(a) approved the Documents and Transactions; and
(b) confirmed, approved and ratified the resolutions of the
Board referred to above.
5. Due execution
Each of the Documents has been properly executed by the Company.
6. Solvency
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6.1 I am not aware of any liquidation proceedings which have been
commenced or are intended to be commenced by any person against the
Company, or which are intended or anticipated by the Company.
6.2 Having taken into account all relevant factors (including, in the case
of a guarantee, all rights of contribution and subrogation to which
the Company would be entitled if called upon to perform its
obligations and the solvency of the guaranteed parties), the Board is
satisfied that the value of the consideration or benefit received (or
to be received) by the Company is not less than the value of the
consideration provided (or to be provided) by the Company.
OR
The Company:
(a) is able to pay its due debts;
(b) is not engaged or about to engage in business for which its
financial resources are unreasonably small;
(c) will be able to perform its obligations under the Documents and
the Transactions when required to do so; and
(d) will not become unable to pay its due debts as a result of the
Documents and the Transactions.
7. Financial assistance
The Transactions do not include or involve any provision by the
Company (directly or indirectly) of financial assistance in connection
with the purchase of a share issued or to be issued by the Company or
its holding company.
8. Constitution
The copy of the constitution of the Company held on its records as
maintained at the office of Registrar of Companies at Wellington as at
27 August 1998 is complete and includes all alterations to date other
than those attached to this certificate.
Schedule of Documents
1. Syndicated Senior Debt Facility Agreement
2. Deed of Charge
3. Freehold Mortgage*
4. Shareholder Contribution Deed*
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5. Tripartite Deed*
Signed by ..........................................
Director
Date: ..........................................
* Not relevant for Kiwi Cable Company Limited
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SCHEDULE 10
BANK ACCESSION CERTIFICATE
THIS BANK ACCESSION CERTIFICATE is dated the [ ] day of , 19 and made BETWEEN [
] (the "Acceding Bank"), Saturn Communications Limited (the "Borrower"), [ ]
(each a "Guarantor"), Toronto Dominion Australia Limited in its capacity as
Agent under the Facility Agreement referred to in Recital A hereof and on behalf
of the Banks parties to and defined as such in such Facility Agreement.
WHEREAS:
A. By and upon and subject to the terms of a facility agreement (the
"Facility Agreement", which term includes any supplements and
amendments thereto which may at any time be made in relation there-
to and also any Substitution Certificates, Bank Accession Certifi-
cates and Accession Agreements) dated [ ] made between the
Borrower and Guarantors as therein defined, the several banks
parties thereto as Banks and Toronto Dominion Australia Limited, as
Agent an amortising term loan facility was made available to the
Borrower (as defined in the Facility Agreement).
B Each of the entities expressed to be party hereto, whether directly
or through signature hereof by the Agent or the Borrower on its
behalf, is a party to the Facility Agreement either by having been
an original party thereto or pursuant to an Accession Agreement,
Bank Accession Certificate or a Substitution Certificate to which
it is party or otherwise.
C The Acceding Bank wishes to become party to the Facility Agreement
as a Bank pursuant to the procedure established in clause 29.5 of
the Facility Agreement by the execution of this Certificate.
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
"Accession Date" means the later of:
(a) the date on which this Certificate is executed on behalf of
the Agent and on behalf of the Borrower and each Guarantor;
and
(b) such later date as the parties hereto may agree in writing.
"Existing Bank" means each Bank existing immediately prior to the
proposed accession, together the "Existing Banks".
"New Commitments" means [ ].
"New Obligations" means the obligations and responsibilities of the
Acceding Bank in relation on the New Commitments which shall be
identical to the obligations and responsibilities under the
Transaction Documents of the Existing Banks in relation to their
respective Commitments.
100
<PAGE>
1.2 Interpretation
Terms defined or given a special meaning in the Facility Agreement
have the same meaning in this Certificate.
2. ACKNOWLEDGEMENT AND AGREEMENT
The Acceding Bank hereby:
(a) confirms that it has received a copy of the Facility Agreement
together with such other documents and information as it has
required in connection herewith and therewith; and
(b) agrees to become, with effect from the date of this
Certificate, a Bank under the Facility Agreement, agrees to be
bound in that capacity with effect from such date by the terms
of the Facility Agreement and undertakes accordingly to
perform its obligations as a Bank thereunder;
3. NEW COMMITMENT
The Acceding Bank undertakes to the Existing Banks, the Agent and
the Borrower that it shall assume the New Obligations on and from
the Accession Date.
4. EFFECT ON TRANSACTION DOCUMENTS
The parties agree that with effect on and from the Accession Date:
(a) the Acceding Bank and each party to each Transaction Document
will assume obligations and responsiblities towards each
other, and have rights, remedies and power in relation to each
other, determined on the basis that the obligations and
responsibilities of the Acceding Bank are the New Obligations;
(b) the Acceding Bank will be deemed a party to each Transaction
Document to which the Existing Banks are a party as a Bank
with Commitments equal to the New Commitments; and
(c) the Total Commitments will be increased by the amount of the
New Commitments.
5. NO EFFECT ON ACCRUED RIGHTS AND OBLIGATIONS
Save as expressly provided herein, this Certificate shall not
affect the Existing Banks' rights, remedies and powers arising, and
obligations and responsiblities accrued under any Transaction
Document.
6. INDEPENDENT ASSESSMENT
Without limiting clause 5 of this Certificate, the Acceding Bank
agrees that the provisions of clause 24.13 of the Facility
Agreement binds it as if the reference therein to this "Agreement"
included this Certificate and (subject to any agreement to the
contrary between the Existing Banks and Acceding Bank) the
reference therein to the "Agent" included the Existing Banks.
101
<PAGE>
7. ACKNOWLEDGEMENTS
The Acceding Bank acknowledges that it has received a complete and
current copy of each Transaction Document together with such other
documents and information as it has required in connection
therewith.
8. GOVERNING LAW
This Certificate is governed by the laws applying in New Zealand.
IN WITNESS WHEREOF the parties hereto have caused this Bank Accession
Certificate to be duly executed on the date first written above.
SIGNATURES
Acceding Bank:
[ ]
Borrower:
SATURN COMMUNICATIONS LIMITED
for itself and as agent for and on behalf of the Guarantors
By:
Agent:
TORONTO DOMINION AUSTRALIA LIMITED for itself and as Agent and on behalf of the
Banks.
By:
102
<PAGE>
SIGNED as an agreement.
<TABLE>
<CAPTION>
<S> <C>
SIGNED for and on behalf of SATURN COMMUNICATIONS )
LIMITED, by Robert James Birrell in the presence of: )
) R. J. Birrell (sgd)
-------------------------------------------
Mark Rigotti (sgd) (Signature)
- ----------------------------------------------------
(Signature of Witness)
Mark Rigotti
- ----------------------------------------------------
(Name of Witness in Full)
SIGNED for and on behalf of KIWI CABLE COMPANY )
LIMITED, by Robert James Birrell in the presence of: )
) R. J. Birrell (sgd)
------------------------------------------
(Signature)
Mark Rigotti (sgd)
- ----------------------------------------------------
(Signature of Witness)
Mark Rigotti
- ----------------------------------------------------
(Name of Witness in Full)
SIGNED for and on behalf of TORONTO DOMINION )
AUSTRALIA LIMITED, ACN 004 858 020 by Patrick St ) P. St John (sgd)
John in the presence of: ) ------------------------------------------
) (Signature)
L. Leslie (sgd)
- ----------------------------------------------------
(Signature of Witness)
Leo Leslie
- ----------------------------------------------------
(Name of Witness in Full)
<PAGE>
SIGNED for and on behalf of PARIBAS by )
Patrick St John in the presence of: ) P. St John (sgd)
------------------------------------------
(Signature)
L. Leslie (sgd)
- ----------------------------------------------------
(Signature of Witness)
Leo Leslie
- ----------------------------------------------------
(Name of Witness in Full)
</TABLE>
103
<PAGE>
CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY
I, Robert James Birrell, Finance Director, of 259 George St., Sydney, certify
that:
1. by deed dated 22 October 1998 Kiwi Cable Company Limited, NZ Co. No.
WN/647464, a company incorporated in New Zealand, (the "grantor"),
appointed me its attorney on the terms and subject to the conditions set
out in the said deed;
2. at the date of this certificate I have not received any notice or
information of the revocation of that appointment by the commencement of
the liquidation of the grantor, the removal of the grantor from the
register or otherwise; and
3. I have executed the attached document on behalf of the grantor in my
capacity as its attorney under the powers conferred by the said deed.
SIGNED at Sydney this fifth day of November, 1998.
/S/ Robert James Birrell
- ---------------------------------
Attorney
<PAGE>
CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY
I, Robert James Birrell, Finance Director, of 259 George St., Sydney, certify
that:
1. by deed dated 5 November 1998 Saturn Communications Limited, NZ Co. No.
WN/435672, a company incorporated in New Zealand, (the "grantor"),
appointed me its attorney on the terms and subject to the conditions set
out in the said deed;
2. at the date of this certificate I have not received any notice or
information of the revocation of that appointment by the commencement of
the liquidation of the grantor, the removal of the grantor from the
register or otherwise; and
3. I have executed the attached document on behalf of the grantor in my
capacity as its attorney under the powers conferred by the said deed.
SIGNED at Sydney this fifth day of November, 1998.
/S/ Robert James Birrell
- ---------------------------------
Attorney
<PAGE>
CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY
I, Patrick S. John, Solicitor, of No. 1 O'Connell St., Sydney, certify that:
1. by deed dated 28 October 1998, Toronto Dominion Australia Limited (ACN 004
858 020), a company incorporated in Victoria, Australia (the "grantor"),
appointed me its attorney on the terms and subject to the conditions set
out in the said deed;
2. at the date of this certificate I have not received any notice or
information of the revocation of that appointment by the commencement of
the liquidation of the grantor, the removal of the grantor from the
register or otherwise; and
3. I have executed the attached document on behalf of the grantor in my
capacity as its attorney under the powers conferred by the said deed.
SIGNED at Sydney this fifth day of November, 1998.
/S/ Patrick St. John
- ---------------------------------
Attorney
<PAGE>
CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY
I, Patrick S. John, Solicitor, of No. 1 O'Connell St., Sydney, certify that:
1. by deed dated 3 November 1998, Paribas, a company incorporated in
France,(the "grantor"), appointed me its attorney on the terms and subject
to the conditions set out in the said deed;
2. at the date of this certificate I have not received any notice or
information of the revocation of that appointment by the commencement of
the liquidation of the grantor, the removal of the grantor from the
register or otherwise; and
3. I have executed the attached document on behalf of the grantor in my
capacity as its attorney under the powers conferred by the said deed.
SIGNED at Sydney this fifth day of November, 1998.
/S/ Patrick St. John
- ---------------------------------
Attorney
<TABLE>
<CAPTION>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
For the Years Ended December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Pretax loss from continuing operations................. $(206,291) $(168,056) $(87,986) $(17,233) $(1,674)
Add back:
(Losses) earnings from less-than-50.0%-owned persons. (106) 2,286 4,503 4,327 551
Fixed charges:
Interest, whether expenses or capitalized, including
amortization of deferred financing costs........... 56,705 43,994 22,194 30 --
--------- --------- -------- -------- -------
Adjusted loss.......................................... (149,692) (121,776) (61,289) (12,876) (1,123)
Fixed charges.......................................... (56,705) (43,994) (22,194) (30) --
--------- --------- -------- -------- -------
Ratio of earnings to fixed charges..................... -- -- -- -- --
Amount of coverage deficiency.......................... $(206,397) $(165,770) $(83,483) $(12,906) $(1,123)
========= ========= ======== ======== =======
</TABLE>
Exhibit 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Formation
---------- -------------------------
<S> <C>
Auldana Beach Pty Limited Australia
Austar Entertainment Pty Limited Australia
Austar Retail Pty Limited Australia
Austar Satellite Pty Limited Australia
Austar Services Pty Limited Australia
Carryton Pty Limited Australia
Century United Programming Ventures Pty Limited Australia
Chippawa Pty Limited Australia
CTV Pty Limited Australia
Dovevale Pty Limited Australia
Grovern Pty Limited Australia
Ilona Investments Pty Limited Australia
Jacolyn Pty Limited Australia
Keansburg Pty Limited Australia
Kidillia Pty Limited Australia
Kiwi Cable Company Limited New Zealand
Lystervale Pty Limited Australia
Maxi-Vu Pty Limited Australia
Minorite Pty Limited Australia
Orloff Pty Limited Australia
Palara Vale Pty Limited Australia
Saturn Communications Limited New Zealand
Selectra Pty Limited Australia
Societe Francaise des Communications et du Cable S.A. France
STV Pty Limited Australia
Telefenua S.A. French Polynesia
UIH AML, Inc. Colorado
UIH Austar, Inc. Colorado
UIH Austar Transponder, Inc. Colorado
UIH Australia Holdings, Inc. Colorado
UIH Australia/Pacific Finance, Inc. Colorado
UIH New Zealand Holdings, Inc. Colorado
UIH-SFCC, L.P. Colorado
UIH-SFCC Holdings, L.P. Colorado
UIH-SFCC II, Inc. Colorado
UIH XYZ Holdings, Inc. Colorado
United Wireless, Inc. Colorado
United Wireless Pty Limited Australia
Vermint Grove Pty Limited Australia
Vinatech Pty Limited Australia
Willongong/Microwave Pty Limited Australia
Windytide Pty Limited Australia
Xtek Bay Pty Limited Australia
Yanover Pty Limited Australia
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 29, 1999 on UIH Australia/Pacific, Inc.
included in this Annual Report on Form 10-K, into previously filed Registration
Statement File No. 333-37651.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 1999
Exhibit 24.1
Power of Attorney
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Valerie L. Cover his attorney-in-fact, with full power
of substitution, for him in any and all capacities, to sign the 1998 annual
report on Form 10-K of UIH Australia/Pacific, Inc., a Colorado corporation (the
"Company"), to be filed with the Securities and Exchange Commission (the
"Commission"), and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission; granting unto said attorney-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in the
premises, whereby ratifying and confirming all that said attorney-in-fact may
lawfully do or cause to be done on behalf of the Company by virtue hereof.
/S/ Gene W. Schneider
- -----------------------------------------
Gene W. Schneider March 29, 1999
Chairman of the Board and
Chief Executive Officer
/S/ Michael T. Fries
- -----------------------------------------
Michael T. Fries March 29, 1999
President and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UIH
AUSTRALIA/PACIFIC, INC.'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 181
<SECURITIES> 0
<RECEIVABLES> 6,322
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,363
<PP&E> 270,479
<DEPRECIATION> 147,511
<TOTAL-ASSETS> 216,032
<CURRENT-LIABILITIES> 77,616
<BONDS> 356,640
0
0
<COMMON> 178
<OTHER-SE> (265,616)
<TOTAL-LIABILITY-AND-EQUITY> 216,032
<SALES> 0
<TOTAL-REVENUES> 89,819
<CGS> 0
<TOTAL-COSTS> 71,149
<OTHER-EXPENSES> 97,140
<LOSS-PROVISION> 4,462
<INTEREST-EXPENSE> 56,705
<INCOME-PRETAX> (206,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (206,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (206,291)
<EPS-PRIMARY> (14.02)
<EPS-DILUTED> 0
</TABLE>
