UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
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
United 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
--- ---
The Company has no publicly-traded shares of capital stock. As of May 8, 2000
the Company had 17,810,299 shares of common stock outstanding.
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United Australia/Pacific, Inc.
TABLE OF CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
------------------------------
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Item 1 - Financial Statements
- ------
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 (Unaudited)............. 2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000
and 1999 (Unaudited)................................................................................. 3
Condensed Consolidated Statement of Stockholders' Deficit for the Three Months Ended March 31, 2000
(Unaudited).......................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and
1999 (Unaudited).................................................................................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)........................................ 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............... 16
- ------
Item 3 - Quantitative and Qualitative Disclosure about Market Risk........................................... 22
- ------
PART II - OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K.................................................................... 24
- ------
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<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
(Unaudited)
As of As of
March 31, December 31,
2000 1999
--------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................................... $ 5,068 $ 6,028
Short-term liquid investments....................................................................... 231,775 269,393
Subscriber receivables, net......................................................................... 7,981 8,177
Related party receivables........................................................................... 2,390 1,645
Other receivables................................................................................... 2,853 6,196
Stock subscription receivable....................................................................... 101,645 -
Inventory........................................................................................... 13,615 14,193
Prepaids and other current assets................................................................... 4,235 5,146
-------- ----------
Total current assets........................................................................... 369,562 310,778
Investments in and advances to affiliated companies, accounted for under the equity method, net....... 28,757 28,546
Property, plant and equipment, net of accumulated depreciation of $267,378 and $261,891,
respectively........................................................................................ 206,152 219,394
Goodwill and other intangible assets, net of accumulated amortization of $25,047 and $23,536,
respectively........................................................................................ 81,878 91,346
Deferred financing costs, net of accumulated amortization of $5,270 and $4,427, respectively.......... 14,783 16,377
Other non-current assets, net......................................................................... 3,041 150
-------- --------
Total assets.......................................................................................... $704,173 $666,591
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................................................... $ 9,376 $ 16,463
Accrued liabilities................................................................................. 31,181 32,151
Construction payables............................................................................... 3,670 4,370
Current portion of due to parent.................................................................... 13,547 12,754
Current portion of notes payable.................................................................... 3,004 -
Current portion of other long-term debt............................................................. 1,011 1,500
-------- --------
Total current liabilities...................................................................... 61,789 67,238
Due to parent......................................................................................... 8,904 9,621
Senior discount notes................................................................................. 421,895 407,945
Other long-term debt.................................................................................. 260,357 261,151
Deferred tax liability................................................................................ 938 1,014
Other long-term liabilities........................................................................... 1,388 456
-------- --------
Total liabilities.............................................................................. 755,271 747,425
-------- --------
Minority interest in subsidiary....................................................................... 95,960 74,070
-------- --------
Stockholders' 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, 17,810,299 shares issued and
outstanding....................................................................................... 178 178
Additional paid-in capital.......................................................................... 331,711 331,688
Deferred compensation............................................................................... (16,489) (18,343)
Accumulated deficit................................................................................. (423,249) (445,844)
Other cumulative comprehensive loss................................................................. (39,209) (22,583)
-------- --------
Total stockholders' deficit.................................................................... (147,058) (154,904)
-------- --------
Total liabilities and stockholders' deficit.................................................... $704,173 $666,591
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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2
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Revenue..................................................................................... $ 46,344 $ 30,432
System operating expense, including related party expense of $600 and $1,393,
respectively.............................................................................. (35,617) (23,233)
System selling, general and administrative expense.......................................... (14,776) (10,653)
Corporate general and administrative expense, including management fees and allocated
expense from related party of $236 and $1,008, respectively............................... (2,719) (1,029)
Depreciation and amortization............................................................... (30,027) (24,461)
---------- ----------
Operating loss...................................................................... (36,795) (28,944)
Gain on issuance of common equity securities by subsidiary.................................. 66,772 -
Interest income............................................................................. 3,148 33
Interest expense............................................................................ (19,299) (14,922)
Other expense, net.......................................................................... (182) (330)
---------- ----------
Income (loss) before income taxes and other items.................................... 13,644 (44,163)
Income tax expense.......................................................................... (75) -
Minority interest in subsidiary............................................................. 9,607 -
Share in results of affiliated companies, net............................................... (581) (3,372)
---------- ----------
Net income (loss).................................................................... $ 22,595 $ (47,535)
========== ==========
Foreign currency translation adjustments.................................................... $ (16,626) $ 1,258
========== ==========
Comprehensive income (loss).......................................................... $ 5,969 $ (46,277)
========== ==========
Net income (loss) per common share:
Basic net income (loss).............................................................. $ 1.27 $ (2.67)
========== ==========
Diluted net income (loss)............................................................ $ 1.23 $ (2.67)
========== ==========
Weighted-average number of common shares outstanding:
Basic................................................................................ 17,810,299 17,810,249
========== ==========
Diluted.............................................................................. 18,298,249 17,810,249
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Stated in thousands, except share amounts)
(Unaudited)
Other
Common Stock Additional Cumulative
-------------------- Paid-In Deferred Accumulated Comprehensive
Shares Amount Capital Compensation Deficit Loss(1) Total
---------- -------- ---------- ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1999............. 17,810,299 $178 $331,688 $(18,343) $(445,844) $(22,583) $(154,904)
Cash contributions from parent.......... - - 23 - - - 23
Amortization of deferred compensation... - - - 1,854 - - 1,854
Net income.............................. - - - - 22,595 - 22,595
Change in cumulative translation
adjustments........................... - - - - - (16,626) (16,626)
========== ==== ======== ======== ========= ======== =========
Balances, March 31, 2000................ 17,810,299 $178 $331,711 $(16,489) $(423,249) $(39,209) $(147,058)
========== ==== ======== ======== ========= ======== =========
(1) As of March 31, 2000, Other Cumulative Comprehensive Loss represents foreign currency translation adjustments only.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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4
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------------
2000 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................................... $22,595 $(47,535)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Gain on issuance of common equity securities by subsidiary.................................... (66,772) -
Share in results of affiliated companies, net................................................. (1,508) 1,777
Minority interest in subsidiaries............................................................. (9,607) -
Depreciation and amortization................................................................. 30,027 24,461
Allocation of expense accounted for as capital contributions by parent........................ - 789
Stock-based compensation expense.............................................................. 2,459 -
Accretion of interest on senior notes and amortization of deferred financing costs............ 15,010 12,731
Increase in receivables, net.................................................................. (1,303) (974)
(Increase) decrease in other assets........................................................... (2,210) 2,135
Increase (decrease) in accounts payable, accrued liabilities and other........................ 1,373 (5,612)
------- --------
Net cash flows from operating activities........................................................ (9,936) (12,228)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments....................................................... (489,594) (1,066)
Sale of short-term liquid investments........................................................... 507,753 1,060
Investments in and advances to affiliated companies and acquisition of assets................... (2,578) (5,177)
Distribution received from affiliated company................................................... 1,576 -
Capital expenditures............................................................................ (29,201) (22,064)
Other........................................................................................... (387) 852
------- --------
Net cash flows from investing activities........................................................ (12,431) (26,395)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed from parent..................................................................... 23 19,230
Proceeds from issuance of common stock in connection with subsidiary option plan................. 537 -
Borrowings on the New Austar Bank Facility and Saturn Bank Facility.............................. 18,162 18,941
Borrowings on other debt, net.................................................................... 3,113 37
------- --------
Net cash flows from financing activities......................................................... 21,835 38,208
------- --------
EFFECT OF EXCHANGE RATES ON CASH................................................................. (428) 406
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS............................................................ (960) (9)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................................... 6,028 181
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................................... $ 5,068 $ 172
======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest........................................................................... $ 6,018 $ 2,311
======= ========
Cash received for interest....................................................................... $ 2,027 $ 8
======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
5
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
(Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
United Australia/Pacific, Inc. (the "Company" or "United A/P") a majority-owned
subsidiary of United Asia/Pacific Communications, Inc. ("UAP"), which is in turn
an indirect wholly-owned subsidiary of UnitedGlobalCom, Inc. ("United"), was
formed on October 14, 1994, for the purpose of developing, acquiring and
managing foreign pay television, programming and telephone operations. The
following chart presents a summary of the Company's ownership structure and its
significant investments in telecommunications as of March 31, 2000.
***********************************************************
* *
* United *
* *
***********************************************************
*
100% *
***********************************************************
* *
* United International Properties, Inc. ("UIPI") *
* *
***********************************************************
*
100% *
***********************************************************
* *
* UAP *
* *
***********************************************************
*
100% *
***********************************************************
* *
* The Company *
* *
***********************************************************
*
72.3% *
***********************************************************
* Austar United Communications Limited *
* ("Austar United") *
* *
***********************************************************
*
*
***********************************************************
* *
*Australia: *
* Austar Entertainment Pty Limited ("Austar") 100.0% *
* XYZ Entertainment Pty Limited ("XYZ *
* Entertainment") 50.0% *
*New Zealand: *
* Saturn Communications Limited ("Saturn") 100.0% *
* *
***********************************************************
6
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("U.S. GAAP") 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 interim condensed consolidated financial statements are
unaudited and include the accounts of the Company and all subsidiaries where the
Company exercises a controlling financial interest through the ownership of a
majority voting interest. On July 27, 1999, Austar United acquired from the
minority shareholder of Saturn ("SaskTel") its 35.0% interest in Saturn in
exchange for 13,659,574 of Austar United's shares, thereby increasing Austar
United's ownership interest in Saturn from 65.0% to 100%. As a result, Saturn is
consolidated in these financial statements for the three months ended March 31,
2000. During the first quarter 1999, the Company accounted for its investment in
Saturn under the equity method in order to comply with the consensus guidance of
the Emerging Issues Task Force regarding Issue 96-16 ("EITF 96-16"), and related
rules of the Securities and Exchange Commission ("SEC"), because SaskTel had
participating approval or veto rights with respect to certain significant
decisions of Saturn in the ordinary course of business. 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 original
maturities greater than three months but less than twelve months. Short-term
liquid investments are classified as available-for-sale and are reported at fair
market value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in unconsolidated subsidiaries and companies in which the
Company's voting interest is 20.0% to 50.0%, the Company's 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 affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other funding
commitments. The Company's proportionate share of net earnings or losses of
affiliates includes the amortization of the excess of 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. Upon disconnection of a microwave multi-point distribution system
("MMDS") or direct-to-home ("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. Depreciation is calculated
using the straight-line method over the estimated economic life of the asset.
7
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The economic lives of property, plant and equipment at acquisition are as
follows:
Subscriber premises equipment and converters.......... 3-10 years
MMDS/DTH distribution facilities...................... 5-10 years
Cable distribution networks........................... 5-10 years
Office equipment, furniture and fixtures.............. 3-10 years
Buildings and leasehold improvements.................. 3-10 years
Other................................................. 3-10 years
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 fair market value,
and amortization expense is computed using the straight-line method over the
term of the license, up to a maximum of 15 years.
RECOVERABILITY 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 multi-channel 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 period in
which the reconnection or disconnection occurs because reconnection fees are
charged at a level equal to or less than related reconnection costs.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method for the
Austar United stock option plan, which results in compensation expense for the
difference between the grant price and the fair market value of Austar United's
common stock at each new measurement date for options granted prior to July 27,
1999. With respect to this plan, the rights conveyed to employees are the
substantive equivalents to stock appreciation rights.
STAFF ACCOUNTING BULLETIN NO. 51 ("SAB 51") ACCOUNTING POLICY
Gains realized as a result of stock issuances 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 SAB 51.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
"Basic net income (loss) per share" is determined by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during each period. "Diluted net income (loss) per share" includes
the effects of potentially issueable common stock, but only if dilutive. The
Company's warrants (see Note 7) are included in the Company's diluted net income
(loss) per share amounts for first quarter 1999 and 2000.
8
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISk
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 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 as a separate component of stockholders' deficit and are included in
other cumulative comprehensive income (loss).
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.
Cash flows from the Company's operations in foreign countries are translated
based on their functional currencies. As a result, amounts related to assets and
liabilities reported in the consolidated statements of cash flows will not agree
to changes in the corresponding balances in 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.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. In general, the Company and the operating companies do not
execute hedge transactions to reduce the Company's exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and a
negative impact on earnings and equity with respect to its holdings solely as a
result of foreign currency exchange rate fluctuations.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") 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, 2000. The Company is currently
assessing the effect of this new standard.
In December 1999, the staff of the SEC issued Staff Accounting Bulletin No. 101
("SAB 101") "Views on Selected Revenue Recognition Issues" which provides the
staff's views in applying U.S. GAAP to selected revenue recognition issues. SAB
101 is effective second quarter 2000. The Company is currently assessing the
effect of SAB 101.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. ACQUISITIONS AND OTHER
SECONDARY OFFERING. On March 29, 2000, Austar United sold 20.0 million shares on
the Australian Stock Exchange (the "Secondary Offering") at Australian dollars
("A$") 8.50 ($5.20) per share for gross and net proceeds of A$170.0 ($104.0)
million and A$167.5 ($102.4) million, respectively, to be received in April
2000. Based on the carrying value of the Company's investment in Austar United
as of March 29, 2000, the Company recognized a gain of $66.8 million resulting
from the step-up in the carrying amount of the Company's investment in Austar
United, in accordance with SAB 51. No deferred taxes were recorded related to
this gain due to the Company's intent on holding its investment in Austar United
indefinitely.
Austar United's initial public offering ("Austar United IPO") in July 1999
reduced the Company's ownership interest from 100% to approximately 75.5%.
Subsequent stock option exercises and the Secondary Offering reduced the
Company's ownership interest to 72.3% as of March 31, 2000. Including all vested
stock options granted to employees, the Company's ownership interest in Austar
United on a fully diluted basis was approximately 70.4% at March 31, 2000.
ACQUISITION. Effective January 20, 2000, Austar United acquired a 50.0% interest
in Massive Media Pty Limited ("Massive Media") which owns 100% of Massive
Interactive Pty Limited and 75.0% of Massive Technologies Pty Limited for A$4.4
($3.0) million including A$0.6 ($0.4) million in Austar United shares and A$3.8
($2.6) million in cash.
9
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------------------------------------------------------------
Investments in Cumulative Share Cumulative
and Advances to Dividends in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- --------- -------------------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
XYZ Entertainment................... $44,306 $(1,576) $(17,520) $ 692 $25,902
Other............................... 2,929 - 34 (108) 2,855
------- ------- -------- ------ -------
Total........................... $47,235 $(1,576) $(17,486) $ 584 $28,757
======= ======= ======== ====== =======
As of December 31, 1999
---------------------------------------------------------------------------
Investments in Cumulative Share Cumulative
and Advances to in Results of Translation
Affiliated Companies Affiliated Companies Adjustments Total
--------------------- -------------------- ----------- ------------
(In thousands)
XYZ Entertainment.................. $44,306 $(18,564) $2,804 $28,546
------- -------- ------ -------
Total.......................... $44,306 $(18,564) $2,804 $28,546
======= ======== ====== =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
Subscriber premises equipment and converters.............................. $266,926 $276,725
MMDS/DTH distribution facilities.......................................... 60,776 64,373
Cable distribution networks............................................... 89,844 91,298
Office equipment, furniture and fixtures.................................. 30,226 23,111
Buildings and leasehold improvements...................................... 5,647 5,645
Other..................................................................... 20,111 20,133
-------- --------
473,530 481,285
Accumulated depreciation............................................... (267,378) (261,891)
-------- --------
Net property, plant and equipment...................................... $206,152 $219,394
======== ========
</TABLE>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
Austar United............................................................. $106,925 $114,882
Accumulated amortization............................................... (25,047) (23,536)
-------- --------
Net goodwill and other intangible assets............................... $ 81,878 $ 91,346
========= ========
</TABLE>
10
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. SENIOR DISCOUNT NOTES
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
May 1996 Notes ........................................................... $381,992 $369,111
September 1997 Notes ..................................................... 39,903 38,834
-------- --------
Total senior discount notes............................................ $421,895 $407,945
======== ========
</TABLE>
MAY 1996 NOTES
The 14.0% senior notes, which the Company issued in May 1996 at a discount from
their principal amount of $443.0 million (the "May 1996 Notes"), had an accreted
value of $382.0 million as of March 31, 2000. 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 an equity sale resulting in gross proceeds to the Company of $70.0
million 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 $447.4
million on May 15, 2001, the date cash interest begins to accrue.
SEPTEMBER 1997 NOTES
The 14.0% senior notes, which the Company issued in September 1997 at a discount
from their principal amount of $45.0 million (the "September 1997 Notes"), had
an accreted value of $39.9 million as of March 31, 2000. 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 an 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 $45.4 million on May 15, 2001, the date cash
interest begins to accrue.
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 the Company's common stock at that time. The warrants are
exercisable at a price of $10.45 per share which would result in gross proceeds
of approximately $5.1 million upon exercise. The warrants are exercisable
through May 15, 2006. The warrants were valued at $3.7 million 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. Warrants to acquire 50 shares were
exercised November 24, 1999.
8. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
New Austar Bank Facility.................................................. $201,530 $202,703
Saturn Bank Facility...................................................... 56,943 57,685
Capitalized leases and other.............................................. 2,895 2,263
-------- --------
261,368 262,651
Less current portion................................................... (1,011) (1,500)
-------- --------
Total other long-term debt............................................. $260,357 $261,151
========= ========
</TABLE>
11
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NEW AUSTAR BANK FACILITY
On April 23, 1999, Austar executed a new syndicated senior secured debt facility
(the "New Austar Bank Facility") for A$400.0 million to refinance the A$200.0
million existing bank facility and to fund Austar's subscriber acquisition and
working capital needs. The New Austar Bank Facility consists of two
sub-facilities: (i) A$200.0 million amortizing term facility ("Tranche 1") and
(ii) A$200.0 million cash advance facility ("Tranche 2"). Tranche 1 was used to
refinance the existing bank facility, and Tranche 2 is available upon the
contribution of additional equity on a 2:1 debt-to-equity basis. As of March 31,
2000, Austar had drawn A$332.0 ($201.5) million on the New Austar Bank Facility.
All of Austar's assets are pledged as collateral for this facility. In addition,
pursuant to this facility, Austar cannot pay any dividends, interest or fees
under its technical assistance agreements without the consent of the majority
banks. The New Austar Bank Facility bears interest at the professional market
rate in Australia plus a margin ranging from 1.75% to 2.25% based upon certain
debt to cash flow ratios. The New Austar Bank Facility is fully repayable
pursuant to an amortization schedule beginning December 31, 2002 and ending
March 31, 2006.
SATURN BANK FACILITY
On July 15, 1999, Saturn closed a syndicated senior debt facility (the "Saturn
Bank Facility") in the amount of New Zealand dollars ("NZ$")125.0 ($62.2)
million to fund the completion of Saturn's network. As of March 31, 2000, Saturn
had drawn NZ$115.0 ($56.9) million against the facility and expects to draw down
the remaining balance by the end of fourth quarter 2000. The interest rate on
the debt facility is 2.75% over the current base rate upon draw down and has
averaged approximately 8.1%. The Saturn Bank Facility is repayable over a five
year period beginning fourth quarter 2001.
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 four interest rate swaps to manage interest rate exposure on the New
Austar Bank Facility. Two of these swap agreements expire in 2002 and
effectively convert an aggregate principal amount of A$50.0 ($30.4) million of
variable rate, long-term debt into fixed rate borrowings. The other two swap
agreements expire in 2004 and convert an aggregate principal amount of A$100.0
($60.7) million of variable rate, long-term debt into fixed rate borrowings. As
of March 31, 2000, the weighted-average fixed rate under these agreements was
5.7% compared to a weighted-average variable rate on the New Austar Bank
Facility of approximately 5.5%.
In addition, the Company has an interest rate swap to manage its exposure on the
Saturn Bank Facility which effectively converts an aggregate principal amount of
NZ$75.0 ($37.1) million of variable rate, long-term debt into fixed rate
borrowings. The interest rate swap includes an increasing fixed rate with an
additional margin which is expected to decline as the debt to EBITDA ratio
declines. As of March 31, 2000, the average fixed rate under the agreement was
6.3% compared to a weighted-average variable rate of 5.2%.
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.
9. RELATED PARTY
Effective May 1, 1996, the Company and United Management, Inc. ("United
Management"), an indirect wholly-owned subsidiary of United, executed a 10-year
management services agreement (the "Management Agreement"), pursuant to which
United Management performs certain administrative, accounting, financial
reporting and other services for the Company, which has no separate employees of
its own. Pursuant to the Management Agreement, the management fee was $0.75
million for the first year of such agreement (beginning May 1, 1996), and it
increases on each anniversary date of the Management Agreement by 8.0% per year.
Effective March 31, 1997, United 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
12
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Agreement"). In addition, the Company reimburses UAP or United for any
out-of-pocket expenses including travel, lodging and entertainment expenses,
incurred by UAP or United on behalf of the Company. In December 1997, United
began allocating corporate general and administrative expense to the Company in
the form of deemed capital contributions, based on increased activity at the
operating system level. This allocation was discontinued as of January 1, 2000.
For the three months ended March 31, 2000 and 1999, the Company recorded $0.2
million in management fees and $1.0 million, respectively, in corporate general
and administrative expense allocated from United and management fees due from
the Company to UAP.
Effective June 24, 1999, United and Austar United executed a management services
agreement pursuant to which United performs certain technical and consulting
services in return for a monthly management fee. The monthly fee payable by
Austar United to United in 2000 is $0.2 million per month. This amount may be
adjusted before January 1 of each year by the board of directors of United but
may not increase by more than 15.0% in any one year. This agreement also
requires that Austar United reimburse United for all direct and other expenses
reasonably incurred by United on behalf of Austar United. The agreement will
continue through December 31, 2010.
Austar and Saturn were parties to technical assistance agreements with UAP
whereby such operating companies paid to UAP fees based on their respective
gross revenues. The operating systems reimbursed United for certain direct costs
incurred by United, including salaries and benefits relating to senior
management positions, pursuant to the terms of the technical assistance
agreements. First quarter 1999, the Company recorded $1.4 million in related
party management fees under these agreements. Effective June 24, 1999, the
rights under these management fee agreements were assigned to Austar United as
part of the restructuring associated with the Austar United IPO. Accordingly,
the related party management fees recorded first quarter 2000 were eliminated
during the Austar United consolidation.
Included in the amount due to parent is the following:
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
2000 1999
---------- ------------
(In thousands)
<S> <C> <C>
United A/P................................................................ $ 2,213 $ 1,977
Austar United technical assistance agreement obligations, including
management fees of $1,800 and $1,200, respectively....................... 4,893 2,874
Austar technical assistance agreement obligations, including deferred
management fees of $8,765 and $9,472, respectively (1)................... 12,852 13,889
Saturn technical assistance agreement obligations, including deferred
management fees of $139 and $149, respectively........................... 1,684 1,820
Other..................................................................... 809 1,815
------- -------
22,451 22,375
Less current portion................................................. (13,547) (12,754)
------- -------
Total due to parent.................................................. $ 8,904 $ 9,621
======= =======
</TABLE>
(1) Austar United and UAP have the option of converting these management
fees into equity.
13
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SEGMENT INFORMATION
The Company's segment information is as follows:
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
For the Three Months Ended March 31, 2000 2000 1999
-------------------------------------------------------------- ---------- ------------
Multi-channel Internet Total Total
Television Telephone Data Other Total Assets Assets
------------- ----------- ---------- ---------- ---------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Australia................... $40,849 $ - $ 8 $ 599 $41,456 $570,843 $563,627
New Zealand................. 844 3,166 878 - 4,888 106,980 76,139
Other....................... - - - - - 26,350 26,825
------- ------- ------- ------- ------- -------- --------
Total..................... $41,693 $ 3,166 $ 886 $ 599 $46,344 $704,173 $666,591
======= ======= ======= ======= ======= ======== ========
Adjusted EBITDA: (1)
Australia................... $ 1,192 $ (37) $(1,721) $(1,777) $(2,343)
New Zealand................. (253) (357) 248 (1,344) (1,706)
Other....................... - - - (260) (260)
------- ------- ------- ------- =======
Total..................... $ 939 $ (394) $(1,473) $(3,381) $(4,309)
======= ======= ======= ======= =======
For the Three Months Ended March 31, 1999
-----------------------------------------
Multi-channel
Television Other Total
---------------- --------- -----------
(In thousands)
Revenue:
Australia.................. $30,432 $ - $30,432
New Zealand................ - - -
Other...................... - - -
------- ------- -------
Total.................... $30,432 $ - $30,432
======= ======= =======
Adjusted EBITDA: (1)
Australia.................. $(3,454) $ - $(3,454)
Other...................... - (1,029) (1,029)
------- ------- -------
Total................... $(3,454) $(1,029) $(4,483)
======= ======= =======
</TABLE>
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies.
Management believes Adjusted EBITDA helps investors to assess the cash flow
from operations from period to period and thus, to value the Company's
business. Adjusted EBITDA should not, however, be considered a replacement
for net income, cash flows or for any other measure of performance or
liquidity under U.S. GAAP, or as an indicator of a company's operating
performance. The Company's presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies.
Not all companies and analysts calculate EBITDA in the same manner.
14
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Net operating loss....................................................... $(36,795) $(28,944)
Depreciation and amortization............................................ 30,027 24,461
Non-cash stock-based compensation expense................................ 2,459 -
-------- --------
Consolidated Adjusted EBITDA........................................ $ (4,309) $ (4,483)
======== ========
</TABLE>
12. SUBSEQUENT EVENTS
On April 6, 2000, Austar United closed an agreement with Telstra Corporation
Limited ("Telstra") the largest telecommunications company in Australia, to form
a 50/50 joint venture between Saturn and Telstra's New Zealand operation which
will be called Telstra Saturn Limited ("TSL").
In April 2000, Saturn purchased Paradise Net Limited an Internet Service
Provider ("ISP") that has 33,000 subscribers, primarily residential, throughout
New Zealand for approximately NZ$20.0 ($9.9) million.
In April 2000, Austar United purchased Artson Pty Limited an ISP that trades
under the name "On the Net" for A$6.0 ($3.5) million and operates on the Gold
Coast in Queensland.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes thereto included elsewhere herein. Such
condensed consolidated financial statements provide additional information
regarding our 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 our 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, our ability to secure adequate capital to
fund system growth and development, 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 we expressly disclaim 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.
INTRODUCTION
As of March 31, 2000, through Austar United we held (i) an effective 72.3%
economic interest in Austar, (ii) a 72.3% interest in Saturn and (iii) a 36.2%
interest in XYZ Entertainment. We decreased our interest in Austar United from
100% to approximately 75.5% in connection with the July 1999 Austar United IPO.
Subsequent stock option exercises and the Secondary Offering in March 2000
reduced our ownership interest to 72.3% as of March 31, 2000 (70.4% on a fully
diluted basis after vested employee options).
Immediately prior to the Austar United IPO, Austar United issued 13,659,574
shares of Austar United to SaskTel for SaskTel's 35.0% interest in Saturn. As a
result, Saturn has been consolidated in our financial statements effective
August 1, 1999. Prior to that time, we accounted for our investment in Saturn
under the equity method.
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. Effective June 24, 1999, UAP assigned its rights and
responsibilities under the various technical assistance agreements with the
operating systems to Austar United.
16
<PAGE>
SUMMARY OPERATING DATA
The following tables set forth certain unaudited operating data:
<TABLE>
<CAPTION>
As of March 31, 2000
----------------------------------------------------------------------
Television Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Passed Lines Penetration Interest
------------ --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Multi-channel TV subscribers:
Austar......................................... 2,085,000 2,083,108 389,816 18.7% 72.3%
Saturn......................................... 141,000 87,319 17,811 20.4% 72.3%
--------- --------- -------
Total..................................... 2,226,000 2,170,427 407,627
--------- --------- -------
Telephone lines:
Saturn......................................... 141,000 95,397 28,095 29.5% 72.3%
--------- --------- -------
Programming subscribers:
XYZ Entertainment.............................. N/A N/A 963,000(1) N/A 36.2%
--------- --------- -------
Data subscribers:
Saturn (2)..................................... 141,000 95,397 8,485 8.9% 72.3%
--------- --------- -------
As of March 31, 1999
----------------------------------------------------------------------
Television Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Passed Lines Penetration Interest
------------ --------- ------------- ------------ ---------
Multi-channel TV subscribers:
Austar......................................... 2,085,000 2,083,108 311,119 14.9% 100.0%
Saturn......................................... 141,000 56,249 7,570 13.5% 65.0%
--------- --------- -------
Total..................................... 2,226,000 2,139,357 318,689
--------- --------- -------
Telephone lines:
Saturn......................................... 141,000 53,257 14,902 28.0% 65.0%
--------- --------- -------
Programming subscribers:
XYZ Entertainment.............................. N/A N/A 750,400(1) N/A 25.0%
--------- --------- -------
Data subscribers:
Saturn......................................... 141,000 53,257 900 1.7% 65.0%
--------- --------- -------
</TABLE>
(1) This figure represents the total estimated subscribers to the five-channel
XYZ Entertainment package.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had invested approximately $491.4 million in our
projects. These fundings do not include amounts contributed by shareholders
other than the Company, proceeds from the Australian IPO or Secondary Offering,
the operating subsidiary bank borrowings or amounts contributed in either cash
or stock to acquire additional economic interests.
<TABLE>
<CAPTION>
As of
March 31,
Sources of Fundings: 2000
-----------
(In thousands)
<S> <C>
Senior discount notes proceeds, net of offering costs........................... $244,652
Cash contributions and other equity from parent (1) (2) (3)..................... 239,648
Cash received for interest...................................................... 7,083
--------
Total...................................................................... $491,383
========
As of
December 31,
Uses of Fundings: 1999
------------
(In thousands)
Austar (1)...................................................................... $349,429
Saturn.......................................................................... 44,612
XYZ Entertainment (2)........................................................... 41,553
Other (3)....................................................................... 55,789
--------
Total...................................................................... $491,383
========
</TABLE>
(1) Includes issuance/use of $29.8 million and $6.2 million in United
convertible preferred stock in 1995 and 1998, respectively, to acquire
additional economic interests in Australia.
(2) Includes the non-cash contribution from UAP of $25.1 million for an
additional 25.0% interest in XYZ Entertainment.
(3) Includes $17.2 million paid by United to purchase 2.0% of UAP from
Kiwi Cable in December 1999.
We had $236.8 million of cash, cash equivalents and short-term liquid
investments on hand as of March 31, 2000. On March 29, 2000, we priced the
Secondary Offering of 20.0 million shares at A$8.50 ($5.20) per share for gross
and net proceeds (to be received in April 2000) of A$170.0 ($104.0) million and
A$167.5 ($102.4) million, respectively. These proceeds, in addition to borrowing
capacity on the New Austar Bank Facility and Saturn Bank Facility and the
proceeds from the Austar United IPO, will be used to expand Austar United's
customer base, complete the build-out of its network and introduce new services
such as telephone and Internet/data.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Cash and cash equivalents decreased $0.9 million from $6.0 million as of
December 31, 1999 to $5.1 million as of March 31, 2000. Principal sources of
cash during the three months ended March 31, 2000 included the sale of
short-term liquid investments of $507.8 million, borrowings on the Austar and
Saturn Bank Facilities of $18.2 million, borrowings on other debt of $3.1
million, distribution from affiliated company of $1.6 million and other sources
totaling $0.5 million.
During the three months ended March 31, 2000, cash was used principally for the
purchase of short-term liquid investments of $489.6 million, the purchases of
property, plant and equipment totaling $29.2 million as Austar and Saturn
continue to expand their businesses into the data market, the funding of
operating activities of $9.9 million and investments in and advances to
affiliated companies of $2.6 million and other uses totaling $0.8 million.
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Cash and cash equivalents remained the same at $0.2 million as of March 31, 1999
and December 31, 1998. Principal sources of cash during the three months ended
March 31, 1999 included cash contributions from parent of $19.2 million,
borrowings on other debt of $18.9 million and other sources totaling $2.4
million.
18
<PAGE>
During the three months ended March 31, 1999, cash was used principally for
purchases of property, plant and equipment totaling $22.0 million to continue
new subscriber connections at Austar and the build-out of existing projects, the
funding of operating activities of $12.2 million, investments in and advances to
affiliated companies of $5.2 million and other uses of $1.1 million.
RESULTS OF OPERATIONS
EXCHANGE RATES. We translate revenue and expense from our foreign subsidiaries
using the weighted-average exchange rates during the period. These rates and the
spot rates for the end of each period are listed below.
Australian
Dollars
----------
For the three months ended March 31, 2000............. 1.5898
For the three months ended March 31, 1999............. 1.5729
Spot rate as of March 31, 2000........................ 1.6474
Spot rate as of December 31, 1999..................... 1.5244
REVENUE. Our revenue increased $15.9 million for the three months ended March
31, 2000 compared to the amount for the corresponding period in the prior year
as follows:
For the Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
(In thousands)
Austar United................................ $46,344 $30,432
------- -------
Total revenue........................... $46,344 $30,432
======= =======
AUSTAR UNITED
Revenue for Austar United increased $15.9 million, or 52.3%, from $30.4 million
for the three months ended March 31, 1999 to $46.3 million for the three months
ended March 31, 2000. On a functional currency basis, Austar United's revenue
increased A$25.4 million, from A$47.9 million for the three months ended March
31, 1999 to A$73.3 million for the three months ended March 31, 2000, a 53.0%
increase. The increase in multi-channel television revenue of approximately
$11.3 million was primarily due to Austar's subscriber growth (389,816 at March
31, 2000 compared to 311,119 at March 31, 1999) as well as growth in premium
tiers, resulting in an average revenue per subscriber of A$53.42 ($33.60) for
the three months ended March 31, 2000 compared to A$50.46 ($31.74) for the same
period in the prior year. The remaining increase of approximately $4.6 million
in telephone and other revenue was primarily due to the consolidation of Saturn
beginning August 1, 1999.
ADJUSTED EBITDA. Adjusted EBITDA loss decreased $0.2 million for the three
months ended March 31, 2000 compared to the corresponding amount in the prior
year as follows:
For the Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
(In thousands)
Austar United................................ $(4,049) $(3,454)
Other........................................ (260) (1,029)
------- -------
Total Adjusted EBITDA................... $(4,309) $(4,483)
======= =======
AUSTAR UNITED
Austar United's Adjusted EBITDA loss increased by $0.5 million, or 14.3%, from
negative $3.5 million for the three months ended March 31, 1999 to negative $4.0
million for the three months ended March 31, 2000. On a functional currency
basis, Austar United's Adjusted EBITDA loss increased by A$1.1 million, or
20.4%, from negative A$5.4 million for the three months ended March 31, 1999 to
negative A$6.5 million for the three months ended March 31, 2000. The
19
<PAGE>
multi-channel television Adjusted EBITDA improved by $4.4 million from year to
year due to Austar achieving incremental sales growth while keeping certain
costs fixed, such as the national customer operations center, corporate
management staff and media-related marketing costs. This improvement was offset
by increased expenses related to the Internet data businesses and the
consolidation of Saturn beginning August 1, 1999.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Our corporate general and
administrative expense increased $1.7 million from $1.0 million for the three
months ended March 31, 1999 to $2.7 million for the three months ended March 31,
2000. This increase was primarily attributable to a stock-based compensation
charge of $2.5 million from the Austar United stock option plan established in
June 1999 ("Austar United Plan") for the three months ended March 31, 2000.
There was no stock-based compensation charge in first quarter 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$5.5 million for the three months ended March 31, 2000 compared to the amount
for the corresponding period in the prior year as follow:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Austar United....................................... $30,027 $24,461
------- -------
Total depreciation and amortization expense.... $30,027 $24,461
======= =======
</TABLE>
AUSTAR UNITED
Depreciation and amortization expense for Austar United increased $5.5 million,
or 22.4%, from $24.5 million for the three months ended March 31, 1999 to $30.0
million for the three months ended March 31, 2000. On a functional currency
basis, Austar United's depreciation and amortization expense increased A$10.4
million, from A$37.1 million for the three months ended March 31, 1999 to A$47.5
million for the three months ended March 31, 2000, a 28.0% increase. The U.S.
dollar increase was negatively impacted by $0.2 million due to fluctuation in
exchange rates between the three months ended March 31, 2000 and 1999. This
increase is due to the consolidation of Saturn as of August 1, 1999.
GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARY. On March 29, 2000,
Austar United successfully completed the Secondary Offering selling 20.0 million
shares on the Australian Stock Exchange raising gross and net proceeds at A$8.50
($5.20) per share of A$170.0 ($104.0) million and A$167.5 ($102.4) million,
respectively. Based on the carrying value of our investment in Austar United as
of March 29, 2000, we recognized a gain of $66.8 million from the resulting
step-up in the carrying amount of our investment in Austar United, in accordance
with SAB 51. No deferred taxes were recorded related to this gain due to our
intent on holding our investment in Austar United indefinitely.
INTEREST INCOME. Interest income increased $3.1 million from nil for the three
months ended March 31, 1999 to $3.1 million for the three months ended March 31,
2000. The increase was attributable to the increase in short-term liquid
investment balances due to the Austar United IPO.
INTEREST EXPENSE. Interest expense increased $4.4 million for the three months
ended March 31, 2000 compared to the amounts for the corresponding period in the
prior year. This increase was primarily due to increased interest expense
related to the Austar Bank Facility of $4.9 million and $2.6 million for the
three months ended March 31, 2000 and 1999, respectively due to higher loan
balances in 2000 and the consolidation of Saturn.
MINORITY INTEREST IN SUBSIDIARY. The minority interests' share of losses was
$9.6 million for the three months ended March 31, 2000. Austar United's IPO
(July 1999) and its Secondary Offering (March 2000) reduced our ownership to
72.3% as of March 31, 2000. For accounting purposes, we continue to consolidate
100% of the results of operations of Austar United, then deduct the minority
interests' share of income (losses) before arriving at net income (loss).
20
<PAGE>
SHARE IN RESULTS OF AFFILIATED COMPANIES. Our share in results of affiliated
companies totaled a loss of $0.6 million and $3.4 million for the three months
ended March 31, 2000 and 1999, respectively, as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
XYZ Entertainment...................................... $(615) $(1,402)
Saturn (1)............................................. - (1,970)
Other.................................................. 34 .-
----- -------
Total share in results of affiliated companies.... $(581) $(3,372)
===== =======
</TABLE>
(1) During first quarter 1999, the equity method of accounting was
used to account for Saturn's results due to certain minority
shareholder rights. Effective August 1, 1999, we increased our
ownership to 100% and began consolidating its results of
operations.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- --------------------------------------------------------------------
INVESTMENT PORTFOLIO
We do not use derivative financial instruments in our non-trading investment
portfolio. We place our 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. We also place our 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.
We also limit 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, we do not expect any material
loss with respect to our investment portfolio.
IMPACT OF FOREIGN CURRENCY RATE CHANGES
We are 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. Our 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 our share in results of our unconsolidated affiliates.
In general, the Company and the operating companies do not execute hedge
transactions to reduce our exposure to foreign currency exchange rate risk.
Accordingly, we may experience economic loss and a negative impact on earnings
and equity with respect to our 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. We may also acquire
interests in companies that operate in countries where the removal or conversion
of currency is restricted.
INTEREST RATE SENSITIVITY
The table below provides information about our primary debt obligations. The
information is presented in U.S. dollar equivalents, which is our reporting
currency. The instrument's actual cash flows are denominated in both U.S.
dollars (the Notes), Australian dollars (New Austar Bank Facility) and New
Zealand dollars (Saturn Bank Facility).
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------
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 Notes........................... $421,895 $452,205
Average interest rate................................... 14.0% 12.1%
Variable rate NZ$ denominated Saturn Bank Facility......... $ 56,943 $ 56,943
Average interest rate................................... 7.4% 7.4%
Variable rate A$ denominated New Austar Bank Facility...... $201,530 $201,530
Average interest rate................................... 7.9% 7.9%
</TABLE>
22
<PAGE>
The table below presents principal cash flows and related weighted-average
interest rates by expected maturity dates for our debt obligations. The
information is presented in U.S. dollar equivalents, which is our reporting
currency. The instrument's actual cash flows are denominated in both U.S.
dollars (the Notes), Australian dollars (New Austar Bank Facility) and New
Zealand dollars (Saturn Bank Facility).
<TABLE>
<CAPTION>
As of March 31, 2000
------------------------------------------------------------------------------
2000 2001 2002 2003 2004 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 Notes............ $ - $ - $ - $ - $ - $421,895 $421,895
Variable rate NZ$ denominated Saturn
Bank Facility............................. $ - $569 $4,555 $ 8,200 $11,389 $ 32,230 $ 56,943
Variable rate A$ denominated New
Austar Bank Facility...................... $ - $ - $7,054 $93,330 $89,319 $ 11,827 $201,530
</TABLE>
We use interest rate swap agreements from time to time, to manage interest rate
risk on our floating rate debt facilities. Interest rate swaps are entered into
depending on our 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, we have four interest rate swaps to manage interest rate exposure on
the New Austar Bank Facility. Two of these swap agreements expire in 2002 and
effectively convert an aggregate principal amount of A$50.0 ($30.4) million of
variable rate, long-term debt into fixed rate borrowings. The other two swap
agreements expire in 2004 and convert an aggregate principal amount of A$100.0
($60.7) million of variable rate, long-term debt into fixed rate borrowings. As
of March 31, 2000, the weighted-average fixed rate under these agreements was
5.7% compared to a weighted-average variable rate of 5.5%.
In addition, we have an interest rate swap to manage our exposure on the Saturn
Bank Facility which effectively converts an aggregate principal amount of
NZ$60.6 ($30.1) million of variable rate, long-term debt into fixed rate
borrowings. The interest rate swap includes an increasing fixed rate with an
additional margin which is expected to decline as the debt to EBITDA ratio
declines. As of March 31, 2000, the average fixed rate under the agreement was
6.3% compared to a weighted-average variable rate of 5.2%.
Fair values of the interest rate swap agreements are based on the estimated
amounts that we 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.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
10.1 Shareholders Agreement dated April 6, 2000, among Telstra
Corporation Limited ("TCL"), Telstra Holdings Pty Limited
("THPL"), Austar United Communications Limited ("AUCL"), Saturn
Holdings Company Pty Ltd. ("Saturn NZ") and Saturn Communications
Limited ("Saturn").
10.2 Merger Agreement dated April 6, 2000, between THPL and Saturn.
10.3 Warranty Agreement dated April 6, 2000, between TCL and AUCL.
10.4 Offer to Acquire Shares dated April 6, 2000, between Saturn and
THPL.
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
None.
24
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
United Australia/Pacific, Inc.
Date: May 15, 2000
-----------------------------------
By: /s/ Valerie L. Cover
-----------------------------------
Valerie L. Cover
Controller
(A Duly Authorized Officer and Principal Financial Officer)
25
-------------------------------------------------
Dated 30 March 2000
Shareholders Agreement
Telstra Corporation Limited
("TCL")
Telstra Holdings Pty Limited
("THPL)
Austar United Communications Limited
("AUCL")
Saturn (NZ) Holding Company
Pty Ltd
("Saturn NZ")
Saturn Communications Limited
("Company")
Mallesons Stephen Jaques
Solicitors
Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Tel: 9296 2000
Fax: 9296 3999
DX: 113 Sydney
Ref: RAG:NBC
<PAGE>
Contents Shareholders Agreement
- --------------------------------------------------------------------------------
1 Interpretation 3
2 Scope and business of Company 10
3 Conditions Precedent 11
4 Constitution of Company 12
5 Restrictions on transfers and mortgages of Shares 12
6 Board of Directors 15
7 Responsibilities of the Board 17
8 Management and operations 19
9 Special Majority 20
10 Deadlock 22
11 Capital and Funding 24
12 Supply of Products and Services 28
13 Exclusivity 30
14 Procuring Performance 32
15 Warranties 33
16 Termination 33
17 Fair Market Valuation 35
18 Requirements on a Sale of Shares 37
19 Confidentiality, Publicity and Audit 37
20 Notices 39
21 Miscellaneous 40
22 Governing law, jurisdiction and service of process 41
Schedule 1 [ Not Used ] 43
Schedule 2 CEO Delegation Resolution 44
Schedule 3 Management and Reporting Responsibilities Schedule 47
Schedule 4 Incentive Compensation Plan - Key terms 50
Schedule 5 Accession Deed 53
1 Accession 54
2 Notices 54
3 Miscellaneous 55
<PAGE>
- --------------------------------------------------------------------------------
Shareholders Agreement
Date: 30 March 2000
Parties:
TELSTRA CORPORATION LIMITED (ACN 051 775 556) of 231
Elizabeth Street, Sydney NSW ("TCL")
TELSTRA HOLDINGS PTY LIMITED (ACN 057 808 938) of 231
Elizabeth Street, Sydney NSW ("THPL")
AUSTAR UNITED COMMUNICATIONS LIMITED (ACN 087 695 707) of
Level 29, 259 George Street, Sydney, NSW 2000 ("AUCL")
SATURN (NZ) HOLDING COMPANY PTY LTD (ACN 088 052 000) of
Level 29, 259 George Street, Sydney NSW ("Saturn NZ")
SATURN COMMUNICATIONS LIMITED of 75 The Esplanade, Petone,
Wellington, New Zealand ("Company")
Recitals:
A. AUCL is a subsidiary of UGC and is a listed Australian
company.
B. Saturn NZ and the Company are wholly owned subsidiaries of
AUCL.
C. TCL is a listed Australian company.
D. THPL and TNZ are wholly owned subsidiaries of TCL.
E. The Company and TNZ carry on business in New Zealand.
F. AUCL and TCL have agreed:
(a) to merge the businesses of the Company and TNZ pursuant
to the Merger Agreement; and
(b) to operate the Company as an incorporated joint
venture.
G. This agreement sets out the terms on which TCL and AUCL
shall conduct the joint venture.
H. On completion of the transaction contemplated by the Merger
Agreement:
(a) THPL will hold 50% of the Shares in the Company, fully
paid; and
(b) AUCL and Saturn NZ will between them hold 50% of the
Shares in the Company, fully paid.
<PAGE>
3
Operative provisions:
1 Interpretation
- --------------------------------------------------------------------------------
Definitions
1.1 The following words have these meanings in this agreement unless the
contrary intention appears:
Affiliate of any specified person means any other person which,
directly or indirectly, controls, is controlled by or in under direct
or indirect common control with, such specified person. For the
purposes of this definition, "control" when used with respect to any
person means:
(a) the power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting
shares, by contract or otherwise; or
(b) the holding of not less than 40% of the shares in such person,
and the term "controlled" has a meaning correlative to the foregoing.
ASX means the Australian Stock Exchange Limited.
AUCL Services Agreement means the agreement by that name between AUCL
and the Company to be executed before Completion.
Board means all or some of the Directors acting as a board.
Budget means a budget for the business of the Company, containing:
(a) a budget for the Company for the period of the Business Plan,
including, without limitation, a breakdown of revenue, operating
expenditure, capital expenditure and other items normally found
in the budget for a substantial telecommunications business; and
(b) an annual detailed operating budget containing projections as at
the end of each month during the year of income, expenses,
cashflow and balance sheet for the first year of the Business
Plan, including:
(i) an annual operating budget for the Company, containing
projections as at the end of each month during that year of
consolidated income, expenses, cashflow and balance sheet;
(ii) a forecast of the annual operating expenditure and a
projection of whether and when any additional funds will be
required; and
(iii) a forecast of annual capital expenditure and a projection
of whether and when any additional funds will be required.
<PAGE>
4
Business Day means a day from Monday to Friday, not being a public
holiday in Wellington, Auckland or Sydney.
Business Plan means, for a period of five Financial Years, a plan for
the business of the Company, taking into account the Financial Model
and containing:
(a) a description of the overall objectives and strategies of the
Company for the period of the Business Plan, including, without
limitation, the Company's profit and Shareholder value objectives
for the period;
(b) a report which compares the performance of the Company during the
then current Financial Year with the Business Plan of the Company
for the then current Financial Year;
(c) a description of the products and services which the Company will
offer during at least the first 18 months of the Business Plan;
(d) a marketing plan for the Company for at least the first 18 months
of the Business Plan, including, without limitation, the pricing
policy of the Company for that period;
(e) a detailed description of the human resources policy for the
Company, including the forecast number of the full time and part
time employees, and number and source of Shareholder secondees to
the Company, for the period of the Business Plan;
(f) a cashflow forecast for the Company for the period of the
Business Plan;
(g) a funding plan for the equity, debt, operating and expenditure
and capital expenditure requirements of the Company for the
period of the Business Plan;
(h) a description of proposed material commitments or liabilities not
in the ordinary course of the Company's business;
(i) any proposed acquisition or disposal of any asset or business
which would require Board approval;
(j) any proposed profit sharing arrangements with third parties;
(k) any proposed Security Interests to be given over any material
assets;
(l) any proposed loans, guarantees or Security Interests to be made
or given.
CEO means the chief executive officer of the Company.
<PAGE>
5
CEO Delegation Resolution means a resolution of the Board setting out
the powers and duties of the CEO.
Chairman means the Director who is chairman of the Board and of
meetings of the members of the Company.
Commencement Date means the day on which Completion occurs.
Company Bank Facility means the Syndicated Senior Secured Debt
facility provided by Toronto Dominion Australia Limited (and others)
to the Company and each Transaction Document as defined in that
facility.
Completion has the meaning set out in the Merger Agreement.
Confidential Information means:
(a) the provisions of this agreement and of each Establishment
Agreement; and
(b) any information, data, practices and techniques supplied or
disclosed under or in connection with this agreement or an
Establishment Agreement by a party ("supplier") to another party
("recipient") other than information, data, practices and
techniques:
(i) in the possession of a recipient prior to the date of its
disclosure by the supplier;
(ii) in the public domain prior to the date of its disclosure by
the supplier;
(iii) which have entered the public domain other than as a result
of breach of confidence by the recipient; or
(iv) supplied to a recipient without restriction by a third party
who is under no obligation to a supplier to maintain that
information in confidence.
Constitution means the constitution of the Company.
Consultancy Agreement means the agreement between TCL and the Company,
to be executed before Completion.
Deed of Accession means a deed, substantially in the form set out in
schedule 5, under which a new Shareholder agrees to be bound by all of
the provisions of this agreement.
Director means a director of the Company.
Establishment Agreements means:
(a) the Merger Agreement;
(b) the Offer to Acquire Shares;
<PAGE>
6
(c) the Consultancy Agreement;
(d) the Jack Matthews Deed;
(e) the TCL Services Agreement;
(f) the AUCL Services Agreement;
(g) the Warranty Agreement;
(h) the TCL/Company IP Licence Agreement; and
(i) the TCL/TNZ IP Licence Agreement.
Financial Model means the Financial Model developed by TCL and AUCL
and initialled by representatives of TCL and AUCL on the date of this
agreement for the purposes of identification.
Financial Year means a period of 12 consecutive months ending on 30
June, provided that the first financial year of the Company after
Completion shall start on the Commencement Date and end on 30 June
2000.
Indentures means:
(a) the Indenture between UIH Australia/Pacific, Inc and American
Bank National Association for $US443,000,000 14% Senior Discount
Notes dated 14 May 1996 (as amended);
(b) the Indenture between UGC and Firstar Bank of Minnesota N.A. for
Initial Issuance of $US1,375,000,000 10 3/4% Senior Secured
Discount Notes Due 2008 dated 5 February 1998; and
(c) the Indenture between UGC and Firstar Bank of Minnesota N.A. for
Initial Issuance of $US355,000,000 Senior Discount Notes Due 2009
dated 29 April 1999, as amended from time to time.
Initial Business Plan means the Business Plan annexed to the MOU
between TCL and AUCL dated 24 February 2000.
Insolvency means:
(a) where a party goes into liquidation (other than for a solvent
restructuring which has been previously approved in writing by
the other parties, such approval not to be unreasonably
withheld);
(b) where a party is wound up or dissolved or removed from a
companies register (except in the event of an amalgamation of the
Company and TNZ);
<PAGE>
7
(c) where a party enters into a scheme of arrangement with its
creditors or any class thereof;
(d) where a party incorporated in Australia has an administrator
appointed;
(e) where a party has a receiver or manager appointed in respect of
that party or a material part of its assets;
(f) where a party is unable to pay its debts as they become due in
the normal course of business; or
(g) where any event analogous in nature to any event described in
paragraphs (a) to (f) has occurred in respect of a party under
the laws of any relevant jurisdiction.
Jack Matthews Deed means the deed by that name between Jack Matthews
and the Company, to be executed before Completion.
Merger Agreement means the agreement by that name between TCL, AUCL
and the Company, dated on or about the date of this agreement.
Offer to Acquire Shares means the agreement by that name between the
Company and THPL, dated on or about the date of this agreement.
Security Interest means:
(a) a mortgage, pledge, lien, charge, assignment, hypothecation,
security interest or any interest or power otherwise arising in
or over any interest in any security (as defined in paragraph
1.2(k)) or reserved in or over an asset, or any other right of a
creditor to have a claim satisfied prior to other creditors from
the proceeds of any asset; or
(b) an agreement to create or give any security or right referred to
in subparagraph (a) of this definition. Services Agreements means
the AUCL Services Agreement and TCL Services Agreement.
Shareholder means a person who holds the legal interest in any Shares,
and at the Commencement Date means THPL, AUCL and Saturn NZ.
Shareholder Group means the UGC Shareholder Group or the TCL
Shareholder Group.
Shares means ordinary voting shares in the capital of the Company and
Shareholding means a holding of Shares.
TCL/Company IP Licence Agreement means the agreement by that name
between TCL and the Company, to be executed before Completion.
TCL Services Agreement means the agreement by that name between TCL
and the Company, to be executed before Completion.
<PAGE>
8
TCL Shareholder Group means TCL and each entity controlled by it but
(only for the purposes of clause 13) shall not at any time include any
of the following entities or any entity controlled by any of the
following entities:
(a) the Foxtel Partnership and the Foxtel Television Partnership;
(b) Solution 6 Holdings Limited;
(c) Sausage Software Limited;
(d) Computershare Limited; or
(e) PlesTel Pty Ltd and the PlesTel Operating Trust.
TCL/TNZ IP Licence Agreement means the agreement by that name between
TCL and TNZ, to be executed before Completion.
Telstra Saturn Incentive Compensation Plan means an incentive
compensation plan for the employees of the Company and its
subsidiaries, the key terms of which are set out in Schedule 4.
TNZ means Telstra New Zealand Limited of Level 9, 191 Queen Street,
Auckland.
TNZ Group means TNZ and each of its subsidiaries.
UGC means UnitedGlobalCom, Inc.
UGC Shareholder Group means UGC and each entity controlled by it.
Warranty Agreement means the agreement by that name between TCL and
AUCL, dated on or about the date of this agreement.
Interpretation
1.2 In this agreement, unless the context otherwise requires:
(a) a reference to a clause, schedule, annexure or appendix is a
reference to a clause of or schedule, annexure or appendix to
this agreement and references to this agreement include any
recital, schedule, annexure or appendix;
(b) a reference to this agreement or another instrument includes any
variation or replacement of either of them;
(c) a reference to a statute, ordinance, code or other law includes
regulations and other instruments under it and consolidations,
amendments, re-enactments or replacements of any of them;
(d) the singular includes the plural and vice versa;
(e) where a word or phrase is defined, other grammatical forms of
that word or phrase have the appropriate corresponding meaning;
<PAGE>
9
(f) the word "person" includes a firm, a body corporate, an
unincorporated association, a partnership or an authority;
(g) a reference to a "person" includes a reference to the person's
executors, administrators, successors, substitutes (including,
but not limited to, persons taking by novation) and assigns;
(h) all references to "subsidiary" or "related body corporate" bear
the meaning as set out in Division 6 of Part 1.2 of the
Corporations Law;
(i) all references to "holding company" and "wholly owned subsidiary"
bear the meaning as set out in section 9 of the Corporations Law;
(j) "control" and "controlled" are defined by the test set out in
paragraph 9 of Australian Accounting Standard AASB 1024;
(k) all references to "security" bear the meaning as set out in
section 92(3) of the Corporations Law;
(l) all references to "including" mean "including but not limited
to";
(m) an agreement, representation or warranty in favour of two or more
persons is for the benefit of them jointly and severally;
(n) an agreement, representation or warranty on the part of two or
more persons binds them jointly and severally;
(o) if a period of time is specified and dates from a given day or
the day of an act or event, it is to be calculated exclusive of
that day;
(p) a reference to a time is that time in Wellington, New Zealand;
(q) a reference to a day is to be interpreted as the period of time
commencing at midnight and ending 24 hours later;
(r) a reference to a month is a reference to a calendar month;
(s) if an event must occur on a stipulated day which is not a
Business Day then the stipulated day will be taken to be the next
Business Day;
(t) all currency references are to the lawful currency of New
Zealand; and
(u) where a right under this agreement is exercisable by a
Shareholder Group, it is exercisable:
(i) with respect to the UGC Shareholder Group - by AUCL; and
<PAGE>
10
(ii) with respect to the TCL Shareholder Group - by TCL;
(v) "dispose" means any dealing with a security, including but not
limited to a sale, transfer, assignment, trust, option or swap
and any alienation of all or any part of the rights attaching to
a security, or any interest in a security or giving a Security
Interest over any security, and includes any attempt to so deal
or give or the taking of any steps for the purposes of so dealing
or giving.
Headings
1.3 Headings are inserted for convenience and do not affect the
interpretation of this agreement.
2 Scope and business of Company
- --------------------------------------------------------------------------------
Scope of business of the Company
2.1 The Company shall carry on business as a communications carrier and
service provider, including, without limitation, in the telephony
(voice, data and image), internet, broadcasting and narrowcasting
industries (including pay TV and content provision).
2.2 The Company shall not carry on business outside New Zealand without
the prior written consent of all Shareholders whose Shareholder Group
holds in aggregate 20% or more of the number of issued Shares. For the
avoidance of doubt, the provision of internet and other services which
by their nature have incidental reach outside of New Zealand will not
breach this clause 2.2. Where such services have incidental reach
outside of New Zealand, the Company must not promote such services
outside of New Zealand.
2.3 The prohibition in clause 2.2 shall not apply to the Company arranging
to deliver goods or services to a person outside of New Zealand where
the Company is required to do so by virtue of obligations undertaken
by the Company in New Zealand, and the Company supplies goods and
services to that person or an Affiliate of that person in New Zealand.
Brand
2.4 Within 30 days after Completion the Company shall change its name to
"Telstra Saturn Limited".
2.5 If the TCL Shareholder Group ceases to be a Shareholder of the Company
for any reason, the Company must cease using the word "Telstra" in its
name within 6 months after the date that the TCL Shareholder Group
ceases to be a Shareholder of the Company.
2.6 If the TCL/Company IP Licence Agreement is terminated for any reason,
the Company must within three months after that termination do all
things and execute all documents necessary to ensure the cancellation
of registration of the name "Telstra Saturn Limited".
<PAGE>
11
2.7 Brands for the Company's products and services shall be determined by
the Board. Policies of the venture
2.8 Each Shareholder must vote its rights as a Shareholder and procure the
Directors nominated by it to act and vote so as to ensure that the
Company acts in conformity with this agreement, and that all
information about the Company and its business is available to all
Directors.
2.9 The Shareholders shall procure that the Company distributes by way of
dividend or interim dividend in respect of each Financial Year such of
its profits as are legally available for distribution and are in
excess of its anticipated capital expenditure, working capital,
reserve and other requirements as determined by the Board.
2.10 In accordance with section 131(4) of the Companies Act 1993 (NZ),
Directors may when exercising powers or performing duties as Directors
of the Company, act in a manner which they believe to be in the best
interests of their appointor, even though such action may not be in
the best interests of the Company.
2.11 This agreement sets out the obligations of the parties to each other
and no obligations of good faith nor fiduciary duties shall be
implied.
3 Conditions Precedent
- --------------------------------------------------------------------------------
3.1 This agreement shall not take effect until Completion.
3.2 On this agreement taking effect the Shareholders must procure that a
meeting of the Board is held at which:
(a) the Initial Business Plan is adopted by the Company;
(b) the CEO Delegation Resolution set out in Schedule 2 is passed;
and
(c) the management and reporting responsibilities schedule set out in
Schedule 3 is adopted by the Company;
(d) the Board notes that TCL and AUCL have nominated Ernst & Young
and Arthur Andersen as joint auditors of the Company and makes
that appointment;
(e) the Financial Year of the Company is agreed; and
(f) the Board approves the Telstra Saturn Incentive Compensation
Plan.
<PAGE>
12
4 Constitution of Company
- --------------------------------------------------------------------------------
4.1 The Shareholders intend that if an inconsistency arises between:
(a) the Constitution; and
(b) this agreement,
this agreement shall prevail to the extent of the inconsistency and each
Shareholder agrees to take any steps which for the time being are within
its power and are necessary to procure that the Constitution is promptly
altered to eliminate the inconsistency.
5 Restrictions on transfers and mortgages of Shares
- --------------------------------------------------------------------------------
Transfers and assignments
5.1 A Shareholder must not dispose of any Shares or create a Security
Interest over any Shares, except in accordance with the express terms
of this agreement or with the prior written consent of all
Shareholders. This clause 5.1 does apply to any Security Interests
granted prior to the date of this agreement by AUCL or Saturn NZ
pursuant to the Company Bank Facility.
5.2 Subject to clause 5.5, the UGC Shareholder Group may sell all (but not
some) of its Shares at any time after the third anniversary of the
Commencement Date, provided:
(a) it first offers to sell those Shares by notice to TCL at fair
market value agreed by AUCL and TCL within 30 days of receipt of
that notice, failing which a valuation notice will be deemed
given requiring the fair market value to be determined under
clause 17;
(b) TCL may, at any time within 14 days after the fair market value
is agreed or determined under clause 17, give notice to AUCL
requiring AUCL and Saturn NZ to sell all of their Shares to TCL
or its nominee at that fair market value. If such a notice is
given, AUCL and Saturn NZ must on such Business Day as is
nominated in such notice (being no less than three and no more
than 20 Business Days after the date of the notice) sell all of
their Shares to TCL or its nominee at that fair market value; and
(c) if TCL fails to give a notice to AUCL and Saturn NZ under
subparagraph (b), AUCL and Saturn NZ may sell all of their Shares
to any person for net consideration which is no less favourable
to them than the fair market value agreed or determined, at any
time within 90 days after the expiry of the 14 day period
referred to in subparagraph (b).
5.3 Subject to clause 5.5, THPL may sell all (but not some) of its Shares at
any time after the third anniversary of the Commencement Date, provided:
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13
(a) it first offers to sell those Shares by notice to AUCL at a price
nominated by THPL ("nominated price");
(b) AUCL may at any time within 30 days after receiving the notice
under subparagraph (a), give notice to THPL requiring THPL to
sell all of its Shares to AUCL or its nominee at the nominated
price. If such a notice is given, THPL must on such Business Day
as is nominated in such notice (being no less than three and no
more than 20 Business Days after the date of the notice) sell all
of its Shares to AUCL or its nominee at the nominated price; and
(c) if AUCL fails to give a notice to THPL under subparagraph (b),
THPL may sell all of its Shares to any person for net
consideration which is no less favourable to THPL than the
nominated price, at any time within 90 days after the expiry of
the 30 day period referred to in subparagraph (b).
5.4 A Shareholder Group may pledge its Shares as security for the purposes
of it or any related body corporate raising funds, provided that the
holder of the pledge ("lender") undertakes to the other Shareholder
Group that:
(a) in the event of exercising its rights under that pledge it shall
give immediate notice to the other Shareholder Group ("exercise
notice") in which case a member of the other Shareholder Group
nominated in writing shall have the right to purchase those
Shares at fair market value agreed with the lender within 30 days
of receipt of the exercise notice, failing which a valuation
notice will be deemed given requiring the fair market value to be
determined under clause 17. The nominated member may at any time
within 30 days after the fair market value is agreed with the
lender, or determined under clause 17, give notice to the lender
requiring it to sell all of its Shares to the nominated member at
that fair market value. If such notice is given, the lender must
on such Business Day as is nominated in such notice (being no
less than three and no more than 20 Business Days after the date
of the notice) sell all of its Shares to the nominated member at
that fair market value; and
(b) whilst it holds any Shares, the lender shall be bound by the
terms of this agreement as a Shareholder.
This clause 5.4 does not apply to any pledge granted prior to the date
of this agreement by AUCL or Saturn NZ pursuant to the Company Bank
Facility.
5.5
(a) Any Shareholder may transfer all (but not some) of its Shares at
any time to:
(i) a wholly owned subsidiary;
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14
(ii) in the case of Saturn NZ - AUCL or in the case of THPL -
TCL; or
(iii) an Affiliate which is not a wholly owned subsidiary.
For the avoidance of doubt a transfer of Shares pursuant to
subparagraphs (ii) and (iii) may be effected by way of
amalgamation, merger or liquidation.
(b) Subject to paragraph (c) the transferor must promptly take a
retransfer of those Shares if at any time the transferee ceases
to be a wholly owned subsidiary or Affiliate (as the case may be)
of the transferor;
(c) Paragraph (b) shall not apply where the transferee ceases to be a
wholly owned subsidiary of the transferor due to a public
offering of securities in the transferee, provided the transferee
remains a subsidiary of the transferor after that offer closes.
The transferor must promptly take a retransfer of the Shares if
at any time that transferee ceases to be a subsidiary of the
transferor.
(d) If either Saturn NZ or THPL ceases to exist for any reason, AUCL
or TCL respectively automatically assumes all obligations of
Saturn NZ or TCL under this agreement.
5.6 A Shareholder must not assign its rights under this agreement without:
(a) the prior written consent of all other Shareholders; or
(b) unless such assignment is in conjunction with a sale of Shares
permitted by this agreement.
5.7 Prior to any person who is not currently a Shareholder acquiring or
being issued any Shares, it must enter into an Accession Deed as set
out in schedule 5 agreeing to be bound by the terms of this agreement.
5.8 If a Shareholder ("seller") is seeking to sell its Shares to a third
party under clauses 5.2(c) or 5.3(c) (as the case may be):
(a) the other Shareholders must not do anything which would frustrate
the ability of the seller to sell its Shares to a third party,
subject always to the obligations of the other Shareholders at
law or under stock exchange listing rules. This clause 5.8(a)
shall not compel the other Shareholders to provide any
information to the third party about the Company or its business;
and
(b) the seller may disclose to the third party confidential
information about the Company and its business, provided the
seller has first provided to the other Shareholders a
confidentiality deed executed by the third party on terms
reasonably acceptable to and in favour of the seller and the
other Shareholders.
<PAGE>
15
5.9 AUCL must procure that:
(a) any subsidiaries of AUCL which directly hold any Shares; and
(b) any subsidiaries of AUCL which indirectly hold any Shares,
are and remain wholly owned subsidiaries of AUCL.
This clause 5.9 shall not apply to any public offering of securities
in any entity described in paragraph (b), provided that entity remains
a subsidiary of AUCL upon completion of that public offer, after which
time AUCL must procure that the entity remains a subsidiary of AUCL.
5.10 TCL must procure that:
(a) any subsidiaries of TCL which directly hold any Shares; and
(b) any subsidiaries of TCL which indirectly hold any Shares,
are and remain wholly owned subsidiaries of TCL.
This clause 5.10 shall not apply to any public offering of securities
in any entity described in paragraph (b), provided that entity remains
a subsidiary of TCL upon completion of that public offer, after which
time TCL must procure that the entity remains a subsidiary of TCL.
Entry of Third Party
5.11 The entry of a third party as a Shareholder to the Company requires
the prior written consent of all existing Shareholders.
5.12 Any Shareholder may propose the entry of a third party as a
Shareholder to the Company. If a Shareholder proposes the entry of a
third party with a Shareholding of at least 20%, the other
Shareholders must consider that proposal in good faith and use
commercially reasonable endeavours to conclude an agreement with all
Shareholders and the third party.
5.13 Where the entry of a third party as a Shareholder to the Company has
been agreed under clause 5.11, the UGC Shareholder Group's aggregate
Shareholding shall be diluted in favour of the third party. However
the UGC Shareholder Group's aggregate Shareholding percentage
(following the entry of that third party as a Shareholder and taking
account of any related sale of Shares by the UGC Shareholder Group to
the TCL Shareholder Group) must not be less than that of the third
party.
6 Board of Directors
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Appointment of Directors
6.1 Each Shareholder Group is entitled to appoint Directors in accordance
with clause 6.2, to remove any Director appointed by it, and to
<PAGE>
16
replace a Director appointed by it who dies, resigns or is removed
from or otherwise vacates office.
6.2 Initially, the Board will comprise:
(a) three Directors appointed by the TCL Shareholder Group; and
(b) three Directors appointed by the UGC Shareholder Group.
Thereafter, if there is any change in the percentage Shareholdings of
the TCL Shareholder Group or the UGC Shareholder Group:
(c) the number of Directors which each Shareholder Group may nominate
is determined from the following table:
Percentage of issued No. of Directors who may be
Shares held by the appointed by the
Shareholder Group Shareholder Group
Less than 10% Nil
10% to less than 20% 1
20% to less than 50% 2
50% 3
More than 50% 4
(d) the existing Shareholders must, where necessary as a result of
the change in percentage Shareholding, procure resignations from
the relevant number of their nominated Directors.
Chairman
6.3 The Chairman must be a Director appointed alternately by THPL and AUCL
(in that order) for periods of 12 months from the Commencement Date.
THPL must appoint the first Chairman. The non-appointing Shareholder
has the right to veto one nomination by the appointing Shareholder at
the time of every appointment.
6.4 The Chairman will be entitled to preside as chairman at meetings of
members of the Company and the Board. The Chairman is not entitled to
a casting vote at any meeting of members of the Company or the Board.
Alternates
6.5 A Shareholder may appoint an alternate director for each of its
appointed Directors, and Directors may appoint proxies, in accordance
with the Constitution.
<PAGE>
17
Meetings of the Board
6.6 The quorum for a meeting of Directors will be the attendance of at
least one Director (in person, by alternate or proxy) nominated by
each of the Shareholder Groups. If two consecutive meetings of
Directors are postponed due to a lack of quorum, the quorum for the
resulting subsequent meeting shall be any two Directors (in person, by
alternate or proxy). Notwithstanding clause 6.9, the period between
each postponed meeting must be not less than 5 Business Days.
6.7 Subject to clause 9, decisions of the Board are to be made by simple
majority of the total number of votes represented at the meeting.
6.8 At any meeting of the Board each Director present in person or by
alternate or proxy (and where a Shareholder has appointed more than
one Director, those Directors collectively, whether or not they are
all present) is entitled to exercise a number of votes equal to the
total number of issued Shares held by the Shareholder Group appointing
that Director.
6.9 Subject to clause 6.6, a meeting of the Board may be called by any
Director on not less than 10 Business Days' notice.
6.10 There must be no less than four Board meetings per Financial Year, the
majority of which must be held in New Zealand.
6.11 Board meetings may be held by telephone or audio-visual means provided
each participant can hear each other participant.
6.12 A resolution of the Board may be passed by identical circular
resolutions signed by all Directors.
6.13 A matter cannot be voted upon at a Board meeting unless it is set out
in reasonable detail in the agenda sent with the notice of meeting, or
all Directors present at the meeting agree to vote on the matter.
7 Responsibilities of the Board
- --------------------------------------------------------------------------------
Business and affairs of the Company
7.1 Subject to this agreement, the Board is to be responsible for:
(a) directing the business and affairs of the Company (except for
those matters delegated to the CEO, which, for the avoidance of
doubt, shall not include any of the matters described in clause
9);
(b) establishing the general policies of the Company;
(c) establishing the strategic priorities and objectives of the
Company;
<PAGE>
18
(d) establishing the financial objectives and accounting policies of
the Company;
(e) approving and amending the Initial Business Plan, the Business
Plan or the Budget;
(f) approving a CEO Delegation Resolution for all matters not set out
in this clause 7.1;
(g) approving and amending the management and reporting
responsibilities schedule (the initial version of which is set
out in schedule 3);
(h) approving the remuneration of senior executives of the Company
referred to in clause 8.7;
(i) approving the audited accounts of the Company; and
(j) determining the payment of dividends in accordance with clause
2.9.
7.2 Each Shareholder agrees to take any reasonable steps within its power
and are necessary to procure that:
(a) as soon as is practicable after the date of this agreement, the
Board:
(i) develops the operations of the Company in conformity with
this agreement and the Establishment Agreements;
(ii) implements the Initial Business Plan, the Business Plan and
the Budget; and
(b) there is a quorum present for all duly convened meetings of the
Board.
7.3 Subject to their obligations at law, Directors may disclose to and
discuss with their appointing Shareholder information obtained by
those Directors in the course of performing their duties as Directors.
TCL and AUCL must procure that their Shareholder Groups do not use
that information to the detriment of the Company.
7.4 If at any time the Board fails to approve a Business Plan for the next
Financial Year ("relevant year") within 60 days after submission for
approval by the CEO in accordance with the CEO Delegation Resolution,
then with respect to the relevant year, the Initial Business Plan or
the Business Plan last approved by the Board shall apply.
7.5 If at any time the Board fails to approve a Budget for the next
Financial Year ("Relevant Year") within 60 days after submission for
approval by the CEO in accordance with the CEO Delegation Resolution,
then with respect to the Relevant Year, the expenditure and revenue
<PAGE>
19
levels in the operating budget (referred to in paragraph (a) of the
definition of "Budget" in clause 1.1) which was last approved by the
Board for the Financial Year immediately before the relevant year
shall apply for the relevant year, each increased by 10%. This clause
7.5(b) shall not apply to capital expenditure.
7.6 For the avoidance of doubt, clauses 7.4 and 7.5 do not affect the
operation of clause 10.1(b).
8 Management and operations
- --------------------------------------------------------------------------------
Appointment of the CEO
8.1 Subject to clauses 8.3 to 8.5, TCL may nominate (by at least 30 days
notice to AUCL) and appoint from time to time the CEO, the first of
whom shall be employed by TCL and provided to the Company in
accordance with the Consultancy Agreement. If any subsequent nominees
are employees of TCL or AUCL, TCL or AUCL (as the case may be) and the
Company must in good faith negotiate a consultancy agreement for the
provision of the nominee's services to the Company as CEO.
First CEO
8.2 TCL and AUCL agree that the first CEO of the Company will be Jack
Matthews.
Veto of appointment and removal of CEO
8.3 If the UGC Shareholder Group holds in aggregate no less than 20% of
issued Shares, AUCL may by notice to TCL and the Company veto the
nomination of a second or subsequent CEO within 21 days after
receiving the notice of nomination. A second or subsequent CEO may not
be appointed until the earlier of:
(a) AUCL consenting to the appointment of the CEO; or
(b) the period during which AUCL may veto the nomination under this
clause 8.3 has lapsed.
8.4 If the UGC Shareholder Group holds in aggregate less than 50% but no
less than 20% of issued Shares, and has reasonable cause to believe
that removal of the CEO is in the best interests of the Company, AUCL
may by notice to TCL and the Company require the immediate removal of
the CEO. AUCL must set out a statement of reasons in such notice. The
Company or TCL (if either of those parties is the employer of the CEO)
must remove the CEO from his position immediately upon receiving any
such notice.
8.5 If the UGC Shareholder Group holds in aggregate not less than 50% of
issued Shares, AUCL may by notice to TCL and the Company require the
immediate removal of the CEO at any time. The Company or TCL (if
either of those parties is the employer of the CEO) must remove the
CEO from his position immediately upon receiving any such notice.
<PAGE>
20
8.6 TCL may at any time upon notice to the Company and AUCL remove the
CEO. The Company or AUCL (if either of those parties is the employer
of the CEO) must remove the CEO from his position immediately upon
receiving any such notice.
Senior executives and employees
8.7 A Shareholder may nominate any person for the CEO's consideration for
appointment to a senior executive position (other than the position of
CEO).
8.8 At the request of the Board, each Shareholder must second their
employees to the Company on a commercial basis, however the number of
employees seconded by a Shareholder to the Company must not exceed 5%
of the number of full-time employees of the Company.
Telstra Saturn Incentive Plan
8.9 TCL (with respect to all relevant employees of the TNZ Group) and AUCL
and the Company (with respect to all relevant employees of the
Company) must use all reasonable endeavours to procure prompt
acceptance of and participation in the Telstra Saturn Incentive
Compensation Plan.
9 Special Majority
- --------------------------------------------------------------------------------
9.1 Notwithstanding any contrary provision in this agreement, the
following matters may only be decided by the Board and such decisions
require an affirmative vote of at least 80% of the total number of
votes represented at a Board meeting:
(a) approving or materially amending the Initial Business Plan, the
Business Plan or the Budget including, without limitation,
approving any investment, operating expenditure, capital
expenditure, capital raising, borrowing or disposal during a
Financial Year which is in excess of 15% more than the budgeted
annual amount for that category set out in the Initial Business
Plan, the Business Plan or the Budget for that Financial Year;
(b) any public listing or public issue of securities of the Company;
(c) any incurrence of an indebtedness by the Company or its
subsidiaries of an amount which is in excess of $1,000,000 (other
than in accordance with the Initial Business Plan or the Business
Plan);
(d) the acquisition or disposal of all or part of a business for
consideration exceeding 5% of the book value of the assets of the
Company at the Commencement Date (in the event the decision is to
be made in the first Financial Year of the Company) or (in all
other cases) at the end of the previous Financial Year;
<PAGE>
21
(e) commencing on such date as AUCL is no longer subject to the
Indentures, any reduction or return of capital of the Company;
(f) any decision to place the Company into Insolvency within the
meaning of paragraphs (a), (b), (c), (d), (e) or (g) of the
definition of that term in clause 1.1;
(g) the Company or a subsidiary of the Company entering into,
extending, renewing, terminating or materially amending an
agreement with a member of a Shareholder Group, where the amount
to be spent or received by the Company or the subsidiary under
that agreement exceeds 5% of the book value of the assets of the
Company and its subsidiaries at the Commencement Date (in the
event the decision is to be made in the first Financial Year
after the Commencement Date) or (in all other cases) at the end
of the previous Financial Year;
(h) any merger or amalgamation of the Company or a subsidiary of the
Company;
(i) the appointment or dismissal of the auditors of the Company;
(j) lending or providing other financial accommodation (other than in
the ordinary course of business);
(k) providing a guarantee or similar support of an obligation of any
other person (other than a wholly owned subsidiary of the Company
or in accordance with the Initial Business Plan or the Business
Plan);
(l) providing a Security Interest over any assets of the Company,
other than for borrowings which are made by the Company or a
subsidiary of the Company or are in accordance with this
agreement and the Initial Business Plan or the Business Plan;
(m) the creation of any committee of the Board or the delegation of
any power of the Board to any committee or other person;
(n) any decision to commence, defend settle or terminate any
litigation, counterclaim or other similar proceedings involving a
claim exceeding $20,000,000. This paragraph (n) shall not apply
to any litigation or proceedings as described in clause 9.2.
(o) approving the audited accounts of the Company;
(p) any acquisition or disposal of any security or any interest in
any person;
(q) subject to clause 5.11, the issuing of any securities in the
Company or in any subsidiary of the Company (other than in
accordance with the Initial Business Plan or the Business Plan );
<PAGE>
22
(r) the appointment of each person who in accordance with the current
management and reporting responsibilities schedule, directly
reports to the CEO; and
(s) revoking, replacing or materially amending a CEO Delegation
Resolution or the management and reporting responsibilities
schedule (schedule 3).
9.2 Directors nominated by a Shareholder Group are not entitled (in
person, by alternate or proxy) to vote on any Board resolution
concerning any decision as to whether the Company or a subsidiary of
the Company should commence, defend, settle or terminate any
litigation, counterclaim or other similar proceedings arising from:
(a) an agreement described in clause 9.1(g) (including, without
limitation, any of the Establishment Agreements) with a member of
that Shareholder Group; or
(b) the rights or obligations of the Company or a subsidiary of the
Company at law with respect to any member of that Shareholder
Group.
10 Deadlock
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10.1 Subject to clause 10.2, there is a deadlock if:
(a) there is a dispute between the Shareholder Groups or their
nominee Directors, at any time about a Board proposal which
involves:
(i) a significant change to the activities of the Company (compared
to the activities contemplated by the Initial Business Plan or
the then current Business Plan) within ASX Listing Rule 11 which
is:
(A) within the scope of the business of the Company as set out
in clause 2.1; or
(B) within the scope of the business of any member of a
Shareholder Group or any comparable carrier or service
provider in any place; or
(ii) an acquisition or disposal by the Company of an asset, business
or securities with a value in excess of the greater of:
(A) 30% of the book value of the net assets of the Company in
the latest monthly management accounts submitted to the
Board; and
<PAGE>
23
(B) 30% of the fair market value of the business of the Company
as at the date of the valuation notice referred to in clause
10.5; or
(b) there is a dispute between the Shareholder Groups or their
nominee Directors as described in clauses 9.1(a), (b) or (p) (in
the case of clause 9.1(p), insofar as the acquisition or disposal
is for an amount exceeding $20 million) at any time while the UGC
Shareholder Group holds fewer issued Shares than the TCL
Shareholder Group.
If within 14 days after the second Board Meeting referred to in clause
10.4 TCL and AUCL cannot agree upon the fair market value of the
business of the Company, the fair market value of the business of the
Company shall be determined under clause 17.
10.2 There is no deadlock if the proposal involves:
(a) an agreement, arrangement or understanding between the Company on
the one hand and a Shareholder or a related body corporate of a
Shareholder on the other hand; or
(b) the entry of a third party as a shareholder in the Company.
10.3 Each Shareholder must act in good faith in relation to any proposal
the subject of a deadlock and use its best endeavours to resolve the
deadlock as quickly as practical. It is the intention of the parties
that this clause 10 cannot be used as a mechanism to arbitrarily cause
or bring about the exit of a Shareholder and that this clause 10 will
only apply to situations where there is a bona fide and fundamental
difference in views between the Shareholders over the best means to
enable the Company vigorously to compete and grow its business in New
Zealand:
(a) within the scope of the business of the Company as defined in
clause 2.1; or
(b) within the scope of the business of any member of a Shareholder
Group or any comparable carrier or service provider in any place.
In recognition of its obligations under this clause 10.3, in the event
there is a deadlock about a proposal by THPL which leads to THPL
acquiring Shares in the Company under clause 10.6, THPL shall use all
reasonable commercial endeavours to implement that proposal.
10.4 In the event of any dispute between the Shareholder Groups or their
nominee directors relating to the business of the Company which has
been considered at two Board meetings and has resulted in the failure
of the Board to pass a resolution, any Shareholder may give a dispute
notice to the other Shareholders commencing a 60 day escalation
procedure which must include escalation to the Group Managing Director
of the relevant TCL business unit and to the Chairman of AUCL.
<PAGE>
24
10.5 If after the 60 day period referred to in clause 10.4 (provided the
Group Managing Director and Chairman have met (whether in person or by
telephone or audio visual means) at least twice to discuss the
dispute) there is no resolution of a dispute which is a deadlock (as
defined in clause 10.1), TCL may issue a valuation notice to AUCL in
which case the fair market value of all of the AUCL and Saturn NZ's
Shares shall be determined under clause 17 ("AUCL Share Valuation").
10.6 TCL may at any time within 30 days after receiving the AUCL Share
Valuation give notice to AUCL and Saturn NZ requiring AUCL and Saturn
NZ to sell to TCL or its nominee all of their Shares at the AUCL Share
Valuation. AUCL and Saturn NZ must on such Business Day as in
nominated in such notice (being no less than three and no more than 20
Business Days after the date of the notice) sell all of their Shares
to TCL or its nominee at the AUCL Share Valuation.
10.7 If TCL does not give a notice under clause 10.6, the proposal the
subject of the deadlock shall be regarded as defeated.
10.8 Upon the resolution of a deadlock in favour of the proposal the
subject of a deadlock, the Shareholders shall use best endeavours to
implement the proposal.
10.9 A valuation notice cannot be given by TCL under clause 10.5 before the
third anniversary of the Commencement Date.
10.10 In the event and for so long as the TCL Shareholder Group holds fewer
Shares than the UGC Shareholder Group, this clause 10 will be reversed
so that references to TCL will be read as references to AUCL and vice
versa and references to Saturn NZ shall be deleted. Clause 10.10 shall
not apply to the extent that the reason why the TCL Shareholder Group
holds fewer Shares than the UGC Shareholder Group is because the UGC
Shareholder Group has acquired Shares in accordance with clause
11.3(b), provided (and from the date that) the TCL Shareholder Group
has given notice in accordance with clause 11.3(d) with respect to
those Shares and duly complies with its obligations under that clause.
11 Capital and Funding
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11.1 The Company shall be funded from third party debt in accordance with
the Initial Business Plan or the Business Plan up to a debt to equity
ratio of up to 1:1. Any greater debt to equity ratio shall be a matter
for determination by the Board.
11.2 Each Shareholder must contribute further funding, in the sums and at
the times set out in the Initial Business Plan or the then current
Business Plan by way of debt or equity as determined by the Initial
Business Plan or the then current Business Plan, in proportion to its
Shareholding percentage in the Company. For the purposes of the
Initial Business Plan and any Business Plan:
<PAGE>
25
(a) the amount shown in the cashflow statement as "New Debt Issued"
must be funded by third party debt, unless the Board determines
otherwise or, if such third party debt funding is not available
for any reason, it must be contributed by the Shareholders as
equity funding in proportion to their Shareholding percentages in
the Company; and
(b) the amount shown in the cashflow statement as "New Equity Issued"
must be contributed by the Shareholders as equity funding in
proportion to their Shareholding percentages in the Company.
Unless the Board determines otherwise, such equity funding must
be contributed to the Company in one-twelfth portions no later
than the 30th day of each month in the relevant Financial Year.
11.3
(a) If one Shareholder Group fails to contribute equity funding which
is required by the Initial Business Plan or a Business Plan
within 30 days after the due date set out in the Initial Business
Plan or the Business Plan, the other Shareholder Group may within
14 days of becoming aware of that failure contribute those funds
and acquire the Shares which would have been issued to the
defaulting Shareholder Group had it not so failed (relevant
Shares). In the case of such additional funding by the other
Shareholder Group a nominated member of that Shareholder Group
that is a wholly owned subsidiary of TCL or AUCL (as appropriate)
shall be entitled to acquire:
(i) the relevant Shares; and
(ii) 10% of the number of relevant Shares ("extra Shares") for no
additional payment.
(b) The defaulting Shareholder Group may at any time within 12 months
after the acquisition date under paragraph (a) give notice to the
other Shareholder Group that it is considering requiring the
other Shareholder Group to sell the relevant Shares and one-half
of the extra Shares to the defaulting Shareholder Group (so that
insofar as possible, the Shareholder Groups return to the
percentage Shareholding levels which prevailed immediately prior
to the provision of equity funding by the other Shareholder Group
under clause 11.2) at a price 10% more than the greater of:
(i) the price paid by the other Shareholder Group for the
relevant Shares; and
(ii) the fair market value of the relevant Shares and one-half of
the extra Shares;
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26
(c) If within 14 days after the date of any notice given under
paragraph (b) TCL and AUCL cannot agree upon the fair market
value referred to in sub-paragraph (b)(ii), that fair market
value shall be determined under clause 17.
(d) The defaulting Shareholder Group may at any time within 30 days
after the fair market value referred to in sub-paragraph (b)(ii)
is agreed by TCL and AUCL or determined under clause 17, give
notice to the other Shareholder Group requiring it to sell all of
the relevant Shares and one-half of the extra Shares to a member
of the defaulting Shareholder Group nominated in that notice at
the price agreed or determined. If such notice is given, the
other Shareholder Group must on such Business Day as is nominated
in such notice (being no less than three and no more than 20
Business Days after the date of the notice) sell all of the
relevant Shares and one-half of the extra Shares to that
nominated member at that price.
11.4 If both Shareholder Groups decline to provide funding which is
required by the Initial Business Plan or a Business Plan, TCL and AUCL
must cooperate in all commercially reasonable ways to enable the
Company to satisfy its funding requirements on the best available
terms from third parties.
11.5 Nothing shall restrict the freedom of the Company to borrow funds from
its Shareholders or a third party on commercially reasonable terms as
the Shareholder or a third party may agree with the Company.
11.6 Except as expressly provided in this agreement, no Shareholder is
obliged to provide any financial accommodation to the Company or
guarantees or Security Interest in support of any obligations of the
Company.
Company Bank Facility
11.7 The Company must use best endeavours to refinance its debt facilities
represented by the Company Bank Facility (including obtaining, where
appropriate, the release of any property subject to a Security
Interest under the Company Bank Facility) as soon as practical after
the Commencement Date, and in any event within three months after the
Commencement Date, in accordance with clauses 11.8 to 11.10.
11.8 The Company must use its reasonable endeavours to procure that the
Company's refinancing referred to in clause 11.7 and any other bank
debt shall:
(a) be without recourses to Shareholders;
(b) be for a term appropriate to fully fund the Initial Business
Plan;
(c) comply with the principles and guidelines as agreed and/or varied
from time to time by the finance committee referred to in clause
11.10 or by the Board; and
<PAGE>
27
(d) reflect current bank market conditions, have regard to current
market fees and interest rate margins and the current state of
the bank syndication markets, and shall contain terms and
conditions usual and customary for a financing of the type
outlined in the Initial Business Plan and terms and conditions
usual and customary for a borrower with the same risk profile as
the Company.
11.9 The terms and conditions of any and all bank debt, including the debt
referred to in clause 11.8, must be approved by the Board.
11.10 The Company must establish a finance committee for the purpose of
carrying out its obligations under clauses 11.7 and 11.8. The finance
committee shall comprise at least one representative from each of TCL
and AUCL and the chief financial officer of the Company. Any material
dispute between members of the finance committee which cannot be
resolved within 5 Business Days must be referred to the Board for
resolution. This committee shall remain in place and its composition
and guiding principles may be varied from time to time by the Board.
11.11 Each of TCL and AUCL agree to do everything reasonably necessary to
give effect to the Company's obligations under clauses 11.7 to 11.10
including, but not limited to, the execution of documents and to use
all reasonable endeavours to cause relevant third parties to do
likewise.
11.12 The Company shall reimburse each of TCL and AUCL for any reasonable
costs incurred in complying with their obligations under clause 11.11.
Indentures
11.13 AUCL must use all reasonable endeavours to obtain promptly any
consent, waiver or fairness opinion required under any of the
Indentures with respect to any proposed activity of the Company.
11.14 AUCL must use best endeavours to procure that the Indentures are not
amended in any manner as to increase the degree to which they affect,
directly or indirectly, the activities of the Company.
Initial Public Offering
11.15 TCL and AUCL will review and consider taking the Company to an
initial public offering after the second anniversary of the
Commencement Date, depending upon the prevailing market conditions and
financial condition of the Company at that time.
11.16 It is the intention of the parties to this agreement that after an
initial public offering, the TCL Shareholder Group will have the right
to hold more than 50% of the issued Shares.
<PAGE>
28
12 Supply of Products and Services
- --------------------------------------------------------------------------------
Supply to the Company
12.1 Each Shareholder and the Company agree that they will use all
reasonable commercial endeavours to procure that:
(a) subject to law, the Company will adopt a policy, in relation to
its acquisition of products and services in New Zealand, of
giving preference to the Shareholders and their related bodies
corporate as suppliers; and
(b) each of the Shareholders and the Company shall explore
opportunities to develop synergistic benefits in supply and
service arrangements, including possible exclusive supply
arrangements, to be agreed in separate supply and service
agreements.
12.2 The appointment of a supplier under the policies referred to in clause
12.1 is conditional on:
(a) the supplier being willing and able to provide products or
services on usual commercial terms which are and will remain
competitive with other suppliers and distributors; and
(b) the Company and the supplier negotiating terms and conditions for
supply insofar as practical consistent with those set out in the
Services Agreements.
12.3 If products or services become available from other suppliers or
distributors on more favourable terms than are then available from a
supplier referred to in clause 12.1 ("related supplier"), the Company
may obtain those products or services from those alternative suppliers
provided the Company does not breach any contractual obligation to
that related supplier, and first gives the related supplier:
(a) prior notice of details of the more favourable quotations; and
(b) the opportunity to meet the terms of the more favourable
quotations.
12.4
(a) TCL and AUCL shall use all reasonable commercial endeavours to
enable the Company to obtain favourable prices for the
acquisition of products and services from their Shareholder
Groups or from third parties, as if the Company were a member of
the TCL or AUCL Shareholder Group (as the case may be).
(b) In particular AUCL shall use all reasonable commercial endeavours
to procure that the Company obtains terms for the acquisition of
pay TV content and set top units which are the most favourable
available to members of the UGC Shareholder Group.
<PAGE>
29
12.5 This clause 12 shall not apply to the AUCL Services Agreement or the
TCL Services Agreement.
12.6
(a) TCL and AUCL acknowledge and agree with effect from Completion
that the supply of any products or services by any member of the
TCL Shareholder Group to TNZ or any of its subsidiaries or by any
member of the UGC Shareholder Group to the Company in place
immediately prior to Completion shall continue on the same terms
and conditions for up to 6 months after Completion. The supplier
and the Company shall as soon as practical and in any event
within six months after Completion renegotiate the terms and
conditions upon which those products or services are supplied so
that the terms are usual commercial terms and are competitive
with other suppliers and distributors. Those terms shall insofar
as practical be consistent with those set out in the Services
Agreements. There shall be no obligation on any party to continue
the supply or acquisition of those products or services at the
end of that 6 month period unless the parties have agreed those
terms and conditions.
(b) Clause 12.3 shall apply to supply arrangements as described in
paragraph (a).
(c) TCL and AUCL acknowledge and agree with effect from Completion
that the supply of any products or services by TNZ or any of its
subsidiaries to any member of the TCL Shareholder Group in place
immediately prior to Completion shall continue on the same terms
and conditions for up to 6 months after Completion. The acquirer
and the Company shall as soon as practical, and in any event no
longer than 6 months after Completion, renegotiate the terms and
conditions upon which those products and services are supplied so
that the terms are usual commercial terms and are competitive
with other suppliers and distributors. Those terms shall insofar
as practical shall be consistent with those set out in the
Services Agreements. There shall be no obligation on any party to
continue the supply or acquisition of those products or services
at the end of that 6 month period unless the parties have agreed
those terms and conditions.
(d) This clause 12.6 shall not apply with respect to any services
which are supplied under a Services Agreement.
<PAGE>
30
13 Exclusivity
- --------------------------------------------------------------------------------
13.1 AUCL and TCL must procure that, except with the prior written consent
of TCL or AUCL respectively, no member of their Shareholder Group
carries on directly or indirectly in New Zealand any activity which is
in the Core Business , except with respect to:
(a) the continued supply of goods and services in accordance with
contracts or arrangements which were in place at Completion. Each
of AUCL and TCL warrants to the other that it has used best
endeavours to specifically disclose and identify any such
contracts or arrangements in writing to the other of them before
the date of this agreement;
(b) the provision of goods and services to the New Zealand branches
of multi-national corporations headquartered outside of New
Zealand where goods and services are also supplied to those
corporations outside of New Zealand. The relevant member of the
Shareholder Group must promote the Company to the customer and
must appoint the Company as the local service provider or
supplier of those goods and services in New Zealand unless the
customer refuses to acquire the goods and services from the
Company in New Zealand and insists on provision of goods and
services from a third party (which may not be any member of the
Shareholder Group) in New Zealand, in which case the relevant
member may permit those goods or services to be supplied to that
Customer through subcontract with that third party in New
Zealand. The relevant member must account to the Company for any
profit it makes with respect to the provision of those goods and
services to that customer in New Zealand;
(c) the provision by Advantra of facilities management (including
network management), systems integration and application
management activities (but not including the provision of
carriage services);
(d) the carrying on of a business by any member of a Shareholder
Group in New Zealand, the acquisition of which was part of the
acquisition of a business elsewhere, provided the member disposes
of that New Zealand business within 6 months of acquisition and
gives the Company a right of first refusal to acquire that
business;
(e) the provision of international services on a wholesale basis to
New Zealand carriers or service providers;
(f) any member of the TCL Shareholder Group acting as a distributor
of Concert services or as a supplier in connection with Concert
services, if the Company:
<PAGE>
31
(i) has been offered appointment as such a distributor or
supplier but does not accept that appointment with 60 days;
or
(ii) is so appointed but that appointment is terminated for
breach; and
(g) the supply of goods or services in New Zealand by a member of a
Shareholder Group either as a reseller or distributor of
international communications services (such as Global One or
World Partners) or as a supplier of wholesale services (such as
telehousing or half circuits) in connection with the supply of
such international communications services, provided that
Shareholder Group uses its best endeavours to have the Company
appointed as the supplier of those goods and services in New
Zealand.
13.2
(a) If a member of a Shareholder Group wishes to pursue any activity
in New Zealand which is a New Business, AUCL or TCL (as the case
may be) must procure that the Company has the first right to
participate in the opportunity associated with that activity on
the terms and conditions available to that member of the
Shareholder Group in all material respects. If the Company,
acting in good faith and within a reasonable period having regard
to the risk of losing the opportunity if not pursued promptly,
does not give notice to TCL or AUCL (as the case may be)
accepting the offer to participate and agreeing to pursue that
opportunity, the member of the relevant Shareholder Group
(Member) is, subject to paragraph (b), free to accept and pursue
that opportunity and engage in that activity.
(b) The Member must before permitting or licensing any third party to
participate in pursuing that opportunity or in providing any
services in connection with that opportunity offer the Company
the right to participate in that opportunity on the same terms
and conditions offered by or to the third party, in which case if
that offer is not accepted within a reasonable period having
regard to the risk of losing the opportunity if not pursued
promptly, the Member is free to deal with the third party on the
basis of that offer.
13.3 Clause 13.1 shall bind AUCL and TCL for the period that any member of
its Shareholder Group holds any Shares. For the avoidance of doubt,
clause 13.1 does not apply to any activity of a person who is not a
member of a Shareholder Group.
13.4 Subject to the exceptions set out in clause 13.1, AUCL and TCL must
procure that for the period of their Shareholder Group Shareholding no
member of its Shareholder Group directly or indirectly acquires a
<PAGE>
32
material interest in a company ("investee") which at that time is a
direct material competitor of the Core Business of the Company. This
clause 13.4 shall not apply if the activities of the Company with
which the investee competes account for no more than 5% of the annual
revenue of the Company in its last completed Financial Year. A
material interest means holding 25% or more of the shares (voting or
otherwise) or appointing 25% or more of the directors of the investee.
For the avoidance of doubt, this clause 13.4 does not apply to an
acquisition by any person who is not a member of a Shareholder Group
or who is an entity which is listed in the proviso to the definition
of TCL Shareholder Group in clause 1.1
13.5 In this clause 13:
Core Business means:
(a) any of the following activities in New Zealand:
(i) broadband cable network owner and operator, offering retail
and wholesale services:
(ii) voice, data and mobile telecommunications products, services
and solutions;
(iii) pay TV operator, including cable access TV subscription,
pay-for-view, cable advertising and internet TV;
(iv) Internet Service Provider;
Target market are corporate, large, SME, and residential; and
(b) if the Shareholders agree a variation to the Initial Business
Plan or the Business Plan which involves the Company engaging in
a substantial new business activity in New Zealand outside of the
then current Core Business of the Company - that activity .
New Business means an activity described in clause 2.1 which is not
within the Core Business.
Internet Service Provider means a provider of internet access services
and, for the avoidance of doubt does not include internet portals,
internet content aggregators, content creators or application service
providers.
14 Procuring Performance
- --------------------------------------------------------------------------------
14.1 TCL must procure that:
(a) THPL complies with all of its obligations under the Merger
Agreement; and
<PAGE>
33
(b) each of its subsidiaries as are a Shareholder complies with its
obligations under this agreement.
14.2 AUCL must procure that:
(a) the Company complies with all of its obligations under the Merger
Agreement; and
(b) each of its subsidiaries as are a Shareholder complies with its
obligations under this agreement.
15 Warranties
- --------------------------------------------------------------------------------
15.1 Each of the parties represents and warrants to each of the other
parties that as at the date of this agreement and as at the
Commencement Date:
(a) it has the power to enter into and perform this agreement and has
obtained all necessary consents to enable it to do so; and
(b) the entry into and performance of this agreement by it does not
constitute a breach of any obligation by which it is bound.
16 Termination
- --------------------------------------------------------------------------------
Termination
16.1 This agreement commences on the Commencement Date and terminates on
the first to occur of:
(a) the date upon which only one Shareholder holds Shares;
(b) the date upon which the Company is dissolved; or
(c) the date specified by written agreement between each party.
16.2 The termination of this agreement shall be without prejudice to any
rights or obligations of a party with respect to any breach of this
agreement before that termination.
16.3 Upon the transfer of a Shareholder's Shares in accordance with the
terms of this agreement, the transferor will cease to have any
obligations under this agreement except:
(a) under clause 5.5, 14 or 19;
(b) with respect to any breach of this agreement before that
transfer.
16.4 In the event:
(a) AUCL is in material breach of this agreement and does not remedy
that breach within 90 days' notice from TCL; or
<PAGE>
34
(b) AUCL or Saturn NZ becomes Insolvent;
(c) UGC ceases to control AUCL, except due to a sale or issue of
shares to the public; or
(d) any member of the UGC Shareholder Group transfers its Shares in
accordance with clause 5.5(a)(iii),
TCL may:
(e) within 30 days of becoming aware of such an event issue to AUCL a
valuation notice requiring a valuation of all of the AUCL and
Saturn NZ Shares at fair market value in accordance with clause
17 ("AUCL Share Valuation"); and
(f) at any time within 30 days after the AUCL Share Valuation has
been provided to TCL, give AUCL a call notice in which event AUCL
must procure on such Business Day as is nominated in such notice
(being no less than three and no more than 20 Business Days after
the date of the notice) that the UGC Shareholder Group sells all
of their Shares to TCL or its nominee at the AUCL Share
Valuation, except that, in the case of paragraphs (a) and (b),
the price payable shall be discounted by 10%, and in the case of
paragraph (d) the price shall be discounted by 50%.
16.5 For the purposes of clause 16.4, "UGC" means UGC or any successor in
title to UGC or its business, such as on a merger, consolidation or
contribution of UGC or its business with another entity, irrespective
of whether UGC is the surviving entity.
16.6 In the event:
(a) TCL is in material breach of this agreement and does not remedy
that breach within 90 days' notice from AUCL;
(b) TCL or THPL becomes Insolvent; or
(c) any member of the TCL Shareholder Group transfers its Shares in
accordance with clause 5.5(a)(iii),
AUCL may:
(d) within 30 days of becoming aware of such an event issue to THPL a
valuation notice requiring a valuation of all of THPL's Shares at
fair market value in accordance with clause 17 ("Telstra Share
Valuation"); and
(e) at any time within 30 days after the Telstra Share Valuation has
been provided to AUCL, give TCL a call notice in which event TCL
must procure on such Business Day as is nominated in such notice
(being no less than three and no more than 20 Business Days after
<PAGE>
35
the date of the notice) that the TCL Shareholder Group sells all
of its Shares to AUCL or its nominee at the Telstra Share
Valuation, except that the price payable shall be discounted by
10%, and in the case of paragraph (c) the price payable shall be
discounted by 50%.
17 Fair Market Valuation
- --------------------------------------------------------------------------------
17.1
(a) If a valuation notice is issued in accordance with clauses
5.2(a), 5.4(a), 10.5, 16.4(e) or 16.6(d), each of TCL and AUCL
must within three Business Days after that notice appoint one
duly qualified valuer to determine the fair market value of the
relevant Shareholders' Shareholding in the Company.
(b) If a determination of fair market value of Shares is required to
be made in accordance with clause 11.3(b)(ii), each of TCL and
AUCL must within three Business Days after the expiry of the 14
date period referred to in clause 11.3(c) appoint one duly
qualified valuer to determine the fair market value of those
Shares.
(c) If a determination of the fair market value of the business of
the Company is required to be made in accordance with clause
10.1(a)(ii)(B), each of TCL and AUCL must within 3 Business Days
after the expiry of the 14 day period referred to in clause 10.1
appoint one duly qualified valuer to value both the fair market
value of the business of the Company and (if necessary) the fair
market value of the relevant Shareholders' Shareholding in the
Company.
17.2 In determining the fair market value of a Shareholding under clause
17.1(a):
(a) if the aggregate Shareholding of the prospective selling
Shareholder Group is not less than the Shareholding of the
prospective purchasing Shareholder Group, such valuation must
include a control premium which is appropriate in all the
circumstances;
(b) if the valuation notice was given under clause 10.5, the
valuation shall be made without reference to the impact of the
deadlocked proposal on fair market value;
(c) the valuation shall be made on the basis of an ongoing business;
and
(d) the valuation shall be made on the basis that all contracts
between the Company and all members of a Shareholder Group shall
remain in force in accordance with their terms.
<PAGE>
36
17.3 In determining the fair market value of Shares under clause 17.1(b):
(a) the valuation shall be made on the basis of an ongoing business;
and
(b) the valuation shall be made on the basis that all contracts
between the Company and all members of a Shareholder Group shall
remain in force in accordance with their terms.
17.4 In determining the fair market value of the business of the Company
under clause 17.1(c):
(a) the valuation shall be made without reference to the impact of
the deadlocked proposal on fair market value;
(b) the valuation shall be made on the basis of an ongoing business;
and
(c) the valuation shall be made on the basis that all contracts
between the Company and all members of a Shareholder Group shall
remain in force in accordance with their terms.
17.5 Each qualified valuer must within 15 Business Days of appointment
simultaneously provide its valuation and supporting reasons to the
each of the Shareholders.
17.6 If the higher of the two valuations provided under clause 17.5 is no
more than 10% higher than the lower such valuation, the fair market
value of the Shares shall be the average of the two valuations.
17.7 If the higher of the two valuations provided under clause 17.5 is more
than 10% higher than the lower such valuation, the Shareholders must
within a further three Business Days appoint an independent third duly
qualified valuer to determine the fair market value. If no such
appointment is made during that period, the President of the NZ
Institute of Chartered Accountants shall make that appointment within
a further three Business Days. The third valuer shall be bound by
clauses 17.2 to 17.4 and shall take into account the two initial
valuations. The third valuation must be provided simultaneously to TCL
and AUCL with supporting reasons within 10 Business Days of the
appointment of the third valuer. Any delay in the provision of the
third valuation shall not affect the validity of the third valuation.
17.8 If only one valuation is delivered under clause 17.5, that valuation
shall prevail as the fair market value.
17.9 The parties must provide all reasonable assistance and cooperation to
any valuer appointed under this clause 17.
17.10 TCL and AUCL shall each pay one half of the costs of any valuer
appointed under clause 17.7.
<PAGE>
37
17.11 A determination of fair market value made under this clause 17 shall,
in the absence of manifest error, be final and binding upon the
parties.
18 Requirements on a Sale of Shares
- --------------------------------------------------------------------------------
18.1 Upon completion of any sale of Shares under this agreement:
(a) the seller shall deliver to the buyer or its solicitors:
(i) an executed transfer in favour of the buyer together with
the share certificates for those Shares (if any); and
(ii) signed resignations from the Board by the nominee Directors
of the seller;
(b) the Shares are to be transferred free from any Security Interest
and with all rights, including dividend rights, attaching or
accruing to them; and
(c) the buyer shall deliver to the seller or its solicitors a bank
cheque payable to the seller for the total purchase price for
those Shares agreed or determined under this agreement.
19 Confidentiality, Publicity and Audit
- --------------------------------------------------------------------------------
19.1 All Confidential Information disclosed by any party ("supplier") to
any other party ("recipient") or to any of their respective employees,
directors, officers, auditors or agents, is so disclosed on terms of
strict confidence, prohibiting any further disclosure or use not
authorised under this agreement.
19.2 To protect and preserve the confidential nature and continued secrecy
of all Confidential Information, each recipient must:
(a) use the same degree of care (not less than a reasonable degree of
care) that it would use with respect to its own information of a
like nature;
(b) take all practicable steps to procure that Confidential
Information is not disclosed to, or obtained from it or from its
employees, directors, officers, auditors or agents by, anyone
other than persons employed by it or acting on its behalf who are
required to have access to the relevant Confidential Information
in order to enable this agreement or an Establishment Agreement
to be carried into effect; and
(c) not permit unauthorised persons to have access to places where
Confidential Information is reproduced or stored.
<PAGE>
38
19.3 A party must not at any time make or assist any other person to make
any unauthorised disclosure or use of any Confidential Information.
19.4 The rights and obligations of the parties with respect to
confidentiality survive termination of this agreement and any
Establishment Agreements.
19.5 Nothing in this clause 19 prohibits the disclosure of Confidential
Information:
(a) to a professional adviser to the extent necessary to enable it to
protect or advise upon the rights of a party in relation to this
agreement or an Establishment Agreement;
(b) to the extent necessary and in a manner or to a person to whom
disclosure is permitted or contemplated under this agreement or
by an Establishment Agreement;
(c) to the extent required by law, or the rules of a recognised stock
exchange applicable to that party;
(d) by operation of law; or
(e) by the recipient with the prior written consent of each of the
parties to this agreement.
Publicity
19.6 A party to this agreement or to an Establishment Agreement may not
make press or other announcements or releases relating to this
agreement or an Establishment Agreement without the approval of the
other parties to this agreement or that Establishment Agreement of the
form or manner of the announcement or release, unless that
announcement or release is required to be made by law or the rules of
recognised stock exchange applicable to that party, in which case the
party must use all reasonable endeavours to consult with the other
parties before making that announcement or release.
Access to Records by Shareholders
19.7 The Company must at all times keep and maintain at its head office up
to date complete and accurate books and business records including but
not limited to books of account, documents, customer lists, supplier
lists, records of contracts and leases and records of receivables
("business records"). Each of the Directors shall have access at any
time during normal business hours to the business records.
Audit
19.8 Each Shareholder holding 10% or more of the number of issued Shares
may through its representatives at reasonable times audit on a
confidential basis all business records but may use information
obtained from the audit only for proper purposes and not to compete
with the Company.
<PAGE>
39
20 Notices
- --------------------------------------------------------------------------------
20.1 A notice, approval, consent, or other communication in connection with
this agreement:
(a) must be in writing;
(b) must be marked for the attention of the person set out below; and
(c) must be left at the address of the addressee or sent by facsimile
or email to the facsimile number or email address which is
specified in this clause or if the addressee notifies another
address, facsimile number or email address then to that address,
facsimile number or email address.
THPL, TCL or the TCL Shareholder Group
Address: Telstra Corporation Limited
231 Elizabeth Street
SYDNEY NSW 2000
Attention: Group Managing Director, Telstra Business
Solutions
Fax: (61 2) 9396 9530
Copy: Counsel, Telstra Business Solutions
231 Elizabeth Street
SYDNEY NSW 2000
Fax: (61 2) 9261 4762
Email: [email protected]
AUCL, Saturn NZ or the UGC Shareholder Group
Address: Austar United Communications Limited
Level 29
259 George Street
SYDNEY NSW 2000
Attention: Corporate Counsel
Facsimile: (61 2) 9394 9850
Email: [email protected]
Company
Address: Telstra Saturn Limited
75 The Esplanade
PETONE NZ
Attention: CEO
Facsimile: (64 4) 939 5100
Email: [email protected]
<PAGE>
40
20.2 A notice, approval, consent or other communication takes effect from
the time it is received unless a later time is specified in it.
20.3 A facsimile is taken to be received on entry in a transmission log
kept by the machine from which the facsimile was sent which indicates
that the facsimile was sent in its entirety to a facsimile number of
the recipient.
21 Miscellaneous
- --------------------------------------------------------------------------------
Assignment
21.1 A party may not assign its rights or obligations under this agreement
except with the prior written consent of the other parties to this
agreement, or in transferring its Shares in a manner permitted by this
agreement.
Costs
21.2 Each party agrees to bear its own legal and other costs and expenses
in connection with the preparation and execution of this agreement and
the Establishment Agreements and of other related documentation.
Exercise of rights
21.3 A party may exercise a right, power or remedy at its discretion, and
separately or concurrently with another right, power or remedy. A
single or partial exercise of a right, power or remedy by a party does
not prevent a further exercise of that or of any other right, power or
remedy. Failure by a party to exercise or delay in exercising a right,
power or remedy does not prevent its exercise.
Waiver and variation
21.4 A provision of or a right created under this agreement may not be:
(a) waived except in writing signed by the party granting the waiver;
or
(b) varied except in writing signed by the parties.
Approvals and consents
21.5 A party may give conditionally or unconditionally or withhold its
approval or consent in its absolute discretion unless this agreement
expressly provides otherwise.
Remedies cumulative
21.6 The rights, powers and remedies provided in this agreement are
cumulative with and not exclusive of the rights, powers or remedies
provided by law independently of this agreement.
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41
Survival of warranties and indemnities
21.7 Each warranty and indemnity in this agreement is a continuing
obligation, separate and independent from the other obligations of the
parties and survives termination of this agreement.
Enforcement of warranties and indemnities
21.8 It is not necessary for a party to incur expense or make payment
before enforcing a right of warranty or indemnity conferred by this
agreement.
Further assurances
21.9 Each party agrees, at its own expense, on the request of another
party, to do everything reasonably necessary to give effect to this
agreement and the transactions contemplated by it, including, but not
limited to, the execution of documents, and to use all reasonable
endeavours to cause relevant third parties to do likewise.
Entire Agreement
21.10
(a) This agreement constitutes the entire agreement of the parties
with reference to its subject matter and any previous agreements,
understandings, negotiations, representations or warranties on
that subject matter cease to have any effect.
(b) The Memorandum of Understanding between TCL and AUCL dated 24
February 2000 is terminated by this agreement (except with
respect to any rights arising due to a breach of clause 31
thereof).
No partnership
21.11 Subject to any provision of this agreement specifically to the
contrary, nothing contained or implied in this agreement constitutes a
party the partner, agent or legal representative of another party or
of the Company for any purpose or creates any partnership, agency or
trust, and no party has any authority to bind another party or the
Company in any way.
22 Governing law, jurisdiction and service of process
- --------------------------------------------------------------------------------
22.1 This agreement and the transactions contemplated by this agreement are
governed by the law in force in New South Wales.
22.2 Each party irrevocably and unconditionally submits and agrees to
submit to the non-exclusive jurisdiction of the courts of New South
Wales, courts exercising Federal jurisdiction in New South Wales and
courts of appeal from them for determining any dispute concerning this
agreement or the transactions contemplated by this agreement. Each
party waives any right they have to object to an action being brought
in those courts including, but not limited to, claiming that the
action has been brought in an inconvenient forum or that those courts
do not have jurisdiction.
<PAGE>
42
22.3 Without preventing any other mode of service, any document in an
action (including, but not limited to, any writ of summons or other
originating process or any third or other party notice) may be served
on any party by being delivered to or left for that party at its
address for service of notices under clause 20.
EXECUTED as an agreement
<PAGE>
<TABLE>
<CAPTION>
43
Execution page
- --------------------------------------------------------------------------------
<S> <C>
SIGNED by )
as authorised representative for TELSTRA )
CORPORATIONB LIMITED (ACN 051 775 556) )
in the presence of: )
)
/s/ David Waldie )
................................................ )
Signature of witness )
)
David Waldie )
................................................ )
Name of witness (block letters) )
)
1/138 Hastings PDE, Bondi ) /s/ Lindsay Yelland
................................................ ) ...............................................
Address of witness ) By executing this agreement the signatory
) warrants that the signatory is duly authorised
Lawyer ) to execute this agreement on behalf of TELSTRA
................................................ ) CORPORATION LIMITED.
Occupation of witness )
)
SIGNED by )
as authorised representative for TELSTRA )
HOLDINGS PTY LIMITED (ACN 057 808 938) in the )
presence of: )
)
/s/ David Waldie )
................................................ )
Signature of witness )
)
David Waldie )
................................................ )
Name of witness (block letters) ) /s/ Lindsay Yelland
) ...............................................
1/138 Hastings PDE, Bondi ) By executing this agreement the signatory
................................................ ) warrants that the signatory is duly authorised
Address of witness ) to execute this agreement on behalf of TELSTRA
) HOLDINGS PTY LIMITED.
Lawyer )
................................................ )
Occupation of witness )
<PAGE>
44
SIGNED by )
as authorised representative for SATURN )
NZ) HOLDING COMPANY PTY LTD (ACN 088 052 000) )
in the presence of: )
)
/s/ Sean Michael Wynne )
................................................ )
Signature of witness )
)
Sean Michael Wynne )
................................................ )
Name of witness (block letters) )
)
40 Falkirk Ave., Seatown, Wellington ) /s/ John C. Porter
................................................ ) ...............................................
Address of witness ) By executing this agreement the signatory
) warrants that the signatory is duly authorised
Tel Co Manager ) to execute this agreement on behalf of SATURN
................................................ ) (NZ) HOLDING COMPANY PTY LTD.
Occupation of witness )
)
SIGNED by )
as authorised representative for AUSTAR UNITED )
COMMUNICATIONS LIMITED (ACN 087 695 707) in the )
presence of: )
)
/s/ Sean Michael Wynne )
................................................ )
Signature of witness )
)
Sean Michael Wynne )
................................................ )
Name of witness (block letters) ) /s/ John C. Porter
) ...............................................
40 Falkirk Ave., Seatown, Wellington ) By executing this agreement the signatory
................................................ ) warrants that the signatory is duly authorised
Address of witness ) to execute this agreement on behalf of AUSTAR
) UNITED COMMUNICATIONS LIMITED.
Tel Co Manager )
................................................ )
Occupation of witness )
SIGNED by )
as authorised representative for SATURN )
COMMUNICATIONS LIMITED in the presence of: )
)
/s/ Sean Michael Wynne )
................................................ )
Signature of witness )
)
Sean Michael Wynne )
................................................ )
Name of witness (block letters) )
) /s/ Jack Matthews
40 Falkirk Ave., Seatown, Wellington ) ...............................................
................................................ ) By executing this agreement the signatory
Address of witness ) warrants that the signatory is duly authorised
) to execute this agreement on behalf of SATURN
Tel Co Manager ) COMMUNICATIONS LIMITED.
................................................ )
Occupation of witness )
)
</TABLE>
<PAGE>
45
Schedule 1 [ Not Used ]
- --------------------------------------------------------------------------------
<PAGE>
46
Schedule 2 CEO Delegation Resolution
- --------------------------------------------------------------------------------
1 Subject to paragraph 3:
(a) the CEO is responsible to the Board for the management of the
Company's affairs and for coordinating and supervising the day-to-day
business and operations of the Company in accordance with the Initial
Business Plan the Business Plan, and the Budget, subject to this
agreement;
(b) the CEO is permitted to authorise expenditure and incur liabilities on
behalf, or in the name, of the Company within the following limits:
(i) capital expenditure items up to $20 million, provided that for
capital expenditure not authorised by the Initial Business Plan
or the Budget, the ceiling shall be $1 million;
(ii) operating expenditure items up to $20 million, provided that for
operating expenditure not authorised by the Initial Business Plan
or the Budget, the ceiling shall be $1 million;
(iii) sales or purchases of goods and services up to a total contract
value of $20 million (provided that for sales or purchases of
goods and services not authorised by the Initial Business Plan or
the Budget, the ceiling shall be $1 million) provided the
contract period (including options exercisable by any party) is
for no more than 5 years.;
(c) the CEO is permitted to acquire or dispose of assets for consideration
of up to $20 million, provided that for an acquisition or disposal not
authorised by the Initial Business Plan, the Business Plan or the
Budget, the ceiling shall be $1 million;
(d) by no later than 15 April of each Financial Year, the CEO must submit
to the Board for its approval a draft Business Plan and a draft
Budget, in the format and containing the content specified by the
Board from time to time, commencing at the beginning of the next
Financial Year. The Initial Business Plan forms the basic framework
and reflects the principles for the development of each subsequent
Business Plan;
(e) the CEO must prepare and submit to the Board monthly reports about the
business of the Company (including management accounts) in the form
and content determined by the Board from time to time; and
<PAGE>
47
(f) for so long as any member of the TCL Shareholder Group or the UGC
Shareholder Group is a Shareholder, the CEO must provide such
information to TCL or AUCL (with copies to the other Shareholders) as
TCL or AUCL reasonably requires to meet its continuous disclosure
obligations to the Australian Stock Exchange, in such manner as TCL or
AUCL requires from time to time.
2 Subject to clause 9.1(r) of the Shareholders Agreement and to paragraph 3,
the CEO will appoint and may remove and replace all employees (including
senior executives) of the Company.
3. The powers, authorities and discretions described below shall not be
exercisable by the CEO and may only be exercised with the specific approval
of the Board:
(a) borrow or otherwise raise money excluding draw downs on existing
facilities in accordance with policies issued by the board from time
to time;
(b) secure any borrowings or other raising of money;
(c) lend money or provide credit otherwise than in relation to a
transaction that is in the ordinary course of the day-to-day
operations of the Company;
(d) hedging the financial risks associated with the Company's activities
including (without limitation):
(i) interest rate swaps and futures contracts;
(ii) spot and forward FX contracts;
(iii) currency and interest rate options
(e) carry on or engage in any business other than the business described
in clause 2.1 of the Shareholders Agreement;
(f) undertake a significant new business activity;
(g) determine policy or major regulatory, competition law or human
resources initiatives.
(h) form, or participate in the formation of, a company;
(i) establish a partnership, trust, unincorporated joint venture or other
arrangement for the sharing of profits;
(j) acquire or dispose of all or part of a shareholding in a company;
(k) acquire or dispose of all or part of a business;
(l) make a change in the nature of the Company's business; and
(m) make a change in the nature or extent of the Company's interests in a
company, partnership, trust, unincorporated joint venture or other
arrangement for the sharing of profits.
<PAGE>
48
Schedule 3 Management and Reporting Responsibilities Schedule
- --------------------------------------------------------------------------------
Rob Ellis: Director Telstra Business Solutions
TBS will consist generally of all sales, marketing, customer management and
installation functions for the business market. Netlink will also be fully
integrated into this division.
Sean Wynne: Director Saturn Residential
Saturn will encompass the same responsibilities for the residential market
Lee Kil: Director Capital Projects
Lee will be responsible for the overall construction of the national broadband
network.
Deanne Weir: Director Corporate Development
Deanne will be responsible for all legal and regulatory activities as well as
some additional public affairs and carrier relations duties.
Vicki Potts:
Vicki will move to a more specific set of responsibilities focusing on
completing the bank financing program already well underway at Saturn (in
conjunction with representatives from Telstra Corp and Austar).
<PAGE>
<TABLE>
<CAPTION>
49
- ------------------------------------------------------------------------------------------------------------------------------------
Jack Matthews
CEO
<S> <C> <C> <C> <C> <C> <C> <C>
Director - Telstra Director-Saturn Director-Corp Director- CFO Director-NTG Director-Capital Director-HR
Business Residential Services Strategy/Bus Vacant Vacant Projects Vacant
Solutions S Wayne D Weir Development
R Ellis Vacant
Business/ Business/ Legal & Billing GM Training
Process Process Regulatory Operations Network Ops
Improvement Involvement
GM GM Wholesale GM GM Planning HR
Marketing Marketing Treasury & Engineer
GM GM Industry/ Business GM
Marketing Service Carrier Planning & Convergence
Relations Performance
GM GM PA/PR Building &
Marketing Commerce/ Facilities
Finance
GM CATV Financial
Managed Control
Services
GM Sales
Sales Project Costing
& Tracking
SME SOHO TELSTRA SATURN
PROPOSED
STRUCTURE
CORP RES APRIL 2000
</TABLE>
<PAGE>
50
Schedule 4 Incentive Compensation Plan - Key terms
- --------------------------------------------------------------------------------
New Telstra Saturn Incentive Plan
Suggested Plan Design
Grants
o Board discretion
o % of Residual Equity Value ("Equity Interest")
Vesting
o 25% of award vests on anniversary of award
o Balance vests monthly at 25% per annum
o board discretion to make a grant with different vesting schedule
Exercise
o 50% of the first 12 months vesting is exercisable on first anniversary of
grant
o All vested grants become exercisable 2 years after grant
Life of Equity Interest
o 10 years after which it expires
Termination
o Death and disability - exercisable interest may be exercised within 12
months
o For cause - no interest is exercisable
o Other terminations
- If within 12 months of grant no interest is exercisable
- Thereafter exercisable interest may be exercised within 3 months
Settlement of exercise
o Cash or shares (if Telstra Saturn is listed)
Value
o Vested portion of Residual Equity Value multiplied by equity interest
Residual Equity Value equals
Less: Fair market Value at time of grant plus compounded return on this
value of 10% per annum from the Settlement Date
Less: Total shareholder contributions after Settlement Date (equity and
loans) to Telstra Saturn plus compounded return on these contributions of
10% per annum from the date of each contribution.
In summary this approach rewards participants for the growth in value of Telstra
Saturn in excess of an expected return on capital of 10%.
The method of calculating Fair Market Value will be based on the same
methodology used in calculating the initial Fair Market Value (ie at the time of
settlement), the details of which will be attached to the Plan Rules. On each
anniversary date a new valuation will be conducted using the methodology as
outline.
For an employee who leaves between valuation dates, the payout of their
incentive interest will be based on the last valuation conducted plus an
interest factor as determined by the Board.
<PAGE>
51
Change of Control or Re-Organisations:
Current plan intent should be preserved with appropriate amendments to reflect
the issues that have arisen from the current transaction.
Listing
On listing the entitlements may be rolled over into an equity plan.
Quantum of Award
The key decision to be made is to determine what payment should be made at the
end of the plan period. The attached financial model will allow Austar to assess
the equity interests that should be given to Saturn employees in order to
provide them with a particular payment for a particular targeted return on
capital.
Capping
The current plan does not have capping. Providing the targeted return on capital
is appropriately set then over achievement will continue to add value to the
Telstra Saturn shareholders. As a result it seems fair and reasonable that the
Telstra Saturn employees continue to from the increasing values, in much the
same way as employees under an option plan.
<PAGE>
52
Schedule 5 Accession Deed
- --------------------------------------------------------------------------------
Deed of Accession
Date:
Parties: [ ] of [ ] ("Transferee")
Recitals:
A. Telstra Corporation Limited (ACN 051 775 556) ("TCL"),
Telstra Holdings Pty Limited (ACN 057 808 938) ("THPL"),
Austar United Communications Limited (ACN 087 695 707)
("AUCL"), Saturn (NZ) Holding Company Pty Ltd (ACN 088 052
000) and Saturn Communications Limited ("the Company") are
parties to an agreement dated [ ] ("Shareholders
Agreement").
B. The Shareholders Agreement contemplates that shares in the
Company may be transferred to a third party. Pursuant to
clause 5.7 of the Shareholders Agreement, before any person
can acquire shares in the Company it must become a party to
the Shareholders Agreement by executing a deed of accession
on the terms of this deed.
C. The Transferee is to acquire or be issued shares in the
Company and enter into this Deed as required by the
Shareholders Agreement.
Operative provisions:
1 Accession
- --------------------------------------------------------------------------------
1.1 The Transferee agrees to be bound by the terms of the Shareholders
Agreement with effect from the date it acquires Shares in the Company
and expressly undertakes to observe and perform all provisions of the
Shareholders Agreement from that date as if named as an original party
to that agreement in the capacity of a Shareholder (as that term is
defined in the Shareholders Agreement).
1.2 If the Transferee is acquiring existing Shares (as that term is
defined in the Shareholders Agreement) it shall succeed to all of the
rights and obligations of the transferor of those Shares under the
Shareholders Agreement (except for any rights (but not obligations)
under clause 10).
2 Notices
- --------------------------------------------------------------------------------
For the purpose of clause 19.5 of the Shareholders Agreement, the address,
facsimile and email details of the Transferee are:
Address: [ ]
Attention: [ ]
Fax: [ ]
Email: [ ]
3 Miscellaneous
- --------------------------------------------------------------------------------
This deed is governed by the law in force in New South Wales.
EXECUTED as a deed
-----------------------------------------------
Dated 30 March 2000
MERGER AGREEMENT
TELSTRA HOLDINGS PTY LIMITED
("THPL")
SATURN COMMUNICATIONS LIMITED
("the Company")
Mallesons Stephen Jaques
Solicitors
Level 60
Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Telephone (61 2) 9296 2000
Facsimile (61 2) 9296 3999
Email [email protected]
DX 113 Sydney
www.msj.com.au
Neil Carabine
(61 2) 9296 2485
<PAGE>
- --------------------------------------------------------------------------------
Contents Merger Agreement
- --------------------------------------------------------------------------------
1 Interpretation 2
2 Sale and purchase of Shares 6
3 Conditions precedent 6
4 Completion of sale of TNZ Shares 8
5 Issue of the Company Shares 9
6 Failure to complete 9
7 Conduct of business pending Completion 10
8 Risk and insurance 10
9 Amalgamation 11
10 Costs 11
11 Confidentiality 11
12 Notices 11
13 Miscellaneous 12
14 Governing law, jurisdiction and service of process 13
<PAGE>
2
MERGER AGREEMENT
Date: 30 March 2000
Parties: TELSTRA HOLDINGS PTY LIMITED (ACN 057 808 938) of 231
Elizabeth Street, Sydney NSW ("THPL")
SATURN COMMUNICATIONS LIMITED of 75 The Esplanade, Petone,
New Zealand ("the Company")
Recitals:
A. TNZ is a wholly owned subsidiary of THPL.
B. The Company has, on the date of this agreement, offered to
acquire all of the TNZ Shares from THPL in consideration for
the issue of the Company Shares to THPL, on the terms of
this agreement.
C. THPL has on the date of this agreement accepted the
Company's offer.
D. This agreement sets out the terms agreed by THPL and the
Company for the sale of the TNZ Shares by THPL to the
Company and for the issue of the Company Shares to THPL.
Operative provisions:
1 Interpretation
- --------------------------------------------------------------------------------
1.1 The following words have these meanings in this agreement unless the
contrary intention appears.
AUCL means Austar United Communications Limited (ACN 087 695 707).
AUCL Services Agreement means the agreement by that name between AUCL
and the Company, to be executed before Completion.
CEO means Chief Executive Officer at the Company.
Company Bank Facility means the Syndicated Senior Secured Debt
facility provided by Toronto Dominion Australia Limited (and others)
to the Company and each Transaction Document referred to in that
facility.
Company Group means the Company and the Company Subsidiaries
immediately before Completion.
Company Shares means a number of fully paid ordinary voting shares in
the capital of the Company equal to the number of such shares as are
held by the UGC Group immediately before Completion.
Completion means settlement of the sale and purchase of the TNZ Shares
and the issuing of the Company Shares in accordance with clauses 4 and
5 and Complete has a corresponding meaning.
<PAGE>
3
Completion Date means the later of 31 March 2000 and the fifth
business day after the last to occur of the conditions precedent in
clause 3, or any other date agreed by THPL and the Company or
nominated or established under clause 6.1.
Consultancy Agreement means the agreement by that name between TCL and
the Company, to be executed before Completion.
Establishment Agreements means:
(a) the Shareholders Agreement;
(b) the Offer to Acquire Shares;
(c) the Consultancy Agreement;
(d) the Jack Matthews Deed;
(e) the AUCL Services Agreement;
(f) the TCL Services Agreement;
(g) the Warranty Agreement;
(h) the TCL/Company IP Licence Agreement; and
(i) the TCL/TNZ IP Licence Agreement.
Group means the Company Group or the TNZ Group.
Holding Company means:
(a) with respect to THPL - TCL; and
(b) with respect to the Company - AUCL.
Indentures means:
(a) the Indenture between UIH Australia/Pacific, Inc and American
Bank National Association for $US443,000,000 14% Senior Discount
Notes dated 14 May 1996 (as amended);
(b) the Indenture between UGC and Firstar Bank of Minnesota N.A. for
Initial Issuance of $US1,375,000,000 10 3/4% Senior Secured
Discount Notes Due 2008 dated 5 February 1998; and
(c) the Indenture between UGC and Firstar Bank of Minnesota N.A. for
Initial Issuance of $US355,000,000 Senior Discount Notes Due 2009
dated 29 April 1999,
as amended from time to time.
Jack Matthews Deed means the Deed by that name between the Company and
Jack Matthews to be executed before Completion.
MOU means the agreement of that name between TCL and AUCL dated 24
February, 2000.
<PAGE>
4
Offer to Acquire Shares means the agreement by that name between the
Company and THPL, dated on or about the date of this agreement.
Owner means THPL with respect to the TNZ Group and the Company with
respect to the Company Group.
Records means originals and copies, in machine readable or printed
form, of all books, files, reports, records, correspondence, documents
and other material of or relating to or used in connection with the
business of a party, including:
(a) minute books, statutory books and registers, books of account and
copies of taxation returns;
(b) sales literature, market research reports, brochures and other
promotional material (including printing blocks, negatives, sound
tracks and associated material);
(c) all sales and purchasing records;
(d) all trading and financial records; and
(e) lists of all regular suppliers and customers.
Saturn NZ means Saturn (NZ) Holding Company Limited (ACN 088 052 000)
of Level 29, 259 George Street, Sydney NSW.
Security Interest means:
(a) a mortgage, pledge, lien, charge, assignment, hypothecation,
security interest or any interest or power otherwise arising in
or over any interest in any security (as defined in paragraph
1.2(m)) or reserved in or over an asset, or any other right of a
creditor to have a claim satisfied prior to other creditors from
the proceeds of any asset; or
(b) an agreement to create or give any security or right referred to
in subparagraph (a) of this definition.
Shareholders Agreement means the agreement by that name between TCL,
THPL, AUCL, Saturn NZ and the Company, dated on or about the date of
this agreement.
TCL means Telstra Corporation Limited (ACN 051 775 556).
TCL/Company IP Licence Agreement means the agreement by that name
between TCL and the Company, to be executed before Completion.
TCL/TNZ IP Licence Agreement means the agreement by that name between
TCL and TNZ, to be executed before Completion.
TCL Services Agreement means the agreement by that name between TCL
and the Company, to be executed before completion.
TNZ means Telstra New Zealand Limited of Level 9, 191 Queen Street,
Auckland.
TNZ Group means TNZ and its subsidiaries immediately before
Completion.
<PAGE>
5
TNZ Shares means all of the shares in the capital of TNZ and Share
means any one of those shares.
UGC means UnitedGlobalCom, Inc.
UGC Group means UGC and each entity controlled by it.
Warranties means the representations and warranties given under clause
3 of the Warranty Agreement.
Warranty Agreement means the agreement by that name between TCL and
AUCL, dated on or about the date of this agreement.
1.2 In this agreement unless the contrary intention appears:
(a) a reference to a clause, schedule, annexure or appendix is a
reference to a clause of or schedule, annexure or appendix to
this agreement and references to this agreement include any
recital, schedule, annexure or appendix;
(b) a reference to this agreement or another instrument includes any
variation or replacement of either of them;
(c) a reference to a statute, ordinance, code or other law includes
regulations and other instruments under it and consolidations,
amendments, re-enactments or replacements of any of them;
(d) the singular includes the plural and vice versa;
(e) the word person includes a firm, a body corporate, an
unincorporated association or an authority;
(f) a reference to a person includes a reference to the person's
executors, administrators, successors, substitutes (including,
but not limited to, persons taking by novation) and assigns;
(g) an agreement, representation or warranty in favour of two or more
persons is for the benefit of them jointly and severally;
(h) an agreement, representation or warranty on the part of two or
more persons binds them jointly and severally;
(i) if a period of time is specified and dates from a given day or
the day of an act or event, it is to be calculated exclusive of
that day;
(j) a reference to a day is to be interpreted as the period of time
commencing at midnight and ending 24 hours later;
(k) all currency references are to the New Zealand dollar;
(l) all references to subsidiary or related body corporate bear the
meaning as set out in Division 6 of Part 1.2 of the Corporations
Law;
<PAGE>
6
(m) all references to securities bear the meaning as set out in
section 92(3) of the Corporations Law;
(n) a reference to a business day means any day when the banks are
open for business in Sydney, other than a Saturday or Sunday; and
(o) control and controlled are defined by the test set out in
paragraph 9 of the Australian Accounting Standard AASB 1024.
1.3 Headings are inserted for convenience and do not affect the
interpretation of this agreement.
2 Sale and purchase of Shares
- --------------------------------------------------------------------------------
2.1 THPL shall sell and transfer to the Company and the Company shall
purchase, on the terms and conditions of this agreement, the TNZ
Shares.
2.2 The TNZ Shares must be transferred free from any mortgage, charge,
lien, pledge or other encumbrance and with all rights, including
dividend rights, attached or accruing to them on and from Completion.
3 Conditions precedent
- --------------------------------------------------------------------------------
3.1 Completion is conditional on:
(a) all liabilities (including but not limited to any amounts owing)
of any member of the Company Group to any member of the UGC Group
(not being another member of the Company Group) being discharged
in full;
(b) the parties receiving any clearance or authorisation (whether
formal or otherwise) which is necessary from the Overseas
Investment Commission for the acquisition of TNZ Shares or the
issue of the Company Shares under this agreement;
(c) the lenders under the Company Bank Facility:
(i) approving the acquisition of the TNZ Shares by the Company
and the issue of the Company Shares to THPL, including
agreeing to any necessary variations to the Company Bank
Facility; and
(ii) agreeing that no Security Interest need be granted for the
purposes of the Company Bank Facility over any securities
issued or allotted by the Company at any time (except
securities held by members of the UGC Group as at the
Completion Date);
(d) obtaining any consents or approvals for the acquisition of TNZ
Shares by the Company and the issue of the Company Shares to THPL
required under any of the Indentures including agreeing to any
necessary variations to the Indentures;
<PAGE>
7
(e) the approval of the Boards of Directors of each of THPL and the
Company or their respective delegates;
(f) THPL being satisfied on reasonable grounds that the February 2000
management accounts of the Company do not show a material adverse
change in the business of the Company since the date of this
agreement;
(g) the Company being satisfied on reasonable grounds that the
February 2000 management accounts of TNZ do not show a material
adverse change in the business of TNZ since the date of this
agreement;
(h) THPL subscribing $35,000,000 in cash for further Shares in the
capital of TNZ;
(i) Vector (formerly known as Mercury Energy Limited) consenting,
under clause 14.2 of the Pole and Cabling Duct Agreement with the
Company dated 1 September 1997, to the issue of the Company
Shares to THPL;
(j) the offer made in accordance with clause 5.1 of the Warranty
Agreement is accepted by Sean Wynne;
(k) an employment agreement between TCL and Jack Matthews is executed
in full; and
(l) each of the Establishment Agreements being executed in full.
3.2 Each of the parties must use all reasonable endeavours to obtain the
fulfilment of the conditions in clause 3.1 and must negotiate in good
faith each of the Establishment Agreements which is not executed on
the date of this agreement.
3.3 If any of the conditions in clause 3.1 are not fulfilled (or in the
case of paragraphs 3.1(c), (d), (f) or (i), waived in writing by THPL,
or in the case or paragraph 3.1(g), waived in writing by the Company)
by the 60th day after the date of this agreement or a later date
agreed by THPL and the Company, this agreement may be terminated at
any time before Completion by either party giving notice to the other
party, provided the first mentioned party has complied with clause
3.2.
3.4 If this agreement is terminated under clause 3.3, in addition to any
other rights, powers or remedies provided by law:
(a) each party is released from its obligations to further perform
the agreement except those imposing on it obligations of
confidentiality;
(b) each party retains the rights it has against any other party in
respect of any past breach;
(c) the Company must return all documents and other materials in any
medium in its or AUCL's possession, power or control which were
obtained from THPL, TNZ or TCL in due diligence or negotiations
<PAGE>
8
for this agreement, the MOU or any of the Establishment
Agreements which contain information relating to THPL, TNZ or
TCL, including any THPL, TNZ or TCL Records;
(d) THPL must return all documents and other materials in any medium
in its, TNZ's or TCL's possession, power or control which were
obtained from AUCL or the Company in due diligence or
negotiations for the agreement, the MOU or any of the
Establishment Agreements which contain information relating to
AUCL or the Company, including any AUCL or Company Records.
4 Completion of sale of TNZ Shares
- --------------------------------------------------------------------------------
4.1 Completion of the sale and purchase of the TNZ Shares and the issue of
the Company Shares will take place simultaneously at 3.00pm Australian
Eastern Standard Time on the Completion Date at the offices of Simpson
Grierson, Wellington and of Mallesons Stephen Jaques, Sydney, or at
any other time and place agreed by THPL and the Company.
4.2 On Completion:
(a) the Company agrees to establish to the reasonable satisfaction of
THPL that the conditions precedent that are in paragraphs 3.1(a),
(c), (d), (i) and (j) have been satisfied and (if appropriate)
deliver to THPL documentation proving that; and
(b) THPL agrees to establish to the reasonable satisfaction of the
Company that the conditions precedent in paragraphs 3.1(h) and
(k) have been satisfied and (if appropriate) deliver to the
Company documentation proving that.
4.3 THPL agrees to do the following on Completion:
(a) deliver to the Company or its solicitors executed transfers in
favour of the Company of all the TNZ Shares together with the
share certificates for the TNZ Shares (if any);
(b) deliver to the Company proxies enabling the Company to vote all
of the TNZ Shares in the period prior to registration of the
transfers referred to in paragraph (a);
(c) cause:
(i) the delivery to the Company of the Records of TNZ and each
of its subsidiaries;
(ii) the delivery to the Company of duly completed bank
authorities authorised by the board of directors of TNZ and
each of its subsidiaries directed to that company's bankers
authorising the operation of each of its bank accounts by
nominees of the Company; and
<PAGE>
9
(iii) the appointment in accordance with the terms of the
Shareholders Agreement to the board of directors of TNZ and
each of its subsidiaries of the Company's nominees and the
resignation from those boards of such persons as are agreed
by THPL and the Company but so that a properly constituted
board of directors is in existence at all times.
4.4 In consideration for the sale of the TNZ Shares, the Company agrees to
issue the Company Shares to THPL on Completion in accordance with
clause 5.2.
4.5 The parties agree that the consideration described in clause 4.4 is
the lowest price that the parties would have agreed upon under the
Accrual Rules relating to the accrual treatment of income and
expenditure in the Income Tax Act 1994 (NZ) and on that basis no
income and expenditure arises under those rules.
5 Issue of the Company Shares
- --------------------------------------------------------------------------------
5.1 The Company agrees to at Completion issue the Company Shares to THPL .
The Company Shares must be issued free from any mortgage, charge,
lien, pledge or other encumbrance.
5.2 The Company agrees to do the following on Completion:
(a) issue to THPL the Company Shares and deliver to THPL share
certificates for the Company Shares; and
(b) cause:
(i) the delivery to THPL of duly completed bank authorities
authorised by the board of directors of the Company and each
of its subsidiaries directed to that company's bankers
authorising the operation of each of its bank accounts by
nominees of THPL and AUCL; and
(ii) the appointment to the board of directors of the Company and
each of its subsidiaries of THPL 's nominees and the
resignation from those boards of such persons as are agreed
by THPL and AUCL, but so that a properly constituted board
of directors is in existence at all times.
6 Failure to complete
- --------------------------------------------------------------------------------
6.1
(a) If a party (first party) becomes aware before Completion of any
material breach of Warranty given by the Holding Company of the
other party, the first party may within a further five business
days postpone Completion by giving notice of the breach to the
other party.
<PAGE>
10
(b) If the Holding Company of the other party fails to remedy that
breach within 14 business days after the other party received a
notice under paragraph (a), the first party may (without waiving
any rights of its Holding Company under clause 3 of the Warranty
Agreement with respect to that breach), by notice to the other
party choose to Complete on a business day it nominates being no
less than five and no more than ten business days after expiry of
that 14 business day period. If the first party does not give
such a notice within five business days after the end of that 14
business day period, this agreement shall be deemed terminated,
in which case clause 3.4 will apply.
(c) If the Holding Company of the other party remedies that breach
within 14 business days after the other party receives a notice
under paragraph (a), Completion shall occur on the fifth business
day after expiry of that 14 business day period.
6.2 If Completion does not occur on the Completion Date, either party
(provided it has not breached this agreement causing that failure to
Complete), may terminate this agreement by notice given to the other
party in which case clause 3.4 will apply.
7 Conduct of business pending Completion
- --------------------------------------------------------------------------------
7.1 Until Completion each Owner must procure that each member of its Group
carries on its business in the ordinary course and in the normal
manner.
7.2 Until Completion each Owner must procure that each member of its Group
does not (without the prior written consent of the other Owner):
(a) increase, reduce or otherwise alter its share capital or grant
any options for the issue of any securities, with the exception
of the issue of securities to any person who was at the date of
this agreement a shareholder in the entity so issuing such
securities;
(b) declare or pay a dividend;
(c) make a distribution or revaluation of assets;
(d) buy back its shares; or
(e) acquire or dispose of or agree to acquire or dispose of any
significant business or assets.
8 Risk and insurance
- --------------------------------------------------------------------------------
8.1 Each Owner must procure that each member of its Group is covered until
Completion by insurance for assets covering such risks and for such
amounts as would be maintained in accordance with the Group's ordinary
practice.
<PAGE>
11
9 Amalgamation
- --------------------------------------------------------------------------------
9.1 The parties will determine in good faith whether there should be an
amalgamation of the Company and TNZ in accordance with the Companies
Act 1993 (NZ) with the Company to be the surviving entity, at a time
to be agreed by the parties.
10 Costs
- --------------------------------------------------------------------------------
10.1 The parties agree to bear their own legal and other costs and expenses
in connection with, the preparation, execution and completion of this
agreement and of other related documentation.
11 Confidentiality
- --------------------------------------------------------------------------------
11.1 The terms of this agreement are confidential and must not be disclosed
by a party to any third person except:
(a) employees, directors, advisers or auditors of a party to the
extent required in conducting their duties;
(b) if disclosure is required by law or stock exchange listing rule;
or
(c) if disclosure is required in connection with legal proceedings
relating to this agreement.
12 Notices
- --------------------------------------------------------------------------------
12.1 A notice, approval, consent, or other communication in connection with
this agreement:
(a) must be in writing;
(b) must be marked for the attention of the person set out below; and
(c) must be left at the address of the addressee or sent by facsimile
or email to the facsimile number or email address which is
specified in this clause or if the addressee notifies another
address, facsimile number or email address then to that address,
facsimile number or email address.
THPL, TCL or the TCL Shareholder Group
Address: Telstra Corporation Limited
231 Elizabeth Street
SYDNEY NSW 2000
Attention: Group Managing Director, Telstra Business Solutions
Fax: (61 2) 9396 9530
<PAGE>
12
Copy: Counsel, Telstra Business Solutions
231 Elizabeth Street
SYDNEY NSW 2000
Fax: (61 2) 9261 4762
Email: [email protected]
Company
Address: Telstra Saturn Limited
75 The Esplanade
PETONE NZ
Attention: CEO
Facsimile: (64 4) 939 5100
Email: [email protected]
12.2 A notice, approval, consent or other communication takes effect from
the time it is received unless a later time is specified in it.
12.3 A facsimile is taken to be received on entry in a transmission log
kept by the machine from which the facsimile was sent which indicates
that the facsimile was sent in its entirety to a facsimile number of
the recipient.
13 Miscellaneous
- --------------------------------------------------------------------------------
Assignment
13.1 A party may not assign its rights or obligations under this agreement
except with the prior written consent of the other parties to this
agreement.
Exercise of rights
13.2 A party may exercise a right, power or remedy at its discretion, and
separately or concurrently with another right, power or remedy. A
single or partial exercise of a right, power or remedy by a party does
not prevent a further exercise of that or of any other right, power or
remedy. Failure by a party to exercise or delay in exercising a right,
power or remedy does not prevent its exercise.
Waiver and variation
13.3 A provision of or a right created under this agreement may not be:
(a) waived except in writing signed by the party granting the waiver;
or
(b) varied except in writing signed by the parties.
Approvals and consents
13.4 A party may give conditionally or unconditionally or withhold its
approval or consent in its absolute discretion unless this agreement
expressly provides otherwise.
<PAGE>
13
Remedies cumulative
13.5 The rights, powers and remedies provided in this agreement are
cumulative with and not exclusive of the rights, powers or remedies
provided by law independently of this agreement.
Survival of warranties and indemnities
13.6 Each warranty and indemnity in this agreement is a continuing
obligation, separate and independent from the other obligations of the
parties and survives termination of this agreement.
Enforcement of warranties and indemnities
13.7 It is not necessary for a party to incur expense or make payment
before enforcing a right of warranty or indemnity conferred by this
agreement.
Further assurances
13.8 Each party agrees, at its own expense, on the request of another
party, to do everything reasonably necessary to give effect to this
agreement and the transactions contemplated by it, including, but not
limited to, the execution of documents, and to use all reasonable
endeavours to cause relevant third parties to do likewise.
Entire Agreement
13.9 This agreement constitutes the entire agreement of the parties with
reference to its subject matter and any previous agreements,
understandings, negotiations, representations or warranties on that
subject matter cease to have any effect.
No partnership
13.10 Subject to any provision of this agreement specifically to the
contrary, nothing contained or implied in this agreement constitutes a
party the partner, agent or legal representative of another party or
of the Company for any purpose or creates any partnership, agency or
trust, and no party has any authority to bind another party or the
Company in any way.
14 Governing law, jurisdiction and service of process
- --------------------------------------------------------------------------------
14.1 This agreement and the transactions contemplated by this agreement are
governed by the law in force in New South Wales.
14.2 Each party irrevocably and unconditionally submits and agrees to
submit to the non-exclusive jurisdiction of the courts of New South
Wales, courts exercising Federal jurisdiction in New South Wales and
courts of appeal from them for determining any dispute concerning this
agreement or the transactions contemplated by this agreement. Each
party waives any right they have to object to an action being brought
in those courts including, but not limited to, claiming that the
action has been brought in an inconvenient forum or that those courts
do not have jurisdiction.
14.3 Without preventing any other mode of service, any document in an
action (including, but not limited to, any writ of summons or other
originating process or any third or other party notice) may be served
on any party by being delivered to or left for that party at its
address for service of notices under clause 12.
<PAGE>
14
<TABLE>
<CAPTION>
Execution page
- --------------------------------------------------------------------------------
<S> <C>
SIGNED by )
as authorised representative for TELSTRA )
HOLDINGS PTY LIMITED (ACN 057 808 938) )
in the presence of: )
)
/s/ David Waldie )
................................................ )
Signature of witness )
)
David Waldie )
................................................ )
Name of witness (block letters) )
)
1/138 Hastings PDE, Bondi ) /s/ Lindsay Yelland
................................................ ) ...............................................
Address of witness ) By executing this agreement the signatory
) warrants that the signatory is duly authorised
Lawyer ) to execute this agreement on behalf of TELSTRA
................................................ ) HOLDINGS PTY LIMITED.
Occupation of witness )
)
SIGNED by )
as authorised representative for SATURN )
COMMUNICATIONS LIMITED in the )
presence of: )
)
/s/ Sean Michael Wynne )
................................................ )
Signature of witness )
)
Sean Michael Wynne )
................................................ )
Name of witness (block letters) ) /s/ Jack Matthews
) ...............................................
40 Falkirk Ave., Seatown, Wellington ) By executing this agreement the signatory
................................................ ) warrants that the signatory is duly authorised
Address of witness ) to execute this agreement on behalf of SATURN
) COMMUNICATIONS LIMITED.
Tel Co Manager )
................................................ )
Occupation of witness )
</TABLE>
-----------------------------------------------
Dated 30 March 2000
WARRANTY AGREEMENT
Telstra Corporation Limited
("TCL")
Austar United Communications Limited
("AUCL")
Mallesons Stephen Jaques
Solicitors
Level 60
Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Telephone (61 2) 9296 2000
Fax (61 2) 9296 3999
DX 113 Sydney
Ref: NBC
<PAGE>
- --------------------------------------------------------------------------------
Contents Warranty Agreement
- --------------------------------------------------------------------------------
1 Interpretation 1
2 Condition Precedent 4
3 Warranties 4
4 Redundancies 6
5 ESOP, Incentive Plan, etc 6
6 Adjustment for tax liability 8
7 Indentures 14
8 Enforcing an indemnity 14
9 Costs 14
10 Confidentiality 14
11 Notices 15
12 Miscellaneous 16
13 Governing law, jurisdiction and service of process 17
Schedule 1 Subsidiaries 19
Appendix Warranties 20
<PAGE>
WARRANTY AGREEMENT
Date: 30 March 2000
Parties: TELSTRA CORPORATION LIMITED (ACN 051 775 556) of 231
Elizabeth Street, Sydney NSW ("TCL")
AUSTAR UNITED COMMUNICATIONS LIMITED (ACN 087 695 707) of
Level 29, 259 George Street, Sydney NSW ("AUCL")
Recitals:
A. THPL is wholly owned subsidiary of TCL.
B. TNZ is a wholly is owned subsidiary of THPL.
C. The Company is a wholly owned subsidiary of AUCL.
D. The Company has offered to acquire all of the shares in TNZ
from THPL in consideration for the issue of shares in the
Company to THPL.
E. THPL has accepted the Company's offer in accordance with the
terms of the Merger Agreement.
F. In consideration of AUCL agreeing to procure the Company's
entry into the Merger Agreement, TCL has agreed to give
warranties and indemnities to AUCL as are set out in this
agreement.
G. In consideration of TCL agreeing to procure THPL's entry
into the Merger Agreement, AUCL has agreed to give
warranties and indemnities to TCL as set out in this
agreement
Operative provisions:
1 Interpretation
- --------------------------------------------------------------------------------
1.1 The following words have these meanings in this agreement unless the
contrary intention appears.
Accounting Standards means generally accepted accounting practice as
defined by Section 3 of the Financial Reporting Act 1993 (NZ).
AUCL Services Agreement means the agreement by that name between AUCL
and the Company to be executed before Completion.
Business Integration Plan means that as defined in the Shareholders
Agreement.
Commencement Date means the day on which Completion occurs.
Company means Saturn Communications Limited of 75 The Esplanade
Petone, New Zealand.
Company Group means the Company and the Company Subsidiaries
immediately before Completion.
<PAGE>
2
Company Subsidiaries means the companies described in Part A of
Schedule 1.
Consultancy Agreement means the agreement between TCL and the Company,
to be executed before Completion.
ESOP means the AUCL Executive Share Option Plan.
Establishment Agreements means:
(a) the Merger Agreement;
(b) the Offer to Acquire Shares;
(c) the Consultancy Agreement;
(d) the Jack Matthews Deed;
(e) the TCL Services Agreement;
(f) the AUCL Services Agreement;
(g) the Shareholders Agreements;
(h) the TCL/Company IP Licence Agreement; and
(i) the TCL/TNZ IP Licence Agreement.
Group means the Company Group or the TNZ Group.
Incentive Plan means the Company's Incentive Compensation Plan
effective as of 1 January 1998.
Initial Business Plan means that set out in Schedule 1 of the
Shareholders Agreement.
Jack Matthews Deed means the deed by that name between Jack Matthews
and the Company, to be executed before Completion.
Merger Agreement means the agreement by that name between THPL and the
Company, dated on or about the date of this agreement.
Offer to Acquire Shares means the agreement by that name between the
Company and THPL, dated on or about the date of this agreement.
Saturn Participants means such employees of the Company as participate
in any of the ESOP, a Share Plan or the Incentive Plan.
Share Plans means the AUCL Employee Share Plan - Offer A and the AUCL
Employee Share Plan - Offer B.
Tax means taxes, levies, imposts, deductions, charges, withholdings
and duties (excluding stamp duties), together with any related
interest, penalties, fines and other statutory charges whether
accruing before or after Completion.
<PAGE>
3
TCL/Company IP Licence Agreement means the agreement by that name
between TCL and the Company, to be executed before Completion.
TCL Services Agreement means the agreement by that name between TCL
and the Company, to be executed before Completion.
TCL/TNZ IP Licence Agreement means the agreement by that name between
TCL and TNZ, to be executed before Completion.
Telstra Saturn Incentive Compensation Plan means that plan as defined
in the Shareholders Agreement.
THPL means Telstra Holdings Pty Limited (ACN 057 808 938) of 231
Elizabeth Street, Sydney NSW.
TNZ means Telstra New Zealand Limited of Level 9, 191 Queen Street,
Auckland.
TNZ Group means TNZ and the TNZ Subsidiaries immediately before
Completion.
TNZ Subsidiaries means the companies described in Part B of Schedule
1.
Warranties means the representations and warranties set out in the
Appendix.
1.2 Terms used but not defined in this agreement which are defined in the
Merger Agreement shall bear the same meaning as in the Merger
Agreement.
1.3 In this agreement unless the contrary intention appears:
(a) a reference to a clause, schedule, annexure or appendix is a
reference to a clause of or schedule, annexure or appendix to
this agreement and references to this agreement include any
recital, schedule, annexure or appendix;
(b) a reference to this agreement or another instrument includes any
variation or replacement of either of them;
(c) a reference to a statute, ordinance, code or other law includes
regulations and other instruments under it and consolidations,
amendments, re-enactments or replacements of any of them;
(d) the singular includes the plural and vice versa;
(e) the word person includes a firm, a body corporate, an
unincorporated association or an authority;
(f) a reference to a person includes a reference to the person's
executors, administrators, successors, substitutes (including,
but not limited to, persons taking by novation) and assigns;
<PAGE>
4
(g) an agreement, representation or warranty in favour of two or more
persons is for the benefit of them jointly and severally;
(h) an agreement, representation or warranty on the part of two or
more persons binds them jointly and severally;
(i) if a period of time is specified and dates from a given day or
the day of an act or event, it is to be calculated exclusive of
that day;
(j) a reference to a day is to be interpreted as the period of time
commencing at midnight and ending 24 hours later;
(k) all currency references are to the New Zealand dollar;
(l) all references to subsidiary or related body corporate bear the
meaning as set out in Division 6 of Part 1.2 of the Corporations
Law;
(m) all references to securities bear the meaning as set out in
section 92(3) of the Corporations Law;
(n) a reference to a business day means any day when the banks are
open for business in Sydney, other than a Saturday or Sunday;
(o) control and controlled are defined by the test set out in
paragraph 9 of the Australian Accounting Standard AASB 1024; and
(p) all currency references are to the lawful currency of New
Zealand.
2 Condition Precedent
- --------------------------------------------------------------------------------
2.1 This agreement shall become effective upon each of the Establishment
Agreements being executed in full (except for clause 5.1, which takes
effect upon the date of this agreement).
3 Warranties
- --------------------------------------------------------------------------------
3.1 TCL (warrantor) represents, warrants and undertakes to AUCL
(warrantee) that each of the Warranties (except those stated to be
given only by AUCL) is true and correct with respect to each member of
the TNZ Group and their businesses (together, subsidiary) on the date
of this agreement and will be true and correct on the Completion Date,
as if made on each of those dates.
3.2 AUCL (warrantor) represents, warrants and undertakes to TCL
(warrantee) that each of the Warranties (except those stated to be
given only by TCL) is true and correct with respect to each member of
the Company Group and their businesses (together, subsidiary) on the
date of this agreement and will be true and correct on the Completion
Date as if made on each of those dates.
<PAGE>
5
3.3 Each of the Warranties is to be treated as a separate representation
and warranty and the interpretation of any warranty made may not be
restricted by reference to or inference from any other warranty.
3.4 Each of the parties acknowledges that:
(a) in the case of TCL - THPL, and in the case of AUCL - the Company,
in entering into the Merger Agreement and in proceeding to
Completion under the Merger Agreement, does not rely on any
representation, warranty, condition or other conduct which may
have been made by any person, except the Warranties;
(b) subject to any law to the contrary and except as provided in the
Warranties, all terms, conditions, warranties and statements,
whether express, implied, written, oral, collateral, statutory or
otherwise, are excluded and the parties (including, in the case
of TCL - on behalf of THPL, and in the case of AUCL - on behalf
of the Company) disclaim all liability in relation to these to
the maximum extent permitted by law; and
(c) in the case of TCL - THPL, and in the case of AUCL - the Company,
has had the opportunity to make and has made reasonable enquiries
in relation to all matters material to it which are not covered
by the Warranties and satisfied itself in relation to the matters
arising from those investigations.
3.5 The Warranties are not extinguished or affected by any investigation
made by or on behalf of any person into the business of TNZ or the
Company (as the case may be) or by any other event or matter unless:
(a) the warrantee has given a specific written waiver or release;
(b) the claim relates to a matter which is fairly disclosed in a
formal disclosure letter given by or on behalf of the warrantor
to the warrantee before the date of this agreement; or
(c) the claim relates to a thing done or not done after the execution
of this agreement at the request or with the approval of the
warrantee.
3.6 The warrantor indemnifies the warrantee against all liability or loss
arising directly from, and any costs, charges and expenses incurred
directly in connection with, any inaccuracy in or breach of any of the
Warranties. For the avoidance of doubt, this indemnity does not extend
to any liability, loss, cost, charge or expense which is indirect or
consequential.
3.7 Without limiting the generality of this clause 3, and as an additional
right of a warrantee for breach of a Warranty:
(a) if the value of any asset of a member of a Group is less than the
value it would be if all of the Warranties in respect of the
Group were accurate and not breached, then the warrantor agrees
to pay to the warrantee the value of that asset at Completion as
if all of the Warranties were accurate and not breached, less the
value of that asset at Completion; and
<PAGE>
6
(b) if there is a liability of a member of a Group which would not
exist or would be less if all of the Warranties with respect to
that Group were accurate and not breached, the warrantor agrees
to pay to the warrantee the amount of that liability or the
amount of the increase in that liability, as applicable.
3.8 A warrantee may not claim for any breach of Warranty unless full
details of the claim have been given to the warrantor within 18 months
after the Completion Date.
3.9 No claim for a breach of Warranty can be made for any sum less than
$500,000.
3.10 No claim for breach of Warranty can be made until the aggregate value
of all claims (including any claims which could not be made due to
clause 3.9) exceeds:
(a) in the case of claims by AUCL - $10,000,000; and
(b) in the case of claims by TCL - $17,500,000.
3.11 AUCL may not claim for breach of the Warranties given by TCL an
aggregate amount in excess of $100,000,000;
3.12 TCL may not claim for breach of the Warranties given by AUCL an
aggregate amount in excess of $175,000,000.
4 Redundancies
- --------------------------------------------------------------------------------
4.1 Without prejudice to AUCL's obligations under clause 5, the Company is
solely responsible for all redundancy compensation payable as a result
of the termination of the employment of such employees of the Company
Group or the TNZ Group as are made redundant after Completion.
5 ESOP, Incentive Plan, etc
- --------------------------------------------------------------------------------
5.1 AUCL, TCL and the Company acknowledge and agree that as soon as
practical after the date of this agreement the Company shall make the
following offer to the Saturn Participants who participate under
either or both of the ESOP and the Incentive Plan (except Jack
Matthews) and AUCL, TCL and the Company must use their best endeavours
to encourage each such Saturn Participant promptly to accept the
offer:
(a) the Saturn Participant's employment by the Company ceases
immediately prior to Completion;
(b) on Completion, the Saturn Participant accepts employment by the
Company on substantially the same terms and conditions including
the carry forward of all accrued employment entitlements;
<PAGE>
7
(c) under clause 7.4 of the ESOP, all Vested Options of the Saturn
Participant in existence immediately prior to Completion are
exercisable in the three months following Completion, and all
other Options of the Saturn Participant immediately lapse;
(d) under the Incentive Plan the Saturn Participant shall be entitled
at any time within 90 days after Completion to exercise his or
her rights under clause 5.2(e) of the Incentive Plan with respect
to such of their Incentive Interests as are vested immediately
prior to Completion and all other Incentive Interests immediately
lapse; and
(e) with effect from Completion, the Saturn Participant participates
in the Telstra Saturn Incentive Compensation Plan.
5.2 AUCL must procure that:
(a) no Saturn Participants shall be invited to participate in a Share
Plan in any year commencing on or after 1 July 2000; and
(b) with respect to the Saturn Participants, the AUCL board of
directors, with effect from Completion, remove the restrictions
on the sale or transfer of Shares set out in clause 7.1 of the
Share Plans; and
(c) no ESOP Options are granted to Saturn Participants after
Completion.
5.3 AUCL agrees to indemnify the Company against all liability or loss
arising directly from, and any costs, charges and expenses incurred
directly in connection with, the ESOP, the Share Plans or the
Incentive Plan.
5.4 AUCL and TCL acknowledge and agree that the issue at Completion of the
Company Shares to THPL shall amount to a change in control for the
purposes of clause 6.4(b) of the Incentive Plan.
5.5 Without limiting the generality of clause 5.3, AUCL must within 14
days of receiving written notice from the Company pay to the Company
by cheque or telegraphic transfer the amount (if any) required by the
Company to make any payments which the Company is legally required to
pay under clause 6.5 of the Incentive Plan due to the change in
control caused by the Company Shares being issued to THPL under the
Merger Agreement.
5.6 TCL and AUCL must procure that:
(a) if each of the offers as described in clause 5.1 is accepted with
respect to the Incentive Plan prior to Completion - the Incentive
Plan terminates with effect from Completion; and
(b) if paragraph (a) does not apply - with effect from Completion, no
additional Incentive Interests are granted under the Incentive
Plan.
<PAGE>
8
6 Adjustment for tax liability.
- --------------------------------------------------------------------------------
6.1 In this clause 6 the following words have these meanings:
Authority means any governmental authority or instrumentality
responsible for Tax, wherever situated.
Claim Amount means:
(a) the amount the Entity is required to pay in Tax to an Authority
as a result of a Tax Claim; or
(b) the amount of any credit, rebate, refund, relief, exemption,
concession, saving or sparing of Tax lost by the Entity as a
result of a Tax Claim; or
(c) the amount of Tax that would, if the Entity had taxable income in
the year of income to which the Tax Claim relates, be payable by
that Entity as a result of the loss or reduction of any credit,
rebate, refund, relief, allowance, deduction, exemption,
concession, saving or sparing of Tax or loss carried forward (to
the extent that those losses have been recognised in the
Completion Accounts of the Entity), calculated at the rate of Tax
applicable to companies in the year in which the Tax Claim is
made.
Where a Tax Claim arises after the Completion Date in relation to an
occurrence (including an omission) prior to the Completion Date and
the result of the Tax Claim is a reduction of losses carried forward
in the Entity as at the Completion Date (to the extent that those
losses have been recognised in the Completion Accounts of the Entity)
where such losses were not able to be carried forward by the Entity
after the Completion Date as a result of the application of the
continuity provisions for loss carry forward by companies in the
Income Tax Act 1994, the Claim Amount in relation to that Tax Claim
will be nil.
Completion Accounts means:
(a) with respect to TNZ as the Entity - the audited balance sheet of
TNZ and its wholly owned subsidiaries reflecting the assets and
liabilities of TNZ and its wholly owned subsidiaries as at close
of business on the Completion Date and the audited profit and
loss account of TNZ and its wholly owned subsidiaries for the
period of 1 July 1999 to the Completion Date prepared in
accordance with clause 6.11; and
(b) with respect to the Company as the Entity - the audited balance
sheet of the Company and its wholly owned subsidiaries reflecting
the assets and liabilities of the Company and its wholly owned
subsidiaries as at close of business on the Completion Date and
the audited profit and loss account of the Company and its wholly
owned subsidiaries for the period of 1 January 2000 to the
Completion Date prepared in accordance with clause 6.11.
<PAGE>
9
Entity means:
(a) TNZ and its wholly owned subsidiaries; or
(b) the Company and its wholly owned subsidiaries.
Last Accounts means:
(a) with respect to TNZ and its wholly owned subsidiaries as the
Entity - the audited balance sheet and 12 month profit and loss
account of 30 June 1999; and
(b) with respect to the Company and its wholly owned subsidiaries as
the Entity - the audited balance sheet and 12 month profit and
loss account of 31 December 1999.
Payer means:
(a) with respect to TNZ as the Entity - TCL; and
(b) with respect to the Company as the Entity - AUCL.
Recipient means:
(a) with respect to TNZ and its wholly owned subsidiaries as the
Entity - AUCL; and
(b) with respect to the Company and its wholly owned subsidiaries as
the Entity - TCL.
Tax Claim means a notice of assessment (including a notice of
adjustment of a loss claimed by an Entity in a manner adversely
affecting the Entity), demand or other document issued or action taken
by or on behalf of an Authority, whether before or after the date of
this agreement, (but not later than the fifth anniversary of the
Completion Date) as a result of which the Entity is liable to make a
payment for Tax or is deprived of any credit, rebate, refund, relief,
allowance, deduction, exemption, concession, saving or sparing of Tax
or loss carried forward.
Tax Provision means, at any time, the sum of:
(a) the provision for current Tax in the Completion Accounts;
(b) the amount that would have been paid by the Payer under clause
6.2 (multiplied by 2) if clause 6.8 did not apply; and
(c) all amounts already paid or agreed to be paid by the Payer under
clause 6.2 at that time multiplied by 2.
wholly owned subsidiary means any body corporate which immediately
prior to Completion was a wholly owned subsidiary of TNZ or the
Company (as the case may be) as defined in section 9 of the
Corporations Law.
6.2 Subject to this clause 6, the Payer agrees that if a Tax Claim
relating to an act or omission of, or occurrence affecting, the Entity
<PAGE>
10
before the close of business on the Completion Date is received or
suffered by the Entity at any time, then the Payer must pay to the
Recipient any amount equal to 50% of the amount by which the sum of:
(a) the Claim Amount for that Tax Claim; and
(b) all other Claim Amounts for Tax Claims that relate to an act or
omission of, or occurrence affecting the Entity before the close
of business on the Completion Date,
exceeds the Tax Provision.
6.3 The obligations of the Payer under clause 6.2 do not apply in respect
of a Tax Claim:
(a) to the extent that the Tax Claim arises from the failure by the
Recipient to supply to the Payer on a timely basis information
which is reasonably requested by the Payer in relation to a Tax
Claim including (without limitation) a breach by the Recipient of
Clause 6.6;
(b) to the extent that the Tax Claim arises from the failure by the
Entity after Completion, in a timely manner, to:
(i) lodge any return, notice of proposed adjustment, response
notice, statement of position, challenge, other notice,
objection or other document in relation to the Tax Claim;
(ii) claim all or any portion of any relief, allowance,
deduction, credit, rebate or right to repayment;
(iii) disclose or correctly describe in any return, notice,
objection or other document relating to the Tax Claim any
fact, matter or thing to the extent that it was or might
reasonably be expected to have been within the knowledge of
either the Recipient or the Entity; or
(iv) take any other action which the Entity is required to take
under this clause or any laws relating to Tax; or
(c) to the extent that the Tax Claim results from a change to or
introduction of any legislation, regulation, order or rule or any
ruling, determination, policy or practice previously published or
followed by any Authority (whether having the force of law or not
and whether the change or introduction is retrospective or not)
relating to Tax after the execution of this agreement.
6.4 Subject to clause 6.8, payments under clause 6.2 must be made to the
Recipient as follows:
(a) if the Entity must make a payment of Tax in respect of a Tax
Claim to which clause 6.2 applies - seven days before the latest
date on which that payment may lawfully be made without incurring
any penalty, interest or additional tax for late payment; and
<PAGE>
11
(b) if the Entity is deprived of any credit, rebate, refund, relief,
allowance, deduction, loss carried forward - seven days before
the latest date on which Tax becomes payable by the Entity
without incurring any penalty, interest or additional tax for
late payment, being Tax which would not have been payable were it
not for the Tax Claim.
6.5 If for any reason an amount received by the Recipient under clause 6.2
or 6.7 is treated as assessable income of the Recipient under any law
relating to Tax the Payer agrees to pay to the Recipient an additional
amount under this clause 6.5 so that, after deducting from that amount
all Tax paid or payable in respect of the receipt, the balance
remaining is equal to the amount due under the relevant clause.
6.6 If the Recipient or the Entity becomes aware of a Tax Claim the
Recipient must give written notice of it to the Payer within a
reasonable time of becoming so aware.
The Recipient must ensure the Payer and their professional advisers
have reasonable access to the personnel of the Recipient and the
Entity and to any relevant premises, assets and Records within the
custody, power, possession or control of those companies to enable the
Payer and its professional advisers to examine the Tax Claim and
Records and to take copies or photographs of them, at the expense of
the Payer, provided the Payer and its professional advisers give to
the Recipient or the Entity such undertakings as to confidentiality as
the Recipient may reasonably require. However, the parties must at all
times act having regard to the extent to which legal professional
privilege or any overseas equivalent or similar privilege extends to
any communication or document.
The Recipient must ensure that the Entity takes any proper and
reasonable action within any response period prescribed by law that
the Payer requests to avoid, resist, compromise, challenge or defend a
demand or notice issued by an Authority which gives rise to the Tax
Claim, provided the Payer indemnifies the Recipient and the Entity to
the reasonable satisfaction of the Recipient against any liability or
loss which may be suffered or costs, damages or expenses which may be
incurred as a result of compliance with their request.
The action that the Payer may request be taken by the Recipient or the
Entity in respect of a Tax Claim includes the making of challenges,
appeals and objections, provided that all other avenues of review have
been exhausted.
Any action required under this clause 6.6 must be taken in a timely
manner.
6.7 Without limiting clause 6.8, if, following the making of a payment
under clause 6.2 for a Tax Claim, all or part of the Claim Amount is
refunded either in cash or by credit to the Entity (including, but not
limited to, any amount or credit received following a successful
objection or appeal), the Recipient must immediately pay to the Payer
the lesser of the refund and the amount of the payment paid under
<PAGE>
12
clause 6.2 and in the case of reinstatement of tax losses, the lesser
of the amount of the payment paid under clause 6.2 and the monetary
value of the tax losses reinstated.
6.8 To the extent that a Tax Claim only involves a timing difference, as
determined in accordance with the Accounting Standards (for example,
an amount being assessable in the year ending 30 June 1999, rather
than in the succeeding year, or an amount being deductible in the year
ending 30 June 2000 (or over that year and later years), rather than
in a preceding year, then:
(a) It is not necessary that the Payer make a gross payment, and
receive a subsequent refund.
(b) Instead, the Payer shall only be liable to pay an amount equal to
any interest, penalty, additional tax, charge, fee or other
amount payable to the relevant Authority in relation to the
timing difference.
A certificate from the Recipient as to any amount due under this
clause, supported by details as to the calculation, shall be prima
facie evidence as to the amount payable.
6.9 If the Payer and the Recipient cannot agree on any amount to be paid
under this clause 6 within 21 days of a dispute arising, then either
the Payer or the Recipient may refer the disagreement to an expert
with the request that the expert make a decision on the disagreement
as soon as practicable after receiving any submissions from the Payer
and the Recipient. The expert is to be a person with over ten years
experience in Tax agreed by the Payer and the Recipient, or if they do
not agree on the person to be appointed within seven days of one party
requesting appointment, a person with the same expertise appointed by
the President of the NZ Institute of Chartered Accountants in relation
to a Tax Claim and the President of the New Zealand Institute of
Chartered Accountants in relation to any payments due under clause 6.5
at the request of either the Payer or the Recipient. The decision of
the expert is to be conclusive and binding on the parties in the
absence of manifest error. The Payer and the Recipient agree to each
pay one half of the expert's costs and expenses in connection with the
reference. The expert is appointed as an expert and not as an
arbitrator. The procedures for determination are to be decided by the
expert in its absolute discretion.
6.10 If an amalgamation of the Company and TNZ in accordance with the
Companies Act 1993 (NZ) occurs with the Company being the surviving
entity, then this clause 6 is to have effect and is to be applied as
if the amalgamation did not occur.
6.11 The parties agree to cause the Company, promptly after the
Commencement Date, to prepare the Completion Accounts in accordance
with the Accounting Standards and have those accounts audited (with an
unqualified audit report) by the auditors of the Company. The
Completion Accounts must:
(a) disclose a true and fair view of the state of the affairs,
financial position and assets and liabilities of each Entity as
<PAGE>
13
at the Completion Date and the income, expenses and results of
operations of TNZ and its wholly owned subsidiaries for the
period from 1 July 1999 to that date and of the Company and its
wholly owned subsidiaries for the period from 1 January 2000 to
that date;
(b) include in the balance sheet all such reserves and provisions for
Tax as are materially necessary to cover all Tax liabilities,
whether or not assessed, of each Entity and its subsidiaries up
to the Completion Date; and
(c) not include in the balance sheet provision for auditors fees for
auditing the Completion Accounts; and
(d) be prepared:
(i) in accordance with the requirements of the Companies Act
(NZ) (1993) and any other applicable laws;
(ii) in accordance with the Accounting Standards;
(iii) in the manner described in the notes to them and the
accompanying auditor's opinion;
(iv) on a consistent basis with the Accounts for the prior
financial period;
(v) without revaluing upwards any assets in the period which is
the subject of the Accounts; and
(vi) recording each asset at its reasonably estimated current
market value.
The Completion Accounts must immediately be delivered by the Company
to the parties.
6.12 If either party disagrees with the Completion Accounts it may within
21 days after receiving the Completion Accounts refer the disagreement
to an expert with the request that the expert make a decision on the
disagreement as soon as practicable after receiving any submissions
from the parties. Such submissions must be made within 21 days after
appointment of the expert. The expert is to be a person with over ten
years experience in accounting agreed by the parties, or if they do
not agree on the person to be appointed within seven days of one party
requesting appointment, a person with the same expertise appointed by
the President of the NZ Institute of Chartered Accountants at the
request of either the party. The decision of the expert is to be
conclusive and binding on the parties in the absence of manifest
error. The parties agree to each pay one half of the expert's costs
and expenses in connection with the reference. The expert is appointed
as an expert and not as an arbitrator. The procedures for
determination are to be decided by the expert in its absolute
discretion.
<PAGE>
14
7 Indentures
- --------------------------------------------------------------------------------
7.1 AUCL agrees to indemnify the Company, TCL and THPL against all
liability or loss arising from, and any costs, charges and expenses
incurred directly in connection with any of the Indentures materially
adversely affecting at any time any act or omission of the Company or
causing the Company to delay in acting resulting in a materially
adverse effect for the Company.
8 Enforcing an indemnity
- --------------------------------------------------------------------------------
8.1 If a claim, suit or action (suit) is made by a third party and which
if satisfied would result in a claim under one or more indemnities
under this agreement and the indemnified party intends in such
circumstances to make such a claim under the indemnity:
(a) the indemnified party must within 14 days of becoming aware of
the suit give notice and full details of the suit to the
indemnifying party; and
(b) at the expense and direction of the indemnifying party, the
indemnified party must take such action (including legal
proceedings) as the indemnifying party may require to avoid,
dispute, defend, appeal or compromise the suit and any
adjudication of it.
8.2 To the extent the indemnified party is not a party to this agreement,
TCL and AUCL shall procure its compliance with clause 8.1(b).
8.3 Without prejudice to clause 6.5, if for any reason an amount received
by an indemnified party under any of the provisions of this agreement
is treated as assessable income of the indemnified party under any law
relating to Tax, the indemnifying party agrees to pay the indemnified
party an additional amount under this clause 8.3 so that, after
deducting from that amount all Tax paid or payable in respect of the
receipt, the balance remaining is equal to the amount due under the
relevant provision of this agreement.
9 Costs
- --------------------------------------------------------------------------------
9.1 The parties agree to bear their own legal and other costs and expenses
in connection with, the preparation, execution and completion of this
agreement and of other related documentation.
10 Confidentiality
- --------------------------------------------------------------------------------
10.1 The terms of this agreement are confidential and must not be disclosed
by a party to any third person except:
(a) employees, directors, advisers or auditors of a party to the
extent required in conducting their duties;
(b) if disclosure is required by law or stock exchange listing rule;
or
<PAGE>
15
(c) if disclosure is required in connection with legal proceedings
relating to this agreement.
11 Notices
- --------------------------------------------------------------------------------
11.1 A notice, approval, consent, or other communication in connection with
this agreement:
(a) must be in writing;
(b) must be marked for the attention of the person set out below; and
(c) must be left at the address of the addressee or sent by facsimile
or email to the facsimile number or email address which is
specified in this clause or if the addressee notifies another
address, facsimile number or email address then to that address,
facsimile number or email address.
THPL, TCL or the TCL Shareholder Group
Address: Telstra Corporation Limited
231 Elizabeth Street
SYDNEY NSW 2000
Attention: Group Managing Director, Telstra Business
Solutions
Fax: (61 2) 9396 9530
Copy: Counsel, Telstra Business Solutions
231 Elizabeth Street
SYDNEY NSW 2000
Fax: (61 2) 9261 4762
Email: [email protected]
AUCL, Saturn NZ or the UGC Shareholder Group
Address: Austar United Communications Limited
Level 29
259 George Street
SYDNEY NSW 2000
Attention: Corporate Counsel
Facsimile: (61 2) 9394 9850
Email: [email protected]
11.2 A notice, approval, consent or other communication takes effect from
the time it is received unless a later time is specified in it.
11.3 A facsimile is taken to be received on entry in a transmission log
kept by the machine from which the facsimile was sent which indicates
that the facsimile was sent in its entirety to a facsimile number of
the recipient.
<PAGE>
16
12 Miscellaneous
- --------------------------------------------------------------------------------
Assignment
12.1 A party may not assign its rights or obligations under this agreement
except with the prior written consent of the other parties to this
agreement.
Costs
12.2 Each party agrees to bear its own legal and other costs and expenses
in connection with the preparation and execution of this agreement and
the Establishment Agreements and of other related documentation.
Exercise of rights
12.3 A party may exercise a right, power or remedy at its discretion, and
separately or concurrently with another right, power or remedy. A
single or partial exercise of a right, power or remedy by a party does
not prevent a further exercise of that or of any other right, power or
remedy. Failure by a party to exercise or delay in exercising a right,
power or remedy does not prevent its exercise.
Waiver and variation
12.4 A provision of or a right created under this agreement may not be:
(a) waived except in writing signed by the party granting the waiver;
or
(b) varied except in writing signed by the parties.
Approvals and consents
12.5 A party may give conditionally or unconditionally or withhold its
approval or consent in its absolute discretion unless this agreement
expressly provides otherwise.
Remedies cumulative
12.6 The rights, powers and remedies provided in this agreement are
cumulative with and not exclusive of the rights, powers or remedies
provided by law independently of this agreement.
Survival of warranties and indemnities
12.7 Each warranty and indemnity in this agreement is a continuing
obligation, separate and independent from the other obligations of the
parties and survives termination of this agreement.
Enforcement of warranties and indemnities
12.8 It is not necessary for a party to incur expense or make payment
before enforcing a right of warranty or indemnity conferred by this
agreement.
Further assurances
12.9 Each party agrees, at its own expense, on the request of another
party, to do everything reasonably necessary to give effect to this
agreement and the transactions contemplated by it, including, but not
limited to, the execution of documents, and to use all reasonable
endeavours to cause relevant third parties to do likewise.
<PAGE>
17
Entire Agreement
12.10 This agreement constitutes the entire agreement of the parties with
reference to its subject matter and any previous agreements,
understandings, negotiations, representations or warranties on that
subject matter cease to have any effect.
No partnership
12.11 Subject to any provision of this agreement specifically to the
contrary, nothing contained or implied in this agreement constitutes a
party the partner, agent or legal representative of another party or
of the Company for any purpose or creates any partnership, agency or
trust, and no party has any authority to bind another party or the
Company in any way.
13 Governing law, jurisdiction and service of process
- --------------------------------------------------------------------------------
13.1 This agreement and the transactions contemplated by this agreement are
governed by the law in force in New South Wales.
13.2 Each party irrevocably and unconditionally submits and agrees to
submit to the non-exclusive jurisdiction of the courts of New South
Wales, courts exercising Federal jurisdiction in New South Wales and
courts of appeal from them for determining any dispute concerning this
agreement or the transactions contemplated by this agreement. Each
party waives any right they have to object to an action being brought
in those courts including, but not limited to, claiming that the
action has been brought in an inconvenient forum or that those courts
do not have jurisdiction.
13.3 Without preventing any other mode of service, any document in an
action (including, but not limited to, any writ of summons or other
originating process or any third or other party notice) may be served
on any party by being delivered to or left for that party at its
address for service of notices under clause 11.
EXECUTED as an agreement
<PAGE>
18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Execution page
- --------------------------------------------------------------------------------
<S> <C>
SIGNED by )
as authorised representative for TELSTRA )
CORPORATION LIMITED (ACN 051 775 556) in the )
presence of: )
)
/s/ David Waldie )
................................................ )
Signature of witness )
)
David Waldie )
................................................ )
Name of witness (block letters) )
) /s/ Lindsay Yelland
1/138 Hastings PDE ) ...............................................
................................................ ) By executing this agreement the signatory
Address of witness ) warrants that the signatory is duly authorised
) to execute this agreement on behalf of TELSTRA
Lawyer ) CORPORATION LIMITED.
................................................ )
Occupation of witness )
SIGNED by )
as authorised representative for AUSTAR UNITED )
COMMUNICATIONS LIMITED (ACN 087 695 707) in the )
presence of: )
)
/s/ Sean Michael Wynne )
................................................ )
Signature of witness )
)
Sean Michael Wynne )
................................................ )
Name of witness (block letters) ) /s/ John C. Porter
) ...............................................
40 Falkirk Ave., Seatown, Wellington ) By executing this agreement the signatory
................................................ ) warrants that the signatory is duly authorised
Address of witness ) to execute this agreement on behalf of AUSTAR
) UNITED COMMUNICATIONS LIMITED.
Tel Co Manager )
................................................ )
Occupation of witness )
</TABLE>
<PAGE>
19
<TABLE>
<CAPTION>
Schedule 1 Subsidiaries
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PART A - COMPANY SUBSIDIARIES
- --------------------------------------------------------------------------------------------
Name of company Registered office Members of the Beneficial owners
company of shares
- --------------------------------------------------------------------------------------------
Kiwi Cable Company 75 The Esplanade, Company Company
Limited Petone, New Zealand
PART B - TNZ SUBSIDIARIES
- --------------------------------------------------------------------------------------------
Name of company Registered office Members of the Beneficial owners
company of shares
- --------------------------------------------------------------------------------------------
NetLink Limited Telstra Business TNZ TNZ
Centre, Level 9, 191
Queen Street, Auckland
</TABLE>
<PAGE>
20
- --------------------------------------------------------------------------------
Appendix Warranties
- --------------------------------------------------------------------------------
1. Authority
1.1 Given only by AUCL. AUCL, the Company and Saturn NZ are authorised to enter
into and perform such of the following agreements to which they are party:
(a) this agreement; and
(b) the Establishment Agreements.
1.2 Given only by TCL. THPL and TCL are authorised to enter into and perform
such of the following agreements to which they are party:
(a) this agreement; and
(b) the Establishment Agreements.
2. Financial statements
2.1 Given only by AUCL.
The:
(a) audited financial statements of the Company for the year to 31
December 1999; and
(b) unaudited financial statements of the Company for the two months to 29
February 2000,
have been prepared in accordance with the Accounting Standards and fairly
present in all material respects the financial position of the Company for
those periods, subject, in the case of the unaudited statements, to normal
year end adjustments not exceeding $5,000,000.
2.2 Given only by TCL.
The
(a) audited financial statements of TNZ for the year to 30 June 1999; and
(b) unaudited financial statements of TNZ for the eight months to 29
February 2000,
have been prepared in accordance with the Accounting Standards and fairly
present in all material respects the financial position of TNZ for those
periods, subject, in the case of the unaudited statements, to normal year
end adjustments not exceeding $5,000,000.
2.3 Each of the monthly management accounting reports of the subsidiary for the
two years prior to closing fairly present in all material respects the
financial position of the subsidiary for each of those months, subject to
normal year end adjustments.
2.4 Since the date of the unaudited financial statements referred to in
paragraph 2.1 or 2.2 (as the case may be), there has been no event,
occurrence or development materially adverse to the subsidiary.
<PAGE>
21
3. Litigation
3.1 There is no material litigation (actual, threatened or pending) including,
without limitation, employment disputes, by or against the subsidiary, and
there are no facts, events or circumstances which will give rise to any
material litigation.
3.2 There are no unsatisfied judgements or orders against or in favour of the
subsidiary.
4. No default
4.1 The subsidiary is not in violation in any material respect of any law, rule
or regulation to which it is subject and there have been no allegations
against the subsidiary of any such violation.
5. No fees
5.1 The warrantor and the subsidiary will not pay any fees or commissions to
any person as a result of execution or closing of the Merger Agreement or
the Shareholders Agreement.
6. Permits and licences
6.1 The subsidiary has all licences, permits, approvals and easements necessary
for it to conduct its business and is not in material breach thereof and
the warrantor is not aware of any matter that might prejudice the
continuance or renewal thereof.
6.2 Paragraph 6.1 does not apply to any licence, permit, approval or easement
referred to in paragraph 7.
7. Environment
7.1 In this paragraph 7:
"Environment" means the environment or surroundings including (without
limitation) air (including, without limitation, that within buildings or
natural or man-made structures, whether above or below ground), water
(including, without limitation, territorial, coastal and inland waters,
natural water, drains and sewers) and land (including, without limitation,
sea bed or river bed under any water as described above, surface land and
sub-surface land);
"Environmental Permits" means any and all permits, consents, licences,
approvals, registrations, certificates and authorisations required under
any and all Environmental Requirements;
"Environmental Requirements" means any law (including the common law),
statute, regulation, notice, consent, agreement, plan, bond or other
requirement having legal effect, relating to the following:
(a) protection of the Environment;
(b) health and/or safety of people;
(c) the use of land or any body of water; and
(d) the discharge or release into the Environment of any Substance;
<PAGE>
22
"Substance" includes (without limitation) any solid, liquid, gas, noise, or
electro-magnetic or other radiation.
7.2 The subsidiary:
(a) has acted in accordance with best practice in all matters and
practices affecting or which might affect the Environment;
(b) has obtained and complied with all Environmental Permits required
under any Environmental Requirement for carrying on its business
(including, in the case of the Company, the planned network extension
for the Christchurch local loop) and is not in breach of any terms or
conditions relating to such Environmental Permits. So far as the
warrantor is aware, there are no likely changes in any such
Environmental Permits (including amendment, renewal or cancellation),
or in any applicable law, that would require any material additional
expense to ensure compliance;
(c) has not received any notification or indication (formal or informal)
that further Environmental Permits may be required, or that any
existing Environmental Permit may be withdrawn, restricted, amended,
not renewed, not renewed in full, or otherwise affected (relating, in
each case, to its business);
(d) has not caused, permitted or contributed to any pollution,
contamination, release, discharge, or omission whatsoever, or done any
other thing, which has damaged or threatened the Environment, or which
has given or could give rise to any action under, or violation of, any
Environmental Requirement;
(e) has not received any complaints or inquiries from employees,
neighbours or any other person or body about any matter concerning the
Environment and relating to its business;
(f) is not aware of any circumstances that may lead to, or be included in,
any investigation, inquiry, order, decree, judgment, notice or other
communication nor to the withdrawal, limitation, restriction,
amendment, non-renewal or non-renewal in full of any Environmental
Permit (including, in each case, to its business);
(g) has not, and will not pending Completion, done or omitted to do or
suffered to be done any act or thing by which any Environmental Permit
relating to its business could be revoked or withdrawn.
7.3 To the best of the warrantor's knowledge, there have never been any
proceedings pending or threatened against the subsidiary based on or
related to any Environmental Permit or Environmental Requirement.
8. Shareholder and investments
8.1 Given only by AUCL:
(a) the Company is a wholly owned subsidiary of AUCL and the Company is
under no obligation to issue any shares to any other person;
(b) the only issued shares of the Company are voting shares; and
(c) the Company has no shares in any body corporate (except for the
Company Subsidiaries) and is not party to any partnership or joint
venture.
<PAGE>
23
8.2 Given only by TCL:
(a) TNZ is a wholly owned subsidiary of TCL and TNZ is under no obligation
to issue any shares to any other person;
(b) the only issued shares of TNZ are voting shares; and
(c) TNZ has no shares in any body corporate (except for the TNZ
Subsidiaries) and is not party to any partnership or joint venture.
9 Assets
9.1 The subsidiary is the legal and beneficial owner of all of its assets and
they are not subject to any encumbrances.
9.2 The computer systems, billing systems, network facilities, plant and
equipment owned or used by the subsidiary are sufficient to enable it to
effectively conduct its business and are all in good working order, taking
account of normal wear and tear.
10. Third party obligations
10.1 The subsidiary has given no guarantees of the obligations of any other
person.
10.2 The subsidiary has given no powers of attorney which remain in force.
11. Year 2000
11.1 The subsidiary has completed a comprehensive Y2K (including 29 February
2000) readiness program which failed to disclose any lack of Y2K (including
29 February 2000) readiness in any hardware or software material to the
business of the subsidiary (whether or not that hardware or software was
owned or operated by the subsidiary).
12. Material agreements
12.1 The warrantor has disclosed to the warrantee all terms of all material
agreements to which the subsidiary is party.
12.2 Each such agreement is valid and enforceable by the subsidiary and with
respect to those agreements:
(a) no party is in material breach;
(b) no breach by any party is alleged;
(c) there is no material dispute between any parties;
(d) there is no suspension of supply;
(e) entry into and performance of the Merger Agreement and the Shareholder
Agreement by the warrantor and the subsidiary (as the case may be)
will not:
(i) be a breach of the agreement;
<PAGE>
24
(ii) require any counterparty consent; or
(iii) give any counterparty a right to terminate or amend the
agreement.
12.3 There are no offers by the subsidiary to enter into material agreements
which are capable of acceptance by a counterparty.
12.4 Given only by AUCL. The terms and conditions (other than price) upon which
TCNZ and the Company interconnect their networks are materially the same as
those set out in the written agreement between them dated 29 June 1997.
12.5 Given only by TCL. The terms and conditions (other than price) upon which
TCNZ and TNZ interconnect their networks are materially the same as those
set out in the written agreement between them dated 11 November 1997.
13. Taxes (direct and indirect)
13.1 All tax returns filed by the subsidiary were filed on time and are true and
complete in all material respects.
13.2 There are no unresolved disputes with any tax authority.
13.3 The subsidiary has paid all applicable taxes (including without limitation
penalties and interest and employee income tax deductions) on time.
14. Books and records
14.1 The books and records of the subsidiary fairly represent the assets and
liabilities of the subsidiary.
15. Employees
15.1 The terms upon which all employees of the subsidiary are engaged (including
without limitation remuneration and superannuation and rights of dismissal
and redundancy) have been fully disclosed to the warrantee in writing.
15.2 Given only by AUCL. The terms upon which all employees and directors of the
Company participate in any share option plans, share plans and incentive or
bonus plans have been fully disclosed to TCL in writing.
15.3 The subsidiary has made or provided for all payments due to or with respect
to employees (including without limitation for wages, bonuses, leave and
superannuation) or former employees (including without limitation for any
redundancy or termination allowances).
15.4 Given only by AUCL. AUCL has fulfilled in full each of its obligations owed
under the ESOP and the Share Plans with respect to all employees and
directors of the Company who were at or before the Completion Date
participating under the ESOP or a Share Plan.
15.5 Given only by AUCL. The Company has fulfilled in full each of its
obligations owed under the Incentive Plan with respect to all employees and
directors of the Company who were at or before the Completion Date
participating under the Incentive Plan.
<PAGE>
25
16. Disclosure
16.1 The warrantor has disclosed to the warrantee all material facts of
relevance to a prudent person in determining whether to enter into the
Merger Agreement.
16.2 All information given by the warrantor to the warrantee in the course of
due diligence or negotiations leading to the Merger Agreement was true,
complete and correct in all material respects.
17. Indenture and Company Bank Facility
Given only by AUCL. The entry by members of the UGC Group into this
agreement and the Establishment Agreements and the conduct of the business
of the Company in the manner required by the Initial Business Plan will not
for the duration of the Initial Business Plan place United
Australia/Pacific, Inc., UGC or AUCL in breach of any Indenture
18. No dividends
Since the date of the unaudited financial statements of the subsidiary for
the 8 months to 29 February 2000, no dividends of the subsidiary have been
declared or paid.
-----------------------------------------------
Dated 30 March 2000
OFFER TO ACQUIRE SHARES
By
SATURN COMMUNICATIONS LIMITED
("Company")
To
TELSTRA HOLDINGS PTY LIMITED
("THPL")
Mallesons Stephen Jaques
Solicitors
Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Telephone (61 2) 9296 2000
Fax (61 2) 9296 3999
DX 113 Sydney
Ref: RGP/JCK
<PAGE>
Offer to Acquire Shares
Date: 30 March 2000
Offer: By
SATURN COMMUNICATIONS LIMITED of 75 The Esplanade, Petone,
New Zealand ("Company")
To
TELSTRA HOLDINGS PTY LIMITED (ACN 057 808 938) of 231
Elizabeth Street, Sydney NSW ("THPL")
Recitals:
A. TNZ is a wholly owned subsidiary of THPL.
B. The Company offers to acquire the TNZ Shares from THPL in
consideration for the issue of the Company Shares on the
terms and conditions of the Merger Agreement between THPL
and the Company dated on or about the date of this offer
("Merger Agreement").
Operative provisions:
1 Interpretation
- --------------------------------------------------------------------------------
1.1 Unless the contrary intention appears, words in this offer have the
meaning given to them in the Merger Agreement.
1.2 In this offer, unless the contrary intention appears:
(a) a reference to this offer or another instrument includes any
variation or replacement of either of them;
(b) a reference to a clause or schedule is a reference to a clause of
or schedule to this offer and references to this offer include
any recital or schedule;
(c) the singular includes the plural and vice versa.
1.3 Headings are inserted for convenience and do not affect the
interpretation of this agreement.
2 Particulars of Offer
- --------------------------------------------------------------------------------
2.1 The Company offers to acquire the TNZ Shares in consideration for the
issue to THPL of the Company Shares on the terms and conditions set
out in the Merger Agreement.
3 Acceptance of Offer
- --------------------------------------------------------------------------------
3.1 This offer may only be accepted by THPL by signing this offer.
3.2 The agreement formed upon acceptance of this offer shall be governed
by the terms and conditions set out in the Merger Agreement.
EXECUTED as an offer
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SIGNED by )
as authorised representative for TELSTRA )
HOLDINGS PTY LIMITED (ACN 057 808 938) )
in the presence of: )
)
/s/ David Waldie )
................................................ )
Signature of witness )
)
David Waldie )
................................................ )
Name of witness (block letters) )
)
1/138 Hastings PDE, Bondi ) /s/ Lindsay Yelland
................................................ ) ...............................................
Address of witness ) By executing this agreement the signatory
) warrants that the signatory is duly authorised
Lawyer ) to execute this agreement on behalf of TELSTRA
................................................ ) HOLDINGS PTY LIMITED.
Occupation of witness )
)
SIGNED by )
as authorised representative for SATURN )
COMMUNICATIONS LIMITED in the )
presence of: )
)
/s/ Sean Michael Wynne )
................................................ )
Signature of witness )
)
Sean Michael Wynne )
................................................ )
Name of witness (block letters) ) /s/ Jack Matthews
) ...............................................
40 Falkirk Ave., Seatown, Wellington ) By executing this agreement the signatory
................................................ ) warrants that the signatory is duly authorised
Address of witness ) to execute this agreement on behalf of SATURN
) COMMUNICATIONS LIMITED.
Tel Co Manager )
................................................ )
Occupation of witness )
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
AUSTRALIA/PACIFIC, INC.'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,068
<SECURITIES> 0
<RECEIVABLES> 7,981
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 369,562
<PP&E> 473,530
<DEPRECIATION> 267,378
<TOTAL-ASSETS> 704,173
<CURRENT-LIABILITIES> 61,789
<BONDS> 421,895
0
0
<COMMON> 178
<OTHER-SE> (147,058)
<TOTAL-LIABILITY-AND-EQUITY> 704,173
<SALES> 46,344
<TOTAL-REVENUES> 46,344
<CGS> 0
<TOTAL-COSTS> 35,617
<OTHER-EXPENSES> 30,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,299
<INCOME-PRETAX> 22,670
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,670
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.23
</TABLE>
