UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999
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.
(formerly known as UIH Australia/Pacific, Inc.)
(Exact name of registrant as specified in its charter)
State of Colorado 84-1341958
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4643 South Ulster Street, #1300
Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 770-4001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The Company has no publicly-trading shares of capital stock. As of March 24,
2000, the Company had 17,810,299 shares of common stock outstanding.
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UNITED AUSTRALIA/PACIFIC, INC.
1999 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
Number
------
PART I
<S> <C> <C>
Item 1. Business.................................................................................... 2
Item 2. Properties.................................................................................. 14
Item 3. Legal Proceedings........................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......................................... 15
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 16
Item 6. Selected Financial Data..................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 23
Item 8. Financial Statements and Supplementary Data................................................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 25
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 49
Item 11. Executive Compensation...................................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 57
Item 13. Certain Relationships and Related Transactions.............................................. 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 58
</TABLE>
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PART I
ITEM 1. BUSINESS
- -----------------
(a) GENERAL DEVELOPMENT OF BUSINESS
-------------------------------
United Australia/Pacific, Inc. (the "Company" or "United A/P") (formerly known
as UIH Australia/Pacific, Inc.) is a leading provider of pay television services
in Australia and pay television and telecommunications services in New Zealand.
We own 75.4% of the ordinary shares of Austar United Communications Limited
("Austar United"), which completed its initial public offering on the Australian
Stock Exchange in July 1999 (the "Austar United IPO"). Substantially all of our
operations are conducted through Austar United.
Through our Australian operating company Austar Entertainment Pty Limited
("Austar"), we are the second largest pay television operator in Australia and
the largest operator in its market of regional Australia. Austar's service area
comprises approximately 2.1 million homes outside of the major capital cities
and represents one-third of Australia's total homes. Austar United's 50.0% owned
XYZ Entertainment Pty Limited ("XYZ Entertainment") is the exclusive owner
and/or distributor of five key programming channels in Australia to Austar and
Foxtel. These are the two largest pay television operators whose combined
subscriber bases represent approximately 80.0% of all pay television subscribers
in Australia. Austar United's wholly-owned subsidiary, Saturn Communications
Limited ("Saturn") is the only provider of integrated telephone, pay television
and Internet services in New Zealand over one network. In February 2000, Austar
United agreed to form a 50/50 joint venture between Saturn and the New Zealand
operations of Telstra Corporation Limited, Australia's leading
telecommunications company. The joint venture will be called Telstra Saturn
Limited ("TSL").
We are a Colorado corporation and a majority-owned subsidiary of United
Asia/Pacific Communications, Inc. ("UAP") (formerly known as UIH Asia/Pacific
Communications, Inc.), which is an indirect wholly-owned subsidiary of
UnitedGlobalCom, Inc. (together with all of its subsidiaries other than the
Company and its subsidiaries, "United") (formerly known as United International
Holdings, Inc.). We were formed on October 14, 1994. Immediately prior to the
May 1996 offering of our 14.0% senior discount notes due 2006 (the "May 1996
Notes"), certain subsidiaries of United that held interests in Australia and New
Zealand were merged with and into the Company. The Company, through these
predecessors, commenced operations in January 1994 when United began its
development-related activities in the Asia/Pacific region.
HISTORY OF ACQUISITIONS
In 1994, we acquired, through directly and indirectly held interests, an
effective 50.0% economic interest in Austar. In December 1995, we acquired an
additional interest from other shareholders of Austar, thereby increasing our
total economic interest in Austar to 90.0%. In May 1996, as a result of
additional equity contributions, our economic interest in Austar was increased
to 94.0%, which was subsequently increased to 96.0%. In October 1996, we
acquired the remaining 4.0% economic interest in Austar. In July 1998, Austar
acquired certain Australian pay television assets of East Coast Television Pty
Limited ("ECT"), an affiliate of Century Communications Corporation ("Century"),
for $6.2 million of United's newly-created Series B Convertible Preferred Stock
("Series B Preferred Stock"). ECT's subscription television business includes
subscribers and certain microwave multi-point distribution system ("MMDS")
licenses and transmission equipment serving the areas in and around Newcastle,
Gossford, Wollongong and Tasmania.
In July 1994, we acquired a 50.0% interest in Saturn, which at the time owned
only a small cable television system outside of Wellington. In July 1996, we
acquired the remaining 50.0% interest in Saturn in exchange for a 2.6% interest
in the Company, which was exchanged for a 2.0% interest in UAP in May 1997. In
July 1997, SaskTel Holdings (New Zealand) Inc. ("SaskTel") purchased a 35.0%
equity interest in Saturn by investing approximately New Zealand $("NZ$")29.9
($19.6) million for its shares (the "Saturn Transaction"). In July 1999, this
35.0% was repurchased from SaskTel in exchange for 13,659,594 shares in Austar
United in connection with the Austar United IPO. In February 2000, Austar United
agreed to form TSL, a 50/50 joint venture between Saturn and the New Zealand
operations of Telstra.
In October 1994, the Company and Century formed XYZ Entertainment, each
retaining a 50.0% interest. In June 1995, the Company and Century formed the
50/50 joint venture Century United Programming Ventures Pty Limited ("CUPV") to
hold our respective investments in XYZ Entertainment. In September 1995, a 50.0%
interest in XYZ Entertainment was sold to a third party, thereby diluting our
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indirect interest in XYZ Entertainment to 25.0%. In September 1998, we acquired
the assets in CUPV held by Century, thereby increasing our indirect interest in
XYZ Entertainment to 50.0%.
In June 1999, we contributed our interests in Austar, XYZ Entertainment and
Saturn to Austar United in exchange for new shares issued by Austar United. On
July 27, 1999, Austar United successfully completed the Austar United IPO
selling 103.5 million shares on the Australian Stock Exchange, raising gross and
net proceeds in Australian dollars ("A$")4.70 ($3.03) per share of A$486.5
($313.6) million and A$453.6 ($292.8) million, respectively. Austar United's IPO
reduced our ownership interest in Austar United from 100% to approximately
75.5%. Subsequent stock option exercises reduced our ownership interest to 75.4%
as of December 31, 1999. Including all vested stock options granted to
employees, our ownership interest in Austar United on a fully diluted basis is
approximately 73.7% at December 31, 1999.
RELATIONSHIP WITH UNITED
We are an indirect, wholly-owned subsidiary of United, a global broadband
communications provider of video, voice and data services with operations in
over 20 countries throughout the world. In addition to the Company, United's
operations include its interest in United Pan-Europe Communications N.V.
("UPC"), one of the largest pay television operators in Europe, as well as its
other investments in Europe, Asia and Latin America. As of December 31, 1999,
United's networks reached almost 17.0 million homes and served 7.2 million video
subscribers, 0.3 million telephony access lines and 0.1 million broadband data
accounts.
ORGANIZATION OF COMPANY
The following chart summarizes our organizational structure. The interests
indicated below are summaries of our approximate direct and indirect economic
interests in our principal businesses.
***********************************************************
* *
* United Australia/Pacific, Inc. *
* *
***********************************************************
*
75.4% *
***********************************************************
* *
* Austar United Communications Limited *
* ("Austar United") *
* *
***********************************************************
*
*
********************************************************************************
* Operating System Principal Business Ownership *
* ---------------- ------------------ --------- *
* *
* Austar Regional Australia 100.0% *
* MMDS and DTH multi-channel systems *
* *
* Saturn Greater Wellington, New Zealand area 100.0% *
* Wireline Cable/Telephony System *
* *
* XYZ Entertainment Australian Programming 50.0% *
* *
********************************************************************************
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
We operate in the pay television and telecommunications industry through
investing in, acquiring and managing pay television, telephony and programming
operations. Our reportable segments are both by line of business (pay television
and telephony) and by the primary countries in which we operate - Australia and
New Zealand. For additional information applicable to this Item, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 14 to the consolidated financial statements contained in
Item 8 "Financial Statements and Supplementary Data."
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(c) NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
OVERVIEW
We believe that we are well-positioned to capitalize on the rapidly increasing
demand for pay television and telephony services in Australia and New Zealand.
As of December 31, 1999, our pay television operating systems had an aggregate
of approximately 2.2 million television homes serviceable and approximately 0.4
million subscribers, compared to approximately 2.1 million television homes
serviceable and approximately 0.3 million subscribers as of December 31, 1998
(with a substantial majority of such growth resulting from Austar's expansion).
During this same period, programming subscribers of XYZ Entertainment increased
to approximately 0.9 million at December 31, 1999 from approximately 0.7 million
at December 31, 1998.
While we expect that a substantial portion of our expected growth will come from
the continued development of Austar, we are also anticipating significant growth
by our New Zealand pay television and telecommunications business which we
believe has attractive growth prospects. With the formation of TSL, the joint
venture between Telstra and Saturn, there are plans to create a state-of-the-art
national broadband network which will include a submarine fiber backbone linking
Auckland, Wellington and Christchurch during the next five years.
The following table sets forth certain unaudited operating data:
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As of December 31, 1999
----------------------------------------------------------------------
Net
Television Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Passed Lines Penetration Interest
------------ --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Pay television:
Austar................................... 2,085,000 2,083,108 381,763 18.3% 75.4%
Saturn................................... 141,000 87,029 16,723 19.2% 75.4%
--------- --------- ---------
Total................................. 2,226,000 2,170,137 398,486
--------- --------- ---------
Telephony:
Saturn................................... 141,000 87,029 24,678 28.4% 75.4%
--------- --------- ---------
Programming:
XYZ Entertainment........................ N/A N/A 934,000 (1) N/A 37.7%
--------- --------- ---------
Data:
Saturn (2)............................... 141,000 87,029 6,772 7.8% 75.4%
--------- ---------- ---------
As of December 31, 1998
----------------------------------------------------------------------
Net
Television Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Passed Lines Penetration Interest
------------- ---------- ------------- ----------- ---------
Pay television:
Austar................................... 2,085,000 2,083,108 288,721 13.9% 100.0%
Saturn................................... 141,000 41,914 6,010 14.3% 65.0%
--------- --------- ---------
Total................................. 2,226,000 2,125,022 294,731
--------- --------- ---------
Telephony:
Saturn.................................. 141,000 37,292 7,360 19.7% 65.0%
--------- --------- ---------
Programming:
XYZ Entertainment....................... N/A N/A 694,600 (1) N/A 25.0%
--------- --------- ---------
</TABLE>
(1) This figure represents the total estimated subscribers to the
five-channel XYZ Entertainment package.
(2) Saturn launched data services in late 1998.
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AUSTAR (AUSTRALIA)
Austar is the largest provider of pay television services in regional Australia
with a service area encompassing approximately 2.1 million homes, or
approximately one-third of Australia's total homes. Austar is the only pay
television provider in substantially all of its service area. Due to the low
housing densities that characterize Austar's service area, Austar primarily
employs digital direct-to-home ("DTH") satellite and wireless cable technologies
to deliver its service. These technologies have enabled Austar to deploy its
services quickly and achieve rapid subscriber growth.
As of December 31, 1999, Austar had launched service in all of its metropolitan
and non-metropolitan markets. The following table sets forth the summary
operating statistics in Austar's markets:
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As of December 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
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Homes in service area:
Metropolitan homes........................... 1,527,000 1,527,000 1,103,000
Non-metropolitan homes....................... 558,000 558,000 532,000
--------- --------- ---------
Total...................................... 2,085,000 2,085,000 1,635,000
========= ========= =========
Net annual gain in basic subscribers........... 93,042 92,516 92,758
Total basic subscribers........................ 381,763 288,721 196,205
</TABLE>
DISTRIBUTION SYSTEMS. Austar uses both digital DTH and wireless cable
distribution technologies in certain cities with more than 20,000 homes. In its
other service areas (except Darwin), Austar distributes its service exclusively
utilizing digital DTH. At present, approximately 72.0% of Austar's subscribers
are serviced by digital DTH, while 25.0% receive service via wireless cable.
Austar constructs and owns the MMDS transmission facilities and installs and
retains ownership of all customer premises equipment for both its DTH and
wireless cable customers.
In addition to digital DTH and wireless cable, Austar is constructing a cable
network in Darwin, a market containing approximately 29,000 serviceable homes.
Darwin is outside the satellite's footprint and dense vegetation makes wireless
cable service impractical. As of December 31, 1999, this system passed
approximately 23,000 homes and had a penetration rate of approximately 33.3%.
PROGRAMMING AND PRICING. Austar offers the widest range of programming available
in Australia. Its favorable programming agreements allow Austar to establish
different service levels of tiers at multiple price points. Austar began tiering
its program offerings in October 1998. By tiering its services, Austar permits
its subscribers to select programming that is customized to their interests,
which we believe is a valuable tool in ensuring our product meets customer value
expectations. Tiering also provides customers with a lower-priced basic service
that both enhances sales opportunities and helps reduce the level of customer
churn.
5
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Basic Package:
Channel Programming Genre
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Fox Sports................................... Sports
Fox Sports Two............................... Sports, including Rugby League games
TV-1......................................... General entertainment
Discovery Channel............................ Documentary, adventure, history and lifestyle
Nickelodeon/Nick at Nite..................... Children's and family entertainment
arena........................................ General entertainment
Channel [V].................................. Music video
The Lifestyle Channel........................ Personal and home improvement
thecomedychannel............................. Comedy
Weather 21................................... Weather
BBC World(1)................................. International news
CNBC......................................... International financial news
CNN International............................ International news
Sky Racing................................... Live racing
National Geographic(2)....................... Documentary
TNT(1) (3)................................... Library movies
Cartoon Network(2) (3)....................... Cartoons
CMT.......................................... Country music videos
TVSN(1)...................................... Shopping
Digital Radio(1)............................. 12 digital radio channels
---------
(1) Not available to wireless cable subscribers.
(2) Limited viewing hours for wireless cable subscribers.
(3) These two networks share the same channel on digital DTH.
Austar Deluxe(1):
Channel Programming Genre
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Fx(2)........................................ General entertainment
Fox8(2)...................................... General entertainment
UKTV......................................... English general entertainment
Hallmark..................................... Made for TV movies
ESPN......................................... Sports
C7 Sports.................................... Sports, including Australian Football League
---------
(1) Digital DTH and cable only.
(2) Not available to cable subscribers in Darwin.
</TABLE>
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Movies:
Channel Programming Genre
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<S> <C>
Showtime(1).................................... Recent release movies
Encore(1)...................................... Library movies
Movie One(2)................................... Recent release movies
Movie Extra(2)(3).............................. Recent release movies
Movie Greats(2)(3)............................. Library movies
---------
(1) Columbia, Universal, Paramount and Fox Studios.
(2) Disney, MGM Warner, Dreamworks and Village Roadshow Studies.
(3) Not available for wireless cable.
</TABLE>
At December 31, 1999, Austar's pricing was:
MMDS DTH
A$ A$
------ -------
Basic Service................................. 31.95 35.95
Movie Network (1)............................. 10.95 10.95
Showtime and Encore (1)....................... 10.95 10.95
Movie One .................................... 8.95 8.95
C7 Sports .................................... 6.95 6.95
World Movies (2).............................. 6.95 6.95
Adults Only (Pay per Night)................... 6.95 6.95
Main Event (Pay-per-View) (3)................. varies per event
---------
(1) Subscribers have the choice of either Showtime and Encore or Movie
Network
(2) Not available to all wireless cable subscribers.
(3) Main Event available to digital DTH subscribers but only certain
events are available to wireless cable subscribers.
PROGRAMMING AGREEMENTS. Austar's programming agreement with Foxtel provides it
with the exclusive rights to distribute Showtime, Encore and TV-1 via digital
DTH and wireless cable throughout Austar's service area until December 2006. In
addition, Austar has an agreement with a News Corporation Limited subsidiary
pursuant to which Austar has the exclusive right to distribute Fox Sports and
Fox Sports Two over the same technologies throughout Austar's service area until
2006. Austar's programming agreement for C7 Sports provides Austar with
non-exclusive Australian Football League ("AFL") coverage. Austar has also
entered into an agreement with C&W Optus that provides Austar with non-exclusive
distribution rights for the three C&W Optus movie channels, Movie Network, Movie
Greats and Movie Extra, until December 2006. Austar has another agreement with
C&W Optus giving it rights to distribute additional C&W Optus programming.
Austar has exclusive rights in its service area to distribute via DTH and
wireless cable five channels of programming supplied by XYZ Entertainment:
Discovery Channel, Nickelodeon, The Lifestyle Channel, Channel [V] and arena.
Austar also obtains at competitive price levels additional programming from a
number of independent sources, including Time Warner, ESPN, Seven Network,
National Geographic, CMT and Sky Racing. Weather 21, the Adults Only channel and
certain pay-per-view events are sourced from entities in which we have an
interest.
Austar's rights to distribute certain programming are dependent on its
supplier's ability to provide such programming to Austar. In the event that any
of Austar's programming suppliers are unable to supply programming to Austar, we
are confident that we will be able to secure alternative sources of programming.
MARKETING, BILLING AND CUSTOMER SUPPORT. Austar has focused its marketing and
sales efforts to support a strategy of rapid penetration of its markets.
Austar's comprehensive marketing and sales organization consists of
approximately 250 direct sales representatives and over 250 national customer
service and telemarketing personnel at Austar's National Customer Operations
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Center ("NCOC"). These sales channels are supported by an integrated marketing
program of television, radio and print advertising and extensive use of direct
mail.
Austar's 25 offices, located throughout its operating area, serve its customers
in surrounding areas and provide Austar with a local presence. These offices
perform several key functions, including responding to customer inquires,
booking installations, providing customer maintenance services, collecting
subscription fees, liaising with installation contractors and marketing Austar's
services.
Austar uses contractors to install reception equipment at the customer premises.
We believe Austar achieves significant savings through the outsourcing of these
services. Austar has established installation guidelines, quality assurance
standards and training seminars for installation contractors. In addition,
Austar's own installation teams perform quality assurance checks on its
contractors, as well as conduct difficult installations and installations at
multiple dwelling units.
The NCOC, which services all of Austar's subscribers, is a technologically
advanced, scalable, fully integrated subscriber facility that features
sophisticated subscriber management software, an automated response unit and
predictive dialer technology. It also manages Austar's digital virtual private
network. Incoming calls from Austar's service area are directed to the NCOC
where customer service representatives provide sales and service information.
The NCOC's on-site customer service professionals undergo training in all
aspects of customer support to efficiently process installation orders, handle
customer inquiries including programming and technical questions and implement
Austar's customer retention program, which includes contacting customers
immediately after installation to ensure satisfaction and monitoring
cancellation requests.
Billing services are also handled through the NCOC. Austar bills for its
services in advance on a monthly basis. Customers have several methods by which
they can pay including direct debit from their bank account, automatic credit
card billing, in person at one of Austar's local offices or at the post office,
or by mail. Austar has implemented a number of procedures for managing customers
with delinquent accounts.
Austar's monthly churn averaged 2.9% during 1999, 3.9% during 1998 and 4.2%
during 1997. Austar believes that this ratio is likely to continue to decline in
the future, although there can be no such assurances. Factors which Austar
believes will contribute to the decline in customer churn include: the continued
enhancement of the price value relationship as more content is added and the
existing content improves, the tiering of services and tailoring packages to
customers, a further reduction in the level of product sampling in a maturing
market, the introduction in 1998 of annual and six-month subscriber contracts
and improved customer communications combined with loyalty programs.
COMPETITION. Austar is the sole provider of pay television services in
substantially all of its service area. Its only major pay television competitor
is Foxtel, which operates a cable system in a segment of Austar's 116,000-home
Gold Coast service area. As of December 31, 1999, Austar had approximately
24,200 subscribers in the Gold Coast. Austar also experiences limited
competition from free-to-air channels.
We do not believe that Austar's market generally has sufficient housing density
to justify the construction of competitive cable systems. The majority of
Austar's market consists of small cities and towns with less than 20,000 homes
and relatively low household densities of 25 to 75 homes per square kilometer as
compared to 100 to 130 homes per square kilometer in Australia's largest cities.
While we believe that household densities could support wireline cable
construction in areas representing approximately 20.0% of Austar's total homes
passed, the small size of these markets reduces the attractiveness of such
construction. Furthermore, Austar holds the exclusive satellite and wireless
cable distribution rights to key sports, movie and other programming for its
service area, thus limiting the programming that a satellite or wireless cable
competitor could offer in Austar's service area.
NEW BUSINESS OPPORTUNITIES. Austar is pursing new business opportunities in
three main areas (i) provision of high-speed Internet/data services, (ii)
provision of interactive television services and (iii) resale of mobile
telephony services.
Austar launched high-speed and traditional Internet access services in markets
in early 2000. These services were delivered using both digital DTH and wireless
cable technologies. Austar will benefit from United's experience in rolling out
Internet/data services. In particular, Austar intends to use chello broadband,
UPC's Internet portal and content service, to support the deployment of its
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Internet/data offerings to its service area. Austar's initial tests of these
high-speed services provided customers with downstream transmission speeds (from
the Internet to the subscriber) that were much faster than traditional dial-up
modems. We believe that the provision of Internet/data services represents a
significant market opportunity due to the combination of substantial consumer
demand for Internet access, the limited capacity of the public switched
telephone network in regional Australia and the lack of a broadband alternative.
Austar has licensed its operating system for digital set-top boxes with Open TV,
Inc. The Open TV operating system enables Austar to introduce an enhanced
electronic programming guide, interactive television applications and
transactional services such as home banking and other electronic commerce. The
introduction of these services should continue to help Austar realize its
objectives of increasing revenue and decreasing churn. Moreover, these services
should also generate incremental revenues with minimal capital expenditures
because these applications utilize existing customer premise equipment.
Austar is also currently evaluating mobile technology resale opportunities for
Austar.
MANAGEMENT AND EMPLOYEES. Austar's senior management includes five United
employees. As of December 31, 1999, Austar had approximately 1,008 employees.
Substantially all of Austar's employees are parties to an "award" governing the
minimum conditions of their employment including probationary periods of
employment, rights upon termination, vacation, overtime and dispute resolution.
SATURN (NEW ZEALAND)
Saturn is the only provider of integrated telephone, pay television and Internet
services in New Zealand. These services are currently provided in the greater
Wellington area over a hybrid fiber cable ("HFC") network with an overlay of
traditional telephone lines. Austar United owns 100% of Saturn, which launched
pay television service in 1996 on the initial portions of its network.
Wellington, which encompasses 141,000 homes, is New Zealand's capital and second
largest city. As of December 31, 1999, Saturn's network had 87,029 serviceable
homes for pay television, telephony and data. As of that date, Saturn had 16,723
cable television subscribers (19.2% penetration), 24,678 residential and
business telephone lines (28.4% penetration) and 6,772 Internet/data subscribers
(7.8% penetration).
In April 1998, Saturn launched a bundle of telephony and pay television services
to both residential and business markets, including enhanced switch-based
services. In mid-1998, Saturn launched Internet/data services via cable modems
to the business market and began offering residential dial-up Internet/data
services in November 1998. Saturn plans to expand into other major New Zealand
markets.
In February 2000, Austar United agreed to form TSL, a 50/50 joint venture
between Saturn and Telstra's New Zealand operation. TSL plans to create a
state-of-the-art national broadband network which will include a submarine fiber
backbone linking Auckland, Wellington and Christchurch during the next five
years.
TELEPHONY SERVICES. Saturn offers full-feature local and long distance telephony
service and is the only full service telephony provider competing with Telecom
New Zealand ("Telecom"), the incumbent telephony provider.
Residential Services:
---------------------
Local access
Domestic and international long distance
Full suite of switch-based features (e.g., voicemail, call waiting,
last number dialed, etc.)
Traditional dial-up Internet access
High speed cable modem service
Business Telephony Services:
----------------------------
Local access
Domestic and international long distance service
Full suite of switch-based features
Centrex services
High speed cable modem service
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Saturn has an interconnect agreement with Telcom, pursuant to which the parties
permit calls originating on one party's system to be terminated on the other
system.
PAY TELEVISION SERVICES. Saturn's programming strategy is to offer a wide
variety of high-quality channels at competitive prices. Saturn provides its
customers both pay television and free-to-air channels. Saturn is currently
offering a single tier of service consisting of 30 channels. Saturn's standard
pay television package currently consists of the following channels:
<TABLE>
<CAPTION>
Channel Programming Genre
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<S> <C>
TVI, TV2, TV3, TV4.................... General entertainment (retransmitted)
ONTV ................................. Saturn community channel
BBC World............................. World news
CNBC ................................. World financial news
CNN International..................... World news
MCM................................... Music video
Discovery............................. Science and nature
National Geographic................... Culture and nature
Animal Planet......................... Animal entertainment
TNT ................................. Classic movies
Cartoon Network....................... Children's cartoon programming
Trackside............................. TAB racing
Kidzone............................... Local children's programming
Weather Channel....................... Live weather from NZ MetService
Program Guide......................... Programming line-up
FTV ................................. Fashion TV
CMTV ................................. Country music video
Elijah Television..................... Non-denominational religious programming
Worldnet.............................. U.S. information service news and science
Saturn SportsNet...................... Local/international sports
The Golf Channel...................... 24 hours of golf events/news
Saturn Showcase....................... Saturn programming channels (split screen)
Saturn Home Cinema Preview Channel.... Pay-per-view movie previews
Saturn Montage Channel................ A montage of Saturn's channels
Saturn on Screen Guide................ An on-screen channel guide
Prime Channel......................... General entertainment (retransmitted)
BBC World Service..................... BBC World Service radio
</TABLE>
In addition, Saturn offers 21 channels of pay-per-view movies pursuant to
distribution agreements with Hollywood Studios, including Warner Bros.,
Twentieth Century Fox, Universal Studios and Columbia TriStar. Eighteen of these
channels, branded "Saturn Home Cinema," feature general new release and library
movies with programming provided by four leading Hollywood studios. The most
popular movies are scheduled as "near video on demand" with frequent starting
times (generally every 15 or 30 minutes) over multiple channels. The three
remaining channels are adult movie channels and are available to hotels and
motels only. The pay-per-view movies are priced comparable to home video rental
rates. Saturn has been achieving pay-per-view buy rates of 100%, i.e. an average
of at least one pay-per-view buy per subscriber per month. Saturn is exploring
the possibility of expanding its pay-per-view offerings to include sporting
events and adult movies for its residential customers.
Saturn is currently negotiating with a number of programming providers to expand
its channel offerings. Saturn believes that its relationship with United, Austar
and XYZ Entertainment provides it with a competitive advantage in obtaining a
wide array of quality programming at attractive prices.
INTERNET/DATA SERVICES. Currently, Saturn offers both traditional dial-up and
high speed cable modem-based Internet access to its business and residential
customers. Saturn provides a platform for ISPs to offer Internet/data services
10
<PAGE>
to both Saturn subscribers and non-subscribers in the Wellington region. We
believe that the provision of Internet/data services represents significant
revenue potential. Saturn receives a monthly fee for reselling Internet access
from ISPs and is also able to offer these Internet/data services as part of a
more attractive bundle of services for Saturn customers. This increases both the
take-up rate for all of Saturn's services and the take-up rate for second phone
lines, thereby generating incremental revenue for Saturn. It also ensures that
Saturn's customers will use Saturn's telephony network for their data traffic.
Approximately 35.0% of Saturn's new customers subscribe to an Internet/data
services package.
PRICING. With its unique bundle of services, Saturn can offer a number of
attractive multiple service bundles, ranging from an entry level package of
cable television service, plus local telephone access and free local calls, for
NZ$29.95 per month to a package of two telephone lines (free local calls), cable
television service and unlimited Internet usage for NZ$99.95 per month. Saturn
is able to offer a savings of 30.0% based on a customer buying the services
separately from multiple providers. These bundles are proving a very effective
means to drive penetration and increase revenue per home. Sky TV ("Sky"),
Saturn's primary competitor, charges subscribers a monthly rate of approximately
NZ$56 for five channels of UHF programming with a one-time installation fee of
NZ$29 per subscriber. Sky's digital satellite service is more expensive and has
an installation fee of NZ$350. Saturn's residential and business telephony
services are priced 10.0% to 15.0% below Telecom's standard rates even though
Telecom is offering range discounts. We believe that Saturn's Internet rates are
some of the most price competitive in the country.
MARKETING; CUSTOMER SUPPORT. Saturn's marketing strategy uses promotion
techniques proven in existing subscription television markets such as the U.S.
and Europe, including direct sales campaigns (door-to-door selling), direct mail
and telemarketing supported by a mass media brand awareness program. Saturn
already enjoys very high and positive brand awareness in the market. There is
considerable interest in purchasing its products and services. Direct sales have
proven to be the most effective technique in other new build markets,
particularly in areas where pay television is in its introductory stage. Each of
these techniques aims to communicate the selling points of the telephone
service, cable television and Internet services and in particular the advantages
of purchasing multiple services from one provider. Homes were released for
marketing on a node by node basis as construction was completed, which allowed
for a very targeted marketing program tailored to the unique demographic profile
of the territory and enabled Saturn to capitalize on the product awareness
resulting from its construction efforts. Saturn's sales strategy is designed to
include an emphasis on the bundled offering and to capitalize on the value,
quality and customer service advantages associated with a one-stop service
provider. Saturn has established a national customer services center at its
corporate headquarters in Wellington. The call management technology employed by
Saturn is scaleable and can be configured to support a national network
expansion. In addition, Saturn is currently developing a sophisticated marketing
database to assist the sales force in a targeted sales approach in future
marketing campaigns.
COMPETITION. Saturn's major telephony competitor is Telecom, New Zealand's
largest telecommunications service provider with nearly a 100% share of local
loop revenues, 75.0% of national and international toll revenues and 90.0% of
cellular revenues. During 1996 and 1997, Telecom constructed an HFC network to
70,000 homes in various parts of New Zealand and began offering a pay TV
service. In 1998, Telecom discontinued its pay television service and Telecom
now appears to be pursuing an asymmetrical digital subscriber line ("ADSL")
strategy for high speed Internet access.
There are currently four broadcast networks in New Zealand as well as several
other free-to-air regional channels. The largest provider of subscription
television services in New Zealand is Sky, which operates a five-channel
encrypted UHF subscription television service and has recently launched a
20-channel digital satellite service. Although Sky offers a popular sports
channel on an exclusive basis, we believe Sky does not currently offer value and
programming diversity or television/telephony bundling that Saturn offers.
MANAGEMENT AND EMPLOYEES. United has appointed four of its employees to
management positions at Saturn, including Saturn's chief executive officer. As
of December 3l, 1999, Saturn had approximately 260 employees. Substantially all
of Saturn's employees are parties to a collective employment contract governing
certain conditions of their employment including probationary periods of
employment, termination, redundancy, overtime, holidays, leave and dispute
resolution.
11
<PAGE>
XYZ ENTERTAINMENT (AUSTRALIAN PROGRAMMING)
Austar United and Foxtel each own 50.0% of XYZ Entertainment, a programming
venture that purchases, produces, edits, packages and transmits programming for
the Australian pay television market. XYZ Entertainment currently supplies five
channels of programming (the "XYZ Channels") in key genres to Austar and Foxtel,
Australia's two largest pay television operators, for distribution to their
subscribers. XYZ Entertainment collects a monthly fee per subscriber. As of
December 31, 1999, XYZ Entertainment provided programming for approximately
934,000 subscribers.
Each of the XYZ Channels is separately managed as to product design and content
strategy by Austar United or one of XYZ Entertainment's licensors or joint
venture partners. The five channels are:
<TABLE>
<CAPTION>
Channel Programming Genre
------- -----------------
<S> <C>
arena........................................ Drama, comedy, general entertainment,
programming and library movies
Channel [V].................................. Music video with local presenters
Discovery Channel............................ Documentary, adventure, history and lifestyle
The Lifestyle Channel........................ Personal and home improvements
Nickelodeon/Nick at Nite..................... Children's educational, entertainment and
cartoons/family-oriented drama and entertainment
</TABLE>
MARKETING AND DISTRIBUTION. XYZ Entertainment's goal is to acquire quality
programming that will engender viewer loyalty. XYZ Entertainment focuses its
marketing efforts on creating, building and supporting channel identification
and brand awareness. The XYZ Channels also work closely with their distributors
on cooperative marketing efforts.
XYZ Entertainment has granted a subsidiary of Austar United the exclusive right
to distribute the XYZ Channels. This subsidiary in turn distributes them to
Austar and Foxtel pursuant to contracts with terms ranging from eight to 25
years for delivery through DTH, wireless cable and cable to their respective
subscribers bases. As a result, the XYZ Channels are available to the majority
of Australia's approximately six million television households. In particular,
the cable carriage agreement with Foxtel, which expires in 2020, requires Foxtel
to carry the XYZ Channels on its basic package and provides for minimum
subscriber guarantees. C&W Optus also has an agreement for the DTH and wireless
cable distribution of the XYZ Channels outside of Austar's service area,
although C&W Optus has not committed to a commercial roll-out of DTH or wireless
cable services.
PRODUCTION AND ACQUISITION OF PROGRAMMING. XYZ Entertainment produces or
licenses programming from a wide array of suppliers for its channels. As the
first Australian pay television programming provider, XYZ Entertainment has long
standing relationships with international content providers, as well as
Australian programming producers and on-air personalities. We believe that this
provides XYZ Entertainment with a significant competitive advantage in acquiring
and producing new programming for the Australian pay television market.
In July 1995, XYZ Entertainment and Discovery Asia executed a 12-year exclusive
carriage agreement whereby a localized version of the Discovery Channel replaced
the existing documentary channel developed by XYZ Entertainment. We believe that
this arrangement allows XYZ Entertainment to offer subscribers higher quality
programming at a lower cost to XYZ Entertainment.
XYZ Entertainment and Nickelodeon, a division of Viacom, have established a
50/50 Australian joint venture that produces and distributes an Australian
version of Nickelodeon/Nick at Nite, which began distribution in October 1995.
This channel contains both locally produced and internationally-sourced
programming. XYZ Entertainment pays the joint venture a monthly per subscriber
license distribution fee and profits of the joint venture are shared equally by
Nickelodeon and XYZ Entertainment.
Since March 1997, XYZ Entertainment has produced a music video channel, Channel
[V]. Under a long term agreement with Channel [V] Music Networks, a joint
venture between Star TV and several record companies including BMG, EMI, Sony
12
<PAGE>
and Warner Music, XYZ Entertainment can use the Channel [V] trademark,
promotional materials and management and has access to Channel [V]'s favorable
record programming arrangements. A significant portion of the content for
Channel [V] is produced locally, some of which is distributed internationally to
other Channel [V] Music Network channels.
XYZ Entertainment produces promotional materials and acquires programming for
arena and The Lifestyle Channel at prices its management considers to be
favorable. XYZ Entertainment is pursuing supply agreements and potential joint
venture arrangements with a number of other international programming suppliers.
We believe there is a sufficient supply of programming available to XYZ
Entertainment at competitive rates.
EMPLOYEES. As of December 31, 1999, XYZ Entertainment had 85 employees.
AUSTRALIA: OTHER PROGRAMMING INTERESTS
Content Co. was formed in August 1998 as a joint venture among Austar, Optus and
Foxtel. Content Co. produces Adults Only, a pay-per-night adult channel, and
Main Event, a pay-per-view event channel, for the joint venture parties.
Weather 21, 100% owned by Austar United, is a Sydney-based public relations and
media company which produces Weather 21 in its own production studio. Weather
21, launched in January 1999, provides 24 hour weather coverage and is currently
offered exclusively to Austar subscribers in the basic package.
AUSTRALIA: MOBILE WIRELESS DATA - UNITED WIRELESS PTY LIMITED
Austar United owns United Wireless, which operates a nationally linked public
packet-switched mobile wireless data network in Australia. United Wireless
primarily targets the transportation industry, which uses its services for fleet
management requirements, and the utility, fire and vending industries, which use
its services for fixed telemetry applications, including remote monitoring and
reading of meters, fire panels, vending machines and other similar applications.
Telstra is the only other operator of a packet-switched data network in
Australia, offering the DataTAC network. DataTAC focuses on electronic funds
transfer at point of sales ("EFTPOS") as its core business and does not compete
with United Wireless in its core transportation market or in its telemetry
markets.
TECHNOLOGIES EMPLOYED BY THE COMPANY
We currently use three principal transmission technologies in the deployment of
our pay television services in Australia and New Zealand. These technologies are
as follows: (i) MMDS or wireless cable, (ii) DTH satellite broadcast services
and (iii) wireline cable or CATV, the technology with which pay television
services are most frequently delivered in the United States. We have carefully
evaluated the characteristics of the markets in which we are currently operating
or planning to operate pay television systems and have chosen what we believe to
be the most appropriate transmission technology for each. While these
transmission technologies are, in general, similar with respect to picture
quality, all such technologies offer improved picture quality compared to what
has historically been offered by over-the-air broadcasters.
MMDS is a microwave distribution system for which frequency bands are utilized
for transmission of the programming services. MMDS signals originate from a
head-end facility, which receives satellite-delivered programming services and
delivers such programming via an encoded microwave signal from transmitters
located on a tower or on top of a building to a small receiving antenna located
at a subscriber's premises, where the microwave signals are decoded. MMDS
transmission requires a clear line-of-sight because microwave frequencies will
not pass through obstructions; however, many signal blockages can be overcome
through the use of low power signal repeaters which retransmit an otherwise
blocked signal over a limited area. The initial construction costs of MMDS
generally are significantly lower than a wireline cable or DTH system. We are
using MMDS transmission technology in Australia, where housing density and
topography make MMDS the most cost effective technology.
DTH transmits encoded signals directly from a satellite to a subscriber's
premises, where it is decoded. Currently in Australia, all DTH subscription
television services are transmitted via the Optus Network Satellite using High
13
<PAGE>
Performance Beams ("HP Beams") covering certain geographic areas (commonly
referred to as a satellite "footprint"). All of Austar's franchise areas are
within the Optus Network Satellite footprint. Since this signal will be
transmitted at a high power level and frequency utilizing MPEG II digital
technology, its reception can be accomplished with a relatively small (26-35
inch) dish mounted on a rooftop or in the yard for the households located within
the innermost satellite transmission footprint and with a slightly larger (35-47
inch) dish for the households located outside the innermost footprint. Austar is
using DTH transmission technology for homes in its MMDS markets that are not
reachable by its MMDS signals as well as for homes in its franchise areas where
household densities do not support the construction of MMDS systems.
A wireline cable television system is a network of coaxial or fiber-optic
transmission cables through which programming is transmitted to a subscriber's
premises from the system's head-end facility, which receives satellite and
tape-delivered programming. Wireline cable television offers a wide bandwidth
that generally allows the transmission of a larger number of channels than MMDS.
When constructed with a HFC network, as we are doing in New Zealand, the
system's infrastructure can be used to deliver telephony and data services. The
primary disadvantages of a wireline cable network are the higher costs of
construction, especially in areas of low housing density, and the length of time
required to construct the network. We are constructing wireline cable systems in
New Zealand and, due to topography and housing densities, are constructing a
wireline cable system in one market in Australia.
REGULATION
AUSTRALIA. The provision of subscription television services in Australia is
regulated by the Australian federal government under various Commonwealth
statutes. In addition, State and Territory laws, including environmental and
consumer contract legislation, may impact the construction and maintenance of a
transmission system for subscription television services, the content of those
services, as well as on various aspects of the subscription television business
itself.
The Australia Broadcasting Services Act of 1992 ("BSA") regulates the ownership
and operation of all categories of television and radio services in Australia
including wireline cable, DTH, MMDS or any other means of transmission. The BSA
regulates subscription television broadcasting services by requiring each
service to have an individual license. Companies associated with Austar hold
approximately 150 television broadcasting licenses. Each license is issued
subject to certain conditions. The government may vary or revoke license
conditions or may, by written notice, specify additional conditions.
Foreign ownership of "company interests" of pay television broadcasting licenses
is limited to 20.0% by a single foreign person and an aggregate of 35.0% by all
foreign persons. The BSA licenses used for distributing Austar's pay television
services are held by Australian companies for the purposes of the BSA.
EMPLOYEES
The Company has no employees. Certain management, technical, administrative,
accounting, tax, legal, financial reporting and other services for the Company
are currently provided by United and UAP pursuant to the terms of a management
agreement. In addition, United supplies certain employees to Austar United,
Austar and Saturn pursuant to a secondment agreement. See Item 13 "Certain
Relationships and Related Transactions."
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
----------------------------------------------------------------------------
For information applicable to this Item, see the notes to the consolidated
financial statements contained in Item 8 "Financial Statements and Supplementary
Data."
ITEM 2. PROPERTIES
- -------------------
Our executive offices are located in Denver, Colorado, in space leased by United
and provided to the Company through the UAP Management Agreement as described in
Item 13 "Certain Relationships and Related Transactions." In management's
opinion, these facilities are sufficient to meet the current and foreseeable
future needs of its operating companies.
Austar leases office space in Sydney for its administrative offices and has
established four regional offices in leased space in certain areas where it has
launched service. Austar also leases locations for smaller local offices in most
14
<PAGE>
of its markets to handle local customer maintenance, marketing and installation.
In addition, Austar leases facilities to house the head-end facility and
transmitter tower in each of its markets. The NCOC is located in leased
facilities in the Gold Coast. Generally, these Austar facilities are leased with
terms of three to six years, with renewal options in many instances. Austar
believes that its leased facilities are sufficient for its foreseeable needs and
that it has access to a sufficient supply of additional facilities in its
various markets, should it require more space.
Saturn owns a headend/switching and operations facility in Petone, located north
of Wellington. Saturn also leases office and warehouse facilities for its
headquarters in Petone. This lease expires in 2001 with a six-year renewal
option; however, there are plans to move in May 2000.
XYZ Entertainment currently uses a portion of Foxtel's broadcasting facilities
located in Sydney. XYZ Entertainment pays its proportionate share of Foxtel's
leasing costs (based on space utilized). We believe this arrangement results in
operational cost savings. XYZ Entertainment believes its facilities are
sufficient for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
We are not a party to any material legal proceedings, nor are we currently aware
of any threatened material legal proceedings. From time to time, we may become
involved in litigation relating to claims arising from operations in the normal
course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
On August 27, 1999, the sole stockholder of the Company approved an amendment to
the Company's articles of incorporation to change the name of the corporation to
United Australia/Pacific, Inc.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- --------------------------------------------------------------------------------
The common stock of the Company is not publicly traded. The Company has paid no
cash dividends since formation. The Company is a holding company with no
independent operations of its own and, as such, its ability to pay cash
dividends is dependent upon distributions from its operating companies. Such
distributions are limited by contractual or other obligations of such operating
companies. In addition, the ability of the operating companies to distribute
funds may be limited by the current or future regulations of the countries in
which they are located.
Austar United's ordinary shares are traded on the Australian Stock Exchange
under the symbol "AUN." The following table shows the range of high and low
sales prices reported on the Australian Stock Exchange since Austar United's IPO
in July 1999:
High Low
----- -------
Year ended December 31, 1999:
Third Quarter (from July 1999)......................... A$5.51 A$4.46
Fourth Quarter......................................... A$6.70 A$4.35
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The following selected consolidated financial data as of and for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from the
Company's audited consolidated financial statements. The data set forth below is
qualified by reference to and should be read in conjunction with the Company's
audited consolidated financial statements including the notes and Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------ ------------- -------------
Statement of Operations Data: (In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue................................................. $ 150,752 $ 89,819 $ 68,961 $ 24,977 $ 1,883
System operating expense................................ (112,498) (71,149) (52,703) (22,865) (3,230)
System selling, general and administrative expense...... (49,501) (49,738) (50,006) (32,665) (2,482)
Corporate general and administrative expense............ (26,847) (5,696) (3,306) (1,376) (920)
Depreciation and amortization........................... (104,720) (97,140) (80,802) (36,269) (1,003)
Gain on issuance of common equity securities
by subsidiary......................................... 248,361 - - - -
Interest expense and other, net......................... (72,146) (62,088) (48,810) (16,560) 4,898
Share in results of affiliated companies, net........... (11,614) (10,299) (2,408) (5,414) (16,379)
Minority interest in subsidiary......................... 13,609 - 1,018 2,186 -
---------- ---------- ---------- ---------- ----------
Net income (loss)....................................... $ 35,396 $ (206,291) $ (168,056) $ (87,986) $ (17,233)
========== ========== ========== ========== ==========
Basic net income (loss) per common share................ $ 1.99 $ (14.02) $ (12.12) $ (6.44) $ (1.28)
========== ========== ========== ========== ==========
Basic weighted-average number of shares outstanding.... 17,810,254 14,718,857 13,864,941 13,670,832 13,504,453
========== ========== ========== ========== ==========
Diluted net income (loss) per common share.............. $ 1.94 $ (14.02) $ (12.12) $ (6.44) $ (1.28)
========== ========== ========== ========== ==========
Diluted weighted-average number of shares outstanding... 18,199,726 14,718,857 13,864,941 13,670,832 13,504,453
========== ========== ========== ========== ==========
Other Data:
Capital expenditures.................................... $ 117,819 $ 71,466 $ 101,135 $ 187,100 $ 7,648
As of December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------ ------------- ------------
Balance Sheet Data: (In thousands)
Cash, cash equivalents, restricted cash and
short-term liquid investments......................... $ 275,421 $ 944 $ 25,089 $ 37,860 $ 8,730
Property, plant and equipment, net...................... $ 219,394 $ 110,351 $ 183,101 $ 193,170 $ 27,630
Total assets............................................ $ 666,591 $ 216,032 $ 279,032 $ 319,323 $ 99,295
Senior discount notes and other long-term debt.......... $ 669,096 $ 424,726 $ 387,094 $ 250,057 $ 742
Total liabilities....................................... $ 747,425 $ 510,661 $ 431,769 $ 315,276 $ 21,714
Total stockholders' (deficit) equity.................... $ (154,904) $ (294,629) $ (164,153) $ 4,047 $ 75,066
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis of the Company's financial condition and
results of operations covers the years ended December 31, 1999, 1998 and 1997
and should be read in conjunction with the Company's condensed consolidated
financial statements and related notes thereto included elsewhere herein. Such
consolidated financial statements provide additional information regarding the
Company's financial activities and condition.
We have no employees of our own. UAP, our parent, provides various management,
financial reporting, accounting and other services for us pursuant to the terms
of the UAP Management Agreement. Until June 24, 1999, Austar and Saturn were
also parties to technical service agreements with UAP for which such operating
companies paid to UAP fees based on their respective gross revenues. Effective
June 24, 1999, these technical service agreements with UAP were assigned to
Austar United and a management agreement between United and Austar United was
executed pursuant to which United performs certain technical and consulting
services in return for a monthly fee.
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 December 31, 1999, through Austar United we held (i) an effective 75.4%
economic interest in Austar, (ii) a 75.4% interest in Saturn and (iii) a 37.7%
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 reduced our ownership interest to 75.4% as of
December 31, 1999 (73.7% 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. We previously consolidated the operations of Saturn from July 1,
1996 through January 1, 1998. Prior to that time, we accounted for our
investment in Saturn under the equity method. We discontinued consolidating the
results of operations of Saturn effective January 1, 1998 and returned to the
equity method of accounting through July 1999 to comply with the consensus
guidance of the Emerging Issues Task Force regarding Issue 96-16 ("EITF 96-16"),
and related rules of the SEC, because SaskTel had participating approval or veto
rights with respect to certain significant decisions of Saturn in the ordinary
course of business.
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. See Item 13 "Certain Relationships and
Related Transactions."
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, 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, the operating
subsidiary bank borrowings or amounts contributed in either cash or stock to
acquire additional economic interests.
<TABLE>
<CAPTION>
As of
December 31,
Sources of Fundings: 1999
-------------
(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....................................... 7,063
--------
Total....................................................... $491,363
========
As of
December 31,
Uses of Fundings: 1999
-------------
(In thousands)
Austar (1)....................................................... $349,429
Saturn........................................................... 44,612
XYZ Entertainment (2)............................................ 41,553
Other (3)........................................................ 55,769
--------
Total....................................................... $491,363
========
</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 are responsible for our proportionate share of capital requirements of the
operating companies. We have funded our proportionate share to date with capital
contributions by United through UAP and proceeds from private debt offerings and
have reduced our proportionate share to date with subsidiary bank debt and
strategic partner contributions. We do not expect to contribute additional
capital to Austar United for its on-going operating and development
requirements, as future funding will come from the Australian IPO proceeds, the
New Austar Bank Facility, the Saturn Bank Facility and operating cash flow.
We had $275.4 million of cash, cash equivalents and short-term liquid
investments on hand as of December 31, 1999. On July 27, 1999, we successfully
completed the Austar United IPO selling 103.5 million shares on the Australian
Stock Exchange, raising gross and net proceeds at A$4.70 ($3.03) per share of
A$486.5 ($313.6) million and A$453.6 ($292.8) million, respectively. These
proceeds, in addition to borrowing capacity on the New Austar Bank Facility and
Saturn Bank Facility, will be used to expand Austar United's customer base,
complete the build-out of its network and introduce new services such as
telephony and Internet/data.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
Cash and cash equivalents increased $5.8 million from $0.2 million as of
December 31, 1998 to $6.0 million as of December 31, 1999. Principal sources of
cash during the year ended December 31, 1999 included proceeds from the Austar
United IPO of $292.8 million, borrowings on the New Austar Bank Facility and the
Saturn Bank Facility of $229.9 million, cash contributions from parent of $29.7
million and other investing and financing sources totaling $3.1 million.
During the year ended December 31, 1999, cash was used principally for purchases
of short-term liquid investments of $266.4 million, payment of the Austar Bank
Facility of $129.1 million, purchases of property, plant and equipment totaling
$117.8 million to continue new subscriber connections at Austar and the
build-out of existing projects, the funding of operating activities of $18.9
million, deferred financing costs of $8.0 million, investments in and advances
to affiliated companies of $5.2 million and other uses totaling $4.3 million.
18
<PAGE>
YEAR ENDED DECEMBER 31, 1998
Cash and cash equivalents decreased $12.1 million from $12.3 million as of
December 31, 1997 to $0.2 million as of December 31, 1998. Principal sources of
cash during the year ended December 31, 1998 included cash contributions from
parent of $58.9 million, borrowings on the Austar Bank Facility of $39.5
million, proceeds from the sale of short-term investments of $12.3 million and
other sources totaling $0.3 million.
During the year ended December 31, 1998, cash was used principally for the
purchase of property, plant and equipment totaling $71.5 million to continue new
subscriber connections and the build-out of existing projects, the funding of
operating activities of $23.8 million, investments in affiliated companies and
acquisition of assets of $11.4 million, the deconsolidation of Saturn of $9.9
million, the payment of capital leases and other debt of $3.3 million and other
investing and financing uses of $3.2 million.
YEAR ENDED DECEMBER 31, 1997
Cash and cash equivalents decreased $6.9 million from $19.2 million as of
December 31, 1996 to $12.3 million as of December 31, 1997. Principal sources of
cash during the year ended December 31, 1997 included borrowings on the Austar
Bank Facility of $85.2 million, gross proceeds from the issuance of the
September 1997 Notes of $29.9 million, the purchase of a 35.0% interest in
Saturn by SaskTel for $19.6 million, borrowings from parent of $10.0 million,
cash contributions from parent of $7.9 million and net proceeds from the net
decrease in short-term investments of $6.3 million.
During the year ended December 31, 1997, cash was used principally for the
purchase of property, plant and equipment of $101.1 million to continue the
build-out of existing projects, primarily at Austar, a decrease in construction
payables of $29.6 million, investments in our affiliated companies of $3.3
million, deferred financing costs and other uses totaling $6.9 million and the
funding of operating activities of $24.9 million during the year.
RESULTS OF OPERATIONS
SELECTED SYSTEM OPERATING DATA. The following table displays selected system
operating data in Austar's local currency and U.S. dollar:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1999 1998 1997
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Austar (A$):
Revenue......................................... 220,493 136,072 86,470
Adjusted EBITDA (1)............................. (11,946) (37,981) (26,027)
Austar (US$):
Revenue......................................... 142,452 85,199 63,848
Adjusted EBITDA (1)............................. (7,687) (23,129) (19,220)
</TABLE>
(1) "Adjusted EBITDA" represents net operating earnings before
depreciation, amortization, non-cash general and administrative
expense allocated from parent 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. We believe Adjusted EBITDA helps investors
to assess the cash flow from operations from period to period and
thus, to value our 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. Our 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.
19
<PAGE>
EXCHANGE RATES. We translate revenue and expense from our foreign subsidiaries
using the weighted-average exchange rates during the period. However, for ease
of presentation, the spot rates are shown below for the Australian and New
Zealand dollar per one U.S. dollar.
Australian New Zealand
Dollars Dollars
------------ -----------
December 31, 1999..................... 1.5244 1.9124
December 31, 1998..................... 1.6332 1.8939
December 31, 1997..................... 1.5378 1.7161
REVENUE. Our revenue increased $60.9 million and $20.9 million for the years
ended December 31, 1999 and 1998, respectively, compared to the corresponding
amounts in the prior year as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Australia............................................. $144,632 $ 86,408 $64,370
New Zealand........................................... 6,120 - 473
Other................................................. - 3,411 4,118
-------- -------- --------
Total revenue...................................... $150,752 $ 89,819 $ 68,961
======== ======== ========
</TABLE>
AUSTAR
Revenue for Austar increased $57.3 million, or 67.3%, from $85.2 million for the
year ended December 31, 1998 to $142.5 million for the year ended December 31,
1999, including a positive impact of $4.3 million due to exchange rate
fluctuations. On a functional currency basis, Austar's revenue increased A$84.4
million, from A$136.1 million for the year ended December 31, 1998 to A$220.5
million for the year ended December 31, 1999, a 62.0% increase. This increase
was primarily due to subscriber growth (381,763 at December 31, 1999 compared to
288,721 at December 31, 1998) and increased average monthly revenue per
subscriber as Austar continues to expand the content of its television service.
The average monthly revenue per subscriber increased A$6.71 ($4.40) from an
average per subscriber of A$47.00 ($30.83) for the year ended December 31, 1998
to an average of A$53.71 ($35.23) per subscriber for the year ended December 31,
1999, a 14.3% increase.
Revenue for Austar increased $21.4 million, or 33.5%, from $63.8 million for the
year ended December 31, 1997 to $85.2 million for the year ended December 31,
1998, despite a negative impact of $15.0 million due to exchange rate
fluctuations. On a functional currency basis, Austar's revenue increased A$49.6
million, from A$86.5 million for the year ended December 31, 1997 to A$136.1
million for the year ended December 31, 1998, a 57.3% increase. This increase
was primarily due to subscriber growth (288,721 at December 31, 1998 compared to
196,205 at December 31, 1997) as Austar continues to roll-out its services.
ADJUSTED EBITDA. Adjusted EBITDA increased $20.1 million and $3.9 million for
the years ended December 31, 1999 and 1998, respectively, compared to the
corresponding amounts in the prior year as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Australia............................................. $ (4,742) $ (27,065) $ (24,082)
New Zealand........................................... (2,125) - (6,688)
Other................................................. (169) (101) (254)
-------- --------- ---------
Total Adjusted EBITDA.............................. $ (7,036) $ (27,166) $ (31,024)
======== ========= =========
</TABLE>
20
<PAGE>
AUSTAR
Austar's Adjusted EBITDA loss improved by $15.4 million, or 66.7%, from negative
$23.1 million for the year ended December 31, 1998 to negative $7.7 million for
the year ended December 31, 1999, including a negative impact of $0.2 million
due to exchange rate fluctuations. On a functional currency basis, Austar's
Adjusted EBITDA loss improved by A$26.1 million from negative A$38.0 million for
the year ended December 31, 1998 to negative A$11.9 million for the year ended
December 31, 1999, a 68.7% improvement. This improvement in Adjusted EBITDA loss
for comparable periods from year to year was primarily due to Austar achieving
incremental sales growth while keeping certain costs fixed, such as the NCOC,
corporate management staff and media-related marketing costs.
Austar's Adjusted EBITDA loss increased $3.9 million, or 20.3%, from negative
$19.2 million for the year ended December 31, 1997 to negative $23.1 million for
the year ended December 31, 1998, including a positive impact of $4.8 million
due to exchange rate fluctuations. On a functional currency basis, Austar's
Adjusted EBITDA loss increased A$12.0 million from negative A$26.0 million for
the year ended December 31, 1997 to negative A$38.0 million for the year ended
December 31, 1998, a 46.2% increase. Although revenue increased compared to the
same periods in the prior year, increases in operating expense and selling,
general and administrative expense outpaced the revenue increase, primarily due
to higher short-term programming costs in connection with the receivership of
Australis, Austar's previous programming supplier, and the subsequent May 1998
joint venture with Optus Vision, as well as increases in salaries and benefits
for additional personnel necessary to support the growth of Austar's NCOC.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Our corporate general and
administrative expense increased $21.1 million, or 370.2%, from $5.7 million for
the year ended December 31, 1998 to $26.8 million for the year ended December
31, 1999. This increase was primarily attributable to a stock-based compensation
charge of $22.5 million from the Austar United Plan for the twelve months ended
December 31, 1999. There was no stock-based compensation charge in 1998.
Our corporate general and administrative expense increased $2.4 million, or
72.7%, from $3.3 million for the year ended December 31, 1997 to $5.7 million
for the year ended December 31, 1998. This increase was primarily due to an
increase in the allocation of United's corporate general and administrative
expenses to us, based on increased activity at the operating system level.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$7.6 million and $16.3 million for the years ended December 31, 1999 and 1998,
respectively, compared to the corresponding amounts in the prior years.
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Austar................................................ $ 97,620 $ 95,403 $ 76,913
Saturn................................................ 5,266 - 2,033
Other................................................. 1,834 1,737 1,856
-------- -------- --------
Total depreciation and amortization................ $104,720 $ 97,140 $ 80,802
======== ======== ========
</TABLE>
AUSTAR
Depreciation and amortization expense for Austar increased $2.2 million, or
2.3%, from $95.4 million for the year ended December 31, 1998 to $97.6 million
for the year ended December 31, 1999, including a negative impact of $2.8
million due to exchange rate fluctuations. On a functional currency basis,
Austar's depreciation and amortization expense increased A$3.9 million, from
A$143.0 million for the year ended December 31, 1998 to A$146.9 million for the
year ended December 31, 1999, a 2.7% increase.
Depreciation and amortization expense for Austar increased $18.5 million, or
24.1% from $76.9 million for the year ended December 31, 1997 to $95.4 million
for the year ended December 31, 1998, including a positive impact of $15.2
million due to exchange rate fluctuations. On a functional currency basis,
Austar's depreciation and amortization expense increased A$43.4 million, from
A$99.6 million for the year ended December 31, 1997 to A$143.0 million for the
year ended December 31, 1998, a 43.6% increase. This increase was primarily due
to the larger fixed asset base due to the significant deployment of operating
assets to meet subscriber growth as well as increases related to subscriber
disconnects.
GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARY. On July 27, 1999,
Austar United successfully completed the Austar United IPO selling 103.5 million
shares on the Australian Stock Exchange raising gross and net proceeds at A$4.70
21
<PAGE>
($3.03) per share of A$486.5 ($313.6) million and A$453.6 ($292.8) million,
respectively. Based on the carrying value of our investment in Austar United as
of July 27, 1999, we recognized a gain of $248.4 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 $6.1 million from $0.2 million for
the year ended December 31, 1998 to $6.3 million for the year ended December 31,
1999. The increase was attributable to the increase in short-term liquid
investment balances due to the Austar United IPO.
Interest income, including related party income, decreased $1.4 million, or
87.5%, from $1.6 million for the year ended December 31, 1997 to $0.2 million
for the year ended December 31, 1998. This decrease was primarily due to reduced
short-term liquid investment balances related to the funding of our investments
in affiliated companies.
INTEREST EXPENSE. Interest expense, including related party expense, increased
$12.8 million, or 22.6%, from $56.7 million for the year ended December 31, 1998
to $69.5 million for the year ended December 31, 1999. This increase was
primarily due to interest expense related to the Austar Bank Facility which was
$7.5 million in 1998 compared to $16.8 million in 1999.
Interest expense, including related party expense, increased $12.7 million, or
28.9%, from $44.0 million for the year ended December 31, 1997 to $56.7 million
for the year ended December 31, 1998. This increase was primarily due to
continued accretion on the May 1996 Notes and the 14.0% senior notes issued in
September 1997 (the "September 1997 Notes") (collectively, the "Notes") at
14.75% during most of 1998 compared to 14.0% for 1997. In addition, interest
expense related to the Austar Bank Facility, which was secured in July 1997, was
$7.5 million in 1998 compared to $4.0 million in 1997.
MINORITY INTEREST IN SUBSIDIARY. The minority interests' share of income was
$13.6 million for the year ended December 31, 1999. Austar United's IPO (July
1999) reduced our ownership to 75.4% as of December 31, 1999. For accounting
purposes, we continue to consolidate 100% of the results of operations of Austar
United, then deduct the minority interests' share of losses before arriving at
net income.
SHARE IN RESULTS OF AFFILIATED COMPANIES. Our share in results of affiliated
companies totaled a loss of $11.6 million, $10.3 million and $2.4 million for
the years ended December 31, 1999, 1998 and 1997, respectively, as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
XYZ Entertainment (1)................................. $ (5,290) $ 55 $ (2,408)
Saturn (2)............................................ (6,324) (10,354) -
-------- -------- --------
Total share in results of affiliated companies..... $(11,614) $(10,299) $ (2,408)
======== ======== ========
</TABLE>
(1) In September 1998, we acquired an additional 25.0% interest in XYZ
Entertainment, increasing our ownership to 50.0%.
(2) Effective January 1, 1998, we discontinued consolidating the results
of operations of Saturn and returned to the equity method of
accounting due to certain minority shareholder's rights. Effective
August 1, 1999, we increased our ownership interest in Saturn to 100%
and began consolidating its results of operations.
PROVISION FOR LOSSES ON MARKETABLE EQUITY SECURITIES AND INVESTMENT RELATED
COSTS. The provision for losses on marketable equity securities and investment
related costs consists of our write-off of various non-strategic investments.
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 generally accepted accounting principles to selected
revenue recognition issues. SAB 101 is effective second quarter 2000. The
Company is currently assessing the effect of SAB 101.
22
<PAGE>
YEAR 2000 CONVERSION
Our pay television, programming and telephony operations are heavily dependent
upon computer systems and other technological devices with embedded chips. Such
computer systems and other technological devices did not experience any problems
related to recognizing dates of January 2000 and thereafter. In all material
respects, our pay television systems, telephony systems and programming services
continued to operate during the period December 31, 1999 to March 30, 2000.
YEAR 2000 PROGRAM. In response to possible Year 2000 problems, the Board of
Directors of United established a Task Force to assess the impact that potential
Year 2000 problems might have on company-wide operations, including the Company
and its operating companies, and to implement necessary changes to address such
problems. The Task Force reported directly to the United Board. In creating a
program to minimize Year 2000 problems, the Task Force identified certain
critical operations of our business. These critical operations were identified
as service delivery systems, field and headend devices, customer service and
billing systems and corporate management and administrative operations (e.g.,
cash flow, accounts payable and accounts receivable, payroll and building
operations).
The Task Force established a three-phase program to address potential Year 2000
problems:
(a) Identification Phase: identify and evaluate computer systems and other
devices (e.g., headend devices, switches and set top boxes) on a system
by system basis for Year 2000 compliance.
(b) Implementation Phase: establish a database and evaluate the information
obtained in the Identification Phase, determine priorities, implement
corrective procedures, define costs and ensure adequate funding.
(c) Testing Phase: test the corrective procedures to verify that all
material compliance problems will operate on and after January 1, 2000,
and develop, as necessary, contingency plans for material operations.
The Task Force completed these Phases on substantially all critical operations
prior to year-end 1999. As a result, we believe all material corporate
operations are in compliance for Year 2000 and do not require material
remediation or replacement. During the period December 31, 1999 to March 30,
2000, our worldwide operations continued to function in the ordinary course in
all material respects. We experienced no material business interruptions or
material problems with respect to our operations arising from Year 2000 issues.
We know of no remaining contingencies.
The independent consultants retained to assist with our operations in New
Zealand completed their work in 1999 as well.
THIRD PARTY DEPENDENCIES. Although we believed our largest Year 2000 risk was
our dependency upon third-party products, we experienced no Year 2000 issues as
a result of such dependency. To our knowledge, no further significant
contingencies exist based on our dependency upon third party products. We
cannot, however, give any assurance concerning compliance of our equipment
because our responses from third-party vendors have been limited and cannot be
independently verified.
COSTS OF COMPLIANCE. The Task Force is not able to determine the full cost of
its Year 2000 program and its related impact on our financial condition. In the
course of our business, we have made substantial capital adjustments over the
past few years in improving our systems, primarily for reasons other than Year
2000. Because these upgrades also resulted in Year 2000 compliance, replacement
and remediation costs have been low. Therefore, the Task Force's estimate of the
cost of the Year 2000 program at $1.5 million remains unchanged. Included in
such costs is approximately $0.1 million spent on upgrading our billing systems
for Year 2000. The Task Force accelerated these expenditures to 1999 to insure
Year 2000 compliance; otherwise these costs would have been incurred over
approximately two to three years. Such costs do not, however, include internal
costs because we did not separately track the internal costs incurred for the
Year 2000 program. The costs incurred for Year 2000 compliance issues did not
have a material financial impact on the Company. We anticipate no additional
significant expenditures for the Year 2000 program.
ITEM 7A. 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
23
<PAGE>
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 affiliate, XYZ
Entertainment.
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 December 31, 1999
-----------------------------
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.......................... $407,945 $414,008
Average interest rate................................... 14.0% 13.7%
Variable rate NZ$ denominated Saturn Bank Facility........ $ 57,685 $ 57,685
Average interest rate................................... 8.6% 8.6%
Variable rate A$ denominated New Austar Bank Facility..... $202,703 $202,703
Average interest rate................................... 7.6% 7.6%
</TABLE>
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 December 31, 1999
------------------------------------------------------------------------------
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...... $ - $ - $ - $ - $ - $407,945 $407,945
Variable rate NZ$ denominated Saturn
Bank Facility....................... $ - $577 $ 4,615 $ 8,307 $11,537 $ 32,649 $ 57,685
Variable rate A$ denominated New
Austar Bank Facility................ $ - $ - $ 9,184 $50,512 $80,687 $ 62,320 $202,703
</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
24
<PAGE>
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 ($32.8) 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
($65.6) million of variable rate, long-term debt into fixed rate borrowings. As
of December 31, 1999, the weighted-average fixed rate under these agreements was
8.0% compared to a weighted-average variable rate of 7.6%. As a result of these
swap agreements, interest expense was increased by approximately A$0.9 ($0.6)
million during 1999.
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 ($31.7) 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 December 31, 1999, the average fixed rate under the agreement
was 9.3% compared to a weighted-average variable rate of 8.6%. As a result of
this swap agreement, interest expense was increased by approximately NZ$0.4
($0.2) million during 1999.
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.
The table below provides information about our interest rate swaps. The table
presents notional amounts and weighted-average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. The information is
presented in U.S. dollar equivalents (in thousands), which is our reporting
currency. The instrument's actual cash flows are denominated in Australian and
New Zealand dollars.
<TABLE>
<CAPTION> As of December 31, 1999
------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
------- -------- -------- -------- -------- ----------- ----------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Variable to fixed (New Austar Bank Facility)... $ - $ - $32,800 $ - $65,600 $ - $98,400
Average pay rate %........................... 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Average receive rate %....................... 7.6% 7.6% 7.6% 7.6% 7.6% 7.6%
Variable to fixed (Saturn Bank Facility)....... $ - $ - $ - $ - $ - $31,688 $31,688
Average pay rate %........................... 9.1% 10.2% 10.2% 9.7% 9.9% 9.7%
Average receive rate %....................... 8.6% 8.6% 8.6% 8.6% 8.6% 8.6%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements of the Company are filed under this Item
as follows:
<TABLE>
<CAPTION> Page
Number
------
<S> <C>
UNITED AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................................................. 26
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................. 27
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997............... 28
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1999,
1998 and 1997.......................................................................................... 29
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997............... 30
Notes to Consolidated Financial Statements............................................................... 32
</TABLE>
The financial statement schedules required by Regulation S-X are filed under
Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
None.
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United Australia/Pacific, Inc.:
We have audited the accompanying consolidated balance sheets of United
Australia/Pacific, Inc. (formerly UIH Australia/Pacific, Inc.) (a Colorado
corporation and majority-owned subsidiary of United Asia/Pacific Communications,
Inc.) and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the years ended December 31, 1999, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform these
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Australia/Pacific, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years ended
December 31, 1999, 1998 and 1997 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
26
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
As of December 31,
------------------------
1999 1998
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................................ $ 6,028 $ 181
Short-term liquid investments.......................................................................... 269,393 763
Subscriber receivables, net............................................................................ 8,177 6,322
Related party receivables.............................................................................. 1,645 746
Other receivables...................................................................................... 6,196 736
Inventory.............................................................................................. 14,193 12,617
Prepaids and other current assets...................................................................... 5,146 4,615
--------- ---------
Total current assets............................................................................ 310,778 25,980
Investments in and advances to affiliated companies, accounted for under the equity method, net.......... 28,546 24,597
Property, plant and equipment, net of accumulated depreciation of $261,891 and $147,511, respectively.... 219,394 110,351
Goodwill and other intangible assets, net of accumulated amortization of $23,536 and $17,512,
respectively........................................................................................... 91,346 42,559
Deferred financing costs, net of accumulated amortization of $4,427 and $3,237, respectively............. 16,377 11,675
Other non-current assets, net............................................................................ 150 870
--------- ---------
Total assets................................................................................... $ 666,591 $ 216,032
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable....................................................................................... $ 16,463 $ 5,426
Accrued liabilities.................................................................................... 32,151 28,522
Construction payables.................................................................................. 4,370 1,076
Current portion of due to parent....................................................................... 12,754 3,665
Current portion of notes payable....................................................................... - 36,738
Current portion of other long-term debt................................................................ 1,500 2,189
--------- ---------
Total current liabilities....................................................................... 67,238 77,616
Due to parent............................................................................................ 9,621 6,578
Senior discount notes.................................................................................... 407,945 356,640
Other long-term debt..................................................................................... 261,151 68,086
Deferred tax liability................................................................................... 1,014 -
Other long-term liabilities.............................................................................. 456 1,741
--------- ---------
Total liabilities............................................................................... 747,425 510,661
--------- ---------
Minority interest in subsidiary.......................................................................... 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 and 17,810,249 shares
issued and outstanding, respectively................................................................. 178 178
Additional paid-in capital............................................................................. 331,688 215,624
Deferred compensation.................................................................................. (18,343) -
Accumulated deficit.................................................................................... (445,844) (481,240)
Other cumulative comprehensive loss.................................................................... (22,583) (29,191)
--------- ---------
Total stockholders' deficit..................................................................... (154,904) (294,629)
Commitments and contingencies (Notes 15 and 16)
--------- ---------
Total liabilities and stockholders' deficit..................................................... $ 666,591 $ 216,032
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue............................................................................... $ 150,752 $ 89,819 $ 68,961
System operating expense, including related party expense of
$4,381, $4,124 and $3,291, respectively............................................. (112,498) (71,149) (52,703)
System selling, general and administrative expense.................................... (49,501) (49,738) (50,006)
Corporate general and administrative expense, including management fees and
allocated expense from related party of $21,767, $5,475 and $2,739, respectively.... (26,847) (5,696) (3,306)
Depreciation and amortization......................................................... (104,720) (97,140) (80,802)
---------- ---------- ----------
Operating loss............................................................... (142,814) (133,904) (117,856)
Gain on issuance of common equity securities by subsidiary............................ 248,361 - -
Interest income, including related party income of $0, $0 and $425, respectively...... 6,253 207 1,569
Interest expense, including related party expense of $0, $1,079 and $1,730,
respectively........................................................................ (69,470) (56,705) (43,994)
Provision for losses on marketable equity securities and investment related costs..... (4,949) (4,462) (4,784)
Other expense, net.................................................................... (2,987) (1,128) (1,601)
---------- ---------- ----------
Income (loss) before income taxes and other items............................ 34,394 (195,992) (166,666)
Income tax expense.................................................................... (993) - -
Minority interest in subsidiary....................................................... 13,609 - 1,018
Share in results of affiliated companies, net......................................... (11,614) (10,299) (2,408)
---------- ---------- ----------
Net income (loss)............................................................ $ 35,396 $ (206,291) $ (168,056)
========== ========== ==========
Foreign currency translation adjustments.............................................. $ 6,608 $ (227) $ (30,831)
Unrealized gains on securities:
Reclassification adjustment for losses included in net income (loss)................ - - 3,412
---------- ---------- ----------
Comprehensive income (loss).................................................. $ 42,004 $ (206,518) $ (195,475)
========== ========== ==========
Net income (loss) per common share:
Basic net income (loss)...................................................... $ 1.99 $ (14.02) $ (12.12)
========== ========== ==========
Diluted net income (loss).................................................... $ 1.94 $ (14.02) $ (12.12)
========== ========== ==========
Weighted-average number of common shares outstanding:
Basic........................................................................ 17,810,254 14,718,857 13,864,941
========== ========== ==========
Diluted...................................................................... 18,199,726 14,718,857 13,864,941
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Stated in thousands, except share amounts)
Other
Cumulative
Common Stock Additional Comprehensive
-------------------- Paid-In Deferred Accumulated Income
Shares Amount Capital Compensation Deficit (Loss)(1) Total
---------- -------- ---------- ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997............... 13,864,941 $ 139 $112,346 $ - $(106,893) $ (1,545) $ 4,047
Cash contributions from parent.......... - - 7,863 - - - 7,863
Non-cash contributions from parent...... - - 9,749 - - - 9,749
Gain on sale of stock by New
Zealand subsidiary..................... - - 5,985 - - - 5,985
Issuance of warrants to purchase
common stock.......................... - - 3,678 - - - 3,678
Net loss................................ - - - - (168,056) - (168,056)
Provision for loss on marketable
equity securities, net................ - - - - - 3,412 3,412
Change in cumulative translation
adjustments........................... - - - - - (30,831) (30,831)
----------- ----- -------- -------- --------- -------- ---------
Balances, December 31, 1997............. 13,864,941 139 139,621 - (274,949) (28,964) (164,153)
Cash contributions from parent.......... - - 58,947 - - - 58,947
Non-cash contributions from parent...... - - 17,095 - - - 17,095
Issuance of capital stock to parent
related to cumulative cash capital
contributions......................... 3,945,308 39 (39) - - - -
Net loss................................ - - - - (206,291) - (206,291)
Change in cumulative translation
adjustments........................... - - - - - (227) (227)
---------- ----- -------- -------- --------- -------- ---------
Balances, December 31, 1998............. 17,810,249 178 215,624 - (481,240) (29,191) (294,629)
Cash contributions from parent.......... - - 29,659 - - - 29,659
Non-cash contributions from parent...... - - 45,521 - - - 45,521
Equity transactions of subsidiary....... - - 40,883 (40,883) - - -
Amortization of deferred compensation... - - - 22,540 - - 22,540
Warrants exercised...................... 50 - 1 - - - 1
Net income.............................. - - - - 35,396 - 35,396
Change in cumulative translation
adjustments........................... - - - - - 6,608 6,608
---------- ----- -------- -------- --------- -------- ---------
Balances, December 31, 1999............. 17,810,299 $ 178 $331,688 $(18,343) $(445,844) $(22,583) $(154,904)
========== ===== ======== ======== ========= ======== =========
(1) As of January 1, 1997, the components of Other Cumulative Comprehensive Income (Loss) include $1,867 and $(3,412) for foreign
currency translation adjustments and unrealized loss on investment, respectively. Beginning December 31, 1997, Other Cumulative
Comprehensive Income (Loss) represents foreign currency translation adjustments only.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................................... $ 35,396 $(206,291) $(168,056)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Gain on issuance of common equity securities by subsidiary............................. (248,361) - -
Share in results of affiliated companies, net.......................................... 6,351 10,299 2,408
Minority interest in subsidiaries...................................................... (13,609) - (1,018)
Depreciation and amortization.......................................................... 104,720 97,140 80,802
Allocation of expense accounted for as capital contributions by parent................. 3,216 4,622 1,949
Stock-based compensation expense....................................................... 22,540 - -
Provision for losses on marketable equity securities and investment related costs...... 4,949 4,462 4,784
Accretion of interest on senior notes and amortization of deferred financing costs..... 56,069 49,508 38,747
Increase in receivables, net........................................................... (1,107) (2,757) (1,691)
Decrease (increase) in other assets.................................................... (4,890) (5,719) 68
Increase in accounts payable, accrued liabilities and other............................ 15,870 24,894 17,100
-------- --------- ---------
Net cash flows from operating activities.................................................. (18,856) (23,842) (24,907)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments................................................. (266,378) (763) (15,988)
Sale of short-term liquid investments..................................................... 1,676 12,325 22,303
Restricted cash released (deposited)...................................................... 91 - (420)
Investments in and advances to affiliated companies and acquisition of assets............. (5,177) (11,389) (3,272)
Consolidation (deconsolidation) of New Zealand subsidiary................................. 613 (9,881) -
Capital expenditures...................................................................... (117,819) (71,466) (101,135)
Decrease in construction payables......................................................... (1,416) (2,007) (29,621)
-------- --------- ---------
Net cash flows from investing activities.................................................. (388,410) (83,181) (128,133)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed from parent.............................................................. 29,659 58,947 7,863
Cash contributed from minority interest partner........................................... - - 19,566
Proceeds from issuance of common stock by subsidiary, net................................. 292,784 - -
Proceeds from issuance of common stock in connection with subsidiary option plan.......... 807 - -
Warrants exercised........................................................................ 1 - -
Borrowings on the New Austar Bank Facility and Saturn Bank Facility....................... 229,928 39,519 85,210
Payment of the Austar Bank Facility....................................................... (129,149) - -
Proceeds from offering of senior discount notes........................................... - - 29,925
Borrowings on related party payable to parent............................................. - - 9,998
Deferred debt financing costs............................................................. (8,014) (473) (5,643)
Payment of capital leases and other debt.................................................. (927) (3,326) (490)
-------- --------- ---------
Net cash flows from financing activities.................................................. 415,089 94,667 146,429
-------- --------- ---------
EFFECT OF EXCHANGE RATES ON CASH.......................................................... (1,976) 193 (265)
-------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................... 5,847 (12,163) (6,876)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................ 181 12,344 19,220
-------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................................. $ 6,028 $ 181 $ 12,344
======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash capital contributions from parent................................................ $ 17,233 $ 12,473 $ 7,800
======== ========= =========
Gain on issuance of shares by New Zealand subsidiary...................................... $ - $ - $ 5,985
======== ========= =========
Non-cash issuance of warrants to purchase common stock.................................... $ - $ - $ 3,678
======== ========= =========
Investment in XYZ Entertainment........................................................... $ 25,072 $ - $ -
======== ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................................................... $ 11,977 $ 5,323 $ 1,239
======== ========= =========
Cash received for interest................................................................ $ 2,747 $ 144 $ 796
======== ========= =========
CONSOLIDATION/DECONSOLIDATION OF NEW ZEALAND SUBSIDIARY:
Working capital........................................................................... $ 10,162 $ 4,159 $ -
Property, plant and equipment............................................................. (80,656) (26,484) -
Elimination of investment in Saturn....................................................... 21,974 - -
Goodwill and other assets................................................................. (5,737) (2,805) -
Notes payable and other debt.............................................................. 54,870 3,833 -
Minority interest......................................................................... - 11,416 -
-------- --------- ---------
Total cash received (relinquished)........................................................ $ 613 $ (9,881) $ -
======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
31
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
United Australia/Pacific, Inc. (the "Company" or "United A/P") (formerly known
as UIH Australia/Pacific, Inc.) a majority-owned subsidiary of United
Asia/Pacific Communications, Inc. ("UAP") (formerly known as UIH Asia/Pacific
Communications, Inc.), which is in turn an indirect wholly-owned subsidiary of
UnitedGlobalCom, Inc. ("United") (formerly known as United International
Holdings, Inc.), was formed on October 14, 1994, for the purpose of developing,
acquiring and managing foreign pay television, programming and telephony
operations.
The following chart presents a summary of the Company's ownership structure and
its significant investments in multi-channel television, programming and
telephony operations as of December 31, 1999.
***********************************************************
* *
* United *
* *
***********************************************************
*
100% *
***********************************************************
* *
* United International Properties, Inc. ("UIPI") *
* *
***********************************************************
*
100% *
***********************************************************
* *
* UAP *
* *
***********************************************************
*
100% *
***********************************************************
* *
* The Company *
* *
***********************************************************
*
75.4% *
***********************************************************
* 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% *
* *
***********************************************************
32
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles ("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 consolidated financial statements 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
effective July 27, 1999. The Company previously consolidated the operations of
Saturn from July 1, 1996 through December 31, 1998. Prior to that time, the
Company accounted for its investment in Saturn under the equity method. During
the fourth quarter of 1998, the Company discontinued consolidating the results
of operations of Saturn effective as of January 1, 1998 and returned to the
equity method of accounting through July 26, 1999. The change was made 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. Accordingly, the condensed consolidated statement of operations and
statement of cash flows for the period ended December 31, 1998 have been
adjusted to reflect the deconsolidation of Saturn effective as of January 1,
1998. Effective October 1, 1998, the Company discontinued consolidating the
results of operations of Telefenua due to an other-than-temporary loss of
control. 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 multi-channel 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.
33
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO 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.
START-UP COSTS
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities", ("SOP 98-5"), which provides for guidance on the
financial reporting for start-up and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. SOP 98-5
was effective for financial statements for fiscal years beginning after December
15, 1998. There was no material effect of the adoption of SOP 98-5 during 1999.
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.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the large
number of customers comprising the Company's customer base.
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 at each new
measurement date. With respect to this plan, the rights conveyed to employees
are the substantive equivalents to stock appreciation rights. Accordingly,
compensation expense is recognized at each financial statement date based on the
difference between the grant price and the estimated fair value of Austar
United's common stock.
34
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets, liabilities and loss carryforwards using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Net deferred tax assets are then reduced by a valuation allowance if
management believes it more likely than not that they will not be realized.
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 9) are included in the Company's diluted net income
(loss) per share amounts for 1999.
COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an enterprise
(i) classify items of other comprehensive income (loss) by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income (loss) separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Company adopted SFAS 130 effective January 1, 1998.
FOREIGN OPERATIONS 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.
35
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 SAB 101.
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 generally accepted accounting principles 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. RESTRUCTURING OF ASSETS AND INITIAL PUBLIC OFFERING
In June 1999, the Company's interests in Austar, XYZ Entertainment and Saturn
were contributed to Austar United in exchange for new shares issued by Austar
United. On July 27, 1999, Austar United acquired from 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%. In
addition, Austar United successfully completed an initial public offering
("Austar United IPO") selling 103.5 million shares on the Australian Stock
Exchange, raising gross and net proceeds in Australian dollars ("A$")4.70
($3.03) per share of A$486.5 ($313.6) million and A$453.6 ($292.8) million,
respectively. Based on the carrying value of the Company's investment in Austar
United as of July 27, 1999, the Company recognized a gain of $248.4 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 IPO reduced the Company's ownership
interest from 100% to approximately 75.5%. Subsequent stock option exercises
reduced our ownership interest to 75.4% as of December 31, 1999. Including all
vested stock options granted to employees, the Company's ownership interest in
Austar United on a fully diluted basis is approximately 73.7% at December 31,
1999.
4. CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------------------------
Cash Short-Term
and Cash Liquid
Equivalents Investments Total
------------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Cash.................................................... $6,028 $ - $ 6,028
Certificates of deposit................................. - 269,043 269,043
Government securities................................... - 350 350
------ -------- --------
Total................................................ $6,028 $269,393 $275,421
====== ======== ========
As of December 31, 1998
----------------------------------------------
Cash Short-term
and Cash Liquid
Equivalents Investments Total
------------- ------------- ------------
(In thousands)
Cash.................................................... $ 181 $ - $ 181
Commercial paper........................................ - 406 406
Government securities................................... - 357 357
------ -------- --------
Total................................................ $ 181 $ 763 $ 944
====== ======== ========
</TABLE>
36
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------------------------------------------------------
Investments in Cumulative Share Cumulative
and Advances to in Results of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- -------------------- ----------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
XYZ Entertainment(1)... $44,306 $(18,564) $ 2,804 $ - $28,546
------- -------- ------- ------- -------
Total............. $44,306 $(18,564) $ 2,804 $ - $28,546
======= ======== ======= ======= =======
As of December 31, 1998
-------------------------------------------------------------------------------------------
Investments in Cumulative Share Cumulative
and Advances to in Results of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- -------------------- ----------- ---------- -------
(In thousands)
Saturn................. $49,808 $(23,138) $(2,881) $ - $23,789
XYZ Entertainment...... 19,363 (18,666) 111 - 808
Telefenua.............. 18,599 (14,215) - (4,384)(2) -
------- -------- ------- ------- -------
Total............. $87,770 $(56,019) $(2,770) $(4,384) $24,597
======= ======== ======= ======= =======
</TABLE>
(1) In June 1999, the 25.0% interest in XYZ Entertainment held by UAP was
transferred to the Company at its carrying value of $25.1 million.
(2) The Company reserved the remaining balance of the Telefenua investment
of $4,384 due to the uncertainty of realization.
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
As of December 31, 1999 As of December 31, 1998
--------------------------- ---------------------------
Basis Accumulated Basis Accumulated
Difference Amortization Difference Amortization
------------ -------------- ------------ --------------
(In thousands)
<S> <C> <C> <C> <C>
XYZ Entertainment..................................... $25,791 $(1,609) $ - $ -
Saturn................................................ - - 12,733 (1,005)
------- ------- ------- -------
Total............................................ $25,791 $(1,609) $12,733 $(1,005)
======= ======= ======= =======
</TABLE>
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
As of
December 31, 1998
------------------
(In thousands)
Current assets......................................... $ 4,071
Non-current assets..................................... 59,242
--------
Total assets...................................... $ 63,313
========
Current liabilities.................................... $ 33,608
Non-current liabilitities.............................. 19
Shareholders' equity 29,686
--------
Total liabilities and shareholders' equity........ $ 63,313
========
For the Year Ended
December 31, 1998
-------------------
(In thousands)
Revenue................................................ $ 1,693
Expenses............................................... (16,934)
--------
Net loss.......................................... $(15,241)
========
37
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Subscriber premises equipment and converters.............. $276,725 $174,630
MMDS distribution facilities.............................. 64,373 54,725
Cable distribution networks............................... 91,298 2,009
Office equipment, furniture and fixtures.................. 23,111 9,810
Buildings and leasehold improvements...................... 5,645 2,841
Other..................................................... 20,133 13,847
-------- --------
481,285 257,862
Accumulated depreciation............................... (261,891) (147,511)
-------- --------
Net property, plant and equipment...................... $219,394 $110,351
======== ========
</TABLE>
7. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Austar United............................................. $114,882 $ -
Austar.................................................... - 55,805
Other..................................................... - 4,266
-------- --------
114,882 60,071
Accumulated amortization............................... (23,536) (17,512)
-------- --------
Net goodwill and other intangible assets............... $ 91,346 $ 42,559
======== ========
</TABLE>
8. CURRENT PORTION OF NOTES PAYABLE
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Austar Bank Facility (See Note 10)......................... $ - $ 36,738
-------- --------
Total current portion of notes payable.................. $ - $ 36,738
======== ========
</TABLE>
9. SENIOR DISCOUNT NOTES
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
May 1996 Notes (as defined below), net of
unamortized discount...................................... $369,111 $321,687
September 1997 Notes (as defined below), net
of unamortized discount................................... 38,834 34,953
-------- --------
Total senior discount notes............................. $407,945 $356,640
======== ========
</TABLE>
38
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $369.1 million as of December 31, 1999. 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. The quoted
fair market value of these notes was approximately $375.8 million and $223.7
million as of December 31, 1999 and 1998, respectively.
SEPTEMBER 1997 NOTES
The 14.0% senior notes, which the Company issued in September 1997 at a discount
from their principal amount of $45.0 million (the "September 1997 Notes"), had
an accreted value of $38.8 million as of December 31, 1999. 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. The quoted fair market value of these notes was
approximately $38.2 million and $22.7 million as of December 31, 1999 and 1998,
respectively.
On November 17, 1997, pursuant to the terms of the indentures governing the May
1996 Notes and the September 1997 Notes (collectively, the "Notes"), the Company
issued warrants to purchase 488,000 shares of its common stock, which
represented 3.4% of 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.
10. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Austar Bank Facility (as defined below)................ $202,703 $ 67,352
Saturn Bank Facility (as defined below)................ 57,685 -
Capitalized leases and other........................... 2,263 2,923
-------- --------
262,651 70,275
Less current portion................................ (1,500) (2,189)
-------- --------
Total other long-term debt......................... $261,151 $ 68,086
======== ========
</TABLE>
AUSTAR BANK FACILITY
In July 1997, Austar secured a senior syndicated term debt facility (the "Austar
Bank Facility") in the amount of A$200.0 million to fund its subscriber
acquisition and working capital needs. Austar had drawn the full amount of the
facility by April 1999 when it secured a new syndicated senior secured debt
facility (the "New Austar Bank Facility") for A$400.0 million to refinance the
A$200.0 million Austar 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 Austar Bank Facility, and Tranche 2 is available upon the
contribution of additional equity on a 2:1 debt-to-equity basis. As of December
31, 1999, Austar had drawn A$309.0 ($202.7) 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
39
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 NZ$125.0 ($65.4) million to fund the completion
of Saturn's network. As of December 31, 1999, Saturn had drawn NZ$109.0 ($57.7)
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 3.0%
over the current base rate upon draw down and has averaged approximately 8.6%.
The Saturn Bank Facility is repayable over a five year period beginning fourth
quarter 2001.
DEBT MATURITIES
The Company's maturities of its other long-term debt are as follows:
Year ended December 31, 2000....................... $ 1,500
Year ended December 31, 2001....................... 5,356
Year ended December 31, 2002....................... 18,069
Year ended December 31, 2003....................... 62,069
Year ended December 31, 2004....................... 96,839
Thereafter......................................... 78,818
--------
$262,651
========
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 ($32.8) 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
($65.6) million of variable rate, long-term debt into fixed rate borrowings. As
of December 31, 1999, the weighted-average fixed rate under these agreements was
8.0% compared to a weighted-average variable rate on the New Austar Bank
Facility of approximately 7.6%. As a result of these swap agreements, interest
expense was increased by approximately A$0.9 ($0.6) million during 1999.
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$60.6 ($31.7) 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 December 31, 1999, the average fixed rate under the agreement
was 9.3% compared to a weighted-average variable rate of 8.6%. As a result of
this swap agreement, interest expense was increased by approximately NZ$0.4
($0.2) million during 1999.
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.
11. RELATED PARTY
Effective May 1, 1996, the Company and United Management, Inc. ("United
Management") (formerly known as UIH Management, Inc.), 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
40
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management assigned its rights and obligations under the Management Agreement to
UAP, the Company's immediate parent, and extended the agreement for 20 years
from that date (the "UAP Management Agreement"). 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.
Management believes that this method of allocating costs is reasonable. For the
years ended December 31, 1999, 1998 and 1997, the Company recorded $20.8
million, $4.6 million and $1.9 million, respectively, in corporate general and
administrative expense allocated from United and management fees due from the
Company to UAP. The December 31, 1999 amount includes $17.6 million of non-cash
stock-based compensation expense related to UAP stock appreciation rights.
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 1999 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. For the years ended December 31, 1999, 1998 and 1997, the Company
recorded $0.9 million, $0.9 million and $0.8 million, respectively, 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.
Included in the amount due to parent is the following:
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
United A/P.......................................................... $ 1,977 $ 1,056
Austar United technical assistance agreement obligations,
including management fees of $1,200 and $0, respectively........... 2,874 -
Austar technical assistance agreement obligations, including
deferred management fees of $9,472 and $5,973, respectively (1).... 13,889 8,347
Saturn technical assistance agreement obligations................... 1,820 -
Other............................................................... 1,815 840
------- -------
22,375 10,243
Less current portion........................................... (12,754) (3,665)
------- -------
Total due to parent............................................ $ 9,621 $ 6,578
======= =======
</TABLE>
(1) Austar United and UAP have the option of converting these management
fees into equity.
41
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. STOCKHOLDERS' DEFICIT
EQUITY TRANSACTIONS OF SUBSIDIARY
Variable plan accounting for stock options and the recognition of deferred
compensation expense by the Company's subsidiary affect the equity accounts of
the Company. The following represents the effect on additional paid-in capital
and deferred compensation as a result of these equity transactions:
For the Year Ended
December 31, 1999
------------------
Austar
United
------------------
(In thousands)
Variable plan accounting for stock options............... $40,883
Deferred compensation expense............................ (40,883)
Amortization of deferred compensation.................... 22,540
-------
Total............................................... $22,540
=======
AUSTAR UNITED PLAN
On June 17, 1999, Austar United established a stock option plan (the "Austar
United Plan"). Effective on Austar United's IPO date of July 27, 1999, certain
employees of United and Austar United were granted options under the Austar
United Plan in direct proportion to their previous holding of UAP options under
the UAP Plan along with retroactive vesting through the initial public offering
date to reflect vesting under the UAP Plan. The maximum term of options granted
under the Austar United Plan is ten years. In general, the options vest in equal
monthly increments over the four-year period following the date of grant. Under
the Austar United Plan, options to purchase a total of 28,760,709 shares have
been authorized, of which 3,231,428 were available for grant. The Austar United
Plan was accounted for as a variable plan prior to the Australian IPO and as a
fixed plan effective July 27, 1999. For the year ended December 31, 1999, $4.9
million of compensation expense was recognized under this plan in the statement
of operations.
For purposes of the proforma disclosures presented below, Austar United has
computed the fair values of all options granted during the year ended December
31, 1999 using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
Risk-free interest rate.................. 5.81%
Expected life............................ 7 years
Expected volatility...................... 40.44%
Expected dividend yield.................. 0%
The total fair value of options granted was approximately A$88.0 ($57.7) million
for the year ended December 31, 1999. This amount is amortized using the
straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in proforma net income, with respect to options
that are forfeited prior to vesting, is adjusted as a reduction of proforma
compensation expense in the period of forfeiture. Pro forma stock-based
compensation, net of the effect of the forfeitures and net of actual
compensation expense recorded in the statement of operations was nil for the
year ended December 31, 1999.
42
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of stock option activity for the Austar United Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
----------------------------------
Number Weighted-
of Average
Shares Exercise Price
------------ -------------------
(Australian dollars)
<S> <C> <C>
Outstanding at beginning of period...................... - -
Granted during the period............................... 25,631,736 2.26
Cancelled during the period............................. (102,455) 3.75
Exercised during the period............................. (684,250) 1.83
----------
Outstanding at end of period............................ 24,845,031 2.27
==========
Exercisable at end of period............................ 11,564,416 1.90
==========
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted during the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
---------------------------------------
Number Fair Exercise
Exercise Price of Options Value Price
-------------- ------------- ---------- ---------------
(Australian dollars)
<S> <C> <C> <C>
Less than market price.................................. 22,334,236 3.58 1.91
Equal to market price................................... 3,222,500 2.47 4.70
Greater than market price............................... 75,000 2.43 4.70
----------
Total................................................ 25,631,736 3.44 2.26
==========
</TABLE>
The following table summarizes information about the Austar United Plan options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-Average
Number of Remaining Number of
Options Contractual Life Options
Exercise Price (Australian dollars) Outstanding (Years) Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$1.80................................................... 20,813,572 9.55 11,171,494
$4.70................................................... 4,031,459 9.60 392,922
---------- ----------
Total................................................ 24,845,031 9.56 11,564,416
========== ==========
</TABLE>
13. INCOME TAXES
In general, a U.S. corporation may claim a foreign tax credit against its
federal income tax expense for foreign income taxes paid or accrued. Because the
Company must calculate its foreign tax credit separately for dividends received
from each foreign corporation in which the Company owns 10.0% to 50.0% of the
voting stock, and because of certain other limitations, the Company's ability to
claim a foreign tax credit may be limited, particularly with respect to
dividends paid out of earnings subject to a high rate of foreign income tax.
Generally, the Company's ability to claim a foreign tax credit is limited to the
amount of U.S. taxes the Company pays with respect to its foreign source income.
In calculating its foreign source income, the Company is required to allocate
interest expense and overhead incurred in the U.S. between its domestic and
foreign activities. Accordingly, to the extent U.S. borrowings are used to
finance equity contributions to its foreign subsidiaries, the Company's ability
to claim a foreign tax credit may be significantly reduced. These limitations
and the inability of the Company to offset losses in one foreign jurisdiction
against income earned in another foreign jurisdiction could result in a high
effective tax rate on the Company's earnings.
43
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is included as a member of United's consolidated tax return and,
after the offering of the May 1996 Notes, remained a member of the United
consolidated group. United and the Company are parties to a tax sharing
agreement that defines the parties' rights and obligations with respect to tax
liabilities and benefits relating to the Company and its operations as part of
the consolidated group of United. In general, United is responsible for filing
consolidated tax returns and paying the associated taxes, and the Company will
reimburse United for the portion of the tax cost relating to the Company and its
operations. For financial reporting purposes, the Company accounts for income
taxes as if it filed separate income tax returns in accordance with the
fundamental provisions of the tax sharing agreement. Any differences in income
tax expense (benefit) allocated to the Company by United in accordance with the
tax sharing agreement and the income tax expense (benefit) will be accounted for
as a deemed capital distribution or contribution. Because the Company holds
certain of its foreign investments through affiliates which hold investments
accounted for under the equity method in foreign corporations, taxable income
(loss) generated does not flow through to the Company for U.S. federal and state
tax purposes even though the Company records its allocable share of affiliate
income (losses) for financial reporting purposes. Accordingly, due to the
indefinite reversal of such amounts in future periods, no deferred tax assets
have been established for tax basis in excess of the Company's book basis
(approximately $18.0 million and $13.0 million as of December 31, 1999 and 1998,
respectively) in investments in affiliated companies who, in turn, have equity
investments in foreign corporations.
The Company's United States tax net operating losses, totaling approximately
$21.9 million at December 31, 1999, expire beginning in 2014 through 2029. The
significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
--------------------
Basis differences in property, plant and equipment...................................... $ 482 $ 1,367
Accrued interest expense on the Notes................................................... 52,040 32,885
U.S. tax net operating loss carryforward................................................ 8,323 4,615
Basis difference in marketable equity securities........................................ 1,696 1,696
Tax net operating loss carryforward of consolidated foreign subsidiaries (1)............ 156,470 107,856
--------- ---------
Gross deferred tax assets................................................................. 219,011 148,419
Deferred tax liabilities:
-------------------------
Other................................................................................... (1,014) -
--------- ---------
Gross deferred tax liabilities............................................................ (1,014) -
--------- ---------
Valuation allowance for deferred tax assets............................................... (219,011) (148,419)
--------- ---------
Deferred tax liabilities, net............................................................. $ (1,014) $ -
========= =========
</TABLE>
(1) For Australian income tax purposes, the net operating loss
carryforward may be limited in the event of a change in control of
Austar or a change in the business.
44
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The difference between income tax expense provided in the financial statements
and the expected income tax expense (benefit) at statutory rates is reconciled
as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Expected income tax benefit at the U.S. statutory rate of 35.0%............ $ 12,038 $(68,597) $(58,333)
Tax effect of permanent and other differences:
Change in valuation reserve.............................................. 66,968 64,624 56,060
State tax, net of federal benefit........................................ 1,032 (6,189) (5,042)
International rate differences........................................... 3,325 (1,251) (615)
Non-deductible interest accretion on the Notes........................... 1,693 2,605 2,145
Amortization of outside basis differences................................ 788 1,412 1,570
Amortization of licenses................................................. 923 1,819 1,312
Gain on issuance of common equity securities by subsidiary............... (94,377) - -
Non-deductible expenses and other........................................ 8,603 5,577 2,903
-------- -------- --------
Total income tax expense................................................... $ 993 $ - $ -
======== ======== ========
</TABLE>
14. SEGMENT INFORMATION
The Company's business has historically been derived from its video
entertainment segment. This service has been provided in various countries where
the Company owns and operates its systems. Accordingly, the Company's current
reportable segments are the various countries in which it operates multi-channel
television, programming and/or telephony operations. These reportable segments
are evaluated separately because each country presents different marketing
strategies and technology issues as well as distinct economic climates and
regulatory constraints. The key operating performance criteria used in this
evaluation include revenue growth, operating income before depreciation,
amortization, non-cash general and administrative expense allocated from parent,
stock-based compensation charges ("Adjusted EBITDA") and capital expenditures.
Senior management of the Company does not view segment results below Adjusted
EBITDA, therefore, interest income, interest expense, provision for losses on
investment related costs, gain on sale of investments, share in results of
affiliated companies, minority interests in subsidiaries and other expenses are
not broken out by segment below.
45
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's segment information is as follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1999 As of December 31, 1999
--------------------------------------------- ---------------------------------------------
Property, Plant
Multichannel Capital and Equipment, Total
Television Telephony Other Total Expenditures Net Assets
----------- --------- ------- --------- ------------ ---------------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Australia......................... $144,632 $ - $ - $144,632 $ 94,513 $123,617 $563,627
New Zealand....................... 1,279 4,107 734 6,120 23,306 95,777 76,139
Other............................. - - - - - - 26,825
-------- ------- ----- -------- -------- -------- --------
Total........................... $145,911 $ 4,107 $ 734 $150,752 $117,819 $219,394 $666,591
======== ======= ===== ======== ======== ======== ========
Adjusted EBITDA: (1)
Australia......................... $ (4,742) $ - $ - $ (4,742)
New Zealand....................... (918) (1,160) (47) (2,125)
Other............................. - - (169) (169)
-------- ------- ----- --------
Total........................... $ (5,660) $(1,160) $(216) $ (7,036)
======== ======= ===== ========
For the year ended December 31, 1998 As of December 31, 1998
--------------------------------------------- ---------------------------------------------
Property, Plant
Multichannel Capital and Equipment, Total
Television Telephony Other Total Expenditures Net Assets
----------- --------- ------- --------- ------------ ---------------- -----------
(In thousands) (In thousands)
Revenue:
Australia......................... $ 86,408 $ - $ - $ 86,408 $ 71,197 $110,351 $181,169
New Zealand....................... - - - - - - 23,789
Other............................. 3,411 - - 3,411 269 - 11,074
-------- ------- ----- -------- -------- -------- --------
Total........................... $ 89,819 $ - $ - $ 89,819 $ 71,466 $110,351 $216,032
======== ======= ===== ======== ======== ======== ========
Adjusted EBITDA: (1)
Australia......................... $(27,065) $ - $ - $(27,065)
New Zealand....................... - - - -
Other............................. (101) - - (101)
-------- ------- ----- --------
Total........................... $(27,166) $ - $ - $(27,166)
======== ======= ===== ========
For the year ended December 31, 1997 As of December 31, 1997
--------------------------------------------- ---------------------------------------------
Property, Plant
Multichannel Capital and Equipment, Total
Television Telephony Other Total Expenditures Net Assets
----------- --------- ------- --------- ------------ ---------------- -----------
(In thousands) (In thousands)
Revenue:
Australia.......................... $ 64,370 $ - $ - $ 64,370 $ 84,375 $147,871 $202,325
New Zealand........................ 473 - - 473 16,258 26,484 43,349
Other.............................. 4,118 - - 4,118 502 8,746 33,358
-------- ------- ----- -------- -------- -------- --------
Total............................ $ 68,961 $ - $ - $ 68,961 $101,135 $183,101 $279,032
======== ======= ===== ======== ======== ======== ========
Adjusted EBITDA: (1)
Australia.......................... $(24,082) $ - $ - $(24,082)
New Zealand........................ (6,688) - - (6,688)
Other.............................. (254) - - (254)
-------- ------- ----- --------
Total............................ $(31,024) $ - $ - $(31,024)
======== ======= ===== ========
</TABLE>
46
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization, non-cash general and administrative expense allocated from
parent 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.
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Net operating loss..................................... $(142,814) $(133,904) $(117,856)
Depreciation and amortization.......................... 104,720 97,140 80,802
Non-cash stock-based compensation expense.............. 22,540 - -
Non-cash general and administrative expense
allocation from parent............................... 3,216 4,621 1,949
Management fees........................................ 5,302 4,977 4,081
--------- --------- ---------
Consolidated Adjusted EBITDA...................... $ (7,036) $ (27,166) $ (31,024)
========= ========= =========
</TABLE>
15. COMMITMENTS
The Company has MMDS and programming license fees and programming commitments
due annually as follows (in thousands):
Year ended December 31, 2000............................ $ 4,159
Year ended December 31, 2001............................ 4,178
Year ended December 31, 2002............................ 4,178
Year ended December 31, 2003............................ 4,178
Year ended December 31, 2004............................ 4,178
Thereafter.............................................. 7,164
-------
$28,035
=======
The Company has various lease agreements for office space, equipment and
vehicles. Rent expense under these lease agreements totaled $4.1 million, $2.6
million and $2.9 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company has operating lease obligations as follows (in thousands):
Year ended December 31, 2000............................ $ 533
Year ended December 31, 2001............................ 413
Year ended December 31, 2002............................ 215
Year ended December 31, 2003............................ 160
Year ended December 31, 2004............................ 122
Thereafter.............................................. 321
=======
$ 1,764
=======
47
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A subsidiary of Austar has a five-year agreement with Optus Networks to lease a
54MHz transponder. Pursuant to the agreement, which commenced September 1, 1997,
Austar will pay approximately $370 per month in satellite service fees to Optus
Networks. Satellite fees payable annually are approximately as follows:
Year ended December 31, 2000............................ $ 4,440
Year ended December 31, 2001............................ 4,440
Year ended December 31, 2002............................ 2,960
=======
$11,840
=======
16. CONTINGENCIES
The Company is not a party to any material legal proceedings, nor is it
currently aware of any threatened material legal proceedings. From time to time,
the Company may become involved in litigation relating to claims arising out of
its operations in the normal course of its business.
17. SUBSEQUENT EVENTS
In January 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 $4.4 million including $0.6
million in Austar United shares and $3.8 million in cash.
On February 23, 2000, Austar United announced 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"). This is
expected to close by the end of March 2000.
On March 29, 2000, Austar United announced the sale of 20.0 million shares to
the public at A$8.50 ($5.15) per share for gross proceeds to the Company of
A$170.0 ($103.0) million.
48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The directors and executive officers of the Company as of March 1, 2000 are set
forth below. All officers are appointed for an indefinite term serving at the
pleasure of the Board. The number of members on the Company's Board is currently
fixed at two.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gene W. Schneider 73 Chairman of the Board
Michael T. Fries 37 Director, President and Chief Executive Officer
John C. Porter 42 Chief Operating Officer (until August 1999);
Chief Executive Officer--Austar United
Bruce Mann 44 Executive Director--Austar
Jack B. Matthews 48 Chief Executive Officer--Saturn
</TABLE>
GENE W. SCHNEIDER has served as Chairman of the Board for the Company and UAP
since their respective formation dates. He has also been Chairman of the Board
of Directors of United since its inception in May 1989 and was a director of
United International Holdings, a Colorado general partnership, from September
1989 until its dissolution in December 1993. Mr. Schneider has also served as
United's Chief Executive Officer since October 1995 and served as its President
from October 1997 until he relinquished the title in September 1998. Mr.
Schneider has served as a director of Austar United, a majority-owned subsidiary
of the Company, since June 1999. Mr. Schneider served as a member of the
Supervisory Board of UPC from July 1995 until February 1999, when he became an
advisor to the Board. From May 1989 to November 1991, Mr. Schneider served as
Chairman of United Artists Entertainment Company, then the third largest cable
television company and the largest theater owner in the world. He was a founder
of United Cable Television Corporation in the early 1950's and, as its Chairman
and Chief Executive Officer, helped build United Cable into the eighth-largest
multiple system operator in the United States prior to its merger with United
Artists. He has been active in cable television affairs and has served on the
Board of the National Cable Television Association, and on numerous committees
and special projects thereof, since the National Cable Television Association's
inception in the early 1950's. Mr. Schneider is one of the original inductees
into the National Cable Television Association's Cable Television Pioneers. Mr.
Schneider is an advisor to the Supervisory Board of UPC and to the Supervisory
Board of chello broadband and the Chairman of the Board for Advance Display
Technologies, Inc.
MICHAEL T. FRIES has served as a director of the Company and UAP since November
1996. He also serves as the Company's President and Chief Executive Officer. He
became a director of United in November 1999 and has also served as President of
United since September 1998. Mr. Fries has served as a member of the UPC
Supervisory Board since September 1998 and as Chairman of the UPC Supervisory
Board since February 1999. He has also served as President and Chief Executive
Officer of UAP since June 1995 and December 1995, respectively, and Executive
Chairman of Austar United since June 1999. In addition, since September 1998,
Mr. Fries has served as the President of United Latin America, Inc. ("ULA"), a
wholly owned subsidiary of United. In January 2000, he became a member of the
chello broadband N.V. Supervisory Board. From March 1990 to June 1995, Mr. Fries
served as Senior Vice President, Development in which capacity he was
responsible for managing United's acquisitions and new business development
activities, including United's expansion into the Asia/Pacific, Latin America
and European markets.
JOHN C. PORTER has served as the Chief Executive Officer and a director of
Austar United since June 1999 and also has served as the Managing Director of
Austar since February 1997. From January 1997 to August 1999, Mr. Porter served
as the Chief Operating Officer of UAP, and from February 1998 to August 1999, he
served as Chief Operating Officer of the Company. From 1995 until January 1997,
he served as the Chief Operating Officer for Austar, where he was responsible
for the roll-out of its business. Prior to joining Austar, Mr. Porter spent over
10 years in various capacities for Time Warner Cable, a subsidiary Time Warner,
Inc., most recently as President of its Ohio Division. Mr. Porter has over 17
years management experience in the U.S. pay television industry.
JACK B. MATTHEWS has served as Chief Executive Officer of Saturn since January
1995. Mr. Matthews is responsible for the technical, operating and marketing
aspects of the business. Mr. Matthews has served in various general management
capacities with several U.S. multiple system operators, including Cox Cable
Communications and Continental Cablevision. From August 1993 until joining
Saturn, Mr. Matthews was the Vice President-Sales & Marketing of Arrowsmith
Technologies, a cable technology company. From 1990 to 1993, Mr. Matthews was
the President of COMM/ONE, an entrepreneurial business marketing sophisticated
video and voice processing systems. Mr. Matthews has over 14 years of U.S.
multi-channel television industry experience.
49
<PAGE>
BRUCE MANN has served as Executive Director of Marketing and Programming of
Austar since April 1995 and has also served as a Director of XYZ Entertainment
since 1997. From 1994 until joining Austar, Mr. Mann served as President,
National Division, of Cross Country Wireless, Inc., a U.S. provider of wireless
multi-channel television services. From 1991 to 1994, Mr. Mann served as Vice
President-Marketing of Washington Redskins/Jack Kent Cooke Stadium, Inc.,
specializing in sports and entertainment related promotion, advertising and
marketing.
No family relationships exist between any named executive officer or director of
the Company.
During the past five years, none of the above directors and executive officers
of the Company has had any involvement in such legal proceedings as would be
material to an evaluation of his ability or integrity.
SENIOR MANAGEMENT. The following lists other officers who are not executive
officers of the Company but who make significant contributions to the Company
and its subsidiaries.
ROBERT J. BIRRELL has served as Chief Financial Officer and Secretary of Austar
United since June 1999. Mr. Birrell has also served as Finance Director of
Austar since January 1996 and has been involved with the development aspects of
its business since April 1994. Prior to joining Austar, Mr. Birrell was involved
with various activities in large scale retailing in the Australian marketplace.
From 1985 to 1993, Mr. Birrell served with Industrial Equity Limited, an
Australian based investment company.
JAMES R. CLARK became a Vice President of the Company and UAP in August 1999. He
is also the Vice President of United Latin America, Inc., a wholly-owned
subsidiary of United, a position he has held since June 1999. Mr. Clark is
responsible for planning, monitoring and reporting on Australasia and Latin
America operations for United. From 1997 to May 1999, Mr. Clark served as a
Regional Manager of Austar. From January 1996 to 1997, he served as Satellite
Operations Manager at Austar. While at Austar, Mr. Clark was responsible for the
launching of direct broadcast satellite service in rural Australia. Prior to
joining Austar, from 1990 to 1995, he served as Regional Vice President for The
Disney Channel where he managed sales and marketing in eight mid-west states of
the United States.
VALERIE L. COVER has served as Controller for the Company since its formation in
October 1994 and for UAP since January 1997. Ms. Cover is responsible for the
accounting and financial reporting functions of the Company. She has served as
Controller of United since October 1990 and as a Vice President of United since
December 1996. Prior to joining United, she was Director of Corporate Accounting
at United Artists from May 1989 until October 1990 and Manager of Financial
Reporting at United Cable from June 1986 until May 1989.
KEVIN ONG has served as Vice President of the Company since May 1996. Mr. Ong is
responsible for the finance operations of the Company. Prior to joining United,
Mr. Ong served in various financial and senior management positions with U.S.
and international cable television operators. From 1988 to 1994, Mr. Ong served
as a Director with Jones Intercable, Inc. and the Treasurer of Jones
International, Limited, where he was responsible for financial operations and
various accounting functions.
ELLEN P. SPANGLER has served as Vice President and Secretary of the Company
since July 1997. Ms. Spangler is responsible for the legal operations of the
Company. Ms. Spangler has also served as Senior Vice President of Business and
Legal Affairs and Secretary of United since December 1996. In February 1999, she
also became a member of the Supervisory Board for UPC. From February 1991 to
December 1996, Ms. Spangler served as Vice President of United and her
responsibilities included business and legal affairs, programming and assisting
on development projects.
FREDERICK G. WESTERMAN, III became Vice President of the Company and UAP in
August 1999. His responsibilities include oversight and planning of the
Company's financial operations and treasury operations. He has also served as
United's Chief Financial Officer since June 1999. From December 1997 to June
1999, Mr. Westerman served as Treasurer for EchoStar Communications Corporation
where he was responsible for strategic planning, financial analysis, treasury
operations, risk management, corporate budgeting and institutional investor
relations. From 1993 to September 1997, he served as Vice President of Equity
Research for UBS Securities LLC (a subsidiary of Union Bank of Switzerland)
where he was responsible for primary research coverage of cable television and
satellite communications and secondary coverage of media and entertainment.
50
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- ---------------------------------
All of the officers of the Company are employed by United, the indirect 100%
stockholder of the Company. The Company pays no separate compensation to these
officers; however, the Company and United Management are parties to a Management
Agreement, pursuant to which the Company pays United Management a management fee
for certain services provided to the Company. Effective March 31, 1997, United
Management assigned its rights and obligations under the Management Agreement to
UAP in the UAP Management Agreement. United Management and UAP also became
parties to a similar management agreement (the "United Management Agreement")
effective March 31, 1997.
Certain members of senior management of Austar and Saturn are U.S. expatriates
who are employed by United and have been seconded to the respective operating
companies. The respective operating companies reimburse United for compensation
paid to these employees. Gene W. Schneider, the Company's Chairman, is also the
Chairman and Chief Executive Officer of United and spends only a portion of his
time on matters pertaining to the Company and its operations. Michael T. Fries,
the Company's President and Chief Executive Officer, is also an officer and
employee of United and spends only a portion of his time on matters pertaining
to the Company and its operations. The services of Messrs. Schneider and Fries
are provided to the Company pursuant to the United Management Agreement. While
the Company and its operating companies do not reimburse United directly for a
specified portion of the compensation United pays to Messrs. Schneider and
Fries, UAP pays a management fee to United under the United Management Agreement
for certain services, including those of Messrs. Schneider and Fries, performed
on behalf of the Company.
SUMMARY COMPENSATION TABLE
- --------------------------
The following table sets forth the aggregate annual compensation paid during the
fiscal years ended December 31, 1999, 1998 and 1997 to the Company's Chief
Executive Officer and each of the four most highly compensated executive
officers whose annual salary and bonus exceeded $100,000 for the year ended
December 31, 1999. In addition, the information in this section reflects
compensation received by the named executive officers for all services performed
for the Company, United, Austar United and their respective affiliates:
<TABLE>
<CAPTION>
Compensation Table
------------------------------------------------------------------------------------
Long-term
Annual Compensation Compensation Awards
---------------------------------------------- -------------------
Other Securities
Annual Underlying All Other
Year Salary Bonus Compensation Options(#)(1) Compensation
------ --------- ---------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider 1999 $498,548 $ - $ - 2,568,839 (2) $6,155 (3)
Chairman of the Board 1998 $450,000 $ - $ 5,793 (4) 387,500 (5) $5,512 (3)
1997 $369,904 $ - $ - 125,000 (6) $5,398 (3)
Michael T. Fries 1999 $332,365 $ - $ 4,496 (4) 6,204,285 (7) $6,155 (3)
President and Chief Executive 1998 $300,000 $275,000 $31,041 (8) 575,000 (9) $5,632 (3)
Officer 1997 $245,346 $ - $ - - $5,398 (3)
John C. Porter 1999 $252,500 $ 32,226 $25,723 (10) 4,880,850 (11) $5,952 (3)
Chief Operating Officer 1998 $245,913 $ 30,000 $60,081 (12) 50,000 (13) $5,632 (3)
1997 $218,972 $ 60,000 $47,142 (14) - $5,398 (3)
Jack B. Matthews 1999 $208,481 $ 49,750 $ 7,385 (15) 750,000 (16) $5,952 (17)
Chief Executive Officer (Saturn) 1998 $155,000 $ - $19,725 (18) - $5,170 (17)
1997 $154,731 $ 29,000 $19,753 (19) 8,000 (20) $4,854 (17)
Bruce Mann 1999 $200,000 $ 26,445 $18,188 (21) 3,158,197 (22) $5,620 (23)
Executive Director (Austar) 1998 $181,457 $ 41,470 $21,839 (24) 40,000 (25) $5,296 (23)
1997 $160,770 $ 45,900 $24,476 (26) - $4,884 (23)
</TABLE>
51
<PAGE>
(1) The number of shares underlying options have been adjusted for United's
2-for-1 stock split on November 30, 1999 and the cancellation of options as
a result of the cancellation of UAP's stock option plan, which was replaced
by the Austar United Option Plan.
(2) Pursuant to United's Employee Plan, Mr. Schneider was granted options to
acquire 290,523 shares of Class A Common Stock on December 17, 1999.
Pursuant to the Austar United Option Plan, Mr. Schneider was granted
options to acquire 2,153,316 shares of Austar United Shares on July 20,
1999. Pursuant to the chello Phantom Stock Option Plan, Mr. Schneider was
granted phantom options based on 125,000 shares of chello on June 11, 1999.
(3) Amounts consist of matching employer contributions made by United under
United's employee 401(k) plan of $4,800, $4,800 and $4,750 for the years
ended December 31, 1999, 1998 and 1997, respectively, with the remainder
consisting of term life insurance premiums paid by United for such
officer's benefit.
(4) Represents the value of personal use of the Company's airplane
(5) Pursuant to United's Employee plan, Mr. Schneider was granted options to
acquire 200,000 shares of Class A Common Stock on October 8, 1998. Pursuant
to the UPC Phantom Stock Option Plan, Mr. Schneider was granted phantom
options based on 187,500 ordinary shares of UPC on September 24, 1998.
(6) Pursuant to the ULA Stock Option Plan, Mr. Schneider was granted phantom
options based on 125,000 shares of ULA Class A Common Stock on June 6,
1997.
(7) Pursuant to United's Employee Plan, Mr. Fries was granted options to
acquire 100,000 shares of Class A Common Stock on December 17, 1999.
Pursuant to the Austar United Option Plan, Mr. Fries was granted options to
acquire 6,029,285 shares of Austar United Shares on July 20, 1999. Pursuant
to the chello Phantom Stock Option Plan, Mr. Fries was granted phantom
options based on 75,000 shares of chello on June 11, 1999.
(8) Amount represents payments for living expense, including rent, relating to
foreign assignment of $30,824, and $217 which represents the value of Mr.
Fries personal use of the Company's airplane.
(9) Pursuant to United's Employee Plan, Mr. Fries was granted options to
acquire 200,000 shares of Class A Common Stock on September 18, 1998.
Pursuant to the UPC Phantom Stock Option Plan, Mr. Fries was granted
phantom options based on 75,000 ordinary shares of UPC on September 18,
1998. Pursuant to the ULA Stock Option Plan, Mr. Fries was granted phantom
options based on 300,000 shares of ULA Class A Common Stock on September
18, 1998.
(10) Amount represents monthly payments for housing allowance of $17,270 and
cost of living adjustment of $8,453.
(11) Pursuant to the Austar United Option Plan, Mr. Porter was granted options
to acquire 4,880,850 shares of Austar United Shares on July 20, 1999.
(12) Amount represents monthly payments for housing allowance of $46,834 and
cost of living adjustment of $13,247.
(13) Pursuant to United's Employee Plan, Mr. Porter was granted options to
acquire 50,000 shares of Class A Common Stock on December 18, 1998.
(14) Amount represents monthly payments for housing allowance of $31,211 and
cost of living adjustment of $15,931.
(15) Amount represents monthly payments for housing allowance of $4,615 and cost
of living adjustment of $2,770.
(16) Pursuant to the Austar United Option Plan, Mr. Matthews was granted options
to acquire 750,000 shares of Austar United Shares on July 20, 1999.
(17) Amounts consist of matching employer contributions made by United under
United's employee 401(k) plan of $4,800, $4,428 and $4,206 for the years
ended December 31, 1999, 1998 and 1997, respectively, with the remainder
consisting of term life insurance premiums paid by United for Mr. Matthew's
benefit.
(18) Amount represents monthly payments for housing allowance of $4,615 and cost
of living adjustment of $15,110.
(19) Amount represents montly payments for housing allowance of $4,615 and cost
of living adjustment of $15,138.
(20) Pursuant to United's Employee Plan, Mr. Matthews was granted options to
acquire 8,000 shares of Class A Common Stock on December 20, 1997.
(21) Amount represents monthly payments for housing allowance of $12,025 and
cost of living adjustment of $6,163.
(22) Pursuant to the Austar United Option Plan, Mr. Mann was granted options to
acquire 3,158,197 shares of Austar United Shares on July 20, 1999.
(23) Amounts consist of matching employer contributions made by United under
United's employee 401(k) plan of $4,468, $4,464 and $4,236 for the years
ended December 31, 1999, 1998 and 1997, respectively, with the remainder
consisting of term life insurance premiums paid by United for Mr. Mann's
benefit.
(24) Amount represents monthly payments for housing allowance of $12,025 and
cost of living adjustment of $9,814.
(25) Pursuant to United's Employee Plan, Mr. Mann was granted options to acquire
40,000 shares of Class A Common Stock on December 18, 1998.
(26) Amount represents monthly payments for housing allowance of $12,025 and
cost of living adjustment of $12,451.
52
<PAGE>
OPTION GRANTS TABLE
Messrs. Schneider, Fries, Porter, Mann and Matthews, as employees of United,
have been granted options to acquire stock of United and its subsidiaries. The
following tables set forth information concerning options to purchase shares of
United Class A Common Stock, chello shares and Austar United shares granted to
these named executives during 1999 as well as the value of unexercised options
held by such executives as of December 31, 1999. Other than an exercise of
280,000 options to acquire shares in Austar United by Mr. Porter, no executive
has exercised any options during the year ended December 31, 1999. The Company
has not granted any options to acquire its stock.
<TABLE>
<CAPTION>
Option Grants in Year Ended December 31, 1999(1)
------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------------------------------- ---------------------------------------
Number of Percentage of
Securities Total Options Market
Underlying Granted to Price
Options Employees in Exercise Price on Grant Expiration
Name Granted (#) Fiscal Year ($/Sh) Date ($/Sh) Date 0%($) 5%($) 10%($)
- ---- ----------- ------------- -------------- ----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gene W. Schneider
Class A Common Stock... 90,523 5.6% $ 5.2250 $56.6250 12/17/09 $4,652,882 $7,876,511 $12,822,191
Class A Common Stock... 1,766 0.1% $62.2875 $56.6250 12/17/04 - $ 17,628 $ 51,051
Class A Common Stock... 198,234 12.3% $56.6250 $56.6250 12/17/09 - $7,059,342 $17,889,760
chello Shares.......... 125,000(3) 6.1% NLG20.0000 NLG20.0000 06/11/04 - NLG690,704 NLG1,526,275
Austar United Shares... 2,153,136(4)(5) 8.4% A$1.8000 A$4.7000 07/20/09 A$6,244,616 A$12,609,398 A$22,374,223
Michael T. Fries
Class A Common Stock... 100,000 6.2% $56.6250 $56.6250 12/17/09 - $3,561,116 $ 9,024,567
chello Shares.......... 75,000(3)00 3.6% NLG20.0000 NLG20.0000 06/11/04 - NLG414,422 NLG915,765
Austar United Shares... 6,029,285(4)(6) 23.5% A$1.8000 A$4.7000 07/20/09 A$17,484,927 A$35,306,316 A$62,647,826
John C. Porter
Austar United Shares... 4,880,850(4)(7) 19.0% A$1.8000 A$4.7000 07/20/09 A$14,154,465 A$28,581,305 A$50,714,909
Jack B. Matthews
Austar United Shares... 600,000(4)(8) 2.3% A$1.8000 A$4.7000 07/20/09 A$1,740,000 A$3,513,483 A$6,234,354
Austar United Shares... 150,000(4)0 0.6% A$4.7000 A$4.7000 07/20/09 - A$443,371 A$1,123,588
Bruce M. Mann
Austar United Shares... 3,158,197(4)(9) 12.3% A$1.8000 A$4.7000 07/20/09 A$9,158,771 A$18,493,785 A$32,815,529
</TABLE>
53
<PAGE>
(1) Except as otherwise noted, all stock options granted during 1999 vest in 48
equal monthly increments following the date of grant. Vesting of the
options granted would be accelerated upon a change of control of United as
defined in the respective options plans.
(2) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts shown
are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of United's Class A Common Stock, Austar United's
ordinary shares and chello broadbands ordinary shares A, respectively,
continued employment of the optionee through the term of the options, and
other factors.
(3) Shares subject to phantom options, which chello may at its option pay in
cash or United, UPC or, if publicly traded, chello shares upon exercise
thereof, vest in 48 equal monthly increments from June 11, 1999. The price
per share in U.S. dollars is $9.13 and has been determined based on the
exchange rate of 2.19 on December 31, 1999.
(4) The price per share in U.S. dollars is $1.18 and has been determined based
on the exchange rate of 1.5244 on December 31, 1999.
(5) Vesting from date of grant are: options for 837,399 shares vested
immediately; options for 717,177 shares vest over 23 months and options for
598,740 vest over 38 months. Austar United granted accelerated vesting
based on the vesting periods of UAP options, which were cancelled in 1999.
(6) Vesting from date of grant are: options for 2,344,726 shares vested
immediately; options for 2,008,085 shares vest over 23 months and options
for 1,676,474 vests over 38 months. Austar United granted accelerated
vesting based on the vesting periods of UAP options, which were cancelled
in 1999.
(7) Vesting from date of grant are: options for 2,416,503 shares vested
immediately; options for 1,149,440 shares vest over 23 months; options for
956,164 shares vest over 38 months; and options for 358,743 shares vest
over 12 months. Austar United granted accelerated vesting based on the
vesting periods of UAP options, which were cancelled in 1999.
(8) Vesting from date of grant are: options for 194,447 shares vested
immediately, options for 138,887 shares vest over 38 months, options for
166,666 shares vest over 23 months, and options for 250,000 shares vest
over 48 months. Austar United granted accelerated vesting based on the
vesting periods of UAP options, which were cancelled in 1999.
(9) Vesting from date of grant are: options for 1,485,177 shares vested
immediately, 429,076 shares vest over 12 months, 957,003 shares vest over
38 months and 286,941 shares vest over 23 months. Austar United granted
accelerated vesting based on the vesting periods of UAP options, which were
cancelled in 1999.
54
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION TABLE
The following table sets forth information concerning the exercise of options
and concerning unexercised options held by each of the executive officers named
in the Summary Compensation Table above as of December 31, 1999.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Year Ended December 31, 1999 and Period-End Option Values
-----------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End(#) Options at FY-End($)(1)
Shares Acquired Value ---------------------------- --------------------------------
on Exercise(#) Realized($) Exerciseable Unexerciseable Exerciseable Unexerciseable
--------------- ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider
Class A Common Stock......... - - 603,421 391,666 $39,224,077 $15,388,856
ULA Common Stock............. - - 78,125 46,875 $ 359,375 $ 215,625
chello Shares................ - - 15,625 109,375 NLG - NLG -
Austar United Shares......... - - 1,072,091 1,081,225 A$4,609,991 A$4,649,268
UPC Shares................... - - 125,000 62,500 $15,252,165 $ 7,626,082
Michael T. Fries
Class A Common Stock......... - - 387,500 242,500 $25,356,094 $10,718,906
ULA Common Stock............. - - 93,750 206,250 $ - $ -
chello Shares................ - - 9,375 65,625 NLG - NLG -
Austar United Shares......... - - 3,001,854 3,027,431 A$12,907,972 A$13,017,953
UPC Shares................... - - 21,875 53,125 $ 2,653,471 $ 6,444,145
John C. Porter
Class A Common Stock......... 8,332 $ 265,062 4,168 37,500 $ 272,744 $ 2,453,906
Austar United Shares......... 280,000 A$887,600 2,661,668 1,939,182 A$11,445,172 A$8,338,483
Jack B. Matthews
Class A Common Stock......... - - 8,000 - $ 521,500 $ -
Austar United Shares......... - - 274,993 475,007 A$1,137,157 A$1,652,843
Bruce M. Mann
Class A Common Stock......... - - 10,000 30,000 $ 654,375 $ 1,963,125
Austar United Shares......... - - 1,893,091 1,265,106 A$8,140,291 A$5,439,956
</TABLE>
(1) The value of the options for Class A Common Stock and UPC Common Stock is
based on the closing price of $70.625 per share and $127.50 per share,
respectively as reported by NASDAQ on December 31, 1999. The value of the
options for Austar United Shares is based on the closing price of A$6.10
per share as reported by the Australian Stock Exchange on December 31,
1999. The values for the phantom options of chello and ULA are based on the
fair market value of NLG20.00 and $8.86 per share, respectively, as
determined by the Board at or prior to December 31, 1999. In addition, the
exercise prices for UPC options have been converted from euros to U.S.
dollars based on a conversion rate of 0.9932 on December 31, 1999.
55
<PAGE>
AGREEMENTS WITH EMPLOYEES
Many of the employees serving as senior management in the Company's operating
companies are parties to employment agreements typically with terms of three to
five years. The agreements generally provide for a specified base salary as well
as a bonus set at a specified percentage of the base salary, which bonus is
based on the performance of the respective company and employee. The agreements
often provide for the grant of an incentive interest equal to a percentage of
the residual equity value of the respective company which is typically defined
as the fair market value of the business less net liabilities and a reasonable
return on shareholders' investment. The employment agreements generally also
provide for cost of living differentials, relocation and moving expenses,
automobile allowances and income tax equalization payments, if necessary, to
keep the employee's tax liability the same as it would be in the United States.
Of the persons identified in the Summary Compensation Table, Messrs. Porter,
Mann and Matthews continue to have such an employment agreement with United. The
agreements with Mr. Porter and Mr. Mann terminate on the 8th of October 2002.
Mr. Matthews' agreement terminated January 1, 1999, however a current contract
is under negotiation. These employment agreements provide for an annual base
salary of $252,500 for Mr. Porter, $200,000 for Mr. Mann and $200,000 for Mr.
Matthews, and eligibility for an annual bonus of up to a fixed percentage of the
base salary, based on the performance of their respective entities as well as
the individual's performance. All are entitled to participate in United employee
benefits. In addition, Mr. Matthews is eligible to receive a project award based
on company defined targets over the term of his compensation agreement and his
base salary is reviewed annually.
COMPENSATION OF DIRECTORS
All of the directors of the Company are also directors or officers of United,
UAP and/or officers of the Company. They receive no separate cash compensation
for serving as directors of the Company. The Company, however, reimburses all of
its directors for travel and out-of-pocket expenses in connection with their
attendance at Board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIOn
The Company's Board of Directors has no separate Compensation Committee as the
Company currently does not have any employees. United's Compensation Committee,
none of the members of which are employees or executive officers of the Company,
determines the compensation of the Company's executive officers in their
capacity as employees of United. Directors or executive officers of the Company
may serve on the Boards of Directors of Austar, Saturn and XYZ Entertainment and
as part of their duties may determine the compensation of those operating
companies' employees. None of the employees of such operating companies,
however, are directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation eliminate the personal liability of its
directors to the Company and its stockholders for monetary damages for breach of
the directors' fiduciary duties in certain circumstances. The Company's Articles
of Incorporation and Bylaws provide that the Company shall indemnify its
officers and directors to the fullest extent permitted by law. The Company
believes that such indemnification covers at least negligence and gross
negligence on the part of indemnified parties.
The Company has entered into agreements to indemnify its directors and officers,
in addition to the indemnification provided for in the Company's Articles of
Incorporation and Bylaws. These agreements require the Company, among other
things, to indemnify the Company's directors and officers for certain expenses
(including attorney's fees), judgments, fines, penalties and settlement amounts
incurred by any such person in certain actions or proceedings, including actions
by or in the right of the Company, arising out of such person's services as a
director or officer of the Company, any subsidiary of the Company or any other
company or enterprise to which the person provides services at the request of
the Company. The Company believes that these agreements are necessary to attract
and retain qualified persons as directors and officers.
56
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
As of March 1, 2000, UAP owned 17,810,249 shares of the Company, evidencing over
99.9% of all outstanding common stock. Such percentage is based on 17,810,299
shares of the Company's common stock issued and outstanding on March 1, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
RELATIONSHIP WITH UAP AND UNITED
The Company is currently a direct, majority-owned subsidiary of UAP, which is an
indirect, wholly-owned subsidiary of United. The Company's operations to date
have been funded by capital contributions from United and UAP, proceeds from the
Notes, minority shareholder contributions, subsidiary bank debt and proceeds
from the Austar United IPO.
The Company and UAP are parties to the UAP Management Agreement pursuant to
which UAP agreed to continue to perform certain administrative, accounting,
financial reporting and other services, including office space, for the Company,
which has no separate employees of its own. Pursuant to the UAP 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 UAP Management Agreement by 8.0% per year. The management fee for the first
year of the UAP Management Agreement was calculated based on an estimate of
staff hours to accomplish the various administrative, account, financial
reporting and other services to be provided to the Company under the UAP
Management Agreement. The percentage those hours constituted of the respective
employees' annual work hours was then multiplied by the employment cost to
United for such employees.
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 1999 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. 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.
TAX SHARING AGREEMENT
The Company is included as a member of United's consolidated tax return and, is
a member of the United consolidated group (as long as non-United ownership of
the Company does not exceed 20.0%). United and the Company are parties to a tax
sharing agreement that defines the parties' rights and obligations with respect
to tax liabilities and benefits relating to the Company and its operations as
part of the consolidated group of United. In general, United is responsible for
filing consolidated tax returns and paying the associated taxes and the Company
will reimburse United for the portion of the tax cost relating to the Company
and its operations.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a)(1) Financial Statements
Included in PART II of the Report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
UNITED AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................................................. 26
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................. 27
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997............... 28
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1999,
1998 and 1997.......................................................................................... 29
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997............... 30
Notes to Consolidated Financial Statements............................................................... 32
(a)(2) Financial Statement Schedules
Included in PART IV of the Report:
(i) Financial Statement Schedules required to be filed
UNITED AUSTRALIA/PACIFIC, INC.
Report of Independent Public Accountants................................................................. S-1
Schedule I - Condensed Financial Information of the Registrant (Parent only)............................. S-2
</TABLE>
(ii) Separate Financial Statements and Related Schedules
None.
(a)(3) Exhibits
3.1 Articles of Incorporation of the Registrant, as amended. (1)
3.2 Articles of Amendment to Articles of Incorporation of Registrant.
3.3 By-Laws of the Registrant. (1)
4.1 The Indenture dated as of May 14, 1996, between the Issuer and
American Bank National Association (now known as Firstar Bank of
Minnesota N.A. (the "Trustee")) (the "1996 Indenture"). (1)
4.2 Supplemental Indenture dated as of July 20, 1999, between Issuer
and Trustee with respect to the 1996 Indenture. (2)
4.3 The Indenture dated as of September 23, 1997, between the Issuer
and Trustee (the "1997 Indenture"). (3)
4.4 Supplemental Indenture dated as of July 20, 1999, between Issuer
and Trustee with respect to the 1997 Indenture. (2)
4.5 Warrant Agreement dated as of November 15, 1997, between the
Issuer and Trustee. (3)
4.6 The Articles of Incorporation, as amended, and By-Laws of the
Registrant are included as Exhibits 3.1 and 3.2. (1)
10.1 A$400,000,000 Syndicated Senior Secured Debt Facility Agreement
dated April 23, 1999, among Austar Entertainment Pty Limited
("Austar"), Chase Securities Australia Limited, the Guarantors
named therein and the financial institutions named therein. (4)
58
<PAGE>
10.2 Supplemental Deed dated July 15, 1999 between Saturn
Communications Limited, as the Borrower ("Saturn"), the guarantors
and mortgagors named therein, each financial institution specified
as a bank in Schedule 1 attached thereto, and Toronto Dominion
Australia Limited, as the Agent ("Agent"). (5)
10.3 Second Supplemental Deed dated July 29, 1999 between Saturn
Communications, the guarantor and mortgagor named therein and
Agent. (5)
10.4 XYZ Shareholders Agreement dated September 6, 1995, among Century
United Programming Ventures Pty Limited ("CUPV"), Foxtel
Management Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited
("XYZ"), Century United Programming Ventures ("CPVC") and the
Issuer. (1)
10.5 Shareholders Deed dated June 30, 1995, among Century
Communications Corporation, CPVC, United, the Issuer and CUPV. (1)
10.6 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and
East Coast Pay Television Pty Limited ("ECT"). (1)
10.7 Management Agreement dated May 1, 1996, between United Management,
Inc. and the Issuer. (1)
10.8 Tax Allocation Agreement dated May 8, 1996, among United, UAP and
the Issuer. (1)
10.9 Management Services Agreement dated June 24, 1999, between United
International Holdings, Inc. doing business as UnitedGlobalCom
("United") and Austar United Communications Ltd. ("Austar
United").
10.10 Registration Rights Agreement dated June 16, 1999 between Austar
United and UIH Austar, Inc.
10.11 Master Seconded Employee Services Agreement dated June 16, 1999,
between United and Austar United.
10.12 General Agreement dated June 16, 1999 between United and Austar
United.
12.1 Statement re: Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants--Arthur Andersen LLP
(United Australia/Pacific, Inc.).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
- ----------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-4 (SEC File No. 333-05017) filed on May 31, 1996.
(2) Incorporated by reference from the Certain Report on Form 8-K (SEC File No.
333-05017) filed on July 28, 1999.
(3) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-4 (SEC File No. 333-39707) filed on
December 5, 1997.
(4) Incorporated by reference from the Annual Report on Form 10-K of United
International Holdings, Inc. for the period ended December 31, 1998 (File
No. 0-21974).
(5) Incorporated by reference from Quarterly Report on Form 10-Q (SEC File No.
333-05017) for the quarter ended September 30, 1999, filed on November 15,
1999.
(b) Reports on Form 8-K filed during the quarter:
None.
59
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United Australia/Pacific, Inc.:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of United
Australia/Pacific, Inc. included in this Form 10-K and have issued our report
thereon dated March 29, 2000. Our audit was made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
following schedule is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements as indicated in our
report with respect thereto and, in our opinion, based on our audits, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
S-1
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
PARENT ONLY
SCHEDULE 1
Condensed Financial Information of the Registrant
(Stated in thousands, except share and per share amounts)
As of December 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................................ $ 298 $ -
Short-term liquid investments........................................................................ 497 763
Related party receivables and costs to be reimbursed................................................. 327 327
Other current assets................................................................................. 10 3
-------- --------
Total current assets.............................................................................. 1,132 1,093
Investments in and advances to affiliated companies, accounted for under the equity method, net...... 245,425 52,801
Deferred financing costs, net of accumulated amortization of $1,927 and $1,215, respectively......... 8,461 9,173
-------- --------
Total assets...................................................................................... $255,018 $ 63,067
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Related party payables............................................................................... $ 1,977 $ 1,056
Accounts payable..................................................................................... - -
Accrued liabilities.................................................................................. - -
-------- --------
Total current liabilities......................................................................... 1,977 1,056
Senior discount notes.................................................................................. 407,945 356,640
-------- --------
Total liabilities................................................................................. 409,922 357,696
Minority interest...................................................................................... - -
-------- --------
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 and 17,810,249
shares issued and outstanding, respectively......................................................... 178 178
Additional paid-in capital........................................................................... 331,688 215,624
Deferred compensation................................................................................ (18,343) -
Accumulated deficit.................................................................................. (445,844) (481,240)
Other cumulative comprehensive loss.................................................................. (22,583) (29,191)
-------- --------
Total stockholders' deficit....................................................................... (154,904) (294,629)
-------- --------
Total liabilities and stockholders' deficit......................................................... $255,018 $ 63,067
======== ========
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
PARENT ONLY
SCHEDULE 1
Condensed Information as to the Operations of the Registrant
(Stated in thousands)
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Corporate general and administrative expense, including management
fees to related party of $921, $853 and $790, respectively............................. $ (4,301) $ (5,689) $ (3,189)
-------- --------- ---------
Operating loss...................................................................... (4,301) (5,689) (3,189)
Interest income.......................................................................... 40 81 643
Interest expense......................................................................... (52,017) (48,108) (38,115)
Other expense, net....................................................................... (1) (836) (559)
-------- --------- ---------
Loss before other item.............................................................. (56,279) (54,552) (41,220)
Share in results of affiliated companies, net............................................ 91,675 (151,739) (126,836)
-------- --------- ---------
Net income (loss)................................................................... $ 35,396 $(206,291) $(168,056)
======== ========= =========
Foreign currency translation adjustments................................................. $ 6,608 $ (227) $ (30,831)
Unrealized gains on securities:
Reclassification adjustment for losses included in net income (loss)................ - - 3,412
-------- --------- ---------
Comprehensive income (loss).............................................................. $ 42,004 $(206,518) $(195,475)
======== ========= =========
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
UNITED AUSTRALIA/PACIFIC, INC.
PARENT ONLY
SCHEDULE 1
Condensed Information as to the Cash Flows of the Registrant
(Stated in thousands)
For the Years Ended
December 31,
-------------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................................... $ 35,396 $(206,291) $(168,056)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Share in results of affiliated companies, net............................................. (91,675) 151,739 126,836
Allocation of expense accounted for as capital contributions by parent.................... 3,216 4,622 1,949
Accretion of interest on senior notes and amortization of deferred
financing costs.......................................................................... 52,017 48,108 38,115
Decrease in related party receivables and other assets.................................... 157 603 1,768
Increase in accounts payable, accrued liabilities and other............................... 921 2,332 2,210
-------- --------- ---------
Net cash flows from operating activities.................................................... 32 1,113 2,822
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments................................................... - (763) (15,988)
Sale of short-term liquid investments....................................................... 266 12,325 22,303
Investments in and advances to affiliated companies and other investments................... (29,659) (72,570) (61,024)
-------- --------- ---------
Net cash flows from investing activities.................................................... (29,393) (61,008) (54,709)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed from parent................................................................ 29,659 58,947 7,863
Proceeds from offering of senior discount notes............................................. - - 29,925
Borrowings on related party payable to parent............................................... - - 4,999
Deferred financing costs.................................................................... - (7) (755)
-------- --------- ---------
Net cash flows from financing activities.................................................... 29,659 58,940 42,032
-------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................................ 298 (955) (9,855)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............................................. - 955 10,810
-------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................................... $ 298 $ - $ 955
======== ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash capital contributions from parent.................................................. $ 42,305 $ 12,473 $ 7,800
======== ========= =========
Gain on issuance of shares by New Zealand subsidiary........................................ $ - $ - $ 5,985
======== ========= =========
Non-cash issuance of warrants to purchase common stock...................................... $ - $ - $ 3,678
======== ========= =========
Increase in unrealized loss on investment................................................... $ - $ - $ (985)
======== ========= =========
</TABLE>
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, on this 29th day of March 2000.
United Australia/Pacific, Inc.
a Colorado corporation
By: /S/ Valerie L. Cover
---------------------------------
Valerie L. Cover
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report to be signed by the following persons in the
capacities and on the dates indicated.
Title of Position
Signature Held With the Registrant
- --------- ------------------------
*
- ---------------------------------
Gene W. Schneider Chairman of the Board March 29, 2000
*
- ---------------------------------
Michael T. Fries Director, President and March 29, 2000
Chief Executive Officer
/S/ Valerie L. Cover
- ---------------------------------
Valerie L. Cover Controller (Principal
Accounting Officer) March 29, 2000
* By: /S/ Valerie L. Cover
- ---------------------------------
Valerie L. Cover
Attorney-in-fact
60
Exhibit 3.2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
UIH AUSTRALIA/PACIFIC, INC.
(Pursuant to the Section 7-110-106)
UIH Australia/Pacific, Inc., a corporation organized and existing under and
by virtue of the Colorado Business Corporation Act (the "Corporation"), does
hereby certify as follows for the purpose of amending its Articles of
Incorporation:
1. That the Board of Directors of the Corporation duly adopted
resolutions containing an amendment to the Articles of Incorporation
of the Corporation set forth below, declaring such amendment to be
advisable and calling for the approval of the sole stockholder of the
Corporation to such amendment.
2. That the holder of all of the outstanding shares of Common Stock of
the Corporation entitled to vote, acting by means of written consent
in lieu of a meeting pursuant to Section 7-107-104 of the Colorado
Business Corporation Act, adopted and approved these Articles of
Amendment to the Articles of Incorporation of the Corporation.
3. That Article I of the Articles of Incorporation be amended in its
entirety to read as follows:
The name of the corporation is United Australia/Pacific, Inc.
4. That except as amended hereby, the provisions of the Articles of
Incorporation, as heretofore amended, shall remain in full force and
effect.
IN WITNESS WHEREOF, these Articles of Amendment to the Articles of
Incorporation of the Corporation have been signed this 27th day of August, 1999.
UIH AUSTRALIA/PACIFIC, INC.
By: /S/ Ellen P. Spangler
-------------------------------------
Ellen P. Spangler
Vice President and Secretary
Exhibit 10.9
------------
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is made and entered
into this 24th day of June, 1999, by and between UNITED INTERNATIONAL HOLDINGS,
INC., a Delaware corporation doing business as UnitedGlobalCom ("United"), and
AUSTAR UNITED COMMUNICATIONS LIMITED, a New South Wales corporation (the
"Company"). This Agreement amends and replaces in its entirety the Management
Services Agreement dated the 16th day of June, 1999.
Recitals
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A. United indirectly owns interests in multi-channel television,
programming and telecommunications operating companies throughout the world. The
Company is acquiring from certain subsidiaries of United ownership interests in
certain operating companies that are engaged in such activities in Australia and
New Zealand and desires to engage the Company to provide certain services to the
Company and its subsidiaries and affiliates. The Company will benefit from the
services United performs for, and expenses United incurs on behalf of, the
Company.
B. United has incurred, directly and through its subsidiaries and
affiliates, overhead and other expenses on behalf of the operating companies
that are being acquired by the Company and will continue to incur such overhead
and other expenses on behalf of the Company and such operating companies under
this Agreement. These include expenses incurred in relation to services to be
provided to the Company and its subsidiaries and controlled affiliates,
including legal, accounting, financial reporting, investor relations, human
resources, information technology, equipment procurement and testing services,
corporate finance activities and administration of expatriate employee
relationships and benefits (the "General Services").
C. United provides and will continue to provide, under this Agreement, to
the Company and its subsidiaries and affiliates certain technical, marketing and
management assistance with respect to their respective businesses as required by
the Company from time to time and agreed to by United (the "Business Services"
and, together with the General Services, the "Services").
D. The parties have agreed on an equitable allocation and reimbursement of
such expenses and the payment for services to be performed by United and its
subsidiaries and affiliates.
Agreement
---------
1. PERFORMANCE OF SERVICES.
1.1 SERVICES. United will perform the Services for the Company in a
manner consistent with the Services previously performed for the subsidiaries
being acquired by the Company from other subsidiaries of United. United shall
provide to the Company such other services as are requested from time to time by
the Company's Board of Directors and agreed to by United.
1.2 BUSINESS SERVICES.
1.2.1 APPOINTMENT. The Company hereby engages United as its a
technical advisor and business consultant to provide services with respect to
the design, construction, operation, maintenance, administration, marketing and
programming of the satellite direct to home ("DTH"), multi-point distribution
<PAGE>
systems ("MMDS") and cable television systems ("Cable") and the provision of
internet and other telecommunication services ("Telecom"), and United hereby
accepts such engagement pursuant to the terms of this Agreement.
1.2.2 GENERAL DUTIES OF UNITED.
1.2.2.1 From time to time United may, through its
officers, employees, agents and other personnel, provide technical assistance
and consulting services to the Company in accordance with the terms of this
Agreement. The extent, amount and timing of services provided by United under
this Agreement may be determined by United in its discretion based on United's
assessment of the Company's requirements after consultation with the Company.
1.2.2.2 United shall devote its best efforts to carrying
out the advisory and consultancy functions, and performing the duties specified
in this Agreement in a professional, expert and diligent manner in accordance
with the standards United customarily applies in the operation or management of
companies engaged in the DTH, MMDS, Cable and Telcom businesses otherwise owned
or managed by United.
1.2.2.3 United shall provide such personnel (whether
employed by United or any of its affiliates) as are reasonably required to
fulfill its obligations under this Agreement. To the extent appropriate, such
personnel shall provide the services specified in this Agreement on-site at the
offices of the Company. Any key executives seconded by United to the Company
pursuant to the Secondment Agreement (as hereinafter defined) shall, subject to
the oversight and supervision of the Company's Board of Directors, be
responsible for the general management and administration of the business of the
Company and shall further assume and discharge the following specific
operational and functional tasks: (i) negotiate programming agreements; (ii)
determine product pricing; (iii) interact with subscribers; (iv) manage and
develop technology used in the Company's business; (v) manage any joint ventures
to which the Company or its subsidiaries is party; and (vi) provide advice and
services in relation to the financing, management, administration and operation
of investments made by the Company.
1.2.2.4 United shall at all times perform its duties under
this Agreement for the benefit of the Company and act in accordance with the
provisions of any business plan adopted by the Company.
1.2.3 SPECIFIC DUTIES OF UNITED. United shall provide, through
advice, consultation and other means, technical assistance to the Company with
respect to the matters described below:
1.2.3.1 DESIGN AND CONSTRUCTION OF THE DTH, MMS AND CABLE
SYSTEMS.
(a) United shall assist in the management of all aspects of the design
and construction of the DTH, MMDS, Cable and Telcom operations and shall advise
on the implementation of any design and construction plan. The issues to be
considered by United in developing and implementing the design and construction
of should include, without limitation, the following matters: (i) the type of
equipment to be used in the construction; (ii) recommendations as to
manufacturers of equipment and the equipment to be provided by them; (iii)
appropriate costs and expenditures; (iv) terms of contracts for the purchase and
installation of equipment; (v) mapping of the franchise areas using in-house
computerized design techniques; (vi) the use of electronics/fibretronics for
both above-ground and underground installations; (vii) advice in selecting
contractors; (viii) recommendations on methods to be used by contractors to
build the networks; (ix) the acceptability of prices and bids for construction;
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(x) policies for supervision of construction work and scheduling of construction
work; (xi) techniques and methods for conduit and cable placement; and (xii)
advice on the location and installation of head-end and other transmission or
reception equipment and the selection and purchase of that equipment.
(b) United shall investigate and assist the Company with the
conclusion of, financial and credit arrangements with manufacturers, suppliers,
contractors and the like. United shall make available, if appropriate and
practicable, use of United's purchasing services and contracts, including bulk
purchasing and discount rights available to United or its affiliates where it
has the right to do so.
(c) United shall assist the Company with the filling of the television
channels of the network through the selection of programming offered by
international sources.
1.2.3.2 MARKETING FOR THE COMPANY. United shall assist in
the management of the marketing, selling and advertising functions of the
Company, including assistance and advice in relation to (i) the development of
sales procedures and reporting functions, (ii) incentive programs, (iii)
training of sales personnel, (iv) brochures and advertising programs, (v) advice
on selection and packaging of basic and pay channels, (vi) customer complaint
handling, (vii) billing and rates and (viii) promotional offers and other sales
techniques.
1.2.3.3 SUBSCRIBER MANAGEMENT AND INFORMATION SYSTEMS.
United shall assist in the management of the design, planning, acquisition,
implementation, operation and monitoring of all phases of the information
technology associated with the networks including, but not limited to, the
following: (i) an addressable control system which directly controls the
converters and head-end equipment attached to the networks; (ii) computer aided
design and drafting which assists network designers to engineer the networks;
(iii) a project management system which tracks materials, time and money
associated with the construction phase of the project; (iv) a purchasing and
material acquisition system which functions to control material acquisitions,
handling and issuance; (v) an accounting system including a nominal ledger,
payables, receivables, payroll, budgeting, fixes assets and management
reporting; (vi) office systems, including word processing, planning, graphics,
and electronic mail systems; (vii) a subscriber management and billing system
which controls all daily real-time operations of the cable system including
marketing, new installation, changes of service, pay-per-view event
authorization, disconnections, automatic addressable control system interaction,
sales material, service calls, technician work force management, converter
inventory, billing, plant statistics reporting, homes passed management,
subscriber accounts receivable, point-of-sale cashier stations, subscriber
demographic information and the like; and (viii) miscellaneous related systems
such as vehicle management, advertising sales and tracking systems, automated
telephone response units, status monitoring systems, and other systems which
directly connect and interact with the various systems mentioned above.
1.2.3.4 PERSONNEL AND TRAINING.
(a) United shall provide advice on the establishment of standards and
methods for the selection, training, monitoring and work safety of the personnel
involved in the operation or administration of the networks.
(b) United shall: (i) provide training for officers, employees and
agents of the Company; (ii) subject to the direct supervision of the Company or
its representatives, assign personnel to undertake advisory, training and
operational duties in the Company; and (iii) assist the Company in the
identification and evaluation of candidates with the relevant experience for
senior management positions.
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(c) The Company shall at all times and at the cost of the Company
maintain relevant personal damages and third party liability insurance for all
employees and personnel of United providing on-site services.
(d) Each person selected by the Board of Directors of the Company or
any of its significant subsidiaries to serve as an executive officer of the
Company or such subsidiary (or otherwise designated or permitted to serve as
such) first shall be nominated to serve as such by United in accordance with
this Section 1.2.3.4. The Company shall notify United whenever it has determined
that a person should be considered for election or designation as an executive
officer of the Company or any such subsidiary, including persons to be
reappointed as such. Upon receipt of such a notification, United shall consult
with the Company, including its Board of Directors if appropriate, as to the
requirements of such position, possible candidates and the like. United shall
either nominate for election or designation by the Board of Directors of the
Company or such subsidiaries candidates for such positions or, as to any such
position, shall indicate that it does not intend to propose a candidate. If a
candidate nominated by United is not approved by the applicable Board of
Directors, the Company shall promptly notify United and United may nominate for
election or designation by the Board of Directors of the Company or such
subsidiary a different person to serve in such position. If United indicates
that it does not intend to propose a candidate, the Board of Directors of the
Company or such subsidiary may appoint a person to serve that has not been
nominated by United.
(e) For purposes of this Section 1.2.3.4, an "executive officer" of an
entity shall include its chief executive officer, president, chief operating
officer, chief financial officer, any vice president in charge of a principal
business unit, division or function (such as engineering, sales, administration
or finance) and other officer or other person who performs a policy making
function for the entity.
1.3 INDEPENDENT CONTRACTOR/OTHER ASSISTANCE.
(a) In the performance of its duties and responsibilities under this
Agreement, United is and will act solely as an independent contractor and
nothing contained in this Agreement or in the relationship between the Company
and United constitutes, or may be construed to be or to create, a partnership or
joint venture between the Company and United.
(b) The Company shall make available to United's personnel who are
performing services under this Agreement access to all records, equipment and
areas within the control of the Company as may be reasonably requested by the
personnel. United undertakes not to use any facilities or assistance provided by
the Company under this Agreement other than for the sole purpose of performing
its obligations pursuant to this Agreement.
2. FEES AND EXPENSES.
2.1 FEE. For its Services under this Agreement, United shall receive a
fixed amount monthly, which amount shall be adjusted on or before January 1 of
each year for the subsequent year by the board of directors of United in its
reasonable discretion to allocate otherwise unallocated corporate overhead
expenses among United's operating companies, including the Company, taking into
account the relative size of the operating companies and their estimated use of
United resources. United shall provide background information supporting any
adjustment in the monthly fee upon request of the Board of Directors of the
Company. The fixed amount payable by the Company for calendar year 1999 shall be
US$200,000 per month, and may not be increased by more than 15% in any one year.
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2.2 EXPENSES. During the period of this Agreement, the Company shall
reimburse United for all direct and other expenses reasonably incurred by United
and its employees and other personnel in the provision of Services under this
Agreement. Such expenses will be reimbursed at cost upon receipt of the related
invoice and shall include (i) travel, meal, lodging and entertainment expenses,
(ii) salary and reasonable administrative expenses and (iii) fees and expenses
of advisors, consultant and independent contractors (such as accountants, market
consultants and legal advisors) engaged by United with the consent of the
Company. United may second employees to the Company and its subsidiaries upon
consultation with the Company. If so, the relationship between the Company and
United with respect to such employees and the reimbursement of related costs
shall be governed by the Master Seconded Employee Services Agreement between
United and the Company of even date herewith (the "Secondment Agreement").
3. LIABILITY AND INDEMNIFICATION. Neither United nor any of its directors,
officers, employees, agents or legal representatives shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company or
any of its directors or officers (or their affiliates) for any loss, claim or
damage asserted against or incurred by the Company or any of its directors or
officers (or any affiliate thereof) arising out of or in connection with the
provision by United of the Services, except to the extent such loss, claim or
damage is caused by gross negligence or willful misconduct of United. The
Company, to the maximum extent permitted by law, shall indemnify and keep United
fully indemnified from and against any loss, claim or damage incurred by United
as a result of any action or claim brought against it by any third party in
respect of the provision by United of the services stipulated under this
Agreement, except to the extent caused by the gross negligence or willful
misconduct of United.
4. TERM. This Agreement shall be effective upon the date hereof and shall
continue until December 31, 2010. This Agreement may be terminated by either the
Company or United (i) upon 30 days prior written notice to the other at any time
after the aggregate direct or indirect ownership by United of the Company's
ordinary shares is below 10 percent or (ii) upon a material breach by the other
party of any of its respective obligations under this Agreement and such breach
remaining uncured for a period of (A) 30 days, in the case of payment
obligations under this Agreement, or (B) 90 days, in the case of all other
obligations under this Agreement. The obligation of either party for matters
accruing prior to any termination of this Agreement shall not be affected by any
such termination.
5. MISCELLANEOUS.
5.1 WAIVER. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will he cumulative and not
alternative.
5.2 AMENDMENT. This Agreement shall not be amended or modified, nor
rights hereunder waived, except by a writing, signed by both parties.
5.3 NO THIRD-PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties hereto to confer third-party beneficiary rights upon any person.
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<PAGE>
5.4 INVALID PROVISIONS. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a legal
valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
5.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The parties acknowledge
that the persons named below have the requisite authority to execute this
Agreement and bind their respective principals.
5.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado.
5.7 NOTICES. All notices, demands or other communications to be given
under or by reason of this Agreement shall be in writing and shall be deemed to
have been received when delivered personally, or when transmitted by facsimile
or by overnight delivery service, addressed as follows:
(i) If to United, to it at:
United International Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237, U.S.A.
Facsimile: (303) 770-4207
Attention: President
Copy to:Legal Department
(ii) If to Austar United Communications Limited, to it at:
Austar United Communications Limited
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237, U.S.A.
Facsimile: (303) 770-4207
Attention: President
Copy to:Legal Department
Either party hereto may change its address for notices, demands and other
communications hereunder by giving notice of such change to the other party in
accordance with this Section 6.7.
5.8 ASSIGNMENT; BINDING EFFECT. This Agreement may not be assigned by
either party without the prior written consent of the other, except that United
may assign this Agreement to any affiliate of United without such prior written
consent. This Agreement shall bind the parties hereto and their assigns and
successors in interest.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date set forth above.
UNITED INTERNATIONAL HOLDINGS, INC., a
Delaware corporation
By: /S/Michael T. Fries
---------------------------------------
Name: Michael T. Fries
Title: President
AUSTAR UNITED COMMUNICATIONS LIMITED, a
New South Wales corporation
By: /S/Michael T. Fries
---------------------------------------
Name: Michael T. Fries
Title: President
7
Exhibit 10.10
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 16, 1999, is by and
between AUSTAR UNITED COMMUNICATIONS LIMITED, a Delaware corporation (the
"Company"), and UIH AUSTAR, INC., a Colorado corporation (the "Shareholder").
Recitals
--------
A. The Shareholder is a subsidiary of United International Holdings, Inc.,
a Delaware corporation that indirectly owns interests in multi-channel
television, programming and telecommunications operating companies throughout
the world. The Company is acquiring from the Shareholder ownership interests in
certain operating companies that are engaged in such activities in Australia and
New Zealand. It is anticipated that the Company will be domesticated to
Australia in the near future and will then commence an initial public offering
of the Company's ordinary shares on the Australian Stock Exchange, as well as a
Rule 144A offering outside Australia (collectively, the "Offering").
B. The Parties hereto intend for this Agreement to govern the Shareholder's
registration rights in the United States with respect to the Company's ordinary
shares (or American Depositary Shares representing such ordinary shares).
Agreement
---------
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
1.01 DEFINED TERMS. As used herein, the following terms shall have the
following meanings (terms defined in the singular shall have the same meanings
when used in the plural and vice versa):
AGREEMENT: This Registration Rights Agreement as amended, modified,
restated and replaced from time to time in accordance with the provisions
hereof.
APPLICABLE EXCHANGE: The primary United States securities market or
exchange on which the Company's publicly traded securities are to be listed or
qualified.
COMMISSION: The United States Securities and Exchange Commission or
any other United States federal agency at the time administering the Securities
Act, or comparable regulatory authority in the case of listing or qualification
of the Registrable Securities for sale through the Applicable Exchange.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
INDEMNIFIED PERSON: As defined in Section 2.05.
<PAGE>
INDEMNIFYING PERSON: As defined in Section 2.05.
PERCENTAGE INTEREST for each holder of Registrable Securities at any
time means the percentage represented by the fraction, the numerator of which is
the capital stock of the Company considered together as a single class owned by
such holder and the denominator of which is all then issued and outstanding
capital stock of the Company considered together as a single class.
PIGGYBACK REGISTRATIONS: As defined in Section 2.01(a).
REGISTRABLE SECURITIES: Ordinary shares of the Company, American
Depositary Shares representing ordinary shares of the Company, and any other
equity securities issued upon conversion thereof or that may be issued or
distributed in respect thereof by way of stock dividend or stock split, or other
distribution, recapitalization, merger, consolidation or reclassification or
other reorganization or otherwise. A Registration Security shall cease to be a
Registration Security when: (i) a Registration Statement shall have become
effective under the applicable Securities Law and such security shall have been
disposed of in accordance therewith; (ii) such security shall have been
otherwise transferred and new certificates for such security not bearing a
legend restricting further transfer shall have been delivered by .the Company;
(iii) such security shall have ceased to be outstanding; or (iv) if all
Registrable Securities outstanding at any given time may be sold during any
three-month period pursuant to the exemption of Rule 144 under the Securities
Act.
REGISTRATION STATEMENT: A registration statement or similar document
with respect to the sale of Registrable Securities on the Applicable Exchange as
required by the applicable Securities Law.
SECURITIES: Any equity security of the Company and any other security
convertible into, or exercisable or exchangeable for, equity securities of the
Company, including, stock options, rights, warrants and other convertible
securities, subscriptions, calls or commitments.
SECURITIES ACT: The United States Securities Act of 1933, as amended,
of any successor United States federal statute, and the rules and regulations of
the Commission thereunder.
SECURITIES LAWS: The Exchange Act, the Securities Act or any other
relevant securities law applicable for the sale of securities through the
Applicable Exchange.
UNITED STATES: United States of America.
1.02. TERMS GENERALLY. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". All references herein to Articles and Sections,
shall be deemed references to Articles and Sections of this Agreement unless the
context shall otherwise require.
ARTICLE II
Registration Rights
-------------------
2.01. PIGGYBACK REGISTRATIONS.
(a) If the Company shall at any time propose to file a Registration
Statement for an offering of equity securities of the Company, by the Company or
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for resale by holders of the Company's securities (other than pursuant to an
employee stock option, stock purchase or similar plan or pursuant to a merger,
exchange offer or a transaction of the type specified in Rule 145(a) under the
Securities Act), the Company shall give the Shareholder notice of such proposed
registration at least ____ days prior to the filing of a Registration Statement.
At the written request of the Shareholder delivered to the Company within ____
days after the receipt of the notice from the Company, which request shall state
the number of Registrable Securities that the Shareholder wishes to sell or
distribute publicly under the Registration Statement proposed to be filed by the
Company, the Company shall use its best efforts-to include such number of
Registrable Securities in such Registration Statement (a "Piggyback
Registration").
(b) If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters thereof
advise the company in writing that in their opinion the number of Securities
requested to be included in the registration exceeds the number which can be
sold in the offering, the Company shall include in the registration (i) first,
the Securities that the Company proposes to sell, (ii) second, the Registrable
Securities the Shareholder proposes to sell, and (iii) third, the Securities
each other holder of the Company's Securities who has registration rights and
has exercised such rights proposes to sell.
(c) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's Securities who have demand
registration rights and the managing underwriters thereof advise the Company in
writing that in their opinion the number of Securities requested to be included
in the registration exceeds the number which can be sold in the offering, the
Company shall include in the registration (i) first, that portion of the
Registrable Securities that the Shareholder proposes to sell representing ___%
of such offering, (ii) second, the Securities of the holders of the Company's
Securities who have exercised their demand registration rights and (iii) third,
the Securities any other securityholders of the Company (including any
additional Registrable Securities the Shareholder desires to sell) propose to
sell in proportion to the number of Securities each proposes to sell. If the
Company subsequently desires to participate in such a registration of
Securities, the Company shall include in the registration (A) first, that
portion of the Registrable Securities the Shareholder proposes to sell
representing _______ of such Offering, (B) second, the Securities of the holders
of the Company's Securities who have exercised their demand registration rights
and (C) third, the Securities the Company and all other securityholders of the
Company propose to sell (including any additional Registrable Securities the
Shareholder desires to sell) in proportion to the number of shares each proposes
to sell.
2.02. DEMAND REGISTRATION:
(a) REQUEST AND FILING. Beginning ___ year after the date of the
Offering, the Shareholder may request that the Company (i) take all actions
necessary to have the American Depositary Shares (representing the Company's
ordinary shares) listed or approved for listing on a United States securities
market or exchange designated by the Shareholder and (ii) file a registration
statement covering such Registrable Securities (the "Demand Registration"). Upon
receipt of a request, the Company shall prepare and file (A) a listing
application with the Applicable Exchange and (B) a registration statement as
promptly as practicable but in any event no later than _____ days after receipt
of notice (the "Deadline"); provided, however, that the Company shall not be
obligated to file and cause to be effective more than _______ Registration
Statements pursuant to this Section 2.02(a) using a form other than
____________________ or successor forms, as the case may be, and shall not be
required to file more than one Registration Statement using ___________ or
successor forms, as the case may be, in any six-month period. The Company agrees
to use its best efforts to cause the Registration Statement to become effective
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as promptly as practicable after filing and to use its best efforts to keep the
Registration Statement continuously effective for the period commencing on the
date of effectiveness declared by the Commission and ending on the earlier of
(i) ____ days from the date of effectiveness; (ii) the date when each of the
Registrable Securities ceases to be Registrable Securities; and (iii) the date
when each of the Registrable Securities not otherwise transferred or sold
pursuant to the Registration Statement may be sold or distributed by the
Stockholder in reliance upon Rule 144 under the Securities Act (giving effect to
all conditions thereof, including, without limitation, the volume limitations
contained in Rule 144(c)) (the "Effective Period").
(b) REGISTRATION STATEMENT FORM. The Registration Statement under this
Section 2.1 shall be on such appropriate registration form of the Commission as
shall be selected by the Company and as shall permit the disposition of the
Registrable Securities in accordance with the intended method or methods of
disposition (including an underwritten offering).
2.03. INDEMNIFICATION BY THE COMPANY. In the event of any registration of
any Registrable Securities under the Securities Act, the Company shall, and
hereby does, indemnify and hold harmless each holder of Registrable Securities,
its directors and officers, each other Person who participates as an underwriter
in the offering or sale of such Registrable Securities and each other Person, if
any, who controls such holder or any such undewriter within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director or
officer or underwriter or controlling Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which the Registrable Securities were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, and the Company shall reimburse such holder, and
each such director, officer, underwriter and controlling Person for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such-case if any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information about such holder as a
stockholder of the Company furnished to the Company through an instrument duly
executed by or on behalf of such holder specifically stating that it is for use
in the preparation thereof; and provided, however, that the Company shall not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities, or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case if any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expenses arises out of such Person's failure to send or give a copy of the
final prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue' statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
connected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such holder
or any such director, officer or controlling Person and shall survive the
transfer of the Registrable Securities by such holder.
2.04. INDEMNIFICATION BY THE SHAREHOLDER. The Company may require, as a
condition to including any Registrable Securities in any registration statement
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filed pursuant to Section 2.01 or Section 2.02, that the Company shall have
received an undertaking satisfactory to it from the holder of such Registrable
Securities to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 2.03) the Company, each director of the Company,
each officer of the Company signing such registration statement and each other
Person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained therein
or any amendment or supplement thereto, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information about such holder as a shareholder of the
Company furnished to the Company through an instrument duly executed by such
holder specifically stating that it is for use in the preparation of such
Registration Statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive the
transfer of the Registrable Securities by such holder.
2.05. NOTICES OF CLAIMS, ETC. Promptly after receipt by a person entitled
to indemnification under Section 2.03 or 2.04 (an "Indemnified Person") of
notice of the commencement of any action or proceeding involving a claim
referred to in Section 2.03 or 2.04, such Indemnified Person will, if a claim in
respect thereof is to be made against a Person required to indemnify such
Indemnified Party under Section 2.03 or 2.04 (an "Indemnifying Person"), give
notice to the indemnifying Person of the commencement of such action; provided,
however, that the failure of any Indemnified Person to give notice as provided
herein shall not relieve the Indemnifying Person of its obligations under
Section 2.03 or 2.04, except to the extent that the Indemnifying Person is
actually prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Person, unless in such Indemnified Person's
reasonable judgment a conflict of interest between such Indemnified and
Indemnifying Persons may exist or the Indemnified Person may have defenses not
available to the Indemnifying Person in respect of such claim, the Indemnifying
Person shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such Indemnified Person, and after
notice from the Indemnifying Person to such Indemnified Person of its election
to so assume the defense thereof, the Indemnifying Person shall not be liable to
such Indemnified Person for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No Indemnifying Person shall be liable for any settlement of any
action or proceeding effected without its written consent. No Indemnifying
Person shall, without the consent of the Indemnified Person, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of a release from all liability in respect to such claim or
litigation.
2.06. OTHER INDEMNIFICATION. Indemnification similar to that specified in
this Agreement with appropriate modifications shall be given by the Company and
each holder of Registrable Securities with respect to any required registration
or other qualification of Registrable Securities under any federal or state law
or regulation of any governmental authority other than the Securities Act.
2.07. INDEMNIFICATION PAYMENTS. The indemnification required by this
Agreement shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.08. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company shall not
effect or permit to occur any combination, subdivision or other recapitalization
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of any of its Securities (a) which would materially adversely affect the ability
of any holder of Registrable Securities to include its Registrable Securities,
or which would reduce the number of Registrable Securities that any holder of
Registrable Securities would otherwise be entitled to include pursuant to this
Agreement, in any registration of Securities of the Company contemplated by this
Agreement or (b) which would materially adversely affect the marketability of
such Registrable Securities under any such registration.
2.09. REGISTRATION COVENANTS OF THE COMPANY.
(a) Whenever any Registrable Securities are to be registered pursuant
to Section 2.01 or 2.02 of this Agreement, the Company will use its best efforts
to effect the registration and the sale of such Registrable Securities under the
Securities Laws in accordance with the intended method of disposition thereof.
The Company shall deliver to the applicable holders a sufficient number of
prospectuses to sell the Registrable Securities as contemplated by the
Registration Statement. If required or appropriate, the Company shall enter into
the necessary agreements with a transfer agent with respect to such securities.
(b) The Company may require each Shareholder requesting that
Registrable Securities be registered pursuant to Section 2.01 or 2.02 to furnish
to the Company such information regarding the distribution of such securities
and such other information relating to such Shareholder and its ownership of
Registrable Securities as the Company may from time to time reasonably request
in writing. Each such Shareholder agrees to furnish such information to the
Company and to cooperate with the Company as necessary to enable the Company to
comply with the provisions of this Agreement.
(c) Upon receipt of any notice from the Company at any time when a
prospectus relating to theo registration is required to be delivered under the
Securities Laws, of the occurrence of any event as a result of which the
prospectus included in such registration statement (as then in effect) contains
an untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the Shareholder selling Registrable
Securities will forthwith discontinue disposition of the Registrable Securities
until receipt of copies of a supplemented or amended prospectus or until such
Shareholders are advised in writing by the Company that the use of the
prospectus may be resumed, and have received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus and,
if so directed by the Company, such Shareholders will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
2.10. EXPENSES. In connection with any Piggyback Registration or Demand
Registration, the Company shall pay all commission and securities exchange
registration and filing fees, all fees and expenses of complying with securities
or blue sky laws, all word processing, duplicating and printing expenses, all
messenger and delivery expenses, the fees and disbursements of counsel for the
Company, the fees and disbursements of the Company's independent public
accountants (including the expenses of comfort letters required for the
Piggyback Registration or Demand Registration) and any fees and disbursements of
underwriters. In addition, the Company shall be responsible for the reasonable
fees and disbursements of counsel for each holder of Registrable Securities
necessary for the preparation of the Registration Statement. In any
registration, each such holder shall pay for its own underwriting discounts and
commissions and transfer taxes.
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2.11. ASSIGNMENT OF REGISTRATION RIGHTS. Each party hereto may assign its
rights under this Agreement to anyone to whom any such party sells, transfers or
assigns any of the Registrable Securities (other than in sales pursuant to Rule
144 under the Securities Act or a Piggyback or Demand Registration effected
pursuant to this Agreement); provided, however, that no assignment shall
increase the Company's obligations to effect registrations or to pay expenses
thereof.
2.12. NO PREFERENTIAL REGISTRATION RIGHTS. Notwithstanding any other
provision of this Agreement, if the Company grants registration rights to any
other Person on terms which any holder of Registrable Securities considers
preferential to the terms in this Agreement, then such holder shall be entitled
to registration rights with such preferential terms.
2.13. OTHER REGISTRATION RIGHTS. The Company shall not grant any right of
registration under the Securities Act relating to any of its Securities to any
Person other than the Shareholder unless the Shareholder shall be entitled to
have included in any Piggyback Registration effected pursuant to Section 2.01(c)
a number of Registrable Securities requested by the Shareholder, as applicable,
to be so included representing at least _____ of such offering prior to the
inclusion of any securities requested to be registered by the Persons entitled
to any such other registration rights.
2.14. RULE 144A AND RULE 144.
(a) If the Company is not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, but only for so long as the Company is
not so subject, the Company shall take all actions reasonably necessary to
enable each holder off Registrable Securities to sell its Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144A under the Securities Act, as such rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC. Upon the request of any such holder, the Company shall deliver to
such holder a written statement as to whether the Company has complied with such
requirements.
(b) After the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, but only for so long as the Company is
so subject, the Company shall take all actions reasonably necessary to enable
each holder of Registrable Securities to sell its Registrable Securities without
Registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the SEC,
including filing on a timely basis all reports required to be filed by the
Exchange Act. Upon the request of any such holder, the Company shall deliver to
such holder a written statement as to whether the Company has complied with such
requirements.
2.15. Registration. In case the Company shall receive from any holder of
Registrable Securities a written request or requests that the Company effect a
registration on _________ (or any successor form of abbreviated registration
statement) and any related qualification or compliance with respect to all or a
part of the Registrable Securities, the Company will, as soon as practicable,
effect such registration and all such qualifications and compliances as may be
so requested and as would permit or facilitate that sale and distribution of all
or such portion of the Registrable Securities as are specified in such request;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.15: (a) if
____________________ is not available for such offering; (b) if the Company
shall furnish to such holder a certificate signed by the President of the
Company stating that in the good faith judgment of the board of directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such _____________ registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the _______________
Registration Statement for a period of not more than ___ days after receipt of
the request of such holder under this Section 2.14; provided, however, that the
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Company shall not utilize this right more than once in any 12-month period; or
(c) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
affecting such registration, qualification or compliance. Subject to the
foregoing, the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of such holder. All expenses incurred in connection
with a registration requested pursuant to this Section 2.14 including, all
registration, filing, qualification, printer's and accounting fees and
reasonable fees and disbursements of counsel for each holder of Registrable
Securities and counsel for the Company shall be borne by the Company.
2.16 Other Exchanges. The Company intends to list its ordinary shares on
the Australian Stock Exchange after it has been domesticated to Australia and in
the future may list its securities on other exchanges. The Company hereby grants
the Shareholder the right to require the Company to list or register the
Registrable Securities on any such securities exchange, if applicable, or such
other exchanges in a manner substantially consistent with the registration
rights granted in this agreement, taking into account the applicable securities
laws and listing or registration procedures of the exchanges.
ARTICLE III
Notices
-------
All notices or other communications to be given under this Agreement shall
be given in writing and delivered by hand or sent by express courier or delivery
service or transmitted by telecopier. Copies of notices and communications may
be sent in like fashion. Such notices and communications shall be deemed to have
been received by the addressee upon receipt, but in no event later than 72 hours
after the notice or communication is delivered to an express courier or delivery
service, or 24 hours after transmission of the notice or communication by
telecopier and if sent by telecopier, subject to confirmation by sender's
delivery of the notice or communication to an express courier or delivery
service for delivery to the addressee. The addresses and telecopier numbers of
the parties hereto for delivery of notices are set forth below.
(a) If to the Shareholder, addressed to it at:
UIH Austar, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
Attention: President
Telecopier No. 303-770-4207
With a copy to:
Holme Roberts & Owen LLP
700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Garth B. Jensen, Esq.
Telecopier No. 303-866-0200
(b) If to the Company, addressed to it at:
AUSTAR United Communications Limited
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
Attention: President
Telecopier No. 303-770-4207
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Any party hereto may change its address or telecopier number for receiving
notices and communications by giving notice of such change to the other parties
hereto.
ARTICLE IV
Miscellaneous
-------------
4.01. TERMINATION. The Company's obligations pursuant to this Agreement
shall expire at such time as all Registrable Securities have been sold pursuant
to an effective Registration Statement under the Securities Laws or may be
publicly sold without registration in the United States.
4.02. HEADINGS. Section and article headings, captions and numbers in this
Agreement are for convenience only and shall not be used in its interpretation
or considered part of this Agreement.
4.03. NO WAIVER. The failure or delay of any party at any time or from time
to time to exercise any right under or enforce any provision of this Agreement
shall not be construed as implying a waiver of such provision or of the right of
that party to exercise or enforce it subsequently. No single or partial exercise
of any right under this Agreement shall preclude the further or full exercise of
the right. No waiver of any default on any one occasion shall constitute a
waiver of any subsequent or other default. The rights and remedies of the
parties hereunder are cumulative and are not exclusive of any rights or remedies
which the parties would otherwise have. No notice or demand on any party hereto
in any case shall entitle such party to any other or further notice or demand in
similar or other circumstances.
4.04. AMENDMENT. No provision of this Agreement may be amended, modified or
waived except by an instrument in writing entered into by the parties hereto and
designated as an amendment, modification or waiver.
4.05. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted assigns. It is
expressly intended that the corporation formed under Australian law into which
the Company is domesticated within six months of the date of this Agreement
shall be a permitted successor of the Company hereunder, and all references to
the Company hereunder shall refer to such domesticated corporation. In addition,
and whether any express assignment shall have been made, the provisions of this
Agreement that are for the benefit of the parties hereto other than the Company
also shall be for the benefit of and enforceable by any subsequent holder of
Registrable Securities, subject to the requirement that the transferring party
hereto give written notice to the Company of such transfer stating the name and
address of the transferee and identifying the Securities with respect to which
the registration rights are being assigned.
4.06. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereto regarding the subject matter hereof and supersedes any prior and
contemporaneous negotiations, agreements and understandings among the parties
hereto.
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4.07. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado.
4.08. SEVERABILITY. If any provision of this Agreement or the application
thereof to any Person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law. Notwithstanding the foregoing,
the Company and the Shareholder shall negotiate in good faith, or attempt to
agree on the terms of a mutually satisfactory provision to replace any invalid
or unenforceable provision.
4.09. COUNTERPARTS. This Agreement may be executed in any number of
counterparts or counterpart signature pages, each of which shall be deemed an
original, but all of which together shall constitute the same instrument.
IN WITNESS WHEREOF the parties hereto have executed this Registration
Rights Agreement as of the date first set forth above.
THE SHAREHOLDER:
UIH AUSTAR, INC., a Colorado corporation
By: /S/Michael T. Fries
-------------------------------------
Name: Michael T. Fries
Title: President
THE COMPANY:
AUSTAR UNITED COMMUNICATIONS LIMITED,
a Delaware Corporation
By: /S/Michael T. Fries
-------------------------------------
Name: Michael T. Fries
Title: President
10
Exhibit 10.11
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MASTER SECONDED EMPLOYEE SERVICES AGREEMENT
THIS MASTER SECONDED EMPLOYEE SERVICES AGREEMENT, dated as of June 16, 1999
(this "Agreement"), is between UNITED INTERNATIONAL HOLDINGS, INC., a Delaware
corporation ("UIH"), and AUSTAR UNITED COMMUNICATIONS LIMITED, a Delaware
corporation (the "Company").
Recitals
--------
A. UIH has seconded or will second certain of its employees to the Company
and to certain entities (the "Operating Companies") operating and developing
multi-channel subscription television systems and other businesses in which the
Company owns interests.
B. This Agreement sets forth the terms and conditions upon which certain
employees of UIH have been, or may be, seconded to the Company and the Operating
Companies.
Agreement
---------
The parties hereto agree as fol9lows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person
who or which, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such Person. For this
purpose, "control" means the power to manage, directly or indirectly, the
operation of the business of a Person, whether through the ownership or voting
securities, by contract or otherwise.
(b) "Company Losses" has the meaning specified in Section 4(b).
(c) "Costs" has the meaning specified in Section 3(a).
(d) "Indemnified Party" has the meaning specified in Section 4(c).
(e) "Indemnifying Party" has the meaning specified in Section 4(c).
(f) "Operating Companies" has the meaning specified in Recital A.
(g) "Person" means any individual, corporation, partnership, firm,
joint venture, joint stock company, limited liability company, trust, estate,
unincorporated organization, governmental or regulatory body or other entity.
<PAGE>
(h) "Seconded Employees" means the individuals seconded pursuant to
this Agreement.
(i) "UIH Losses" has the meaning specified in Section 4(a).
2. SECONDMENTS.
(a) SECONDED EMPLOYEES; REASSIGNMENT. All employees and consultants of
UIH that are now seconded to the Company or to its Operating Companies as
evidenced by the books and records of UIH will continue to be seconded pursuant
to this Agreement. In addition, at the Company's request, UIH may second
additional key executives, employees and consultants to the Company or its
Operating Companies pursuant to this Agreement from time to time as agreed by
the parties hereto and, in the case of key executives nominated by UIH pursuant
to the terms of the Management Services Agreement of even date herewith between
UIH and the Company (the "Management Agreement"), pursuant to the Management
Agreement. Each Seconded Employee may be reassigned by the Company to another
Operating Company at any time subject to such Seconded Employee's agreement with
UIH and the Company ("Employee Contract"), but without UIH's consent, unless
such consent or the approval of UIH or its representatives is required pursuant
to the terms of any other agreement or understanding between UIH and the
Company.
(b) WORK PERMITS; NO ALTERATION OF EMPLOYMENT CONTRACTS. With respect
to each Seconded Employee and where appropriate, the Company shall obtain, or
shall cause to be obtained, any visas, work permits and such other permissions
or consents of whatever nature that may be necessary and arrange for any medical
examinations or medical reports that may be required. If any of the foregoing
visas, permits, permissions or consents are already in place in UIH's name, such
visas, permits, permissions or consents shall be deemed, as between the parties
hereto, to be in the Company's name. Except for its right to terminate any
Seconded Employee's employment according to Section 2(d) and during the period
of such Seconded Employee's secondment hereunder, UIH shall not alter any terms
of the Employee Contract or any agreement or other document evidencing such
Seconded Employee's employment without the Company's prior written consent,
except that without the Company's consent UIH, on its own initiative or at the
direction of its third-party insurance carriers, may change the terms and
features of its standard benefit package, its "Tax Equalization Policy" and its
policies regarding repatriation of Seconded Employees.
(c) RIGHTS AND DUTIES; EMPLOYEES OF UIH. During the period that the
Seconded Employees are seconded hereunder, (i) they shall have the rights,
duties and responsibilities assigned from time to time by the Company or an
Operating Company, as applicable, pursuant to the terms of the governing
documents of such Person; and (ii) they shall remain employees of UIH and shall
continue to receive their salaries and other employee benefits from UIH. The
Company and any Operating Company may provide additional remuneration to any
Seconded Employee in their discretion.
(d) TERMINATION OF SECONDMENTS; TERMINATION OF EMPLOYMENT. The Company
may terminate pursuant to the terms of the Employee Contract any secondment
hereunder at any time without UIH's consent, unless such consent or the approval
of UIH or its representatives is required pursuant to the terms of any other
agreement or understanding with the Seconded Employee or between UIH and the
Company. The Company shall give UIH prompt notice of any such termination. If a
Seconded Employee's employment by UIH terminates for any reason, such Seconded
Employee's secondment pursuant to this Agreement shall terminate automatically
on the date the Seconded Employee's employment terminates. UIH shall give the
Company prompt notice of any such termination of employment. UIH may terminate
any Seconded Employee's employment, at any time without the Company's consent,
(i) if the Seconded Employee's conduct constitutes willful misconduct that is
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<PAGE>
materially injurious to UIH or the Seconded Employee's conduct would constitute
a felony or other crime of moral turpitude where committed, (ii) if the Seconded
Employee dies or becomes disabled or (iii) if the Company terminates the
Seconded Employee's secondment hereunder. If UIH terminates any Seconded
Employee's employment in accordance with the preceding sentence, the Company
shall bear all the Costs of separation or severance resulting therefrom. If UIH
terminates any Seconded Employee's employment otherwise, UIH shall bear all
Costs of separation or severance resulting therefrom.
3. REIMBURSEMENT OF COSTS.
(a) COSTS. The Company shall reimburse UIH for all costs, expenses,
charges and disbursements (the "Costs") incurred by UIH in connection with the
secondment of the Seconded Employees to the Company and the Operating Companies,
including without limitation any cost, expense, charge or disbursement arising
by virtue of the terms of any agreement or other document evidencing any
Seconded Employee's employment, any compensation and employee benefits paid to
or provided for the Seconded Employees, any cost of living differential, any
housing allowance, any tax equalization cost borne by UIH relating to the period
of secondment, relocation costs incurred by UIH in connection with sending the
Seconded Employees to the location for their secondments, repatriation costs
incurred by UIH in connection with returning the Seconded Employees to the
United States of America, any automobile expense, any temporary living .expense,
any home leave expense and any other out-of-pocket, expense incurred by UIH in
connection with this Agreement and employment of the Seconded Employees. The
Company shall reimburse or shall cause the appropriate Operating Company to
reimburse, the Seconded Employees directly for any out-of-pocket expenses
incurred by them in connection with the performance of their services to the
Company or the Operating Companies, as applicable, and if UIH has paid or
reimbursed such expenses, the Company shall reimburse UIH for such expenses.
(b) INVOICES; PAYMENT. UIH shall invoice the Company periodically for
the Costs. The Company will pay, or cause its Operating Companies to pay, as
applicable, all such invoices promptly, but not later than 30 days after the
Company receives such invoices, in immediately available, U.S. dollar funds and
in accordance with the other payment instructions indicated thereon. Interest on
late payments shall accrue at the lesser of (i) 15% per annum or (ii) the
highest legal rate that may be-charged for late payments in such circumstances.
(c) TAX GROSS UP. All payments to UIH hereunder shall be received by
UIH without deduction for any taxes. If the Company or any Operating Company is
required by law to withhold or otherwise deduct any taxes in respect of any sum
payable to UIH hereunder, the sum payable to UIH shall be increased by the
amount necessary so that after making all required deductions, including
deductions applicable to additional sums by which the original sum payable to
UIH is increased pursuant to this Section 3(c), UIH shall receive an amount
equal to the sum it would have received had no such deductions been made. If the
Company or such Operating Company deducts withholding taxes from any sums
payable to UIH hereunder, then the Company shall deliver, or cause such
Operating Company to deliver, to UIH at the same time that such sums are due and
payable to UIH, the original of a document evidencing the payment of such
withholding taxes.
4. LIABILITY/INDEMNITY.
(a) UIH LOSSES. The Company is responsible for the supervision of the
Seconded Employees during their secondment hereunder. The Company hereby agrees
to indemnify UIH and to hold harmless UIH, its Affiliates, and except for the
Seconded Employee in question, its and their officers, directors, employees and
agents from and against all liabilities, losses, costs or expenses (including
reasonable attorneys' fees and expenses) actually incurred by UIH resulting from
(i) any act, error or omission, intentional, negligent or otherwise, of any
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<PAGE>
Seconded Employee as though such Seconded Employee were the Company's employee
or (ii) the willful misconduct or gross negligence of the Company in performing
its obligations under this Agreement (all such liabilities, losses, costs or
expenses, collectively "UIH Losses"). UIH shall not be liable for any
liabilities, losses, costs or expenses, consequential or otherwise, arising
from, in whole or in part, any Seconded Employee, which shall be the sole
responsibility of the Company.
(b) COMPANY LOSSES. UIH hereby agrees to indemnify the Company and to
hold harmless the Company, its Affiliates, and except for the Seconded Employee
in question, its and their officers, directors, employees and agents from and
against all liabilities, losses, costs or expenses (including reasonable
attorneys' fees and expenses) actually incurred by the Company resulting from
the willful misconduct or gross negligence of UIH in performing its obligations
under this Agreement (all such liabilities, losses, costs or expenses,
collectively "Company Losses").
(c) INDEMNIFICATION PROCEDURE; NOTICE; DEFENSE. Promptly after
becoming aware of. any UIH Losses or Company Losses, as applicable, or the
making of any claim or demand by any third party that may result in the
incurrence of a UIH Loss or a Company Loss, as applicable, the party indemnified
(the "Indemnified Party") pursuant to this Section 4 will notify the party
providing indemnification (the "Indemnifying Party") pursuant to Section 4 of
this Agreement of such incurrence, claim or demand; provided, that the failure
of the Indemnified Party to so notify the Indemnifying Party shall not relieve
the Indemnifying Party of any liability under Section 4(a) or 4(b) hereof, as
applicable, except if the Indemnifying Party has been prejudiced by such failure
to be so notified. In case of any notice to the Indemnifying Party, the
Indemnifying Party shall be entitled to participate in, and, if it wishes, to
assume, the defense of any such claim or demand and, after notice of its intent
to assume such defense, the Indemnifying Party will not be liable for any
attorney's fees or other expenses subsequently incurred by the Indemnified Party
in connection with such claim; provided, that the Indemnified Party shall have
the right to employ counsel to represent it if, in the reasonable judgment of
the Indemnified Party's counsel, there is reasonably likely to be a conflict of
interest such that representation of the Indemnifying Party and the Indemnified
Party by the same counsel would violate applicable professional standards, in
which event the reasonable fees and expenses of appropriate separate counsel
shall be borne by the Indemnifying Party. If the Indemnifying Party does not
elect within a reasonable time after receipt of notice to assume the defense of
any suit brought to enforce a claim or demand referred to above, the Indemnified
Party shall be entitled to assume the control of such defense, in which ease the
reasonable fees and expenses incurred by such Indemnified Party in the conduct
of such defense, including the reasonable fees and expenses of counsel, shall be
reimbursed by the Indemnifying Party as the same are incurred from time to time
by such Indemnifying Party. In no event shall an Indemnifying Party be liable
for the fees and expenses of more than one counsel for an Indemnified Party (in
addition to local counsel) in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened claim or action in respect of which any Indemnified Party
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party unless such settlement includes an unconditional release
of such Indemnified Party from all liability on any claims that are the subject
matter of such action.
5. TERM; TERMINATION; SURVIVAL
(a) This Agreement is effective on the date hereof, and shall continue
until the date of its termination pursuant to Section 5(b).
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(b) This Agreement shall terminate upon the written agreement of the
parties hereto to such termination. No employees may be seconded by UIH to the
Company hereunder after the Management Agreement has been terminated.
(c) No termination of this Agreement shall affect any obligations of
the parties hereto arising before or as a result of circumstances in existence
before such termination. The provisions contained in this Section 5 and Sections
4, 6, 7 and 8 shall survive any termination of this Agreement.
6. CONFIDENTIALITY. Each party hereto shall maintain in confidence, treat
as proprietary and take all reasonable measures to prevent disclosure of all
information and records (with the exception of publicly available information
and records) concerning the Seconded Employees, and will not use or disclose
such information and records other than for performance of such party's
obligations hereunder or as such party may consider necessary or appropriate
pursuant to reporting requirements or other disclosure obligations under law.
7. ASSIGNMENT. Except as otherwise provided herein, neither party hereto
may assign or transfer any of its interests, or delegate any of its obligations,
hereunder without the prior written consent of the other party. UIH, upon
written notice to the Company, may assign its interests in, and delegate its
obligations under, this Agreement to any Affiliate of UIH. In such event, UIH
shall have no further obligations or liability for matters occurring after any
such assignment is effective. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.
8. MISCELLANEOUS.
(a) AMENDMENT; WAIVER. Except as otherwise provided in Section 8(h),
this Agreement may not be amended nor may any rights hereunder be waived except
by an instrument in writing signed by the parties hereto. The waiver of any
breach of any term or condition hereof shall not be deemed a waiver of any other
or subsequent breach. No failure to exercise and no delay in exercising, on the
part of either party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies at law.
(b) INDEPENDENT CONTRACTOR. UIH is an independent contractor and
nothing in this Agreement shall be deemed or construed by the parties hereto or
any third party as creating the relationship of principal and agent, employer
and employee, master and servant, partnership or joint venture between the
parties hereto. Nothing herein shall prevent or prohibit UIH or any of its
Affiliates from providing to any other Person services the same as or similar to
the services to be performed for the Company hereunder.
(c) FURTHER ASSURANCES. Each party hereto shall execute, acknowledge,
deliver, file and record such further certificates, amendments, instruments,
agreements and documents, and do all such other acts and things, as may be
required by law or as, in the reasonable opinion of either party hereto, may be
necessary or advisable to carry out the intents and purposes hereof.
(d) HEADINGS. Titles and headings of the sections of this Agreement
are for convenience of reference only and do not form a part of this Agreement
and shall not in any way affect the interpretation of this Agreement.
5
<PAGE>
(e) ENTIRE AGREEMENT. This Agreement is the entire agreement and
understanding between the parties hereto concerning the subject matter hereof
and supersedes and replaces all prior agreements and understandings between the
parties hereto with respect thereto.
(f) SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provisions to such Persons or
circumstances other than those as to which it has been invalid or unenforceable,
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby.
(g) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado, other than its rules of
conflicts of laws to the extent that the application of the laws of another
jurisdiction would be required thereby.
(h) NOTICES. All notices, demands or other communications to be given
under or by reason of this Agreement shall be in writing and shall be deemed to
have been received when delivered personally, or when transmitted by facsimile
or by overnight delivery service, addressed as follows:
(i) If to UIH, to it at:
United International Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237, U.S.A.
Facsimile: (303) 770-4207
Attention: President
Copy to: Legal Department
(ii) If to the Company, to it at:
AUSTAR United Communications Limited 4643
South Ulster Street, Suite 1300 Denver,
Colorado 80237, U.S.A.
Facsimile: (303) 770-4207:
Attention: President
Copy to: Legal Department
Either party hereto may change its address for notices, demands and other
communications hereunder by giving notice of such change to the other party in
accordance with this Section 8(h).
(i) NO THIRD-PARTY BENEFICIARIES. Notwithstanding anything to the
contrary herein, no Person shall be a third-party beneficiary to this Agreement.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall constitute an original of this
Agreement, and all of which together shall constitute one instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Master
Seconded Employee Services Agreement as of the date first set forth above.
UNITED INTERNATIONAL HOLDINGS, INC., a
Delaware corporation
By: /S/Michael T. Fries
-----------------------------------
Name: Michael T. Fries
Title: President
AUSTAR UNITED COMMUNICATIONS LIMITED, a
Delaware corporation
By: /S/Michael T. Fries
------------------------------------
Name: Michael T. Fries
Title: President
7
Exhibit 10.12
-------------
GENERAL AGREEMENT
THIS GENERAL AGREEMENT, dated as of June 16, 1999 (the "Agreement"), is by
and between UNITED INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("UIH"),
and AUSTAR UNITED COMMUNICATIONS LIMITED, a Delaware corporation (the
"Company").
RECITALS
--------
A. UIH indirectly owns interests in multi-channel television, programming
and telecommunications operating companies throughout the world. The Company is
acquiring from certain subsidiaries of UIH ownership interests in certain
operating companies that are engaged in such activities in Australia and New
Zealand.
B. The Company is an indirect, wholly, owned, subsidiary of UIH. As a
result UIH will consolidate the financial results of the Company and its
subsidiaries in UIH's financial statements. As a subsidiary of UIH, the Company
is subject to the covenants and restrictions of indentures governing UIH's and
its subsidiaries' debt securities. UIH may also be subject to certain legal
obligations as a result of its ownership of an interests in the Company.
C. It is anticipated that the Company will be domesticated to Australia in
the near future and will then commence an initial public offering of its
ordinary shares on the Australian Stock Exchange, as well as a Rule 144A
offering outside Australia (collectively, the "Offering").
D. UIH Asia/Pacific Communications, Inc. ("UAP"), a subsidiary of UIH and
indirect parent of the Company has agreed to make or have a third party make
capital contributions to certain subsidiaries of the Company in certain
circumstances. UIH and the Company have agreed that the Company will make such
contributions if requested by UIH or that the Company will assume such
obligations.
E. In connection with this shareholder relationship, UIH and the Company
have agreed to take certain actions and restrict certain activities with respect
to one another, all as more particularly set forth in this Agreement.
AGREEMENT
1. COVENANT NOT TO COMPETE. For so long as UIH holds, directly or
indirectly, 50% or more of the outstanding ordinary shares of the Company on a
fully diluted basis:
(a) UIH shall not, and shall not permit its majority-owned affiliates
to, pursue any multi-channel television or video services or telephone or
Interact access opportunities specifically directed to the Australia or New
Zealand markets unless: (i) UIH has first presented such opportunity in writing
to the Board of Directors of the Company; and (ii) the members of the Board of
Directors of the Company who are not directors or officers of UIH or officers of
the Company have decided not to pursue such opportunity and the Company has
given notice of such decision in writing to UIH. The Company will respond with
reasonable promptness after the opportunity is presented to the Company by UIH.
(b) The Company shall not, and shall not permit to its controlled
affiliates to, pursue any multi-channel television or video services or
<PAGE>
telephone or Internet access opportunities in markets outside of Australia or
New Zealand unless: (i) the Company has first presented such opportunity in
writing to the Board of Directors of UIH and (ii) the members of the Board of
Directors of UIH who are not directors or officers of the Company have decided
not to pursue such opportunity and UIH has given notice of such decision in
writing to the Company. UIH will respond with reasonable promptness after the
opportunity is presented to UIH by the Company.
2. COMPLIANCE WITH FINANCIAL REPORTING AND OTHER LEGAL REQUIREMENTS.
(a) In order to assist UIH-and its subsidiaries compliance with their
respective reporting obligations under the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, and all other United States
federal and state securities laws (collectively, the "U.S. Securities Laws"),
and to avoid potential liability by UIH thereunder, and to enable UIH to prepare
its consolidated financial statements in accordance with United States generally
accepted accounting principles ("GAAP"), as in effect from time to time, and to
comply otherwise with it reporting obligations under the U.S. Securities Laws,
the Company shall (i) timely provide UIH with audited financial statements of
the Company in compliance with United States GAAP (or in such other accounting
principles as UIH may reasonably request) in such form and with respect to such
periods as UIH shall reasonably request, and (ii) provide such financial and
other information as UIH may reasonably require to comply with its reporting
obligations under the U.S. Securities Laws and with the reporting obligations of
any exchange or market on which UIH's securities are listed for trading and as
may be necessary or appropriate for UIH to limit or avoid liability under the
securities laws of any jurisdiction in connection with any action being taken by
UIH. The Company shall supply UIH with, and hereby consents to the disclosure by
UIH of, all such financial and other information to the extent deemed necessary
or appropriate by UIH in its sole discretion in order to comply with or satisfy
the public disclosure obligations of UIH or any affiliate of UIH under the U.S.
Securities Laws and with the reporting obligations of any exchange or market on
which UIH's or such affiliate's securities are listed for trading and as may be
necessary or appropriate for UIH to limit or avoid liability under the
securities laws of any jurisdiction in connection with any action being taken by
UIH.
(b) The Company shall take all actions reasonably required to assist
UIH and its subsidiaries comply with any and all requirements imposed by law as
a result of UIH's ownership of a direct or indirect interest in the Company. The
Company shall advise UIH of any obligations imposed on UIH by the laws of
Australia or New Zealand as a result of its ownership of an interest in the
Company.
3. INDEMNIFICATION BY THE COMPANY.
(a) If UIH is requested to execute any underwriting or similar
agreement in connection with the Offering or any other offering or sale of
ordinary shares by the Company (the "Underwriting Agreement"), the Company shall
defend, indemnify and hold UIH harmless from and against any and all losses,
claims, damages, obligations, liens, assessments, judgments, fines, liabilities,
and other costs and expenses (including without limitation interest, penalties
and any investigation, legal and other expenses incurred in connection with, and
any amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same are incurred (collectively, "Liabilities")) that UIH may
sustain or suffer based upon, arising out of, by reason of or otherwise in
respect of or in connection with the Underwriting Agreement; provided, however,
that the Company will not be liable to UIH (i) to the extent that it is finally
judicially determined that such Liabilities resulted from the willful misconduct
or gross negligence of UIH; or (ii) to the extent that it is finally judicially
determined that such Liabilities resulted solely, from the material breach by
UIH of any representation, warranty, covenant or other agreement of UIH
contained in the Underwriting Agreement relating to UIH or its subsidiaries
other than the Company and its subsidiaries; and provided, further, however,
that if and to the extent that such indemnification is unenforceable for any
2
<PAGE>
reason, the Company shall make the maximum contribution to the payment and
satisfaction of such indemnified liability which shall be permissible under
applicable laws. The indemnification and contribution provided for in this
Section 3 will remain in full force and effect regardless of any investigation
made by or on behalf of UIH.
(b) INDEMNIFICATION PROCEDURE; NOTICE; DEFENSE. Promptly after
becoming aware of any Liabilities or the making of any claim or demand by any
third party that may result in the incurrence of any Liabilities, UIH shall
notify the Company of such incurrence, claim or demand; provided, that the
failure of UIH to so notify the Company shall not relieve the Company of any
liability under Section 3(a) hereof, except if the Company has been materially
prejudiced by such failure to be so notified. In case of any notice to the
Company, the Company shall be entitled to participate in, and if it wishes, to
assume, the defense of any such claim or demand and, after notice of its intent
to assume such defense, the Company will not be liable for any attorney's fees
or other expenses subsequently incurred by UIH in connection with such claim;
provided, that UIH shall have the right to employ counsel to represent it if, in
the reasonable judgment of UIH's counsel, there is reasonably likely to be a
conflict of interest such that representation of UIH and the Company by the same
counsel, in which event the reasonable fees and expenses of appropriate separate
counsel shall be borne by the Company. If the Company does not elect within a
reasonable time after receipt of notice to assume the defense of any suit
brought to enforce a claim or demand referred to above, UIH shall be entitled to
assume the control of such defense, in which case the reasonable fees and
expenses incurred by UIH in the conduct of such defense, including the
reasonable fees and expenses of counsel, shall be reimbursed by the Company as
the same are incurred from time to time by UIH (in addition to local counsel) in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
The Company shall not, without the prior written consent of UIH, effect any
settlement of any pending or threatened claim or action in respect of which UIH
is or could have been a party and indemnity could have been sought hereunder by
UIH unless such settlement includes an unconditional release of UIH from all
liability on any claims that are the subject matter of such action.
4. COMPLIANCE BY THE COMPANY WITH UIH INDENTURES.
(a) The Company shall take no action or inaction that will or
reasonably could result in a breach of (i) the Indenture, dated as of February
5, 1998, by and between UIH and Firstar Bank of Minnesota, N.A. ("Firstar"), as
trustee, as the same may be amended or supplemented (the "UIH Indenture"), (ii)
the Indenture, dated as of April 29, 1999, by and between UIH and Firstar, as
trustee, as the same may be amended or supplemented (the "1999 UIHo Indenture"),
(iii) the Indenture, dated as of May 14, 1996, by and between UIH
Australia/Pacific, Inc., a Colorado corporation ("UIH A/P"), and Firstar, as
trustee, as the same may be amended or supplemented (the "1996 UIH A/P
Indenture"), or (iv) the Indenture, dated as of September 23, 1997, by and
between UIH A/P and Firstar, as trustee, as the same may be amended or
supplemented (the "1997 UIH A/P, Indenture" and, together with the UIH
Indenture, 1999 UIH Indenture and the 1996 UIH A/Po Indenture, the "Indentures")
or any other indenture, or agreement to which UIH or any of its subsidiaries is
party, including UIH A/P, governing indebtedness of UIH or such subsidiaries, as
the case may be, that replaces or refinances any indebtedness governed by an
Indenture or otherwise provides funding to UIH or its subsidiaries. UIH shall
use, and shall cause it subsidiaries to use, reasonable efforts to assure that
any such replacement, refinancing or supplemental indentures or agreements do
not contain covenants that are materially more restrictive on actions of the
Company by reason of this paragraph, taken as a whole, than the Indentures.
3
<PAGE>
(b) The Company shall take no action or inaction that will or
reasonably could result in UIH or a subsidiary being required, pursuant to the
terms of an Indenture or of any such replacement, refinancing or supplemental
indenture or agreement, to take any action materially adverse to UIH or such
subsidiary as a result of action taken or omitted to be taken by the Company or
any of its controlled affiliates. The Company agrees that it and its controlled
affiliates shall apply the proceeds of the Offering in such a manner that none
of UIH, UIH A/P or any other subsidiary of UIH shall be required to repay,
repurchase or reacquire or offer to pay, purchase or acquire, pursuant to the
terms of an Indenture or any replacement, refinancing or supplemental indenture
or agreement, or to repay repurchase or reacquire any outstanding notes or other
obligations. The Company shall assure that its subsidiaries and controlled
affiliates comply with this paragraph 4.
5. OBLIGATIONS OF UAP. Upon the request of UIH or UAP, the Company shall
make capital contribution to its subsidiaries Saturn Communications Limited or
Austar Entertainment Pty Limited in satisfaction of obligations of UAP or any
other subsidiary of UIH undertaken in connection with financing obtained by such
subsidiaries.
6. TERM; TERMINATION. This Agreement shall remain in effect from the date
first set forth above except to the extent this Agreement is terminated pursuant
to this Section 5. This Agreement shall terminate, except with respect to any
claims for breach of this Agreement arising before such termination, (i) for
purposes of Section 1, when UIH ceases to hold, directly or indirectly, 50% or
more of the outstanding ordinary shares of the Company on a fully diluted basis,
and (ii) for purposes of Section 5, when UAP or any other UIH subsidiary no
longer has any capital contribution obligations undertaken in connection with
financing obtained by subsidiaries of the Company, but shall otherwise remain in
effect.
7. ASSIGNMENT SUCCESSORS. Except as otherwise provided herein, neither
party hereto may assign or transfer any of its interests, or delegate any of its
obligations, hereunder without the prior written consent of the other party.
UIH, upon written notice to the Company, may assign its interests in this
Agreement to any affiliate of UIH, in which event references to UIH in this
Agreement shall refer to such affiliate to the extent appropriate. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successor and assigns.
8. MISCELLANEOUS.
(a) AMENDMENT; WAIVER. The Agreement may not be amended nor may any
rights hereunder be waived except by an instrument in writing signed by the
parties hereto. The waiver of any breach of any term or condition hereof shall
not be deemed a waiver of any other or subsequent breach. No failure to exercise
and no delay in exercising, on the part of either party hereto, any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege hereunder, preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies at law.
(b) FURTHER ASSURANCES. Each party hereto shall execute, acknowledge,
deliver, file and record such further certificates, amendments, instruments,
agreements and documents, and do all such other acts and things, as may be
required by law or as, in the reasonable opinion of either party hereto, may be
necessary or advisable to carry out the intents and purposes hereof.
(c) HEADINGS. Titles and headings of the sections, of this Agreement
are for convenience of reference only and do not form a part of this Agreement
and shall not in any way affect the interpretation of this Agreement.
4
<PAGE>
(d) ENTIRE AGREEMENT. This Agreement is the entire agreement and
understanding between the parties hereto concerning the subject matter hereof
and supersedes and replaces all prior agreements and understandings between the
parties hereto with respect thereto.
(e) SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provisions to such persons or
circumstances other than those to which it has been invalid or unenforceable,
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby.
(f) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado, other than its rules of
conflicts of laws to the extent that the application of the laws of another
jurisdiction would be required thereby.
(g) NOTICES. All notices, demands or other communications to be given
under or by reason of this Agreement shall be in writing and shall be deemed to
have been received when delivered personally, by facsimile or mailed by
certified or registered mail, return receipt requested and postage prepaid, as
follows:
(i) If to UIH, to it at:
United International Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237, U.S.A.
Facsimile: (303) 770-4207
Attention: President
Copy to: Legal Department
(ii) If to the Company, to it at:
AUSTAR United Communications Limited 4643
South Ulster Street, Suite 1300 Denver,
Colorado 80237, U.S.A.
: Facsimile: (303) 770-4207:
Attention: President
Copy to: Legal Department
Either party hereto may change its address for notices, demands and other
communications hereunder by giving notice of such change to the other party in
accordance with this Section 7(g).
(h) NO THIRD-PARTY BENEFICIARIES. Notwithstanding anything to the
contrary herein, no person shall be a third-party beneficiary to this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall constitute an original of this
Agreement, and all of which together shall constitute one instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to
be effective as of the date first set forth above.
UNITED INTERNATIONAL HOLDINGS, INC., a
Delaware corporation
By: /S/Michael T. Fries
-------------------------------------
Name: Michael T. Fries
Title: President
AUSTAR UNITED COMMUNICATIONS LIMITED, a
Delaware corporation
By: /S/Michael T. Fries
-------------------------------------
Name: Michael T. Fries
Title: President
6
<TABLE>
<CAPTION>
Exhibit 12.1
Ratio of Earnings to Fixed Charges
For the Years Ended December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Pretax income (loss) from continuing operations................ $ 36,389 $(206,291) $(168,056) $(87,986) $(17,233)
Add back:
(Losses) earnings from less-than-50.0%-owned persons......... 11,614 10,299 2,286 4,503 4,327
Minority interest in subsidiary.............................. (13,609) - - - -
Fixed charges:
Interest, whether expensed or capitalized, including
amortization of deferred financing costs................. 69,470 56,705 43,994 22,194 30
-------- --------- --------- -------- --------
Adjusted income (loss)......................................... 103,864 (139,287) (121,776) (61,289) (12,876)
Fixed charges.................................................. 69,470 (56,705) (43,994) (22,194) (30)
-------- --------- --------- -------- --------
Ratio of earnings to fixed charges............................. 1.50 - - - -
Amount of coverage deficiency.................................. $ - $(195,992) $(165,770) $(83,483) $(12,906)
======== ========= ========= ========= ========
</TABLE>
Exhibit 21.1
List of Subsidiaries
Subsidiary Jurisdiction of Formation
---------- -------------------------
Auldana Beach Pty Limited Australia
Austar Entertainment Pty Limited Australia
Austar Retail Pty Limited Australia
Austar Satellite Pty Limited Australia
Austar Satellite Ventures Pty Limited Australia
Austar Services Pty Limited Australia
Austar United Broadband Pty Limited Australia
Austar United Communications Limited Australia
Carryton Pty Limited Australia
Century Programming Ventures Corporation Nevada
Century United Programming Ventures Pty Limited Australia
Chippawa Pty Limited Australia
Content Co Pty Limited Australia
Continental Century Pay TV Pty Limited Australia
CTV Pty Limited Australia
Dovevale Pty Limited Australia
Grovern Pty Limited Australia
Ilona Investments Pty Limited Australia
Jacolyn Pty Limited Australia
Keansburg Pty Limited Australia
Kidilla Pty Limited Australia
Kiwi Cable Company Limited New Zealand
Lystervale Pty Limited Australia
Massive Media Pty Limited Australia
Massive Interactive Pty Limited Australia
Massive Technologies Pty Limited Australia
Maxi-Vu Pty Limited Australia
Minorite Pty Limited Australia
Newcastle Microwave Pty Limited Australia
Orloff Pty Limited Australia
Palara Vale Pty Limited Australia
Saturn Communications Limited New Zealand
Saturn (NZ) Holding Company Pty Limited New Zealand
Selectra Pty Limited Australia
Societe Francaise des Communications et du Cable S.A. France
STV Pty Limited Australia
Telefenua S.A. French Polynesia
UAP Australia Programming Pty Limited Australia
United AML, Inc. Colorado
United Austar, Inc. Colorado
United Austar Transponder, Inc. Colorado
United Australia Holdings, Inc. Colorado
United Australia/Pacific Finance, Inc. Colorado
UIH ECT Programming Pty Limited Australia
UIH SFCC, L.P. Colorado
UIH SFCC Holdings, L.P. Colorado
UIH SFCC II, Inc. Colorado
United Wireless Pty Limited Australia
United Wireless Systems Pty Limited Australia
United Wireless (Wholesale) Pty Limited Australia
Vermint Grove Pty Limited Australia
Vinatech Pty Limited Australia
Weather 21 Pty Limited Australia
Willongong/Microwave Pty Limited Australia
Windytide Pty Limited Australia
Xtek Bay Pty Limited Australia
XYZ Entertainment Pty Limited Australia
Yanover Pty Limited Australia
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 29, 2000 on United Australia/Pacific, Inc.
(f/k/a/ UIH Australia/Pacific, Inc.) included in this Annual Report on Form
10-K, into previously filed Registration Statement File No. 333-37651.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
Exhibit 24.1
Power of Attorney
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Valerie L. Cover his attorney-in-fact, with full power
of substitution, for him in any and all capacities, to sign the 1999 annual
report on Form 10-K of United Australia/Pacific, Inc., a Colorado corporation
(the "Company"), to be filed with the Securities and Exchange Commission (the
"Commission"), and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission; granting unto said attorney-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in the
premises, whereby ratifying and confirming all that said attorney-in-fact may
lawfully do or cause to be done on behalf of the Company by virtue hereof.
By: /S/ Gene W. Schneider
- ----------------------------------
Gene W. Schneider March 27, 2000
Chairman of the Board
By: /S/ Michael T. Fries
- ----------------------------------
Michael T. Fries March 27, 2000
Director, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
AUSTRALIA/PACIFIC, INC.'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,028
<SECURITIES> 0
<RECEIVABLES> 8,177
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 310,778
<PP&E> 481,285
<DEPRECIATION> 261,891
<TOTAL-ASSETS> 666,591
<CURRENT-LIABILITIES> 67,238
<BONDS> 407,945
0
0
<COMMON> 178
<OTHER-SE> (155,082)
<TOTAL-LIABILITY-AND-EQUITY> 666,591
<SALES> 150,752
<TOTAL-REVENUES> 150,752
<CGS> 0
<TOTAL-COSTS> 112,498
<OTHER-EXPENSES> 104,720
<LOSS-PROVISION> 4,949
<INTEREST-EXPENSE> 69,470
<INCOME-PRETAX> 34,403
<INCOME-TAX> 993
<INCOME-CONTINUING> 35,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,396
<EPS-BASIC> 1.99
<EPS-DILUTED> 1.94
</TABLE>
