<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4841 84-1343875
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MICHAEL T. FRIES
CHIEF EXECUTIVE OFFICER
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
GARTH B. JENSEN, ESQ. NICK P. SAGGESE, ESQ.
HOLME ROBERTS & OWEN LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1700 LINCOLN, SUITE 4100 300 SOUTH GRAND AVENUE
DENVER, COLORADO 80203 LOS ANGELES, CALIFORNIA 90071-3144
(303) 861-7000 (213) 687-5000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
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<S> <C> <C>
Class A Common Stock, $.01 par value................. $100,000,000 $30,303
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
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----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with the initial public offering of the Class A Common Stock in
the United States and Canada (the "U.S. Prospectus") and one to be used in
connection with the concurrent initial public offering of the Class A Common
Stock outside the United States and Canada (the "International Prospectus").
The two forms of prospectus are identical except that they contain different
front and back covers and underwriting sections and except that the
International Prospectus contains an additional risk factor (under the caption
"Risk Factors--Tax Consequences") and a section on certain tax consequences
(under "Certain U.S. Tax Consequences to Non-U.S. Stockholders"). The form of
U.S. Prospectus is included herein and is followed by those pages (each marked
"Alternate Page for International Prospectus") to be used in the International
Prospectus that differ from those in the U.S. Prospectus.
i
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1996
PROSPECTUS
, 1996
$100,000,000
[LOGO OF UIH ASIA/PACIFIC COMMUNICATIONS, INC. APPEARS HERE]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock offered hereby are being sold by
UIH Asia/Pacific Communications, Inc. ("UAPC"). Of the shares being
offered by UAPC , shares are being offered in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering") and shares are being
offered in a concurrent international offering outside the United States and
Canada, by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offering"), subject to transfers between
the U.S. Underwriters and the International Managers. The public offering price
and the aggregate underwriting discount per share will be identical for both
offerings. See "Underwriting." Holders of Class A Common Stock are entitled to
one vote per share on all matters submitted to a vote of stockholders, and
holders of Class B Common Stock are entitled to ten votes per share. Both
classes vote together as a single class on all matters, except where class
voting is required by the Delaware General Corporation Law. See "Description of
Capital Stock." Shares of Class B Common Stock are convertible into shares of
Class A Common Stock on a one-for-one basis at the option of the holder. Upon
the closing of the Offering, United International Holdings, Inc., the Company's
majority stockholder, has agreed to contribute $25.0 million cash to the
Company for additional Class B Common Stock at the initial public offering
price of the Class A Common Stock (the "UIH Investment"). Immediately following
the UIH Investment and the Offering, assuming no exercise of the over-allotment
option granted to the Underwriters, the Class A Common Stock offered hereby
will account for approximately percent of the combined voting power of
UAPC's outstanding common stock.
Prior to the Offering, there has been no public market for either the Class A
Common Stock or the Class B Common Stock. It is currently estimated that the
initial public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for the Class A
Common Stock to be quoted on the Nasdaq Stock Market under the symbol "UIHPA."
Concurrently with the Offering, UIH Australia/Pacific, Inc., a wholly owned
subsidiary of UAPC ("UIH A/P"), is offering, pursuant to a separate prospectus,
% Senior Discount Notes due 2007 (the "New UIH A/P Notes" and, together with
UIH A/P's existing 14% Senior Discount Notes due 2006, the "UIH A/P Notes") in
such principal amount as will generate gross proceeds of approximately $150.0
million (the "Senior Discount Note Offering" and, together with the Offering,
the "Offerings"). The Offering is not contingent upon the consummation of the
Senior Discount Note Offering.
SEE "RISK FACTORS" STARTING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
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<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers (collectively the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an aggregate of additional shares of Class A Common Stock on the
same terms as set forth above to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting."
- --------------
The shares of Class A Common Stock are offered by the Underwriters, subject to
prior sale when, as and if accepted and subject to certain conditions. It is
expected that delivery of the certificates for the shares of Class A Common
Stock offered hereby will be made in New York, New York on or about .
DONALDSON, LUFKIN & JENRETTE HSBC JAMES CAPEL
SECURITIES CORPORATION
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. As used
herein, the term "Registration Statement" means the Registration Statement as
originally filed and any and all amendments thereto. This Prospectus omits
certain information contained in the Registration Statement as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration
Statement, each such statement being qualified by and subject to such
reference in all respects.
* * *
As a result of the Offering, the Company will become subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file reports and other
information with the Commission. Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Avenue,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such materials can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The Commission also maintains a site
on the World Wide Web, the address of which is http://www.sec.gov, that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.
* * *
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
* * *
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A
COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context otherwise requires, "UAPC" refers to UIH Asia/Pacific
Communications, Inc., an indirect majority-owned subsidiary of United
International Holdings, Inc. ("UIH"), and the "Company" refers collectively to
UAPC, its subsidiaries and non-majority owned affiliates and their respective
predecessors. UAPC owns, through directly and indirectly held interests, a
combined 100% economic interest in two Australian companies, CTV Pty Ltd.
("CTV") and STV Pty Ltd. ("STV"), which are together operating, and are
referred to herein, as "Austar." See "Corporate Organizational Structure--
Austar." Unless the context requires otherwise, "UIH" includes UIH and all of
its subsidiaries other than UAPC and its subsidiaries. All references to "$" or
"dollars" are to U.S. dollars, unless otherwise indicated. For information
regarding foreign currency amounts translated to U.S. dollars, see "Exchange
Rate Data."
THE COMPANY
OVERVIEW
The Company is a leading provider of multi-channel television services in
Australasia and the Asia/Pacific region. Through its Australian operating
company Austar, the Company is the largest provider of multi-channel television
services in regional Australia, where it operates wireless cable ("MMDS")
systems and is marketing a direct-to-home ("DTH") service in franchise areas
encompassing approximately 1.5 million television homes, or 25% of the total
Australian market. In addition, the Company, through its New Zealand operating
company, Saturn Communications Limited ("Saturn"), is constructing a wireline
cable and telephony system in Wellington, New Zealand, a market representing
approximately 135,000 television homes. The Company's Philippine joint venture,
Telemondial Holdings, Inc. (d.b.a. "Sun Cable"), is the third largest cable
television operator in the Philippines with wireline cable television systems
in 15 markets that have approximately 575,000 television homes. The Company's
other assets include a 25% interest in XYZ Entertainment Pty Ltd. ("XYZ"), a
programming company that provides four channels to the Australian multi-channel
television market as part of the "Galaxy" package, the most widely distributed
programming package in Australia and the core component of Austar's programming
offering, and a 90% economic interest in Telefenua S.A. ("Telefenua"), the only
provider of multi-channel television services in Tahiti, with an MMDS system in
a market with 31,000 television homes.
The Company believes that it is well-positioned to capitalize on the rapidly
increasing demand for multi-channel television and telephony services in
Australasia and the Asia/Pacific region. As of October 31, 1996, the Company
had invested over $215 million in its networks and operating infrastructure and
had launched service in each of its markets. The Company has experienced rapid
growth in its network coverage and subscriber base during 1996. As of October
31, 1996 the Company's multi-channel television operating systems had an
aggregate of approximately 1.6 million television homes serviceable and
approximately 115,300 subscribers, as compared with approximately 296,200
television homes serviceable and approximately 29,300 subscribers as of
December 31, 1995 (with a substantial majority of such growth resulting from
Austar's expansion). During this same ten-month period, programming subscribers
of XYZ increased from approximately 65,000 to approximately 269,000. While the
Company expects that a substantial portion of its growth will come from the
continued development of Austar, the Company is also anticipating significant
growth by its other operating companies.
OPERATIONS
AUSTAR (AUSTRALIA)
Austar is the largest provider of multi-channel television services in
regional Australia (areas outside Australia's six largest cities). Austar
initiated widespread deployment of its services in early 1996 and as of October
31, 1996, had launched MMDS service in 27 metropolitan markets containing
approximately 700,000 homes and had initiated the marketing of DTH services in
non-metropolitan markets containing approximately 740,000 homes. These markets
represent over 93% of Austar's 1.5 million franchise television homes, the
remaining 100,000 of which will be serviceable by early 1997.
3
<PAGE>
Austar's marketing efforts have kept pace with the rapid roll-out of its
network services during 1996. As of October 31, 1996, Austar had 75,300
subscribers with a backlog of 13,900 customers scheduled for installation. In
addition, subscriber growth has accelerated in recent periods, as demonstrated
by October's results in which Austar generated 23,800 subscription sales orders
and had a net gain of over 15,000 subscribers, with the difference primarily
attributable to installation backlog. Austar is continuing to market its
services aggressively and expects to continue rapidly building its subscriber
base. Austar is benefitting from several characteristics which are supporting
its marketing success and which management believes give it a competitive
advantage in its markets:
. OPERATIONAL INFRASTRUCTURE IN PLACE. In addition to having launched
service to over 93% of its franchise areas, Austar has also developed the
operational infrastructure necessary to continue its rapid growth.
Austar's early investment of approximately $149 million in operating and
capital expenditures from inception through October 31, 1996 has
established it currently as the only multi-channel television provider in
substantially all of its franchise areas. Austar has developed a
comprehensive marketing organization consisting of a 200 person direct
salesforce and over 200 national customer service and telemarketing
personnel. The direct salesforce, which operates out of local offices in
the majority of Austar's metropolitan markets, is currently generating
sales of approximately 2,250 subscriptions per week. The salesforce at
Austar's state-of-the-art national customer operations center ("NCOC") is
currently generating sales of approximately 3,000 additional
subscriptions per week from inbound and outbound calls. This salesforce
is supported by an integrated marketing program of television, radio and
print advertising. The NCOC is also the center of Austar's customer
service organization, processing all incoming information, installation
and service requests. The NCOC has sufficient capacity to service
Austar's customer service needs for the forseeable future.
Austar has a total of approximately 600 employees, most of whom are
located in local offices and regional operating centers, and has contracted
with a number of local service companies which employ an aggregate of
approximately 400 technicians to install and maintain subscriber equipment
in each of its markets. Management believes that this infrastructure
positions Austar to service its markets efficiently and provides it with
significant competitive advantages.
. REGIONAL FOCUS; CLASSIC MARKETS. Austar has strategically focused on the
currently less competitive regional markets that are located outside of
Australia's largest cities and encompass approximately 25% of the total
Australian television market. These areas are "classic" multi-channel
television markets with attractive demographics and limited television
and alternative entertainment options. Approximately one-half of its
service area (approximately 800,000 television homes) are in metropolitan
markets with sufficient housing densities to support the construction of
MMDS systems. Austar owns virtually all of the available MMDS licenses in
each of these markets. The Company believes these markets generally do
not have the size and/or densities to support the construction of a
competitive wireline cable system. In Austar's non-metropolitan markets
(approximately 740,000 serviceable television homes), where management
believes household densities do not support the deployment of MMDS
networks, Austar is marketing a DTH service on an exclusive basis. Austar
is currently the only provider of multi-channel television services in
substantially all of its service area. See "Risk Factors--Competitive
Industry."
. APPROPRIATE TECHNOLOGY. Austar believes that its utilization of wireless
technologies in the build-out of its franchise area has afforded it with
several economic and strategic advantages. The rapid deployment of MMDS
networks in its metropolitan markets and a DTH service in its non-
metropolitan markets has allowed Austar to reach the vast majority of the
homes in these markets in just over one year. Austar's status as the
initial operator in all of its markets has allowed it to establish a
significant subscriber base and strong brand awareness, factors that
management believes will give it a competitive advantage. Management
believes the combination of MMDS and DTH has allowed Austar to reach
virtually all of the 1.5 million serviceable television homes in its
service areas on the most cost effective basis. Austar
4
<PAGE>
estimates its total fixed capital cost to build out initially its entire
franchise area will be approximately $43 million, or $29 per serviceable
home, over 75% of which had been expended as of October 31, 1996.
Accordingly, Austar has been able to devote a significant amount of its
financial resources to completing its operational infrastructure and
installing its "in-home" subscriber equipment, over which Austar retains
ownership. Austar has spent in excess of $80 million as of October 31, 1996
on these items and expects that the substantial majority of its future
incremental capital expenditures will be incurred only as additional
subscribers are installed (currently approximately $460 and $945 per MMDS
and DTH subscriber, respectively, which amounts are partially offset by
installation charges). While Austar is currently employing analog
technology in its MMDS systems, it is testing digital technology (which
would increase its existing 19 channel capacity) in one market and intends
to offer digital service in its metropolitan markets if and when
competitive factors dictate. The DTH service marketed by Austar uses state-
of-the-art MPEG II digital technology.
. ATTRACTIVE PROGRAMMING AGREEMENTS. Austar has entered into franchise
agreements with Australis Media Limited ("Australis") that grant it the
right to provide the Galaxy programming package within its franchise areas
through 2009 (extendible at Austar's option through 2019). The Galaxy
programming package, the most widely distributed programming package in
Australia, was created by many of the world's leading programming
suppliers and features brand name channels including Showtime, Encore, Fox
Sports, The Discovery Channel, Nickelodeon/Nick at Nite and Red (a 24-hour
music video channel) as well as two general entertainment channels.
Management believes that Austar's franchise agreements have favorable
pricing for such programs. Austar's programming costs are based on a
percentage of its service revenue and provide for an offset of those costs
with the depreciation of its subscriber equipment. Austar's franchise
agreements provide exclusivity over wireless technologies (MMDS and DTH).
While Austar's franchise agreements were formerly exclusive for cable
television, the Company recently agreed to allow Foxtel Management Pty
Limited ("Foxtel") to carry the Galaxy package on Foxtel's wireline cable
systems throughout Australia (the "Australis Arrangement"). The Australis
Arrangement provides that Austar will be compensated for any Foxtel
subscriber in its franchise areas in an amount approximately equal to the
profit margin that Austar would have received had it sublicensed such
programming to Foxtel (which currently would be approximately $8 per
Foxtel subscriber per month). Foxtel is currently operating in only one of
Austar's markets and the Company believes that the small size of and/or
low household densities in the majority of its markets do not justify the
construction of competitive wireline cable systems. Austar does not
currently have any subscription television competitors in the remainder of
its franchise areas. Austar's franchise agreements continue to provide
exclusivity over all wireline cable operators other than Foxtel. In
addition, as part of the Australis Arrangement, Austar was granted the
right to acquire any additional channels distributed by Galaxy on no less
favorable terms than offered to any other person and in any event at no
more than Australis' cost, plus 10%. See "Business--Austar (Australia)--
Franchise Agreements." Austar has also secured several additional
satellite-delivered programming services to supplement the Galaxy
channels.
. ATTRACTIVE DEMOGRAPHICS. Australia has demographic and other
characteristics that management believes are favorable to multi-channel
television operators, including high per capita income and high television
and VCR penetration rates. Television viewers in Australia have limited
over-the-air television options with a maximum of five free-to-air
channels, which number is generally lower in regional Australia. The
Australian subscription television industry has grown rapidly since its
inception in early 1995, reaching a combined 6% penetration rate. In
addition, management believes Australian consumers are generally receptive
to new technologies, as demonstrated by their high cellular telephone
penetration rates. The following table summarizes selected demographic
characteristics of Australia compared to comparable statistics for the
more mature multi-channel television markets of the United States and the
United Kingdom:
5
<PAGE>
<TABLE>
<CAPTION>
GDP PER HOMES YEARS OF SUBSCRIPTION TELEVISION CELLULAR
CAPITA IN WITH SUBSCRIPTION TELEVISION HOMES WITH TELEPHONE
1995 TELEVISION TELEVISION PENETRATION VCR PENETRATION
--------- ---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Australia............... $19,271 99% 2 6% 81% 19%
United States........... 27,581 99 40+ 66 80 15
United Kingdom.......... 18,881 97 12 23 81 10
</TABLE>
SATURN (NEW ZEALAND)
The Company owns 100% of Saturn, which recently launched service on the
initial portions of its hybrid fiber coaxial ("HFC") cable network that enables
it to provide multi-channel television services as well as business and
residential telecommunications services in the Wellington area, encompassing
135,000 homes. Wellington is New Zealand's capital and second largest city. The
Company launched service in portions of this system in September 1996 and
expects construction to be completed by mid-1998. Saturn also operates an
existing cable system, which passes approximately 6,000 homes, on the Kapiti
Coast north of Wellington. As of October 31, 1996, Saturn's activated networks
passed approximately 12,600 homes, and serviced approximately 1,300
subscribers. The Company expects to use a portion of the proceeds of the
Offering to accelerate Saturn's build-out and marketing programs during 1997.
Saturn has secured additional infrastructure rights in markets representing
240,000 homes and is exploring the possibility of expanding its networks and
services to these markets. The Company believes that New Zealand is an
attractive market for multi-channel television providers. New Zealand has a
demographic profile similar to Australia, including high per capita income and
strong television, VCR and cellular telephone penetration rates. In addition,
New Zealand permits operators to offer combined multi-channel television and
telephony services over one network and Saturn expects to launch telephone,
pay-per-view and data services over the next six to 18 months. There is
currently only one significant multi-channel television provider in New
Zealand, which provider offers only a five-channel UHF-delivered subscription
service.
SUN CABLE (PHILIPPINES)
The Company holds a 40% economic interest in Sun Cable, the third largest
cable television operator in the Philippines with wireline cable television
systems in 15 markets that have a total of approximately 575,000 television
homes. Sun Cable has selected markets where management believes it can be a
major cable television provider. These markets are generally among the
country's top 50 population centers or, if not, are strategic to Sun Cable's
existing operating areas. Sun Cable is dedicating significant resources to the
construction and build-out of these franchise areas. Multi-channel television
in the Philippines is experiencing rapid growth due in part to the country's
economic growth, widespread proficiency of English and the high demand for
television and alternative entertainment services. Sun Cable is also exploring
the provision of telephony services over its networks, many of which are HFC,
due to the Philippines' current telephone penetration rate of three lines per
100 persons, which is one of the lowest in the world. As of October 31, 1996,
Sun Cable's systems passed approximately 94,364 homes and had 33,837
subscribers, representing a penetration rate of 36%. Due to limitations on
foreign ownership, the Company's interest in Sun Cable is held as a loan, which
is convertible into a 40% equity interest in Sun Cable upon certain events (the
"Sun Cable Loan"). See "Regulation--Philippines." The Company's partner in Sun
Cable is the Lorenzo Group, a conglomerate controlled by the Lorenzo family,
with significant holdings in Philippine agribusiness, real estate and consumer
products.
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides four of the eight
channels offered in the Galaxy package, Australia's most widely distributed
programming offering. XYZ's channels consist of high quality,
6
<PAGE>
brand named programming services, including Nickelodeon/Nick at Nite, The
Discovery Channel, Arena (quality general entertainment channel) and Red. XYZ
has entered into an agreement that provides for carriage of its four channels
by virtually all existing Australian MMDS and DTH providers, including
Austar, Australis and East Coast Television Pty Limited ("ECT"), as well as
by the largest cable television operator in Australia, Foxtel. The Company
believes that this agreement, which extends through 2010 for MMDS and DTH
subscribers and 2020 for Foxtel subscribers and provides for fixed per
subscriber prices (and in the case of Foxtel, substantial minimum subscriber
guarantees), will result in XYZ's programming package being available to
virtually all of Australia's 6.0 million television households. XYZ launched
its channels in April 1995 and as of October 31, 1996, XYZ provided its
channels to approximately 269,000 subscribers in Australia. Foxtel, which
owns 50% of XYZ, is a joint venture between The News Corporation Limited
("News Corp.") and Telstra Corporation Limited ("Telstra"), the Australian
government-owned telephone company. The Company's other partner in XYZ is
Century Communications Corp. ("Century"), a large U.S. multiple system cable
operator and the parent of ECT.
OTHER BUSINESSES
The Company's other businesses include: (i) a 90% economic interest in
Telefenua, the only multi-channel television operator in Tahiti, (ii) a 100%
interest in United Wireless Pty Limited ("United Wireless"), a provider of two-
way wireless mobile data services in Australia, and (iii) a 49% interest in
Hunan International TV Communications Company Ltd. ("HITV"), a joint venture
with a Chinese government agency that owns, operates and is currently
rebuilding a digital microwave relay network that delivers video services to
the 14 largest cities in the Hunan Province. As of October 31, 1996, Telefenua
was marketing its 15-channel MMDS service to approximately 18,700 of the
approximately 31,000 homes in its franchise area and had approximately 4,900
subscribers paying an average monthly rate of $65. The Company is in the early
stages of negotiating the sale of all or a portion of Telefenua to a local
strategic investor, although there can be no assurance that the Company will
conclude such a transaction.
In addition, the Company is pursuing other multi-channel television system
and related business opportunities in other areas throughout the region
including India, China, Japan, Taiwan, Indonesia and Malaysia. See "Business--
Development Projects." The Company's strategy with respect to its investment in
new businesses is to focus on opportunities that, whenever possible, (i) will
be controlled by the Company, (ii) allow for the Company to pursue significant
market share in the targeted country and (iii) are capable of securing debt
and/or equity financing at the local level.
RELATIONSHIP WITH UIH
The Company is an indirect majority owned subsidiary of UIH, a leading
provider of multi-channel television services outside the United States. UIH,
together with its strategic and financial partners, have ownership interests in
multi-channel television systems in operation or under construction in 25
countries in Europe, Latin America and, through the Company, the Asia/Pacific
region. As of September 30, 1996, UIH's multi-channel television systems had
approximately 10.4 million television homes in their respective service areas,
passed approximately 7.2 million homes and had approximately 3.1 million
subscribers. In addition to the Company, UIH's operations include its 50%
interest in United and Philips Communications B.V., a joint venture with
Philips Electronics N.V. that is the largest privately owned multi-channel
television operator in Europe.
Prior to the closing of the Offering, certain personnel currently employed by
UIH will be transferred to UAPC. UIH and UAPC are parties to a management
agreement (the "UIH Management Agreement"), pursuant to which UIH will continue
to perform and be compensated for certain management, technical,
administrative, accounting, tax, legal, financial reporting and other services
for UAPC. See "Relationship with UIH and Related Transactions."
7
<PAGE>
UIH INVESTMENT
Upon the closing of the Offering, UIH has agreed to contribute $25.0 million
cash to the Company for additional Class B Common Stock at a purchase price per
share equal to the initial public offering price per share of the Class A
Common Stock offered hereby (the "UIH Investment"), increasing the Company's
total gross proceeds from the sale of its equity securities to approximately
$125.0 million.
CONCURRENT SENIOR DISCOUNT NOTE OFFERING
Concurrent with the Offering, UIH A/P, which holds the Company's interests in
Austar, Saturn, XYZ, Telefenua and United Wireless, is offering the New UIH A/P
Notes in such principal amount as will generate gross proceeds of approximately
$150.0 million. The Senior Discount Note Offering is contingent upon the
consummation of the Offering, but the Offering and the UIH Investment are not
contingent upon the consummation of the Senior Discount Note Offering. Upon
completion of the Offerings and the UIH Investment, the Company believes that
it will have sufficient capital to complete construction of all of its existing
systems and fund anticipated start-up losses, as well as a limited amount of
capital to fund new opportunities which the Company is pursuing or which may
arise in the future. See "Risk Factors--Need for Additional Capital for New
Businesses," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OTHER
UAPC, a Delaware corporation, was incorporated in April 1996. The principal
executive office of the Company is located at 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237, and its telephone number is (303) 770-4001.
8
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock offered by the
Company............................ shares
Common Stock to be outstanding after
the Offering and the UIH
Investment:
Class A Common Stock.............. shares(1)
Class B Common Stock.............. shares
Total........................... shares
Voting Rights....................... Holders of Class A Common Stock are entitled to one
vote per share on all matters submitted to a vote of
stockholders, and holders of Class B Common Stock
are entitled to ten votes per share. Both classes
vote together as a single class on all matters,
except where class voting is required by the
Delaware General Corporation Law. Immediately
following the Offering, the Class A Common Stock
offered will account for approximately % of the
combined voting power of the Company's outstanding
common stock.
Use of Proceeds..................... The Company intends to use the net proceeds of the
Offering, combined with the proceeds of the Senior
Discount Note Offering and the UIH Investment,
primarily to fund the build-out and marketing of its
existing systems. The Company may also use a portion
of the proceeds to pursue new opportunities in the
Australasia and Asia/Pacific regions. See "Use of
Proceeds."
NASDAQ Symbol....................... UIHPA
</TABLE>
- --------------------
(1) Does not include Class A Common Stock issuable upon conversion of the Class
B Common Stock. Each share of Class B Common Stock is convertible at the
option of the holder thereof into one share of Class A Common Stock.
Assuming full conversion into Class A Common Stock of all currently
outstanding Class B Common Stock, a total of shares of Class A Common
Stock would be outstanding immediately after the Offering. See "Description
of Capital Stock." Also does not include shares of Class A Common Stock
reserved but not yet issued under UAPC's Equity Incentive Plan. Options to
purchase a total of shares of Class A Common Stock have been granted
under such plan (at the initial public offering price), effective upon the
commencement of the Offering. See "Management--Equity Incentive Plan." Does
not give effect to any exercise of the Underwriters' overallotment option.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company and the Class A Common Stock that should be considered by potential
investors.
9
<PAGE>
SUMMARY OPERATING DATA
The following table sets forth certain unaudited financial and operating data
of certain of the operating companies. The table reflects aggregate statistics
for the operating companies rather than UAPC's proportionate interest in such
statistics. See "Business" for a full description of the operating companies
and UAPC's interest therein.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1996
----------------------------------------------------------------
TELEVISION MONTHLY
HOMES IN BASIC INVESTED
SERVICE HOMES SUBSCRIPTION CAPITAL UAPC'S
OPERATING SYSTEM TECHNOLOGY AREA SERVICEABLE SUBSCRIBERS RATE(1) (IN 000S)(2) INTEREST(3)
- ---------------- ------------------ ---------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Austar.................. MMDS/DTH(4) 1,540,000 1,440,000 75,300(5) $ 31 $149,536 100%
Saturn.................. Cable/Telephony(6) 141,000 12,555 1,294 23 21,557 100%
Sun Cable............... Cable 575,000 94,364 33,837 11 8,323 40%
Telefenua............... MMDS 31,000 18,703 4,902 65 16,136 90%
--------- --------- ------- --------
Total................. 2,287,000 1,565,622 115,333 $195,552
========= ========= ======= ========
PROGRAMMING
- -----------
XYZ..................... Programming N/A(7) N/A 269,000(8) $ 3 $ 10,623 25%
======= ========
</TABLE>
- --------------------
(1) The basic rate does not include charges for installation and other premium
services, which vary in each market, and does not reflect promotions that
may be made from time to time. Austar charges this rate in all of its
markets except the Gold Coast, which had approximately 12,300 subscribers
as of October 31, 1996, where Austar charges a basic subscription rate of
$23. Saturn is currently offering new subscribers a promotional monthly
basic rate of $17 for the months from November 1996 to March 1997. The rate
for Sun Cable is an average rate for its 15 markets. Telefenua charges $65
for its expanded tier of service. Nearly 99% of Telefenua's customers are
currently subscribing to this expanded tier of service. The rate listed for
XYZ is net of revenues passed through to the Nickelodeon joint venture (in
which XYZ holds a 50% interest) and Discovery Asia with respect to the
channel each entity supplies to XYZ. See "Business--XYZ (Australian
Programming)."
(2) Represents the cash investments to fund operations and capital expenditures
since inception. Includes amounts contributed to Austar (approximately
$11.1 million) and Saturn (approximately $2.9 million) by shareholders
other than the Company, which amounts were contributed by such shareholders
prior to the acquisition of their respective interests by the Company, but
does not include (i) invested capital in United Wireless, HITV or the
Company's development projects (approximately $10.3 million) or (ii) the
$58.6 million used by UIH A/P to increase its economic interest in Austar
to approximately 100%. Also does not reflect the issuance of shares of
Class A Common Stock exchanged for shares of UIH A/P used to increase the
Company's interest in Saturn to 100%.
(3) For an explanation of UAPC's interests in each of the operating companies,
see "Corporate Organizational Structure."
(4) Austar is also constructing a wireline cable system in Darwin that is
scheduled to pass 26,200 homes. Austar is offering its services to the
800,000 homes in its metropolitan areas primarily by MMDS and to the
740,000 homes in its non-metropolitan areas exclusively by DTH.
(5) Does not include an installation backlog of 13,860 customers.
(6) Saturn plans to begin offering telephony services in 1998.
(7) The Company expects that XYZ's programming package eventually will be
marketed to virtually all of Australia's 6.0 million television households
by Australian multi-channel television providers, including Austar,
Australis, Foxtel and ECT.
(8) Total subscribers to the eight channel Galaxy package to which XYZ
currently supplies four channels.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the years ended
December 31, 1994 and 1995 have been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP,
independent public accountants, whose report indicated a reliance on other
auditors relative to certain amounts relating to the Company's interest in
Telefenua and XYZ as of and for the year ended December 31, 1995. The following
summary consolidated financial data for the nine months ended September 30,
1995 and 1996, and at September 30, 1996, have been derived from unaudited
financial statements that, in the opinion of the management of the Company,
reflect all adjustments, consisting of normal recurring adjustments, necessary
to fairly present the financial data for such periods and as of such date. The
pro forma statement of operations data for the year ended December 31, 1995 and
the nine months ended September 30, 1996 (i) includes the results of operations
of Austar, in which the Company increased its economic ownership to 90% from
50% in December 1995, which interest was subsequently increased to 100% in
October 1996 (the "Austar Transaction"), (ii) reflects the sale of a 25%
interest in XYZ (reducing the Company's interest to 25% from 50%) in September
1995 (the "XYZ Sale"), (iii) includes the results of operations of Saturn, in
which the Company increased its ownership from 50% to 100% in July 1996 (the
"Saturn Purchase") and (iv) includes the eight months of operations of United
Wireless prior to its acquisition date (the "United Wireless Purchase") as if
each such transaction had occurred on January 1, 1995. The data set forth below
is qualified by reference to and should be read in conjunction with the audited
Consolidated Financial Statements of the Company and Notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Pro Forma Consolidated Condensed Statement of Operations
Data," included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------- -----------------------------
PRO FORMA PRO FORMA
1994 1995 1995 1995 1996 1996
------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service and other reve-
nue.................... $ -- $ 1,903 $ 2,527 $ 1,152 $ 13,288 $ 13,392
System operating ex-
pense.................. -- (3,145) (5,488) (1,870) (18,621) (19,240)
System selling, general
and administrative
expense................ -- (2,482) (11,006) (1,636) (13,987) (15,064)
Corporate general and
administrative
expense................ (2,262) (2,874) (2,874) (2,075) (2,832) (2,832)
Depreciation and amorti-
zation expense......... -- (1,003) (6,345) (639) (15,935) (16,426)
Equity in losses of af-
filiated companies,
net.................... (1,015) (16,498) (7,716) (12,518) (4,750) (3,820)
Net loss................ (3,277) (19,060) (28,575) (13,176) (48,342) (51,353)
Net loss per common
share..................
Weighted average number
of shares outstanding..
OTHER DATA:
Capital expenditures.... $ 1 $ 7,143 $ 23,206 $ 6,970 $105,899 $110,121
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(1)
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and
short-term investments...................... $ 106,990 $ 368,390
Property, plant and equipment, net........... 130,435 130,435
Total assets................................. 344,964 612,264
Senior Discount Notes and other long-term
debt........................................ 241,039 391,039
Total liabilities............................ 277,112 427,112
Total stockholders' equity................... 65,994 183,294
</TABLE>
- --------------------
(1) As adjusted to reflect the sale of shares of Class A Common Stock
offered hereby (at an initial public offer price of $ per share), net of
offering expenses, $144.1 million of net proceeds of New UIH A/P Notes and
the UIH Investment.
11
<PAGE>
RISK FACTORS
Prospective purchasers of the Class A Common Stock offered hereby should
consider carefully the following Risk Factors, as well as the other
information set forth in this Prospectus, before purchasing the Class A Common
Stock.
This Prospectus contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places in this Prospectus,
including, without limitation, the information under the headings "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers primarily
with respect to the development of the Company's markets, future funding
requirements and operating performance of the Company. Prospective purchasers
of the Class A Common Stock offered hereby are cautioned that any such
forward-looking statements are not guarantees of future performance and may
involve risks and uncertainties, and that actual results may differ from those
in the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus. The accompanying
information contained in this Prospectus, including, without limitation, the
information set forth below, identifies important factors that could cause
such differences.
Leverage. Immediately following consummation of the Offerings, the Company
will be highly leveraged. After giving pro forma effect to the sale of
shares of Class A Common Stock offered hereby (at an initial public offering
price of $ per share), net of offering expenses, the Senior Discount Note
Offering and the UIH Investment, on a consolidated basis the Company would
have had outstanding at September 30, 1996, an aggregate of $391.0 million of
long-term debt and stockholders' equity of $183.3 million. UIH A/P's 14%
Senior Discount Notes due 2006 (the "Existing Notes") will have an Accreted
Value of $443 million as of May 16, 2001 (the date cash interest payments
begin on the UIH A/P Notes). The New UIH A/P Notes will have an Accreted Value
of $ as of (the date cash interest payments begin on the New UIH
A/P Notes). See "Capitalization." The Company's ability to meet its debt
service requirements will be dependent upon substantial growth in the
Company's cash flow. If the Company's cash flow and working capital are not
sufficient to fund the Company's expenditures and to service its indebtedness,
including the UIH A/P Notes, the Company would be required to raise additional
funds through either the sale of equity or debt securities, refinance of all
or part of its indebtedness, or effect the sale of significant assets. There
can be no assurance that the Company will be successful in generating cash
flow by a sufficient magnitude or in a timely manner or in raising additional
equity or debt financing to enable the Company to meet its debt service and
other liquidity requirements. The high degree to which the Company is
leveraged could have significant adverse consequences upon the Company,
including, without limitation, (i) increased vulnerability to adverse economic
and competitive conditions, (ii) inability to obtain additional financing
necessary to fund future working capital requirements, capital expenditures,
acquisitions or other general needs, and (iii) the dedication of a substantial
portion of cash flow from operations to the payment of principal of and
interest on indebtedness, rather than to the expansion of operations and the
pursuit of new opportunities. Cash interest on the UIH A/P Notes will accrue
and be payable commencing November 15, 2001. In addition, UAPC and its
subsidiaries and affiliates may incur additional indebtedness from time to
time to finance expansion, either through capital expenditures or
acquisitions, or for other general corporate purposes.
History of Operating Losses. The Company has experienced net losses since
its formation. On a pro forma basis, assuming the Austar Transaction, the XYZ
Sale, the United Wireless Purchase and the Saturn Purchase had each occurred
as of January 1, 1995, the Company would have had consolidated net operating
losses of $23.2 million for fiscal 1995. The Company expects to incur
substantial additional net losses and net operating losses for the foreseeable
future as it pursues the development of its multi-channel television systems
and programming ventures and there can be no assurance that such losses will
not continue indefinitely or exceed the Company's expectations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company has experienced net losses, net
operating losses and negative cash flows from operations since formation, as
each of its operating companies has been in the early stages of constructing
and marketing its operations. In fiscal 1995, net operating losses (translated
using a weighted average exchange rate)
12
<PAGE>
for Austar, Saturn, Sun Cable, Telefenua and XYZ were $8.3 million, $2.6
million, $0.2 million, $4.2 million and $28.9 million, respectively. From the
Company's acquisition of United Wireless in September 1995 through December
31, 1995, United Wireless had net operating losses of $0.6 million. Continuing
net losses, net operating losses and negative cash flows could increase the
Company's need for additional capital in the future. See "--Need for
Additional Capital for New Businesses."
Limited Operating History; Uncertainties Associated with a New Industry;
Customer Acceptance and Market Demand. Saturn, Sun Cable and Telefenua are in
the early stages of constructing their respective multi-channel television and
telecommunication systems and/or marketing their respective services. Although
Austar has finished construction of substantially all of its MMDS systems and
has launched DTH service in all of its franchise areas, it is still in the
early stages of marketing its services. Austar's success will depend largely
upon its ability to gain and retain subscribers throughout its franchise
areas. Saturn is in the early stages of constructing a full-service network in
its identified markets. Saturn recently launched service in a portion of its
service areas and has only recently begun marketing its services and
connecting subscribers beyond its existing base. Although Sun Cable launched
service in the first of its service areas in 1995, it is still in the early
stages of construction and marketing of its cable television systems.
Telefenua launched its service in March 1995 and is also in the early stages
of marketing its services. In addition, the successful implementation of the
Company's operating strategies is subject to many factors outside of its
control which are difficult to predict, due, in part, to the limited history
of multi-channel television in Australia, the Philippines and Tahiti and of
integrated multi-channel television and telephony services in New Zealand. No
assurance can be given that such factors will not negatively affect the
implementation of such operating strategies and the Company's financial
results.
Subscription television services were not introduced in Australia and Tahiti
until 1995 and 1994, respectively. There can be no assurance that the Company
will experience and sustain the levels of customer acceptance and retention
required for its success. While the subscription television and
telecommunications markets in New Zealand have operating histories, there
currently are no fully operational integrated video and voice networks such as
Saturn is building. As a result, the size of the New Zealand market for such
services, likely rates of penetration of services in this market, acceptance
of projected monthly rates for combined services, structure of the competitive
environment and long-term attractiveness of the integrated video and voice
business in New Zealand are unclear.
Need for Additional Capital for New Businesses. While the Company believes
that its cash on hand, the proceeds from the Offerings and the UIH Investment
and projected cash flow from operations will be sufficient for the Company to
complete the construction and initial marketing of its existing operating
companies, currently estimated to require approximately $310 million over the
next two to three years, there can be no assurances that such funds will be
sufficient for its needs. This Offering is not conditioned upon the closing of
the Senior Discount Note Offering. If the Senior Discount Note Offering does
not close, the Company plans to seek additional capital from alternative
sources, including senior debt facilities at its operating companies, to fund
construction of its existing operating systems. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." Furthermore, the Company will require additional capital
if it continues with its strategy to pursue the acquisition and development of
multi-channel television systems and related projects in other markets. See
"Business--Development Opportunities." Sources of additional capital, if any,
may include additional debt and equity financing at the UAPC and operating
company levels, although there can be no assurance that such funds will be
available on satisfactory terms or on a timely basis, if at all. Stockholders
of the Company face possible dilution of their interest in the Company upon
additional equity financing.
Competitive Industry. The subscription television business in all the
countries in which the Company operates is and will remain competitive and
subject to rapid change due to regulatory and other factors. Austar currently
competes in one of its metropolitan markets with Foxtel, which has substantial
financial resources and also carries the Galaxy package. Austar may face
competition as it launches service in other franchise areas. In addition,
Australian law allows other persons to deliver subscription television
services beginning in July 1997.
13
<PAGE>
See "Business--Austar (Australia)-- Competition." Optus Vision Pty Limited
("Optus Vision") has publicly announced that it plans to offer subscription
television services by DTH throughout Australia. In addition, the Company
understands that Australis and Optus Vision plan to form a joint venture
whereby Australis will contribute to the venture its satellite infrastructure
allowing for DTH transmission of Optus Vision's programming services. The
Company believes that the use of such infrastructure by any entity other than
Austar for the provision of DTH services within Austar's franchise areas would
be in violation of its franchise agreements with Australis and has recently
commenced proceedings seeking injunctive relief preventing the use of
Australis' infrastructure by Optus Vision in Austar's franchise areas. There
can be no assurance that Austar will prevail in its lawsuit or that, even if
it is successful in obtaining an injunction to prevent the consummation of the
joint venture, Optus Vision or others will not compete in the DTH market in
Austar's franchise areas. See "Business--Legal Proceedings." Saturn expects to
compete with existing providers of multi-channel television and telephony
services in New Zealand, certain of which have substantially more resources
and experience than Saturn. See "Business--Saturn (New Zealand)--Competition."
Sun Cable competes in several of its franchise areas with other cable
television operators. See "Business--Sun Cable (Philippines)--Competition."
Telefenua also competes with another provider of subscription television
services in its operating area. See "Business--Telefenua (Tahiti)--
Competition."
Deployment of Network; Access to Infrastructure; Construction Risk. The
construction within management's cost estimates and respective launch
schedules of the Saturn and Sun Cable networks, as well as new systems that
may be developed by the Company, is dependent upon many factors outside of the
Company's control. Because the New Zealand and Philippine pay television
markets are in their early development stages, access to contractors
experienced in the necessary deployment of combined cable television and voice
networks in New Zealand and the Philippines is limited. The Company's
continued access to and successful training of contractors is a key element to
meeting management's launch schedules, but there can be no assurances as to
such access. The Company's success will depend in part upon its ability to
deploy networks quickly throughout its service areas. No assurance can be
given that the Company will succeed with its development schedule or that the
Company's financial performance and results of operations will not be
adversely affected by its inability to do so.
Construction projects are subject to cost overruns and delays not within the
control of the Company or its subcontractors, such as delays related to
governmental rules and regulations including zoning and permit requirements,
as well as acts of governmental entities, financing delays and catastrophic
occurrences. Delays also can arise from design changes and material or
equipment shortages or delays in delivery. Services to buildings passed by the
operating systems can be delayed if easements are not obtained from third
parties. Failure to complete construction on a timely basis could jeopardize
such operating company's ability to compete and could have material adverse
effects on the financial condition and results of operations of one or more of
the operating companies. In order for Saturn to commence offering local loop
telephony services, it must enter into an interconnect agreement with New
Zealand's national telephone company, either directly or through another
telephony provider which has entered into an interconnect agreement with the
national telephone company. No assurance can be given that Saturn will be able
to enter into an interconnect agreement on terms which are acceptable to its
management. Failure to do so could have a material adverse effect on Saturn's
financial performance and results of operations.
Ability to Procure Additional Programming Services. The Company's success is
largely dependent upon management's ability to procure programming that is
attractive to its customers at reasonable commercial rates. The Company is
dependent upon third parties for the development and delivery of programming
services. These programming suppliers will charge the operating companies for
the right to distribute the channels to the operating companies' customers.
The costs to the operating companies for additional services will be
determined through negotiations between the operating companies and these
programming suppliers. Management believes that the availability of sufficient
programming on a timely basis will be critical to the Company's future
success. There can be no assurance that the operating companies will have
access to additional programming services or that management can secure rights
to such programming on commercially acceptable terms.
14
<PAGE>
Australis, Austar's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. Australis has recently closed private offerings of
debt and equity securities that Australis announced would enable it to carry
its business through to cash flow positive. If such financing is not
sufficient to satisfy Australis' long-term capital needs, Australis may have
difficulty meeting contractual obligations with respect to the four non-XYZ
Galaxy channels distributed directly by Australis. The Company believes that
if Austar is no longer able to obtain the four Galaxy channels provided by
Australis on an exclusive basis and it were required to seek replacement
programming, it would have access to the same programming directly from the
suppliers of such four Galaxy channels or sufficient alternative programming
on competitive terms. There can be no assurance, however, that this would be
the case and the inability of Austar to procure the same or suitable
alternative programming at competitive rates and on an exclusive basis in its
service areas could have a material adverse effect on the Company.
Rapid Technological Changes. The multi-channel television industry is
subject to rapid and significant changes in technology. Although the Company
believes that its operating companies' current and planned networks have been
designed to be sufficiently flexible to permit them to deliver a variety of
existing multi-channel television and, where appropriate, telecommunications
services to their respective customers and advanced, integrated entertainment,
telecommunications and information services as they become available in the
future, the effect of any future technological changes on the viability or
competitiveness of the Company's network and services cannot be predicted.
Government Regulations; License Renewal. Multi-channel television operations
and programming services are subject to governmental regulation, which may
change from time to time. There can be no assurance that material and adverse
changes in the regulation of the Company's existing operating systems will not
occur in the future. Regulation can take the form of price controls, service
requirements and programming content restrictions, among others. See
"Regulation."
Broadcasting services provided by Austar are subject to Australian
government regulation under the Radiocommunications Act 1992 (the
"Radiocommunications Act"), which regulates the use of the radio spectrum in
Australia; the Broadcasting Services Act (the "BSA"), which, among other
things, regulates the delivery and content of broadcasting services in
Australia, including subscription broadcast services; and the
Telecommunications Act 1991 (the "Telecommunications Act"), which, among other
things, regulates the use of telecommunications facilities that supply
telecommunications services and program suppliers who deliver a subscription
broadcast or narrowcast service using cable or, in some respects, DTH
satellite transmission. Changes in existing regulations or laws or in the
interpretation of existing regulations or laws by the courts or governmental
authorities in Australia, as well as the development of the subscription
television industry in Australia generally, may have a material adverse effect
on the ability of XYZ and Austar to compete with other forms of entertainment
and may also have a material adverse effect on XYZ's and Austar's ability to
attain their business objectives or on their results of operations. Matters
which could adversely affect the profitability of XYZ and Austar and/or the
value of their licenses, include anti-siphoning regulations which have limited
and could in the future limit the Company's access to certain sports
programming, the loss by Austar of certain of its licenses, the inability of
Austar to acquire additional licenses, the inability of Austar to be issued or
reissued licenses, the inability of Austar to comply with class licenses for
the provision of broadcasting services or eligible services under the
Telecommunications Act, the issuance of additional licenses to competitors of
Austar, changes in the Australian programming content requirements, changes in
the amount or calculation of taxes, fees or charges payable for licenses,
license renewals or conversions, changes in the conditions attaching to any
licenses or any other policies or regulations that modify the present
regulatory environment. Such regulatory changes and limitations, or the
enactment of future limitations, may adversely affect the ability of XYZ and
Austar to secure additional financing. The Australian Federal government has
expressed its intent to review certain issues including Australian program
content requirements, provisions governing access to wireline and wireless
networks and limitations on foreign and cross-media ownership.
Austar's MMDS licenses issued under the Radiocommunications Act have initial
terms of five years. The terms governing the renewal or conversion of Austar's
existing MMDS apparatus licenses into spectrum licenses
15
<PAGE>
has not been announced. The failure to renew such licenses or receive
appropriate spectrum licenses upon conversion of existing licenses would have
a material adverse effect on the Company's financial condition. See
"Regulation--Australia--Licenses--Radio-communications Act."
While New Zealand currently has an extremely unregulated environment in
which to operate multi-channel television and telephony services, there can be
no assurance that the regulatory environment will continue to remain so
unregulated. See "Regulation--New Zealand."
Foreign Acquisitions and Takeovers Act/Investment Company Act
Considerations. The Company currently holds a majority of the outstanding
securities presently entitled to vote for the election of directors and has
the right to designate all of the directors of Austar. While the transactions
pursuant to which the Company acquired such securities and related rights did
not require any advance notification or approval under Australian law, they
could in the future be reviewed by the Treasurer of Australia (the
"Treasurer") under provisions of the Australian Foreign Acquisition and
Takeovers Act, 1975, as amended ("FATA"). If so reviewed and determined by the
Treasurer to have resulted in a change of control of an Australian person to a
foreign person that is against the national interest of the Commonwealth of
Australia, there would be no violation of law, but the Treasurer could require
the parties to restore the voting control of Austar so that the Company is
entitled to appoint directly only three of six directors of Austar. While the
Company believes a determination under the FATA would not affect its 100%
economic interest in Austar, there can be no assurances that such would be the
case. See "Regulation--Australia--Foreign Acquisitions and Takeovers Act" and
"Corporate Organizational Structure--Austar." In addition, if the manner in
which the Company designates directors of Austar is changed as a result of
action by the Treasurer, an issue may be presented under the Investment
Company Act of 1940 (the "1940 Act") as to whether the Company would then be
an unregistered investment company. If the Company's economic interests in
Austar did not provide the Company sufficient control of Austar to permit the
Company to obtain exemptive relief from the Commission, then there would be a
risk that the Company would be an unregistered investment company and as such,
that the Company would be subject to monetary penalties and injunctive relief
in an action brought by the Commission, that the Company would be unable to
enforce contracts with third parties and that third parties could seek to
obtain recission of transactions undertaken during the period it was
established that the Company was an unregistered investment company.
Challenge to Telefenua Authorization. In 1993 and 1994, Telefenua entered
into local franchise agreements to provide cable television services in Tahiti
and subsequently obtained authorizations from the Conseil Superieur de
l'Audiovisuel ("CSA") permitting a holder of a cable television license to
provide subscription broadcast services via MMDS. The authorizations were
based in part on a French government decree of July 22, 1993 (the "Decree").
In response to a legal challenge by the territorial government of Tahiti, the
Conseil d'Etat of France recently canceled part of the Decree authorizing the
issuance of MMDS licenses by the CSA in French Polynesia. The cancellation
provides a legal basis to cancel the required authorization already granted to
Telefenua by the French communications agency. The territorial government of
Tahiti has brought an action in French court seeking such cancellation,
although no such cancellation has yet taken place. A law recently enacted by
the French Parliament gives Telefenua a statutory basis for seeking a new
authorization from the communications agency, should the existing
authorization be nullified. There can be no assurance, however, that if the
existing authorization is nullified a new authorization will be obtained. In
addition, the new authorization would last no more than five years and could
differ in other respects from the previous authorization. The Company believes
that if the existing authorization is nullified and Telefenua is unable to
obtain a new authorization, Telefenua would petition for restitution for the
taking of such authorizations. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Regulation--Tahiti."
Limitations on Control of Affiliated Companies. UAPC holds a minority
interest in each of XYZ, Sun Cable and HITV. Financial and operational
considerations, as well as laws that often limit foreign equity positions,
will likely require UAPC to make future investments in operating companies
with strategic, financial and local partners. Although UAPC attempts to
structure its investments in its operating companies in a manner
16
<PAGE>
that allows it to control or at least participate in management decisions
(including through representation on the board of directors or other governing
body and veto rights (alone or with one or more strategic investors) over
significant business decisions), UAPC may often be unable to control the
operations, strategies, and financial decisions of the companies in which it
has acquired, or will acquire, an interest without the concurrence of one or
more of its partners. Many foreign countries may limit foreign investment to a
minority equity position or require the board of directors to be largely
independent, which could result in UAPC having diminished ability to implement
strategies that UAPC may favor, or to cause dividends or distributions to be
paid. In addition, increases in the capitalization of a company may require not
only the consent of one or more partners but also government approval. The
success of any company in which the Company may invest with partners may depend
upon the continuing cooperation of such partners. See "Corporate Organizational
Structure."
Dependence on Key Personnel. As the Company continues the construction and
marketing of its operating systems, its success and growth strategy depends in
large part on its ability to attract and retain local management, marketing and
operating personnel at the UAPC and operating company levels. There can be no
assurance that the Company will be able to attract and retain the qualified
personnel needed for its business.
Potential Conflicts of Interest with UIH. Under agreements with the Company,
UIH will continue to provide certain management, technical, administrative,
financial, accounting, tax, legal and other services to the Company. There is
no contractual obligation for UIH to make additional capital contributions to
the Company. In addition, UIH and the Company have entered into a number of
intercompany agreements covering such matters as tax sharing, registration
rights and employment arrangements. The terms of these agreements were
established by UIH in consultation with the Company's officers when the Company
was a majority owned subsidiary of UIH and, consequently, were not the result
of arms' length negotiations. Accordingly, there is no assurance that the terms
and conditions of these arrangements are as favorable to the Company as those
that might be obtained from unaffiliated parties. Conflicts could arise in the
interpretation, extension or renegotiation of these agreements.
From time to time, UIH and its affiliates may enter into transactions with
the Company. Although the terms of any such transactions will be established
based on negotiations between officers of the Company and officers of UIH or
its affiliates, as the case may be, there can be no assurances that the terms
of any such transactions will be as favorable to the Company as those of
similar transactions between UIH or such affiliates and parties unrelated to
UIH.
Following the Offering, UIH and the Company, through their respective
affiliates and subsidiaries, will each own or have interests in multi-channel
television systems and related businesses. The presence of both companies in
the industry could give rise to potential conflicts of interest between them,
including conflicts that may arise with respect to business dealings between
them and when they may both be pursuing the same business opportunity. Although
UIH has advised the Company that it intends to conduct all of its future multi-
channel television activities in the Australasia and Asia/Pacific region
through the Company, UIH is not contractually obligated to do so. See
"Relationship with UIH and Related Transactions."
Risks Inherent in Foreign Investment. The Company has invested substantially
all of its resources outside of the United States. Risks inherent in foreign
operations include loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks and
risks of increases in taxes and governmental royalties and fees. The Company is
also exposed to the risk of changes in foreign and domestic laws and policies
that govern operations of foreign-based companies. Although the majority of the
Company's operations are located in Australia and New Zealand, the Company has
interests in operating systems in the Philippines, Tahiti and China and it may
pursue additional opportunities in other emerging markets where foreign
investment risks may be greater. Sun Cable's and HITV's operations may be
materially and adversely affected by significant political, social and economic
uncertainties in such countries. Such uncertainties include, without
limitation, the extent to which local partners and governments will respect the
contractual and other rights of the Company's operating companies.
17
<PAGE>
Foreign Currency Exchange Rate and Conversion Risks. Although the operating
companies have attempted, and will continue to attempt, to match costs and
revenues and borrowings and repayments in terms of their respective local
currencies, payment for a majority of purchased equipment has been, and may
continue to be, required to be made in currencies, including dollars, other
than local currencies. In addition, the value of UAPC's investment in an
operating company is partially a function of the currency exchange rate
between the dollar and the applicable local currency. In general, the Company
does not execute hedge transactions to reduce its exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and
a negative impact on earnings with respect to its holdings solely as a result
of foreign currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. The Company may also experience economic loss
and a negative impact on earnings related to these monetary assets and
liabilities. The countries in which the operating companies now conduct
business (other than China) generally do not restrict the removal or
conversion of local or foreign currency; however, there can be no assurance
this situation will continue. Such restrictions, if enacted, could create
substantial barriers to the conversion or repatriation of funds, and such
restrictions could adversely affect the Company's and its operating companies'
ability to pay overhead expenses, meet their respective debt obligations and
to continue and expand their businesses. See "Management's Discussion and
Analysis of Financial Condition--Foreign Currency Exchange Rate Risks;
Hedging."
Limited Insurance Coverage. The operating companies obtain insurance of the
type and amount which management believes is appropriate for their systems.
Such policies do not, however, insure the entire portion of multi-channel
television systems. Accordingly, a catastrophe affecting a significant portion
of a system's infrastructure could result in substantial uninsured losses.
International Tax Risks. In general, a United States corporation may claim a
foreign tax credit against its federal income tax expense for foreign income
taxes paid or accrued. Because the Company must calculate its foreign tax
credit separately for dividends received from each foreign corporation in
which the Company owns 10% to 50% of the voting stock and because of certain
other limitations, the Company's ability to claim a foreign tax credit may be
limited, particularly with respect to dividends paid out of earnings subject
to a high rate of foreign income tax. This limitation and the inability of the
Company to offset losses in one foreign jurisdiction against income earned in
another foreign jurisdiction could result in a high effective tax rate on the
Company's earnings. The Company has an ownership interest in Telefenua, which
is located in Tahiti, a self-governing territory of France, with which the
United States does not have an income tax treaty. As a result, the Company may
be subject to increased withholding taxes on dividend distributions and other
payments from Telefenua and also may be subject to double taxation with
respect to income generated by Telefenua.
Control of the Company by UIH; Disproportionate Voting Rights. UAPC is
presently a majority-owned subsidiary of UIH. Immediately after the Offering
and the UIH Investment, UIH will hold Common Stock, including all of the
outstanding shares of Class B Common Stock, which will represent approximately
% of the total number of shares of both classes of Common Stock outstanding.
Since holders of Class B Common Stock are entitled to ten votes per share and
holders of Class A Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company, UIH will have
approximately % of the combined voting power of both series of Common Stock.
See "Description of Capital Stock." Thus, immediately following the Offering,
UIH will have the voting power to control all matters requiring the approval
of UAPC's stockholders voting as a single class, including the ability to
elect all of the members of UAPC's Board of Directors. In addition, for so
long as UIH holds shares of Common Stock representing in the aggregate at
least 66 2/3% of the combined voting power of the Common Stock, it will be
able to effect amendments to UAPC's Restated Certificate of Incorporation and
merger, sale of assets, "going private" or other corporate transactions
without the approval of the other stockholders of UAPC. All of the directors
of UAPC are also directors or officers of UIH. See "Certain Relationships" and
"Management."
18
<PAGE>
Potential Adverse Effect of Shares Eligible for Future Sale. Sales of
substantial numbers of the shares of Class A Common Stock issuable upon
conversion of the Class B Common Stock could adversely affect the market price
of the Class A Common Stock should any such market develop. The Company, its
officers and directors and its existing stockholders have entered into "lock-
up" agreements with the Underwriters, pursuant to which they have agreed,
directly or indirectly, not to sell, solicit an offer to buy, contract to
sell, grant any option, warrant or right to purchase or otherwise transfer or
dispose of any shares of capital stock of the Company, including any options,
warrants or rights to acquire Common Stock of the Company, or any securities
that are convertible into, or exercisable or exchangeable for capital stock of
the Company, for a period of 180 days after the date of this Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, except in limited circumstances described under "Underwriting."
See "Shares Eligible for Future Sale."
Dilution. The purchasers of the shares of Class A Common Stock offered
hereby will experience an immediate and substantial dilution in the net
tangible book value of $ per share, as of September 30, 1996, from the
initial public offering price, assuming an initial public offering price of
$ per share, the maximum price in the estimated offering range. See
"Dilution."
Lack of Prior Public Market. Prior to the Offering, there has been no public
market for shares of any class of the Company's Class A Common Stock or Class
B Common Stock (collectively the "Common Stock"). The initial public offering
price of the Class A Common Stock in the Offering will be determined by
negotiation between the Company and the Underwriters based upon the factors
described in "Underwriting." There can be no assurance that the initial public
offering price will correspond to the price at which the Class A Common Stock
will trade in the public market subsequent to the Offering or that an active
public market for the Class A Common Stock will develop or continue after the
Offering. See "Underwriting."
No Dividends. It is not expected that any dividends will be paid on the
Common Stock in the foreseeable future. In addition, the indentures governing
the Existing Notes and the New UIH A/P Notes (collectively, the "UIH A/P
Indenture") limit the Company's ability to pay cash dividends. The Company
currently is a holding company with no independent operations of its own and,
as such, its ability to pay dividends is dependent upon distributions from its
operating companies. Such distributions may be limited by contractual or other
obligations of such operating companies. See "Dividend Policy" and
"Description of Certain Indebtedness."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by UAPC from the Offering, assuming an
initial public offering price of $ per share (the midpoint of the estimated
offering range) and the UIH Investment, are estimated to be approximately
$117.3 million ($ million if the over-allotment option is exercised in full)
after deduction of underwriting discounts and commissions and offering
expenses. The net proceeds to be received by UIH A/P from the Senior Discount
Note Offering are estimated to be approximately $144.1 million. At October 31,
1996, the Company had approximately $70.1 million of cash and short term
investments on hand, excluding the cash on hand at the operating companies.
Pro forma for the Offerings and the UIH Investment, the Company would have had
a total of approximately $331.5 million of cash and short-term investments as
of October 31, 1996. The Company currently intends to use this cash, as well
as anticipated cash flow from operations, to fund the currently planned build-
out and marketing of its existing systems and believes that it will have
sufficient capital to do so. Such belief, however, is based, in part, upon
estimates and predictions about forward-looking events and circumstances about
which there can be no certainty and therefore, no assurance can be given that
such capital will be sufficient for the purposes described above. To the
extent available, the Company may also use a portion of the net proceeds of
the Offerings and the UIH Investment to pursue acquisition and development
opportunities in the Australasia and Asia/Pacific regions.
The following table sets forth, as of October 31, 1996, (i) the total
estimated funding required for the construction and initial marketing of the
operating companies' systems in their existing license areas, including any
capital invested to date and the application of any operating cash flow
sources for such operating companies, (ii) the total amount of capital
invested in each of the operating companies and the portion funded by the
Company, and (iii) the total estimated additional funding required as stated
in clause (i) above and the Company's estimated portion of such funding. Such
amounts are expected to be funded over the next 24 to 36 months. The estimated
required additional funding numbers below have not been reduced to give effect
to any surplus cash flow of any one operating company which might be available
to fund the requirements of another operating company. To the extent the
operating companies fund their construction and other costs through project
financing, the Company's portion of estimated additional funding would be
reduced proportionately. The Company's portion of estimated additional funding
would be increased proportionately to the extent cash flow from the operating
companies and other sources of financing are not sufficient to meet project
funding requirements. To the extent that the other shareholders of Sun Cable
or XYZ fail to fund their pro rata share of the additional shareholder capital
for such operating companies, the Company may fund all or a portion of such
shortfall. Pending use of the net proceeds of the Offerings and the UIH
Investment, the Company intends to hold such proceeds in short-term interest-
bearing, investment grade securities, including governmental obligations and
other money market instruments.
<TABLE>
<CAPTION>
ESTIMATED TOTAL
PROJECT FUNDING CAPITAL INVESTED ESTIMATED REQUIRED
REQUIREMENTS AS OF OCTOBER 31, 1996(1) ADDITIONAL FUNDING
------------------ -------------------------------- ------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY(2) TOTAL THE COMPANY TOTAL
- ----------------- ----------- ------ ----------------- ------------ ----------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Austar.................. $366.4 $366.4 $149.5(3) $149.5(3) $216.9 $216.9
Saturn.................. 95.7 95.7 21.6(4) 21.6(4) 74.1 74.1
Sun Cable(5)............ 14.4 36.0 8.3 20.8 6.1 15.2
XYZ..................... 14.4 57.6 10.6 42.4 3.8 15.2
Other................... 32.2 34.3 26.4 28.5 5.8 5.8
------ ------ ------------ ------------ ------ ------
Total................. $523.1 $590.0 $216.4 $262.8 $306.7 $327.2
====== ====== ============ ============ ====== ======
</TABLE>
- ---------------------
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation.
(2) Includes amounts contributed to Austar (approximately $11.1 million) and
Saturn (approximately $2.9 million) by shareholders other than the
Company, which amounts were contributed by such shareholders prior to the
acquisition of their respective interests by the Company.
(3) Does not include the $58.6 million used by the UIH A/P to increase its
economic interest in Austar to approximately 100%.
(4) Does not include the value of shares of Class A Common Stock exchanged for
shares of UIH A/P used to increase the Company's interest in Saturn to
100%. See "Corporate Organizational Structure--Saturn."
(5) The amounts for Sun Cable assume a build-out of systems in franchise areas
covering approximately 275,000 homes. Sun Cable is pursuing external
project financing to complete construction in additional franchise areas
covering an additional 300,000 homes.
20
<PAGE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and currently
does not expect to pay any cash dividends on its Common Stock for the
foreseeable future. In addition, the UIH A/P Indenture limits the Company's
ability to pay cash dividends. The Company is a holding company with no
independent operations of its own and, as such, its ability to pay dividends
is dependent upon distributions from its operating companies. Such
distributions may be limited by contractual or other obligations of such
operating companies. See "Risk Factors--No Dividends" and "Description of
Certain Indebtedness."
DILUTION
As of September 30, 1996, the net tangible book deficit of the Company was
$ million in the aggregate, or $ per share of Common Stock. "Net tangible
book deficit per share" represents the amount of total tangible assets of the
Company reduced by the amount of total liabilities and divided by the number
of shares of Common Stock outstanding. After giving effect to the sale of the
shares of Class A Common Stock offered hereby (assuming an initial public
offering price of $ per share, the maximum price in the estimated offering
range), net of offering expenses, and the UIH Investment, the net pro forma
tangible book value of the Common Stock as of September 30, 1996 would have
been $ million in the aggregate, or $ per share. This represents an
immediate increase in net tangible book value of $ per share of Common Stock
to existing stockholders and an immediate dilution of $ per share to new
stockholders purchasing shares of Class A Common Stock in the Offering.
"Dilution per share" represents the difference between the price per share to
be paid by new stockholders for the shares of Class A Common Stock issued in
this Offering and the net pro forma tangible book value per share as of
September 30, 1996. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share....................... $
Net tangible book deficit per share before the Offering...............
Increase per share attributable to the Offering.....................
Net pro forma tangible book value per share as adjusted to reflect the
Offering.............................................................
-----
Dilution per share to new stockholders................................ $
=====
</TABLE>
The following table sets forth, assuming the consummation of the Offering,
the number of shares purchased from UAPC, the total cash consideration paid to
UAPC and the average price per share paid by existing stockholders and by new
stockholders purchasing shares of Class A Common Stock from the Company in the
Offering:
<TABLE>
<CAPTION>
AVERAGE
SHARES OF COMMON PRICE PAID
STOCK ACQUIRED TOTAL CONSIDERATION PER SHARE
------------------ ---------------------- OF COMMON
NUMBER PERCENT AMOUNT PERCENT STOCK
-------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(Class A Common Stock
and Class B Common
Stock)................. % $ (1) % $
New stockholders (Class
A Common Stock)........
-------- -------- ----------- -------- -------
Total............... 100.0% $ 100.0% $
======== ======== =========== ======== =======
</TABLE>
- ---------------------
(1) Includes amounts contributed since inception by UIH to the Company, and
the UIH Investment. Any consideration paid in kind to the Company by UIH
is valued at UIH's historical cost of the asset contributed. Does not
include shares issued to Kiwi Cable Company B.V.I., Inc. ("Kiwi") in
consideration for Kiwi's 50% interest in Saturn. See "Summary--UIH
Investment" and "Corporate Organizational Structure--Saturn."
21
<PAGE>
EXCHANGE RATE DATA
The Company's interests in Austar, XYZ and United Wireless, companies that
operate in Australia, represent a substantial portion of its total assets. The
following table sets forth, for the periods indicated, certain information
concerning the Noon Buying Rate and the high and low exchange rates for
Australian dollars expressed in United States dollars per A$1.00. On September
30, 1996, the Noon Buying Rate was US$.80 per A$1.00.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,(1) AT AND FOR THE
-------------------------------------------- NINE MONTHS ENDED
1991 1992 1993 1994 1995 SEPTEMBER 30, 1996(1)
-------- -------- -------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of
period................. US$0.76 US$0.69 US$0.68 US$0.78 US$0.74 US$0.79
Average exchange rate
during period(2)....... 0.78 0.73 0.68 0.73 0.74 0.78
Highest exchange rate
during period.......... 0.80 0.77 0.72 0.78 0.77 0.80
Lowest exchange rate
during period.......... 0.75 0.68 0.65 0.68 0.71 0.73
</TABLE>
- ---------------------
(1) Source: Federal Reserve Statistical Release H.10(512). Exchange rates have
been rounded to the nearest 1/100th of one dollar.
(2) The average of the Noon Buying Rates on the last day of each month during
the applicable period.
Unless otherwise indicated, foreign currency amounts translated to U.S.
dollars have been converted using exchange rates in effect on December 31,
1995, with respect to the historical annual financial statement amounts, and
September 30, 1996 with respect to all other amounts for Australia, New
Zealand, the Philippines and Tahiti.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to reflect (i) the Offering (assuming an
initial public offering price of $ per share, the midpoint of the estimated
offering range and no exercise of the underwriters' over-allotment option),
net of offering expenses, (ii) the UIH Investment and (iii) the Senior
Discount Note Offering, net of offering expenses. The table should be read in
conjunction with the audited Consolidated Financial Statements of the Company
and the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents, restricted cash and
short-term investments(1)....................... $ 106,990 $ 368,390
============ ============
Debt:
14% Senior Discount Notes due 2006............... $ 237,024 $ 237,024
% Senior Discount Notes due 2007................ -- 150,000
Other debt....................................... 4,015 4,015
------------ ------------
Total debt..................................... 241,039 391,039
Stockholders' equity:
Preferred Stock ($.01 par value); shares
authorized; none issued......................... --
Class A Common Stock ($.01 par value);
shares authorized; shares outstanding;
shares outstanding as adjusted............. --
Class B Common Stock ($.01 par value);
shares authorized; shares outstanding;
shares outstanding as adjusted.............
Additional paid-in capital....................... 135,168 252,468
Unrealized loss on investment.................... (784) (784)
Cumulative translation adjustment................ 2,289 2,289
Accumulated deficit.............................. (70,679) (70,679)
------------ ------------
Total stockholder's equity..................... 65,994 183,294
------------ ------------
Total capitalization....................... $ 307,033 $ 574,333
============ ============
</TABLE>
- ---------------------
(1) Includes $10.0 million of restricted cash which was subsequently released
in October 1996. Does not reflect the Company's (i) $7.9 million
acquisition of the remaining interest in Austar and (ii) $4.0 million of
ordinary shares and convertible notes of Australis acquired upon exercise
of warrants and other subscription rights, both of which occurred in
October 1996.
23
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS DATA
The following unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996, give effect to the Austar Transaction, the XYZ Sale, the
Saturn Purchase and the United Wireless Purchase as if each had occurred at
January 1, 1995. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable under current circumstances. The unaudited pro forma consolidated
condensed statement of operations and accompanying notes do not purport to
represent what the Company's results of operations would actually have been if
such transactions had in fact occurred on such date nor are they necessarily
indicitive of what such results of operations will be in any future period.
The unaudited pro forma consolidated condensed statement of operations and
accompanying notes should be read in conjunction with the audited Consolidated
Financial Statements of the Company and Notes thereto and other financial
information pertaining to the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
UNITED
AUSTAR XYZ SATURN WIRELESS
ACTUAL TRANSACTION(1) SALE(2) PURCHASE(3) PURCHASE(4) PRO FORMA
-------- -------------- ------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service and other
revenue................ $ 1,903 $ 443 $ -- $ 148 $ 33 $ 2,527
System operating
expense................ (3,145) (793) -- (863) (687) (5,488)
System selling, general
and administrative
expense................ (2,482) (6,681) -- (1,502) (341) (11,006)
Corporate general and
administrative
expense................ (2,874) -- -- -- -- (2,874)
Depreciation and
amortization expense... (1,003) (4,259) -- (997) (86) (6,345)
-------- -------- ------- ------- ------- --------
Net operating loss.... (7,601) (11,290) -- (3,214) (1,081) (23,186)
Equity in losses of
affiliated companies,
net.................... (16,498) 3,212 4,132 1,438 -- (7,716)
Interest, net........... 268 1,230 -- -- -- 1,498
Other, net.............. 4,771 244 (4,132) (55) 1 829
-------- -------- ------- ------- ------- --------
Net loss.............. $(19,060) $ (6,604) $ -- $(1,831) $(1,080) $(28,575)
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------
SATURN
ACTUAL AUSTAR(5) PURCHASE(3) PRO FORMA
-------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service and other revenue..... $ 13,288 $ -- $ 104 $ 13,392
System operating expense...... (18,621) -- (619) (19,240)
System selling, general and
administrative expense....... (13,987) -- (1,077) (15,064)
Corporate general and
administrative expense....... (2,832) -- -- (2,832)
Depreciation and amortization
expense...................... (15,935) -- (491) (16,426)
-------- -------- ------- --------
Net operating loss.......... (38,087) -- (2,083) (40,170)
Equity in losses of affiliated
companies, net............... (4,750) -- 930 (3,820)
Interest, net................. (9,164) -- (83) (9,247)
Other, net.................... 3,659 (1,911) 136 1,884
-------- -------- ------- --------
Net loss.................... $(48,342) $ (1,911) $(1,100) $(51,353)
======== ======== ======= ========
</TABLE>
- ---------------------
(1) Represents the consolidation of Austar and the elimination of the
previously recorded equity in losses. Included in depreciation and
amortization expense is $3.0 million of amortization related to the
goodwill recorded in connection with the additional 40% economic interest
acquired in December 1995 which will be amortized over 15 years.
24
<PAGE>
(2) Represents the elimination of the gain on the sale of a 25% interest in
XYZ and the related 25% of the equity in losses recognized.
(3) Represents the consolidation of Saturn and the elimination of the
previously recorded equity in losses. Included in depreciation and
amortization expense is $0.6 million and $0.3 million of amortization for
the year ended December 31, 1995 and the nine months ended September 30,
1996, respectively, related to the goodwill recorded in connection with
the purchase of the additional 50% interest in Saturn which will be
amortized over 15 years.
(4) Represents the eight months of activity of United Wireless prior to its
acquisition by the Company in September 1995.
(5) Represents the elimination of losses allocated to the minority interest
due to the increase in the economic ownership to 100%.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1994 and 1995, and balance sheet data as of December 31, 1994 and
1995, have been derived from the Company's consolidated financial statements
which have been audited by Arthur Andersen LLP, independent public
accountants, whose report indicated a reliance on other auditors relative to
certain amounts relating to the Company's interests in Telefenua and XYZ as of
and for the year ended December 31, 1995. The Company commenced operations in
January 1994. The following selected consolidated financial data for the nine
months ended September 30, 1995 and 1996, and at September 30, 1996, have been
derived from the unaudited consolidated financial statements of the Company
that, in the opinion of management of the Company, reflect all adjustments,
consisting of normal recurring adjustments, necessary to fairly present the
financial data for such periods and as of such date. The data set forth below
are qualified by reference to, and should be read in conjunction with, the
audited Consolidated Financial Statements of the Company and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------ -------------------------------
1994 1995 1995 1996
------------ ----------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service and other
revenue................ $ -- $ 1,903 $ 1,152 $ 13,288
System operating
expense................ -- (3,145) (1,870) (18,621)
System selling, general
and administrative
expense................ -- (2,482) (1,636) (13,987)
Corporate general and
administrative
expense................ (2,262) (2,874) (2,075) (2,832)
Equity in losses of
affiliated companies,
net.................... (1,015) (16,498) (12,518) (4,750)
Interest expense, net .. -- 268 (17) (9,164)
Net loss................ (3,277) (19,060) (13,176) (48,342)
Net loss per common
share..................
Weighted average number
of shares outstanding..
BALANCE SHEET DATA (END
PERIOD):
Cash and cash
equivalents and short-
term investments,
including restricted
cash................... $ -- $ 8,749 $ 106,990
Investments in and
advances to affiliated
companies.............. 22,436 10,642 14,474
Property, plant and
equipment, net......... 1 27,125 130,435
Goodwill, net........... -- 45,324 52,171
Total assets............ 24,521 114,090 344,964
Senior Discount Notes
and other long-term
debt................... -- 890 241,039
Total liabilities....... 11 21,608 277,112
Stockholder's equity.... 24,510 89,967 65,994
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
UAPC currently holds (i) a 100% economic interest in Austar, (ii) a 100%
interest in Saturn, (iii) the Sun Cable Loan, convertible into a 40% economic
interest in Sun Cable, upon certain events, (iv) a 25% interest in XYZ, (v) a
90% economic interest in Telefenua, (vi) a 100% interest in United Wireless,
(vii) a 49% interest in HITV and (viii) interests in various development
projects in the Asia/Pacific region. Because the Company accounts for its less
than majority owned operating companies on the equity method, prior to
September 1995 only the Company's Tahitian subsidiary, Telefenua, was
consolidated. In September 1995, the Company acquired a 100% interest in
United Wireless at which time it began consolidating its results of
operations. In late December 1995, the Company increased its economic interest
in Austar from 50% to 90%. During 1996, the Company further increased its
economic interest in Austar to 100%. Prior to the Austar Transaction, the
Company accounted for its investment in Austar using the equity method of
accounting. The Company, began consolidating the results of operations of
Austar on January 1, 1996. Following its July 1996 acquisition of the
remaining 50% interest in Saturn, the Company began consolidating the results
of operations of Saturn, which had previously been accounted for using the
equity method of accounting. The Company accounts for its interests in Sun
Cable, XYZ and HITV using the equity method of accounting. The Company's
financial statements have been prepared on a basis of reorganization
accounting as though the Company had performed those foreign development
activities associated with the operating companies and the Company's current
and active development projects. The Company reports on the basis of U.S. GAAP
and recognizes its proportionate share of affiliated company income (loss) on
the basis of U.S. GAAP results.
The operating companies have, since inception, been engaged primarily in the
construction of their networks and organizational and start-up activities. As
a result, the Company has generated negative cash flow from operating
activities for all periods presented. Accordingly, the Company believes that
its historical results of operations discussed herein are not indicative of
the results of operations which will follow the completion of construction and
initial marketing of service by the operating companies. As demonstrated by
the table below, the Company has invested significant capital in the operating
companies each of which are experiencing a rapid growth in subscribers:
<TABLE>
<CAPTION>
AT OCTOBER 31, 1996
------------------------------------
SUBSCRIBER
SERVICE INVESTED NET GAIN
COMPANY LAUNCH CAPITAL DURING
CONSOLIDATED SUBSIDIARIES: OWNERSHIP(1) DATE (IN MILLIONS) SUBSCRIBERS 1996
- -------------------------- ------------ ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Austar.................. 100% Aug. 1995 $149.5 75,300 70,096
Saturn.................. 100% Sept. 1996 21.6 1,294 335
Telefenua............... 90% Mar. 1995 16.1 4,902 776
United Wireless......... 100% Sept. 1995 4.3 N/A N/A
<CAPTION>
UNCONSOLIDATED AFFILIATES:
- --------------------------
<S> <C> <C> <C> <C> <C>
Sun Cable............... 40% Feb. 1995 $ 8.3 33,837 14,841
XYZ..................... 25% Apr. 1995 10.6 269,000 204,000
</TABLE>
- ---------------------
(1) For an explanation of UAPC's interests in each of the operating companies,
see "Corporate Organizational Structure."
UIH, the Company's parent, provides various management, technical,
administrative, accounting, financial reporting, tax, legal and other services
for the Company pursuant to the terms of a UIH Management Agreement between
UIH and UAPC. See "Relationship with UIH and Related Transactions."
27
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Service and Other Revenue. The Company's service revenues (including
installation revenues) increased to $13.3 million for the nine months ended
September 30, 1996 (the "1996 Nine Months") from $1.2 million in the comparable
prior year period (the "1995 Nine Months"). This increase was primarily
attributable to increases in service and installation revenues at Austar.
Service and other revenues for the 1995 Nine Months and the 1996 Nine Months
were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1996
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Austar......................................... $ -- $10,544
Telefenua...................................... 1,152 2,632
Saturn......................................... -- 44
United Wireless................................ -- 42
Other.......................................... -- 26
------------ -------------
Total service and other revenue.............. $1,152 $13,288
============ =============
</TABLE>
Austar
Service revenues at Austar were $10.5 million in the 1996 Nine Months.
Revenues consisted primarily of service and installation fees from basic
subscribers of $6.7 million and $3.8 million, respectively. The Company
began consolidating the results of Austar on January 1, 1996. As a result,
the Company reported no service revenues from Austar in the 1995 Nine
Months. Austar's actual service revenues for the 1995 Nine Months were $0.1
million. The increase in service revenues in the 1996 Nine Months was
primarily attributable to an increase in subscribers (60,276 at September
30, 1996 versus 1,019 at September 30, 1995). Such increase was the result
of the rapid roll-out of Austar's services initially launched August 1995.
Telefenua
Telefenua's service revenues increased to $2.6 million for 1996 Nine
Months from $1.2 million in the 1995 Nine Months, primarily attributable to
an increase in subscribers (4,700 at September 30, 1996 compared to 2,684
at September 30, 1995).
Saturn
The Company began consolidating Saturn beginning July 1, 1996.
Accordingly, reported service revenues for the 1996 and 1995 results were
not meaningful. In addition, because Saturn has only recently launched
basic services in the Wellington area in September 1996, Saturn's actual
results for the 1996 Nine Months and the 1995 Nine Months were not
significant or meaningful.
System Operating Expenses. The Company's operating expenses increased to
$18.6 million for the 1996 Nine Months from $1.9 million in the 1995 Nine
Months, primarily as a result of increases in operating expenses at Austar.
System operating expenses for the 1995 Nine Months and the 1996 Nine Months
were as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
--------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Austar..................................................... $ -- $15,574
Telefenua.................................................. 1,870 1,524
Saturn..................................................... -- 599
United Wireless............................................ -- 924
------ -------
Total system operating expenses.......................... $1,870 $18,621
====== =======
</TABLE>
28
<PAGE>
Austar
Operating expenses consolidated by the Company from Austar were $15.6
million in the 1996 Nine Months. Operating expenses consisted primarily
of payroll ($6.7 million), satellite programming fees ($2.6 million)
and annual MMDS spectrum license fees ($1.3 million), with the
remainder consisting primarily of warehouse rent, system
travel/recruitment and NCOC start-up costs. The Company began
consolidating the results of Austar on January 1, 1996. As a result,
the Company reported no operating expenses from Austar in the Company's
consolidated statement of operations for the 1995 Nine Months. Austar's
operating expenses for the 1995 Nine Months were $0.7 million. The
increase in operating expenses in the 1996 Nine Months was primarily
attributable to the rapid roll-out of Austar's services initially
launched in August 1995 and the corresponding increase in subscribers.
Austar is experiencing high operating expenses relative to service
revenues due to certain fixed operating expenses (such as management
overhead, license fees and certain marketing costs) as well as non-
recurring start up costs (such as initial market research, NCOC
establishment costs and additional one-time expenses due to the name
change to "Austar") associated with the launch of its service. Austar
expects operating expenses as a percent of service revenues to decline
as start-up costs are reduced and as certain fixed operating expenses
are spread over expected increases in service revenues.
Telefenua
Operating expenses consolidated by the Company from Telefenua
decreased to $1.5 million in the 1996 Nine Months from $1.9 million in
the 1995 Nine Months, primarily due to a decrease in technical related
repairs and maintenance and tape production costs, partially offset by
an increase in the subscribers in the 1996 Nine Months. Telefenua's
operating expenses for the 1996 Nine Months consisted primarily of
satellite programming fees ($0.5 million) and tape production costs
($0.4 million), with the remainder consisting of payroll related costs
and technical related costs.
Saturn
The Company began consolidating Saturn on July 1, 1996. Accordingly,
while the Company reported operating expenses of $0.6 million for
Saturn in its consolidated statement of operations for the 1996 Nine
Months, Saturn's operating expenses were $1.2 million for the 1996 Nine
Months, consisting primarily of payroll and office expenses related to
the start-up activities, including system design and engineering work,
for launching Saturn's Wellington system in September 1996. Saturn's
operating expenses for the 1995 Nine Months were not significant or
meaningful.
System Selling, General and Administrative Expenses. The Company's system
selling, general and administrative expenses increased to $14.0 million for
the 1996 Nine Months from $1.6 million in the 1995 Nine Months, primarily
attributable to increases in system selling, general and administrative
expenses at Austar. System selling, general and administrative expenses for
the 1995 Nine Months and the 1996 Nine Months were as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
--------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Austar...................................................... $ -- $10,667
Telefenua................................................... 1,636 1,959
Saturn...................................................... -- 889
United Wireless............................................. -- 472
------ -------
Total system selling, general and
administrative expenses.................................. $1,636 $13,987
====== =======
</TABLE>
Austar
System selling, general and administrative expenses consolidated by
the Company from Austar were $10.7 million in the 1996 Nine Months and
consisted primarily of $3.1 million in marketing costs related to
print, radio and television advertisements utilized in the launch of
Austar services throughout
29
<PAGE>
its service areas during 1996, direct sales commissions ($2.1 million)
and for general and administrative expenses at Austar's Sydney
corporate headquarters ($5.5 million). The Company began consolidating
the results of Austar on January 1, 1996. As a result, the Company
reported no system selling, general and administrative expenses from
Austar in its consolidated statement of operations for the 1995 Nine
Months. Austar's system selling, general and administrative expenses
for the 1995 Nine Months were $3.4 million. The increase in system
selling, general and administrative expenses was primarily attributable
to an increase in marketing related to the increased roll-out of MMDS
operating systems and the initiation of DTH service in 1996.
Telefenua
System selling, general and administrative expenses consolidated by
the Company from Telefenua increased to $2.0 million in the 1996 Nine
Months compared to $1.6 million in the 1995 Nine Months. This increase
was primarily attributable to an increase in marketing expenses during
the 1996 Nine Months.
Saturn
The Company began consolidating Saturn beginning July 1, 1996.
Accordingly, reported system selling, general and administrative
expenses for the 1996 and 1995 results were not meaningful. In
addition, because Saturn has only recently launched basic services in
the Wellington area and had not conducted a significant marketing
effort in either period, Saturn's system selling, general and
administrative expenses for the 1996 Nine Months and the 1995 Nine
Months were not significant or meaningful.
Corporate General and Administrative Expenses. The Company's corporate
general and administrative expenses for the 1996 Nine Months increased to $2.8
million from $2.1 million in the 1995 Nine Months, primarily due to the hiring
of additional staff.
Depreciation and Amortization. Depreciation and amortization increased to
$15.9 million for the 1996 Nine Months from $0.6 million in the 1995 Nine
Months, primarily attributable to depreciation and amortization of $12.3
million from Austar in the 1996 Nine Months. The Company began consolidating
the results of Austar on January 1, 1996. As a result, the Company reported no
depreciation and amortization from Austar in its consolidated statement of
operations for the 1995 Nine Months. Austar reported depreciation and
amortization of $0.4 million in such period. This increase in depreciation and
amortization was attributable primarily to the significant deployment of
operating assets at Austar beginning in early 1996 and continuing throughout
the period as Austar launched service and began serving subscribers in a number
of new markets. Depreciation expense is expected to increase substantially in
future periods as capital expenditures for the build-out of Austar's MMDS sites
and launch of Saturn's wireline cable plant and related increases in capital
necessary for subscriber equipment continue for the next several months.
Equity in Losses of Affiliated Companies. Equity in losses of affiliated
companies decreased to $4.8 million in the 1996 Nine Months from $12.5 million
in the 1995 Nine Months, primarily attributable to the decrease in its
ownership of XYZ and the consolidation of Austar beginning in January 1996.
Equity in losses of affiliated companies for the 1995 Nine Months and the 1996
Nine Months were as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1995 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Austar............................................... $ 1,411 $ --
Saturn............................................... 812 930
XYZ.................................................. 10,295 3,571
Sun Cable............................................ -- 235
HITV................................................. -- 14
---------- ---------
Total equity in losses of affiliated companies,
net............................................... $12,518 $4,750
========== =========
</TABLE>
30
<PAGE>
Austar
The Company began consolidating Austar effective January 1, 1996.
Accordingly, the Company reported no equity in losses related to Austar
in the 1996 Nine Months.
Saturn
The Company increased its ownership interest in Saturn from 50% to
100% in July 1996. Accordingly, subsequent to that time, the Company
consolidated the operating results of Saturn. Prior to such time, the
Company recognized equity in losses from Saturn which were less than
$1.0 million in both the 1996 Nine Months and the 1995 Nine Months.
XYZ
Equity in losses at XYZ decreased to $3.6 million in the 1996 Nine
Months from $10.3 million in the 1995 Nine Months. This decrease was
primarily attributable to the decrease in the Company's interest in XYZ
from 50% to 25% in September 1995. In addition, XYZ reported a lower
net loss in the 1996 Nine Months due to higher revenues in the 1996
Nine Months resulting from an increase in programming subscribers
combined with a favorable comparison to the 1995 Nine Months which
included high start-up costs associated with the launch of the
channels. XYZ's actual operating revenues for the 1996 Nine Months were
$5.9 million compared to $0.3 million for the 1995 Nine Months. XYZ's
operating, selling, general and administrative expenses for the 1996
Nine Months were $15.4 million (consisting primarily of satellite
transponder costs of $7.0 million, staffing costs of $3.9 million, and
production/programming costs and other costs of $4.5 million) compared
to $22.1 million for the 1995 Nine Months.
Sun Cable
The Company acquired a 40% economic interest in Sun Cable in 1995.
During the 1996 Nine Months, the Company's equity in losses of Sun
Cable was $0.2 million. Sun Cable's service and installation revenues
for the 1996 Nine Months were $2.7 million, while operating, selling,
general and administrative expenses were $2.0 million (exclusive of
non-operating charges for depreciation, interest expense and other).
Interest Expense, Net. UIH A/P issued approximately $225.1 million (gross
proceeds) of the Existing Notes in May 1996 (the "May 1996 Note Offering"). As
a result of the May 1996 Note Offering, the Company incurred interest expense
of $12.9 million in the 1996 Nine Months, which was partially offset by
interest income of $3.7 million for the same period. Prior to the May 1996
Note Offering, the Company had no significant amount of interest-bearing debt.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Although the Company was formed in 1994, most of the operating companies did
not launch service until mid- to late-1995. Austar's results of operations
were not consolidated with those of the Company until January 1, 1996 and
Saturn's results of operations were not consolidated with those of the Company
until July 1, 1996. Accordingly, the Company believes its consolidated
operating results for the two years ended December 31, 1994 and 1995 are not
meaningful.
Service Revenue. The Company acquired a 90% economic interest in Telefenua
in January 1995. The Company recognized service revenues of $1.9 million
during 1995, the majority of which resulted from Telefenua, which launched
service in March 1995. The Company had no service revenues in 1994.
System Operating Expense. The Company's operating companies incurred $3.1
million of operating expenses in 1995, of which $2.8 million came from
Telefenua, which launched service in March 1995. The Company incurred no
operating expenses in 1994.
31
<PAGE>
System Selling, General and Administrative Expense. During the year ended
December 31, 1995, the Company's operating companies incurred $2.5 million of
selling, general and administrative expenses. Telefenua, which launched
service in March 1995, accounted for $2.3 million of this amount. The Company
incurred no system selling, general and administrative expenses in 1994.
Corporate General and Administrative Expense. The Company's corporate
general and administrative expenses for the year ended December 31, 1995
increased to $2.9 million from $2.3 million in the year ended December 31,
1994, primarily due to the hiring of additional corporate staff dedicated to
the region.
Depreciation and Amortization. The Company had depreciation and amortization
expenses of $1.0 million for the year ended December 31, 1995 due primarily to
the acquisition of Telefenua and the launch of its system which began
depreciating its system in March 1995. The Company had no such expenses in
1994.
Equity in Losses of Affiliated Companies, Net. The Company recognized equity
in losses of affiliated companies of $1.0 million and $16.5 million for the
years ended December 31, 1994 and 1995, respectively, as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1994 1995
------------------
(IN THOUSANDS)
<S> <C> <C>
Austar(1).............................................. $ 551 $ 3,206
Saturn(2).............................................. 365 1,434
XYZ(3)................................................. 99 11,729
Sun Cable(4)........................................... -- 129
-------- ---------
Total equity in losses of affiliated companies, net.. $ 1,015 $ 16,498
======== =========
</TABLE>
---------------------
(1) The companies that comprise Austar were incorporated in mid-1994.
The Company acquired an initial interest in these companies in the
fall of 1994 and increased its economic interest in these companies
to 90% in late December 1995. Austar launched its first MMDS system
in August 1995.
(2) The Company acquired a 50% interest in Saturn in July 1994.
Accordingly, the Company recognized equity in losses for Saturn for
only the six months ended December 31, 1994, as compared to the
full twelve months for the year ended December 31, 1995. In
addition, in 1995, Saturn initiated engineering and design work and
started system construction and accordingly incurred more losses in
1995 as compared to 1994.
(3) XYZ was formed in October of 1994 and began distributing its four
channels in April 1995.
(4) The Company began loaning money under the Sun Cable Loan to Sun
Cable during 1995.
Gain on Sale of Investment. In September 1995 the Company sold one half of
its interest in XYZ at cost. As the recognition of equity losses through that
date had reduced the Company's investment to zero, the Company recognized a
gain on the entire amount received of $4.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Pro Forma for the Offerings. The Company is responsible for its
proportionate share of the capital requirements of the operating companies and
has funded its share to date with capital contributed by UIH and from the
proceeds of the UIH A/P Note Offering. As of October 31, 1996, the Company had
approximately $70.1 million of cash and short term investments on hand,
excluding the cash on hand at the operating companies. Upon completion of the
Offerings and the UIH Investment, the Company believes that it will have
sufficient capital to complete construction of all of its existing systems and
to fund anticipated start-up losses, as well as a limited amount of new
capital to fund new opportunities which the Company is pursuing or which may
arise in the future.
The following table sets forth, as of October 31, 1996, (i) the total
estimated funding required for the construction and initial marketing of the
operating companies' systems in their existing license areas, including any
capital invested to date and the application of any operating cash flow
sources for such operating companies,
32
<PAGE>
(ii) the total amount of capital invested in each of the operating companies
and the portion funded by the Company, and (iii) the total estimated
additional funding required based on the assumptions stated in clause (i)
above and the Company's estimated portion of such funding. Such amounts are
expected to be funded over the next 24 to 36 months. The estimated required
additional funding numbers below have not been reduced to give effect to any
surplus cash flow of any one operating company which might be available to
fund the requirements of another operating company. To the extent the
operating companies fund their construction and other costs through project
financing, the Company's portion of estimated additional funding would be
reduced proportionately. The Company's portion of estimated additional funding
would be increased proportionately to the extent cash flow from the operating
companies and other sources of financing are not sufficient to meet project
funding requirements. To the extent that the other shareholders of Sun Cable
or XYZ fail to fund their pro rata share of the additional shareholder capital
for such operating companies, the Company may fund all or a portion of such
shortfall.
<TABLE>
<CAPTION>
ESTIMATED TOTAL
PROJECT FUNDING CAPITAL INVESTED ESTIMATED REQUIRED
REQUIREMENTS AS OF OCTOBER 31, 1996(1) ADDITIONAL FUNDING
------------------ -------------------------------- ------------------
OPERATING COMPANY THE COMPANY TOTAL THE COMPANY(2) TOTAL(2) THE COMPANY TOTAL
- ----------------- ----------- ------ --------------- ------------ ----------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Austar.................. $366.4 $366.4 $149.5(3) $149.5(3) $216.9 $216.9
Saturn.................. 95.7 95.7 21.6(4) 21.6(4) 74.1 74.1
Sun Cable(5)............ 14.4 36.0 8.3 20.8 6.1 15.2
XYZ..................... 14.4 57.6 10.6 42.4 3.8 15.2
Other................... 32.2 34.3 26.4 28.5 5.8 5.8
------ ------ ------------ ------------ ------ ------
Total................. $523.1 $590.0 $216.4 $262.8 $306.7 $327.2
====== ====== ============ ============ ====== ======
</TABLE>
- ---------------------
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation.
(2) Includes amounts contributed to Austar (approximately $11.1 million) and
Saturn (approximately $2.9 million) by shareholders other than the
Company, which amounts were contributed by such shareholders prior to the
acquisition of their respective interests by the Company.
(3) Does not include the $58.6 million used by UIH A/P to increase its
economic interest in Austar to approximately 100%.
(4) Does not include the value of shares of Class A Common Stock exchanged for
shares of UIH A/P to increase the Company's interest in Saturn to 100%.
See "Corporate Organizational Structure--Saturn."
(5) The amounts for Sun Cable assume a build-out of systems in franchise areas
covering approximately 275,000 homes. Sun Cable is pursuing external
project financing to complete construction in additional franchise areas
covering 300,000 homes.
The net proceeds to be received by UAPC from the Offering, assuming an
initial public offering price of $ per share (the midpoint of the estimated
offering range), and the UIH Investment are estimated to be approximately
$117.3 million ($ million if the over-allotment option is exercised in full)
after deduction of underwriting discounts and commissions and offering
expenses. The net proceeds to be received by UIH A/P from the Senior Discount
Note Offering are estimated to be approximately $144.1 million. At October 31,
1996, the Company had approximately $70.1 million of cash and short term
investments on hand, excluding the cash on hand at the operating companies. On
a pro forma basis for the Offerings and the UIH Investment, the Company would
have had a total of approximately $331.5 million of cash and short-term
investments as of October 31, 1996. The Company currently intends to use this
cash, as well as anticipated cash flow from operations, to fund the currently
planned build-out and marketing of its existing systems. The Company may also
use a portion of the net proceeds to pursue new opportunities in the regions.
The UIH A/P Indenture and the UIH Indenture place restrictions on the
Company and its Restricted Subsidiaries with respect to incurring additional
debt. UAPC, UIH A/P and all of the operating companies are currently
"Restricted" under the UIH Indenture and UIH A/P, Austar and Telefenua are
currently "Restricted" under the UIH A/P Indenture. The restrictions imposed
by the UIH Indenture and the UIH A/P Indenture will be eliminated upon the
retirement of UIH's Notes at their maturity in November 1999, and the
retirement of the Existing Notes and the New UIH A/P Notes at their maturity
in May 2006 and , 2007 respectively. See "Description of Certain
Indebtedness."
Prior to the Offerings. Prior to the close of the May 1996 Note Offering,
the Company was financed solely by capital contributed by UIH. During the year
ended December 31, 1994, UIH contributed $27.4 million cash
33
<PAGE>
to the Company, $23.0 million of which was used to finance the Company's
investments in Austar, XYZ, Saturn, Sun Cable and HITV. Approximately $2.1
million was used for costs incurred in the acquisition and development of its
projects, the majority of which was for Telefenua. The remainder was used for
non-operating costs.
During the year ended December 31, 1995, UIH contributed total capital of
$84.5 million, consisting of $29.8 million of UIH's preferred stock and the
remainder in cash, to the Company and made bridge loans of $9.9 million to
Austar and indirectly to Telefenua through its parent, Societe Francaise des
Communications et du Cable S.A. ("SFCC"). The Company used approximately $45.1
million of the contributed capital, including the UIH preferred stock, to
acquire an additional 40% economic interest in Austar in December 1995. The
Company used $6.1 million in cash to fund the operations of Telefenua and made
an additional $24.4 million in capital contributions to the operating
companies. The Company also funded $5.7 million of the Sun Cable Loan and
funded $5.8 million of a bridge loan facility with the primary shareholder of
Sun Cable, which amount was used by the shareholder to fund its portion of the
required investment in Sun Cable.
During the period from January 1, 1996 to May 13, 1996, the closing date of
the May 1996 Note Offering, UIH contributed capital of $17.3 million to the
Company and made additional bridge loans of $15.1 million to Austar. On May
13, 1996, UIH A/P sold the Existing Notes in a private placement with net
proceeds to UIH A/P from such sale totalling $215.5 million. At that time, UIH
A/P acquired $25.0 million of the Austar bridge loans from UIH with proceeds
from the May 1996 Note Offering and converted those loans (plus accrued
interest of $0.6 million) to equity of Austar and then an additional $25.0
million in Austar capital calls were funded, thereby increasing the Company's
interest in Austar to 96%. Prior to the closing of the May 1996 Note Offering,
approximately $5.0 million of the SFCC bridge loans was converted into
preferred stock and convertible debentures of SFCC, which are convertible into
preferred stock of SFCC. The remaining SFCC bridge loans totaling $2.8 million
(including accrued interest) will be either (i) repaid by SFCC after which
time UIH A/P would invest the proceeds of such repayment as permitted under
the UIH A/P Indenture or (ii) converted by UIH A/P into equity of SFCC.
During the nine months ended September 30, 1996, the Company purchased
$105.9 million of property and equipment, the majority of which was purchased
by Austar and Saturn for construction of their systems. The Company made $16.8
million in capital contributions to Saturn, XYZ and HITV during this period.
The remainder of the capital contributions from UIH was used in operations.
In October 1996, the Company acquired from Australis for $7.9 million the
approximately remaining 4% economic interest in Austar and purchased ordinary
shares and convertible notes of Australis for $4.0 million, issued upon
exercise of warrants and other rights granted to the Company.
FOREIGN CURRENCY EXCHANGE RATE RISKS; HEDGING
The operating companies' monetary assets and liabilities are subject to
foreign currency exchange risk as certain equipment purchases and payments for
certain operating expenses, such as programming expenses, are denominated in
currencies other than their own functional currency. In addition, certain of
the operating companies have notes payable and notes receivable which are
denominated in a currency other than their own functional currency or
intercompany loans payable linked to the U.S. dollar.
In general, UAPC and the operating companies do not execute hedge
transactions to reduce the Company's exposure to foreign currency exchange
rate risks. Accordingly, the Company may experience economic loss and a
negative impact on earnings with respect to its holdings solely as a result of
foreign currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. The Company may also experience economic loss
and a negative impact on earnings related to these monetary assets and
liabilities. In general, exchange rate risk to UAPC related to the operating
companies' commitments for equipment purchases and operating expenses is
generally limited due to the insignificance of the related monetary asset and
liability balances; however, exchange rate risk to UAPC of these notes payable
and notes receivable and debt linked to
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<PAGE>
the U.S. dollar have and will continue to impact the Company's reported
earnings. Because of the manner in which the Company accounts for its interests
in Sun Cable, XYZ and HITV, any adverse effects on reported earnings of these
companies would impact the Company through its equity in losses of affiliated
companies.
The countries in which the operating companies now conduct business (except
for China) generally do not restrict the removal or conversion of local or
foreign currency; however, there is no assurance this situation will continue.
The Company may also acquire interests in companies that operate in countries
where the removal or conversion of currency is restricted. See "Risk Factors--
Foreign Currency Exchange Rate and Conversion Risks."
35
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of multi-channel television services in
Australasia and the Asia/Pacific region. Through its Australian operating
company Austar, the Company is the largest provider of multi-channel
television services in regional Australia, where it operates MMDS systems and
is marketing a DTH service in franchise areas encompassing approximately 1.5
million television homes, or 25% of the total Australian market. In addition,
the Company, through its New Zealand operating company Saturn, is constructing
a wireline cable and telephony system in Wellington, New Zealand, a market
representing approximately 135,000 television homes. The Company's Philippine
joint venture, Sun Cable, is the third largest cable television operator in
the Philippines with wireline cable television systems in 15 markets that have
approximately 575,000 television homes. The Company's other assets include a
25% interest in XYZ, a programming company that provides four channels to the
Australian multi-channel television market as part of the Galaxy package, the
most widely distributed programming package in Australia and the core
component of Austar's programming offering, and a 90% economic interest in
Telefenua, the only provider of multi-channel television services in Tahiti,
with an MMDS system in a market with 31,000 television homes.
The Company believes that it is well-positioned to capitalize on the rapidly
increasing demand for multi-channel television and telephony services in
Australasia and the Asia/Pacific region. As of October 31, 1996, the Company
had invested over $215 million in its networks and operating infrastructure
and had launched service in each of its markets. The Company has experienced
rapid growth in its network coverage and subscriber base during 1996. As of
October 31, 1996 the Company's multi-channel television operating systems had
an aggregate of approximately 1.6 million television homes serviceable and
approximately 115,300 subscribers, as compared with approximately 296,200
television homes serviceable and approximately 29,300 subscribers as of
December 31, 1995 (with a substantial majority of such growth resulting from
Austar's expansion). During this same ten-month period, programming
subscribers of XYZ increased from approximately 65,000 to approximately
269,000. While the Company expects that a substantial portion of its growth
will come from the continued development of Austar, the Company is also
anticipating significant growth by its other operating companies, each of
which the Company believes has attractive growth prospects.
AUSTAR (AUSTRALIA)
Austar is the largest provider of multi-channel television services in
regional Australia (areas outside Australia's six largest cities). Austar
initiated widespread deployment of its services in early 1996 and as of
October 31, 1996, had launched MMDS service in 27 metropolitan markets
containing approximately 700,000 homes and had initiated the marketing of DTH
services in non-metropolitan markets containing approximately 740,000 homes.
These markets represent over 93% of Austar's 1.5 million franchise television
homes, the remaining 100,000 of which will be serviceable by early 1997.
Austar's marketing efforts have kept pace with the rapid roll-out of its
network services during 1996. As of October 13, 1996, Austar had 75,300
subscribers with a backlog of 13,900 customers scheduled for installation. In
addition, subscriber growth has accelerated in recent periods, as demonstrated
by October's results in which Austar generated 23,800 subscription sales
orders and had a net gain of over 15,000 subscribers, with the difference
primarily attributable to installation backlog. Austar is continuing to market
its services aggressively and expects to continue rapidly building its
subscriber base. Austar is benefitting from several characteristics which are
supporting its marketing success and which management believes give it a
competitive advantage in its markets:
. OPERATIONAL INFRASTRUCTURE IN PLACE. In addition to having launched
service to over 93% of its franchise areas, Austar has also developed the
operational infrastructure necessary to continue its rapid growth.
Austar's early investment of approximately $149 million in operating and
capital expenditures from inception through October 31, 1996 has
established it currently as the only multi-channel television
36
<PAGE>
provider in substantially all its franchise areas. Austar has developed a
comprehensive marketing organization consisting of a 200 person direct
salesforce and over 200 national customer service and telemarketing
personnel. The direct salesforce, which operates out of local offices in
the majority of Austar's metropolitan markets, is currently generating
sales of approximately 2,250 subscriptions per week. The salesforce at
Austar's state-of-the-art NCOC is currently generating sales of
approximately 3,000 additional subscriptions per week from inbound and
outbound calls. The salesforce is supported by an integrated marketing
program of television, radio and print advertising. The NCOC is also the
center of Austar's customer service organization, processing all incoming
information, installation and service requests. The NCOC has sufficient
capacity to service Austar's customer service needs for the forseeable
future.
Austar has a total of approximately 600 employees, most of whom are
located in local offices and regional operating centers, and has contracted
with a number of local service companies which employ an aggregate of
approximately 400 technicians to install and maintain subscriber equipment
in each of its markets. Management believes that this infrastructure
positions Austar to service its markets efficiently and provides it with
significant competitive advantages.
. REGIONAL FOCUS; CLASSIC MARKETS. Austar has strategically focused on the
currently less competitive regional markets that are located outside of
Australia's largest cities and encompass approximately 25% of the total
Australian television market. These areas are "classic" multi-channel
television markets with attractive demographics and limited television
and alternative entertainment options. Approximately one-half of its
service area (approximately 800,000 television homes) are in metropolitan
markets with sufficient housing densities to support the construction of
MMDS systems. Austar owns virtually all of the available MMDS licenses in
each of these markets. The Company believes these markets generally do
not have the size and/or densities to support the construction of a
competitive wireline cable system. In the remainder of its service region
in Austar's non-metropolitan markets (approximately 740,000 serviceable
television homes), where management believes household densities do not
support the deployment of MMDS networks, Austar is marketing a DTH
service on an exclusive basis. Austar is currently the only provider of
multi-channel television services in substantially all of its service
area, which encompasses approximately 25% of the total Australian
television market. See "Risk Factors--Competitive Industry."
. APPROPRIATE TECHNOLOGY. Austar believes that its utilization of wireless
technologies in the build-out of its franchise area has afforded it with
several economic and strategic advantages. The rapid deployment of MMDS
networks in its metropolitan markets and a DTH service in its non-
metropolitan markets has allowed Austar to reach the vast majority of the
homes in these markets in just over one year. Austar's status as the
initial operator in all of its markets has allowed it to establish a
significant subscriber base and strong brand awareness, factors that
management believes will give it a competitive advantage. Management
believes the combination of MMDS and DTH has allowed Austar to reach
virtually all of the 1.5 million serviceable television homes in its
service areas on the most cost effective basis. Austar estimates its
total fixed capital cost to build out initially its entire franchise area
will be approximately $43 million, or approximately $29 per serviceable
home, over 75% of which had been expended as of October 31, 1996.
Accordingly, Austar has been able to devote a significant amount of its
financial resources to completing operational infrastructure and
installing its "in-home" subscriber equipment, over which Austar retains
ownership. Austar has spent in excess of $80 million on these items and
expects that the substantial majority of its future incremental capital
expenditures will be incurred only as additional subscribers are
installed (currently approximately $460 and $945 per MMDS and DTH
subscriber, respectively, which amounts are partially offset by
installation charges). While Austar is currently employing analog
technology in its MMDS systems, it is testing digital technology (which
would increase its existing 19 channel capacity) in one market and
intends to offer digital service in its metropolitan markets if and when
competitive factors dictate. The DTH service marketed by Austar, uses
state-of-the-art MPEG II digital technology.
. ATTRACTIVE PROGRAMMING AGREEMENTS. Austar has entered into franchise
agreements with Australis that grant it the right to provide the Galaxy
programming package within its franchise areas through 2009 (extendible
at Austar's option through 2019). The Galaxy programming package, the
most widely distributed programming package in Australia, was created by
many of the world's leading programming
37
<PAGE>
suppliers and features brand name channels including Showtime, Encore, Fox
Sports, The Discovery Channel, Nickelodeon/Nick at Nite, Red and two
general entertainment channels. Management believes that Austar's franchise
agreements have favorable pricing. Austar's programming costs are based on
a percentage of its service revenue and provide for an offset of those
costs with the depreciation of its subscriber equipment. Austar's franchise
agreements provide exclusivity over wireless technologies (MMDS and DTH).
While Austar's franchise agreements were formerly exclusive for cable
television, the Company, pursuant to the Australis Arrangement, recently
agreed to allow Foxtel to carry the Galaxy package on Foxtel's wireline
cable systems throughout Australia.The Australis Arrangement provides that
Austar will be compensated for any Foxtel subscriber in its franchise areas
in an amount approximately equal to the profit margin that Austar would
have received had it sublicensed such programming to Foxtel (which
currently would be approximately $8 per Foxtel subscriber per month).
Foxtel is currently operating in only one of Austar's markets and the
Company believes that the small size of and/or low household densities in
the majority of its markets do not justify the construction of competitive
wireline cable systems. Austar does not currently have any subscription
television competitors in the remainder of its franchise areas. Austar's
franchise agreements continue to provide exclusivity over all wireline
cable operators other than Foxtel. In addition, as part of the Australis
Arrangement, Austar was granted the right to acquire any additional
channels distributed by Galaxy on no less favorable terms than offered to
any other person and in any event at no more than Australis' cost, plus
10%. See "Business--Austar (Australia)-- Franchise Agreements." Austar has
also secured several additional satellite-delivered programming services to
supplement the Galaxy channels.
. ATTRACTIVE DEMOGRAPHICS. Australia has demographic and other
characteristics that management believes are favorable to multi-channel
television operators, including high per capita income and high
television and VCR penetration rates. Television viewers in Australia
have limited over-the-air television options with a maximum of five free-
to-air channels, which is generally lower in regional Australia. The
Australian subscription television industry has grown rapidly since its
inception in early 1995, reaching a combined 6% penetration rate. In
addition, management believes Australian consumers are generally
receptive to new technologies, as demonstrated by their high cellular
telephone penetration rates. The following table summarizes selected
demographic characteristics of Australia compared to comparable
statistics for the more mature multi-channel television markets of the
United States and the United Kingdom:
<TABLE>
<CAPTION>
GDP PER HOMES YEARS OF TELEVISION CELLULAR SUBSCRIPTION
CAPITA IN WITH SUBSCRIPTION HOMES WITH TELEPHONE TELEVISION
1995(1) TELEVISION(2) TELEVISION VCR(3) PENETRATION(4) PENETRATION(5)
--------- ------------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Australia............... $19,271 99% 2 81% 19% 6%
United States........... 27,581 99 40+ 80 15 66
United Kingdom.......... 18,881 97 12 81 10 23
</TABLE>
---------------------
(1) U.S. Department of Commerce; Bank of America World Forecasts; UN
National Accounts Statistics; Zenith Media Worldwide 1996; European
World Year Book 1996.
(2) Zenithmedia Television in Asia Pacific; Zenith European Market 1995.
(3) Worldwide Video.
(4) International Cellular, October 4, 1996.
(5) Cable Television Advertising Bureau; New Media Markets; Company
estimates for Australia.
Operating and Growth Strategy. Due to the relatively small size and low
housing densities which characterize the markets in its franchise areas, Austar
is primarily utilizing MMDS and DTH wireless technologies to deliver its
service. In its metropolitan markets, Austar constructs and owns the
transmission facilities and installs and retains ownership of the in-home
subscriber equipment. In its non-metropolitan markets, Austar is marketing a
DTH service (consisting primarily of the Galaxy programming package) and
installs and retains ownership of the in-home subscriber equipment. As a
result, Austar did not incur the costs necessary to own the facilities required
to offer a DTH service and only incurs capital costs when a DTH subscriber is
installed. Approximately 800,000 of the television homes in Austar's service
area are in metropolitan markets with sufficient size and densities to justify
the construction of MMDS networks. Austar
38
<PAGE>
owns virtually all of the MMDS spectrum currently available in these markets
for the provision of MMDS services. Because MMDS service is less expensive to
install than DTH, Austar services customers in these metropolitan markets with
its MMDS service whenever possible. A small number (approximately 20%) of
homes in these metropolitan markets, however, are out of the line of sight of
Austar's MMDS networks. Austar services these homes with its DTH service.
Austar markets its programming services via DTH in its non-metropolitan
franchise areas representing 740,000 television homes. These are less densely
populated areas outside its metropolitan markets that are more effectively
serviced by DTH technology. In addition, Austar recently began construction of
a wireline cable network in Darwin, a market containing approximately 26,200
serviceable homes where dense vegetation make an MMDS system impractical.
The deployment of MMDS networks in combination with DTH has allowed Austar
to roll out its service quickly and achieve rapid subscriber growth in its
franchise areas. Austar believes that the ability to be the first provider of
multi-channel television services in each of its markets has allowed Austar to
establish a significant market presence and strong brand awareness, factors
which management believes provide it with a competitive advantage. Austar is
currently the only provider of multi-channel television services in
substantially all of its franchise areas.
As of October 31, 1996, Austar had launched service in 27 of its
metropolitan markets representing 700,000 out of its 800,000 potential
serviceable homes. Austar currently anticipates launching service in seven of
its eight remaining metropolitan markets by the end of 1996 and in the last
metropolitan market in early 1997. The following table sets forth the summary
operating statistics in Austar's launched metropolitan markets, which are
served primarily by MMDS, as well as its non-metropolitan markets served by
DTH:
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------
MAY 31 JUNE 30 JULY 31 AUG. 31 SEPT. 30 OCT. 31
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cumulative metropolitan
markets launched....... 11 13 19 20 23 27
Metropolitan homes
serviceable............ 430,000 476,000 604,000 626,000 655,000 700,000
Non-metropolitan homes
serviceable............ 740,000 740,000 740,000 740,000 740,000 740,000
--------- --------- --------- --------- --------- ---------
Total homes
serviceable............ 1,170,000 1,216,000 1,344,000 1,366,000 1,395,000 1,440,000
========= ========= ========= ========= ========= =========
Sales orders............ 7,955 9,461 15,665 12,535(/1/) 13,063(/1/) 23,799
Net gain in
subscribers............ 5,644 5,656 9,521 10,452 11,021 15,024
Total subscribers....... 23,626 29,282 38,803 49,255 60,276 75,300
World Movies
subscribers............ 4,140 5,237 6,959 8,655 10,111 11,698
Installation
backlog(2)............. 4,300 6,500 10,000 9,200 8,200 13,860
</TABLE>
---------------------
(1) Sales figures in August and September reflect a planned slow down in
sales and marketing activities in anticipation of the relaunch of
services under the new brand name of "Austar" which occurred in late
September 1996.
(2) Estimated for periods prior to October.
To facilitate the rapid roll-out of its service, Austar has established
local offices in the majority of its metropolitan markets. These local offices
coordinate marketing, installation and customer service in Austar's
metropolitan markets and surrounding non-metropolitan areas. The local offices
are supported by five regional offices. Each regional office typically serves
three to twelve metropolitan markets. Austar estimates that approximately 70%
of its potential non-metropolitan customers are within fifty kilometers of its
metropolitan service areas. This proximity enables Austar to reduce
installation and service costs associated with DTH service to non-metropolitan
subscribers and to focus subscription sales through the use of marketing,
promotional and sales tactics.
39
<PAGE>
Austar has entered into contracts with a number of service companies to
install MMDS receivers, DTH satellite dishes and set-top decoders. Installers
collect the installation fee, install subscriber equipment and test reception
quality. Austar has trained and established certain guidelines for third party
service company employees who install Austar reception equipment. Austar has
an extensive quality assurance program and expends a significant amount of
effort to follow-up on installations to ensure customer satisfaction and, in
the case of DTH equipment installed within its metropolitan markets, verify
that more economical MMDS technology could not be used. Austar believes its
efforts to resolve service problems quickly has helped establish customer
loyalty.
As of October 31, 1996, Austar has spent $32.8 million and anticipates
spending an additional $10.0 million through the end of 1996 for construction
of MMDS head-end and transmission facilities for all of its operating systems.
Variable installation and equipment costs for each MMDS and DTH subscriber are
currently approximately $460 and $945 per subscriber, respectively. These
subscriber costs are partially offset by the Company's metropolitan and non-
metropolitan installation charges of $31 to $75 and $150, respectively. Austar
retains ownership of all MMDS and DTH customer premise equipment.
Pricing. Austar is currently providing the eight channel Galaxy programming
package plus three to five additional channels of programming as its basic
package at a monthly rate of approximately $31, with a one-time installation
charge ranging from approximately $31 to $75 for metropolitan subscribers and
$150 for non-metropolitan DTH subscribers. Austar also integrates all
available off-air channels into its basic channel line up at no additional
charge. In March 1996, Austar began offering its first premium channel, World
Movies, which consists primarily of foreign movies and art films and features.
Austar is charging approximately $5.30 per month for World Movies. As of
October 31, 1996, Austar had 11,698 subscribers for its World Movies premium
channel.
Marketing; Customer Support. Austar has focused its marketing and sales
efforts to support its strategy of rapid system roll-out which management
believes will provide it with a competitive advantage in each of its markets.
Austar has developed a comprehensive marketing and sales organization
consisting of a 200 person direct salesforce and over 200 national customer
service and telemarketing personnel. The direct salesforce, which operates out
of local offices in each of Austar's metropolitan markets, is currently
generating sales of approximately 2,250 subscriptions per week. The salesforce
at Austar's NCOC is currently generating sales of approximately 3,000
additional subscriptions per week from inbound and outbound calls. This sales
organization is supported by an integrated marketing program of television,
radio and print advertising.
The NCOC is a state-of-the-art fully integrated subscriber management system
featuring a sophisticated digital wide-area network, Cable Data's Intelecable
platform, an automated response unit and predictive dialer technology. The
NCOC currently services all of Austar's MMDS and DTH subscribers and has the
capacity to service all future customers in its existing markets. NCOC
employees process installation orders, handle customer inquiries, including
programming and technical questions, and implement the customer retention
program, which includes telephone contact with customers following a
cancellation request, as well as making unprompted contact with customers
immediately following installation in an effort to ensure customer
satisfaction. Incoming calls from all of Austar's markets are directed to the
NCOC where customer service representatives are available to provide sales and
service information. The NCOC currently handles approximately 3,000 calls per
day but has scaleable capacity to handle at least 5,000 calls per day. The
NCOC facility currently employs 200 customer service professionals, which
Austar intends to increase as its subscriber base grows in its franchise
areas. In addition, Austar is exploring the possibility of using the NCOC to
outsource customer service to third parties in similar lines of business where
appropriate.
Austar's monthly "churn" (calculated as total disconnects as a percent of
average subscribers) has averaged 6.1% during 1996 and has declined each of
the last four months ended October 31, 1996, during which month it was 4.3%.
Austar believes that this ratio is likely to continue to decline in the future
due to several factors, although there can be no such assurances. First, over
37% of the total disconnects in 1996 have resulted from subscribers in the
Gold Coast (which represents only 16% of Austar's total subscribers as of
October 31, 1996), the only market in which Austar currently faces
competition. As a result of this competitive environment,
40
<PAGE>
Austar's installation fee in the Gold Coast is only $15 as compared to $31 to
$75 in other metropolitan markets and $150 in non-metropolitan markets. A
higher installation charge results in a larger financial commitment to the
service by the subscriber and therefore reduces the probability of churn.
Pursuant to the Australis Arrangement, Austar will be compensated by Australis
for any Foxtel subscribers in the Gold Coast. Second, due to the significantly
higher installation charges in its non-metropolitan markets summarized above,
Austar believes that this ratio will decline as its percentage of non-
metropolitan subscribers to total subscribers increases (because Austar only
launched its rural DTH service in May 1996, its percentage of non-metropolitan
subscribers to total subscribers has increased from 0% on May 1, 1996 to
approximately 24% at October 31, 1996). Approximately 48% of Austar's total
serviceable homes are in its non-metropolitan franchise area. Austar's average
monthly churn in its non-metropolitan markets has been approximately 2% during
1996. Finally, Austar expects its churn to decline as it continues to
implement its customer assurance and retention program and the breadth and
quality of its programming package improves.
Programming. The Company believes that programming is an important component
in building successful multi-channel television systems. Accordingly, Austar
has secured the right to distribute the Galaxy package of programming in its
service areas pursuant to franchise agreements with Australis with initial
terms through 2009 (extendable at the option of Austar through 2019). Austar
believes that the terms of its franchise agreements with Australis are
favorable to Austar and that these terms provide Austar with a programming
cost advantage over potential competitors. See "-- Franchise Agreements."
The Galaxy package is the most widely distributed programming package in
Australia and is the core programming offering of Austar, ECT, Australis and
Foxtel. Management believes that approximately 75% of Australia's multi-
channel television subscribers subscribe to the Galaxy package. The channels
in the Galaxy package were developed exclusively for the Australian market by
several of the world's leading programming companies, including Paramount,
Sony, Universal, Fox and Viacom. The Galaxy package consists of the following
eight channels:
<TABLE>
<CAPTION>
GALAXY CHANNEL PROGRAMMING GENRE
-------------- -----------------
<S> <C>
Showtime............................. premium feature movies
Encore............................... library movies
Fox Sports........................... sports
TV-1................................. general entertainment
Discovery............................ documentary, adventure, history and
lifestyle
Nickelodeon/Nick at Nite............. children's and family entertainment
Arena................................ general entertainment
Red.................................. music video
</TABLE>
In addition to the right to distribute the Galaxy package, Austar has the
right to distribute any additional channels offered by Galaxy and will pay
Australis for such channels a fee no greater than that charged to any other
person and in no case greater than Australis' cost (as charged by third
parties with respect to programming delivered by such party to Australis or
the lowest price at which Australis agrees to distribute Australis produced or
compiled programming), plus 10%. See "--Franchise Agreements."
41
<PAGE>
Austar has also secured additional programming on a non-exclusive basis,
which it is distributing to its customers as part of its basic programming
package, and Austar integrates all available off-air channels into its basic
channel line up at no additional charge. Austar's other "cable" channels
include:
<TABLE>
<CAPTION>
OTHER CHANNELS PROGRAMMING GENRE
-------------- -----------------
<S> <C>
CMT.............................................. country music videos
BBC World(1)..................................... world news
CNBC(1).......................................... business news
Asia Business News (2)........................... regional business news
TNT(2)(3)........................................ library movies
Cartoon Network(2)(3)............................ cartoons
CNN International(2)............................. world news
The Value Channel(4)............................. shopping
Preview(4)....................................... programming guide
</TABLE>
---------------------
(1)All markets except the Gold Coast.
(2)The Gold Coast (MMDS) only.
(3)TNT and Cartoon Network share one channel.
(4)DTH only.
In March 1996, Austar began offering its first premium channel, World
Movies, which consists primarily of foreign movies and art films and features.
Austar is charging approximately $5.30 per month for World Movies. Initial
demand for this service has been strong with approximately 11,700 customers as
of October 31, 1996, approximately 16% of Austar's basic subscribers.
Austar intends to expand further the number of programming services
available on its MMDS systems and expects that, upon deregulation of the DTH
business in July 1997, it will be marketing additional channels of programming
via DTH. Austar's MMDS systems have the capacity to transmit up to 19 analog
channels (of which Austar currently uses 11 to 12 in its markets) in addition
to free-to-air channels, which are integrated into the programming line-up at
the rooftop. Austar is currently testing digital technology in one market and
intends to offer digital service in certain metropolitan markets if and when
competitive factors dictate. The DTH service marketed by Austar utilizes MPEG
II digital technology which has over 100 channels of capacity. In addition to
any additions to the Galaxy package, Austar has also secured a 54 mhz
transponder capable of broadcasting between 10 and 15 digital channels on the
satellite that currently transmits the Galaxy package, and pursuant to the
Australis Arrangement has the right to deliver such programming to its
customers through the Galaxy system.
Franchise Agreements. Austar has entered into franchise agreements with
Australis. Each franchise agreement is for a term of 15 years commencing in
October 1994, and Austar has the option to renew the franchise agreements on
identical terms for another ten years. Under the franchise agreements,
Australis granted Austar the license and right to distribute the Galaxy
programming package in its franchise areas. These franchise agreements provide
exclusivity over wireless technologies and provide that Australis will not
grant rights to any other person to use Australis' satellite infrastructure or
system to transmit Galaxy in Austar's franchise areas. The Company
understands, however, that Australis and Optus Vision plan to form a joint
venture whereby Australis will contribute to the venture its satellite
infrastructure allowing for DTH transmission of Optus Vision's programming
services. The Company believes that the use of the infrastructure by any
entity other than Austar for the provision of DTH services within Austar's
franchise areas would be in violation of its franchise agreements with
Australis and has recently commenced proceedings seeking injunctive relief
preventing such use of infrastructure. See "--Legal Proceedings" and "--
Competition."
Pursuant to the terms of its franchise agreements, Austar pays a percentage
of net revenues to Australis for the right to distribute the Galaxy package.
For purposes of the franchise agreements, net revenues equal gross revenues
received from the eight Galaxy channels currently provided less a percentage
of certain agreed costs,
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<PAGE>
including depreciation of subscriber equipment, which the Company believes
results in a favorable programming pricing structure.
In March 1995, Australis granted Foxtel a license to distribute the Galaxy
package over cable television systems throughout Australia, including Austar's
franchise areas. The Company believes that because of such action, Australis
was in breach of its franchise agreements. Foxtel is currently distributing
Galaxy programming, in only one of Austar's markets, the Gold Coast, which
contains approximately 116,000 serviceable homes. On June 19, 1996, pursuant
to the Australis Arrangement, Austar and the Company agreed to settle their
dispute with Australis with respect to this matter. As part of the Australis
Arrangement, the parties agreed that Australis is entitled to grant Foxtel the
non-exclusive right to distribute Galaxy programming by cable, but that Foxtel
may not sublicense or assign this right without Austar's consent. Australis
agreed to pay to Austar an amount equal to the amount Australis received from
Foxtel for programming service for the period from March 1995 through June 30,
1996, less the amount Australis paid to third party programming suppliers for
such programming with respect to Foxtel subscribers located in Austar's
franchise areas during such period. In addition, from June 30, 1996 though the
term of the franchise agreements, Austar has the right in its sole discretion,
either to: (i) sublicense to Foxtel the right to transmit the services
provided to it by Australis (and any other services) by cable transmission in
its franchise areas or (ii) require Australis to pay to it an amount each
month equal to the sum of (a) the greater of A$4.50 per subscriber and all
revenues (less programming costs) per subscriber during such month received
under the agreement between Foxtel and Australis with respect to Foxtel
subscribers located in Austar's franchise areas and (b) an additional amount
(if any) to put Austar in the position that it would have been in had it
sublicensed the services provided to it by Australis directly to Foxtel (which
currently would be approximately $8 per Foxtel subscriber per month). The
Company believes that, because its programming costs are less than the revenue
to be generated by sublicensing such programming to Foxtel, the benefits to be
gained from this aspect of the Australis Arrangement will be substantial over
the years. As part of the Australis Arrangement, Australis agreed to extend
the term of the franchise agreements by five years to an initial 15-year term
and amended certain financial and strategic terms of the franchise agreements.
Australis also granted to Austar the right to use Australis' satellite
infrastructure to provide additional DTH services within Austar's franchise
areas. In addition, Australis agreed to provide all future Galaxy channels to
Austar at a price no less favorable than that charged other persons and in any
event at no more than Australis' cost (as charged by third parties with
respect to programming delivered by such party to Australis or the lowest
price of which Australis agrees to distribute Australis produced or compiled
programming), plus 10%. In return, the Company agreed (i) to waive and release
any claim arising out of or in connection with Australis' execution and
performance of its license agreement with Foxtel, and (ii) not to make any
objection or claim against Australis or Foxtel in connection with such license
agreement. Management believes the Australis Arrangement is favorable to
Austar. See "--Competition" and "Risk Factors--Ability to Procure Additional
Programming Services."
Competition. The substantial majority of Austar's metropolitan markets are
either small (i.e., approximately 20,000 homes), and/or have relatively low
household densities (generally 25 to 75 homes per square kilometer as compared
to 100 to 130 homes per square kilometer in Australia's largest capital
cities). As a result, Austar believes that its metropolitan markets generally
do not have sufficient density to justify the construction of competitive
wireline cable systems. While the Company believes household densities could
potentially support wireline cable construction in areas representing
approximately 20% of Austar's total franchise homes, the relatively small size
of these markets reduces the attractiveness of constructing a competitive
cable network. In addition, Austar, as a licensed subscription television
provider, is authorized to build wireline cable systems in its markets and
where appropriate could construct wireline cable systems. With the exception
of the Foxtel cable television system currently extending into Austar's
116,000-home Gold Coast metropolitan market, Austar does not currently have
any subscription television competitors in its franchise areas. In the Gold
Coast, Austar is currently providing 13 channels of programming as its basic
package which includes the eight channel Galaxy programming package as well as
five additional channels, at a monthly rate of approximately $23 with a one-
time installation charge of approximately $15. Foxtel offers the Galaxy
package
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<PAGE>
of eight channels as well as its ten other satellite or locally originated
channels for a monthly fee of $31 and an installation charge of $16. At
October 31, 1996, Austar had 12,330 subscribers in the Gold Coast and
estimates that Foxtel has 5,000 subscribers in this market. In addition,
Austar is currently testing digital MMDS technology in the Gold Coast and
expects to implement digital service in those metropolitan markets where
competitive conditions dictate.
Approximately 740,000 of Austar's 1.5 million franchise homes are in non-
metropolitan markets which generally have densities of fewer than 25
households per square kilometer. As a result, the Company believes that these
markets can only be served economically with DTH technology. Existing
regulations prohibit any DTH service other than the Galaxy programming package
from being offered in Australia prior to July 1997. Austar has the exclusive
right to market the Galaxy DTH service in its franchise area. Although
regulations will no longer prohibit additional DTH services after June 1997,
Austar will retain its exclusive right to market the Galaxy package in its
franchise areas through 2009 (extendable to 2019 at Austar's option). In
addition, Austar believes it has an additional competitive advantage in
offering DTH service in these markets because over 70% of its serviceable
homes are within a 50km radius of its metropolitan markets, in most of which
it has sales personnel and installation technicians. Accordingly, Austar
believes its cost to market and install subscribers in these areas should be
below that of any potential competitor without similar infrastructure in
place.
Management believes that Austar has established a significant subscriber
base, strong brand awareness and substantial operational and marketing
infrastructure, factors that provide it with a competitive advantage. Optus
Vision has publicly announced that it plans to offer subscription television
services by DTH throughout Australia. In addition, the Company understands
that Australis and Optus Vision plan to form a joint venture whereby Australis
will contribute to the venture its satellite infrastructure allowing for DTH
transmission of Optus Vision's programming services. The Company believes that
using the infrastructure by any entity other than Austar for the provision of
DTH services within Austar's franchise area would be in violation of its
franchise agreements with Australis and has recently commenced proceedings
seeking injunctive relief preventing the use of Australis' infrastructure by
Optus Vision in Austar's franchise area. There can be no assurance that Austar
will prevail in its lawsuit or that, even if it is successful in obtaining an
injunction to prevent the consummation of the joint venture, Optus Vision or
others will not compete in Austar's franchise area. See "Business--Legal
Proceedings."
Properties. Austar leases office space in Sydney for its administrative
offices and has established five regional offices in leased space in certain
areas where it has launched service. Austar also leases locations for smaller
local offices in most of its markets to handle local customer maintenance,
marketing and installation. In addition, Austar leases facilities to house the
head-end facility and transmitter tower in each of its markets. The NCOC is
located in leased facilities in the Gold Coast. Generally, these Austar
facilities are leased with terms of three to six years, with renewal options
in many instances. Austar believes that its leased facilities are sufficient
for its foreseeable needs and that it has access to a sufficient supply of
additional facilities in its various markets, should it require more space.
Management and Employees. Austar's senior management includes 10 UAPC
employees appointed to Austar that collectively have 130 years experience in
the construction, marketing and operation of multi-channel television systems.
See "Management." Austar and UAPC are parties to a 10-year Technical
Assistance Agreement, renewable for an additional 15 years, pursuant to which
Austar pays UAPC a fee equal to 4% of its gross revenues through October 2002,
3% through 2004 and 2% through the remaining term of the agreement, for the
provision of various management and technical services, and reimburses UAPC
for certain direct costs incurred by UAPC, including the salaries and benefits
relating to the senior management team.
As of September 30, 1996, Austar had a total of 611 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.
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SATURN (NEW ZEALAND)
The Company owns 100% of Saturn, which recently launched service on the
initial portions of its HFC network that will allow it to provide multi-
channel television services as well as business and residential
telecommunications services in the Wellington area, encompassing 135,000
homes. Wellington is New Zealand's capital and second largest city. The
Company launched service in portions of this system in September 1996 and
expects construction to be completed by mid-1998. Saturn also operates an
existing cable system, which passes approximately 6,000 homes, on the Kapiti
Coast north of Wellington. As of October 31, 1996, Saturn's activated networks
passed approximately 12,600 homes and serviced approximately 1,300
subscribers. The Company expects to use a portion of the proceeds of the
Offerings to accelerate Saturn's build-out and marketing programs during 1997.
See "Use of Proceeds." In addition, Saturn has secured additional rights to
use existing poles to attach its network cable in markets representing 200,000
homes, subject to local planning approval, and is exploring the possibility of
expanding its networks and services to these markets.
Market Overview. The Company believes that New Zealand, a market of 1.2
million television homes, is attractive for multi-channel television
providers. New Zealand has a demographic profile similar to Australia,
including high per capita income and strong television, VCR and cellular
telephone penetration rates. In addition, New Zealand imposes virtually no
pricing regulation and only limited program content regulation and permits
operators to offer combined multi-channel television and telephony services
over one network. There is currently only one significant multi-channel
television provider that currently offers a five-channel UHF-delivered
subscription service.
Operating and Growth Strategy. Saturn is constructing a 750 mhz HFC network
designed to 500 homes per node with each home drop overlaid with copper
telephony plant. This architecture will allow the integrated delivery of pay
TV, telephony, internet access, high speed data and future interactive
services. The majority of Saturn's approximately 1,600 km of plant will be
constructed on aerial utility poles which will allow for quicker and more
cost-effective network construction than underground wireline. In addition,
because Wellington zoning generally permits only a single additional
communications cable on its aerial utility poles, Saturn's status as first
operator on such poles may limit use of these poles by other communications
providers. Because the only significant multi-channel television competitor in
the Wellington market offers a UHF-delivered service that is limited to only
five channels, management believes it will be able to build a significant
customer base by offering an attractive basic programming line-up of over 30
channels at competitive prices, as well as pay-per-view, data and telephony
services. Saturn is currently negotiating for an interconnect agreement that
will allow it to provide local residential and business telephone services. By
bundling both subscription television and telephony services, Saturn will be
able to offer pricing discounts across both services, which management
believes will provide an advantage over competitors that offer only one
service. Saturn is currently in the preliminary stages of discussions with
several telecommunications providers in the New Zealand market concerning
potential strategic partnership arrangements. There can be no assurances,
however, that Saturn will be able to conclude successfully any such
arrangements.
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<PAGE>
Programming. Saturn's programming strategy is to offer a wide variety of
high-quality channels at competitive prices. Saturn is currently offering a
single tier of service consisting of 21 channels and is currently negotiating
with a number of programming services to expand its channel offering. The
following is a list of the programming currently offered by Saturn in its
basic package:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
TV 1............................. general entertainment
TV 2............................. general entertainment
TV 3............................. general entertainment
Capital TV....................... general entertainment
Community Channel................ local news, events
CNN International ............... world news
Asia Business News............... Asian business news
Discovery........................ science and nature
NBC Superchannel................. general entertainment
TNT.............................. classic movies
Cartoon Network.................. children's cartoon programming
Trackside........................ TAB racing
Kidzone.......................... children's programming
Weather Channel.................. live weather from NZ MetService
Program Guide.................... programming line-up
TVSN............................. shopping
CMTV............................. country music video
RFO.............................. French general entertainment
NHK.............................. Japanese general entertainment
Elijah Television................ non-denominational religious programming
Worldnet......................... U.S. information service news and science
</TABLE>
In addition, in October 1996 Saturn entered into its first pay-per-view
licensing agreement with Columbia TriStar and expects to have agreements with
several other studios and to launch its pay-per-view services in the first
quarter of 1997.
Pricing. Saturn currently offers a single basic service package with 21
channels in Wellington at a monthly subscription rate of $23 with a one time
installation fee of $30 per subscriber. Sky TV ("Sky"), Saturn's primary
competitor, charges subscribers a monthly rate of approximately $36 for five
channels of programming with a one time installation fee of $35 per
subscriber. Saturn is currently offering new subscribers a promotional monthly
basic rate of $17 for the months from November 1996 to March 1997.
Marketing; Customer Support. Saturn's marketing strategy uses promotion
techniques proven in existing subscription television markets such as the
United States and Europe, including direct sales campaigns (door-to-door
selling), direct mail and telemarketing supported by a mass media brand
awareness program. Direct sales has proven to be the most effective technique
in other cable television markets, particularly in areas where multi-channel
television is in its introductory stage. Each of these techniques aims to
communicate the selling points of cable television: expanded choice, high
entertainment value and breadth of programming genre to potential subscribers.
Homes are released for marketing on a node by node basis as construction is
completed which allows a very targeted marketing program tailored to the
unique demographic profile of the territory and enables Saturn to capitalize
on the product awareness resulting from its construction efforts. Saturn's
sales strategy is designed to include an emphasis on telephony services (once
these can be offered) and to capitalize on the value, quality and customer
service advantages associated with bundled services. Saturn has established a
national customer services center at its corporate headquarters in Wellington.
All call management technology employed by Saturn is scalable 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.
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<PAGE>
Competition. There are currently three broadcast networks in New Zealand,
with plans for a fourth network announced. The largest provider of
subscription television services in New Zealand is Sky, which operates a five
channel scrambled UHF subscription television service. Although Sky offers a
popular sports channel on an exclusive basis, Sky does not currently offer the
programming diversity or television/telephony bundling that Saturn plans to
offer, services Saturn believes will drive its penetration. Sky has recently
announced, however, that for an installation fee of $420 it intends to offer
,a satellite service primarily targeted to rural areas of New Zealand that
currently are unable to receive Sky's UHF signal and which may enable it to
provide up to an additional five channels. Independent News Limited, which is
49% owned by News Corp., has recently announced that it is negotiating to
acquire a significant shareholding in Sky. In addition, Telecom New Zealand
("Telecom"), New Zealand's largest telecommunications service provider with
nearly a 100% share of local loop revenues, 75% of national and international
toll revenues and 90% of cellular revenues, has announced its intention to
rebuild certain of its existing networks using HFC technology, which will
allow it to offer video and data services to a total of approximately 70,000
homes in various parts of New Zealand, and that further expansion of its
network will depend on results of the initial roll-out. Telecom recently
activated the initial portion of its network in the Wellington area, which
passes approximately 2,000 homes. Telecom is also expected to be the primary
competition to Saturn's planned local loop telephony service.
Properties. Saturn has constructed a head-end facility on leased property in
Paraparaumu. Saturn leases office and warehouse facilities for its
headquarters in Petone, located north of Wellington, and additional office and
warehouse space on the Kapiti Coast. These leases have six and three year
terms, respectively, with six- and three-year renewal options, respectively.
Saturn also has a two-year lease for additional warehouse space in Petone.
Saturn has an option to acquire the Kapiti office premises.
Management and Employees. UAPC has appointed three of its employees to
senior management positions at Saturn, including Saturn's chief executive
officer, technical director and customer operations director. See
"Management." UAPC also provides technical, administrative and operational
assistance to Saturn. Saturn reimburses UAPC for all direct and indirect costs
associated with these services, including employee costs, as well as 5% of
Saturn's gross revenue through 1999.
As of September 30, 1996, Saturn had 113 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.
SUN CABLE (PHILIPPINES)
The Company holds a 40% economic interest in Sun Cable, the third largest
cable television operator in the Philippines with wire line cable television
systems in 15 markets that have a total of approximately 575,000 television
homes. Sun Cable is dedicating significant resources to the construction and
build-out of these franchise areas. Multi-channel television in the
Philippines is experiencing rapid growth due in part to the country's recent
economic growth, widespread proficiency of English and the high demand for
television and alternative entertainment services. Sun Cable is also exploring
the provision of telephony services over its networks, many of which are HFC.
At three lines per 100 persons, the Philippines' telephone penetration rate is
currently one of the lowest in the world. As of October 31, 1996, Sun Cable's
systems passed approximately 94,364 homes and had 33,837 subscribers,
representing a penetration rate of 36%. Due to limitations on foreign
ownership, the Company's interest in Sun Cable is held through the Sun Cable
Loan, which is convertible into a 40% equity interest in Sun Cable upon
certain events. See "Regulation--Philippines."
Market Overview. There are currently an estimated 7 million television
households in the Philippines, of which only 350,000 receive multi-channel
television services. The Company believes that the Philippine's improving
economy, evidenced by a 4.8% average GDP growth rate over the last three
years, will translate into an upward movement in demographics resulting in
increased spending capability. English is widely spoken in the country. With
the country's high television viewership and a general acceptance of Western
programming, the Company believes the Philippine multi-channel television
market has strong potential for continued growth.
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<PAGE>
Operating and Growth Strategy. Sun Cable has selected markets where
management believes it can be a major cable television provider. These markets
are generally among the country's top 50 population centers or, if not, are
strategic to Sun Cable's existing operating areas. Sun Cable has initiated or
is planning to initiate a rebuild and expansion program in each of its markets
involving, where feasible, the construction of HFC networks that will allow
the systems to offer telephony services. Sun Cable is also expanding its
existing networks and pursuing additional licenses and existing cable
television systems in selected markets.
Programming. Sun Cable offers a combination of English and local language
services. Sun Cable's systems generally provide 40 to 60 channels of
programming in a single basic tier of services. Sun Cable plans to introduce
in the near future one or more tiered premium services as well as pay-per-view
services. The following is a partial list of programming currently offered on
a typical Sun Cable system:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
Home Box Office....................... English language movies
ESPN International.................... sports
Discovery............................. documentary/educational
STAR Viva............................. Tagalog language movies
STAR Plus............................. general entertainment
CNN International..................... world news
TNT/Cartoon Network................... classic movies/cartoons
BBC World Service..................... international news and information
MTV................................... music videos
NBC................................... general entertainment
CNBC.................................. news and information
Asia Business News.................... news and information
</TABLE>
Pricing. The average subscription for Sun Cable's basic tier is
approximately $11.40 per month, with a one time installation fee of
approximately $19.
Marketing, Customer Support. Sun Cable's primary marketing focus has been on
increasing subscriber penetration levels through direct marketing efforts such
as door-to-door campaigns, national and local advertising, and tactical
promotions to increase customer base and loyalty. Sun Cable has established
direct sales teams in most of its markets, which account for approximately
three-fourths of the Company's sales. Sun Cable also has local and national
print campaigns. Sun Cable plans soon to implement a comprehensive training
program for its employees with an aim to promote customer care and service.
Competition. Because cable television licenses in the Philippines are non-
exclusive, many of the markets in which Sun Cable operates have more than one
operator providing service. In its more rural markets, Sun Cable is either the
only provider of multi-channel television services or is competing with
operating systems which management believes to be generally small and
undercapitalized. In several urban markets, representing a total of
approximately 300,000 homes, however, Sun Cable faces competition from one or
both of SkyCable and Home Cable, two national cable television multi-system
operators that are also consolidating smaller cable television systems into
their respective operating systems. In such markets, Sun Cable maintains its
competitiveness by pricing its product aggressively and by providing the
better picture quality that is available as a result of its generally higher
quality network and equipment.
Properties. Sun Cable leases various office and head-end space in all of the
markets in which it is currently operating.
Management and Employees. UAPC has appointed six of its employees to
management positions at Sun Cable, including Sun Cable's chief operating
officer and several technical and construction managers. See "Management."
UAPC and Sun Cable are parties to a Technical Assistance Agreement whereby
UAPC has agreed to provide technical, administrative and operation assistance
to Sun Cable encompassing the following areas: (i) engineering, design,
construction and equipment purchasing, (ii) marketing, selling and
advertising, (iii)
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<PAGE>
selection of programming and public relations, (iv) planning, acquisition and
monitoring information technology associated with subscriber management and
information systems, and (v) personnel management and training, for a fee of
the greater of 3% of Sun Cable's gross revenues or actual expenses for each
month, through February 24, 1998. UAPC pays UAPC's seconded employees'
salaries and benefits and charges Sun Cable for these amounts.
As of September 30, 1996, Sun Cable had 398 employees, of which 54 are
employed in construction activities.
XYZ (AUSTRALIAN PROGRAMMING)
Through its 25% interest in XYZ, the Company provides four channels (the
"XYZ Channels") of the eight channels which are distributed as the Galaxy
package, the most widely distributed programming package in Australia. The XYZ
Channels consist of the following:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<C> <S>
Discovery Channel......... documentary, adventure, history and lifestyle
programming
Nickelodeon/Nick at Nite.. children's educational, entertainment and
cartoons/family oriented drama and
entertainment
Red....................... music video with local presenters
Arena..................... drama, comedy, general entertainment,
programming, library movies
</TABLE>
XYZ provides the XYZ Channels to Continental Century Pay Television Pty Ltd.
(the "A Licenseholder"), which in turn, pursuant to long-term carriage
agreements, supplies them as part of the Galaxy package to Australis and its
franchisees and to Foxtel. The Galaxy package is available to the majority of
Australia's approximately six million television households, including all
households marketed via MMDS and DTH by Australis and its franchisees,
pursuant to a carriage agreement between Australis and the A Licenseholder
that has been warranted to XYZ as having a term through at least 2010. The XYZ
Channels are also distributed to Foxtel pursuant to a carriage agreement
between Foxtel and the A Licenseholder that has been warranted to XYZ as
having a term through 2020. XYZ's agreement with the A Licenseholder provides
for fixed per subscriber prices. The Company understands the carriage
agreement between the A Licenseholder and Foxtel provides for substantial
minimum subscriber guarantees. XYZ currently receives monthly revenues of
approximately $3.15 per MMDS or DTH subscriber and $4.15 per Foxtel
subscriber. ECT, an affiliate of the A Licenseholder, has guaranteed the
performance of all of the A Licenseholder's obligations to XYZ under this
agreement. As of October 31, 1996, the XYZ channels were distributed to
approximately 269,000 multi-channel television subscribers.
Operating and Growth Strategy. XYZ is an independently managed venture which
purchases programming for, edits, packages and transmits the XYZ Channels in
exchange for a monthly fee per subscriber. The Company and Century jointly
manage Arena; the Company, Century and Foxtel manage Red; and the Company and
Century, together with Nickelodeon Australia, Inc. ("Nickelodeon") manage the
Nickelodeon/Nick at Nite channel. Each of these three channels reports to a
board comprised of the Company, Century and Foxtel executives. The Discovery
Channel is managed by Discovery Asia and distributed by XYZ.
XYZ is focusing its marketing efforts on creating, building and supporting
channel identification and brand awareness. XYZ's goal is to acquire quality
programming that will engender viewer loyalty. In addition, when restrictions
on multi-channel television advertising expire in mid-1997, XYZ plans to offer
advertising on each of the XYZ Channels. XYZ also plans to create and
distribute two additional channels in 1997. See "Regulation--Australia--
Broadcast Services Act."
Acquisition of Programming. In July 1995, XYZ and Discovery Asia executed a
twelve-year exclusive carriage agreement whereby a localized version of the
Discovery Channel replaced the existing documentary channel developed by XYZ.
The Company believes that, as a result of this arrangement, XYZ will be able
to offer subscribers higher quality programming at a lower cost to XYZ.
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<PAGE>
XYZ and Nickelodeon, a division of Viacom, are jointly producing and
distributing an Australian version of Nickelodeon/Nick at Nite, which XYZ
began distributing in October 1995. XYZ pays a monthly per subscriber license
distribution fee that is shared equally by Nickelodeon and XYZ.
XYZ acquires programming and locally produces interstitials for, packages
and distributes Arena and Red. XYZ has acquired a two to three year supply of
programming for Arena at prices its management considers to be favorable. XYZ
is pursuing supply agreements and potential joint venture arrangements with a
number of other international programming suppliers. XYZ has non-exclusive
licenses with many of the world's largest record companies for music video
programming.
Properties. XYZ currently uses a portion of Foxtel's broadcasting facilities
located in Sydney. XYZ is currently negotiating with Foxtel terms of a four-
year lease for this facility. The Company believes this arrangement results in
operational cost savings. XYZ believes its facilities are sufficient for the
foreseeable future.
Employees. As of September 30, 1996, XYZ had 57 employees and the
Nickelodeon joint venture had 20 employees. The programming joint venture
between the Company and Century had 13 employees that provide management
services to XYZ.
TELEFENUA (TAHITI)
The Company has a 90% economic interest in Telefenua which operates a 15
channel MMDS service in a service area that, as of October 31, 1996, included
approximately 18,700 television homes. Telefenua is currently expanding its
network by selectively adding beam benders and repeaters that will allow its
signal to reach substantially all of the approximately 31,000 serviceable
homes in its franchise areas. Telefenua had 4,902 subscribers as of October
31, 1996, representing a 26% penetration rate. The Company is in the early
stages of negotiating the sale of all or a portion of Telefenua to a local
strategic investor, although there can be no assurance that the Company will
conclude such a transaction.
Market Overview. Tahiti and Moorea are the two largest and most populous
islands of French Polynesia, a self-governing territory of the Republic of
France. The French government contributes heavily to French Polynesia's
economy and approximately one-third of Tahiti's population is employed by the
national government. Television viewing alternatives are limited, but demand
for television is strong as demonstrated by the country's high television and
VCR penetration rates, 99% and 66%, respectively, and average per capita
television viewing of nearly four hours per day. Prior to late 1994,
television choice was limited to two government broadcast channels.
Operating and Growth Strategy. Telefenua is focusing on increasing its
penetration rates through continued direct marketing campaigns, including
door-to-door sales, and expanding its serviceable homes through select
deployment of beam benders and repeaters. Management is actively seeking to
expand its programming offering including the planned introduction of premium
movie services. Telefenua is also expanding its network by adding additional
beam benders and repeaters. The Company anticipates this expansion will be
completed over the next 12 to 24 months.
Pricing. The subscription fee for Telefenua's basic tier is approximately
$49 per month and the expanded tier monthly rate is approximately $65. To
date, nearly 99% of Telefenua's customers are subscribing to the expanded tier
of service. Telefenua also charges a one-time installation rate of
approximately $109.
Programming. Telefenua offers a combination of French and English language
services. Telefenua's current channel line-up consists of 15 channels
segregated into two tiers of service--a basic service with 12 channels and an
expanded tier with an additional three channels. Telefenua's basic tier offers
the two local broadcast channels as well as French language childrens',
sports, general entertainment and music channels and the English language CNN
International channel. Telefenua also offers a French/Tahitian language
program guide and plans to offer a local public access channel. The expanded
tier includes French language movies, a documentary channel and ESPN
International.
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With the exception of CNN International, ESPN International and the two
local broadcast channels, all programming consists of taped French satellite
services. Current French regulations require approval of the national
regulatory authority for all programming. The following is a list of
programming currently offered by Telefenua:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
------- -----------------
<S> <C>
RFO 1........................ government broadcast, general entertainment
RFO 2........................ government broadcast, general entertainment
CNN International............ world news
RTL.......................... general entertainment
Eurosport.................... sports
Canal J/Canal Jimmy.......... adult and childrens'
Serie Club................... general entertainment
Paris Premiere............... arts, life
MCM.......................... music video
M6........................... general entertainment
CMT.......................... country music video
Program Guide................ program guide service
Planete...................... documentary (expanded basic tier)
Cine Cinemas................. movies (expanded basic tier)
ESPN International........... sports (expanded basic tier)
</TABLE>
Marketing; Customer Support. Telefenua utilizes several marketing
techniques, proven in the U.S. multi-channel television industry, including
door-to-door, direct mail, and local media. The Company's customer service
center also conducts telemarketing campaigns and has opened sales boutiques in
high traffic areas throughout Tahiti and Moorea. Marketing campaigns consist
of selected promotions targeting specific demographic groups throughout the
year and new markets as they are activated. Telefenua's customer service
center is located at its corporate headquarters. The center handles all
customer inquiries, coordinates installations and manages all maintenance
activities.
Competition. Telefenua's only subscription television competitor is Canal
Plus, which offers a single channel UHF service offering a combination of
sports, movies and general entertainment programming. The Company estimates
that Canal Plus had approximately 3,800 subscribers, of which an estimated
1,000 are also customers of Telefenua. The monthly subscription fee for Canal
Plus' service is approximately equal to the subscription fee for Telefenua's
15-channel expanded tier service. There is no existing competition in Tahiti
from DTH services due to limited satellite coverage in the region and lack of
available satellite delivered French language programming.
Properties. Telefenua owns office space in Punaania, Tahiti. This facility
also contains the customer service center and the head-end equipment for the
system, including equipment for the receipt of satellite delivered programming
and local broadcasts as well as play-back of taped programming. Telefenua
compiles its 15-channel service at this facility and then transmits from its
MMDS broadcast tower located on the island of Moorea.
Management and Employees. UAPC and SFCC are parties to a Technical
Assistance Agreement, whereby UAPC has agreed to provide technical,
administrative and operational assistance to SFCC. SFCC has a similar
technical assistance agreement with Telefenua under which it makes available
to Telefenua UAPC's services encompassing the following areas: (i)
engineering, design, construction, and equipment purchasing, (ii) marketing,
selling and advertising, (iii) accounting, billing and subscriber management
systems, and (iv) personnel management and training for a fee equal to 5.5% of
Telefenua's gross revenue through the end of 1996, 3.5% of gross revenue for
the following 12 months, and 2.5% thereafter. The fees payable to UAPC under
its Technical Assistance Agreement with SFCC are 5%, 3% and 2% of Telefenua's
gross revenues over the same
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periods. UAPC is also reimbursed for all direct and indirect costs associated
with the services it provides. UAPC has appointed two of its employees to
serve as managing director and technical director of Telefenua. See
"Management." UAPC pays these employees' salaries and benefits and charges
Telefenua for these amounts. The total amount accrued as of September 30, 1996
payable to UIH under the Technical Assistance Agreement is $1.9 million.
As of September 30, 1996, Telefenua had 41 employees.
UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
The Company owns a 100% economic interest in United Wireless, a provider of
two-way wireless mobile data services in Australia. Wireless data networks
provide for the two-way transmission of packet switched data between a
customer's terminal and a host computer. The transmission of wireless data
occurs over a network, similar in configuration to a cellular telephone
network, which is constructed and maintained by a local network carrier, such
as United Wireless.
Background. In September 1995, the Company acquired a 100% interest in
BellSouth Mobile Data Australia Pty Limited which was renamed United Wireless.
United Wireless is in the second phase of its network deployment in the major
metropolitan markets of Australia. United Wireless' network is based on the
"Mobitex" technology, developed by Ericsson and Swedish Telekom and launched
in 1984. Today, there are 15 operational Mobitex wireless data networks
deployed throughout Europe, North America and the Asia/Pacific region.
Market Overview. The Australian wireless mobile and fixed data industry is
in an early stage of development. Wireless data services were first introduced
in Australia in 1992 by United Wireless' predecessor. Today, there are two
public wireless data carriers in Australia with a total estimated installed
base of 6,000 customer terminals.
Operating and Growth Strategy. United Wireless is aggressively expanding its
network coverage areas to encompass the metropolitan markets of Adelaide,
Brisbane, Canberra, the Gold Coast, Melbourne, Perth and Sydney. The Company
plans on spending approximately $3.7 million for network construction and
working capital needs through 1998.
Marketing and Customers. United Wireless' target market includes large
companies with significant potential installed bases, such as utilities,
security alarm firms, commercial banks, transport companies, and courier and
delivery companies. Management believes that the most expeditious and
economical approach to building an installed customer terminal base is to
target its efforts on securing these large corporate accounts. Specific
applications that United Wireless plans to target include: remote order entry
(e.g., sales persons and couriers), credit and debit card validation, remote
meter reading for utilities, security monitoring and vending machine inventory
monitoring.
Revenue and Pricing. The majority of United Wireless' revenues are derived
from monthly access fees charged on a per terminal basis. The average customer
pays a monthly rate of $25 per terminal.
Sales. United Wireless utilizes a network of systems integrators that act as
the primary interface with potential customers. These systems integrators
develop specific customer applications which utilize the Mobitex wireless
network for transmission of data. United Wireless works closely with these
systems integrators providing technical, marketing and other general sales
support.
Competition. United Wireless competes primarily with Telstra Wireless Data,
a subsidiary of Telstra, whose wireless data network was developed by
Motorola. The Company estimates Telstra Wireless Data has an installed base of
approximately 5,250 customer terminals.
The Company believes that the Mobitex network provides certain competitive
advantages over other operating platforms including: (i) superior transmission
quality; (ii) broader redundancy capabilities; (iii) larger base station
coverage areas; (iv) lower maintenance and support requirements; and (v) a
greater array of proven application solutions.
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Properties. United Wireless leases corporate office space in Sydney and has
a leased regional sales office in Melbourne.
Employees. As of September 30, 1996, United Wireless had 12 employees.
HITV (CHINA)
The Company owns a 49% interest in HITV, a joint venture with the Broadcast
Bureau of Hunan Province which owns the remaining 51%. HITV owns and operates
a microwave relay network (the "HITV Network") that currently delivers one
television broadcasting channel to cable television systems in 14 cities
throughout the Hunan Province. While the Chinese government is actively
encouraging the development of the country's telecommunications
infrastructure, majority foreign ownership of such communications systems is
not allowed at this point.
The Company has agreed to invest up to $6.6 million which will be used to
rebuild and upgrade the HITV Network to a digital system with expanded
transmission capacity. As of September 30, 1996, the Company has already
invested $6.0 million in HITV. The capital was used for the HITV Network's
rebuild and expansion, which is scheduled to be completed in late 1996.
Upon completion of the HITV Network, HITV plans to deliver additional
television programming services to cable systems in the Hunan Province in
exchange for an agreed upon yearly fee per cable system subscriber. In
addition, HITV has the right to receive 30% of all domestic advertising
revenues generated through the HITV Network and 70% of all international
advertising revenues generated through the HITV Network. HITV plans to use the
HITV Network for the provision of additional data and voice services as and
when government regulations in China allow such services.
DEVELOPMENT OPPORTUNITIES
The Company is actively engaged in the origination and development of new
opportunities to construct, acquire or distribute multi-channel television
systems and services in newly emerging markets throughout Asia and the
Pacific. The Company intends to use a portion of the net proceeds from the
Offerings to fund its development opportunities. See "Use of Proceeds."
The following table summarizes in alphabetical order the Company's multi-
channel television development opportunities in those countries of its current
primary focus.
<TABLE>
<CAPTION>
HOMES IN TARGETED
COUNTRY SERVICE AREA STATUS OF PROJECT
------- ----------------- ----------------------------------------------------
<C> <C> <S>
China N/A The Company has executed letters of intent with
local partners and/or government authorities in
several markets in China to form joint ventures to
own and operate communications and media businesses.
India 750,000 The Company is in discussions with two of the newly
licensed fixed wire telecom operators concerning the
creation of a joint venture that would own and
operate integrated networks in each of the
licensee's respective franchise areas.
Japan 500,000 The Company is in discussions with a local partner
for the formation of a nation-wide multi-channel
television and telecommunications joint venture in
Japan.
Taiwan 350,000 The Company is currently negotiating with one of
Taiwan's largest cable operators to form a nation-
wide MSO to pursue cable television system
consolidation activities.
</TABLE>
In addition to the development projects listed above, the Company is
pursuing other multi-channel development opportunities in Indonesia and
Malaysia.
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<PAGE>
China. In addition to its interest in HITV, the Company is pursuing other
activities in China. The Company has executed letters of intent with
government agencies in several provinces throughout China, including the
Guangdong, Fujian, Zehjiang, and Jiangsu provinces, to establish joint
ventures to own and operate microwave relay networks similar to that being
developed by HITV in Hunan Province. The Company is also pursuing other multi-
channel television and telecommunications-related projects in China.
India. There are 45 million television households in India and over 50,000
small cable television operators serving an estimated 15 million customers.
The Company believes the growth of small-scale cable television systems has
resulted from the recent availability of satellite programming and the
increasing awareness and demand for multi-channel television. Over 250 million
of India's 900 million people are estimated to be part of the growing middle
class whose economic and social progress have created what the Company
believes to be an excellent opportunity for the development of modern
communications systems and services. The Company is in discussions with two of
the newly licensed fixed wire telecom operators concerning the creation of a
joint venture that would own and operate integrated networks in each of the
licensee's respective franchise areas.
Japan. Japan, a country of 42 million television households, with high
television and VCR penetration rates, is an attractive market for development
of multi-channel television projects. Until recently, Japan's pay television
growth was constrained by a regulatory framework which limited the creation of
multiple system operators and discouraged foreign investment. The Company
believes that new legislation which permits the creation of MSO's, allows for
direct foreign investment of up to 33% and permits the delivery of voice
services over video networks will result in rapid growth in the Japanese pay
television market. The Company is in discussions with a local partner for the
formation of a nation-wide multi-channel television and telecommunications
joint venture in Japan.
Taiwan. Taiwan, a country with existing multi-channel television penetration
of over 60%, is currently undergoing nation-wide system consolidation as a
result of recently enacted legislation. Taiwan's demographics are attractive
for continued multi-channel television growth, with GDP per capita of $14,300
and VCR penetration of 65%. Today, the majority of operators deliver a single
tier of service. The Company is in discussions with a local cable operator to
form a nation-wide MSO to pursue cable television system consolidation
activities. The Company anticipates the MSO, if formed, would focus on quickly
acquiring existing independent operators, rebuilding their networks and
subsequently delivering a broader variety and choice of programming through
tiered services.
TECHNOLOGIES EMPLOYED BY THE COMPANY
The Company currently uses three principal transmission technologies in the
deployment of its multi-channel television services in Australia, New Zealand,
the Philippines and Tahiti. These technologies are: (i) microwave multipoint
distribution systems (MMDS or wireless cable); (ii) DTH satellite broadcast
services; and (iii) wireline cable, or CATV, the technology with which multi-
channel television services are most frequently delivered in the United
States. The Company has carefully evaluated the characteristics of the markets
in which it is currently operating or planning to operate multi-channel
television systems and has chosen what it believes to be the most appropriate
transmission technology for each.
MMDS is a microwave distribution system for which frequency bands are
utilized for transmission of the programming services. MMDS signals originate
from a head-end facility, which receives satellite-delivered programming
services and delivers such programming via an encoded microwave signal from
transmitters located on a tower or on top of a building to a small receiving
antenna located at a subscriber's premises, where the microwave signals are
decoded. MMDS transmission requires a clear line-of-sight because microwave
frequencies will not pass through obstructions; however, many signal blockages
can be overcome through the use of low power signal repeaters which retransmit
an otherwise blocked signal over a limited area. The initial construction
costs of a MMDS system generally are significantly lower than a wireline cable
or DTH system. The Company is using MMDS transmission technology in Australia
and Tahiti, where housing density and topography make MMDS the most cost
effective technology.
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<PAGE>
DTH transmits encoded signals directly from a satellite to a subscriber's
premises, where it is decoded. Currently in Australia, all DTH subscription
television services are transmitted via the Optus Satellite using High
Performance Beams ("HP Beams") covering certain geographic areas (commonly
referred to as a satellite "footprint"). All of Austar's franchise areas are
within the Optus Satellite footprint. Since this signal will be transmitted at
a high power level and frequency utilizing MPEG II digital technology, its
reception can be accomplished with a relatively small (26-35 inch) dish
mounted on a rooftop or in the yard for the households located within the
innermost satellite transmission "footprint" and with a slightly larger (35-47
inch) dish for the households located outside the innermost footprint. Austar
is using DTH transmission technology for homes in its MMDS markets that are
not reachable by its MMDS signals as well as for homes in its franchise areas
where household densities do not support the construction of MMDS systems. Due
to satellite coverage limitations, DTH service is currently not available in
New Zealand or Tahiti, although Sky has recently announced plans to start
delivering services to New Zealand by satellite.
A wireline cable television system is a network of coaxial or fiber-optic
transmission cables through which programming is transmitted to a subscriber's
premises from the system's head-end facility, which receives satellite and
tape-delivered programming. Wireline cable television offers a wide bandwidth
that generally allows the transmission of a larger number of channels than
MMDS. When constructed with a HFC network, as the Company plans to do in New
Zealand and the Philippines, the system's infrastructure can be used to
deliver telephony and data services. The primary disadvantages of a wireline
cable network are the higher costs of construction, especially in areas of low
housing density, and the length of time required to construct the network. The
Company is constructing wireline cable systems in New Zealand and the
Philippines and, due to topography and housing densities, is constructing a
wireline cable system in one market in Australia.
EMPLOYEES
Prior to the Offering, UAPC had no employees. Historically, UAPC was
operated by employees of UIH. In connection with the Offering, approximately
35 Company personnel currently employed by UIH will become employees of UAPC.
UAPC supplies in turn certain employees to Austar, Saturn, Sun Cable and
Telefenua pursuant to Technical Assistance Agreements with such operating
companies. UIH and UAPC are parties to the UIH Management Agreement pursuant
to which UIH will continue to provide certain administrative services
necessary for UAPC and its subsidiaries. See "Relationship with UIH and
Related Transactions."
LEGAL PROCEEDINGS
Other than as described below, the Company is not a party to any other
material legal proceedings, nor is it currently aware of any other threatened
material legal proceedings. From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal
course of its business.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The French Polynesian's challenge to France's
authority to award Telefenua an MMDS license in Tahiti was upheld by the
Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. A law recently enacted by the French
Parliament gives Telefenua a statutory basis for seeking a new authorization
from the communications agency, should the existing authorization be
nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorization. There can be no
assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Risk Factors--Challenge to Telefenua
Authorization."
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<PAGE>
An individual who claimed to have worked with UIH in connection with the
acquisition by Austar of certain of its licenses has claimed that UIH owes him
a 12.5% equity interest in unspecified subsidiaries of UIH in consideration of
services purportedly provided. This complaint, which was filed on April 24,
1996 and served on UIH in October 1996 and is pending in a civil court in
Melbourne, Australia, seeks an unspecified amount of damages. UIH intends
vigorously to defend these claims, which the Company believes are without
merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision
from using such infrastructure to deliver DTH services in Austar's franchise
area. Austar believes that the use of the infrastructure by any entity other
than Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which
granted Austar an exclusive license and franchise to use the infrastructure
within its franchise areas. Austar is seeking injunctive relief or, in the
alternative, damages associated with this violation of its franchise
agreements. See "Business--Austar (Australia)--Franchise Agreements, --
Competition."
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<PAGE>
REGULATION
AUSTRALIA
Australia is a Federal jurisdiction. The Federal Government of Australia has
exclusive jurisdiction with respect to certain matters enumerated in
Australia's constitution while the States and Territories of Australia have
residual power over all other matters. The provision of subscription
television services is regulated by the Federal government under various
Commonwealth statutes. In addition, State and Territory laws, including
environmental and consumer contract legislation, may impact the construction
and maintenance of a transmission system for subscription television services,
and the content of those services, as well as on various aspects of the
subscription television business itself.
The Australian regulatory framework distinguishes between the regulation of
the subscription television services themselves and the regulation of the
facilities used to transmit those services. The BSA, which is a Federal
statute, regulates the provision of subscription broadcasting and subscription
narrowcasting services in Australia, and certain aspects of the content and
satellite transmission of those services. Narrowcasting services are services
available to special interest groups or which target particular audiences and
are provided pursuant to class licences. Subscription broadcasting services
provide programmes of appeal to the general public (as opposed to those which
target particular audiences) and require an individual licence for each
service.
The transmission facilities used to provide these services are principally
regulated by the Radiocommunications Act and the Telecommunications Act. The
Radiocommunications Act commenced on 1 July 1993 and regulates the use of MMDS
transmission, the radio frequency spectrum and the spectrum used by satellite
operations. The Telecommunications Act commenced on 1 July 1991 and regulates
the provision of telephony services, and the use of DTH and cable services.
BROADCASTING SERVICES ACT
Overview. The BSA regulates the ownership and operation of television and
radio services in Australia. It applies to all categories of television and
radio services, whether those services are broadcasting or narrowcasting;
television or radio; national, community, commercial or subscription;
transmitted via cable (fiber-optic or coaxial), DTH, MMDS or any other means
or a combination of those means of transmission.
The Australian Broadcasting Authority ("ABA") may at any time alter the
criteria for the categories of broadcast services; however, an operator
wishing to determine the appropriate category for a service may obtain an
opinion from the ABA. For a period of five years after the date of such an
opinion, neither the ABA nor any other Australian government agency may take
any action against the provider of the service alleging that such service
falls into a category other than the category referred to in the opinion;
provided that the circumstances relating to the broadcasting service remain
substantially the same as those specified in the application for the opinion.
Subscription Television Broadcasting Services. The BSA regulates
subscription television broadcasting services by requiring each service to
have an individual license. Non-satellite broadcasting licenses are issued by
the ABA on receipt of a written application and fee and a satisfactory report
from the Australian Competition and Consumer Commission ("ACCC") that the
grant of the license would not substantially lessen competition. The ACCC's
report must set out its opinion regarding whether the granting of the
Broadcast License to the applicant (i) would constitute a contravention of
Section 50 of the Trade Practices Act ("TPA") if the allocation of the license
were the acquisition by the applicant of an asset of a body corporate or (ii)
would not be authorised under Section 88 of the TPA if the applicant had
applied for such an authorisation.
Section 50 of the TPA prohibits acquisitions of the shares or assets of a
corporation which would have the effect or would be likely to have the effect
of substantially lessening competition in a relevant market. Section 88
relates to the procedure whereby such acquisitions can be authorised by the
ACCC if they result in, or are likely to result in, such a benefit to the
public that the acquisition should be allowed to take place.
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In addition, the ABA must also determine whether the applicant is suitable
to hold a subscription television broadcasting license under the BSA pursuant
to certain enumerated factors. An applicant will be deemed a "suitable"
Subscription Broadcast licensee unless the ABA determines that granting such a
license to the applicant would lead to a significant risk of the contravention
of the BSA or breach of the license conditions. Section 98(3) of the BSA sets
out factors which the ABA is required to take into account in assessing such
risk. Austar is not aware of any existing circumstances that would affect its
suitability to be a licensee.
Companies associated with STV and CTV hold approximately 100 non-satellite
subscription television broadcasting licenses. These licenses, together with
Austar's MMDS licenses, enable Austar to provide subscription television
broadcasting services by MMDS in its franchise areas.
Each broadcasting license is issued subject to certain conditions,
including: (i) advertisements are prohibited until July 1997; (ii) cigarette
or other tobacco product advertising is prohibited; (iii) subscription fees
must be the predominant source of revenue for the service, even after
advertisements are permitted; (iv) the licensee must remain a "suitable"
licensee under the BSA; (v) if the licensee provides a service devoted
predominantly to drama programs, the licensee must ensure that at least 10% of
its annual programming expenditure relates to new Australian drama programs;
(vi) customers must have the option to rent domestic reception equipment and
must have the ability to terminate the rental agreement on one month's written
notice to the licensee; and (vii) the licensee must comply with provisions of
the BSA relating to anti-siphoning and the broadcasting of R-rated materials.
The ABA may vary or revoke license conditions or may, by written notice,
specify additional conditions.
The BSA also provides for the issuance of three satellite licenses for DTH
service and prohibits the ABA from issuing before July 1997 any other license
for delivery of DTH service. Each DTH Satellite license is subject to certain
additional conditions, including that: (i) the licensee must use the Digital
Transmission Standard (as part of that standard, satellite reception equipment
must be capable of Australian manufacture); (ii) domestic reception equipment
used by the licensee must be accessible by other satellite broadcasting
services at a fair price; (iii) the licensee's subscriber management system
must provide access to that system to other subscription television
broadcasting licenses at a fair price; and (iv) if the ABA is directed by the
Australian Minister for Communications and the Arts (the "Minister") to
include such a condition, Australian industry must be adequately involved in
the provision of services under the license.
While Austar has been granted a license and franchise by Australis to market
DTH services for two satellite license holders and XYZ supplies programming to
one satellite license holder, the DTH services are provided by those satellite
license holders and the conditions of the satellite licenses do not directly
apply to either Austar or XYZ. Material non-compliance by a satellite license
holder with conditions of its license, however, could have a material adverse
effect on Austar or XYZ. See "Risk Factors--Ability to Procure Additional
Programming Services."
Foreign Ownership. Foreign ownership of "company interests" of subscription
television broadcasting licensees is limited to 20% by a single foreign person
and an aggregate of 35% by all foreign persons. "Company interests" under the
BSA include a beneficial entitlement to, or an interest in, shares of the
company, i.e., exercising control of votes at a shareholders meeting, having a
beneficial entitlement to a dividend, a share of profits under the company's
memorandum and articles of association or shareholder distributions upon
liquidation or otherwise. "Foreign person" means (i) a natural person who is
not an Australian citizen or (ii) a company wherever incorporated, where non-
Australian citizens hold company interests in the company exceeding 50%; or
(iii) a company, wherever incorporated, where (a) a company referred to in
(ii) or (b) natural persons who are not Australian citizens and a company
referred to in (ii), hold company interests in the company exceeding 50%.
Company interests can be traced through a series of companies in order to
determine levels of foreign ownership in accordance with a formula specified
in the BSA. Currently, UAPC's indirect interests in the companies that hold
the licenses are in the form of debentures and not company interests under the
BSA. See "--Foreign Acquisition and Takeovers Act" and "Corporate
Organizational Structure--Austar."
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Cross-Media Ownership. Subject to the following there are no provisions in
the BSA limiting the interest that an existing media owner may have in the
operator of a Narrowcast service, a subscription radio broadcast service or a
non-satellite Subscription Broadcast service. In relation to the last category
of service, however, the ABA is obliged to monitor the cross-media ownership.
The BSA restricts the level of cross-media ownership and control of
Satellite Licensee A. Under applicable rules, a defined media owner may not
hold more than 2% of the company interests of, or control or be in a position
to control, Satellite Licensee A prior to 1 July 1997. Defined media owners
include persons who control large circulation newspapers, telecommunications
carriers and commercial television licensees. Further, Satellite Licensee A
and Satellite Licensee B cannot hold more than 2% of total company interests
in each other or control, or be in a position to control, each other prior to
1 July 1997.
Broadcasting Adult Materials. A subscription television broadcasting
licensee may not broadcast R-rated material ("restricted to persons over
eighteen years of age" as determined by the Office of Film Literature
Classification) programming until the ABA has completed an extensive survey on
community standards on taste and decency in relation to classifications for
subscription television and on what levels of violence and depiction of sex
should be allowed, and has recommended, and the Federal Parliament has
approved, the broadcast of programs in that category.
While the ABA has completed its survey and has recommended that R-rated
programming should be available to subscription broadcasting television
subscribers, subject to certain controls, Parliament has not approved the
recommendation. A Senate (upper house) committee issued a unanimous report in
February 1995 recommending an extension of the existing moratorium banning R-
rated movies from subscription television. The Senate committee also
recommended that the Australian Government revise the R-rating system (which
is somewhat different than the R-rating system in the United States), creating
one version for movies and another, censored version for video and
subscription television. The Minister has yet to submit a proposal regarding
the transmission of R-rated programming to Parliament.
The Company is unable to predict the Minister's recommendations or their
likely effect on Austar or XYZ. A change from the current prohibition on R-
rated material may enable subscription television service providers, such as
Austar, or programmers, such as XYZ, to provide or produce a broader range of
services than is currently permitted. If Parliament approves the broadcast of
R-rated programs, the BSA also imposes a condition that the licensee must
ensure that access to programs classified as R-rated may be restricted by
disabling devices acceptable to the ABA.
Anti-Siphoning. The BSA prohibits subscription television broadcasting
licensees from obtaining exclusive rights to events of national importance or
cultural significance that have traditionally been shown on free-to-air
television. The prohibition applies to any event that the Minister has
specified on the "anti-siphoning list" unless a national broadcaster or
commercial television broadcasting licensee (whose services cover more than
50% of the Australian population) has the right to broadcast that event. To
date, the anti-siphoning list contains only sports of interest to Australians
including certain Rugby League, Rugby Union and Australian Rules football
matches, cricket matches, the English FA cup final and World Cup soccer
matches, the Australian National Basketball League finals, certain national
and international golfing events and tennis matches, all for a period of ten
years. The Minister may add or remove events from the anti-siphoning list.
Australian Content. The BSA requires any subscription television
broadcasting service predominantly devoted to drama programs to devote at
least 10% of its annual program expenditures to new Australian drama programs.
Based on its discussions with government regulators, Austar believes the
programming it distributes currently complies with these provisions. The BSA
requires the Minister to conduct a review of Australian content before July
1997, including the feasibility of increasing this percentage to 20%. The new
government has indicated that this review should consider whether Australian
content requirements should be extended to non-drama services.
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LICENSES
Radiocommunications Act. The Radiocommunications Act regulates the use of
the radio spectrum in Australia, including the issue and use of MMDS apparatus
licenses and the grant of spectrum licenses. Apparatus licenses authorize the
licensee (and certain persons authorized by the licensee) to operate specified
radiocommunications devices. The apparatus licenses issued to Austar authorize
the operation of radiocommunications transmitters at each of Austar's MMDS
systems and permit the transmission of signals over specified frequencies to
Austar's subscribers. As of the date hereof, the government has not issued any
spectrum access licenses.
General conditions apply to each MMDS license, including conditions that
apparatus licensees and operators of devices comply with the
Radiocommunications Act and its conditions, and meet all obligations under
that Act. MMDS licenses of the type held by Austar are further restricted by
conditions including operating on specified frequencies and operating
consistently with the frequency band plan, without the likelihood of
interference. The Spectrum Management Agency ("SMA"), the government agency
established under the Radiocommunications Act to manage the radio frequency
spectrum, may at any time impose new conditions or revoke or vary them with
respect to individual licenses. See "Risk Factors--Government Regulations;
License Renewal."
Each apparatus licensee may, within six months before an apparatus license
is due to expire, apply to the SMA for renewal. Licenses bear the following
notation with respect to renewal:
Issue of the Licenses for a further period is not and cannot be
automatic due to changing community demands on the radio frequency
spectrum. Every reasonable effort will be made to give adequate notice
of any intention not to renew the Licenses or any changes to any
conditions placed on the Licenses. The Minister, the Spectrum
Management Agency, the Commonwealth of Australia or its officers,
servants or agents accept no liability for costs due to refusal to
renew the license or changes to any of the conditions placed on the
license.
If the SMA decides to refuse to renew a license, it must notify the licensee
in writing of its reasons for doing so. That decision is then reviewable by an
administrative appeals body. In deciding whether or not to renew an apparatus
license, the SMA must consider the effect on radiocommunications of the
proposed operation of the radiocommunications devices that would be authorized
under the relevant apparatus license. The SMA may not issue an apparatus
license that is inconsistent with the spectrum plan or any relevant frequency
bank plan. On renewal, an apparatus license will remain in force, unless
canceled or suspended on an earlier date, for the period specified in the
apparatus license, which may be a period of up to five years.
The Radiocommunications Act provides that the SMA may cancel or suspend an
apparatus license if it is satisfied that the licensee or a person authorized
by the licensee to operate a radiocommunications device has violated the terms
of the license or the Radiocommunications Act or any other law. The
Radiocommunications Act does not prohibit the sale of shares in a company that
holds an apparatus license.
The Radiocommunications Act provides for the preparation of plans for the
conversion of existing apparatus licenses into spectrum licenses. The SMA is
required to prepare conversion plans at the direction of the Minister, but, as
at the date hereof, no conversion plans have yet been announced. When
conversion occurs, spectrum access charges may be payable to the SMA. In
determining the spectrum access charges payable on conversion, consideration
may be given to the basis on which a particular license was issued, for
example, whether it was issued pursuant to a price-based process (like an
auction) or by administrative allocation. The SMA has not made any
declarations or issued any guides setting out the basis for calculation of
spectrum access charges for licenses.
The principal differences between apparatus licenses and spectrum licenses
relate to subject matter, term and renewal/reallocation. Both apparatus and
spectrum licenses are transferable subject to the terms of the
Radiocommunications Act and as may be determined by the SMA. Apparatus
licenses authorize the licensee to
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<PAGE>
operate specified radiocommunications devices such as MMDS transmitters and
repeaters. Spectrum licenses are expected to emphasize the ability of a
licensee to use a part of the radiowave spectrum (defined by frequency and
geographic location) rather than operate a specifically identified
radiocommunications device. MMDS spectrum licenses may have a term of up to
ten years, but will not necessarily be reissued to the same licensees.
Instead, MMDS spectrum licenses will be reallocated under a price based tender
process at the end of their term unless the SMA is satisfied that special
circumstances exist as a result of which it is in the public interest for the
same licensees to continue to hold the spectrum licenses or the Minister
determines that it is in the public interest that the MMDS spectrum licenses
be reissued to the same licensees. See "Risk Factors--Government Regulations;
License Renewal."
TELECOMMUNICATIONS ACT
The Telecommunications Act regulates the use of telecommunications
facilities to supply telecommunications services. Telstra and Optus have the
right to install and maintain facilities (for example, wireline cable) and,
therefore, are expected to be the primary providers of cable and satellite-
based facilities and carriage services on these facilities. Non-carriers, such
as CTV and STV, can use carriage services provided by such carriers to provide
telecommunications services to others and can also install and maintain
facilities for the provision of subscription television broadcasting services.
Non-carriers must comply, however, with the Eligible Service Providers Class
License under the Telecommunications Act, including technical and operational
standards, provision of eligible services, prevention of the supply of
eligible services for illegal purposes and use of telecommunications networks
for unlawful purposes.
The Telecommunications Act permits a provider of subscription television
services, such as Austar, to install and maintain a wireline cable network for
the purposes of providing multi-channel television services. Other services,
such as telephony, cannot currently be provided over the wireline network, but
this is expected to be allowed after July 1997.
Foxtel and Optus Vision, general carriers, have constructed wireline cable
networks. Under a direction issued by the Minister, Foxtel, Optus Vision and
their associates would be obliged to comply with interconnection and non-
discriminatory access principles similar to those applicable to common
carriers in Australia. Such direction provides, however, for a limited
exemption from this access regime in relation to connection of subscription
television broadcasting services to their respective networks until July 1997.
The Minister under the Labor Government (in power from 1983 until March 1996)
has stated that this exemption may continue until 1999 if there is
"appropriate competition" in the delivery of subscription television
broadcasting services using cable transmission. The new Government's policy
principles issued in January 1996, however, indicate that they will not grant
this extension.
The Australian government has publicly stated its intention to increase
deregulation and competition in the telecommunications industry. The Company
understands that Telecommunications Act will be amended so that additional
carrier licenses can be issued from 1 July 1997.
FOREIGN ACQUISITIONS AND TAKEOVERS ACT
The FATA requires (i) any natural person not ordinarily resident in
Australia, or (ii) any corporation or trustee of a trust estate in which a
natural person not ordinarily resident in Australia or a foreign corporation
(being a corporation organised outside Australia) holds a substantial interest
(defined below) or in which two or more such persons or foreign corporations
hold an aggregate substantial interest (defined below), who proposes entering
into an agreement by virtue of which the person, corporation or trustee will
acquire or increase a substantial interest in an Australian corporation to
notify the Treasurer of its intention to do so. The person, corporation or
trustee may then only enter the proposed transaction if (a) the Treasurer
advises that the Commonwealth Government has no objection to the transaction;
or (b) the Treasurer has made no order prohibiting the transaction and the
person, corporation or trustee has received no advice referred to above after
40 days have elapsed following the giving of the notice to the Treasurer.
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The Treasurer may make an order prohibiting the transaction if he or she is
satisfied it would result in foreign persons or different foreign persons
controlling the corporation and that result would be contrary to the national
interest. Alternatively, the Treasurer may advise that the Commonwealth
Government has no objection to the transaction, provided that the person,
corporation or trustee complies with specified conditions. If the Treasurer
specified conditions in connection with the non objection, the person,
corporation or trustee entering into the transaction, must comply with such
conditions.
A person is taken to hold a "substantial interest:" (a) in a corporation, if
the person, alone or together with any associates (as defined, in the FATA),
is in a position to control not less than 15% of the voting power in the
corporation or holds interest in not less than 15% of the issued shares in the
corporation; or (b) in a trust estate, if the person alone or together with
any associates (as defined), holds a beneficial interest in not less than 15%
of the corpus or income of the trust estate. Two or more persons are taken to
hold an "aggregate substantial interest;" (c) in a corporation, if they,
together with any associates (as defined), are in a position to control not
less than 40% of the voting power in the corporation or hold not less than 40%
of the issued shares in the corporation; or (d) in a trust estate, if they
together with any associates hold in the aggregate beneficial interests in not
less than 40% of the corpus or income of the trust estate. Where a trustee has
power or discretion under the terms of a trust as to the distribution of
income or corpus of the trust estate to beneficiaries, each beneficiary is
taken for the purpose of paragraphs (b) and (d) above to hold a beneficial
interest in the maximum percentage of income or corpus of the trust estate
that the trustee is empowered to distribute to that beneficiary.
The circumstances in which a person is taken to hold an interest in a share
are widely described in the FATA and, without limitation, include having a
legal or equitable interest in the share, having entered into a contract to
purchase the share or an option over the share, or an interest in the share,
or having the right to vote the share. Voting power is determined by reference
to the right to vote at an annual general or extraordinary meeting of the
corporation and not by reference to the right to appoint or elect directors.
The right of a company to nominate and vote for the election of directors is
not voting power expressly limited by the FATA. See "Corporate Organisational
Structure--Australia--Austar." Such Act also provides that, for the purposes
of such Act, a holder of a substantial interest or holders of an aggregate
substantial interest (including any such interest held by other applications
of the relevant provision) in the corporation or a trust estate which is in a
position to control any voting power in another corporation or holds interests
in shares in another corporation or in another trust estate shall be taken to
be in the position to control such voting power in the other corporation or to
hold such interests in the other corporation or in the other trust estate, as
the case may be.
Voting power is determined by reference to the right to vote at an annual
general or extraordinary general meeting of the corporation and not by
reference to the right to appoint or elect directors. The right of a company
to nominate and vote for the election of directors is not voting power
expressly limited by the FATA. See "Corporate Organizational Structure--
Austar."
The FATA also regulates certain other transactions, such as altering a
constituent document of an Australian corporation or entering into an
arrangement in relation to an Australian business. The FATA does not require,
however, compulsory notification of those transactions. If the Treasurer is
satisfied that (a) a transaction falls within the description regulated by the
FATA, (b) the result of the transaction is that one or more foreign persons or
different foreign persons would control the Australian corporation, and (c)
that the result would be contrary to the national interests, then the
Treasurer may make any order to restore the control of the corporation as
closely as possible to the position in which it was immediately prior to
giving effect to the relevant transaction.
While notification of those other transactions is not required, there is a
procedure for voluntarily notifying the Treasurer of those transactions. If
the Treasurer advises that the Commonwealth Government has no objection to the
transaction or does not prohibit the transaction or respond to the
notification within a period of 30 days, then the Treasurer may not make any
orders in relation to that transaction. The Treasurer may extend the 30-day
period by a further 90 days.
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The FATA also provides for the "tracing" of interests of a foreign person
through intermediary companies. The FATA tracing formula is not the same as
the formula applied under the BSA. Under the FATA, a holder of a substantial
interest or holders of aggregate substantial interests in a corporation that
is in a position to control any voting power in another corporation or which
holds interest in shares in another corporation is taken to be in a position
to control that voting power in the other corporation or to hold such interest
in the other corporation, as the case may be.
The Austar Transaction and certain recent amendments to the articles of
association and securityholder agreements of Austar affected the number of
Austar directors designated by the Company and the manner in which those
directors are elected. While those matters did not require any advance
notification or approval under Australian law, they could in the future be
reviewed by the Treasurer of Australia under provisions of the FATA. If so
reviewed and determined by the Treasurer to have resulted in a change of
control of an Australian person to a foreign person that is against the
national interest of the Commonwealth of Australia, there would be no
violation of law but the Treasurer could require control of Austar to be
restored to its previous position. Prior to any change, UAPC was entitled to
appoint directly three of six directors of Austar. While the Company believes
that it is unlikely that the Treasurer would reach such a conclusion if it
decided to review the Austar Transaction, there can be no such assurances. If
the Treasurer were to require control of Austar to be restored to the maximum
extent permitted by the FATA, UAPC could appoint only one-half of the
directors of Austar and it might no longer affirmatively control Austar. While
the Company believes a determination under the FATA would not affect the
Company's 100% economic interest in Austar, there can be no assurances that
such would be the case. If the Treasurer were to review matters, UAPC would
seek to minimize the effect of any required change on its relationship with
Austar through a restructuring of its ownership interest or arrangements
providing for the designation of independent persons as the directors it does
not designate. See "Risk Factors--Foreign Acquisitions and Takeovers
Act/Investment Company Act Considerations" and "Corporate Ownership
Structure--Austar."
TRADE PRACTICES ACT
The Trade Practices Act ("TPA") governs restrictive trade practices and
consumer protection. This may impact on the conduct of a company in developing
a multi-channel television business and the associated transmission
facilities. The restrictive trade practices provisions prohibit, among other
things, agreements that substantially lessen competition, price fixing
agreements, exclusive dealing, price discrimination, resale price maintenance,
third line forcing, and abuse of market power by corporations having a
substantial degree of power in a market. The restrictive trade practices
provisions also prohibit acquisitions of the shares or assets of a corporation
which would substantially lessen competition in a market.
Substantial pecuniary penalties may be imposed for contraventions of the
TPA. The Minister, the ACCC or any other person may bring an action to
restrain contraventions of the TPA by injunction against any person who has
contravened or is proposing to contravene the TPA. A person who has suffered
loss as a result of another person contravening the TPA may bring an action to
recover damages against any person involved in the contravention.
The ACCC may authorize otherwise prohibited conduct, other than price fixing
agreements (except in special circumstances, price discrimination, and misuse
of market power) if it results in, or is likely to result in, a net benefit to
the public.
As part of changes to the Telecommunications Act and associated regulations
scheduled to take effect in July 1997, changes to the TPA are also
contemplated with respect to providing a framework requiring access to be
available to all network and systems. The current Government has indicated
this open access should apply to both wireline cable and wireless systems.
While the detail of the anticipated changes is not known at present, required
access could be relevant to Austar.
Local Regulation. When Austar constructs facilities, such as transmitter
towers, it must also comply with local government regulations, such as
planning and zoning requirements, as well as federal environmental laws.
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Austar works with the local government primarily on issues concerning
construction standards. Austar has established construction standards that
Austar believes meet or exceed the local regulations.
NEW ZEALAND
The Company believes that the deregulated nature of the New Zealand market
is favorable to providers of multi-channel television and telephony services.
The New Zealand government does not regulate the rates of multi-channel
television or telephony services. There are no programming regulations in New
Zealand other than those regulating programming with sexual or violent
content, or which is likely to offend good taste and decency, the maintenance
of law and order or the privacy of individuals. Unlike the other countries in
which the Company operates, there are at present no quotas on foreign
originated programming.
New Zealand's Telecommunications Act is primarily concerned with technical
and operational issues such as the licensing of certain forms of radio
equipment, and the right in certain circumstances to construct and maintain
telecommunications networks across public and privately owned land without the
owner's consent. These rights to construct and maintain telecommunications
networks are exercisable by "network operators," although they are very
infrequently used, with most lines being built with the consent of the
relevant landowner or local government body. Saturn holds network operator
status, which is granted on a nationwide non-exclusive basis. Construction and
operation of a telecommunications network on privately-owned land with the
consent of the relevant land owner may be done by any person and there is no
legal requirement to hold network operator status.
The New Zealand government does not specifically regulate pricing of multi-
channel television or telecommunications services. Pricing may be subject,
however, to New Zealand's competition legislation, the Commerce Act 1986 (the
"Commerce Act"), which prohibits businesses in a dominant position (i.e.,
possessing a high degree of monopoly power) in any market from using that
position for an anti-competitive purpose. The Commerce Act also prohibits
arrangements or understandings which have the purpose or effect of
substantially reducing competition. In addition, pursuant to the Commerce Act,
the government can impose price controls on any goods or services, although
this power has been used only once and is not currently in use.
New Zealand has no restrictions on foreign ownership of companies that
provide multi-channel television and telephony services other than a
requirement in certain circumstances for the consent of the Overseas
Investment Commission, which is typically given as a matter of course.
PHILIPPINES
The multi-channel television industry in the Philippines comes under the
scope of the country's broadcasting regulations. Under such regulations, cable
television systems currently are required to be 100% locally owned and
operated. There is pending legislation that would classify cable television
services as "rebroadcasting." If such legislation is adopted, foreign
ownership of up to 40% would be allowed in cable television systems, the same
foreign ownership level permitted in the general telecommunications industry.
The Company expects that this legislation will be adopted before the 1998
presidential elections, although there can be no such assurances.
The National Telecommunications Commission ("NTC") typically grants cable
television licenses, although provisional franchises may be granted at the
local level in some circumstances. Generally, cable television franchises in
the Philippines are non-exclusive and are for a period of 15 years. The NTC,
however, generally limits the number of franchises for any one area to three.
The majority of Sun Cable's franchises do not expire until 2009. Under the
terms of the franchises, Sun Cable must pay annual fees to the NTC equal to
3.0% of the stated value of its capital stock. The proposed cable television
legislation in its current form anticipates franchise fees of 3% to 5% of
gross revenues. Rate increases require prior notification to the local
municipal government.
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TAHITI
Telefenua's right to operate a multi-channel television service was granted
by the CSA in 1994 for a term expiring on December 31, 2004. The CSA
authorizations were based on the Decree of the French government and decisions
of the Commission Mixte Des Frequences, which controls all radio frequencies
for France and grants ranges to various public and private enterprises.
Telefenua is the first multi-channel operator to be granted approval to
operate a wireless network by the CMDF. Telefenua was granted the right to use
all necessary MMDS microwave frequencies, 2.5 GHz to 2.7 GHz, through the year
2004. The Company expects that the term for the MMDS frequency will be renewed
when the frequency distribution is revised on January 1, 2005, in accordance
with the 1992 World Administrative Radio Communications Conference. No fees
are payable for use of such frequencies.
Telefenua has local franchise agreements with 16 municipalities (of which 14
are exclusive) on the islands of Tahiti and Moorea. The franchise agreements
provide the Company with 30-year rights to operate MMDS multi-channel
television networks. The franchise agreements require Telefenua to carry
certain services, including local broadcast channels, and to provide local
programming. No fees are payable by Telefenua under these franchise
agreements.
There are currently no government regulations on subscription rates or rate
increases.
The territorial government of Tahiti has legally challenged the Decree and
authority of the CSA to award Telefenua the authorizations to operate an MMDS
system in French Polynesia. The Tahitian territorial government's challenge to
France's authority to award Telefenua an MMDS license in Tahiti was upheld by
the Conseil d'Etat, the supreme administrative court of France. The
territorial government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. A law recently enacted by the French
Parliament gives Telefenua a statutory basis for seeking a new authorization
from the communications agency, should the existing authorization be
nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorizations. There can be
no assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain. See "Risk Factors--Challenge to Telefenua
Authorization."
CORPORATE ORGANIZATIONAL STRUCTURE
GENERAL
UAPC's predecessor was formed in October 1994 as a wholly owned subsidiary
of UIH and was recently reorganized to hold UIH's interests in multi-channel
television systems in Australia, New Zealand, the Philippines and Tahiti and
UIH's interests in XYZ and United Wireless and various development projects in
the Asia/Pacific region. The following chart summarizes the organizational
structure of the Company. Some of the Company's interests in such operating
companies are held through various partnerships and holding companies and the
Company's voting rights and rights to participate in earnings of such entities
may differ from the economic interest indicated in the chart.
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=====================================
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
(DELAWARE CORPORATION)
=====================================
--------------------------------------------------------
100% 40.0%(3) 49.0%
----------------------------
UIH Australia/Pacific, Inc.
(Colorado corporation)
----------------------------
96.3%(1) (1) 99.3%(1) 100.0% 90.0%(2) 50.0% 100.0%
--------------
Salstel Media
Investments
Pty Limited
--------------
3.7% (1)
------------------------
STV Pty Limited
(Australian corporation)
-------------------------
Salstel Media
Holdings
Pty Limited
------------------------
0.7% (1)
------------------------
CTV Pty Limited
(Australian corporation)
------------------------
Austar
------------------------
Saturn Communications
Limited
(New Zealand corporation)
-------------------------
-------------------------
UIH-SFCC, L.P.
(Colorado limited
partnership)
-------------------------
(2)
-------------------------
Societe Francaise des
Communications et du
Cable S.A.
(French corporation)
-------------------------
(2)
-------------------------
Telefenua S.A.
(French Polynesian
corporation)
-------------------------
--------------------------
Century United Programming
Ventures Pty Limited
(Australian corporation)
--------------------------
50.0%
--------------------------
XYZ Entertainment
Pty Limited
(Australian corporation)
---------------------------
-------------------------
United Wireless
Pty Limited
(Australian corporation)
---------------------------
---------------------------
Telemondial Holdings, Inc.
d/b/a Sun Cable
(Philippines corporation)
---------------------------
---------------------------
Hunan International
Telecommunications
Company Ltd.
(PRC joint venture)
---------------------------
------------
Development
Projects:
. China
. India
. Indonesia
. Japan
. Malaysia
. Taiwan
-----------
- -------------
(1) The Company holds, directly and indirectly, a combined greater than 99.99%
economic interest in each of STV and CTV. The Company holds ordinary shares
and convertible debentures of STV and CTV which account for approximately
0.6% and 95.7%, respectively, of the total economic interests of STV and
account for approximately 0.1% and 99.2%, respectively, of the total
economic interests of CTV. In addition, the Company holds debentures of two
companies that in turn hold ordinary shares of CTV and STV. Through such
debentures the Company has an indirect additional 3.7% and 0.7%,
respectively, economic interest in STV and CTV. See "--Austar."
(2) The Company's net economic interest in Telefenua is held through several
intermediate partnerships and holding companies. Generally, the Company is
entitled to receive 90%, and then 75%, of all economic distributions from
the parent company of Telefenua until such time as it has received a 20%
and 40% rate of return on its invested capital, respectively. Thereafter,
the Company is entitled to receive 64% of all economic distributions. The
Company controls 40% of the voting power of the parent company of
Telefenua and has the right to appoint three of its six directors.
(3) The Company has the right, under certain circumstances, to convert amounts
owed under this Sun Cable Loan into a 40% economic interest in Sun Cable.
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AUSTAR
UAPC holds a combined 100% economic interest in CTV and STV, which operate
together under the name Austar, through direct and indirect holdings of
convertible debentures and ordinary shares. The Company holds approximately
15% of the ordinary shares of CTV and STV, which accounts for an approximately
0.3% economic interest in Austar. The Company holds all of CTV's and STV's
convertible debentures, which accounts for an approximately 97.8% economic
interest in Austar. In addition, through the Company's holdings of certain
debentures of Salstel Media Holdings Pty Limited ("SMH") and Salstel Media
Investments Pty Limited ("SMI"), which in turn hold ordinary shares of CTV and
STV, UAPC has an additional effective 1.9% economic interest in Austar.
Although the Company holds debentures and one share in each of SMH and SMI, it
does not control such entities or have controlling rights as a shareholder of
such entities.
These holdings resulted from three acquisitions and certain capital
contributions made by the Company. In July 1994, as part of the establishment
of CTV, the Company acquired an initial 40% economic interest in CTV, which
was later increased to 50%, and in October 1994, as part of the establishment
of STV, the Company acquired a 50% economic interest in STV. In the Austar
Transaction in December 1995, the Company acquired an additional 40% economic
interest in each of CTV and STV from existing shareholders for approximately
$15.3 million in cash and 170,513 shares of UIH's convertible preferred stock,
having a liquidation value upon issuance of approximately $29.8 million. As
part of the Austar Transaction, SMH and SMI, which are Australian companies
and members of the Salisbury Securities Limited Group of companies, acquired
74% and 75% of the ordinary shares of CTV and STV, respectively. Throughout
1996 the Company increased its economic interest in Austar to 96% as a result
of capital contributions, including the conversion of bridge loans and accrued
interest, totalling $50.6 million made by the Company to Austar as to which
the other principal holder of economic interests in Austar did not contribute
its pro rata share. In October 1996, the Company acquired the remaining 4%
economic interest in Austar from Australis for approximately $7.9 million in a
transaction agreed to by Australis as part of the Australis Arrangement.
The Company, CTV, STV, SMI and SMH are parties to securityholders'
agreements, (collectively, the "CTV/STV Securityholders' Agreements") that
contain provisions relating to governance of the companies, transfers by the
securityholders of their respective interests in the companies (including a
change in control), raising additional capital and funding for the companies
and other matters concerning ownership and operation of the companies. Certain
of these provisions are also contained in the Articles of Association of each
of CTV and STV (collectively, the "CTV/STV Articles of Association"). In
connection with the Austar Transaction, the Company and SMH, with respect to
CTV, and the Company and SMI, with respect to STV, executed agreements (the
"SMH/SMI Agreements") relating to the appointment of directors. SMH and SMI
also executed deeds under Australian law in which they agreed to be bound by
the terms of the CTV/STV Securityholders' Agreements.
Under the CTV/STV Articles of Association and the CTV/STV Securityholders'
Agreements, each of the boards of directors of CTV and STV consist of six
voting directors and one non-voting managing director, and each holder of an
ordinary share or debenture of CTV and STV is entitled to cast one vote for
the election of directors of CTV or STV, respectively, for each share or
debenture held. Each such holder is required to vote its shares and debentures
for those voting directors nominated by the other holders, with each holder of
15% or more of the shares and debentures having the right to nominate one
voting director for each 15% of the shares and debentures held and each holder
of 10% or more but fewer than 15% of the shares and debentures having the
right to nominate one voting director. For the purposes of determining such
rights, the Company and any person nominated by the Company to hold economic
interests in CTV and STV are considered one holder and their economic
interests are aggregated. Thus, the Company and SMH, with respect to CTV, and
the Company and SMI, with respect to STV, are effectively treated as one
holder for the purposes of determining the right to nominate voting directors.
Based on the current economic interests, the Company and SMH together have the
right to nominate all of CTV's six voting directors for election by CTV's
securityholders, the Company and SMI together have the right to nominate all
of STV's six voting directors for election by STV's securityholders.
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While adoption of the securityholders' voting and director selection
arrangements for CTV and STV did not require compulsory notification to the
Treasurer under the FATA, they may be determined by the Treasurer to result in
a change of control of CTV and STV that has resulted in a foreign person being
in control who had not previously been in control. If the Treasurer makes such
a determination and concludes that the change of control is against the
national interest, then the Treasurer may require the parties to the Austar
Transaction to restore the control of CTV and STV to the position it was in
before the Austar Transaction. Before the Austar Transaction, directors were
not elected but were appointed directly by securityholders, and the Company
had the right to appoint half of the directors of CTV and STV and the other
securityholders had the right to appoint the other half of the directors of
CTV and STV. While the Company believes an adverse review and determination by
the Treasurer to be unlikely, there can be no assurance that the Treasurer, if
he reviews the transaction, would give effect to the contractual provisions of
the SMH/SMI Agreements. See "Risk Factors--Foreign Acquisitions and Takeovers
Act/Investment Company Act Considerations."
Under the SMH/SMI Agreements, the Company has the right to nominate all
voting directors that the Company and SMH, with respect to CTV's board, and
the Company and SMI, with respect to STV's board, have the right to nominate.
Thus, the Company is currently entitled to designate all of the six voting
directors of each company. The Company and SMH and SMI have agreed that if the
Treasurer issues an order restoring control or indicates the intention to do
so, the Company will have the right to designate three directors of the
relevant company and SMH and SMI will have the right to designate the
remaining directors that the parties are entitled to designate pursuant to the
CTV/STV Articles of Association and CTV/STV Securityholders' Agreements. They
have also agreed that if that arrangement is considered in breach of any law
or prompts such government action, then the Company will have the right to
designate the maximum number of voting directors permitted by law and the
Company and SMH, in the case of CTV, and the Company and SMI, in the case of
STV, will designate as independent directors the remaining number of voting
directors that the parties are entitled to designate pursuant to the CTV/STV
Articles of Association and CTV/STV Securityholders' Agreements. An
independent director is, among other things, a person agreed on by the Company
and SMH or SMI, as the case may be, but not associated with either the Company
or SMH or SMI. Either the Company or SMH or SMI, as the case may be, will have
the right to remove an independent director.
The CTV/STV Securityholders' Agreements provide that while the day-to-day
running of CTV and STV is handled by the management, certain decisions must be
made by the board. These decisions include, among other things, the following
actions with respect to either company: the adoption or modification of a
business plan; entering into or modifying any material agreement; making
acquisitions, dispositions or capital expenditures exceeding A$50,000; the
negotiation of certain finance facilities and borrowings; the issuance of
additional securities; entering a new line of business or changing a current
line of business; any consolidation or restructuring; the listing of shares on
a securities exchange; changing the management structure of the company;
appointing and compensating the Managing Director; the declaration and payment
of dividends; making loans of the company's funds; and dealing with any
license. CTV and STV's Articles of Association cannot be amended without the
consent of the parties to the CTV/STV Securityholders' Agreements, other than
CTV or STV.
While under Australian corporate law shareholders have relatively little
power with regard to the management of a company (management resting with the
directors), a shareholder vote is required for certain specified actions, such
as reductions in capital, amendments to articles of association, the
restructuring or takeover of a company and share repurchases. The Company
holds 14.9% of the ordinary shares of CTV and STV that may be voted on these
matters at an ordinary meeting of shareholders.
The CTV/STV Securityholders' Agreements provide that a securityholder may
not transfer its securities in CTV or STV, except to or between certain
affiliates or as security to a bank or in other specified situations, until
the securityholder has first offered the securities to the other
securityholder. If the other securityholder does not purchase the offered
securities, then the selling securityholder may, in the six months after
offering the securities to the other securityholders, transfer all or part the
securities to a third party at a price no lower than the price offered to the
other securityholders, subject to approval by the board of directors of CTV or
STV. Such approval is to be granted if the securityholder has followed the
requisite procedures.
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In the event of a "change of control" of a securityholder, the party
experiencing the change of control must offer its securities in CTV or STV to
the other securityholders at the average fair market value of the securities
based on the valuations of two qualified independent persons. A change of
control is deemed to occur when (i) the power to control the composition of
the board or the management of the securityholder passes to a person who did
not possess such power at the date of the CTV/STV Securityholders' Agreements,
(ii) the ability to procure or prevent passing an ordinary resolution at the
general meeting of the securityholder passes to a person who did not possess
that ability at the date of the CTV/STV Securityholders' Agreements, or (iii)
a person becomes beneficially entitled to more than 50% of the ordinary shares
or voting rights of a securityholder or any holding company of a
securityholder and the person was not at the date of the CTV/STV
Securityholders' Agreements beneficially entitled to more than 50% of those
share or voting rights. These "change of control" provisions do not apply to
changes in control of UIH.
The Company and the other securityholders party to the CTV/STV
Securityholders' Agreements and their affiliates may not directly or
indirectly carry on or otherwise have an interest in any business similar to
or competitive with the DTH, MMDS and cable television services provided by
CTV and STV in their respective regions unless CTV or STV, as applicable, has
first been offered and has declined the opportunity to be involved in that
business.
XYZ
The Company has an indirect 25% interest in XYZ through its 50% interest in
Century United Programming Ventures Pty Limited ("CUPV"), an Australian
corporation owned equally by the Company and Century. CUPV holds a 50%
interest in XYZ. The remaining 50% interest in XYZ is held by Foxtel.
In October 1994, UIH and Century formed XYZ and each acquired an initial 50%
interest. In September 1995, Foxtel purchased a 50% interest in XYZ and the
Company and Century transferred the remaining 50% interest to CUPV. The sale
diluted UIH's indirect interest in XYZ to 25%. UIH received sale proceeds of
approximately $4.1 million from Foxtel for one-half of its initial interest in
XYZ.
Pursuant to a shareholders agreement executed in September 1995 (the "XYZ
Shareholders' Agreement"), each shareholder holding an economic interest of at
least 40% in XYZ may appoint two of the four directors to each of the boards
of directors of XYZ and the companies in which XYZ holds interests. As long as
CUPV and Foxtel hold an economic interest of at least 40% in XYZ, each of them
is entitled to one vote at meetings of each of such boards and any board
decisions must include an affirmative vote by each of them. A quorum consists
of two directors, of which one must be a representative of CUPV and one must
be a representative of Foxtel, provided that neither CUPV nor Foxtel's
interest is less than 40%. If either CUPV or Foxtel's economic interest is
less than 40%, that party will not be entitled to any representation on any of
the such boards and the other party must appoint further representatives. All
board decisions require unanimous consent. Board approval is required for
actions relating to, among other things: amendments or variations to the
business plan and certain agreements (including the XYZ Shareholders'
Agreement) and articles of association of any company in which XYZ holds an
interest; admitting new shareholders or issuing or redeeming any shares of
CUPV or Foxtel in XYZ; or requiring additional capital or other contributions,
incurring indebtedness or expenditures, issuing securities, or approving
distributions of property, not approved in the business plan. Funding required
by XYZ must be contributed by each shareholder in proportion to its economic
interest or as otherwise provided by the XYZ Shareholders' Agreement and if a
shareholder fails to do so within the requisite time period after a call is
made, its economic interest will be diluted accordingly.
The XYZ Shareholders' Agreement provides that a shareholder may not transfer
its interest in XYZ, except in limited circumstances, until the shareholder
has first offered such interest to the other shareholders at fair market value
as determined in accordance with the XYZ Shareholders' Agreement. If the other
shareholders do not purchase the offered securities, then during the six-month
period following such offer, the selling shareholder may transfer all or part
of its XYZ interest to any third party at a price no lower than the price
offered to the other shareholders, subject to such third party's agreeing to
the same transfer restrictions and the terms of the
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XYZ Shareholders' Agreement. Century and the Company have granted each other a
right of first refusal to acquire the other's interest in CUPV. If neither the
Company nor Century purchases the other's interest in CUPV, then Foxtel has a
right of first refusal to purchase that interest in CUPV before it may be
offered to a third party.
SATURN
The Company acquired in 1994 a 50% interest in Saturn, a New Zealand
corporation. In July 1996, the Company acquired the remaining 50% interest in
Saturn from Kiwi, a company that also owns and operates cable television
systems in the Caribbean. The Company acquired Kiwi's 50% interest in Saturn
in exchange for a 2.6% common equity interest in UIH A/P, which concurrently
with this Offering is being exchanged by Kiwi for shares of Class A Common
Stock of the Company.
SUN CABLE
The Company and Sun Cable are parties to the Sun Cable Loan, under which the
Company has loaned Sun Cable $8.3 million as of September 30, 1996. The Sun
Cable Loan is structured in such a manner as to give the Company a 40% equity
interest in Sun Cable and its business upon certain conditions. While
Philippine law does not currently allow foreign ownership of cable systems,
the Company believes that legislation allowing up to 40% foreign ownership in
the cable television sector will be passed in the next 12-24 months. See
"Regulation--Philippines." At the time of such legislation, the Company can
convert the Sun Cable Loan into a 40% equity stake in Sun Cable. The Company
also has the right to require Sun Cable to elect either to purchase the Sun
Cable Loan from the Company or to cause Sun Cable to be sold to a third party
at any time beginning February 24, 2000 if the Company remains legally
precluded from converting the debt into equity.
The remaining 60% economic interest in Sun Cable is held through a company
owned by the Lorenzo Group, which has interests in agribusiness, real estate
and consumer products. The Company is also the lender under a $6.0 million
bridge loan facility with the Lorenzo Group. At September 30, 1996, $3.3
million of the bridge loan facility, including interest, was outstanding,
which the Lorenzo Group had used to fund its portion of the required
investment in Sun Cable.
TELEFENUA
UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership wholly owned by
the Company, is the general partner of a limited partnership (the
"Partnership") that owns 100% of the preferred stock of SFCC, representing
approximately 40% of the share capital of SFCC. SFCC is the parent company of
Telefenua, which owns and operates the multi-channel television system in
Tahiti. As holder of 100% of the preferred stock of SFCC, the Partnership is
entitled to certain preferential distributions by SFCC. Through its general
partner's interest in the Partnership, UIH-SFCC will receive 90% of
distributions made by SFCC until UIH-SFCC has received a return of its
investment plus a 20% cumulative compounded annual return, 75% of
distributions until it has received the return of its investment plus a 40%
cumulative compound annual return and 64% of distributions thereafter. Once
UIH-SFCC's total equity investment exceeds $10 million, further equity
investments would not be entitled to the 90% and 75% distributions. Instead,
equity investments above $10 million, to the extent not matched pro rata by
the Company's partners, would increase the 64% that UIH receives after the
preferential distributions are made on the first $10 million. As of September
30, 1996, UIH-SFCC has also advanced $7.0 million as a bridge loan to SFCC,
approximately $5.0 million of which was converted into convertible debentures
of SFCC, which are convertible into preferred stock of SFCC. UIH-SFCC intends
to convert approximately $3.1 million of such debentures into preferred stock
with the same terms as the existing preferred stock of SFCC, to bring UIH-
SFCC's total equity investment to $10.0 million. UIH-SFCC has also invested
$2.3 million in equipment, which has been leased to Telefenua.
As holder of 100% of the preferred stock of SFCC, the Partnership is
entitled to designate three of the six members of SFCC's board of directors.
In addition, certain actions by SFCC require the approval of at least two of
the directors designated by the Partnership. These decisions include
expenditures exceeding 50,000 French
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francs, borrowing funds or making loans or guarantees, transferring material
assets, adopting or modifying or deviating from an annual business plan,
investing in any other business or activity and certain other matters
specified in the Articles of Association of SFCC. As general partner of the
Partnership, UIH-SFCC has broad powers to manage the Partnership's affairs,
subject to fiduciary duties.
The Articles of Association of SFCC provide that (a) the preferred shares of
SFCC are freely transferable and (b) sales of the common shares are subject to
a right of first refusal in favor of the other shareholders of the Company. In
the case of a sale of common shares, each other shareholder may require the
purchaser to purchase the other shareholders' shares on the same terms. As
general partner of the Partnership, UIH-SFCC may cause the Partnership to sell
the preferred shares of SFCC to third parties. If any such sale occurs before
June 1, 1999, however, then each limited partner will have the right to
receive a distribution of its pro rata portion of the preferred shares before
they are sold to the third party. Sales of interests in the Partnership are
subject to a right of first refusal in favor of the other partners. In the
case of a sale of a general partner's interest, the limited partners may
require the purchaser to purchase their interests on the same terms as the
purchase of the general partner's interests.
UNITED WIRELESS
United Wireless is a wholly owned subsidiary of the Company.
HITV
The Company holds a 49% interest in HITV, a joint venture with the
government agency Hunan Television Broadcasting Goods and Materials Company
("HTC") which owns the remaining 51% interest. The initial term of the joint
venture is ten years, commencing in 1994, and is extendable by unanimous
approval of the board of directors. Pursuant to the joint venture agreement,
the board of directors of HITV consists of seven directors, with HTC entitled
to appoint four directors and the Company entitled to appoint three directors.
A unanimous vote of the board is required for actions relating to: amendment
of Articles of Association, merger of HITV with another organization,
termination and dissolution of HITV, the increase or assignment of HITV's
registered capital, any amendment or termination of any agreement to which
HITV is a party, and allocation to the funds for HITV's employees. Generally,
other issues require the affirmative vote of at least one director appointed
by each of the Company and HTC.
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MANAGEMENT
The directors and executive officers of UAPC and the key employees of the
operating companies and their ages and positions with the respective company
are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
UAPC:
Gene W. Schneider.............. 70 Chairman of the Board
Michael T. Fries............... 33 Chief Executive Officer and Director
Bernard G. Dvorak.............. 36 Chief Financial Officer and Director
John C. Porter................. 39 Chief Operating Officer
Donald F. Hagans............... 50 Vice President--Australia
Kevin Ong...................... 40 Vice President--Finance
John H. Gowen.................. 28 Vice President--Development
Albert M. Carollo.............. 83 Director
Lawrence J. DeGeorge........... 80 Director
William J. Elsner.............. 45 Director
Joseph E. Giovanini............ 64 Director
Edward G. Jepsen............... 53 Director
Antony P. Ressler.............. 36 Director
Curtis Rochelle................ 81 Director
Mark L. Schneider.............. 41 Director
Bruce H. Spector............... 54 Director
OPERATING COMPANIES:
Robert G. McRann............... 62 Managing Director, Austar
Bruce Mann..................... 41 Director of Sales and Marketing, Austar
Robert J. Birrell.............. 34 Finance Director, Austar
Jack B. Matthews............... 44 Chief Executive Officer, Saturn
Lee Kil........................ 38 Chief Operating Officer, Sun Cable
Michel Laurent................. 44 Managing Director, Telefenua
Joseph P. Gatto, Jr. .......... 49 Chief Executive Officer, United Wireless
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors has established an executive committee (the
"Executive Committee") to which it has delegated authority to direct the
operations and business of the Company to the greatest extent permitted by
law. The current members of Executive Committee are Messrs. G. Schneider,
Fries, Dvorak and M. Schneider. Senior management of the Company, initially
Messrs. Porter and Hagans, will participate in a non-voting, advisory role to
the executive committee. The Board of Directors has also established an Audit
Committee composed of independent directors who are not affiliates or present
or former employees of the Company.
The number of members of UAPC's Board of Directors is currently fixed at 12.
The Company's Amended and Restated Certificate of Incorporation provides for a
classified Board of Directors, which may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. For
purposes of determining their terms, directors are divided into three classes.
The Class I directors, whose terms expire at the 1997 annual stockholders'
meeting, include Messrs. Carollo, DeGeorge, Ressler and Mark L. Schneider. The
Class II directors, whose terms expire at the 1998 annual stockholders'
meeting, include Messrs. Elsner, Fries, Jepsen and Spector. The Class III
directors, whose terms expire at the 1999 annual stockholders' meeting,
include Messrs. Dvorak, Giovanini, Rochelle and Gene W. Schneider. Each
director elected at each such meeting will serve for a term ending on the date
of the third annual stockholders' meeting after his election or until his
earlier death, resignation or removal.
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GENE W. SCHNEIDER has served as Chairman of the Board of Directors of the
Company and UIH A/P since their respective formations. He has served as
Chairman of the Board of Directors of UIH since May 1989 and UIH's Chief
Executive Officer since October 1995. Mr. Schneider was, until November 1991,
Chairman of United Artists Entertainment Company, the third-largest U.S. cable
television company and the largest theater owner in the world. He was founder
of United Cable Television Corporation ("United Cable") in early 1950s and, as
its Chairman and Chief Executive Officer, built United Cable into the eighth-
largest multiple system operator prior to merging with United Artists
Entertainment Company ("United Artists") in 1989. He has been active in cable
television affairs and has served on numerous National Cable Television
Association committees and special projects since NCTA's inception in the
early 1950s. He also has served on the boards of directors of several other
companies, including Turner Broadcasting Corporation.
MICHAEL T. FRIES has served as Chief Executive Officer of the Company since
November 1996, as President of the Company and UIH A/P since their respective
formations and is also a Director of the Company and UIH A/P since November
1996. Following the Offering, Mr. Fries will continue his position as a member
of UIH's Investment Committee. Mr. Fries was President of UIH Asia/Pacific,
Inc., the predecessor to the Company previously responsible for all operating
and development activities of the Company in the Asia/Pacific region. Prior to
assuming that position in 1995, Mr. Fries served as Senior Vice President,
Development, of UIH, in which capacity he was responsible for managing UIH's
worldwide acquisitions and new business development activities since March
1990, including UIH's expansion into the Asia/Pacific market. From 1985 to
1990, Mr. Fries was employed by PaineWebber Incorporated (New York) where he
spent approximately one year in the firm's venture capital group and four
years in the investment banking division, specializing in domestic and
international transactions for companies in the media and telecommunications
industry.
BERNARD G. DVORAK is the Chief Financial Officer and a Director of both the
Company and UIH A/P and has served as Vice President and Treasurer of the
Company since its formation. He has also served as Chief Financial Officer of
UIH since June 1992. From June 1989 until June 1992, he was Vice President,
Finance of UIH. He is responsible for the Company's and UIH's financial,
accounting and administrative functions. Prior to joining UIH in June 1989,
Mr. Dvorak spent four years as Controller of United Cable, where he was
responsible for the accounting, financial reporting and financial planning
functions as well as acting as business manager overseeing international
investments.
JOHN C. PORTER has served as Chief Operating Officer of the Company since
November 1996 and Chief Operating Officer of Austar since April 1995, where he
directly managed the technical, operating and administrative aspects of
Austar's multi-channel systems and was the principal executive in the field
responsible for the launch of MMDS and cable systems, as well as Austar's DTH
business. As Chief Operating Officer of the Company, Mr. Porter will continue
to participate in the management and operations of Austar, along with the
Company's other operating companies. Prior to joining Austar, Mr. Porter spent
the last 10 years serving in various capacities for Time Warner Cable, a
subsidiary of Time Warner, Inc. Most recently, Mr. Porter acted as the
Division President, Central Ohio, a 170,000 subscriber, 400 employee division.
Mr. Porter has over 16 years of management experience in the U.S. multi-
channel television industry.
DONALD F. HAGANS has served as Vice President--Australia of the Company and
UIH A/P since their respective formations and was a Regional Vice President of
UIH Asia/Pacific Inc., from January 1994 to November, 1996. Mr. Hagans serves
as chairman of Austar and oversees UIH's interests in XYZ and United Wireless.
From January 1989 until joining UIH in January 1994, Mr. Hagans was a
principal in the firm, Hagans Ziegler, a private investment group specializing
in domestic and international ventures. Mr. Hagans also acted as the
Legislative Director for Texas Senator Phil Gramm, participated extensively in
the activities of the International Bank Subcommittee of the U.S. Senate and
practiced law as an attorney in a private practice.
KEVIN ONG has served as Vice-President--Finance of the Company since May
1996. Prior to joining UIH, Mr. Ong has served in various financial and senior
management positions with U.S. and international cable television operators.
From 1988 to 1994, Mr. Ong served as Director with Jones Intercable, Inc. and
Treasurer of Jones International, Ltd., where he was responsible for financial
operations and various accounting functions. From 1977 to 1988, Mr. Ong was
employed at KPMG Peat Marwick, attaining an audit senior manager position.
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JOHN H. GOWEN has served as Vice President--Development of the Company since
February 1996, and is responsible for identifying and analyzing new business
development and acquisition opportunities. Mr. Gowen is currently focusing on
the Company's multi-channel television, telecommunications and programming
development efforts in Japan, Taiwan, India and China. Mr. Gowen joined UIH in
August 1994 as Manager, Business Development and was directly involved in
UIH's global development activities. Prior to joining UIH, Mr. Gowen spent
over three years in the investment banking industry, including two years with
Bankers Trust Company's Merchant Banking Group (New York), where he
specialized in domestic and international transactions for companies in the
media industry.
ALBERT M. CAROLLO has been a Director of the Company since November 1996 and
a Director of UIH since April 1993 and was a director of UIH's predecessor,
United International Holdings (the "Partnership") from December 1990 until its
dissolution in December 1993. He served as a director of United Artists from
December 1988 to November 1991 and has been President of Sweetwater Television
Company since 1955. Mr. Carollo was a director of United Cable from 1974 until
1989.
LAWRENCE J. DEGEORGE has been a Director of the Company since November 1996
and a Director of UIH since April 1993 and was a director of the Partnership
from September 1989 until its dissolution in December 1993. He has also been
Chairman of the Board and Chief Executive Officer of Amphenol Corporation
("Amphenol"), a major international manufacturer of electrical, electronic and
fiber-optic connectors, cable and cable assemblies, since May 1987. Since
1985, Mr. DeGeorge has been the Chief Executive Officer of Amphenol's
subsidiary, Times Fiber Television Communications, Inc. ("Times Fiber") a
major U.S. manufacturer of coaxial cable for the cable television industry.
WILLIAM J. ELSNER has served as a Director of the Company since November
1996 and a Director of UIH since 1989. Mr. Elsner was Chief Executive Officer
of UIH from July 1992 through October 1995. Since that time, Mr. Elsner has
served as a consultant to UIH. From May 1989 to July 1992, Mr. Elsner served
as President of the Company. He was a director of the Partnership from
September 1989 until its dissolution in December 1993. Mr. Elsner has 16 years
of experience in the cable television industry. Mr. Elsner was also a director
of United Artists from 1989 until 1991. Mr. Elsner is also a director of Black
Rock Golf Corporation.
JOSEPH E. GIOVANINI has been a Director of the Company since November 1996
and a Director of UIH since April 1993 and was a director of the Partnership
from September 1989 until its dissolution in December 1993. Mr. Giovanini is
General Partner of Giovanini Investments, Ltd., Jackson, Wyoming and manages
personal investments. He was a director of United Artists from December 1988
to November 1991 and a director of United Cable from 1974 to 1989.
EDWARD G. JEPSEN has served as a Director of the Company since November 1996
and a Director of UIH since December 1995. He has been Executive Vice
President and Chief Financial Officer of Amphenol since May 1989 and a
director of Amphenol since January 1991. He has been the Executive Vice
President and Chief Financial Officer of Amphenol's subsidiary, Times Fiber
since May 1989. Mr. Jepsen is also a director of TRC Company, Inc. an
environmental research firm. He was executive vice president, chief financial
officer and controller of LPL Technologies, Inc. from November 1988 to
December 1992 and a director of LPL from January 1991 to December 1992.
ANTONY P. RESSLER has been a Director of the Company since November 1996 and
a Director of UIH since October 1993. Since its inception in 1990, Mr. Ressler
has been a partner of Apollo Advisors, L.P. and Lion Advisors, L.P., which
through several funds represent institutional investors with respect to
corporate acquisitions and securities investments. From 1988 to 1990, he was a
Senior Vice President in the High Yield Bond Department of Drexel Burnham
Lambert Incorporated, a firm he joined in 1985. Mr. Ressler is also a director
of Dominick's Supermarkets, Inc., Family Restaurants, Inc., Forum Group, Inc.,
Gillette Holdings, Inc. and Packaging Resources, Inc.
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CURTIS W. ROCHELLE has been a Director of the Company since November 1996
and a Director of UIH since April 1993 and was a director of the Partnership
from September 1989 until its dissolution in December 1993. He is a rancher in
Rawlins, Wyoming, and the owner of Rochelle Livestock. Mr. Rochelle also is a
director and Vice President of Lander Energy Company, a real estate developer
in Fort Collins, Colorado, and was a director of United Artists from December
1988 to November 1991. Mr. Rochelle also was a director of United Cable from
1974 to 1989.
MARK L. SCHNEIDER has been a Director of the Company since November 1996.
Mr. Schneider is also a Director of UIH and UIH A/P. In May 1996, Mr.
Schneider became Chief of Strategic Planning and Operational Oversight of UIH.
He served as President of UIH from July 1992 until March 1995 and was Senior
Vice President of UIH from May 1989 until July 1992. During these periods Mr.
Schneider was responsible for all of its international multi-channel
television system and programming activities. Prior to joining UIH, he served
as Vice President of Corporate Development at United Cable from March 1987
until May 1989. In that position, he was responsible for United Cable's
acquisition and development of international cable television systems and
other businesses.
BRUCE H. SPECTOR has been a Director of the Company since November 1996 and
a Director of UIH since October 1993. Mr. Spector served as a consultant to
Apollo Advisors, L.P. from October 1992 until March 1995 when he became a
principal of the firm. Prior to joining Apollo, Mr. Spector was a senior
member of the Los Angeles law firm of Stutman, Treister & Glatt Professional
Corporation for nearly 25 years. Mr. Spector is also a director of Vail
Holdings, Inc. and Telemundo Group, Inc.
Gene W. Schneider and Mark L. Schneider are father and son. No other family
relationships exist between any other executive officers or directors of the
Company.
OTHER MANAGEMENT
Senior management of the operating companies include the following
individuals:
ROBERT G. MCRANN has served as Managing Director of Austar since joining
that company in March 1995. Mr. McRann is responsible for the management of
all aspects of Austar's MMDS, DTH and cable television operations including
engineering, customer service, marketing and administrative functions. For the
twelve years prior to joining Austar, Mr. McRann served as Senior Vice
President responsible for Cox Cable's San Diego system, which had annual
revenues in 1995 of $140.0 million and a subscriber base of over 325,000. Mr.
McRann has over 18 years of management experience in the U.S. multi-channel
television industry.
BRUCE MANN has served as Sales and Marketing Director of Austar since
joining that company in April 1995. Mr. Mann is responsible for the
development of Austar's marketing and sales techniques and has played a
critical role in the successful implementation of these plans throughout
Austar's franchise area. Mr. Mann has been involved in various marketing
capacities of communications and entertainment companies for the past 15 years
including eight years at Time Warner Cable as Director of Marketing-Brooklyn,
Queens. From 1994 until joining Austar, Mr. Mann served as President, National
Division, of Cross Country Wireless, Inc., a U.S. provider of wireless multi-
channel television services. From 1991 to 1994, Mr. Mann served as Vice
President-Marketing of Washington Redskins/Jack Kent Cooke Stadium, Inc.,
specializing in sports and entertainment related promotion, advertising and
marketing.
ROBERT J. BIRRELL has served as Finance Director of Austar since January
1996 and has been involved with the development aspects of the Austar business
since April 1994. Mr. Birrell is responsible for the accounting, finance,
inventory control, investor relations and legal aspects of Austar's business.
Prior to joining Austar, Mr. Birrell has been involved with various activities
in large scale retailing in the Australian marketplace. From 1985 to 1993, Mr.
Birrell served as Treasurer of Industrial Equity Limited, an Australian based
investment company, and prior to that as Manager Arbitrage of Macquarie Bank
Limited. Mr. Birrell has over 14 years experience in the banking and business
environment in Australia.
JACK B. MATTHEWS has served as Chief Executive Officer of Saturn since
joining that company in January 1995. Mr. Matthews is responsible for
technical, operating and marketing aspects of the business. Mr. Matthews
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has served in various general management capacities with several U.S. multiple
system operators including, Cox Cable Communications and Continental
Cablevision. From August 1993 until joining Saturn, Mr. Matthews was the Vice
President-Sales & Marketing of Arrowsmith Technologies, a cable technology
company which develops and installs advanced field operations management and
operations support systems for the cable television industry. From 1990 to
1993, Mr. Matthews was the President of COMM/ONE, a entrepreneurial business
marketing sophisticated video and voice processing systems. Mr. Matthews has
over 14 years of U.S. multi-channel television industry experience.
LEE KIL has served as Chief Operating Officer of Sun Cable since being
seconded to that company in April 1995. Mr. Kil is responsible for the
technical, operating and administrative aspects of Sun Cable's cable
television systems. Prior to joining Sun Cable, Mr. Kil served as a finance
and development officer for UIH in the Asia Pacific region since 1995. From
1989 until joining UIH in 1995, Mr. Kil was employed by KBLCOM Incorporated
("KBLCOM"), most recently Director of KBL Telemarketing Technologies, a KBLCOM
subsidiary. Prior to that position, Mr. Kil also served as Director of Finance
& Accounting at the San Antonio Division of KBLCOM. Mr. Kil has over 13 years
experience in the U.S. cable television and programming industry.
MICHEL LAURENT has served as Managing Director of Telefenua since May 1995.
Since joining Telefenua, Mr. Laurent has been responsible for the launch of
Telefenua's service and rapid increase in its customer base. From 1991 until
joining Telefenua, Mr. Laurent held various positions with Videotron Ltd., the
largest cable television and telecommunications company in the province of
Quebec and the second largest multiple system operator in Canada. Mr. Laurent
most recently served as Vice President of Operations for Videotron's Montreal
division and was responsible for technical, operating and marketing aspects of
the business. Mr. Laurent is fluent in French and English.
JOSEPH P. GATTO, JR. has been the Chief Executive Officer of United Wireless
since May 1996. Mr. Gatto was the Vice President, Development of UIH A/P
focusing on telecommunications business development within the Asia/Pacific
region. Prior to joining UIH, Mr. Gatto was the Director of Sales of Plexsys
International Corp., a cellular system network manufacturer, where he was
responsible for worldwide sales. Mr. Gatto has also served in various sales
and marketing capacities for US and Asian telecommunications and technology
companies.
EXECUTIVE COMPENSATION
Prior to the Offering, all of the officers of UAPC were employed by UIH, the
majority stockholder of the Company. UAPC paid no separate compensation to
these officers. In connection with the Offering, effective January 1, 1997 all
of UAPC's officers other than Messrs. Schneider and Dvorak, will become
employees of UAPC and will cease their employment with UIH, although Mr. Fries
will remain an officer of UIH. The Company plans to compensate initially its
executive officers comensurate with their compensation as employees of UIH.
Most of the members of senior management of Austar, Saturn, Sun Cable and
Telefenua are U.S. or Canadian expatriates who are employed by UAPC and have
been seconded to the respective operating companies. The respective operating
companies reimburse UAPC for compensation paid to these employees pursuant to
Technical Assistance Agreements between UAPC and each of Austar, Saturn, Sun
Cable and Telefenua. Gene W. Schneider, the Company's Chairman, is also the
Chairman and Chief Executive Officer of UIH and spends only a portion of his
time on matters pertaining to the Company and its operations. Bernard G.
Dvorak, the Company's Chief Financial Officer, is also an officer and employee
of UIH and spends only a portion of his time on matters pertaining to the
Company and its operations. Following this Offering, the services of Messers.
Schneider and Dvorak will be provided to the Company pursuant to the UIH
Management Agreement. While the Company and its operating companies do not
reimburse UIH directly for a specified portion of the compensation UIH pays to
Messrs. Schneider or Dvorak, the Company compensates UIH under the UIH
Management Agreements for certain services, including those of Messrs.
Schneider and Dvorak, performed on behalf of the Company. The chart below
summarizes the compensation paid during the fiscal year
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ended December 31, 1995 to the Company's Chief Executive Officer and the four
most highly compensated executive officers of the Company and the operating
companies.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(2)
- --------------------------- ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gene W. Schneider(3)...... 1995 $324,577 $ -- 40,000 $4,620
Chairman
Michael T. Fries(3)....... 1995 212,769 -- 35,000 4,620
Chief Executive Officer
Bernard G. Dvorak(3)...... 1995 192,769 -- 35,000 4,620
Chief Financial Officer
Donald F. Hagans.......... 1995 175,000 -- 12,000 --
Vice President--Australia
Robert G. McRann(4)....... 1995 161,538 24,279(5) -- 3,836
Managing Director, Austar
</TABLE>
- ---------------------
(1) Options with respect to shares of Class A Common Stock of UIH granted to
such executives as officers and employees of UIH.
(2) Consists of matching employer contributions made by UIH under UIH's
Employee 401(k) Plan.
(3) Total compensation paid by UIH for duties performed with respect to the
Company and other operations of UIH.
(4) Mr. McRann started employment with Austar in March 1995.
(5) Consists of additional cash compensation relating to the overseas
assignment of Mr. McRann.
Messrs. Schneider, Fries, Dvorak and Hagans, as employees and officers of
UIH prior to the Offering, have been granted options to acquire stock of UIH.
Mr. McRann has not been granted any options by UIH. The following tables set
forth information concerning options to purchase shares of UIH Class A Common
Stock granted to these executives in the last fiscal year as well as the value
of unexercised options held by such executives as of December 31, 1995. No
such executive has exercised any options during the fiscal year ended December
31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(2)
----------------------------------------- -------------------------------
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gene W. Schneider.... 40,000 6.07% $15.75 6/16/05 $396,204 $1,004,058
Michael T. Fries..... 35,000 5.32 15.75 6/16/05 346,678 878,551
Bernard G. Dvorak.... 35,000 5.32 15.75 6/16/05 346,678 878,551
Donald F. Hagans..... 12,000 1.82 15.75 6/16/05 118,861 301,217
</TABLE>
- ---------------------
(1) The stock options granted during the last fiscal year become exercisable
with respect to 25% of the shares covered thereby after the first
anniversary of the effective date of the grant and with respect to the
remaining 75% in equal monthly increments over the three-year period
thereafter. The initial 25% of all of the options listed in this table
became exercisable on June 16, 1996. Vesting of the options granted is
accelerated upon a change of control of UIH as defined in UIH's stock
option plan.
(2) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts
shown are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of the Common Stock, continued employment of the
optionee through the term of the options, and other factors.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Gene W. Schneider........... 90,625/99,375 $475,781/311,719
Michael T. Fries............ 72,500/82,500 441,041/288,958
Bernard G. Dvorak........... 60,417/74,583 317,187/207,813
Donald F. Hagans............ 40,002/51,998 0/0
</TABLE>
Messrs. have been granted stock options under the Equity Incentive
Plan to acquire a total of shares of Class A Common Stock. See "--Equity
Incentive Plan."
AGREEMENTS WITH EMPLOYEES
UAPC and many of its employees serving as senior management in the Company's
operating companies are parties to 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, Mr. McRann has
such an employment agreement with UIH. This five-year employment agreement
provides for an annual base salary of $225,000 per year, to be reviewed
annually, with eligibility for an annual bonus of up to 30% of the base salary,
based on the performance of Austar as well as Mr. McRann's individual
performance. Mr. McRann was also granted an incentive interest, that vests over
a four year period, equal to .75% of the "residual equity value" of Austar,
calculated as (i) ten times EBITDA from the prior 12 months, less (ii) the sum
of Austar's net liabilities and an amount equal to the total shareholder
investment in Austar, plus a 12% compounded annual return on such investment.
In the event of a change of control of Austar, the residual equity value will
be the greater of (x) the amount calculated above or (y) the net gross proceeds
to the shareholders from the event that causes the change of control, less an
amount equal to the total shareholder investment in Austar, plus a 12%
compounded annual return on such investment. Austar reimbursed UIH and will
continue to reimburse UAPC under the Technical Assistance Agreement for
employment costs associated with Mr. McRann.
EQUITY INCENTIVE PLAN
In November 1996 the Board of Directors of the Company established the
Company's Equity Incentive Plan (the "Equity Incentive Plan"), for the benefit
of key employees selected to participate in the Equity Incentive Plan
("Participants"). The Equity Incentive Plan has been approved by the holders of
a majority of the shares of Common Stock of the Company. Pursuant to the terms
of the Equity Incentive Plan, shares of the Class A Common Stock are
reserved for issuance thereunder.
The Equity Incentive Plan is administered by a committee (the "Committee")
composed of members of the Board who are so constituted at all times such that
the Equity Incentive Plan complies with Rule 16b-3 or any successor rule under
the Exchange Act and the provisions of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder. Members of the Committee shall be appointed from time to time by
the Board, shall serve at the pleasure of the Board and may resign at any time
upon written notice to the Board. The Committee shall select Participants from
"eligible employees" of the Company, and shall determine the awards to be made
pursuant to the Equity Incentive Plan and the terms and
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conditions thereof. "Eligible employees" are those key employees (including,
without limitation, officers and directors who are also employees) of the
Company or any subsidiary or division of the Company, upon whose judgment,
initiative and efforts the Company is, or will become, largely dependent for
the successful conduct of its business. The Equity Incentive Plan shall
terminate by resolution of the Board or on , 2006, whichever occurs
sooner.
The Equity Incentive Plan provides for the grant of incentive stock options
("Incentive Options") within the meaning of Section 422 of the Code and non-
qualified stock options ("Non-Qualified Options") (collectively the "Options"),
Stock Appreciation Rights, Restricted Stock Awards, Stock Bonuses, Stock Units
and other grants of Class A Common Stock (collectively referred to as
"Awards"). Awards may be granted under the Equity Incentive Plan to key
employees (including, without limitation, officers and directors who are
employees) of the Company or any division or subsidiary thereof, upon whose
judgment, initiative and efforts the Company is, or will become, largely
dependent for the successful conduct of its business.
A total of shares of Stock may be optioned or awarded under the Equity
Incentive Plan, subject to the provisions regarding changes in capital
described below. If the Company increases or decreases the number of its
outstanding shares of Stock or changes in any way the rights and privileges of
such shares by means of the payment of a stock dividend or any other
distribution upon such shares payable in Stock, or through a stock split,
subdivision, consolidation, combination, reclassification or recapitalization
involving the Stock, then the numbers, rights and privileges of affected shares
of Stock (i) as to which Awards may be granted under the Equity Incentive Plan
and (ii) then included in each outstanding Award granted under the Equity
Incentive Plan, shall be increased, decreased or changed in like manner as if
they had been issued and outstanding, fully paid and nonassessable at the time
of such occurrence.
Options. Options granted under the Equity Incentive Plan are exercisable in
such installments for such periods as specified by the Committee at the time of
grant; however, such period shall not exceed ten years from the date of the
grant. The Option price with respect to each Option will be determined by the
Committee, but shall not be less than 100% of the fair market value of the
Stock of the Company at the time the Option is granted. The "fair market value"
of the Stock is the closing price of the Stock on the Nasdaq Stock Market as
reported on the composite tape on a particular date or the closest preceding
date on which there were Stock transactions. The aggregate exercise price for
the Stock with respect to which an Incentive Option is first exercisable during
any calendar year shall not exceed $100,000 (determined as of the date an
Incentive Option is granted).
Stock Appreciation Rights. A Stock Appreciation Right entitles the
Participant to receive Stock (without any payment to the Company, except for
applicable withholding taxes), cash or a combination of both equal in value to
the increase in the fair market value of a share of Stock subsequent to the
grant of the Stock Appreciation Right. The time during which a Stock
Appreciation Right may be exercised shall be determined by the Committee at the
time of grant, but may not begin until six months after the date of grant.
Restricted Stock Awards. A Restricted Stock Award is an award of Stock
granted to a Participant that is subject to certain restrictions, including but
not limited to continuous employment by the Company or an affiliated
corporation for a period of time specified by the Committee or the attainment
of certain goals and objectives specified by the Committee. Such restrictions
shall be placed on the Stock certificates in a legend. The Committee may also
require the Participant to keep the Stock certificates in the custody of the
Company or a third party while the restrictions remain in effect.
Other Awards. The Committee may award Stock Bonuses to such Participants,
subject to such conditions and restrictions, as it determines in its sole
discretion. Stock Bonuses may be either outright grants of Class A Common
Stock, or may be grants of Stock subject to and conditioned upon certain
employment or performance related goals. The Board may, in its sole discretion,
establish other incentive compensation arrangements subject to the Equity
Incentive Plan pursuant to which Participants may acquire Stock or provide
other incentive compensation that will be paid in Stock under the Equity
Incentive Plan.
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COMPENSATION OF DIRECTORS
All of the directors of the Company are also directors or officers of UIH,
the majority stockholder of the Company, or officers of the Company. They
receive no separate cash compensation for serving as directors of the Company
although each non-employee director of the Company will be granted options to
acquire a total of shares of Class A Common Stock at the initial public
offering price. See "--Non-Employee Director Stock Option Plan."
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company adopted a Stock Option Plan for Non-Employee Directors (the
"Director Plan") effective upon the date of the Company's initial public
offering (the "Effective Date"). The Director Plan provides for the grant of
an option (a "Director's Option") to acquire shares of Class A Common
Stock to each member of the Board who is not also an employee of the Company
(a "non-employee director") on the Effective Date, and to each person who is
newly elected to the Board as a non-employee director after the Effective
Date, on the date of his election. The total number of shares of Class A
Common Stock as to which options may be granted under the Director Plan is
in the aggregate. As there are currently eight non-employee directors,
Director's Options will be granted with respect to shares. The exercise
price for options granted under the Director Plan hereafter will be the fair
market value of the shares on the date of grant determined by reference to the
last reported sale price of the Class A Common Stock on the NASDAQ National
Market System. With respect to non-employee directors serving at the
commencement of this Offering, the fair market value will be the IPO Price.
The Director's Options become exercisable with respect to 25% of the shares
covered thereby after the first anniversary of the effective date of the grant
and with respect to the remaining 75% in equal monthly increments over the
three-year period thereafter. Vesting is accelerated upon a change of control
of the Company as defined in the Director Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a separate Compensation
Committee comprised of Messrs. Carollo, DeGeorge, Giovannini, Jepsen, Ressler,
Rochelle and Spector. Directors or executive officers of the Company may serve
on the boards of directors of Austar, Saturn, Sun Cable, Telefenua and XYZ and
as part of their duties may determine the compensation of those operating
companies' employees. None of the employees of such operating companies,
however, are Directors of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation eliminates the personal liability
of its directors to the Company and its stockholders for monetary damages for
breach of the directors' fiduciary duties in certain circumstances. The
Company's Certificate 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
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
Certificate 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.
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RELATIONSHIP WITH UIH AND RELATED TRANSACTIONS
RELATIONSHIP WITH UIH
UAPC is currently an indirect, majority owned subsidiary of UIH. Immediately
following completion of the Offering and the UIH Investment, UIH will own
shares of Series B Common Stock which represents approximately % of the
total voting power of the outstanding shares of Common Stock ( % if the
Underwriters' over-allotment option is exercised in full). Consequently, UIH
will have significant influence over the Company and will be in a position to
determine the outcome of corporate actions requiring stockholder approval. See
"Risk Factors--Control of the Company by UIH; Disproportionate Voting Rights."
UIH has advised the Company that it has no immediate plans to dispose of any
of the shares of Common Stock held by it after the Offering. UIH, however, has
not made any decision regarding its future plans for its ownership interest in
the Company. There can be no assurance that UIH will maintain its ownership
interest in the Company or as to the manner or timing of any disposition of
Common Stock by UIH.
Conflicts of interest between the Company and UIH could arise with respect
to business dealings between them, including potential acquisitions of
businesses or properties, the issuance of additional securities and the
extension, termination, renegotiation of, or performance of respective
obligations under the agreements to which they are parties. While the
directors of the Company intend to exercise reasonable judgment and take such
steps as they deem necessary under all of the circumstances in resolving any
specific conflict of interest that may occur, there can be no assurance that
any conflicts will be resolved in favor of the Company. See "Risk Factors--
Potential Conflicts of Interest with UIH."
UIH INVESTMENT
UIH has agreed to contribute immediately prior to the closing of the
Offering $25.0 million cash to the Company for additional Class B Common Stock
at a per share purchase price equal to the Class A Common Stock being acquired
in the Offering.
HISTORICAL CORPORATE STRUCTURE
Formation of UIH A/P. Immediately prior to the May 1996 Note Offering, UIH
Australia, Inc., UIH Australia II, Inc. and UIH Australia III, Inc. (the "UIH
Australia Subsidiaries"); UIH New Zealand, Inc. (the "UIH New Zealand
Subsidiary"); UIH-SFCC, Inc. (the "UIH Tahiti Subsidiary"); and UIH Australia
Holding, Inc. were merged with and into UIH A/P (the "First Merger"). The UIH
Australia Subsidiaries held UIH's interest in Austar, the UIH New Zealand
Subsidiary held UIH's interest in Saturn, the UIH Tahiti Subsidiary held UIH's
interest in Telefenua, UIH Australia Holdings, Inc. held UIH's interest in
United Wireless (the "UIH Wireless Subsidiary") and UIH A/P held UIH's
interest in XYZ Entertainment. Each of the UIH Australia Subsidiaries, the UIH
New Zealand Subsidiary, the UIH Tahiti Subsidiary, the UIH Wireless Subsidiary
and UIH A/P were initially capitalized with $100, and 100 shares of common
stock were issued to UIH, the sole shareholder of each of such corporations.
During the years ended December 31, 1994 and 1995, UIH contributed (i) a total
of $19.7 million and $50.8 million, respectively, to the UIH Australia
Subsidiaries, which amounts were used to fund the UIH Australia Subsidiaries'
investment in Austar; (ii) a total of $2.5 million and none, respectively, to
the UIH New Zealand Subsidiary, which amounts were used to fund the UIH New
Zealand Subsidiary's investment in Saturn, (iii) a total of none and $6.9
million, respectively, to the UIH Tahiti Subsidiary, which amounts were used
to fund the UIH Tahiti Subsidiary's investment in Telefenua; (iv) a total of
none and $911,000, respectively, to the UIH Wireless Subsidiary, which amounts
were used to fund the UIH Wireless Subsidiary's investment in United Wireless
and (v) a total of $629,000 and $5.1 million, respectively, to UIH A/P, which
amounts were used to fund UIH A/P's investment in XYZ Entertainment. No
additional shares of capital stock were issued to UIH in connection with these
capital contributions. During the years ended December 31, 1994 and 1995, UIH
made bridge loans (i) totaling none and $5.4 million, respectively, to certain
of the UIH Australia Subsidiaries, which amounts in turn were used to make
loans to Austar; (ii) totaling none and $2.0 million, respectively, to the UIH
New Zealand Subsidiary, which amounts in turn were used to make loans to
Saturn; and (iii) totaling none and $6.8 million, respectively, to the UIH
Tahiti Subsidiary, which
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amounts in turn were used to make loans to Telefenua. These bridge loans are
payable upon demand and bear interest at rates ranging from 9.25% to 14.0% per
annum. At the time of the UIH A/P Note Offering, the Company acquired $25
million of these bridge loans and the remaining portion of the bridge loans
were contributed to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
As a result of the First Merger, all of the issued and outstanding capital
stock of the UIH Australian Subsidiaries, the UIH New Zealand Subsidiary, the
UIH Tahiti Subsidiary and the UIH Wireless Subsidiary were canceled.
In connection with the Saturn Purchase, UIH A/P declared and paid a dividend
of 387 shares of common stock to UIH and issued to the other shareholder of
Saturn 13 shares of common stock, which represented 2.6% of its issued and
outstanding common stock.
Formation of the Company. In connection with the amendment and reinstatement
of UAPC's certificate of incorporation prior to the closing of this Offering,
the 100 shares of Common Stock of UAPC owned by UIH, which constitutes all of
UAPC's issued and outstanding capital stock, will be converted into shares
of Class B Common Stock. Immediately prior to the closing of the Offering, the
following wholly owned, indirect subsidiaries of UIH (the "Merged
Subsidiaries") will be merged with and into UAPC, with UAPC as the surviving
corporation (the "Second Merger"); (i) UIH Philippines, Inc., the company that
holds the interest in Sun Cable; (ii) UIH China, Inc., the company that holds
the interest in HITV and the Company's other China development opportunities;
(iii) UIH India, Inc. and UIH India Programming, Inc., the companies that hold
India development opportunities; (iv) UIH Taiwan, Inc., the company that holds
the Taiwan development opportunities; and (v) UIH Asia/Pacific, Inc., the
company that holds all of the Company's other development opportunities. Each
of the Merged Subsidiaries was initially capitalized with $100 and 100 shares
of common stock was issued to UIH, the sole shareholder of such corporations.
During the years ended December 31, 1994 and 1995, UIH contributed a total of
$0.4 million and $8.3million, respectively, to the Merged Subsidiaries. As a
result of the Second Merger, all of the issued and outstanding capital stock
of the Merged Subsidiaries was canceled and UIH was issued shares of Class
B Common Stock of UAPC in consideration thereof. Prior to the closing of the
Offering, Kiwi will contribute his 2.6% interest in UIH A/P to the Company in
consideration for shares of Class A Common Stock. As a result of such
contribution, UAPC will own 100% of the issued and outstanding capital stock
of UIH A/P.
MANAGEMENT AGREEMENT
In connection with the formation of UIH A/P, UIH A/P and UIH executed a 10-
year management agreement (the "UIH A/P Management Agreement"), pursuant to
which UIH agreed to continue to perform certain administrative, accounting,
financial reporting and other services for UIH A/P, which has no separate
employees of its own. Pursuant to the UIH A/P Management Agreement, UIH is
paid a management fee of $750,000 for the first year of such agreement, which
fees shall increase on the first anniversary date of the UIH A/P Management
Agreement and each anniversary date thereafter by 8% per year. UIH and each of
Austar, Saturn, Sun Cable and Telefenua's parent corporation executed
Technical Assistance Agreements, pursuant to which UIH has performed technical
assistance in connection with such operating companies' design, development,
construction, marketing and operation of their respective multi-channel
television systems. The Technical Assistance Agreements provide for fees
generally based on a percentage of gross revenues.
UIH has assigned to UAPC its rights, and UAPC has assumed UIH's obligations,
under the UIH A/P Management Agreement and the Technical Assistance
Agreements. In connection with UIH's assignment to the UAPC of the UIH A/P
Management Agreement and the Technical Assistance Agreements and activities
associated with being a publicly traded company following this Offering,
majority-owned by UIH, UAPC and UIH have executed a 10-year management
agreement (the "UIH Management Agreement"), pursuant to which UIH will
continue to perform certain management, technical, administrative, accounting,
financial reporting, tax, legal and other services for UAPC, and, on behalf of
UAPC, for UIH A/P. Pursuant to the UIH Management
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Agreement, UIH will be paid a management fee equal to % of the Company's
"proportional revenues." The "proportional revenues" of the Company
are calculated by multiplying the revenues of each of the operating
companies, multiplied by the Company's ownership interest of the respective
company and adding the sum of such products. In addition, UAPC shall reimburse
UIH for all reasonable out-of-pocket expenses incurred by UIH in performance
of its duties under the respective UIH Management Agreement.
TAX SHARING AGREEMENT
The Company is included as a member of UIH's consolidated tax return and,
after the Offering, will remain a member of the UIH consolidated group (as
long as non-UIH ownership of the Company does not exceed 20%). UIH and the
Company are parties to a tax sharing agreement that defines the parties'
rights and obligations with respect to tax liabilities and benefits relating
to the Company and its operations as part of the consolidated group of UIH. In
general, UIH is responsible for filing consolidated tax returns and paying the
associated taxes and UAPC will reimburse UIH for the portion of the tax cost
relating to the Company and its operations.
REGISTRATION RIGHTS AGREEMENT
UAPC and UIH will enter into a Registration Rights Agreement (the "UIH
Registration Rights Agreement") which, among other things, will provide that
upon the request of UIH, UAPC will register under the Securities Act any of
the shares of Series A Common Stock or Series B Common Stock (and any other
shares of capital stock of UAPC issued in respect of such shares) held by UIH
for sale in accordance with UIH's intended method of disposition thereof. UIH
will have the right to request three such registrations. UIH will also have
the right to have its shares of stock in the Company included in any
registration statement the Company proposes to file under the Securities Act
(other than registration statements for employee benefit plans and certain
business combinations), except that, among other conditions, the underwriters
of any such offering may limit the number of shares included in such
registration. UAPC will agree to pay all registration expenses (other than
underwriting discounts and commissions) in connection with such registrations.
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SECURITY OWNERSHIP
The following table sets forth certain information concerning the ownership
of Common Stock of all classes prior to the Offering and pro forma for the
closing of the Offering by (i) the only stockholder of the Company owning
beneficially more than 5% of the outstanding shares of either class of the
Company's Common Stock, (ii) each director of the Company, (iii) each of the
five most highly compensated executive officers of the Company during its last
fiscal year, and (iv) all directors and executive officers of the Company as a
group. Shares of Class B Common Stock are convertible immediately into shares
of Class A Common Stock on a one-for-one basis, and accordingly, holders of
Class B Common Stock are deemed to own the same number of shares of Class A
Common Stock. Executive officers of the Company have been granted options to
acquire an aggregate of shares of Class A Common Stock, which options begin
vesting one year from the date of this Offering. See "Management--Equity
Incentive Plan."
<TABLE>
<CAPTION>
PERCENTAGE OF ALL
OUTSTANDING
NUMBER OF SHARES(1) COMMON STOCK
------------------------- -----------------
CLASS A CLASS B PERCENTAGE BEFORE AFTER
BENEFICIAL OWNER COMMON STOCK COMMON STOCK OF CLASS OFFERING OFFERING
---------------- ------------ ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
United International
Holdings, Inc.(2)...... -- % % %
Gene W. Schneider....... -- -- -- -- --
Michael T. Fries........ -- -- -- -- --
Bernard G. Dvorak....... -- -- -- -- --
John C. Porter.......... -- -- -- -- --
Albert M. Carollo....... -- -- -- -- --
Lawrence J. DeGeorge.... -- -- -- -- --
William J. Elsner....... -- -- -- -- --
Joseph E. Giovanini..... -- -- -- -- --
Edward G. Jepsen........ -- -- -- -- --
Antony P. Ressler....... -- -- -- -- --
Curtis Rochelle......... -- -- -- -- --
Mark L. Schneider....... -- -- -- -- --
Bruce H. Spector........ -- -- -- -- --
Donald F. Hagans........ -- -- -- -- --
Robert G. McRann........ -- -- -- -- --
All directors and
executive officers as a
group
(16 persons)........... -- -- -- -- --
</TABLE>
- ---------------------
(1) Holders of Class A Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, and holders of Class B Common
Stock are entitled to ten votes per share. Both classes vote together as a
single class on all matters, except where class voting is required by the
Delaware General Corporation Law. See "Description of Capital Stock."
(2) Includes shares of Class B Common Stock to be issued in the UIH
Investment immediately prior to the closing of the Offering. The address
of United International Holdings, Inc. is 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of all material terms of UAPC's capital stock.
This summary, however, does not purport to be complete and is qualified in its
entirety by reference to the applicable provisions of the Delaware General
Corporation Law (the "DGCL") and to UAPC's Amended and Restated Certificate of
Incorporation (the "Company Charter") and Bylaws, both of which have been
filed as exhibits to the Registration Statement. See "Additional Information."
The Company is authorized to issue shares of Common Stock and 3,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"). The
Common Stock is divided into two classes consisting of authorized shares
of Class A Common Stock and authorized shares of Class B Common Stock. As
of the date of this Prospectus, there were shares of Class A Common Stock
and shares of Class B Common Stock outstanding and no shares of Preferred
Stock outstanding. UIH beneficially owns all of the Class B Common Stock,
representing percent of the voting power of UAPC's outstanding Common Stock.
Upon completion of the Offerings, there will be shares of Class A Common
Stock ( shares if the over-allotment options granted to the Underwriters
are exercised in full), shares of Class B Common Stock and no shares of
Preferred Stock outstanding.
COMMON STOCK
The rights of holders of Class A Common Stock and Class B Common Stock are
identical except for voting and conversion rights. The shares of Class A
Common Stock and Class B Common Stock currently outstanding are, and the
shares of Class A Common Stock offered hereby will be upon issuance, validly
issued, fully paid and nonassessable.
Dividends. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available for such purpose, subject to the preferential rights of holders of
shares of any series of outstanding shares of Preferred Stock. The Company
Charter provides that there can be no dividend on, or stock split, reverse
stock split or other reclassification of, either the Class A Common Stock or
the Class B Common Stock without a corresponding stock dividend on, or stock
split, reverse stock split or other reclassification of, the other class of
Common Stock.
The Board of Directors will determine its dividend policy with respect to
the Common Stock based on UAPC's results of operations, financial condition,
capital requirements and other circumstances, including restrictions that may
be contained in agreements pursuant to which the Company may borrow funds. It
is not anticipated that cash dividends will be paid on the Common Stock in the
foreseeable future. See "Dividend Policy."
Conversion. Each share of Class B Common Stock is convertible at any time,
at the option of its holder, into one share of Class A Common Stock. The Class
A Common Stock is not convertible into Class B Common Stock.
Voting. Each share of Class A Common Stock entitles the holder to one vote
and each share of Class B Common Stock entitles the holder to ten votes on
each matter to be voted upon by the holders of the Common Stock. Except with
respect to certain limited class voting rights provided under the DGCL, the
holders of the Class A Common Stock and Class B Common Stock vote as one class
on all matters to be voted on by stockholders of UAPC, including the election
of directors. Since there is no cumulative voting in elections of directors of
UAPC, UIH will be able to elect the entire Board of Directors for so long as
it beneficially owns shares of Common Stock representing a majority in voting
power of the outstanding shares of both classes of Common Stock. Immediately
following completion of the Offerings, UIH will beneficially own shares of
Class B Common Stock representing approximately % of the voting power and
will have the ability to control all matters requiring approval of UAPC's
stockholders voting as a single class, including the election of directors.
See "Risk Factors--Control by UIH; Disproportionate Voting Rights."
85
<PAGE>
Liquidation Rights. Subject to the preferential rights, if any, of holders
of any then-outstanding Preferred Stock, in the event of a liquidation,
dissolution or winding up of UAPC, holders of Class A Common Stock and Class B
Common Stock would be entitled to share ratably in all assets of UAPC
available for distribution to holders of Common Stock.
Listing. The Company has applied for its Class A Common Stock to be quoted
on the Nasdaq Stock Market under the trading symbol "UIHPA." Chase Mellon
Shareholder Services, LLC will be the transfer agent for the Class A Common
Stock.
Other Provisions. Holders of Class A Common Stock and Class B Common Stock
have no preemptive rights to purchase additional shares.
PREFERRED STOCK
The Preferred Stock may be issued from time to time as determined by the
Board of Directors, without stockholder approval. Such Preferred Stock may be
issued in such series and with such designations, preferences, conversion or
other rights, voting powers, qualifications, limitations, or restrictions as
shall be stated or expressed in a resolution or resolutions providing for the
issue of such series adopted by the Board of Directors. While the Board of
Directors has no current intention of doing so, the Board of Directors,
without stockholder approval, could issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power or other
rights of the Class A Common Stock. At the date of this Prospectus, the Board
of Directors has not authorized the issuance of any share of Preferred Stock
and UAPC has no current plans for the issuance of any shares of Preferred
Stock. The power to issue shares of Preferred Stock could enable the Board of
Directors to make it more difficult to replace incumbent directors and to
accomplish transactions opposed by the incumbent Board of Directors.
CERTAIN PROVISIONS OF THE COMPANY CHARTER AND BYLAWS
Certain provisions of the Company Charter and Bylaws summarized below may
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest,
including attempts that might result in a premium over the market price for
the shares held by stockholders.
The Company Charter provides for a classified Board of Directors. For
purposes of determining their terms, directors are divided into three classes.
UAPC's Class I directors' term expires at the 1997 annual stockholders'
meeting. The terms of the Class II directors and the Class III directors
expire at the 1998 and 1999 annual stockholders' meetings, respectively. See
"Management--Directors and Executive Officers."
The Company Charter or Bylaws provide (i) that directors can be removed from
office only for cause and only with the approval of 66 2/3% of the votes of
outstanding shares of stock entitled to vote upon all matters which may be
submitted to a vote of stockholders at any annual or special meeting thereof
("Voting Stock"), (ii) for a classified Board of Directors, with each class
containing as nearly as possible one-third of the number of directors on the
Board of Directors and the members of each class serving for three-year terms,
(iii) that vacancies on the Board of Directors may be filled only by the
remaining directors, (iv) that any action required or permitted to be taken by
the stockholders of UAPC may be effected only at an annual or special meeting
of stockholders, and not be written consent of the stockholders, (v) that
special meetings of UAPC's stockholders can be called by the Secretary of UAPC
upon (a) the written request of the holders of not less than 66 2/3% of the
total voting power of the outstanding Voting Stock, voting together as a
single class, or (b) at the request of not less than 75% of the members of the
Board of Directors, (vi) that the Bylaws of UAPC may only be adopted, amended
or repealed by the affirmative vote of (a) 66 2/3% in total voting power of
the outstanding Voting Stock, voting together as a single class, or (b) 75% of
the members of the Board of Directors, (vii) that UAPC Charter may only be
amended, altered or repealed by the affirmative vote of 66 2/3% in total
voting power of the outstanding Voting Stock, voting together as a single
class, (viii) that the affirmative vote of 66 2/3% in total voting power of
the outstanding Voting Stock, voting together as a single class, is required
to approve (a) a
86
<PAGE>
merger or consolidation of UAPC with, or into, another corporation, other than
a merger or consolidation which does not require the consent of stockholders
under the DGCL or a merger or consolidation which has been approved by at
least 75% of the members of the Board of Directors (in which case, in
accordance with the DGCL, the affirmative vote of a majority in total power of
the outstanding Voting Stock would be required for approval), (b) the sale,
lease or exchange of all or substantially all of the property and assets of
UAPC or (c) the dissolution of UAPC, and (ix) for an advance notice procedure
for the nomination, other than by or at the direction of the Board of
Directors or a Committee of the Board of Directors, of candidates for election
as directors. In general, notice of intent to nominate a director must be
received by UAPC not less than 90 days in advance of an annual meeting (or, in
the case of a special meeting, not less than 7 days following the day on which
notice of such special meeting is given to stockholders) and must contain
certain information concerning the person to be nominated and the stockholder
submitting the proposal.
REGISTRATION RIGHTS
After consummation of this Offering, holders of approximately shares of
Class A Common Stock and shares of Class B Common Stock will be entitled
to require the Company to register such shares under the Securities Act under
certain circumstances.
Subject to certain limitations, beginning one year after the date of the
Offering, holders of at least 50% of the Class A Common Stock currently held
by Kiwi or its assignees ("Kiwi Registrable Securities") may require the
Company to file a registration statement under the Securities Act with respect
to such Registrable Securities as are requested to be included, and the
Company is required to use its best efforts to effect such registration,
subject to certain conditions and limitations. The Company is not obligated to
effect more than one of these demand registrations of Kiwi Registrable
Securities. Holders of Kiwi Registrable Securities also have the right to have
the Kiwi Registrable Securities included in any registration statement the
Company proposes to file under the Securities Act (other than registration
statements for employee benefit plans and certain business combinations),
except that, among other conditions, the underwriters of any such offering may
limit the number of shares included in such registration. Pursuant to the
terms of the UIH Registration Rights Agreement to be entered by the Company
and UIH, upon the request of UIH, the Company will register under the
Securities Act any of the shares of Class A Common Stock or Class B Common
Stock (and any other shares of capital stock of UAPC issued in respect of such
shares) held by UIH for sale in accordance with UIH's intended method of
disposition thereof. UIH will have the right to request three such
registrations. UIH will also have the right to have its shares of stock in the
Company included in any registration statement the Company proposes to file
under the Securities Act (other than registration statements for employee
benefit plans and certain business combinations), except that among other
conditions, the underwriters of any such offering may limit the number of
shares included in such registration. See "Relationship with UIH and Related
Transactions."
Generally, the Company is required to bear the expense (other than
underwriting discounts and commissions) of all such registrations.
DESCRIPTION OF CERTAIN INDEBTEDNESS
UAPC and substantially all of its subsidiaries and other companies in which
it holds interests are "restricted" under the terms of the indentures
governing UIH's 14% Senior Secured Discount Notes due 1999 (collectively, the
"UIH Indenture"). UIH A/P, Austar and Telefenua are "restricted" under the
terms of the UIH A/P Indenture. Generally, each of the UIH Indenture and the
UIH A/P Indenture limit the amount of indebtedness restricted entities may
incur and type or amount of investments such entities may make. In addition,
the UIH A/P Indenture prohibits the restricted entities from paying cash
dividends. The restrictions imposed by the UIH Indenture will be eliminated
upon retirement of UIH's Notes at their maturity in November 1999, although
similar restrictions may be imposed if UIH refinances the replacement of such
notes with new indebtedness. The restrictions imposed by the UIH A/P Indenture
will be eliminated upon retirement of the Existing Notes and the New UIH A/P
Notes at their maturity in May 2006 and , 2007 respectively. See "Risk
Factors--Need for Additional Capital for New Businesses, --No Dividends."
87
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have shares of
Class A Common Stock outstanding (assuming no exercise of the over-allotment
options, and assuming further that, prior to such time, there is no conversion
of outstanding Class B Common Stock into shares of Class A Common Stock) and
shares of Class B Common Stock outstanding. The shares of Class A Common
Stock sold in this Offering will be freely transferable and tradeable without
restriction or further registration under the Securities Act except for any
shares purchased by any "affiliate," as defined below, of the Company, which
will be subject to the resale limitations of Rule 144 adopted under the
Securities Act. The shares of Class B Common Stock are "restricted
securities," as such term is defined under Rule 144.
In general, under Rule 144 as currently in effect, after holding their
shares of Common Stock of the Company for two years, holders of restricted
securities and affiliates of the Company (assuming conversion of their Class B
Common Stock into Class A Common Stock) will be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
of the then outstanding number of shares of Class A Common Stock of the
Company or the average weekly trading volume in the Company's shares of Class
A Common Stock in composite trading in all national securities exchanges
during the four calendar weeks preceding the filing of the required notice of
such sale. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such issuer.
In connection with this Offering, the Company, its officers and directors
and the existing stockholders of UAPC, including UIH, which owns shares of
Class B Common Stock, have agreed, directly or indirectly, not to sell, offer
to sell, solicit an offer to buy, contract to sell, grant any option, warrant
or right to purchase or otherwise transfer or dispose of any shares of capital
stock of the Company, including any options, warrrants or rights to acquire
Common Stock of the Company, or any securities that are convertible into, or
exercisable or exchangeable for capital stock of the Company, for a period of
180 days after the date of the commencement of this Offering without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation, except
in certain limited circumstances described under "Underwriting."
Sales of substantial numbers of shares of Class B Common Stock and Class A
Common Stock issuable upon conversion of the Class B Common Stock pursuant to
Rule 144 or otherwise could adversely affect the market price of the Class A
Common Stock, should any such market develop.
88
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
a syndicate of U.S. underwriters named below (the "U.S. Underwriters"), for
whom Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and HSBC
Securities, Inc. ("HSBC") are acting as representatives (the "U.S.
Representatives"), and the international managers named below (the
"International Managers" and, together with the U.S. Underwriters, the
"Underwriters"), for whom DLJ and HSBC are acting as representatives (the
"International Representatives" and, together with the U.S. Representatives,
the "Representatives"), have severally agreed to purchase from the Company an
aggregate of shares of Class A Common Stock. The number of shares of
Common Stock that each Underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................
HSBC Securities, Inc. .............................................
U.S. Offering Subtotal........................................... ___
<CAPTION>
NUMBER OF
INTERNATIONAL REPRESENTATIVES SHARES
----------------------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................
HSBC Securities, Inc. ............................................. ___
International Offering Subtotal.................................. ___
Total..........................................................
===
</TABLE>
The obligations of the several Underwriters to pay for and accept delivery
of the shares of Class A Common Stock offered hereby are subject to approval
of certain legal matters by counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the shares of Class A
Common Stock offered hereby (other than those covered by the over-allotment
options described below) if any are taken. The offering price and underwriting
discount and commissions per share for the U.S. Offering and the International
Offering are identical.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Class A Common Stock offered hereby directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $. per share. Any Underwriter may allow, and such dealers may
reallow, a discount not in excess of $. per share to any other Underwriter
any to certain other dealers. After the initial public offering of the shares
of Class A Common Stock, the public offering price and such concessions may be
changed by the Underwriters. The Representatives have advised the Company that
the Underwriters do not intend to confirm sales of the Class A Common Stock
offered hereby to accounts over which they exercise discretionary authority.
89
<PAGE>
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the public offering price set
forth on the cover page of this prospectus less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
made in connection with the sale of shares of Class A Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
U.S. Underwriter's name in the preceding tables bears to the total number of
shares in such table.
The Company, its officers and directors and the existing stockholders of the
Company, including UIH, have agreed, directly or indirectly, not to sell,
offer to sell, solicit an offer to buy, contract to sell, grant any option,
warrant or right to purchase or otherwise transfer or dispose of any shares of
capital stock of the Company, including any options, warrants or rights to
acquire Common Stock of the Company, or any securities that are convertible
into, or exercisable or exchangeable for capital stock of the Company, for a
period of 180 days after the date of this Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, except, in the
case of the Company, for the issuance of Class A Common Stock upon conversion
of the Class B Common Stock and the issuance of Class A Common Stock in
connection with certain development opportunities to persons who agree to
become bound by these lock-up provisions.
Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial offering price for the Class A Common Stock included
in this Offering was determined through negotiation between the Company and
the U.S. Representatives. Among the factors to be considered in determining
the public offering price will be the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States, Australia and the Asia/Pacific region and the
current level of economic activity in the industry in which the Company
competes and in related or comparable industries, and currently prevailing
conditions in the securities markets, including current market valuations of
publicly traded companies that are comparable to the Company.
In connection with the Offering, certain U.S. Underwriters, or their
respective affiliates who are qualifying registered market makers on the
Nasdaq National Market, may engage in passive market making transactions in
the Class A Common Stock of the Company on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act during the two business day
period before commencement of offers or sales of the Class A Common Stock. The
passive market making transactions must comply with applicable volume and
price limits and be identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest independent bid for
the security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
The Underwriters have entered into an Agreement Between U.S. Underwriters
and International Managers pursuant to which each U.S. Underwriter has agreed
that, with respect to the Class A Common Stock included in the U.S. Offering,
(i) it is not purchasing any such shares for the account of anyone other than
a U.S. or Canadian Person and (ii) it has not offered or sold, and will not
offer, sell, resell or deliver, directly or indirectly, any of such shares or
distribute any prospectus relating to the U.S. Offering outside the United
States or Canada or to anyone other than a U.S. or Canadian Person. In
addition, each International Manager has agreed that, with respect to the
Class A Common Stock included in the International Offering, (i) it is not
purchasing any such shares for the account of any U.S. or Canadian Person and
(ii) it has not offered or sold, and will not offer, sell, resell, or deliver,
directly or indirectly, any of such shares or distribute any prospectus
relating to the International Offering in the United States or Canada or to
any U.S. or Canadian Person. Each Underwriter has also agreed that it will
offer to sell shares only in compliance with all relevant requirements of any
applicable laws.
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The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between Underwriters
and International Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the International Managers, (ii) certain offers,
sales, resales, deliveries or distributions to or through investment advisors
or other persons exercising investment discretion, (iii) purchases, offers or
sales by a U.S. Underwriter who is also acting as an International Manager or
by an International Manager who is also acting as a U.S. Underwriter and (iv)
other transactions specifically approved by the Representatives. As used
herein, "U.S. or Canadian Person" means any resident or national of the United
States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada or any estate or
trust the income of which is subject to United States or Canadian income
taxation regardless of the source of its income (other than the foreign branch
of any U.S. or Canadian Person), and includes any United States or Canadian
branch of a person other than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each International Manager has represented and agreed (i) that it has not
offered or sold and will not offer or sell in the United Kingdom, by means of
any document, any shares other than to persons whose ordinary business it is
to buy or sell shares or debentures, whether as principal or agent or in
circumstances which do not constitute an offer to the public within the
meaning of the Companies Act 1985, (ii) that it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the shares in, from, or otherwise
involving, the United Kingdom and (iii) that it has only issued or passed on
and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issue of the shares if that
person is of a kind described in Article 9(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1988.
No action has been or will be taken in any jurisdiction by the Company or
the International Managers that would permit an offering to the general public
of the shares offered hereby in any jurisdiction other than the United States
or Canada.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with laws and practices of the country of
purchase in addition to the offering price set forth on the cover page of this
Prospectus.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares as may be mutually agreed. The
price of any shares so sold shall be the public offering price as then in
effect for shares being sold by the U.S. Underwriters and the International
Managers, less all or any party of the selling concession, unless otherwise
determined by mutual agreement. To the extent that there are sales between the
U.S. Underwriters and the International Managers pursuant to the Agreement
Between U.S. Underwriters and International Managers, the number of shares
initially available for sale by the U.S. Underwriters and by the International
Managers may be more or less than the number of shares appearing on the front
cover of this Prospectus.
Certain of the Underwriters and its respective affiliates have engaged, and
may in the future engage, in transactions with and perform sevices for the
Company or one or more of its affilitates in the ordinary course of business.
Certain of the Underwriters are also serving as the underwriter in the Senior
Discount Note Offering.
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LEGAL MATTERS
Certain legal matters regarding the securities offered hereby will be passed
upon for the Company by Holme Roberts & Owen LLP, Denver, Colorado, and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California.
EXPERTS
The consolidated financial statements and related schedule of the Company
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as set
forth in their report. In that report, that firm states that with respect to
the consolidated amounts from the financial statements of Telefenua S.A. and
the equity in losses from XYZ Entertainment Pty Ltd. as of and for the year
ended December 31, 1995, its report is based on the reports of other auditors,
namely Coopers & Lybrand (with respect to Telefenua S.A.) and Deloitte Touche
Tohmatsu (with respect to XYZ Entertainment Pty Ltd.). The consolidated
financial statements and reports referred to above have been included herein
in reliance upon the authority of those firms as experts in giving said
reports.
The consolidated financial statements of CTV Pty Ltd. included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen, independent public accountants, as indicated in their report
with respect thereto, and is included herein in reliance upon the authority of
said firm as experts in giving said report.
The consolidated financial statements of STV Pty Ltd. included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen, independent public accountants, as indicated in their report
with respect thereto, and is included herein in reliance upon the authority of
said firm as experts in giving said report.
The financial statements of Saturn Communications Limited (formerly Kiwi
Cable Company Ltd.) included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
giving said report.
The financial statements of XYZ Entertainment Pty Ltd. as of December 31,
1994 and 1995 and for the years then ended included in this Prospectus and
elsewhere in the Registration Statement have been audited by Deloitte Touche
Tohmatsu, independent auditors, as stated in their report appearing herein.
The financial statements referred to above have been included herein in
reliance upon the authority of said firm as experts in giving said report.
92
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
Report of Independent Public Accountants................................. F- 3
Report of Independent Auditors........................................... F- 4
Independent Auditors' Report............................................. F- 5
Consolidated Balance Sheets as of December 31, 1994 and 1995 and Septem-
ber 30, 1996 (unaudited)................................................ F- 6
Consolidated Statements of Operations for the Years Ended December 31,
1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(unaudited)............................................................. F- 7
Consolidated Statements of Stockholder's Equity for the Years Ended De-
cember 31, 1994 and 1995 and for the Nine Months Ended September 30,
1996 (unaudited)........................................................ F- 8
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(unaudited)............................................................. F- 9
Notes to Consolidated Financial Statements............................... F-10
CTV PTY LIMITED (TOGETHER WITH STV, AUSTAR)
Independent Audit Report................................................. F-27
Balance Sheet as of December 31, 1994 and 1995 and September 30, 1996
(unaudited)............................................................. F-28
Profit and Loss Account for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-29
Statement of Cash Flows for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-30
Notes to the Financial Statements........................................ F-31
STV PTY LIMITED (TOGETHER WITH CTV, AUSTAR)
Independent Audit Report................................................. F-41
Balance Sheet as of December 31, 1994 and 1995 and September 30, 1996
(unaudited)............................................................. F-42
Profit and Loss Account for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-44
Statement of Cash Flows for the Period Ended December 31, 1994 and the
Year Ended December 31, 1995 and for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-45
Notes to the Financial Statements........................................ F-46
SATURN COMMUNICATIONS LIMITED (FORMERLY KNOWN AS KIWI CABLE COMPANY
LIMITED)
Auditor's Report......................................................... F-56
Statement of Financial Performance for the Years Ended December 31, 1994
and 1995 and March 31, 1996 (unaudited)................................. F-57
Statement of Movements in Equity for the Years Ended December 31, 1994
and 1995 and the Three Months Ended March 31, 1996 (unaudited).......... F-58
Statement of Financial Position as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited).............................................. F-59
Statement of Cash Flows for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited)...... F-61
Notes to and Forming Part of the Financial Statements.................... F-62
XYZ ENTERTAINMENT PTY LIMITED
Independent Auditors' Report............................................. F-68
Consolidated Statements of Operations for the period from October 17,
1994 (date of inception) to December 31, 1994 and the year ended Decem-
ber 31, 1995 and for the nine months ended September 30, 1995 and 1996
(unaudited)............................................................. F-69
Consolidated Balance Sheets as of December 31, 1994 and 1995 and Septem-
ber 30, 1996 (unaudited)................................................ F-70
Consolidated Statements of Shareholders' Deficiency for the period from
October 17, 1994 (date of inception) to December 31, 1994 and the year
ended December 31, 1995 and for the nine months ended September 30, 1995
and 1996 (unaudited).................................................... F-71
Consolidated Statements of Cash Flows for the period from October 17,
1994 (date of inception) to December 31, 1994 and the year ended Decem-
ber 31, 1995 and for the nine months ended September 30, 1995 and 1996
(unaudited)............................................................. F-72
Notes to Consolidated Financial Statements............................... F-73
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
After the corporate reorganization transaction discussed in Note 1 to the
UIH Asia/Pacific Communications, Inc. consolidated financial statements is
effected, we expect to be in a position to render the following audit report.
Arthur Andersen LLP
Denver, Colorado
November 18, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UIH Asia/Pacific Communications, Inc.:
We have audited the accompanying consolidated balance sheets of UIH
Asia/Pacific Communications, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholder's equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the financial statements of Telefenua
S.A. as of and for the year ended December 31, 1995, a subsidiary which is
consolidated in the accompanying consolidated financial statements. UIH
Asia/Pacific Communications, Inc.'s consolidated financial statements for the
year ended December 31, 1995 reflect assets, liabilities, revenues, expenses
and a net loss related to Telefenua S.A. of $10,989,000, $9,710,000,
$1,882,000, $5,806,000 and $3,924,000, respectively. We did not audit the
financial statements of XYZ Entertainment Pty Ltd. ("XYZ") for the year ended
December 31, 1995, an investment which is reflected in the accompanying
consolidated financial statements on the equity method of accounting. UIH
Asia/Pacific Communications, Inc.'s consolidated statement of operations
reflects equity in losses related to XYZ of $11,729,000 for the year ended
December 31, 1995 and Note 4 to the consolidated financial statements includes
summarized financial data for XYZ. The financial statements of Telefenua S.A.
and XYZ as of and for the year ended December 31, 1995, were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as
it relates to the summarized financial data for XYZ included in Note 4 to the
consolidated financial statements and to the amounts included in the
accompanying consolidated financial statements for Telefenua S.A. and XYZ, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of UIH Asia/Pacific Communications, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
November , 1996
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the shareholders of TELEFENUA SA.
We have audited the balance sheet of TELEFENUA SA as of december 31, 1993,
1994 and 1995 and the related statement of income and changes in financial
position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in France, which do not differ substantially from generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of TELEFENUA SA as of december
31, 1993 1994 and 1995 and the results of its operations and changes in its
financial position for the year then ended, in conformity with generally
accepted accounting principles in the United States of America.
The accounting practices of the Company used in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the United States of America, but do not fully conform with accounting
principles generally accepted in France. As a consequence those financial
statements differ from statutory financial statements that will be submitted
to the approval of the company's shareholders in conformity with local
corporate laws.
A description of the significant differences between such principles and
those accounting principles generally accepted in the United States, and the
effect of those differences on net income, total assets and shareholder's
equity are set forth in Note 2.a of the notes to the financial statements.
Coopers & Lybrand
Papeete,
February 16, 1996
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheet of XYZ
Entertainment Pty Ltd as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' deficiency and cash flows
for the year ended December 31, 1995 and the period from October 17, 1994
(date of inception) to December 31, 1994, which are expressed in Australian
dollars. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Australia which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance as
to whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of XYZ Entertainment Pty Ltd as of December 31, 1995 and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
period from October 17, 1994 (date of inception) to December 31, 1994, in
conformity with accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected amounts reported as stockholders' deficiency
and net loss as at and for the year ended December 31, 1995 and from the
period from October 17, 1994 (date of inception) to December 31, 1994 to the
extent summarized in Note 12 to the financial statements.
Deloitte Touche Tohmatsu
Chartered Accountants
Sydney, Australia
March 15, 1996
F-5
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- ---------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ -- $ 8,749 $ 69,360
Restricted cash......................... -- -- 10,000
Short-term investments.................. -- -- 27,630
Receivables, including related party re-
ceivables of $0, $1,623 and $4,627, re-
spectively............................. -- 2,052 6,382
Note receivable......................... -- 5,835 3,000
Investments in and advances to
affiliated companies, accounted for
under the equity method................ 22,436 10,642 14,474
Property, plant and equipment, net of
accumulated depreciation of $0, $1,217
and $13,185, respectively.............. 1 27,125 130,435
License fees, net of accumulated
amortization of $0, $442 and $1,890,
respectively .......................... -- 10,693 11,173
Goodwill, net of accumulated
amortization of $0, $38 and $2,557,
respectively........................... -- 45,324 52,171
Other assets, net....................... 2,084 3,670 20,339
------- -------- --------
Total assets.......................... $24,521 $114,090 $344,964
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabili-
ties................................... $ 11 $ 6,408 $ 29,113
Accrued funding obligation.............. -- 1,834 1,173
Due to parent........................... -- 12,476 5,787
Senior discount notes and other debt.... -- 890 241,039
------- -------- --------
Total liabilities..................... 11 21,608 277,112
------- -------- --------
Minority interest in subsidiaries......... -- 2,515 1,858
Commitments (Note 7)
Stockholder's Equity:
Preferred stock, $.01 par value, 1,000
shares authorized, none issued......... -- -- --
Common stock, $.01 par value, 2,000
shares authorized, 100, 100 and 100 is-
sued and outstanding, respectively..... -- -- --
Additional paid-in capital.............. 27,382 111,930 135,168
Unrealized loss on investment........... -- -- (784)
Cumulative translation adjustments...... 405 374 2,289
Accumulated deficit..................... (3,277) (22,337) (70,679)
------- -------- --------
Total stockholder's equity............ 24,510 89,967 65,994
------- -------- --------
Total liabilities and stockholder's
equity............................... $24,521 $114,090 $344,964
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-6
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ------------------
(UNAUDITED)
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Service and other revenue.......... $ -- $ 1,903 $ 1,152 $ 13,288
System operating expense, including
$320 of related party expenses in
1996.............................. -- (3,145) (1,870) (18,621)
System selling, general and admin-
istrative expense................. -- (2,482) (1,636) (13,987)
Corporate general and administra-
tive expense...................... (2,262) (2,874) (2,075) (2,832)
Depreciation and amortization...... -- (1,003) (639) (15,935)
--------- ---------- -------- --------
Net operating loss............... (2,262) (7,601) (5,068) (38,087)
Equity in losses of affiliated com-
panies............................ (1,015) (16,498) (12,518) (4,750)
Gain on sale of investment in af-
filiated company.................. -- 4,132 4,132 --
Interest income.................... -- 298 2 3,691
Interest expense................... -- (30) (19) (12,855)
Other.............................. -- 219 (14) 974
--------- ---------- -------- --------
Net loss before minority inter-
est............................. (3,277) (19,480) (13,485) (51,027)
Minority interest in subsidiary.... -- 420 309 2,685
--------- ---------- -------- --------
Net loss......................... $ (3,277) $ (19,060) $(13,176) $(48,342)
========= ========== ======== ========
Net loss per common share..........
Weighted average number of common
shares outstanding................
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED CUMULATIVE
------------- PAID-IN LOSS ON TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL INVESTMENT ADJUSTMENT DEFICIT TOTAL
------ ------ ---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1994................... -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. 100 -- -- -- -- -- --
Capital contributions
from parent............ -- -- 27,382 -- -- -- 27,382
Cumulative translation
adjustment............. -- -- -- -- 405 -- 405
Net loss................ -- -- -- -- -- (3,277) (3,277)
--- ------ -------- ----- ------ -------- --------
Balances, December 31,
1994................... 100 -- 27,382 -- 405 (3,277) 24,510
Capital contributions
from parent............ -- -- 84,548 -- -- -- 84,548
Change in cumulative
translation
adjustment............. -- -- -- -- (31) -- (31)
Net loss................ -- -- -- -- -- (19,060) (19,060)
--- ------ -------- ----- ------ -------- --------
Balances, December 31,
1995................... 100 -- 111,930 -- 374 (22,337) 89,967
Capital contributions
from parent
(unaudited)............ -- -- 17,340 -- -- -- 17,340
Gain on sale of stock by
subsidiary
(unaudited)............ -- -- 5,898 -- -- -- 5,898
Unrealized loss on
investment
(unaudited)............ -- -- -- (784) -- -- (784)
Cumulative translation
adjustment
(unaudited)............ -- -- -- -- 1,915 -- 1,915
Net loss (unaudited).... -- -- -- -- -- (48,342) (48,342)
--- ------ -------- ----- ------ -------- --------
Balances, September 30,
1996 (unaudited)....... 100 $ -- $135,168 $(784) $2,289 $(70,679) $ 65,994
=== ====== ======== ===== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- --------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................ $ (3,277) $ (19,060) $ (13,176) $ (48,342)
Adjustments to reconcile net loss to
net cash flows from operating
activities:
Depreciation and amortization..... -- 1,003 639 15,935
Equity in losses of affiliate com-
panies, net...................... 1,015 16,498 12,518 4,750
Gain on sale of investment in af-
filiated company................. -- (4,132) (4,132) --
Minority interest share of loss-
es............................... -- (420) (309) (2,685)
Accretion of interest on senior
discount notes................... -- -- -- 12,028
Increase in receivables........... -- (114) (290) (3,591)
Increase in other assets.......... (2,148) (2,817) (300) (8,659)
Increase in accounts payable, ac-
crued liabilities and other...... 11 248 776 5,080
--------- ---------- --------- ---------
Net cash flows from operating activ-
ities.............................. (4,399) (8,794) (4,274) (25,484)
--------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments.. -- -- -- (132,887)
Sale of short-term investments...... -- -- -- 105,257
Restricted cash..................... -- -- -- (10,000)
Investments in and advances to
affiliated companies and other
investments........................ (22,982) (30,090) (28,269) (16,841)
Purchase of additional 40% interest
in Austar, net of cash acquired.... -- (8,017) -- --
Proceeds from sale of investment in
affiliated company................. -- 4,132 4,132 --
Increase in note receivable......... -- (5,835) (2,700) (165)
Payment on note receivable.......... -- -- -- 3,000
Purchase of property, plant and
equipment.......................... (1) (7,143) (6,970) (105,899)
Increase in accounts payable for
capital expenditures............... -- -- -- 19,795
--------- ---------- --------- ---------
Net cash flows from investing activ-
ities.............................. (22,983) (46,953) (33,807) (137,740)
--------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent... 27,382 54,709 37,524 17,340
Proceeds from offering of senior
discount notes..................... -- -- -- 225,115
Borrowings on bridge loan payable to
parent............................. -- 9,927 5,400 15,073
Payment of bridge loan payable to
parent............................. -- -- -- (25,000)
Deferred debt offering costs........ -- -- -- (9,624)
Borrowing on other debt............. -- -- -- 13
--------- ---------- --------- ---------
Net cash flows from financing activ-
ities.............................. 27,382 64,636 42,924 222,917
--------- ---------- --------- ---------
EFFECT OF EXCHANGE RATES ON CASH.... -- (140) 166 918
--------- ---------- --------- ---------
INCREASE IN CASH AND CASH EQUIVA-
LENTS.............................. -- 8,749 5,009 60,611
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- -- -- 8,749
--------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ -- $ 8,749 $ 5,009 $ 69,360
========= ========== ========= =========
NON-CASH INVESTING AND FINANCING AC-
TIVITIES
Non-cash capital contribution of
preferred stock from parent
utilized in purchase of
additional 40% interest in
Austar........................... $ -- $ 29,839 $ -- $ --
========= ========== ========= =========
Non-cash stock issuance utilized
in purchase of 50% interest in
Saturn, net of $1,902 allocated
to minority interest............. $ -- $ -- $ -- $ 5,898
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BACKGROUND
UIH Asia/Pacific Communications, Inc. (the "Company"), a wholly-owned
subsidiary of United International Holdings, Inc. ("UIHI"), was formed in
April 1996. In connection with an offering of 14% Senior Discount Notes due
2006 (the "Offering") by UIH Australia/Pacific, Inc. ("UIH AP"), a 97.4% owned
subsidiary of the Company, and a planned concurrent senior discount notes
offering by UIH AP and an offering of common stock by the Company (Note 11),
UIHI merged into the Company and UIH AP, certain UIHI subsidiaries that hold
interests in certain operating properties, early stage projects and certain
development opportunities in Australia, Tahiti, New Zealand, the Phillipines,
China and elsewhere in the Asia/Pacific region. The accompanying financial
statements have been prepared on a basis of reorganization accounting as
though the Company had performed all foreign development activities and made
all acquisitions of UIHI's foreign multi-channel television, programming and
mobile data interests in Australia, Tahiti, New Zealand, the Philippines and
China since inception. The reorganized Company commenced operations in January
1994 when UIHI began its development related activities in the Asia/Pacific
region. The Company has reflected all of the transfers from UIHI as an equity
contribution in the accompanying consolidated financial statements. The
accompanying consolidated financial statements have been prepared as though
the Company made investments in the following entities on the original date
UIHI or certain of its wholly-owned subsidiaries made the investment:
. The Company acquired, through directly and indirectly held interests, an
effective 50.0% economic interest in two companies that form Austar in
1994. In December 1995, the Company increased its effective economic
interest in Austar (formerly CEtv) to 90.0%. In May 1996, UIH AP
increased its economic interest in Austar to 94% which was subsequently
increased to 96% and in October 1996, acquired the remaining 4% economic
interest in Austar for $7,900. The companies that comprise Austar (CTV
Pty Ltd. ("CTV") and STV Pty Ltd ("STV")) have acquired Multi-point
Microwave Distribution Systems ("MMDS") licenses to supply subscription
television services to television households in the north, northeastern
and southern regions of Australia outside of the country's largest cities
and are currently constructing multi-channel television systems to
service many of the television homes in their license areas. Those homes
that cannot be served by MMDS will be serviceable by a direct to home
satellite service marketed by Austar.
. The Company acquired an effective 90.0% economic interest in Telefenua
S.A. ("Telefenua") in January 1995. The Company's economic interest will
decrease to 75.0% and 64.0% once the Company has received a 20.0% and
40.0% internal rate of return on its investment in Telefenua,
respectively. Telefenua operates, since March 1995, the only multi-
channel subscription television system on the islands of Tahiti and
Moorea in French Polynesia.
. In July 1994, the Company acquired a 50.0% interest in Kiwi
Communications Ltd., which recently changed its name to Saturn
Communications Limited ("Saturn"). Saturn is constructing a wireline
multi- channel television system in New Zealand, primarily in the greater
Wellington area. In July 1996, the Company acquired the remaining 50%
interest in Saturn in exchange for a 2.6% interest in UIH AP which was
valued at approximately $7,800. The holder of this interest was granted a
one-time conversion right to exchange such interest for an equivalent
interest in the common stock of the Company in connection with the
Company's planned initial public offering (Note 11). Management believes
the holder intends to convert their interest in UIH AP into common stock
of the Company.
. XYZ Entertainment Pty Ltd ("XYZ Entertainment") is an Australian
proprietary company incorporated in New South Wales. Century United
Programming Ventures Pty Limited, an Australian corporation ("CUPV"),
owned equally by the Company and Century Communications Corp.
("Century"), holds a 50.0% interest in XYZ Entertainment. In October
1994, the Company acquired an initial 50.0% interest
F-10
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
in XYZ Entertainment. In September 1995, a third party purchased a 50.0%
interest in XYZ Entertainment, thereby diluting the Company's indirect
interest in XYZ Entertainment to 25.0%.
. The Company acquired a 100.0% interest in August 1995 in United Wireless Pty
Limited ("United Wireless"), a provider of wireless mobile data services in
Australia, primarily Sydney and Melbourne, and is the initial stages of
deploying its distribution network and marketing its services. The Company
accounted for its acquisition using the purchase method of accounting.
. The Company holds a 40% interest in Telemondial Holdings, Inc. (d.b.a.
"Sun Cable"), a cable television operator in the Philippines. Due to
limitations on foreign ownership, the Company's interest in Sun Cable is
held as a convertible loan, which is convertible into a 40% equity interest
in Sun Cable when and if allowed under local regulations.
. The Company formed Hunan International TV Communications Company Ltd.
("HITV"), a 49% owned joint venture in June 1994. HITV is rebuilding a
digital microwave relay network to deliver video services to the Hunan
Province in China.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries where it exercises majority control and owns
a majority economic interest. During the year ended December 31, 1995, the
Company consolidated Telefenua, and subsequent to August 31, 1995, United
Wireless. Due to the Company's acquisition of the majority economic interest
in CTV and STV in late December 1995, the accompanying December 31, 1995
consolidated balance sheet consolidates the accounts of CTV and STV as of
December 31, 1995. The Company recognized equity losses from its investments
in CTV and STV through December 31, 1995. The Company will consolidate the
operations of CTV and STV beginning January 1, 1996. All significant
intercompany accounts and transactions have been eliminated in consolidation.
SAB 51 ACCOUNTING POLICY
Under Staff Accounting Bulletin Number 51 ("SAB 51"), the "gain" ($5,898)
recognized by the Company upon the issuance by UIH AP of a 2.6% interest in
UIH AP for a 50% interest in Saturn was credited directly to equity as the UIH
AP shares were in effect sold subject to repurchase due to the conversion
feature granted to the holder (Note 1). The Company has adopted a SAB 51
policy to record all gains as a result of stock sales by its subsidiaries in
the statement of operations except for any transactions which must be credited
directly to equity in accordance with the provisions of SAB 51.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months. The portion of short-term investments
and the Company's investment in Australis Media Limited (see Note 11)
F-11
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
which are classified as available for sale in accordance with the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115") are accounted
for at fair market value. As of September 30, 1996 (unaudited), the Company
held approximately $27,630 of short-term investments classified as held to
maturity securities which are stated at amortized cost under the provisions of
SFAS 115.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in companies in which the Company's interest is 20% to
50%, or for investments where the Company's interest is less than 20% in which
the Company exerts significant influence through board representation and
management authority, the equity method of accounting is used. Under this
method, the investment, originally recorded at cost, is adjusted to recognize
the Company's proportionate share of net earnings or losses of the affiliates,
limited to the extent of the Company's investment in and advances to the
affiliates, including any debt guarantees or other funding commitments. The
Company's proportionate share of net earnings or losses of affiliates includes
the amortization of the excess of cost over net tangible assets acquired.
Investments in and advances to affiliated companies are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATE COMPANIES AFFILIATE COMPANIES ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Australia (Austar)...... $19,738 $ (551) $344 $19,531
Saturn.................. 2,539 (365) 60 2,234
XYZ Entertainment....... 629 (99) 1 531
Other .................. 140 -- -- 140
------- -------- ---- -------
$23,046 $(1,015) $405 $22,436
======= ======== ==== =======
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATE COMPANIES AFFILIATE COMPANIES(1) ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
Saturn.................. $ 4,520 $ (1,803) $112 $ 2,829
XYZ Entertainment....... 11,718(2) (11,828) 110 --
Other................... 7,758 (129) 184 7,813
------- -------- ---- -------
$23,996 $(13,760) $406 $10,642
======= ======== ==== =======
<CAPTION>
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
---------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSS OF TRANSLATION
AFFILIATED COMPANIES AFFILIATE COMPANIES(3) ADJUSTMENT TOTAL
-------------------- ---------------------- ----------- -------
<S> <C> <C> <C> <C>
XYZ Entertainment....... $15,289 $(15,399) $110 $ --
Other................... 14,643 (336) 167 14,474
------- -------- ---- -------
$29,932 $(15,735) $277 $14,474
======= ======== ==== =======
</TABLE>
- ---------------------
(1) Does not include cumulative equity in losses for Austar of $3,763, as
Austar's balance sheet is consolidated as of December 31, 1995.
(2) Includes $4,132 of investment prior to the receipt of $4,132 of proceeds
received from the sale of 50% of the Company's interest. As the Company
had recorded equity in losses from XYZ Entertainment in an amount equal to
its invested capital, the Company recognized a gain of $4,132 on this
transaction. In addition, the Company accrued an additional funding
obligation of $1,173 at September 30, 1996.
(3) Does not include cumulative equity in losses for Saturn of $2,733, as
Saturn's balance sheet is consolidated as of September 30, 1996.
F-12
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
The Company recognized $3,571 and $11,729 of equity losses from XYZ
Entertainment for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively, including $1,173 and $1,834 of additional
equity losses associated with the Company's accrued funding obligation to XYZ
Entertainment. The Company does not have a contractual funding obligation to
XYZ Entertainment, however, the Company would face significant and punitive
dilution if it did not make the scheduled fundings. Subsequent to year end,
the Company funded all of its accrued funding obligation.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost. Additions, replacements and major
improvements are capitalized and costs for normal repair and maintenance of
property, plant and equipment are charged to expense as incurred. Depreciation
expense is computed by the straight-line method over their estimated useful
lives as shown below.
<TABLE>
<CAPTION>
AVERAGE YEARS
-------------
<S> <C>
Cable plant................................... 5-10
Other fixed assets............................ 3-5
Furniture and fixtures........................ 10
Leasehold improvements........................ 6-10
</TABLE>
LEASED ASSETS
Assets acquired under capital leases are included in property, plant and
equipment. The initial amount of the leased asset and corresponding lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.
LICENSE FEES
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses ($8,890), acquired for a 5-year period for Australia,
will be amortized over the remaining license period upon commencement of
operations. They are renewable every 5 years. In Tahiti, the license rights,
totaling $2,225 are amortized over a 10-year period.
GOODWILL
The Company's acquisition of an additional 40% economic interest in CTV and
STV was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
tangible and intangible assets approximated their respective fair values at
that date. Accordingly, goodwill of $44,790 will be amortized over 15 years
beginning January 1, 1996. The Company's acquisition in July 1996 of the
additional 50% interest in Saturn in exchange for a 2.6% interest in UIH AP's
common stock resulted in an additional $9,178 of goodwill being recorded which
is being amortized over 15 years.
RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amount of all tangible and intangible assets are reviewed at
least annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all tangible and intangible assets have been determined
using net cash flows which have not been discounted to their present values.
F-13
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
REVENUE RECOGNITION
Monthly service and installation fees are recognized as revenue in the
period the related services are provided to the subscribers.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax assets and liabilities for
the expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Net deferred tax assets are then reduced by a valuation allowance
for amounts which do not satisfy the realization criteria of SFAS 109.
FOREIGN OPERATIONS
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company. Assets and liabilities
of foreign subsidiaries are translated at the exchange rates in effect at year
end and the statements of operations are translated at the average exchange
rates during the period. Exchange rate fluctuations on translating foreign
currency financial statements into U.S. dollars result in unrealized gains or
losses referred to as translation adjustments. Cumulative translation
adjustments are recorded as a separate component of stockholder's equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period end translations)
or realized upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported on the Consolidated
Statements of Cash Flows will not agree to changes in the corresponding
balances on the Consolidated Balance Sheets. The effects of exchange rate
changes on cash balances held in foreign currencies is reported as a separate
line below cash flows from financing activities.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") which
is required to be adopted by affected companies for fiscal years beginning
after December 15, 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") which is required to be adopted by affected
F-14
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
companies for fiscal years beginning after December 15, 1995. The Company does
not believe that the provisions of SFAS 123 will have a material effect on the
Company's reported results.
INTERIM FINANCIAL STATEMENTS
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 include all adjustments necessary for
a fair presentation. Such adjustments were of a normal recurring nature.
3. ACQUISITIONS
In January 1995, the Company acquired an initial 90% economic interest in
Telefenua in exchange for a cash contribution into Telefenua of $6,060, the
contribution of a note and accrued interest due UIHI of $817 and equipment
leased to Telefenua totaling $2,039. Details of the net assets acquired are as
follows:
<TABLE>
<CAPTION>
(CONVERTED AT ACQUISITION DATE)
<S> <C>
Tangible assets........... $ 4,213
Intangible assets......... 1,835
Other..................... 107
Cash...................... 6,181
Accounts payable and ac-
crued liabilities........ (783)
Due to affiliate.......... (2,110)
Minority shareholders' in-
terest................... (527)
-------
Total consideration..... $ 8,916
=======
</TABLE>
The purchase price was allocated to the net assets acquired based on
relative fair market values.
The Company's cumulative investment as of December 31, 1995 in Telefenua
includes the cash and notes contributed of $6,877, an equipment lease of
$2,285 and bridge loans in the amount of $4,527. The Company's consolidated
assets, liabilities, revenues, expenses and net loss after intercompany
eliminations related to Telefenua for the year ended December 31, 1995 totaled
$10,989, $9,710, $1,882, $5,806 and $3,924, respectively.
In response to a legal challenge by the President of Tahiti, the Conseil
d'Etat of France recently canceled a decree authorizing MMDS systems in French
Polynesia and similar French territories. The cancellation could provide a
legal basis to cancel a required authorization already granted to Telefenua by
the communications agency because the authorization was based in part on the
decree. A law recently enacted by the French Parliament gives Telefenua a
legal basis to ask for a new authorization from the communications agency,
should the existing authorization be nullified. There can be no assurance,
however, that if the existing authorization is nullified a new authorization
will be obtained or, if a new authorization is obtained, that it would not
differ from the existing authorization.
F-15
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
In December 1995, the Company acquired an additional 40% effective economic
interest in Austar from other shareholders increasing its effective economic
interest to 90%. The Company paid $15,241 in cash and contributed 170,513
shares of UIHI's convertible preferred stock having an initial liquidation
value and fair value of $29,839 for the additional 40% effective economic
interest. Details of the net assets are as follows:
<TABLE>
<CAPTION>
(CONVERTED AT ACQUISITION DATE)
<S> <C>
Tangible assets.......................... $ 18,267
Intangible assets........................ 8,643
Receivables, prepaids and other.......... 2,704
Cash..................................... 7,222
Accounts payable and accrued liabili-
ties.................................... (6,140)
Other debt............................... (890)
Minority shareholders' interest.......... (2,363)
Net investment prior to acquisition of
40%..................................... (27,153)
--------
290
Goodwill................................. 44,790
--------
Total consideration.................... $ 45,080
========
</TABLE>
The Company's cumulative investment as of December 31, 1995 in Austar
includes cash invested of $19,903, bridge loans of $5,400, the purchase of a
10% interest from another shareholder for $5,613 and the purchase of the 40%
interest from another shareholder for $45,080. The Company's equity in losses
from Austar for the years ended December 31, 1994 and 1995 are $551 and
$3,212, respectively.
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
Investments in and advances to affiliated companies accounted for under the
equity method amount to $22,436 and $10,642 as of December 31, 1994 and 1995,
respectively.
Condensed financial information for the Company's significant equity
investees is presented below.
CTV
In September 1994, the Company began to fund its 40.0% economic interest in
CTV, an Australian company that currently holds MMDS licenses in Australia.
The Company then acquired an additional 10.0% economic interest in CTV from
another shareholder for $5,613. As noted above, in December 1995, the Company
purchased an additional 40% economic interest in CTV which increased its
economic interest to 90% and accordingly, the Company has consolidated the
balance sheet of CTV as of December 31, 1995 (see Note 1).
F-16
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
Condensed financial information for CTV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash.......................................................... $15,023
Property, plant and equipment, net............................ 2,130
Intangible assets, net........................................ 3,896
Other assets.................................................. 577
-------
Total assets................................................ $21,626
=======
Accounts payable and accrued liabilities...................... $ 2,159
Shareholders' equity, including shareholder debentures........ 19,467
-------
Total liabilities and shareholders' equity.................. $21,626
=======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- --------------------
1994(1) 1995 1995
(UNAUDITED)
<S> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue........................... $ -- $ 433 $ 103
Operating, selling, general and
administrative expenses.......... (243) (4,804) (2,446)
Depreciation and amortization..... (3) (1,113) (322)
-------- ---------- -------
Net operating loss.............. (246) (5,484) (2,665)
Interest, net..................... 246 914 869
Other............................. -- 245 248
-------- ---------- -------
Net loss........................ $ -- $(4,325) $(1,548)
======== ========== =======
</TABLE>
- ---------------------
(1) CTV began operations during 1994.
STV
In October 1994, the Company began to fund its 50.0% economic interest in
STV, an Australian company that holds MMDS licenses in Australia. In December
1995, the Company purchased an additional 40.0% economic interest in STV which
increased its economic interest to 90.0%, and accordingly, the Company has
consolidated the balance sheet of STV as of December 31, 1995 (see Note 1).
Condensed financial information for STV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1994
-----------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash.......................................................... $7,816
Property, plant and equipment, net............................ 409
Intangible assets, net........................................ 3
Other assets.................................................. 50
------
Total assets................................................ $8,278
======
Accounts payable and accrued liabilities...................... $ 617
Shareholders' equity, including shareholder debentures........ 7,661
------
Total liabilities and shareholders' equity.................. $8,278
======
</TABLE>
F-17
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- -------------------
1994(1) 1995 1995
(UNAUDITED)
<S> <C> <C> <C>
CONDENSED INCOME STATEMENT DATA
Revenue............................ $ -- $ 10 $ --
Operating, selling, general and ad-
ministrative expenses............. (197) (2,670) (1,652)
Depreciation and amortization...... (3) (158) (72)
-------- ---------- -------
Net operating loss............... (200) (2,818) (1,724)
Interest, net...................... 107 315 313
-------- ---------- -------
Net loss......................... $ (93) $(2,503) $(1,411)
======== ========== =======
</TABLE>
- ---------------------
(1) STV began operations during 1994.
Condensed combined financial information for CTV and STV, stated in U.S.
dollars, is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1996
(UNAUDITED)
<S> <C>
CONDENSED CONSOLIDATED INCOME STATEMENT DATA
Revenue.................................................... $ 10,544
Operating, selling, general and administrative expenses.... (26,415)
Depreciation and amortization.............................. (12,269)
--------
Net operating loss....................................... (28,140)
Interest, net.............................................. (700)
Other...................................................... 347
--------
Net loss................................................. $(28,493)
========
</TABLE>
XYZ
Condensed financial information for XYZ Entertainment stated in U.S.
dollars, which is derived from financial statements audited by Deloitte Touche
Tohmatsu, is as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
---------------
1994(1) 1995
<S> <C> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash........................................................... $ 520 $ 2,309
Property, plant and equipment, net............................. 45 2,499
Intangible assets, net......................................... -- 1,871
Other assets................................................... 25 1,933
----- -------
Total assets................................................. $ 590 $ 8,612
===== =======
Accounts payable and accrued liabilities....................... $ -- $16,068
Shareholder loans.............................................. 771 21,597
Shareholders' equity........................................... (181) (29,053)
----- -------
Total liabilities and shareholders' equity................... $ 590 $ 8,612
===== =======
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
F-18
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- --------------------
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue......................... $ -- $ 1,266 $ 271 $ 5,667
Operating, selling, general and
administrative expenses........ (183) (27,511) (22,077) (13,746)
Depreciation and amortization... -- (2,662) (1,848) (2,425)
-------- ----------- --------- ---------
Net operating loss............ (183) (28,907) (23,654) (10,504)
Interest, net................... 2 145 147 134
Other........................... -- -- -- (3,462)
-------- ----------- --------- ---------
Net loss...................... $(181) $(28,762) $(23,507) $(13,832)
======== =========== ========= =========
</TABLE>
- ---------------------
(1) XYZ Entertainment began operations during 1994.
SATURN
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------
1994 1995
<S> <C> <C>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
Cash............................................................. $ 469 $ 248
Property, plant and equipment, net............................... 1,278 1,478
Other assets..................................................... 272 303
------ ------
Total assets................................................... $2,019 $2,029
====== ======
Accounts payable and accrued liabilities......................... $ 184 $2,802
Shareholders' equity............................................. 1,835 (773)
------ ------
Total liabilities and shareholders' equity..................... $2,019 $2,029
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------- --------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CONDENSED CONSOLIDATED INCOME
STATEMENT DATA
Revenue........................... $ 43 $ 148 $ 95 $ 148
Operating, selling, general and
administrative expenses.......... (976) (2,365) (1,242) (3,016)
Depreciation and amortization..... (351) (385) (327) (281)
--------- --------- --------- ---------
Net operating loss.............. (1,284) (2,602) (1,474) (3,149)
Other............................. 69 (55) (6) (449)
--------- --------- --------- ---------
Net loss........................ $(1,215) $(2,657) $(1,480) $(3,598)
========= ========= ========= =========
</TABLE>
F-19
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............................. $-- $ 1,582 $ 3,220
Plant and equipment................................ -- 22,683 136,394
Capitalized network construction expenditures...... -- 2,776 507
Other.............................................. 1 1,301 3,499
--- ------- --------
1 28,342 143,620
Accumulated depreciation and amortization.......... -- (1,217) (13,185)
--- ------- --------
Net property, plant and equipment.................. $ 1 $27,125 $130,435
=== ======= ========
</TABLE>
6. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit
against its federal income tax expense for foreign income taxes paid or
accrued. Because the Company must calculate its foreign tax credit separately
for dividends received from each foreign corporation in which the Company owns
10% to 50% of the voting stock and because of certain other limitations, the
Company's ability to claim a foreign tax credit may be limited, particularly
with respect to dividends paid out of earnings subject to a high rate of
foreign income tax. This limitation and the inability of the Company to offset
losses in one foreign jurisdiction against income earned in another foreign
jurisdiction could result in a high effective tax rate on the Company's
earnings. The Company has an ownership interest in Telefenua, which is located
in Tahiti, a self-governing territory of France, with which the United States
does not have an income tax treaty. As a result, the Company may be subject to
increased withholding taxes on dividend distributions and other payments from
Telefenua and also may be subject to double taxation with respect to income
generated by Telefenua.
The Company is included as a member of UIHI's consolidated tax return and,
after the Offering, remained a member of the UIHI consolidated group.
Following consummation of the Company's planned initial public offering (see
Note 11), the Company may no longer be included in the UIHI consolidated group
for federal income tax purposes. UIHI and the Company are parties to a tax
sharing agreement that defines the parties' rights and obligations with
respect to tax liability and benefits relating to the Company and its
operations as part of the consolidated group of UIHI. In general, UIHI is
responsible for filing consolidated tax returns and paying the associated
taxes and the Company will reimburse UIHI for the portion of the tax cost
relating to the Company and its operations. For financial reporting purposes,
the Company accounts for income taxes in accordance with SFAS 109 as if it
filed separate income tax returns in accordance with the fundamental
provisions of the tax sharing agreement. The primary differences between
taxable income (loss) and net income (loss) for financial reporting purposes
relate to accounting for equity in income (losses) of affiliated companies and
the non-consolidation of its consolidated subsidiaries for U.S. tax purposes.
Because the Company holds certain of its foreign investments through
affiliates which hold investments, accounted for under the equity method, in
foreign corporations, taxable income (loss) generated does not flow through to
the Company for United States federal and state tax purposes even though the
Company records its allocable share of affiliate income (losses) for financial
reporting purposes. Accordingly, due to the indefinite reversal of such
amounts in future periods, no deferred tax assets have been established for
tax basis in excess of the Company's book basis (approximately $250 and $6,000
at December 31, 1994 and 1995, respectively) in investments in affiliated
companies who, in turn have equity investments in foreign corporations.
The Company's United States net operating loss, totaling approximately
$6,250 at December 31, 1995, expires beginning in 2009 through 2011.
F-20
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1994 1995
<S> <C> <C>
Company's United States tax net operating loss
carryforward............................................... $ 1,150 $ 2,450
Tax net operating loss carryforward of consolidated foreign
subsidiaries............................................... -- 4,165
------- -------
Deferred tax asset.......................................... 1,150 6,615
Valuation reserve........................................... (1,150) (6,615)
------- -------
Deferred tax asset, net..................................... $ -- $ --
======= =======
For Australian income tax purposes, the net operating loss carryforward may
be limited in the event of a change in control of Austar or a change in the
business.
The difference between income tax expense provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
----------------
1994 1995
<S> <C> <C>
Expected income tax expense (benefit) at statutory rates.... $(1,278) $(7,433)
Tax effect of permanent and other differences:
Book/tax basis differences associated with foreign equity
investments.............................................. 396 6,434
Other..................................................... -- 39
Amortization of licenses.................................. -- 157
Non-deductible Entertainment.............................. -- 222
Effect of net operating losses not recognized............. 882 581
------- -------
Total income tax expense (benefit).......................... $ -- $ --
======= =======
7. COMMITMENTS
Austar has license fees payable annually as follows:
1996.................................................... $ 3,194
1997.................................................... 3,194
1998.................................................... 3,194
1999.................................................... 1,868
2000.................................................... --
-------
$11,450
=======
Austar has capital lease obligations as follows:
1996.................................................... $ 235
1997.................................................... 261
1998.................................................... 575
1999.................................................... 17
2000.................................................... --
-------
1,088
Future finance charges.................................. (198)
-------
$ 890
=======
</TABLE>
F-21
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
Austar has operating lease obligations as follows:
<TABLE>
<S> <C>
1996................................................................ $ 474
1997................................................................ 474
1998................................................................ 474
1999................................................................ 475
2000................................................................ 475
After............................................................... 504
------
$2,876
======
</TABLE>
Austar entered into franchise agreements with Australis Media Limited
("Australis"). The franchise agreements provide for Austar to have access to
Australis programming in the franchise area and be the sole Australis
franchisee in the region on all medium, being MMDS, satellite and cable.
Austar acquires a significant portion of its programming from Australis. (See
Note 11).
Under the agreements, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number of
subscribers.
8. RELATED PARTY
In connection with the corporate reorganization discussed in Note 1, UIH AP
and UIHI have executed a 10-year management services agreement (the "UIHI
Management Agreement"), pursuant to which UIHI will continue to perform
certain administrative, accounting, financial reporting and other services for
the Company, which has no separate employees of its own. For the years ended
December 31, 1994 and 1995, UIHI allocated approximately $659 and $920 to UIH
AP for such services. Pursuant to the UIHI Management Agreement, UIHI will be
paid a management fee of $750 for the first year of such agreement, which fees
shall increase on the first anniversary date of the UIHI Management Agreement
and each anniversary date thereafter by 8% per year. In addition, UIH AP shall
reimburse UIHI for any out-of-pocket expenses incurred by UIHI in performance
of its duties under the UIHI Management Agreement, including travel, lodging
and entertainment expenses.
UIHI has executed technical assistance agreements with CTV and STV pursuant
to which it will provide various management and technical services. Under the
agreements, UIHI receives a management fee equal to 5% of CTV and STV's total
revenue for the first two years, 4% for the next six years, 3% for the
following two years and 2% thereafter. In addition, UIHI is reimbursed for all
direct costs associated with services it provides for Austar. Austar's
managing director, chief operating officer and marketing director are
employees of UIHI that have been seconded to Austar. In addition, UIHI has
appointed five other management personnel and all six directors.
UIHI and Telefenua have executed a technical services agreement whereby UIHI
has agreed to provide technical, administrative and operational assistance to
Telefenua encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, selling and
advertising, (iii) accounting, billing and subscriber management systems, and
(iv) personnel management and training for a fee equal to 5.5% of Telefenua's
gross revenue through 1996, 3.5% of gross revenue for the following 12 months,
and 2.5% thereafter. The fees payable to UIHI under its technical service
agreement with an indirect majority owned subsidiary are 5%, 3% and 2% of
Telefenua's gross revenues over the same periods. UIHI is also reimbursed for
all direct and indirect costs associated with the services it provides. UIHI
has appointed two
F-22
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
of its employees to serve as managing director and the technical director of
Telefenua. UIHI pays these employee's salaries and benefits.
Saturn and UIHI have executed a technical services agreement pursuant to
which UIHI provides technical, administrative and operational assistance to
Saturn encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, pricing and packaging
of services, (iii) selection of programming and negotiations with suppliers
and (iv) accounting, billing and subscriber management systems. UIHI receives
a management fee equal to 5% of Saturn's gross revenue through July 1999. UIHI
is also reimbursed for all direct and indirect costs associated with these
services. The managing director and construction manager are employees of UIHI
that have been seconded to Saturn pursuant to the terms of the technical
services agreement.
In connection with the corporate reorganization described in Note 1, UIHI
intends to assign its rights with respect to the CTV, STV, Telefenua and
Saturn technical services agreements to the Company.
Included in the due to parent payable as of December 31, 1995 is the
following:
<TABLE>
<S> <C>
CTV Bridge loan(1)................................................ $ 5,400
Telefenua Bridge loan, including accrued interest of $231(2)...... 4,527
Austar technical assistance agreement obligations................. 1,475
Telefenua technical assistance agreement obligations.............. 1,074
-------
$12,476
=======
</TABLE>
- ---------------------
(1) The loan extended to CTV is at an interest rate of 9.25% and has no terms
of repayment. The loan was converted into equity of CTV in May 1996.
(2) The loan extended to Telefenua is at an interest rate of 14% and is
compounded annually and has no terms of repayment. The Company has the
option to convert the bridge loan into equity of Telefenua.
Upon completion of the Offering discussed in Note 1, approximately $25,000
of the proceeds were used to acquire certain bridge loans made by UIHI to CTV
and Telefenua noted above, including $15,073 advanced to Austar and Telefenua
subsequent to year end.
9. PRO FORMA INFORMATION
The following unaudited pro forma information for the year ended December
31, 1995 and for the nine months ended September 30, 1996 gives effect to the
acquisitions of the additional 50% economic interests in Austar, the
disposition of the 25% interest in XYZ Entertainment, the acquisition of the
additional 50% economic interest in Saturn and the acquisition of United
Wireless as if each had occurred on January 1, 1995. The pro forma financial
information does not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable under current circumstances.
F-23
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------
UNITED
ACTUAL AUSTAR(1) XYZ(2) SATURN(3) WIRELESS(4) PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Consolidated Condensed
Statement of
Operations:
Service and other
revenue.............. $ 1,903 $ 443 $ -- $ 148 $ 33 $ 2,527
System operating
expense.............. (3,145) (793) -- (863) (687) (5,488)
System selling,
general and
administrative
expense.............. (2,482) (6,681) -- (1,502) (341) (11,006)
Corporate general and
administrative
expense.............. (2,874) -- -- -- -- (2,874)
Depreciation and
amortization
expense.............. (1,003) (4,259) -- (997) (86) (6,345)
-------- -------- ------- ------- ------- --------
Net operating loss.. (7,601) (11,290) -- (3,214) (1,081) (23,186)
Equity in losses of
affiliated companies,
net.................. (16,498) 3,212 4,132 1,438 -- (7,716)
Interest, net......... 268 1,230 -- -- -- 1,498
Other, net............ 4,771 244 (4,132) (55) 1 829
-------- -------- ------- ------- ------- --------
Net loss............ $(19,060) $ (6,604) $ -- $(1,831) $(1,080) $(28,575)
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------
PRO
ACTUAL AUSTAR(5) SATURN(3) FORMA
-------- --------- --------- --------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C>
Service and other revenue..... $ 13,288 $ -- $ 104 $ 13,392
System operating expense...... (18,621) -- (619) (19,240)
System selling, general and
administrative expense....... (13,987) -- (1,077) (15,064)
Corporate general and adminis-
trative expense.............. (2,832) -- -- (2,832)
Depreciation and amortization
expense...................... (15,935) -- (491) (16,426)
-------- ------- ------- --------
Net operating loss.......... (38,087) -- (2,083) (40,170)
Equity in losses of affiliated
companies, net............... (4,750) -- 930 (3,820)
Interest, net................. (9,164) -- (83) (9,247)
Other, net.................... 3,659 (1,911) 136 1,884
-------- ------- ------- --------
Net loss.................... $(48,342) $(1,911) $(1,100) $(51,353)
======== ======= ======= ========
</TABLE>
- ---------------------
(1) Represents the consolidation of Austar and the elimination of the
previously recorded equity in losses. Included in depreciation and
amortization expense is $2,987 of amortization related to the goodwill
recorded in connection with the acquisition of an additional 40% effective
economic interest, amortized over 15 years on a straight line basis.
(2) Represents the elimination of the gain on sale of XYZ and 25% of the
equity in losses previously recognized.
(3) Represents the consolidation of Saturn and the elimination of the
previously recorded equity in losses. Included in depreciation and
amortization expense is $612 and $306 of amortization for the year ended
December 31, 1995 and the nine months ended September 30, 1996,
respectively, of amortization related to the goodwill recorded in
connection with the purchase of the additional 50% interest in Saturn
which will be amortized over 15 years.
(4) Represents the pre-acquisition activity of United Wireless.
(5) Represents the elimination of losses allocated to the minority interest
due to the increase in the economic ownership to 100%.
F-24
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
10. STOCKHOLDERS' EQUITY
UIHI and many of its employees serving as senior management in the Company's
operating companies are parties to employment agreements typically with terms
of three to five years. The agreements generally provide for a specified base
salary as well as a bonus set at a specified percentage of the base salary,
which bonus is based on the performance of the respective company and
employee. The agreements often provide for the grant of an incentive interest
equal to a percentage of the residual equity value of the respective company
which is typically defined as the fair market value of the business less net
liabilities and a reasonable return on shareholders' investment. The
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.
The Company intends to adopt a stock option and equity incentive plan
concurrent with its proposed equity offering (see Note 11).
11. SUBSEQUENT EVENTS
On May 14, 1996, UIH AP raised total gross proceeds of approximately
$225,115 from the private placement of $443,000 aggregate principal amount of
14% Senior Discount Notes due 2006. No cash interest payments are required
until May 15, 2001, at which time cash interest payments will be payable semi-
annually on each May 15 and November 15. The Senior Discount Notes are due May
15, 2006. The 14% Senior Discount Notes due 2006 were subsequently exchanged
for 14% Senior Discount Notes due 2006, Series B (the "Senior Discount Notes")
in September 1996.
If the Company or UIH AP do not consummate an issuance of capital stock
resulting in gross proceeds to UIH AP of at least $70,000 (an "Equity Sale")
prior to May 16, 1997, then the interest rate on the Senior Discount Notes
will be increased by an additional 0.75% per annum, until such time as the
Equity Sale is effected. In addition, if the Company or UIH AP do not
consummate an Equity Sale prior to November 16, 1997, the then holders of the
Senior Discount Notes will be entitled to receive warrants to purchase common
stock of UIH AP or, in certain circumstances, of the Company. However, the
Company intends to file a registration statement in November 1996 for the sale
of at least $70,000 of its common stock in order to avoid such dilution and
interest penalty. There is no assurance that this offering will be successful.
UIH AP also intends to file a registration statement during November 1996
for the sale of up to $150,000 in senior discount notes, the proceeds of which
would be used primarily for funding commitments to its operating companies.
There is no assurance this offering will be successful.
UIH AP used $10,000 of the proceeds from its offering of Senior Discount
Notes to acquire a UIHI subsidiary which guaranteed $10,000 of Australis' debt
and, as consideration for giving the guarantee, received warrants to acquire
4,171,460 ordinary shares or convertible debentures. On October 31, 1996, UIH
AP's $10,000 guarantee of Australis' debt expired. UIH AP used $3,339 of the
related cash to acquire 7,736,171 debentures of Australis. Further, UIH AP
exercised warrants to acquire Australis common stock and debentures at A$0.20
per share for 3,016,832 shares of Australis common stock and 1,154,628
debentures. Each debenture is convertible into one common share of Australis.
Australis, Austar's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. Australis has recently closed private
F-25
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AFTER CORPORATE REORGANIZATION--SEE NOTE 1)
AS OF DECEMBER 31, 1994 AND 1995
(MONETARY AMOUNTS IN THOUSANDS)
offerings of debt and equity securities that Australis announced would enable
it to carry its business through to cash flow positive. If such financing is
not sufficient to satisfy Australis' long-term capital needs, Australis may
have difficulty meeting contractual obligations with respect to the four
Galaxy channels distributed directly by Australis. The Company believes that
if Austar is no longer able to obtain the four Galaxy channels provided by
Australis on an exclusive basis and it were required to seek replacement
programming, it would have access to the same programming directly from the
suppliers of the four Galaxy channels or sufficient alternative programming on
competitive terms. There can be no assurance however, that this would be the
case and the inability of Austar to procure the same or suitable alternative
programming at competitive rates and on an exclusive basis in its service
areas could have a material adverse effect on the Company.
In October 1996, a complaint was served on UIHI by an individual who claimed
to have worked with UIHI in connection with the acquisition by Austar of
certain of its licenses has claimed that UIHI owes him a 12.5% equity interest
in unspecified subsidiaries of UIHI in consideration of services purportedly
provided. This complaint seeks an unspecified amount of damages. UIHI intends
to vigorously defend these claims, which UIHI believes are without merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision
from using such infrastructure to deliver DTH services in Austar's franchise
area. Austar believes that using the infrastructure by any entity other than
Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which
granted Austar an exclusive license and franchise to use the infrastructure
within its franchise area. Austar is seeking injunctive relief or, in the
alternative, damages associated with this violation of its franchise
agreements.
F-26
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of
CTV Pty Limited
We have audited the accompanying consolidated financial statements of CTV
Pty Limited and its subsidiaries for the period ended 31 December 1994 and the
year ended 31 December 1995. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on those consolidated financial statements based on our audit.
We conducted our audit in accordance with Australian Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the consolidated financial position
of CTV Pty Limited as of 31 December 1994 and 1995, and the consolidated
results of the group's operations and consolidated cash flows for the periods
then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-27
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------
SEPTEMBER 30,
DECEMBER 31, 1996
--------------------- --------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets:
Cash........................... 19,371,145 9,712,936 161,294
Receivables.................... 3 718,939 4,538,627 15,022,096
Inventory...................... -- 679,628 2,263,092
Other.......................... 4 25,582 830,133 1,691,204
---------- ---------- -----------
Total current assets......... 20,115,666 15,761,324 19,137,686
---------- ---------- -----------
Non-current assets
Investments.................... 5 2 2 2
Property, plant and equipment.. 6 2,746,809 17,955,579 73,165,057
Intangibles.................... 7 5,021,630 7,906,674 7,892,233
---------- ---------- -----------
Total non-current assets..... 7,768,441 25,862,255 81,057,292
---------- ---------- -----------
Total assets............... 27,884,107 41,623,579 100,194,978
---------- ---------- -----------
Current liabilities
Creditors and borrowings....... 8 2,747,734 15,477,769 31,792,650
Provisions..................... -- -- --
---------- ---------- -----------
Total current liabilities.... 2,747,734 15,477,769 31,792,650
---------- ---------- -----------
Non-current liabilities
Creditors and borrowings....... 9 36,165 684,945 1,904,893
Provisions..................... 10 -- 156,267 387,109
---------- ---------- -----------
Total non-current liabili-
ties........................ 36,165 841,212 2,292,002
---------- ---------- -----------
Total liabilities.......... 2,783,899 16,318,981 34,084,652
---------- ---------- -----------
Net assets....................... 25,100,208 25,304,598 66,110,326
========== ========== ===========
Shareholders' equity
Share capital.................. 11 42,729 42,729 42,729
Reserves....................... 13 5,116,536 5,116,536 5,116,536
Retained profits/(accumulated
losses)....................... 206 (5,795,404) (28,843,681)
---------- ---------- -----------
5,159,471 (636,139) (23,684,416)
Convertible debentures......... 12 19,940,737 25,940,737 89,794,742
---------- ---------- -----------
Total shareholders' equi-
ty........................ 25,100,208 25,304,598 66,110,326
========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-28
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------------------
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
(UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C>
Revenue:
Service............... -- 579,690 138,968 8,292,261
-------- ---------- ------------ -------------
-- 579,690 138,968 8,292,261
-------- ---------- ------------ -------------
Expenses:
General and adminis-
tration.............. 321,494 6,406,782 3,301,778 20,288,526
Depreciation and
amortisation......... 4,055 1,491,456 435,253 10,591,840
Management fees....... -- 29,651 -- 132,767
-------- ---------- ------------ -------------
325,549 7,927,889 3,737,031 31,013,133
-------- ---------- ------------ -------------
Operating loss.......... (325,549) (7,348,199) (3,598,063) (22,720,872)
-------- ---------- ------------ -------------
Non-operating income
(expense)
Interest income....... 327,355 1,227,029 1,173,674 184,695
Interest expense and
costs of finance..... (1,600) (2,180) (862) (693,700)
Other, net foreign
exchange gains--non-
speculative trading.. -- 327,740 336,056 181,600
-------- ---------- ------------ -------------
325,755 1,552,589 1,508,868 (327,405)
-------- ---------- ------------ -------------
Net profit (loss) before
tax.................... 206 (5,795,610) (2,089,195) (23,048,277)
Income tax attributable
to net profit/(loss)... -- -- -- --
-------- ---------- ------------ -------------
Net loss................ 206 (5,795,610) (2,089,195) (23,048,277)
-------- ---------- ------------ -------------
Retained
profits/(accumulated
losses) at beginning of
period................. -- 206 206 (5,795,404)
-------- ---------- ------------ -------------
Retained
profits/(accumulated
losses) at end of peri-
od..................... 206 (5,795,404) (2,088,989) (28,843,681)
======== ========== ============ =============
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-29
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
PERIOD ENDED
DECEMBER YEAR ENDED
31, DECEMBER
NOTE 1994 31, 1995 1995 1996
(UNAUDITED)
$A $A $A $A
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities
Receipts from custom-
ers.................. -- 522,211 90,704 7,510,104
Payments to suppliers
and employees........ (297,332) (3,973,333) (4,466,020) (21,163,979)
Interest received..... 327,355 1,227,029 1,173,674 184,697
Interest and other
costs of finance
paid................. (1,600) (2,180) (862) (693,700)
---------- ----------- ---------- -----------
Net operating cash
flows................ 28,423 (2,226,273) (3,202,504) (14,162,878)
---------- ----------- ---------- -----------
Cash flows from invest-
ing activities
Purchase of
subsidiaries, net of
cash acquired........ (12) (10) (10) --
Payments for plant and
equipment............ (55,871) (15,326,279) (5,050,703) (63,828,367)
Payments for MDS and
broadcast licenses... (5,021,630) (3,437,458) (4,079,878) (602,691)
Decrease in inventory
net of payables...... -- -- 67,769 17,021,755
Loans granted......... (718,939) (3,768,962) -- --
Payments for invest-
ments................ -- (2) -- --
---------- ----------- ---------- -----------
Net investing cash
flows................ (5,796,452) (22,532,711) (9,062,822) (47,409,303)
---------- ----------- ---------- -----------
Cash flows from financ-
ing activities
Proceeds from share
issues............... 5,159,265 -- -- --
Proceeds from issue of
convertible
debentures........... 19,940,737 6,000,000 6,000,000 63,854,004
Proceeds from
intercompany loans... -- -- 5,798,883 --
Payment on
intercompany loans... -- -- -- (13,550,399)
Proceeds from short
term loans........... 39,781 8,818,202 -- --
Proceeds from lease
financing............ -- -- 158,286 1,535,334
Repayment of finance
lease principal...... (609) (45,167) -- --
---------- ----------- ---------- -----------
Net financing cash
flows................ 25,139,174 14,773,035 11,957,169 51,838,939
---------- ----------- ---------- -----------
Net increase/(decrease)
in cash held........... 19,371,145 (9,985,949) (308,157) (9,733,242)
Cash at beginning of pe-
riod................... -- 19,371,145 19,371,145 9,712,936
Effect of different ex-
change rate............ -- 327,740 336,056 181,600
---------- ----------- ---------- -----------
Cash at the end of the
period................. 8, 16 19,371,145 9,712,936 19,399,044 161,294
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-30
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with the
historical cost convention using the accounting policies described below. They
do not take account of changes in either the general purchasing power of the
dollar or in the prices of specific assets.
The Company was incorporated on 21 April 1994. The comparative financial
statements have been prepared for the period 21 April 1994 to 31 December 1994
and for the year ended 31 December 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, CTV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in
the profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognised in different accounting periods
for book and tax purposes, calculated at the tax rates expected to apply when
the differences reverse.
The benefit arising from estimated carry forward tax losses has not been
recorded in the future income tax benefit account as realisation of such
benefit is considered not to be virtually certain.
LEASED ASSETS
Assets of the economic entity acquired under finance leases are capitalised.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortised over the life of the relevant lease. Lease liabilities are reduced
by the principal component of lease payments. The interest component is
charged against operating profit.
Operating leases are not capitalised and rental payments are charged against
operating profit in the period in which they are incurred.
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.
F-31
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Property, plant and equipment, excluding freehold land, are depreciated or
amortised at rates based upon their expected useful lives using the straight
line method.
<TABLE>
<S> <C>
Leasehold improvements......................................... 6 years
Computer equipment............................................. 3 years
Motor vehicles................................................. 5 years
Furniture and fittings......................................... 10 years
</TABLE>
INTANGIBLES
The acquisition of MDS licenses has been brought to account at cost. The
cost to acquire these licenses, acquired for a 5 year period, will be
amortised over the remaining license period upon commencement of broadcasting
operations. They are renewable every 5 years.
The licenses have been issued for a term of five years, with the license fee
payable annually in advance. The license fee is payable to Spectrum Management
Agency, an agent of the Australian Federal Government.
RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS
The carrying amount of all non-current assets are reviewed at least annually
to determine whether they exceed their recoverable amount. The recoverable
amounts of all non-current assets have been determined using net cash flows
which have not been discounted to their present values.
PROVISION FOR ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
INTERIM FINANCIAL STATEMENTS
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 include all adjustments necessary for
a fair presentation. Such adjustments were of a normal recurring nature.
NOTE 2. INCOME TAX
(a) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
---------------------------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995
$A $A
<S> <C> <C>
Operating profit/(loss)..................... 206 (5,795,610)
Prima facie tax thereon @ 36%............... 74 (2,086,420)
Tax effect of permanent and other differ-
ences:
--Timing differences...................... (14,367) (339,527)
--Amortisation of licences................ -- 198,873
--Entertainment non-deductible............ 14,293 165,618
--Effect of tax losses not brought to ac-
count.................................... -- 2,061,456
------- ----------
Total income tax attributable to operating
profit/(loss).............................. -- --
======= ==========
</TABLE>
F-32
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(b) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $5,795,404 available to offset against future years' taxable
income. The benefit of these losses of $2,061,456 has not been brought to
account as realisation is not virtually certain. The benefit will only be
obtained if:
(i) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefits from the deductions for the losses
to be realised;
(ii) the company continues to comply with the conditions for
deductibility imposed by the law;
(iii) no changes in tax legislation adversely affect the company in
realising the benefit from the deductions for the losses; and
(iv) any change in the business or control of the company does not affect
the ability to utilise the available losses.
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
----------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Trade debtors....................... -- 57,479 822,695
Less: provision for doubtful debts.. -- (5,792) (147,727)
------- --------- ----------
-- 51,687 674,968
Related parties:
--United International Holdings
Inc.............................. 95,865 140,217 1,187,085
--Other........................... -- 712,554 839,459
--Related body corporate--STV Pty
Ltd............................... 623,074 3,627,044 12,239,197
Other persons....................... -- 7,125 81,387
------- --------- ----------
718,939 4,538,627 15,022,096
======= ========= ==========
NOTE 4. OTHER ASSETS (CURRENT):
Prepaid expenses.................... 10,465 787,916 122,281
Security deposits................... 15,117 42,217 1,568,923
------- --------- ----------
Total other assets (current)........ 25,582 830,133 1,691,204
======= ========= ==========
NOTE 5. INVESTMENTS (NON-CURRENT):
Investments in associated companies
(Note 18).......................... 2 2 2
======= ========= ==========
</TABLE>
F-33
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
--------------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost...................... -- 151,200 1,021,106
--Accumulated depreciation..... -- (8,705) (106,281)
--------- ---------- ----------
Total leasehold improvements,
net............................. -- 142,495 914,825
--------- ---------- ----------
Plant and equipment:
--At cost...................... 55,881 15,737,143 79,680,492
--Accumulated depreciation..... (4,055) (872,818) (9,872,523)
--------- ---------- ----------
Total plant and equipment, net... 51,826 14,864,325 69,807,969
--------- ---------- ----------
Plant and equipment under lease:
--At capitalised cost.......... 44,506 912,820 2,336,156
--Accumulated depreciation..... -- (61,563) (285,805)
--------- ---------- ----------
Total leased plant and equipment,
net............................. 44,506 851,257 2,050,351
--------- ---------- ----------
Capitalised network construction
expenditures:
--At cost...................... 2,650,477 2,097,502 391,912
--Accumulated amortisation..... -- -- --
--------- ---------- ----------
Total capitalised development ex-
penditures, net:................ 2,650,477 2,097,502 391,912
--------- ---------- ----------
Total property, plant and equip-
ment, net:...................... 2,746,809 17,955,579 73,165,057
========= ========== ==========
NOTE 7. INTANGIBLE ASSETS (NON-CURRENT):
MDS licenses:
--At cost...................... 5,018,215 8,196,618 9,448,457
--Accumulated amortisation..... -- (544,093) (1,814,405)
--------- ---------- ----------
Total MDS licenses net:.......... 5,018,215 7,652,525 7,634,052
--------- ---------- ----------
Program Rights fees at cost: -- 250,000 251,570
--Accumulated amortisation..... -- (8,333) (8,333)
Other at cost.................... -- -- 14,944
Organisation costs at cost:...... 3,415 12,482 --
--------- ---------- ----------
Total intangible assets, net..... 5,021,630 7,906,674 7,892,233
========= ========== ==========
NOTE 8. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Overdraft...................... -- -- --
Trade creditors................ 1,684 5,727,304 26,414,652
Unearned Income................ -- 29,062 --
Accrued Expenses............... 2,698,537 728,113 4,212,214
Due to related body corporate--
United International Holdings
Inc........................... 39,781 8,857,983 715,093
Secured:
Finance lease liability (Note
15)........................... 7,732 135,307 450,691
--------- ---------- ----------
Total current creditors and
borrowings...................... 2,747,734 15,477,769 31,792,650
========= ========== ==========
</TABLE>
F-34
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
----------------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Secured
Finance lease liability (Note
15)............................. 36,165 684,945 1,904,893
----------- ----------- -----------
Total non-current creditors and
borrowings........................ 36,165 684,945 1,904,893
=========== =========== ===========
NOTE 10. PROVISIONS (NON-CURRENT):
Annual leave....................... -- 156,267 387,109
=========== =========== ===========
NOTE 11. SHARE CAPITAL:
Authorised capital:
--100,000,000 ordinary shares of
$1 each......................... 100,000,000 100,000,000 100,000,000
----------- ----------- -----------
Total authorised capital as at 31
December 1995..................... 100,000,000 100,000,000 100,000,000
Issued and paid up capital:
--42,729 ordinary shares of $1
each............................ 42,729 42,729 42,729
----------- ----------- -----------
Total issued and paid up capital... 42,729 42,729 42,729
=========== =========== ===========
</TABLE>
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
1994 1994 1995 1995
<S> <C> <C> <C> <C>
Opening number of shares.............. 3 -- 42,729 --
Issued during the year................ 42,726 13 -- --
Redeemed.............................. -- 13 -- --
------ --- ------ ---
Closing number of shares.............. 42,729 -- 42,729 --
====== === ====== ===
</TABLE>
NOTE 12. CONVERTIBLE DEBENTURES:
During the year ended 31 December 1995, the company issued 162,643
convertible debentures for $A6,000,000. These debentures confer rights upon
the holders as creditors of the company. They do not confer any right to
attend or vote at general meetings. Interest is payable to the holders equal
to the amount of the distribution that the holder would have received if, as
at the date the entitlement to the distribution was determined, all of the
debentures of that holder and all other holders had been converted into
shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would
not result in the breach of any Statute by the debenture holder or any other
person.
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which
would result in a different conversion factor. Debentures may not be redeemed
for cash.
F-35
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
In the event of a winding up of the company, the rights of the debenture
holders against the company in respect of the debentures are postponed until
the claims of all holders of senior indebtedness have been satisfied in full.
Senior indebtedness means secured obligations, unsecured and unsubordinated
obligations of the company, other than debentures and shares.
NOTE 13. RESERVES:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
DECEMBER 31,
-------------------
1994 1995
$A $A
<S> <C> <C>
Share premium opening balance............................... -- 5,116,536
Premium on issues of shares................................. 5,116,536 --
Redemption of preference shares............................. -- --
--------- ---------
Total reserves.............................................. 5,116,536 5,116,536
========= =========
</TABLE>
NOTE 14. EMPLOYEE ENTITLEMENTS:
SUPERANNUATION COMMITMENTS
The economic entity contributes to a defined contribution superannuation
plan for substantially all of its employees. Each participating entity in the
economic entity has a legal obligation to contribute to the schemes, which are
as follows:
(a) Hourly employees and commission employees--Employee Retirement Fund,
a fund administered by MLC. This is a defined contribution fund; and
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by
MLC (contributions 6%). This is a defined contribution fund.
F-36
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------
DECEMBER 31,
--------------------
1994 1995
$A $A
<S> <C> <C>
(a) Annual licence fees are payable as follows:
Not later than one year.............................. 1,212,627 3,068,099
Later than one year but not later than two years..... 1,212,627 3,068,099
Later than two years but not later than five years... 3,637,881 5,121,828
Later than five years................................ -- --
--------- ----------
6,063,135 11,258,026
========= ==========
(b) Finance lease expenditure contracted for is payable as
follows:
Not later than one year.............................. 12,429 215,798
Later than one year but not later than two years..... 12,429 233,412
Later than two years but not later than five years... 30,044 553,335
Later than five years................................ -- --
--------- ----------
54,902 1,002,545
Future finance charges............................... 11,005 182,293
--------- ----------
Net finance lease liability.......................... 43,897 820,252
========= ==========
Reconciled to:
Current liability (Note 8)........................... 7,732 135,307
Non-current liability (Note 9)....................... 36,165 684,945
--------- ----------
43,897 820,252
========= ==========
(c) Operating lease expenditure contracted for is payable
as follows:
Not later than one year.............................. 137,500 467,767
Later than one year but not later than two years..... 137,500 467,767
Later than two years but not later than five years... 412,500 1,405,357
Later than five years................................ -- 529,372
--------- ----------
687,500 2,870,263
========= ==========
</TABLE>
(d) On 24 July 1994, CTV Pty Limited entered into a franchise agreement with
Australis Media Limited. The franchise provides for CTV Pty Limited to
have access to Australis Media Limited programming in the franchise area
and be the sole Australis franchisee in the region on all medium, being
MDS, satellite and cable.
Under the agreement, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number
of subscribers.
F-37
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. NOTES TO THE STATEMENT OF CASH FLOWS:
(a)Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash
at the end of the financial year as shown in the Statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------------
SEPTEMBER 30,
DECEMBER 31, 1996
--------------------------------- -------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash....................... 73,377 (261,963) 161,294
Short term money market de-
posits.................... 19,297,768 9,974,899 --
---------- ---------- -----------
19,371,145 9,712,936 161,294
========== ========== ===========
(b)Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------------
SEPTEMBER 30,
1996
-------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Operating profit (loss) af-
ter income tax:........... 206 (5,795,610) (23,048,277)
Adjustments for non-cash
income and expense
items:
Depreciation and
amortisation expense.... 4,055 1,491,456 10,591,840
Bad debts expense and
provision for doubtful
debts................... -- 5,792 141,934
Transfers to provisions:
Annual leave............. -- 156,267 --
Unrealised foreign exchange
gain...................... -- (327,740) (181,600)
Increase in other receiv-
ables..................... -- (57,479) 3,640,092
Increase in trade credi-
tors...................... 49,744 3,785,221 (3,792,612)
Increase in inventory...... -- (679,628) --
Increase in other assets... (25,582) (804,552) (1,514,255)
---------- ---------- -----------
Net cash from operating ac-
tivities.................. 28,423 (2,226,273) (14,162,878)
========== ========== ===========
</TABLE>
(c)Subsidiaries acquired
The following subsidiaries were acquired by the economic entity for cash
consideration. The fair value of net tangible assets acquired was as
follows:
<TABLE>
<CAPTION>
FAIR VALUE OF
NET TANGIBLE
ASSETS
--------------
1994 1995
ENTITY $A $A
<S> <C> <C>
Jacolyn Pty Limited............................................. 2 --
Yanover Pty Limited............................................. 2 --
Keansburg Pty Limited........................................... 2 --
Orloff Pty Limited.............................................. 2 --
Maxi-Vu Pty Limited............................................. 2 --
Vinatech Pty Limited............................................ 2 --
Palara Vale Pty Limited......................................... -- 2
Auldana Pty Limited............................................. -- 2
Grovern Pty Limited............................................. -- 2
Lystervale Pty Limited.......................................... -- 2
Minorite Pty Limited............................................ -- 2
------ ------
Fair value of net identifiable assets........................... 12 10
Goodwill on acquisition......................................... -- --
------ ------
Total consideration............................................. 12 10
====== ======
</TABLE>
F-38
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(d) Non-cash financing and investing activities
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A821,522 (1994: $A44,506) by means of finance
leases. These transactions are not reflected in the statement of cashflows.
NOTE 17. SUBSIDIARIES:
The following were subsidiaries at 31 December 1995, and have been included
in the consolidated financial statements. The financial years of all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
BOOK VALUE OF CONTRIBUTION TO
PARENT CONSOLIDATED
ENTITY'S % OF RESULT FOR THE
INVESTMENT SHARES HELD PERIOD
-------------- ------------ ----------------
PLACE OF
NAME OF CONTROLLED INCORPORATION DATE OF TYPE OF 1994 1995 1994 1995 1994 1995
ENTITY FORMATION (A) ACQUISITION SHARES $A $A % % $A $A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacolyn Pty Limited..... Australia 14/6/94 Ordinary 2 100 --
Yanover Pty Limited..... Australia 21/7/94 Ordinary 2 100 --
Keansburg Pty Limited... Australia 14/6/94 Ordinary 2 100 --
Orloff Pty Limited...... Australia 14/6/94 Ordinary 2 100 --
Maxi-Vu Pty Limited..... Australia 4/8/94 Ordinary 2 100 --
Palara Vale Pty Limit-
ed..................... Australia 24/4/95 Ordinary 2 100 --
Auldana Beach Pty Limit-
ed..................... Australia 24/4/95 Ordinary 2 100 --
Grovern Pty Limited..... Australia 24/4/95 Ordinary 2 100 --
Lystervale Pty Limited.. Australia 24/4/95 Ordinary 2 100 --
Vinatech Pty Limited.... Australia 29/7/94 Ordinary 2 100 --
Minorite Pty Limited.... Australia 24/4/95 Ordinary 2 100 --
------ -------
22 --
====== =======
</TABLE>
- ---------------------
(a) All entities operate solely in their place of incorporation/formation.
NOTE 18. ASSOCIATED COMPANIES:
Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>
OWNERSHIP DIVIDENDS
INTEREST RECEIVED
---------- ---------
NAME OF
ASSOCIATED PRINCIPAL ACTIVITY OF BALANCE
COMPANY ASSOCIATED COMPANY 1994 1995 DATE 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Communication & Delivery of subscription
Entertainment television services to
Australia Pty regional Australia. 31
Limited 50% 50% December -- --
Ilona Investments Delivery of subscription
Pty Limited television services to 30
regional Australia 50% 50% June -- --
</TABLE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
Aggregate carrying amount of investments in associated
companies................................................... 2 2
------- -------
Aggregate amount of investments in associated companies, as
determined under the equity method of accounting............ 2 2
======= =======
</TABLE>
F-39
<PAGE>
CTV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19. RELATED PARTY DISCLOSURES:
(a) Other director transactions
Crase Partners, a director-related firm of J. K. Crase, provided general
accounting services to the company during the year. These services were
provided at an arms length basis.
J. K. Crase, a director, purchased equipment from the company during the
year. The purchase was made on an arms length basis.
(b) Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year
with related parties in the wholly owned group:
. loans were advanced to subsidiaries to fund the acquisition of MDS
licenses
These transactions were undertaken on commercial terms and conditions.
(c) Transactions with associated companies
The parent entity entered into certain transactions with associated
companies, being loans advanced and received on an arms length basis.
NOTE 20. US GAAP INFORMATION:
The accounting policies followed in preparation for the consolidated
financial statements differ in one respect to those generally accepted in the
United States of America (US GAAP). For US GAAP purposes, the convertible
debentures would be classified as a non-current liability and not equity.
The calculation of shareholder's equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1994 1995 1996
----------- ----------- -------------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per bal-
ance sheet....................... 25,100,208 25,304,598 66,110,326
Adjustments to reported equity:
Convertible debentures.......... (19,940,737) (25,940,737) (89,794,742)
----------- ----------- -----------
Shareholder's equity in accordance
with
US GAAP.......................... 5,159,471 (636,139) (23,684,416)
=========== =========== ===========
</TABLE>
F-40
<PAGE>
INDEPENDENT AUDIT REPORT
To the Board of Directors of STV Pty Limited
We have audited the accompanying consolidated financial statements of STV
Pty Limited and its subsidiaries for the period ended 31 December 1994 and the
year ended 31 December 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on those consolidated financial statements based on our audit.
We conducted our audit in accordance with Australian Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the consolidated financial position
of STV Pty Limited as of 31 December 1994 and 1995, and the consolidated
results of the group's operations and consolidated cash flows for the periods
then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these consolidated financial statements.
Arthur Andersen
Chartered Accountants
Sydney, Australia
29 March 1996
F-41
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
--------------------- ------------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Current assets
Cash............................ 10,078,250 2,236 12,353
Receivables..................... 3 63,934 1,325,563 1,650,882
Prepayments and other........... -- 382,866 122,793
---------- ---------- ----------
Total current assets.............. 10,142,184 1,710,665 1,786,028
---------- ---------- ----------
Non-current assets
Investments..................... 4 2 2 2
Property, plant and equipment... 5 527,373 6,085,042 65,126,160
Intangibles..................... 6 3,562 3,727,654 3,926,529
---------- ---------- ----------
Total non-current assets.......... 530,937 9,812,698 69,052,691
---------- ---------- ----------
Total assets...................... 10,673,121 11,523,363 70,838,719
---------- ---------- ----------
Current liabilities
Creditors and borrowings........ 7 759,411 4,673,587 13,614,374
---------- ---------- ----------
Total current liabilities......... 759,411 4,673,587 13,614,374
---------- ---------- ----------
Non-current liabilities
Creditors and borrowings........ 8 36,165 313,981 2,226,146
Provisions...................... 9 -- 11,495 304,605
---------- ---------- ----------
Total non-current liabilities..... 36,165 325,476 2,530,751
---------- ---------- ----------
Total liabilities................. 795,576 4,999,063 16,145,125
---------- ---------- ----------
Net assets........................ 9,877,545 6,524,300 54,693,594
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-42
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
BALANCE SHEET
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
--------------------- ------------------
NOTE 1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C>
Shareholders' equity
Share capital................. 10 133,296 133,296 133,296
Reserves...................... 12 1,426,959 1,426,959 1,426,959
Accumulated losses............ (122,457) (3,475,702) (16,827,384)
--------- ---------- -----------
1,437,798 (1,915,447) (15,267,129)
Convertible debentures.......... 11 8,439,747 8,439,747 69,960,723
--------- ---------- -----------
Total shareholders' equity...... 9,877,545 6,524,300 54,693,594
========= ========== ===========
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-43
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------------------
PERIOD ENDED YEAR ENDED NINE MONTHS ENDED
------------ ------------ -----------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
NOTE 1994 1995 1995 1996
(UNAUDITED)
$A $A $A
<S> <C> <C> <C> <C> <C>
Revenue:
Service............... -- 13,819 -- 5,108,291
-------- ---------- ---------- -----------
-- 13,819 -- 5,108,291
-------- ---------- ---------- -----------
Expenses:
General and adminis-
tration.............. 258,991 3,576,688 2,230,397 13,362,078
Depreciation and amor-
tization............. 4,055 212,635 97,124 5,016,715
Management fees....... -- -- -- (48,534)
-------- ---------- ---------- -----------
263,046 3,789,323 2,327,521 18,330,259
-------- ---------- ---------- -----------
Operating loss.......... (263,046) (3,775,504) (2,327,521) (13,221,968)
-------- ---------- ---------- -----------
Non-operating income
(expense)
Interest income....... 142,189 422,563 422,553 53,791
Interest expense and
costs of finance..... (1,600) (304) (304) (433,625)
-------- ---------- ---------- -----------
140,589 422,259 422,249 (379,834)
-------- ---------- ---------- -----------
Other, net foreign
exchange gains
(losses)............... -- -- -- 250,120
Net loss before tax..... (122,457) (3,353,245) (1,905,272) (13,351,682)
Income tax attributable
to net loss............ -- -- -- --
-------- ---------- ---------- -----------
Net loss................ (122,457) (3,353,245) (1,905,272) (13,351,682)
-------- ---------- ---------- -----------
Accumulated losses at
beginning of period.... -- (122,457) (122,457) (3,475,702)
-------- ---------- ---------- -----------
Accumulated losses at
end of period.......... (122,457) (3,475,702) (2,027,729) (16,827,384)
======== ========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-44
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------------------------------------
PERIOD ENDED YEAR ENDED NINE MONTHS ENDED
------------------ ------------------ -----------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
NOTES 1994 1995 1995 1996
$A $A (UNAUDITED)
INFLOWS/(OUTFLOWS) INFLOWS/(OUTFLOWS) $A
<S> <C> <C> <C> <C> <C>
Cashflows from operating
activities:
Receipts from
customers............ -- 74,749 -- 4,663,557
Payments to suppliers
and employees........ (210,202) (3,876,242) (2,045,277) (16,470,963)
Interest received..... 78,255 422,563 422,553 53,791
Interest and other
costs of finance
paid................. (1,600) (304) -- (431,250)
---------- ----------- ---------- -----------
Net operating
cashflows.............. (133,547) (3,379,234) (1,622,724) (12,184,865)
---------- ----------- ---------- -----------
Cashflows from investing
activities:
Purchase of
subsidiaries, net of
cash acquired........ (2) (12) (14) --
Payments for plant,
equipment and
construction in
process.............. (486,922) (5,381,613) (934,485) (63,506,772)
Payments for MDS
licenses............. (3,562) (3,757,962) (3,695,600) (140,733)
Payments for
investments.......... -- (2) -- --
Loans granted......... -- (1,322,587) -- --
---------- ----------- ---------- -----------
Net investing
cashflows.............. (490,486) (10,462,176) (4,630,099) (63,647,505)
---------- ----------- ---------- -----------
Cashflows from financing
activities:
Proceeds from issues
of shares............ 1,560,255 -- -- --
Proceeds from short-
term loans........... 702,890 3,787,493 -- --
Proceeds from
debenture issues..... 8,439,747 -- -- 61,520,977
Proceeds from
intercompany loans... -- -- 2,013,372 11,733,574
Proceeds from lease
financing............ -- -- 89,409 2,337,816
Repayment of finance
lease principal...... (609) (22,097) -- --
---------- ----------- ---------- -----------
Net financing
cashflows.............. 10,702,283 3,765,396 2,102,781 75,592,367
---------- ----------- ---------- -----------
Net increase (decrease)
in cash held........... 10,078,250 (10,076,014) (4,150,042) (240,003)
Cash at the beginning of
the period............. -- 10,078,250 10,078,250 2,236
Effect of different
exchange rate.......... 15(c) -- -- -- 250,120
---------- ----------- ---------- -----------
Cash at the end of the
period................. 15(a) 10,078,250 2,236 5,928,208 12,353
========== =========== ========== ===========
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-45
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with the
historical cost convention using the accounting policies described below.
Further, they do not take account of changes in either the general purchasing
power of the dollar or in the prices of specific assets.
The Company was incorporated on 28 June 1994. The comparative financial
statement have been prepared for the period 28 June 1994 to 31 December 1994
and for the year ended 31 December 1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, STV Pty Limited, and its subsidiaries. The term "Economic
Entity" used throughout these financial statements means the parent entity and
its subsidiaries.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are converted at the exchange rates in
effect at the date of each transaction.
Amounts payable to or by the economic entity in foreign currencies have been
translated into Australian currency at the exchange rates current at year end.
Exchange differences relating to monetary items are brought to account in
the profit and loss account in the period when the exchange rates change, as
exchange gains or losses.
INCOME TAX
The economic entity follows the policy of tax-effect accounting. The income
tax expense in the profit and loss account represents the tax on the pre-tax
accounting profit adjusted for income and expenses never to be assessed or
allowed for taxation purposes. The provision for deferred income tax liability
and the future income tax benefit represent the tax effect of differences
between income and expense items recognized in different accounting periods
for book and tax purposes, calculated at the tax rates expected to apply when
the differences reverse.
The benefit arising from estimated carry forward tax losses has not been
recorded in the future income tax benefit account as realization of such
benefit is considered not to be virtually certain.
LEASED ASSETS
Assets of the economic entity acquired under finance leases are capitalized.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortized over the life of the relevant lease. Lease liabilities are reduced
by the principal component of lease payments. The interest component is
charged against operating profit.
Operating leases are not capitalized and rental payments are charged against
operating profit in the period in which they are incurred.
F-46
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are valued at cost. The carrying amount of property,
plant and equipment is reviewed annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.
<TABLE>
<S> <C>
Leasehold improvements............................................ 6 years
Computer equipment................................................ 3 years
Motor vehicles.................................................... 5 years
Furnitures and fixtures........................................... 10 years
</TABLE>
Property, plant and equipment, excluding freehold land, are depreciated or
amortized at rates based upon their expected useful lives using the straight
line method.
INTANGIBLES
The acquisition of MDS licenses has been brought to account at cost. The
cost to acquire these licences, acquired for a 5 year period, will be
amortized over the remaining licence period upon commencement of broadcasting
operations. They are renewable every 5 years.
The licenses have been issued for a term of five years, with the license fee
payable annually in advance. The license fee is payable to Spectrum Management
Agency, an agent of the Australian Federal Government.
RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed at least
annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all non-current assets have been determined using net
cashflows which have not been discounted to their present values.
ANNUAL LEAVE
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave.
INTERIM FINANCIAL STATEMENTS
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 include all adjustments necessary for
a fair presentation. Such adjustments were of a normal recurring nature.
F-47
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. INCOME TAX
(a) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
---------------------------------
PERIOD ENDED YEAR ENDED
31 DECEMBER 1994 31 DECEMBER 1995
$A $A
<S> <C> <C>
Operating loss........................... (122,457) (3,353,245)
Prima facie tax thereon @ 36%............ (44,085) (1,207,168)
Tax effect of permanent and other differ-
ences
--Timing differences.................... -- (133,683)
--Entertainment non deductible.......... 1,585 133,397
--Amortisation of licenses.............. -- 12,193
--Effect of losses not brought to ac-
count.................................. 42,500 1,195,261
-------- ----------
Total income tax attributable to operat-
ing profit.............................. -- --
======== ==========
</TABLE>
(b) Benefit of income tax losses not brought to account
As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of $A 3,475,702 available to offset against future years' taxable
income. The benefit of these losses of $A 1,237,761 has not been brought to
account as realization is not virtually certain. The benefit will only be
obtained if:
(a) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefits from the deductions for the losses
to be realized;
(b) the company continues to comply with the conditions for deductibility
imposed by the law;
(c) no changes in tax legislation adversely affect the company in
realizing the benefit from the deductions for the losses; and
(d) any change in the business or control of the company does not affect
the ability to utilize the available losses.
NOTE 3. RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------------------
SEPTEMBER 30,
DECEMBER 31, 1996
---------------- -------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Accounts Receivable Trade................. -- 3,004 446,599
--Allowance for Bad Debts................ -- (28) (96,543)
Non-trade amounts owing by:
Related parties
--Wholly owned group.................... -- -- --
--Associated companies.................. -- 1,322,587 1,299,348
Other persons............................ 63,934 -- 1,478
------ --------- ---------
Total current receivables................. 63,934 1,325,563 1,650,882
====== ========= =========
NOTE 4. INVESTMENTS (NON-CURRENT):
Investments in associated companies (Note
17)...................................... 2 2 2
====== ========= =========
</TABLE>
F-48
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
--------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
------------------ ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Leasehold improvements:
--At cost.............................. -- 128,274 847,652
--Accumulated amortization............. -- (7,801) (87,117)
------- --------- ----------
Total leasehold improvements, net....... -- 120,473 760,535
------- --------- ----------
Plant and equipment:
--At cost.............................. 55,881 4,093,944 66,214,742
--Accumulated depreciation............. (4,055) (149,677) (4,418,938)
------- --------- ----------
Total plant and equipment, net.......... 51,826 3,944,267 61,795,804
------- --------- ----------
Plant and equipment under lease:
--At capitalized cost.................. 44,506 408,832 2,462,622
--Accumulated depreciation............. -- (25,343) (142,418)
------- --------- ----------
Total lease plant and equipment, net.... 44,506 383,489 2,320,204
------- --------- ----------
Capitalized network construction
expenditures:
--At cost.............................. 431,041 1,636,813 249,617
--Accumulated amortization............. -- -- --
------- --------- ----------
Total capitalized development
expenditures, net...................... 431,041 1,636,813 249,617
------- --------- ----------
Total property, plant and equipment,
net.................................... 527,373 6,085,042 65,126,160
======= ========= ==========
NOTE 6. INTANGIBLE ASSETS (NON-CURRENT):
MDS licences............................ 1,570 3,501,285 4,023,886
--Accumulated Amortization............. -- (25,536) (353,107)
Other licenses.......................... -- 251,570 251,570
--Accumulated Amortization............. -- (8,333) (8,333)
Other................................... 1,992 8,668 12,513
------- --------- ----------
Total intangible assets, net............ 3,562 3,727,654 3,926,529
======= ========= ==========
NOTE 7. CREDITORS AND BORROWINGS (CURRENT):
Unsecured:
Trade creditors........................ 1,689 120,561 92,915
Accrued expenses....................... 47,100 -- --
Due to associated company--CTV Pty
Limited............................... 623,074 3,627,044 12,239,197
Due to related body corporate--United
International Holdings Inc............ 79,816 863,341 793,969
Secured:
Secured:Finance lease liability (Note
14)................................... 7,732 62,641 488,293
------- --------- ----------
759,411 4,673,587 13,614,374
======= ========= ==========
</TABLE>
F-49
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
ECONOMIC ENTITY
------------------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
----------------------- ------------------
1994 1995 (UNAUDITED)
----------- ----------- ------------------
$A $A $A
<S> <C> <C> <C>
Secured:
Finance lease liability (Note
14).............................. 36,165 313,981 2,226,146
----------- ----------- -----------
Total non-current creditors and
borrowings........................ 36,165 313,981 2,226,146
=========== =========== ===========
NOTE 9. PROVISIONS (NON-CURRENT):
Annual leave....................... -- 11,495 304,605
NOTE 10. SHARE CAPITAL:
Authorized capital:
--100,000,000 ordinary shares of
$1 each.......................... 100,000,000 100,000,000 100,000,000
----------- ----------- -----------
Total authorized capital........... 100,000,000 100,000,000 100,000,000
=========== =========== ===========
Issued and paid up capital:
--133,296 ordinary shares of $1.00
each............................. 133,296 133,296 133,296
----------- ----------- -----------
Total issued and paid up capital... 133,296 133,296 133,296
=========== =========== ===========
</TABLE>
Movement in issued shares for the year:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF REDEEMABLE NUMBER OF REDEEMABLE
ORDINARY PREFERENCE ORDINARY PREFERENCE
SHARES SHARES SHARES SHARES
--------- ---------- --------- ----------
1994 1994 1995 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Opening number of shares.......... -- -- 133,296 --
Issued during the year (a)........ 133,296 2 -- --
Redeemed.......................... -- 2 -- --
------- --- ------- ------
Closing number of shares.......... 133,296 -- 133,296 --
======= === ======= ======
</TABLE>
NOTE 11. CONVERTIBLE DEBENTURES:
During the year ended 31 December 1995, the company had outstanding 986,707
convertible debentures for $A 8,439,747. These debentures confer rights upon
the holders as creditors of the company. They do not confer any right to
attend or vote at general meetings. Interest is payable to the holders equal
to the amount of the distribution that the holder would have received if, as
at the date the entitlement to the distribution was determined, all of the
debentures of that holder and all other holders had been converted into
shares.
The convertible debentures have been included in shareholders' equity in the
balance sheet as debenture holders are entitled to an equivalent return to the
ordinary shareholders.
Conversion of debentures is permitted at anytime provided conversion would
not result in the breach of any Statute by the debenture holder or any other
person.
F-50
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Debentures may be converted into fully paid ordinary shares on a one for one
basis unless the normal value of the issued shares is reconstructed which
would result in a different conversion factor. Debentures may not be redeemed
for cash.
In the event of a winding up of the company, the rights of the debenture
holders against the company in respect of the debentures are postponed until
the claims of all holders of senior indebtedness have been satisfied in full.
Senior indebtedness means secured obligations, unsecured and unsubordinated
obligations of the company, other than debentures and shares.
NOTE 12. RESERVES:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-------------------
DECEMBER 31,
-------------------
1994 1995
--------- ---------
$A $A
--------- ---------
<S> <C> <C>
Share premium opening balance............................ -- 1,426,959
Premium on issue of shares............................... 1,426,959 --
--------- ---------
Total reserves........................................... 1,426,959 1,426,959
========= =========
</TABLE>
NOTE 13. EMPLOYEE ENTITLEMENTS:
Superannuation commitments
The economic entity contributes to a defined contribution superannuation
plan for substantially all of its employees. Each participating entity in the
economic entity has a legal obligation to contribute to the schemes, which are
as follows:
(a) Hourly employees and commission employees--Employee Retirement Fund,
a fund administered by MLC. This is a defined contribution fund.
(b) Salaried employees--CEtv Superannuation Fund, a fund administered by
MLC (contributions 6%). This is a defined contribution fund.
F-51
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. COMMITMENTS:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
DECEMBER 31,
----------------
1994 1995
$A $A
<S> <C> <C>
(a) Annual licence fees are payable as follows:
Not later than one year.................................. -- 1,227,291
Later than one year but not later than two years......... -- 1,227,291
Later than two years but not later than five years....... -- 1,686,787
Later than five years.................................... -- --
------ ---------
-- 4,141,369
====== =========
(b) Finance lease expenditure contracted for is payable as
follows:
Not later than one year.................................. 12,429 99,657
Later than one year but not later than two years......... 12,429 117,272
Later than two years but not later than five years....... 30,043 243,506
Later than five years.................................... -- --
------ ---------
54,901 460,435
====== =========
Future finance charges....................................... 11,004 83,813
------ ---------
Net finance lease liability.................................. 43,897 376,622
====== =========
Reconciled to:
Current liability (Note 7)................................. 7,732 62,641
Non-current liability (Note 8)............................. 36,165 313,981
------ ---------
43,897 376,622
====== =========
(c) Operating lease expenditure contracted for is payable as
follows
Not later than one year.................................. -- 169,642
Later than one year but not later than two years......... -- 169,642
Later than two years but not later than five years....... -- 510,984
Later than five years.................................... -- 148,112
------ ---------
-- 998,380
====== =========
</TABLE>
(d) On 12 October 1995, STV Pty Ltd entered into a Franchise Agreement with
Australis Media Limited. The franchise provides for STV Pty Ltd to have
access to Australis Media Limited programming in the franchise area and be
the sole Australis franchisee in the region on all mediums, being MDS,
satellite and cable.
Under the agreement, certain minimum payments are due based on a proportion
of subscriber revenue. The future commitments are dependent upon the number
of subscribers.
F-52
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. NOTES TO THE STATEMENT OF CASH FLOWS:
(a) Reconciliation of Cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash at
the end of the financial year as shown in the Statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
ECONOMIC ENTITY
-----------------------------------
DECEMBER 31, SEPTEMBER 30, 1996
---------------- ------------------
1994 1995 (UNAUDITED)
$A $A $A
<S> <C> <C> <C>
Cash..................................... 5,994 2,236 12,353
Short-term money market deposits......... 10,072,256 -- --
---------- ----- ------
10,078,250 2,236 12,353
========== ===== ======
</TABLE>
(b) Reconciliation of net cash provided by operating activities to operating
loss after income tax.
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------------------------------------------
PERIOD ENDED YEAR ENDED SEPTEMBER 30, 1996
31 DECEMBER 1994 31 DECEMBER 1995 (UNAUDITED)
$A $A
<S> <C> <C> <C>
Operating loss after in-
come tax................. (122,457) (3,353,245) (13,351,682)
Adjustments for non-cash
income and expense items:
Depreciation and amorti-
zation expense......... 4,055 212,635 4,793,226
Bad debts expense and
provision for doubtful
debts.................. -- 28 96,514
Unrealised foreign
exchange gain.......... -- -- (250,120)
Transfers to provisions:
Annual leave............ -- 11,495 --
Increase in other re-
ceivables.............. (63,934) 60,930 (2,749,285)
Increase (decrease) in
trade creditors........ 48,789 71,789 (597,880)
Increase in other as-
sets................... -- (382,866) (125,638)
-------- ---------- -----------
Net cash from operating
activities............. (133,547) (3,379,234) (12,184,865)
======== ========== ===========
</TABLE>
(c) Subsidiaries acquired
The following subsidiaries were acquired by the economic entity for cash
consideration. The fair value of net tangible assets acquired was as follows:
<TABLE>
<CAPTION>
FAIR VALUE
OF NET TANGIBLE
ASSETS ACQUIRED
----------------
ENTITY 1994 1995
------ $A $A
<S> <C> <C>
Selectra Pty Limited....................................... 2 --
Vermint Grove Pty Ltd--cash................................ -- 2
Kidilla Pty Limited--cash.................................. -- 2
Dovevale Pty Limited--cash................................. -- 2
Carryton Pty Limited--cash................................. -- 2
Xtek Bay Pty Limited--cash................................. -- 2
Windytide Pty Limited--cash................................ -- 2
------- -------
Fair value of net identifiable assets...................... 2 12
Goodwill on acquisition.................................... -- --
------- -------
Total consideration........................................ 2 12
======= =======
</TABLE>
F-53
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(d) Non-cash financing and investing activities.
During the year the economic entity acquired plant and equipment with an
aggregate fair value of $A 354,822 (1994: $A 44,506) by means of finance
leases. These transactions are not reflected in the Statement of cash flows.
NOTE 16. SUBSIDIARIES:
The following were subsidiaries at 31 December 1995, and have been included
in the consolidated financial statements. The financial years of all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
CONTRIBUTION TO
BOOK VALUE OF CONSOLIDATED
PARENT ENTITY'S % OF RESULT FOR THE
PLACE OF INVESTMENT SHARES HELD YEAR
NAME OF INCORPORATION/ DATE OF TYPE OF ---------------- ------------ ----------------
CONTROLLED ENTITY FORMATION(A) ACQUISITION SHARES 1994 1995 1994 1995 1994 1995
% %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vermint Grove Pty Lim-
ited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Kidilla Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Dovevale Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Carryton Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Xtek Bay Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
Selectra Pty Limited Australia 29/7/94 Ordinary 2 2 100 100 -- --
Windytide Pty Limited Australia 26/4/95 Ordinary -- 2 100 -- -- --
------- ------- ------- -------
2 14 -- --
======= ======= ======= =======
</TABLE>
- ---------------------
(a) All entities operate solely in their place of incorporation/formation.
NOTE 17. ASSOCIATED COMPANIES:
Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>
OWNERSHIP DIVIDENDS
INTEREST RECEIVED
NAME OF ASSOCIATED PRINCIPAL ACTIVITY OF --------- BALANCE ------------
COMPANY ASSOCIATED COMPANY 1994 1995 DATE 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Communication & Delivery of
Entertainment subscription
Australia Pty television services
Limited to regional
Australia 50% 50% 31 December -- --
Chippawa Pty Limited Delivery of
subscription
television services
to regional
Australia 50% 50% 30 June -- --
----- -----
-- --
===== =====
</TABLE>
<TABLE>
<CAPTION>
ECONOMIC ENTITY
----------------
1994 1995
$A $A
<S> <C> <C>
Aggregate carrying amount of investments in associated
companies................................................ 2 2
------- -------
Aggregate amount of investment in associated companies, as
determined under the equity method of accounting......... 2 2
======= =======
</TABLE>
F-54
<PAGE>
STV PTY LIMITED AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. RELATED PARTY DISCLOSURES:
A. Other director transactions
Crase Partners, a director-related firm of J. K. Crase, a director, provided
general accounting services to the company during the period. These services
were provided at an arms length basis.
B. Transactions with related parties in the wholly owned group
The parent entity entered into the following transactions during the year
with related parties in the wholly owned group:
. loans were advanced to subsidiaries to fund the acquisition of MDS
licenses
These transactions were undertaken on commercial terms and conditions.
C. Transactions with associated companies
The parent entity entered into certain transactions with associated
companies, being loans advanced and received on an arms length basis.
NOTE 19. US GAAP INFORMATION
The accounting policies followed in preparation for the consolidated
financial statements differ in one respect to those generally accepted in the
United States of America (US GAAP). For US GAAP purposes, the convertible
debentures would be classified as a non-current liability and not equity.
The calculation of shareholder's equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------- ----------------
1994 1995 1996
---------- ---------- ----------------
$A $A $A
<S> <C> <C> <C>
Shareholder's equity as per bal-
ance sheet...................... 9,877,545 6,524,300 54,693,594
Adjustments to reported equity:
Convertible debentures......... (8,439,747) (8,439,747) (69,960,723)
---------- ---------- -----------
Shareholder's equity in accor-
dance with US GAAP.............. 1,437,798 (1,915,447) (15,267,129)
========== ========== ===========
</TABLE>
F-55
<PAGE>
AUDITORS' REPORT
To the shareholders of Saturn Communications Limited (formerly Kiwi Cable
Company Limited):
We have audited the accompanying financial statements of Saturn
Communications Limited (formerly Kiwi Cable Company Limited) for the year
ended 31 December 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on those financial statements based on our audits.
We conducted our audits in accordance with New Zealand Auditing Standards,
which do not differ substantially from generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of Saturn Communications
Limited as of 31 December 1994 and 1995, and the results of the Company's
operations for the years then ended in accordance with New Zealand Accounting
Standards.
There are certain differences between New Zealand Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these financial statements.
Arthur Andersen
Wellington, New Zealand
20 February 1996
F-56
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS MONTHS ENDED
ENDED 31 DECEMBER 31 MARCH
---------------------- --------------------
NOTE 1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Programming Revenue..... 70,389 169,223 26,064 61,901
Other Revenue........... -- 57,835 7,969 74,615
---------- ---------- -------- ----------
Total Revenue........... 70,389 227,058 34,033 136,516
Expenses
Programming Expenses.... 203,901 448,243 130,732 65,417
Selling, general & ad-
ministration........... 684,811 1,306,969 206,752 578,670
Management fee expense
to related party....... 309,426 17,209 3,560 7,448
Other operating ex-
penses................. 845,791 2,506,326 436,325 504,456
---------- ---------- -------- ----------
Deficit before taxation
for the year........... 2 (1,973,540) (4,051,689) (743,336) (1,019,475)
Income tax expense...... 11 -- -- -- --
---------- ---------- -------- ----------
Net deficit for the
year................... (1,973,540) (4,051,689) (743,336) (1,019,475)
========== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-57
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF MOVEMENTS IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1995
<TABLE>
<CAPTION>
NZ$
----------
<S> <C>
Balance, at December 31, 1993....................................... (2,314,485)
Contributions from owners........................................... 7,155,259
Net deficit......................................................... (1,973,540)
----------
Balance, at December 31, 1994....................................... 2,867,234
Net deficit......................................................... (4,051,689)
----------
Balance, at December 31, 1995....................................... (1,184,455)
Net deficit (unaudited)............................................. (1,019,475)
----------
Balance, at March 31, 1996 (unaudited).............................. (2,203,930)
==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-58
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
---------------------- 31 MARCH,
NOTE 1994 1995 1996
NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C>
OWNER'S EQUITY
Share capital [Shares issued: 347,368
(1994: 347,368)].................... 3 347,368 347,368 347,368
Reserves............................. 3 6,981,575 6,981,575 6,981,575
Retained earnings.................... (4,461,709) (8,513,398) (9,532,873)
---------- ---------- ----------
2,867,234 (1,184,455) (2,203,930)
NON-CURRENT LIABILITIES
Related party loan................... 8 -- 3,076,199 5,687,059
CURRENT LIABILITIES
Accounts Payable & Accruals
Trade creditors.................... 103,584 135,894 2,141,271
Other.............................. 110,868 122,207 11,865
---------- ---------- ----------
214,452 258,101 2,153,136
Employee Entitlements................ 24,554 62,747 63,178
Converter Deposits................... 24,356 -- --
Current-portion finance lease liabil-
ity................................. 9 23,701 14,270 10,878
Related party payables............... 8 -- 879,336 29,998
---------- ---------- ----------
287,063 1,214,454 2,257,190
---------- ---------- ----------
TOTAL LIABILITIES AND EQUITY......... 3,154,297 3,106,198 5,740,319
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-59
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF FINANCIAL POSITION--(CONTINUED)
<TABLE>
<CAPTION>
AS AT 31 DECEMBER
---------------------- MARCH 31,
NOTE 1994 1995 1996
$ $ $
(UNAUDITED)
<S> <C> <C> <C> <C>
NON-CURRENT ASSETS
Property, plant and equipment
Cost................................ 3,297,551 4,150,307 5,463,293
Accumulated depreciation............ (1,300,597) (1,887,172) (2,021,183)
---------- ---------- ----------
4 1,996,954 2,263,135 3,442,110
Investments--Unlisted Shares.......... -- 5,000 5,000
---------- ---------- ----------
1,996,954 2,268,135 3,447,110
CURRENT ASSETS
Cash.................................. 733,407 379,547 9,872
Accounts receivables
Customers........................... -- 21,746 4,583
Employees........................... 34,472 32,545 32,545
Others.............................. 17,143 33,463 232,256
Provision for doubtful debts........ -- (10,000) (10,000)
---------- ---------- ----------
51,615 77,754 259,384
Inventories........................... 170,709 160,074 1,796,288
Prepayments........................... -- 29,351 24,131
Related party receivables............. 8 201,612 191,337 203,564
---------- ---------- ----------
1,157,343 838,063 2,283,367
---------- ---------- ----------
TOTAL ASSETS.......................... 3,154,297 3,106,198 5,740,319
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-60
<PAGE>
SATURN COMMUNICATIONS LIMITED
STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
31 DECEMBER 31 MARCH
---------------------- --------------------
NOTE 1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash was provided from:
Customers................ 22,031 171,749 24,900 130,879
Cash was disbursed to:
Payments to suppliers and
employees............... (1,496,891) (3,624,051) (768,193) (949,120)
---------- ---------- -------- ----------
Net cash flows from operat-
ing activities............ 10 (1,474,860) (3,452,302) (743,293) (818,241)
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash was provided from:
Proceeds from sale of
fixed assets............ 142,306 69,829 -- --
Cash was applied to:
Purchase of fixed as-
sets.................... (726,123) (932,018) (119,441) (1,312,986)
Purchase of investments.. -- (5,000) -- --
---------- ---------- -------- ----------
Net cash flows from invest-
ing activities............ (583,817) (867,189) (119,441) (1,312,986)
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash was provided from:
Share issue.............. 3 7,155,259 -- -- --
Related party loans...... -- 3,965,811 163,956 1,761,552
Cash was applied to:
Related party loan repay-
ment.................... (4,402,250) -- -- --
---------- ---------- -------- ----------
Net cash flow from financ-
ing activities............ 2,753,009 3,965,811 163,956 1,761,552
Net increase/(decrease) in
cash held................. 694,332 (353,680) (698,778) (369,675)
Add opening cash brought
forward................... 39,075 733,407 733,407 379,547
---------- ---------- -------- ----------
Ending cash carried for-
ward...................... 733,407 379,547 34,629 9,872
========== ========== ======== ==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-61
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
1. STATEMENT OF ACCOUNTING POLICIES
A) The reporting entity changed its name subsequent to year end from Kiwi
Cable Company Limited to Saturn Communications Limited. These financial
statements have been prepared under the requirements of the Companies Act 1955
and the Financial Reporting Act 1993.
The measurement base adopted is that of historical cost.
B) CURRENCY
These financial statements have been prepared in New Zealand dollars.
C) FIXED ASSETS
All fixed assets are recorded at cost. Additions, retirements and major
improvements are capitalized and costs for normal repair and maintenance are
charged to expense as incurred.
D) DEPRECIATION
Depreciation is provided on a straight line basis on all tangible fixed
assets at rates calculated to allocate the assets' cost, less estimated
residual value, over their estimated useful lives.
Major depreciation rates are:
<TABLE>
<S> <C>
Plant and equipment............................................... 10-20%
Leasehold improvements............................................ 20%
Office equipment.................................................. 20%
Motor vehicles.................................................... 20%
</TABLE>
E) INCOME TAX
The income tax expense charged to the statement of financial performance
includes both the current year liability and the income tax effects of timing
differences after allowing for non-assessable income and non-deductible
expenses.
Deferred taxation is calculated using the liability method on a
comprehensive basis. Debit balances in the deferred tax account arising from
net accumulated timing differences and future income tax benefits arising from
income tax losses carried forward are only recognised if realisation is more
likely than not.
F) INVENTORIES
Inventories are valued at lower of actual cost or net realisable value.
G) LEASES
Finance leases, which effectively transfer to the entity substantially all
of the risks and benefits incident to ownership of the leased item, are
capitalised at the lower of the fair value of the leased property, and the
present value of the minimum lease payments. The leased assets and
corresponding liabilities are disclosed and the leased assets are amortised
over the period the entity is expected to benefit from their use.
Operating lease payments, where the lessors effectively retain substantially
all the risks and benefits of ownership of the leased items, are included in
the determination of the operating surplus in equal instalments over the lease
term.
F-62
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
H) EXPENDITURE CARRIED FORWARD
Significant items of expenditure having a benefit or relationship to more
than one period are written off over the period to which they relate.
I) REVENUE RECOGNITION
Monthly service are recognised as revenue in the period the related services
are provided to the subscribers. Installation fees are recognised as revenue
to the extent of direct selling costs.
J) FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the New Zealand rate of
exchange ruling at the date of transaction.
At balance date foreign monetary assets and liabilities are translated at
the closing rate, and exchange variations arising from these translations are
included in the statement of financial performance as operating items.
ADDITIONAL UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES
K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
L) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
M) NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be disposed of" ("SFAS 121") which
is required to be adopted by affected companies for fiscal years beginning
after December 15, 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company has
not adopted the principles of this statement within the accompanying financial
statements; however, the Company does not believe that the provisions of SFAS
121 will have a material effect on the Company's reported results.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123 "Accounting for the Stock-Based
Compensation" ("SFAS 123") which is required to be adopted by affected
companies for fiscal years beginning after December 15, 1995. The Company does
not believe that the provisions of SFAS 123 will have a material effect on the
Company's reported results.
N) CHANGES IN ACCOUNTING POLICIES
There have been no material changes in accounting policies during the year.
All policies have been applied on consistent bases with previous years.
O) INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1996 and 1995 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
F-63
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
2. DEFICIT BEFORE TAXATION
Has been determined
<TABLE>
<CAPTION>
1994 1995
NZ$ NZ$
<S> <C> <C>
After charging:
Audit fees and expenses.................................... 15,080 6,000
Depreciation............................................... 570,904 586,575
Interest................................................... 8,151 82
Rental and leasing costs................................... 71,804 77,489
</TABLE>
3. SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
NZ$ NZ$
<S> <C> <C>
Issued 347,368 ordinary shares of $1.00 each (1994 347,368
shares)
fully paid................................................ 347,368 347,368
------- -------
347,368 347,368
======= =======
</TABLE>
On 8 July 1994 United International Holdings, Inc, (UIH), a publicly listed
company incorporated in the USA, acquired a 50% interest in the company via
the issue of 173,684 shares by the company.
The shares were purchased by UIH at a price of $US 14.39 ($NZ 24.12), giving
rise to a share premium reserve at balance date of $US 2,389,509 ($NZ
4,005,883).
Also on the 8 July 1994 the balance of the Todd International loan account,
being $US 1,775,000 ($NZ 2,975,692) after forgiveness of $US 50,176 ($NZ
84,117) and repayment of $US 900,000 ($NZ 1,508,801), converted to equity.
4. FIXED ASSETS
<TABLE>
<CAPTION>
1994
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
<S> <C> <C> <C>
Leasehold improvements....................... 121,516 (49,341) 72,175
Office Equipment (including Finance Lease As-
sets)....................................... 227,909 (74,638) 153,271
Plant and equipment.......................... 2,895,750 (1,159,362) 1,736,388
Motor vehicles............................... 52,376 (17,256) 35,120
--------- ---------- ---------
3,297,551 (1,300,597) 1,996,954
========= ========== =========
<CAPTION>
1995
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
<S> <C> <C> <C>
Leasehold improvements....................... 127,912 (74,197) 53,715
Office Equipment (including Finance Lease As-
sets)....................................... 445,160 (143,085) 302,075
Plant and equipment.......................... 3,477,675 (1,640,460) 1,837,215
Motor vehicles............................... 99,560 (29,430) 70,130
--------- ---------- ---------
4,150,307 (1,887,172) 2,263,135
========= ========== =========
</TABLE>
F-64
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
MARCH 31, 1996
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............ 156,452 (77,908) 78,544
Office Equipment (including fi-
nance leases).................... 462,653 (162,940) 299,713
Plant and equipment............... 4,686,708 (1,745,928) 2,940,780
Motor vehicles.................... 157,480 (34,407) 123,073
--------- ---------- ---------
5,463,293 (2,021,183) 3,442,110
========= ========== =========
</TABLE>
5. CONTINGENT LIABILITIES
There are no contingent liabilities outstanding at year end (1994: nil).
6. CAPITAL EXPENDITURE COMMITMENTS
Estimated capital expenditure contracted for at balance date but not
provided for NZ$659,235 (1994: nil).
7. OPERATING LEASE COMMITMENTS
At balance date the Company had the following operating lease commitments
for office space and certain vehicles:
<TABLE>
<CAPTION>
1995 1994
NZ$ NZ$
<S> <C> <C>
Payable:
within 1 year............................................ 449,982 84,985
between 1 and 2 years.................................... 457,468 82,535
between 2 and 3 years.................................... 357,915 80,031
between 3 and 4 years.................................... 233,425 52,487
between 4 and 5 years.................................... 233,425 52,487
greater than 5 years..................................... 571,989 393,653
--------- -------
2,304,204 746,178
========= =======
</TABLE>
8. RELATED PARTIES
During the year ended December 31, 1995, Saturn Communications Limited were
involved in the following related party transactions:
<TABLE>
<S> <C>
United International Holdings, Inc (significant
shareholder)
Received funding.............................. NZ$3,910,256 (1994: Nil)
</TABLE>
Funding was provided by United International Holdings for Saturn to meet its
day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand a call will
not be made until Saturn can afford to meet its day to day obligations and pay
back this funding.
<TABLE>
<S> <C>
An affiliate of Todd International Limited
(significant shareholder)
Received funding............................. NZ$45,279 (1994: nil)
Todd provided funding allowing Saturn to meet its day to day obligations.
An affiliate of United International Holdings
Received payment of prior year balance
Cash Received.................................. NZ$22,195 (1994: nil)
Balance Receivable............................. NZ$12,227 (1994: $34,422)
</TABLE>
F-65
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
Saturn also have a receivable balance owing from:
<TABLE>
<S> <C>
Todd International Limited (significant
shareholder) Receivable................ NZ$191,337(1994: NZ$201,613)
The receivable from Todd International is denominated in US dollars and is
on interest free terms.
During the quarter ended March 31, 1996, Saturn Communications Limited were
involved in the following related party transactions:
United International Holdings, Inc
(significant shareholder) Received
funding................................ NZ$1,761,522 (1994: NZ$163,956)
Funding was provided by United International Holdings for Saturn to meet its
day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand a call will
not be made until Saturn can afford to meet its day to day obligations and pay
back this funding.
United International Holdings--Tahiti
(subsidiary of United International
Holdings, Inc) Received payment of prior
year balance
Cash Received........................... NZ$ Nil (1994: $22,195)
Balance Receivable...................... NZ$ 12,227 (1994: $12,227)
Saturn also have the following balances with:
Todd International Limited (significant
shareholder)
Receivable.............................. NZ$191,337(1994: $201,612)
Payable................................. NZ$ 45,279(1994: Nil)
</TABLE>
The receivable from Todd International is denominated in US dollars and is
on interest free terms. The payable is denominated in New Zealand dollars and
is interest free repayable on demand.
9. FINANCE LEASES
At 31 December the following finance lease existed:
<TABLE>
<CAPTION>
ASSET LEASE
VALUE LIABILITY
NZ$ NZ$
<S> <C> <C>
Canon photocopier and fax
1995........................................................ 19,263 14,270
1994........................................................ 24,400 23,701
</TABLE>
The finance lease payment commitments as at balance date were payable:
<TABLE>
<S> <C> <C>
1995 1994
NZ$ NZ$
within 1 year.................................................. 7,752 9,431
between 1 and 2 years.......................................... 6,518 7,752
between 2 and 3 years.......................................... 6,718
------ ------
14,270 23,701
====== ======
</TABLE>
F-66
<PAGE>
SATURN COMMUNICATIONS LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1995
10. RECONCILIATION OF NET DEFICIT AFTER TAXATION TO NET CASH OUTFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------------- ----------------------
1994 1995 1995 1996
NZ$ NZ$ NZ$ NZ$
(UNAUDITED)
<S> <C> <C> <C> <C>
Net deficit after taxation..... (1,973,540) (4,051,509) (743,336) (1,019,475)
Add non-cash items:
Depreciation................. 570,905 586,575 140,954 134,011
Provision for doubtful
debts....................... -- 10,000 -- --
Add/(less) movements in work-
ing capital items
(Increase) in receivables and
prepayments................. (48,358) (65,489) (9,133) (5,637)
(Increase)/decrease in inven-
tories...................... (170,709) 10,635 26,869 (1,636,214)
Increase/(decrease) in ac-
counts payable and
accruals.................... 134,897 19,293 (158,647) 1,708,643
Increase in employee entitle-
ments....................... 11,945 38,193 -- 431
---------- ---------- --------- -----------
Net cash outflow from
operations................ (1,474,860) (3,452,302) (743,293) (818,241)
========== ========== ========= ===========
</TABLE>
11. INCOME TAXATION
The Company has accumulated tax losses of approximately NZ$7,500,000 (1994:
NZ$3,785,650), tax effect NZ$2,475,000 (1994:NZ$1,249,330), carried forward
and available to offset against future assessable income. The benefit of these
losses has not been brought to account. The ability to utilise these losses
will not expire, subject to the company maintaining continuity of ownership
and meeting other requirements of income tax legislation.
The Company's net deferred tax asset is as follows:
<TABLE>
<CAPTION>
AS AT 31
DECEMBER
1994 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforward......................... 1,249,330 2,475,000
Valuation allowance..................................... (1,249,330) (2,475,000)
---------- ----------
Net deferred tax asset.................................. -- --
========== ==========
</TABLE>
F-67
<PAGE>
XYZ ENTERTAINMENT PTY LTD
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheets of XYZ
Entertainment Pty Ltd as of December 31, 1994 and 1995 and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for the period from October 17, 1994 (date of inception) to December 31, 1994
and the financial year ended December 31, 1995, which are expressed in
Australian dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Australia which do not differ in any material respect from
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance as
to whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of XYZ Entertainment Pty Ltd as of December 31, 1994 and 1995 and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected amounts reported as shareholders' deficiency
and net loss as at and for the period from October 17, 1994 (date of
inception) to December 31, 1994 and the year ended December 31, 1995 to the
extent summarized in Note 12 to the financial statements.
Deloitte Touche Tohmatsu
Chartered Accountants
Sydney, Australia
March 15, 1996
F-68
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
NOTE AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
Channel supply........... Nil 1,117,091 366,041 7,166,074
Other.................... Nil 592,149 Nil 744,483
Interest................. 2,829 196,291 198,636 185,739
------- ---------- ---------- ----------
2,829 1,905,531 564,677 8,096,296
------- ---------- ---------- ----------
Operating expenses
Cost of services......... Nil 24,677,575 24,649,484 16,695,213
Selling, general and
administrative.......... 236,703 12,475,597 5,155,124 5,178,357
Depreciation and
amortization............ 2 Nil 3,594,737 2,494,557 3,893,306
------- ---------- ---------- ----------
Cost of operations......... 236,703 40,747,909 32,299,165 25,766,876
------- ---------- ---------- ----------
Net loss before income tax-
es........................ 233,874 38,842,378 31,734,488 17,670,580
------- ---------- ---------- ----------
Income taxes............... 3 Nil Nil Nil Nil
------- ---------- ---------- ----------
Net loss................... 2 233,874 38,842,378 31,734,488 17,670,580
------- ---------- ---------- ----------
Net loss per share......... 116,937 19,421,189 15,867,244 4,417,645
======= ========== ========== ==========
Weighted average number of
ordinary shares outstand-
ing during the period..... 2 2 2 4
======= ========== ========== ==========
</TABLE>
The accompanying notes form part of these financial statements.
F-69
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1995 1996
NOTE AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......... 670,754 3,105,803 6,509,498
Receivables........................ 33,000 1,006,241 3,496,958
Amounts due from stockholder....... Nil 21,219 Nil
Program material rights (net of ac-
cumulated amortization of A$nil,
A$1,430,000 and A$4,211,367)...... Nil 2,298,935 1,526,412
-------- ----------- -----------
Total current assets............. 703,754 6,432,198 11,532,868
-------- ----------- -----------
Non-current assets
Property, plant and equipment...... 4 57,448 3,361,070 2,837,199
Investment in associated company... 6 Nil 245,518 2
Amounts due from related party..... 8 Nil 1,326,578 Nil
Program material rights (net of ac-
cumulated amortization of A$nil,
$A180,000 and $A750,000).......... Nil 217,916 3,050,000
-------- ----------- -----------
Total non-current assets......... 57,448 5,151,082 5,887,201
-------- ----------- -----------
Total assets................... 761,202 11,583,280 17,420,069
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFI-
CIENCY
Current liabilities
Creditors, trade................... Nil 20,792,868 21,424,967
Other creditors and accruals....... Nil 75,656 109,386
Amounts due to related party....... Nil Nil 94,851
-------- ----------- -----------
Total current liabilities........ Nil 20,868,524 21,629,204
-------- ----------- -----------
Non-current liabilities
Creditors, trade................... Nil 743,086 709,465
Amounts due to stockholders........ 8 995,074 29,047,920 51,828,228
-------- ----------- -----------
Total non-current liabilities.... 995,074 29,791,006 52,537,693
-------- ----------- -----------
Total liabilities.............. 995,074 50,659,530 74,166,897
-------- ----------- -----------
Commitments and Contingencies (See
Notes)
Stockholders' deficiency
Redeemable preferences shares, par
value A $1.00 per share:
Authorised 100,000 shares, none
issued and outstanding............ Nil Nil Nil
Ordinary shares, par value A$1.00
per share:
Authorised 900,000 shares, 2 is-
sued and outstanding.............. 9 2 2 4
Accumulated deficit................ (233,874) (39,076,252) (56,746,832)
-------- ----------- -----------
Total stockholders' deficien-
cy............................ (233,872) (39,076,250) (56,746,828)
-------- ----------- -----------
Total liabilities and stock-
holders' deficiency........... 761,202 11,583,280 17,420,069
======== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-70
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ORDINARY ACCUMULATED TOTAL
AUD $ AUD $ AUD $
<S> <C> <C> <C>
Balance at October 17, 1994................. Nil
Issue of ordinary shares.................... 2 2
Net loss.................................... (233,874) (233,874)
--- ----------- -----------
Balance at December 31, 1994................ 2 (233,874) (233,872)
--- ----------- -----------
Net loss.................................... (38,842,378) (38,842,378)
--- ----------- -----------
Balance at December 31, 1995................ 2 (39,076,252) (39,076,250)
--- ----------- -----------
Issue of ordinary shares.................... 2 2
Net loss (unaudited)........................ (17,670,580) (17,670,580)
--- ----------- -----------
Balance at September 30, 1996 (unaudited)... 4 (56,746,832) (56,746,828)
=== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-71
<PAGE>
XYZ ENTERTAINMENT PTY LTD
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Cash receipts in the
course of operations..... Nil 370,348 133,302 5,419,840
Cash payments in the
course of operations..... (269,703) (17,351,047) (11,985,999) (19,714,865)
Interest received......... 2,829 196,291 198,636 185,739
-------- ----------- ----------- -----------
Net cash used in operating
activities............... (266,874) (16,784,408) (11,654,061) (14,109,286)
-------- ----------- ----------- -----------
Cash flows from investing
activities
Payments for property,
plant and equipment...... (57,448) (4,999,012) (4,291,014) (48,333)
Proceeds from sale of pro-
gram material rights..... Nil 2,304,795 Nil Nil
Payment for investment.... Nil (1) Nil Nil
Payments for program mate-
rial rights.............. Nil (7,164,583) (4,964,902) (5,218,996)
-------- ----------- ----------- -----------
Net cash used in investing
activities............... (57,448) (9,858,801) (9,255,916) (5,267,329)
-------- ----------- ----------- -----------
Cash flows from financing
activities
Proceeds from issues of
shares................... 2 Nil Nil 2
Proceeds from stockholder
loans.................... 995,074 29,078,258 23,838,260 22,780,308
-------- ----------- ----------- -----------
Net cash provided by fi-
nancing activities....... 995,076 29,078,258 23,838,260 22,780,310
-------- ----------- ----------- -----------
Net increase in cash and
cash equivalents held...... 670,754 2,435,049 2,928,283 3,403,695
Cash and cash equivalents at
the beginning of the
period..................... Nil 670,754 670,754 3,105,803
-------- ----------- ----------- -----------
Cash and cash equivalents at
the end of the period...... 670,754 3,105,803 3,599,037 6,509,498
======== =========== =========== ===========
Reconciliation of Net Loss
to Net Cash Used in
Operating Activities
Net loss.................. (233,874) (38,842,378) (31,734,488) (17,670,580)
Add non-cash items:
Amounts set aside to
provisions............. Nil 1,771,817 68,531 33,730
Depreciation and amorti-
zation................. Nil 3,594,737 2,494,557 3,893,306
Gain on disposal of pro-
gram material rights... Nil (189,213) Nil Nil
Loss on disposal of pro-
gram material rights... Nil 1,511,315 Nil Nil
Gain on disposal of
fixed assets........... Nil (168,358) Nil (161,667)
Loss on disposal of
fixed assets........... Nil 9,690 Nil Nil
-------- ----------- ----------- -----------
Net cash used in operating
activities before change
in assets and
liabilities.............. (233,874) (32,312,390) (29,171,400) (13,905,211)
Change in assets and lia-
bilities:
Increase in trade re-
ceivables.............. (33,000) (994,460) (231,699) (2,490,717)
(Increase) decrease in
other receivables...... Nil (1,518,255) (1,040) 1,593,313
Increase in creditors... Nil 18,040,697 17,750,078 693,329
-------- ----------- ----------- -----------
Net cash used in oper-
ating activities..... (266,874) (16,784,408) (11,654,061) (14,109,286)
======== =========== =========== ===========
</TABLE>
The accompanying notes form part of these financial statements.
F-72
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 1--STATEMENT OF ACCOUNTING POLICIES
The significant policies which have been adopted in the preparation of these
consolidated financial statements are:
(A) BASIS OF PREPARATION
This statement of significant accounting policies is given to assist in the
understanding of the consolidated financial statements. For the purposes of
these consolidated financial statements, XYZ Entertainment Pty Ltd (the
"Company") and its controlled entities (subsidiaries) (collectively, "XYZ")
are defined under Australian law as the Economic Entity. This term is used
throughout these Notes to the consolidated financial statements. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Australia (Australian GAAP),
include disclosures required by the United States Securities and Exchange
Commission and are presented in Australian dollars (A$ or AUD). The accounting
principles differ in certain respects from accounting principles generally
accepted in the United States (US GAAP). The significant differences and the
approximate related effect on the consolidated financial statements are set
out in Note 12. Although the company is financially dependent on related
bodies corporate for its ongoing viability, the financial statements have been
prepared on a going concern basis, after considering undertakings by related
bodies corporate to provide ongoing financial support. The financial
statements have been prepared on the basis of historical costs and do not take
into account changing money values. Consistent accounting policies have been
employed in the preparation and presentation of the consolidated financial
statements.
The company was incorporated on October 17, 1994 and commenced trading from
that date. Through its controlled entities, the company provides programming
for four of eight channels of the multi-channel base programming package (the
"Galaxy package") offered and distributed by the Satellite A and B licence
holders in Australia. The Galaxy package is distributed via satellite,
microwave multipoint distribution system and other transmission technologies
by the Satellite B licence holder through distribution facilities in the six
largest capital cities in Australia and regional Western Australia, and by
franchisees to substantially all of the population in Australia.
The Company's programming for the four channels was first aired on April 23,
1995 by the Satellite A and B licence holders. Regional distribution commenced
in New South Wales in August 1995 and in other states in October 1995.
Programming provided by the Company as at the date of this report includes
Red, a music video channel; Arena, a general entertainment channel;
Nickelodeon, a children's/family/classic channel; and Discovery, a documentary
channel.
(B) PRINCIPLES OF CONSOLIDATION
The accounts have been prepared by consolidating the financial statements of
all the entities that comprise the Economic Entity, being the Company (the
chief entity) and its controlled entities. A list of controlled entities
appears in Note 7.
The purchase method of accounting has been used to account for subsidiaries
acquired during the period. The Company undertakes a valuation of the net
assets acquired in purchase transactions in accordance with generally accepted
accounting principles. Accordingly, the Company has stated the net assets
acquired from purchased companies at their estimated fair values at the date
of acquisition. The consolidated accounts include the information and results
of each controlled entity from the date on which the Company obtains control
and until such time as the Company ceases to control such entity.
F-73
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
In preparing the consolidated accounts, the intercompany balances and
transactions, and any unrealised profits arising within the Economic Entity
have been eliminated in full.
(C) REVENUE AND REVENUE RECOGNITION
Sales revenue comprises licence fees earned from a related entity for
development and production of channels of programming for subscription
television broadcasting services. Revenue is recognised at the time
subscription services are provided to customers.
(D) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS
The carrying amounts of all non-current assets are reviewed to determine
whether they are in excess of their recoverable amount as of the balance sheet
date. If the carrying amount of a non-current asset exceeds the recoverable
amount, the asset is written down to the lower amount. In assessing
recoverable amounts, the relevant net cash inflows arising from the continued
use and subsequent disposal of non-current assets have not been discounted to
their present value unless otherwise indicated.
(E) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are translated to Australian currency at the
rates of exchange existing at the dates of the transactions. Amounts
receivable and payable in foreign currencies at the balance sheet date are
translated at the rates of exchange existing on that date.
Exchange differences relating to amounts payable and receivable in foreign
currencies are recorded in the profit and loss account as exchange gains or
losses in the financial year in which the exchange rates change.
(F) TAXATION
XYZ adopts the liability method of tax effect accounting. The tax effect of
temporary differences which arise from items recorded in different periods for
income tax and accounting purposes, are carried forward on the balance sheet
as deferred tax assets and deferred tax liabilities, as applicable. Deferred
tax assets arising from temporary differences are not recorded unless
realisation of the asset is assured beyond a reasonable doubt. Deferred tax
assets which include tax losses are only recorded when their realisation is
virtually certain.
The recovery of deferred tax assets (both recognised and unrecognised) is
contingent upon sufficient taxable income being earned in future periods,
continuation of the relevant tax laws and each relevant company continuing to
comply with the appropriate legislation.
(G) PLANT AND EQUIPMENT
Acquisition
Items of plant and equipment are recorded at historical cost and depreciated
as outlined below.
Depreciation
Items of plant and equipment are depreciated over their estimated useful
lives on a straight-line basis. The estimated useful lives of such items range
from four to ten years. Items of plant and equipment are depreciated from the
date the asset commences earning revenue.
Leases
Payments made under operating leases are charged against profits in equal
instalments over the accounting periods covered by the lease term, except
where an alternative basis is more representative of the pattern of benefits
to be derived from the leased property.
F-74
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
(H) SUPERANNUATION
XYZ contributes to one defined contribution fund for all employee groups.
Contributions of A$135,675 were made to the fund during the year as a
percentage of salaries based on statutory requirements.
(I) PROGRAM MATERIAL RIGHTS
Program material rights are recognised as an asset and stated at the lower
of unamortized cost and net realisable value. The rights represent the ability
to use television programs over a specified period of time, as set out in the
licence agreements. Program material rights acquired under licence agreements
are recognised when the licence period begins and all of the following
conditions are met:
(i) The cost of each licence fee for each program is known or is
reasonably determinable;
(ii) The program material has been accepted by the licensee in accordance
with the terms of the licence agreement; and,
(iii) The licensor can deliver the program material rights, and the
licensee can exercise the rights.
Amortization of the cost of program material rights is charged to the
statement of operations based on the regular assessment of the benefit of
individual licence agreements, over the term of the agreement. If the benefits
are reasonably determinable through the number of times a particular program
is aired, then costs are charged to the statement of operations accordingly.
An accelerated method of amortization is used when the first broadcast of a
program is estimated to be more valuable than its reruns. Costs are allocated
on a straight-line basis over the period of the agreement if each broadcast is
expected to produce approximately the same amount of revenue.
Program material rights are classified as current assets if they are
expected to be used within one year.
(J) STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, cash and cash equivalents
includes bank overdrafts and all highly liquid investments which are readily
convertible to cash at the Company's option.
(K) LOSS PER SHARE
Loss per share is calculated by dividing net loss by the weighted average
number of issued ordinary shares outstanding during the period.
(L) PROVISIONS
Employee Entitlements
Provision is made for benefits accruing to employees in respect of wages and
salaries, annual leave, long service leave, and sick leave when it is probable
that settlement will be required and are capable of being measured reliably.
Provisions made in respect of wages and salaries, annual leave, sick leave,
and other employee entitlements expected to be settled within twelve months,
are measured at their nominal values.
Provisions made in respect of other employee entitlements which are not
expected to be settled within twelve months are measured as the present value
of the estimated future cash outflows to be made by the economic entity in
respect of services provided by employees up to the reporting date.
(M) DATE OF INCORPORATION
The company was incorporated on October 17, 1994 and accordingly comparative
figures cover the period from inception.
F-75
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31,
1994AND THE YEAR ENDED DECEMBER 31, 1995
(N) INVESTMENTS
Associated Companies
The Company equity accounts for its investments in associated companies in
equity supplementary financial statements. Investments in which the Company
has a material interest and over which it exercises significant influence, but
does not control, are considered to be associated companies. The ability to
exercise significant influence over the strategic operating, investing and
financing policies of a company may be indicated by, for example,
representation on the board of directors, participation in policy-making
processes, material intercompany transactions, interchange of management
personnel or provision of technical information.
Investments in associated companies are carried at the lower of cost and
recoverable amount. Dividends are recorded in the profit and loss account
after they have been declared by the associated company in a general meeting.
During the year, the Company entered into an agreement with Nickelodeon
Australia, Inc to produce Nickelodeon Australia, a children's channel. The
Company jointly controls Nickelodeon Australia Management Pty Limited with
Nickelodeon Australia, Inc, and as such has the capacity to significantly
influence decision-making in these companies. The term of the joint venture is
15 years.
Selected disclosures under the equity method of accounting relating to the
entity in which the Company is able to exercise significant influence are
provided in Note 6.
None of the shares in associated companies are listed on the Australian
Stock Exchange.
(O) INTERIM FINANCIAL STATEMENTS
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited. In management's opinion, the
unaudited financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 include all adjustments necessary for
a fair presentation. Such adjustments were of normal recurring nature.
NOTE 2--EXPENDITURES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Expenses included in the net loss
were:
Depreciation and amortization:
--plant and equipment.......... Nil 828,647 576,080 733,871
--program material rights...... Nil 2,766,090 1,918,477 3,159,435
--- --------- --------- ---------
Total depreciation and
amortization................ Nil 3,594,737 2,494,577 3,893,306
=== ========= ========= =========
Amounts set Aside to Provision:
--employee entitlements--annual
leave......................... Nil 75,656 68,531 33,730
--provision for doubtful
debts......................... Nil 1,696,160 -- --
--- --------- --------- ---------
Nil 1,771,816 68,531 33,730
=== ========= ========= =========
Exchange (gain) loss, net, on
foreign currency transactions:
Exchange gain on foreign
currency transactions......... Nil (368,670) 640,564 (631,844)
--- --------- --------- ---------
Exchange (gain) loss, net...... Nil (368,670) 640,564 (631,844)
=== ========= ========= =========
</TABLE>
F-76
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 3--INCOME TAXES
At December 31, 1995 XYZ had accumulated tax losses carried forward of
approximately A$7,997,055 (1994: A$71,840). The losses may be carried forward
indefinitely under Australian income tax legislation.
The tax effects of temporary differences, at the Australian statutory rate
of 36%, which give rise to significant portions of deferred tax assets or
liabilities and the corresponding valuation allowance at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Deferred tax assets
Tax loss carryforward....................................... 77,978 9,816,188
Accrued expenses and other.................................. Nil 266,479
------ ----------
77,978 10,082,667
Deferred tax liabilities
Depreciation and amortization............................... Nil 1,897,111
------ ----------
Net deferred tax assets..................................... 77,978 8,185,556
Less valuation allowance.................................... 77,978 8,185,556
------ ----------
Nil Nil
====== ==========
</TABLE>
Tax losses of A$1,897,111 (1994: A$nil) have been brought to account and
fully applied against deferred tax liabilities.
XYZ has provided a valuation allowance for the total amount of net deferred
tax assets since realization of these assets is not assured, principally due
to the Economic Entity being in the start-up phase of operations. For US GAAP
purposes as described in Note 12, a valuation allowance for the total amount
of the net deferred tax assets has also been provided.
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1995 1996
AUD $ AUD $ AUD $
(UNAUDITED)
<S> <C> <C> <C>
Plant and equipment--at cost.................... 57,448 4,026,837 4,214,890
Less: accumulated depreciation.................. Nil (665,767) (1,377,691)
------ --------- ----------
Total property, plant and equipment........... 57,448 3,361,070 2,837,199
====== ========= ==========
</TABLE>
There have been no current valuations included in the above amounts.
F-77
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE 5--COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Contracts for Expenditure for Program Material Rights
--Not later than one year....................................... Nil 174,082
--Later than one year but not later than two years.............. Nil Nil
--Later than two years but not later than three years........... Nil Nil
--Later than three years but not later than four years.......... Nil Nil
--Later than four years but not later than five years........... Nil Nil
--Later than five years......................................... Nil Nil
--- -------
Nil 174,082
=== =======
Commitments Under Non-cancellable Operating Leases
--Not later than one year....................................... Nil 11,794
--Later than one year but not later than two years.............. Nil 12,362
--Later than two years but not later than three years........... Nil 10,976
--Later than three years but not later than four years.......... Nil 568
--Later than four years but not later than five years........... Nil Nil
--Later than five years......................................... Nil Nil
--- -------
Nil 35,700
=== =======
</TABLE>
CONTINGENCIES
The Company and its controlled entities are party to matters involving
certain claims which arise in the normal course of business, none of which, in
the opinion of management, is expected to have a materially adverse effect on
the Company's consolidated financial position or results of operation.
REGULATION
Management asserts that no communication of any kind has been received from
the Australian Broadcasting Authority ("ABA"), the Australian Competition and
Consumer Commission of Australia ("ACCC"), or the Foreign Investment Review
Board of Australia ("FIRB"), or any other agency indicating that the Company
and/or its controlled entities is or may be in violation of any law or
regulation of the Commonwealth of Australia or any subdivision or agency
thereof.
NOTE 6--INFORMATION ABOUT INVESTMENTS IN ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
EQUITY-
OWNERSHIP CARRYING ACCOUNTED
INTEREST AMOUNT AMOUNT
--------- ------------- -------------
NAME OF COMPANY PRINCIAL ACTIVITY 1994 1995 1994 1995 1994 1995
PERCENT AUD $ AUD $ AUD $ AUD $
<S> <C> <C> <C> <C> <C> <C> <C>
Nickelodeon Australia Production and
Management Pty Development of the
Limited Nickelodeon Channel N/A 50 Nil 245,518 Nil 245,518
</TABLE>
The balance date of the associate is June 30.
F-78
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
The carrying amount of the investment in the associated company is as
follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Carrying amount of investment in shares in associate company........ 1
Amounts due from associated company at the balance date ............ 1,941,677
Provision for non-recoverability.................................... (1,696,160)
----------
245,518
==========
</TABLE>
The carrying amount of the investment equates to the equity-accounted amount
at December 31, 1995 as follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Carrying amount of investment in shares in associated company..... 1
XYZ's maximum obligation to contribute to the operating losses of
the associated company........................................... (1,696,160)
----------
(1,696,159)
Amounts due from associated company at the balance date........... 1,941,677
----------
245,518
==========
</TABLE>
NOTE 7--PARTICULARS IN RELATION TO CONTROLLED ENTITIES
<TABLE>
<CAPTION>
BOOK VALUE OF CONTRIBUTION TO
INVESTMENT CONSOLIDATED LOSS
------------------------- --------------------------------
CLASS INTEREST SEPTEMBER 30, SEPTEMBER 30,
OF HELD 1994 1995 1996 1994 1995 1996
SHARE PERCENT AUD $ AUD $ AUD $ AUD $ AUD $ AUD $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chief Entity
XYZ Entertainment Pty
Ltd.................. 233,874 38,842,378 17,670,580
Corporate Bodies Corpo-
rate
XYZ Programming Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Arena Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Quest Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Max Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
Red Television Pty
Limited.............. Ord 100 Nil 2 2 Nil Nil Nil
------- ---------- ----------
Consolidated net
loss................. 233,874 38,842,378 17,670,580
======= ========== ==========
</TABLE>
Each of the controlled entities are incorporated in, and carry on business
in, Australia.
NOTE 8--RELATED PARTY DISCLOSURES
OWNERSHIP INTERESTS IN RELATED PARTIES
Information in relation to ownership interests in controlled entities is
provided in Note 7.
F-79
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
REMUNERATION OF DIRECTORS
The directors of the Company during the period were:
D F Hagans (appointed 12/12/94)
A Tow (appointed 11/5/95)
R J Freudenstein (appointed 6/9/95)
R J Birrel (appointed 17/10/94, resigned 11/5/95)
M W Booth (appointed 17/10/94, resigned 12/12/94, reappointed 6/9/95)
D Garry (appointed 17/10/94, resigned 17/10/94)
L M Head (appointed 17/10/94, resigned 17/10/94)
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Total income received, or due and receivable, by directors of
the Company from the Company and any related body corporate,
and by all directors of each entity in the Economic Entity from
corporations of which they are directors, or related bodies
corporate or an entity controlled by the chief entity.......... 52,500 363,786
====== =======
The number of directors of the Company whose total income falls
within the following bands: No No
A$Nil -- A$9,999............................................... 4 7
====== =======
</TABLE>
LOANS TO DIRECTORS
There were no loans in existence at balance date (or at December 31, 1994)
made, guaranteed or secured by the Company to directors of a corporation in the
Economic Entity or a related body corporate, their spouses, relatives or
relatives of spouses.
LOANS FROM DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD $ AUD $
(UNUADITED)
<S> <C> <C> <C> <C> <C>
Loans advanced from
stockholder............ Non-interest Century United D Hagans and
bearing, no set Programming A Tow
terms of repayment Ventures Pty
Limited 14,523,960 25,914,114
Loans advanced from
stockholder............ Non-interest Foxtel Management R Freudenstein
bearing, no set Pty Limited and M Booth
terms of repayment 14,523,960 25,914,114
---------- ----------
29,047,920 51,828,228
========== ==========
</TABLE>
Loans from Director Related Entities at December 31, 1994 amounted to
$995,074. Of this amount, $820,074 had been advanced by UIH Australia
Programming Inc. and $175,000 by Century Programming Ventures Corp., both being
joint and equal stockholders in the Company at that date.
F-80
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31,
1994AND THE YEAR ENDED DECEMBER 31, 1995
LOANS TO DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Loans advanced to
stockholder............ Century United D Hagans and
Non-interest Programming A Tow
bearing, no set Ventures Pty 881,633 --
terms of repayment Limited
======= ===
</TABLE>
There were no loans to Director Related Entities at December 31, 1994.
OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Establishment and
restructuring fees Normal commercial UIH Australia D Hagans
paid................... terms and Programming Inc.
conditions 250,000 --
Establishment and
restructuring fees Normal commercial Century Programming A Tow
paid................... terms and Ventures Corp.
conditions 250,000 --
Establishment, operating
and management fees.... Normal commercial Century United D Hagans and A
terms and Programming Tow
conditions Ventures Pty
Limited 860,444 1,849,449
Channel supply licence
fee revenue............ Normal commercial Continental Century
terms and Pay Television Pty
conditions Limited A Tow 943,358 4,412,318
Channel supply licence
fee revenue............ Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions 330,753 3,938,757
Transponder Costs.......
Normal commercial Continental Century
terms and Pay Televsion Pty
conditions Limited A Tow -- 7,988,774
Rent and Facility costs
paid................... Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions -- 1,854,033
</TABLE>
F-81
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED DIRECTOR 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY RELATED AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Rent received for
equipment usage........ Normal commercial Foxtel Management R Freudenstein
terms and Pty Limited and M Booth
conditions -- 1,304,050
</TABLE>
There were no other transactions with Director Related Parties at December
31, 1994.
LOANS TO OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C>
Loans advanced to Non-interest Nickelodeon Australia
associated company bearing, no set Management Pty
terms of repayment Limited 1,941,677 --
Loans advanced to Non-interest Nickelodeon Australia
related party bearing, no set Inc.
terms of repayment 1,326,578 --
</TABLE>
There were no loans to Other Related Entities at December 31, 1994.
OTHER TRANSACTIONS WITH OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
TYPE OF TERMS AND CONDITIONS OF NAME OF RELATED 1995 1996
TRANSACTION TYPE OF TRANSACTION ENTITY AUD AUD
(UNAUDITED)
<S> <C> <C> <C> <C>
Subscriptions payable... Normal commercial Nickelodeon
terms and Australia
conditions Management Pty
Limited 113,219 --
</TABLE>
There were no other transactions with other related entities at December 31,
1994.
TRANSACTIONS WITHIN THE WHOLLY-OWNED GROUP
During the financial period, the company provided management services to
other entities in the wholly- owned group at no charge. In addition, the
company paid licence fees and reimbursed certain costs to other entities in the
wholly-owned group in the ordinary course of business and on normal terms and
conditions.
CONTROLLING ENTITIES
The chief (parent) entity in the economic entity is XYZ Entertainment Pty
Ltd.
The ultimate holding company in the wholly-owned group is XYZ Entertainment
Pty Ltd.
F-82
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
The chief entity, at the year end, was jointly controlled by Century United
Programming Ventures Pty Limited ("CUPV") and Foxtel Management Pty Limited.
Both companies are incorporated in Australia.
CUPV is jointly owned by UIH Australia Programming Inc. ("UIH") and Century
Programming Ventures Corp. ("CPVC"). The ultimate parent entity of UIH is
United International Holdings Inc........ The ultimate parent entity of CPVC is
Century Communications Corporation.
Foxtel Management Pty Limited is jointly owned by The News Corporation
Limited and Telstra Corporation Limited.
NOTE 9--SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
Authorised Capital
900,000 ordinary shares of A $1.00 each................... 900,000 900,000
100,000 redeemable preference shares of A $1.00 each...... 100,000 100,000
--------- ---------
1,000,000 1,000,000
--------- ---------
Issued and Paid-Up Capital
2 ordinary shares of A $1.00 each......................... 2 2
========= =========
</TABLE>
Upon incorporation the Company issued two fully paid ordinary shares of $1
each.
NOTE 10--FINANCIAL REPORTING BY SEGMENTS
The Company predominantly operates in Australia and in one industry, being
programming for subscription television services.
NOTE 11--NON-HEDGED FOREIGN CURRENCY BALANCES
The Australian dollar equivalent of foreign currency balances included in
the accounts which are not effectively hedged are as follows:
<TABLE>
<CAPTION>
1994 1995
AUD $ AUD $
<S> <C> <C>
US Dollars
Liabilities
Current.................................................... Nil 1,719,055
Non-current................................................ 995,074 743,085
------- ---------
Total.................................................... 995,074 2,462,140
======= =========
Assets
Current.................................................... Nil 25,729
======= =========
Sterling
Liabilities
Current.................................................... Nil 10,949
======= =========
</TABLE>
F-83
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
NOTE12--SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN AUSTRALIA AND THE UNITED STATES
As stated in note 1, the consolidated financial statements of XYZ have been
prepared in accordance with accounting principles generally accepted in
Australia, which differ in certain significant respects from those generally
accepted in the United States. A description of the major differences between
Australian GAAP and US GAAP affecting the Company follows:
(A) STATEMENT OF CASH FLOWS
Under US GAAP, a Statement of Cash Flows would not provide a subtotal for
"net cash used in operating activities before changes in assets and
liabilities" as shown in Reconciliation of Net Loss to Net Cash Used in
Operating Activities.
(B) DEFERRED TAXATION
Australian GAAP adopts the full liability method of tax effect accounting
whereby deferred tax assets and liabilities arising from timing differences
are recorded in the balance sheet at the rate of tax expected to be applicable
at the time those timing differences reverse. A deferred tax asset in relation
to available tax losses may be recognized to the extent that there is virtual
certainty of its recovery against future taxable income.
Under US GAAP, deferred taxes are provided on all temporary differences.
Temporary differences encompass timing differences and other events that
create differences between the tax basis of an asset or liability and its
reported amount in the financial statements. A deferred tax asset is recorded
in a loss period and is reduced by a valuation allowance to the extent it is
more likely than not that the deferred tax asset will not be realised.
No deferred tax asset has been recognised in these accounts.
(C) INVESTMENTS IN AND ADVANCES TO ASSOCIATED COMPANIES
The Economic Entity equity accounts for its investments in associated
companies in equity supplementary financial statements. Corporations in which
the Economic Entity has a material interest and over which the Economic Entity
exercises significant influence, but does not control, are considered to be
associated companies. The ability to exercise significant influence over the
strategic operating, investing and financing policies of a company may be
indicated by, for example, representation on the board of directors,
participation in policy-making processes, material intercompany transactions,
interchange of management personnel or provision of technical information.
Investments in associated companies are carried at the lower of cost and
recoverable amount. Dividends are recorded in the profit and loss account
after they have been declared by the associated company in a general meeting.
Under US GAAP, the equity method of accounting is used for investments in
which the Company exerts significant influence. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the
Company's share of net earnings or losses of the associates, limited to the
extent of the Company's investment in and advances to the associates,
including any debt guarantees or other contractual funding commitments.
F-84
<PAGE>
XYZ ENTERTAINMENT PTY LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
Investments in and advances to associated companies are as follows:
<TABLE>
<CAPTION>
AUD $
<S> <C>
Investment............................................................ 1
Amounts due from associated company (net of provision for non-
recoverability of $A1,696,160)....................................... 245,517
-------
245,518
=======
</TABLE>
(D) RECONCILIATION OF NET LOSS AND STOCKHOLDERS' DEFICIENCY AS REPORTED UNDER
AUSTRALIAN GAAP TO US GAAP
A reconciliation of net loss and stockholders' deficiency as reported under
Australian GAAP to US GAAP is not required as there is no difference between
the results reported under Australian GAAP and UA GAAP at the balance date.
Fair Value of Other Financial Instruments and Other Disclosures
The carrying amount of the following instruments approximate fair value
because of the short maturity of these instruments--cash at bank, promissory
notes, trade and other receivables, and trade creditors and accruals
(including amounts owing to related entities).
New Accounting Principles
The US Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121")
which is required to be adopted by affected companies for fiscal years
beginning after December 15, 1995. The Company does not believe that the
provisions of SFAS 121 will have a material effect on the Company's reported
results.
NOTE 13--REPORTING OF SIX MONTH PERIODS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -----------------
AUD $ AUD $
<S> <C> <C>
Revenue
Channel Supply................................ 100,747 1,016,344
Other......................................... Nil 592,149
Interest...................................... 62,587 133,704
---------- ----------
163,334 1,742,197
Operating Expenses
Cost of services.............................. 15,732,400 8,945,175
Selling, general and admininstrative ......... 7,162,916 5,312,681
Depreciation and amortization................. 1,366,875 2,227,862
---------- ----------
24,262,191 16,485,718
NET LOSS........................................ 24,098,857 14,743,521
========== ==========
</TABLE>
F-85
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY IN ANY JU-
RISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 21
Dilution................................................................. 21
Exchange Rate Data....................................................... 22
Capitalization........................................................... 23
Pro Forma Consolidated Condensed Statement of Operating Data............. 24
Selected Consolidated Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 36
Regulation............................................................... 57
Corporate Organizational Structure....................................... 65
Management............................................................... 72
Relationship with UIH and Related Transactions........................... 81
Security Ownership....................................................... 84
Description of Capital Stock............................................. 85
Description of Certain Indebtedness...................................... 87
Shares Eligible for Future Sale.......................................... 88
Underwriting............................................................. 89
Legal Matters............................................................ 92
Experts.................................................................. 92
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF UIH ASIA/PACIFIC COMMUNICATIONS, INC. APPEARS HERE]
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HSBC JAMES CAPEL
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1996
PROSPECTUS
, 1997
$100,000,000
[LOGO OF UIH ASIA/PACIFIC COMMUNICATIONS, INC. APPEARS HERE]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock offered hereby are being sold by
UIH Asia/Pacific Communications, Inc. ("UAPC"). Of the shares being
offered by UAPC , shares are being offered outside the United States and
Canada by the International Managers (the "International Offering") and
shares are being offered in a concurrent offering in the United States and
Canada, by the U.S. Underwriters (the "U.S. Offering" and, together with the
International Offering, the "Offering"), subject to transfers between the U.S.
Underwriters and the International Managers. The public offering price and the
aggregate underwriting discount per share will be identical for both offerings.
See "Underwriting." Holders of Class A Common Stock are entitled to one vote
per share on all matters submitted to a vote of stockholders, and holders of
Class B Common Stock are entitled to ten votes per share. Both classes vote
together as a single class on all matters, except where class voting is
required by the Delaware General Corporation Law. See "Description of Capital
Stock." Shares of Class B Common Stock are convertible into shares of Class A
Common Stock on a one-for-one basis at the option of the holder. Upon the
closing of the Offering, United International Holdings, Inc., the Company's
majority stockholder, has agreed to contribute $25.0 million cash to the
Company for additional Class B Common Stock at the initial public offering
price of the Class A Common Stock (the "UIH Investment"). Immediately following
the UIH Investment and the Offering, assuming no exercise of the over-allotment
option granted to the Underwriters, the Class A Common Stock offered hereby
will account for approximately percent of the combined voting power of
UAPC's outstanding common stock.
Prior to the Offering, there has been no public market for either the Class A
Common Stock or the Class B Common Stock. It is currently estimated that the
initial public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for the Class A
Common Stock to be quoted on the Nasdaq Stock Market under the symbol " ."
Concurrently with the Offering, UIH Australia/Pacific, Inc., a wholly owned
subsidiary of UAPC ("UIH A/P"), is offering, pursuant to a separate prospectus,
% Senior Discount Notes due 2007 (the "New UIH A/P Notes" and, together with
UIH A/P's existing 14% Senior Discount Notes due 2006, the "UIH A/P Notes") in
such principal amount as will generate gross proceeds of approximately $150.0
million (the "Senior Discount Note Offering" and, together with the Offering,
the "Offerings"). The Offering is not contingent upon the consummation of the
Senior Discount Note Offering.
SEE "RISK FACTORS" STARTING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers (collectively the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company,
estimated, as amended at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an aggregate of additional shares of Class A Common Stock on the
same terms as set forth above to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting."
The shares of Class A Common Stock are offered by the Underwriters, subject to
prior sale when, as and if accepted and subject to certain conditions. It is
expected that delivery of the certificates for the shares of Class A Common
Stock offered hereby will be made in New York, New York on or about , .
DONALDSON, LUFKIN & JENRETTE HSBC JAMES CAPEL
SECURITIES CORPORATION
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Potential Adverse Effect of Shares Eligible for Future Sale. Sales of
substantial numbers of the shares of Class A Common Stock issuable upon
conversion of the Class B Common Stock could adversely affect the market price
of the Class A Common Stock should any such market develop. The Company, its
officers and directors and its existing stockholders have entered into "lock-
up" agreements with the Underwriters, pursuant to which they have agreed,
directly or indirectly, not to sell, solicit an offer to buy, contract to
sell, grant any option, warrant or right to purchase or otherwise transfer or
dispose of any shares of capital stock of the Company, including any options,
warrants or rights to acquire Common Stock of the Company, or any securities
that are convertible into, or exercisable or exchangeable for capital stock of
the Company, for a period of 180 days after the date of this Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, except in limited circumstances described under "Underwriting."
See "Shares Eligible for Future Sale."
Dilution. The purchasers of the shares of Class A Common Stock offered
hereby will experience an immediate and substantial dilution in the net
tangible book value of $ per share, as of September 30, 1996, from the
initial public offering price, assuming an initial public offering price of
$ per share, the maximum price in the estimated offering range. See
"Dilution."
Lack of Prior Public Market. Prior to the Offering, there has been no public
market for shares of any class of the Company's Class A Common Stock or Class
B Common Stock (collectively the "Common Stock"). The initial public offering
price of the Class A Common Stock in the Offering will be determined by
negotiation between the Company and the Underwriters based upon the factors
described in "Underwriting." There can be no assurance that the initial public
offering price will correspond to the price at which the Class A Common Stock
will trade in the public market subsequent to the Offering or that an active
public market for the Class A Common Stock will develop or continue after the
Offering. See "Underwriting."
No Dividends. It is not expected that any dividends will be paid on the
Common Stock in the foreseeable future. In addition, the indentures governing
the Existing Notes and the New UIH A/P Notes (collectively, the "UIH A/P
Indenture") limit the Company's ability to pay cash dividends. The Company
currently is a holding company with no independent operations of its own and,
as such, its ability to pay dividends is dependent upon distributions from its
operating companies. Such distributions may be limited by contractual or other
obligations of such operating companies. See "Dividend Policy" and
"Description of Certain Indebtedness."
Tax Consequences. Investors should be aware of the United States federal tax
consequences of the ownership and disposition of shares acquired by a person
who is not a U.S. person (a "non-U.S. holder"). See "Certain U.S. Tax
Consequences to Non-U.S. Stockholders."
18
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
The following is a general discussion of certain U.S. federal tax
consequences of the ownership and disposition of a share of Class A Common
Stock by a non-U.S. holder. For purposes of this discussion, a "U.S. person"
means a citizen or resident of the United States, a corporation or partnership
created or organized in the United States or under the law of the United
States or of any State, or an estate or trust whose income is includible in
gross income for United States federal income tax purposes regardless of its
source. A "non-U.S. holder" is any stockholder who is not a U.S. person. This
discussion does not consider any specific facts or circumstances that may
apply to a particular non-U.S. holder and does not address state, local on
non-U.S. tax considerations. Furthermore, the following discussion is based on
current provisions of the Code the regulations promulgated thereunder and
public administrative and judicial interpretations of the Code and regulations
in effect as of the date hereof, all of which are subject to change, which
changes could be applied retroactively.
Each prospective investor is urged to consult its own tax adviser with
respect to the U.S. federal, state and local tax consequences of owning and
disposing of a share of Class A Common Stock, as well as any tax consequences
arising under the laws of any other taxing jurisdiction.
U.S. INCOME AND ESTATE TAX CONSEQUENCES
It is not currently contemplated that the Company will pay dividends on the
Class A Common Stock in the foreseeable future. A dividend that is not
effectively connected with the conduct of a trade or business in the United
States by a non-U.S. holder of the share of Class A Common Stock (or, if a tax
treaty applies, not attributable to a United States permanent establishment
maintained by such non-U.S. holder) will be subject to U.S. withholding tax at
a 30% or lower treaty rate. A dividend that is effectively connected with the
conduct of a trade or business in the United States by the non-U.S. holder of
the share of Class A Common Stock will be exempt from the withholding tax
described above (if certain certification and disclosure requirements are met)
and subject instead (i) to the U.S. federal income tax on net income that
applies to U.S. persons and (ii), with respect to corporate holders under
certain circumstances, to a 30% (or lower treaty rate) branch profits tax that
in general is imposed on remitted earnings and profits.
Under current U.S. Treasury regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary), and, under the current interpretation of U.S.
Treasury regulations, for purposes of determining the applicability of a tax
treaty rate.
Under current law, non-U.S. holders generally will not be subject to U.S.
federal income tax on any gain recognized on a disposition of a share of Class
A Common Stock unless (i) the Company is or has been a "United States real
property holding corporation" for U.S. federal income tax purposes (a
"USRPHC") (which the Company does not believe that it has been or is currently
and does not anticipate becoming), (ii) the gain is effectively connected with
the conduct of a trade or business within the United States of the non-U.S.
holder or, if a tax treaty applies, attributable to a permanent establishment
maintained by the non-U.S. holder, (iii) the non-U.S. holder is an individual
who holds the share as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition and either (a) such
individual has a "tax home" (as defined for U.S. federal income tax purposes)
in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained in the United States by such individual or
(iv) the non-U.S. holder is subject to tax pursuant to the Code provisions
applicable to certain U.S. expatriates. If an individual non-U.S. holder falls
under clause (ii) above, he or she will be taxed on his or her net gain
derived from the sale under regular graduated U.S. federal income tax rates.
If the individual non-U.S. holder falls under clause (iii) above, he or she
will be subject to a flat 30% tax on the gain derived from the sale which may
be offset by U.S. capital losses (notwithstanding the fact that he or she is
not considered a resident of the United States). Thus, individual non-U.S.
holders who have spent 183 days or more in the United States in the taxable
year in which they contemplate
92
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
a sale of the Class A Common Stock are urged to consult their tax advisers as
to the tax consequences of such sale. If a non-U.S. holder that is a foreign
corporation falls under clause (ii) above, it will be taxed on its gain under
regular graduated U.S. federal income tax rates and, in addition, be subject
to the branch profits tax equal to 30% of its "effectively connected earnings
and profits" within the meaning of the Code for the taxable year, as adjusted
for certain items, unless it qualifies for a lower rate under an applicable
income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. If the Company were to become a
USRPHC, a non-U.S. holder would generally not be subject to tax or withholding
on gain from a sale or other disposition of Class A Common Stock by reason of
that fact if the Class A Common Stock is regularly traded on an established
securities market ("regularly traded") at any time during the calendar year in
which such sale or disposition occurs and such holder did not own, actually or
constructively, Class A Common Stock with a fair market value in excess of 5%
of the fair market value of all Class A Common Stock outstanding at any time
during the five-year period ending on the date of such sale or disposition,
or, if shorter, the period when the non-U.S. holder held such Class A Common
Stock (the "Required Holding Period"). The Company believes that the Class A
Common Stock will be treated as regularly traded.
In general, if the Class A Common Stock were not treated as regularly traded
or if a non-U.S. holder owns in excess of 5% of the fair market value of Class
A Common Stock (as described in the preceding paragraph), a non-U.S. holder of
Class A Common Stock may be subject to U.S. federal income tax under certain
rules ("FIRPTA tax") on a sale or other disposition of such Class A Common
Stock, if the Company is or has been a USRPHC within the Required Holding
Period. In addition, if the Class A Common Stock is not regularly traded, a
required withholding in respect of FIRPTA tax is imposed at a rate of 10
percent of the amount realized on certain sales or other dispositions of
certain interests (including stock) in USRPHCs.
Shares of Class A Common Stock owned or treated as owned by an individual
non-U.S. holder at the time of his death will be includible in his estate for
U.S. estate tax purposes unless an applicable estate tax treaty provides
otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. The Company must report annually to the Internal Revenue Service
and to each non-U.S. holder the amount of dividends paid to and the tax
withheld with respect to such holder. These information reporting requirements
apply regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these information returns may also be
available under the provisions of a specific treaty or agreement with the tax
authorities in the country in which the non-U.S. holder resides. Dividends
that are subject to U.S. withholding tax at the 30% statutory rate or at a
reduced tax treaty rate are exempt from backup withholding of U.S. federal
income tax. In general, backup withholding at a rate of 31% and information
reporting will apply to other dividends paid on shares of Class A Common Stock
to holders that are not "exempt recipients" and that fail to provide in the
manner required certain identifying information (such as the holder's name,
address and taxpayer identification number). Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally
are exempt recipients.
Broker Sales. If a non-U.S. holder sells shares of Class A Common Stock
through a U.S. broker or a U.S. office of a foreign broker, the broker is
required to file an information return and is required to withhold 31% of the
sale proceeds unless the non-U.S. holder is an exempt recipient or has
provided the broker with the information and statements, under penalties of
perjury, necessary to establish an exemption from backup withholding. If
payment of the proceeds of the sale of a share by a non-U.S. holder is made to
or through the foreign office of a foreign broker, that broker will not be
required to backup withhold or, except as provided in the next sentence, to
file information returns. In the case of proceeds from a sale of a share by a
non-U.S. holder
93
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
paid to or through the foreign office of a United States broker or a foreign
office of a foreign broker that (i) a controlled foreign corporation for U.S.
tax purposes or (ii) a person 50% or more of whose gross income for the three-
year period ending with the close of the taxable year preceding the year of
payment (or for the part of that period that the broker has been in existence)
is effectively connected with the conduct of a trade of business within the
United States (a "Foreign U.S. Connected Broker"), information reporting is
required unless the broker has documentary evidence in its files that the
payee is not a U.S. person and certain other conditions are met, or the payee
otherwise establishes an exemption. In addition, the Treasury Department has
indicated that it is studying the possible application of backup withholding
in the case of such foreign offices of United States and Foreign U.S.
Connected Brokers. Proposed regulations, which will be effective after
December 31, 1996, state that backup withholding will not apply in such cases
(absent actual knowledge that the payee is a U.S. person).
Refunds. Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. holder or a beneficial owner (in excess of such payee's
U.S. federal income tax liability) may be refunded or credited against the
payee's U.S. federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
The backup withholding rules are currently under review by the Treasury
Department, and their application to a share of Class A Common Stock is
subject to change.
94
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY IN ANY JU-
RISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 21
Dilution................................................................. 21
Exchange Rate Data....................................................... 22
Capitalization........................................................... 23
Pro Forma Consolidated Condensed Statement of Operating Data............. 24
Selected Consolidated Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 36
Regulation............................................................... 57
Corporate Organizational Structure....................................... 65
Management............................................................... 72
Relationship with UIH and Related Transactions........................... 81
Security Ownership....................................................... 84
Description of Capital Stock............................................. 85
Description of Certain Indebtedness...................................... 87
Shares Eligible for Future Sale.......................................... 88
Underwriting............................................................. 89
Legal Matters............................................................ 92
Experts.................................................................. 92
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF UIH ASIA/PACIFIC COMMUNICATIONS, INC. APPEARS HERE]
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HSBC JAMES CAPEL
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the Prospectus contained in this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee and the National
Association Securities Dealers, Inc. and Nasdaq application fees, are
estimated:
<TABLE>
<S> <C>
Commission registration fee....................................... $30,303
National Association of Securities Dealers, Inc. filing fees...... 10,500
Nasdaq Application fee............................................
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ *
Directors and officers liability insurance........................ *
Transfer agent fees............................................... *
Miscellaneous..................................................... *
-------
Total........................................................... *
=======
</TABLE>
- ---------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article of the Company's Amended and Restated Certificate of
Incorporation requires the Company to indemnify, to the fullest extent
authorized by applicable law, any person who is or is threatened to be made a
party to any civil, criminal, administrative, investigative, or other action
or proceeding instituted or threatened by reason of the fact that he is or was
a director or officer of the Company or is or was serving at the request of
the Company as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise.
Article of the Company's Amended and Restated Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law,
directors and officers of the Company shall not be liable to the Company or
any of its stockholders for damages caused by a breach of fiduciary duty by
such director or officers.
Section 145 of the Delaware General Corporation Law "DGCL" authorizes the
indemnification of directors and officers and those persons who were, at the
request of the corporation, serving as directors or officers of another
corporation, partnership, joint venture, trust or other enterprise against
liability incurred by reason of being a director or officer and against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement and reasonably incurred in connection with any action seeking to
establish such liability, in the case of third-party claims, if the officer or
director acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and in the case of
actions by or in the right of the corporation, if the officer or director
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation and if such officer or
director shall not have been adjudged liable to the corporation, unless a
court determines, in view of all of the circumstances of the case, such
officer or director is fairly and reasonably entitled to indemnity for such
expenses which the court deems proper. Indemnification is also authorized with
respect to any criminal action or proceeding where the officer or director
also had no reasonable cause to believe his conduct was unlawful.
II-1
<PAGE>
The above discussion of the Company's Amended and Restated Certificate of
Incorporation, Bylaws, the DGCL and the Company's insurance policy is only a
summary and is qualified in its entirety by the full text of each of the
foregoing.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, in which each Underwriter agrees, under certain
circumstances, to indemnify the directors and officers of the Company and
certain other persons against certain civil liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company was incorporated in April 1996 as a wholly owned subsidiary of
UIH Asia/Pacific, Inc. ("Asia/Pacific"). Asia/Pacific was issued 100 shares of
common stock of the Company in consideration for contributing to the Company
all of Asia/Pacific's interest in UIH Australia/Pacific, Inc.
("Australia/Pacific"). The Company claimed an exemption from the registration
requirements of the Act under Section 4(2) thereof.
The Company and the holder of 2.6% of the outstanding common stock of
Australia/Pacific, (the "Australia/Pacific Shares") have agreed for the
Company to issue to such holder shares of Class A Common Stock in exchange for
the Australia/Pacific Shares, subject to finalization of the exchange ratio.
The Company's parent has agreed to contribute $25.0 million cash to the
Company for additional Class B Common Stock at a purchase price equal to the
initial public offering price of the Class A Common Stock. In each case, the
Company plans to claim an exemption from the registration requirements of the
Securities Act under Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of UAPC, as amended.
3.2* Amended and Restated Bylaws of UAPC.
4.1* Form of Class A Common Stock Certificate.
4.2 The Certificate of Incorporation, as amended, and Amended and Restated
Bylaws of UAPC are included as Exhibits 3.1 and 3.2.
5.1* Opinion of Holme Roberts & Owen llp as to the legality of the
securities.
10.1 Indenture dated as of May 14, 1996, between UIH A/P and American Bank
National Association.(1)
10.2 Purchase Agreement dated May 8, 1996, among UIH A/P, Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch").(1)
10.3 Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement, among United International Holdings,
Inc. ("UIHI"), UIH Australia, Inc. ("UIHA"), Salstel Media Holdings
Pty Limited ("SMH"), Australis Media Limited ("Australis") and CTV Pty
Ltd ("CTV").(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.4 Memorandum of Variation dated December 21, 1995 to the Subscription
and Securityholders Agreement dated October 12, 1994, among UIHI, UIH
Australia II, Inc. ("UIHA II"), Salstel Media Investment Pty Limited
("SMI"), Australis and STV Pty Ltd ("STV").(1)
10.5 Memorandum of Variation dated April 4, 1996 to the CTV Securityholders
Agreement, among UIHI, UIHA, Australis, SMH and CTV.(1)
10.6 Memorandum of Variation dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II, Australis, SMI and STV.(1)
10.7 Security Purchase Agreement dated December 21, 1995, between Media
International Holdings Limited ("MHL") and UIHA.(1)
10.8 Security Purchase Agreement dated December 21, 1995, between MIHL and
UIHA II.(1)
10.9 Agreement dated December 21, 1995, among UIHI, UIHA and SMH.(1)
10.10 Amending Agreement dated April 4, 1996 to CTV Securityholders
Agreement, among UIHI, UIHA and SMH.(1)
10.11 Agreement dated December 21, 1995, among UIHI, UIHA II and SMI.(1)
10.12 Amending Agreement dated April 4, 1996 to the STV Securityholders
Agreement, among UIHI, UIHA II and SMI.(1)
10.13 Share Acquisition Agreement dated September 9, 1995, between Australia
New System L.P. and United Wireless, Inc. ("UWI").(1)
10.14 XYZ Shareholders Agreement dated September 6, 1995, among Century
United Programming Venturers Pty Limited ("CUPV"), Foxtel Management
Pty Limited ("Foxtel"), XYZ Entertainment Pty Limited ("XYZ"), Century
United Programming Ventures ("CPVC") and UIH A/P.(1)
10.15 Shareholders Deed dated June 30, 1995, among Century Communications
Corp., CPVC, UIHI, UIH A/P and CUPV.(1)
10.16 UIH-SFCC L.P. Amended and Restated Agreement of Limited Partnership
dated January 6, 1995, among UIH-SFCC Inc. and the limited partners
named therein.(1)
10.17 Master Agreement dated January 11, 1995, between UIH-SFCC, L.P. and
Societe Francaise des Communications et du Cable S.A. ("Societe").(1)
10.18 Shareholders' Agreement dated January 11, 1995, among UIH-SFCC, L.P.
and the shareholders named therein.(1)
10.19 Franchise Agreement dated October 12, 1994, between Australis and
CTV.(1)
10.20 Agreement dated June 19, 1996, between Australis, UIH A/P and Galaxy
Communications Pty Limited ("Galaxy") re: CTV Franchise Agreement.(1)
10.21 Franchise Agreement dated October 12, 1994, between Australis and
STV.(1)
10.22 Agreement dated June 19, 1996, between Australis, UIH A/P and Galaxy
re: STV Franchise Agreement.(1)
10.23 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and East
Coast Pay Television Pty Limited ("ECT").(1)
10.24 Stock Purchase Agreement dated July 3, 1996, among Kiwi Cable Company
BVI, Inc., UPI and UIH A/P(1)
10.25 Technical Assistance Agreement dated January 11, 1995, between
Telefenua S.A. and Societe.(1)
10.26 Assignment of Rights and Delegation of Duties under Technical
Assistance Agreement dated January 11, 1995, between Societe and
UIHI.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.27* Technical Assistance Agreement dated February 24, 1995, between
Telemondial and UIH Management, Inc. ("UIHM").
10.28* Form of Management Agreement between UIHM and the Company.
10.29* Form of Assignment of Agreements among UAPC, UIH and UIHM.
10.30 Tax Allocation Agreement dated May 8, 1996, among UIHI, United
Australasian Communications, Inc. and UM A/P.(1)
10.31 Employment Letter Agreement dated February 21, 1995, between UIHI and
Robert G. McRann.(1)
10.32* Convertible Loan Agreement dated February 24, 1995, between
Telemondial Holdings, Inc. and UIH Philippines, Inc.
10.33 Joint Venture Contract dated April 11, 1994, between Hunan Television
Broadcasting Goods and Materials Company.
21.1* List of Subsidiaries.
23.1 Consent of Independent Public Accountants--Arthur Andersen LLP (UIH
Asia/Pacific Communications, Inc.).
23.2 Consent of Independent Public Accountants--Arthur Andersen (CTV Pty
Ltd).
23.3 Consent of Independent Public Accountants--Arthur Andersen (STV Pty
Ltd).
23.4 Consent of Independent Public Accountants--Arthur Andersen (Saturn
Communication Limited).
23.5 Consent of Independent Public Accountants--Deloitte Touche Tohmatsu
(XYZ Entertainment Pty Ltd).
23.6 Consent of Independent Public Accountants--Coopers & Lybrand
(Telefenua S.A.)
23.7 The consent of Holme Roberts & Owen LLP is included in Exhibit 5.1.
24.1 Powers of Attorney.
</TABLE>
---------------------
(1) Incorporated by reference from Registration Statement on Form S-4 of
UIH Australia/Pacific, Inc. (File No. 333-05017) dated May 31, 1996.
* To be filed by Amendment.
(b) Index to Financial Statement Schedules
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants S-1
Parent only Condensed Financial Information of Registrant S-2
Parent only Condensed Information as to the Operations of the
Registrant S-3
Parent only Condensed Information as to the Cash Flows of the
Registrant S-4
</TABLE>
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by a final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF
COLORADO, ON THIS 18TH DAY OF NOVEMBER, 1996.
UIH Asia/Pacific Communications,
Inc.
A Delaware Corporation
/s/ Bernard G. Dvorak
By: _________________________________
BERNARD G. DVORAK CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE POSITION HELD WITH THE REGISTRANT DATE
<S> <C> <C>
* Chairman of the November 18, 1996
- ------------------------- Board
GENE W. SCHNELDER
*
- ------------------------- Chief Executive Officer and November 18, 1996
MICHAEL T. FRIES Director
/s/ Bernard G. Dvorak Chief Financial Officer and November 18, 1996
- ------------------------- Director
BERNARD G. DVORAK
* Chief Operating Officer and November 18, 1996
- ------------------------- Director
JOHN C. PORTER
* Director November 18, 1996
- -------------------------
ALBERT M. CAROLLO
*
- ------------------------- Director November 18, 1996
LAWRENCE J. DEGEORGE
* Director November 18, 1996
- -------------------------
WILLIAM J. ELSNER
* Director November 18, 1996
- -------------------------
JOSEPH E. GIOVANINI
* Director November 18, 1996
- -------------------------
EDWARD G. JEPSEN
*
- ------------------------- Director November 18, 1996
ANTONY P. RESSLER
* Director November 18, 1996
- -------------------------
CURTIS ROCHELLE
Director November , 1996
- -------------------------
MARK L. SCHNEIDER
*
- ------------------------- Director November 18, 1996
BRUCE H. SPECTOR
*
- ------------------------- Controller (Principal November 18, 1996
VALERIE L. COVER Accounting Officer)
*/s/ Bernard G. Dvorak
- -------------------------
BERNARD G. DVORAK
Attorney-in-fact
</TABLE>
II-6
<PAGE>
After the corporate reorganization transaction discussed in Note 1 to the
UIH Asia/Pacific Communications, Inc. consolidated financial statements is
effected, we expect to be in a position to render the following audit report.
Arthur Andersen LLP
Denver, Colorado,
November 18, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UIH Asia/Pacific Communications, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of UIH Asia/Pacific Communications, Inc.
included in this registration statement and have issued our report thereon
dated November , 1996. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commissions rules and are 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
and, in our opinion, 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.
S-1
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
PARENT ONLY
SCHEDULE 1
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ -- $ --
Management fee receivable.................................. -- 114
Investments in and advances to affiliated companies,
accounted for under the equity method..................... 24,214 88,873
Other assets, net.......................................... 296 980
------- -------
Total assets............................................. $24,510 $89,967
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities.................................................. $ -- $ --
Commitments
Stockholder's Equity:
Preferred stock, $.01 par value, 1,000 shares authorized,
none issued............................................... -- --
Common stock, $.01 par value, 2,000 shares authorized, 100
and 100 issued and outstanding, respectively.............. -- --
Additional paid-in capital................................. 27,382 111,930
Cumulative translation adjustments......................... 405 374
Accumulated deficit........................................ (3,277) (22,337)
------- -------
Total stockholder's equity............................... 24,510 89,967
------- -------
Total liabilities and stockholder's equity............... $24,510 $89,967
======= =======
</TABLE>
S-2
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
PARENT ONLY
SCHEDULE 1
CONDENSED INFORMATION AS TO THE OPERATIONS OF THE REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994 1995
<S> <C> <C>
Service and other revenue............................... $ -- $ 20
Corporate general and administrative expense............ (1,603) (1,950)
--------- ----------
Net operating loss.................................... (1,603) (1,930)
Equity in losses of affiliated companies................ (1,674) (17,130)
--------- ----------
Net loss.............................................. $ (3,277) $ (19,060)
========= ==========
</TABLE>
S-3
<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
PARENT ONLY
SCHEDULE 1
CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1994 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (3,277) $ (19,060)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Equity in losses of affiliate companies, net............ 1,674 17,130
Increase in receivables................................. -- (114)
Increase in other assets................................ (296) (684)
--------- ----------
Net cash flows from operating activities.................. (1,899) (2,728)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in and advances to affiliated companies and
other investments........................................ (25,483) (51,981)
--------- ----------
Net cash flows from investing activities.................. (25.483) (51,981)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent......................... 27,382 54,709
--------- ----------
Net cash flows from financing activities.................. 27,382 54,709
--------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS..................... -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ -- --
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ -- $ --
========= ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-cash capital contribution of preferred stock from
parent utilized in purchase of additional 40% interest
in Austar.............................................. $ -- $ 29,839
========= ==========
</TABLE>
S-4
<PAGE>
Execution Copy
--------------
----------------------------------
JOINT VENTURE CONTRACT
----------------------------------
BY AND BETWEEN
-------------------------------------------------------
HUNAN TELEVISION BROADCASTING GOODS
AND MATERIALS COMPANY
AND
UIH DEVELOPMENT, INC.
-------------------------------------------------------
----------------------------------
RELATING TO THE ESTABLISHMENT OF
HUNAN INTERNATIONAL TELECOMMUNICATIONS COMPANY LIMITED
----------------------------------
DATED 11, APRIL, 1994
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<C> <S> <C>
1. Definitions.................................................. 1
2. Parties to the Contract...................................... 4
3. Establishment of the Joint Venture Company................... 5
4. The Purpose, Scope and Scale of Production and Operation..... 7
5. Total Amount of Investment and Registered Capital............ 8
6. Responsibilities of the PARTIES.............................. 13
7. Other Contracts.............................................. 14
8. Sale of Services, Programming and Products................... 15
9. Board of Directors........................................... 15
10. Operation and Management..................................... 19
11. Land......................................................... 22
12. Supply and Purchase of Materials and Services................ 22
13. Labor Management............................................. 23
14. Financial Affairs and Accounting............................. 25
15. Taxation and Insurance....................................... 29
16. Confidentiality.............................................. 30
17. The Joint Venture Term....................................... 31
18. Termination, Buy-Out and Liquidation Procedures.............. 32
19. Force Majeure................................................ 35
20. Settlement of Disputes....................................... 36
21. Expert Procedures............................................ 38
22. Applicable Law............................................... 39
23. Miscellaneous Provisions..................................... 40
Signatures................................................... 43
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Articles of Association
Exhibit B Land Description
Exhibit C List of PARTY A's Contribution of Machinery and Equipment
Exhibit D Capital Contribution Schedule
<PAGE>
JOINT VENTURE CONTRACT
----------------------
THIS CONTRACT is made in the People's Republic of China on this 11th day of
April, 1994, by and between HUNAN TELEVISION BROADCASTING GOODS AND MATERIALS
COMPANY, a legal person duly organized and existing under the laws of the
People's Republic of China and having its registered address at 34 Yu Hua
Street, Changhsa, Hunan Province, the People's Republic of China ("PARTY A") and
UIH DEVELOPMENT, INC., a company duly organized and existing under the laws of
United States of America and having its head office at Suite 1300, 4643 S.
Ulster, Denver, Colorado, U.S.A. ("PARTY B").
PRELIMINARY STATEMENT
---------------------
After friendly consultations conducted in accordance with the principle of
equality and mutual benefit, PARTY A and PARTY B have agreed to establish a
limited liability equity joint venture in accordance with the Law of the
People's Republic of China on Joint Ventures Using Chinese and Foreign
Investment (the "Joint Venture Law"), the Implementing Regulations issued
thereunder (the "Joint Venture Regulations") and the provisions of this
Contract.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
-----------------------------------------------
ARTICLE 1 - DEFINITIONS
----------------------
Unless the terms or context of this Contract otherwise provides, the following
terms shall have the meanings set out below:-
1.01 "Approval Authority" shall mean the Ministry of Foreign Trade and
------------------
Economic Cooperation or the local authority designated by such Ministry
to approve this Contract and the Central and local agencies as may be
necessary to implement the provisions of this Contract and any ancillary
contracts referred to herein.
1
<PAGE>
1.02 "Articles of Association" shall mean the Articles of Association of the
-----------------------
Company as set forth in Exhibit A attached hereto.
1.03 "Board" shall mean the board of directors of the Company.
-----
1.04 "Business License" shall mean the business license of the Company issued
----------------
by the SAIC following approval of this Contract.
1.05 "China or "PRC" shall mean the People's Republic of China (but for
----- ---
business purposes under this Contract shall not include the regions of
Hong Kong, Taiwan and Macau).
1.06 "Company" shall mean the Hunan International Telecommunications Company
-------
Limited, a joint venture limited liability company formed by the PARTIES
pursuant to this Joint Venture Contract, the Joint Venture Law, the Joint
Venture Regulations, and other relevant Chinese laws.
1.07 "Contributed Assets" shall mean those assets contributed by PARTY A
------------------
pursuant to Article 5.03(a) and which are more particularly described in
Exhibit C.
1.08 "Effective Date" shall mean the effective date of this Contract, which
--------------
date shall be the date on which all of the following conditions have been
fulfilled:-
(a) Agreement and Articles. This Contract and the Articles of
----------------------
Association have been approved by the Approval Authority without
any additional or different conditions being imposed; and
(b) Business License. The Business License has been issued by the
----------------
SAIC, reflecting the status and structure of the Company as
described herein, without any additional or different conditions
being imposed.
2
<PAGE>
1.09 "Feasibility Study" shall mean the Feasibility Study Report dated
-----------------
____________ 1994 and signed by the PARTIES, regarding the feasibility of
the joint venture and establishment of the Company.
1.10 "Joint Venture Term" shall mean the term of the Company as set forth in
------------------
Article 17 hereof.
1.11 "Land" shall mean the land more particularly described in Exhibit B.
----
1.12 "Management Personnel" shall mean and include the General Manager, Deputy
--------------------
General Manager, Production Manager, Financial Controller, Marketing
Manager, Production Engineer and such other personnel designated as
Management Personnel by the Board.
1.13 "PARTY" or "PARTIES" means PARTY A and PARTY B individually or
----- -------
collectively.
1.14 "Renminbi" or "RMB" shall mean the lawful currency of China.
------- ---
1.15 "SAEC" means the State Administration of Exchange Control of China and/or
----
its local branches as appropriate to the context.
1.16 "SAIC" means the State Administration of Industry and Commerce of China
----
and/or its local branches as appropriate to the context.
1.17 "United States Dollars", "U.S. Dollars" and "US$" shall mean the lawful
--------------------- ------------ ---
currency of the United States of America.
1.18 "Working Personnel" shall mean the employees of the Company except the
-----------------
Management Personnel.
3
<PAGE>
ARTICLE 2 - PARTIES TO THE CONTRACT
-----------------------------------
2.01 The Parties
-----------
The PARTIES to this Contract are:
(a) PARTY A, Hunan Television Broadcasting Goods and Materials Company
registered in Changsha, Hunan Province, the People's Republic of
China, with its registered address at No. 34 Yu Hua Street,
Changsha, Hunan Province, the People's Republic of China.
Legal Representative : Xiong Tie Shi
Position : General Manager
Nationality : Chinese
(b) PARTY B, UIH Development, Inc. a company registered in Colorado,
U.S.A. with its head office at Suite 1300, 4643 S. Ulster, Denver,
Colorado, U.S.A.
Legal Representative : Warren L. Mobley, Jr.
Position : Vice President
Nationality : U.S.A.
2.02 Authority
---------
Each PARTY hereby represents and warrants to the other PARTY that, as of
the date hereof and as of the Effective Date:
(a) such PARTY is duly organized, validly existing and in good standing
under the laws of the place of its establishment or incorporation;
4
<PAGE>
(b) such PARTY has all requisite power, authority and approval required
to enter into this Contract and, upon the Effective Date, will have
all requisite power, authority and approval to perform fully each
and every one of its obligations hereunder;
(c) such PARTY has taken all actions necessary to authorize it to enter
into this Contract and such PARTY representative whose signature is
affixed hereto is fully authorized to sign this Contract, and to
bind such PARTY thereby, pursuant to a valid power of attorney;
(d) upon the Effective Date, this Contract shall constitute the legal,
valid and binding obligations of such PARTY;
(e) neither the execution of this Contract, nor the performance of such
PARTY's obligations hereunder, will conflict with, or result in a
breach of, or constitute a default under, any provision of the
Articles of Incorporation or By-Laws of such PARTY, or any law,
rule, regulation, authorization or approval of any government agency
or body, or of any contract or agreement to which it is a party or
subject;
(f) there is no lawsuit, arbitration, or legal, administrative or other
proceeding or governmental investigations pending or, to the best
knowledge of such PARTY, threatened against such PARTY with respect
to the subject matter of this Contract.
ARTICLE 3- ESTABLISHMENT OF THE JOINT VENTURE COMPANY
-----------------------------------------------------
3.01 Establishment of the Company
----------------------------
The PARTIES hereby agree to establish the Company promptly after the
Effective Date in accordance with the Joint Venture Law, the Joint
Venture Regulations and the provisions of this Contract.
5
<PAGE>
3.02 Name and Address of the Company: Branches
-----------------------------------------
(a) Name. The name of the Company shall be: ________________ in Chinese,
----
and "Hunan International Telecommunications Company Limited" in
English.
(b) Address. The legal address of the Company shall be
-------
________________Changsha,Hunan Province, the People's Republic of
China.
(c) Branches. The Company may establish necessary branch offices inside
--------
of China with the approval of the Board and the relevant authority
in the location of the proposed branch.
3.03 Limited Liability Company
-------------------------
The form of organization of the Company shall be a limited liability
company. Except as otherwise provided herein, once a PARTY has paid in
full its contribution to the registered capital of the Company, it shall
not be required to provide any further funds to or on behalf of the
Company in excess of its obligation under this Contract. Except as
otherwise provided pursuant to written agreement signed by the PARTY to
be charged, creditors of the Company shall have recourse only to the
assets of the Company and shall not seek repayment from any PARTY. The
Company shall indemnify the PARTIES against any and all losses, damages
or liability suffered by the PARTIES in respect of third-party claims
arising out of the operation of the Company. Subject to the above, the
profits, risks and losses of the Company shall be shared by the PARTIES
in proportion to and limited by their respective contributions to the
Company's registered capital.
6
<PAGE>
3.04 Laws and Decrees
----------------
The Company shall be a legal person under the laws of China. The
activities of the Company shall be governed and protected by the relevant
published and publicly available laws, decrees, rules and regulations of
China.
ARTICLE 4 - THE PURPOSE, SCOPE AND SCALE
----------------------------------------
OF PRODUCTION AND OPERATION
---------------------------
4.01 Purpose and Scope of the Company
--------------------------------
(a) Purpose. The Company shall adopt advanced technology and scientific
-------
management methods and establish an "information highway" with the
aim to earn lawful profits, gain a competitive position in the
market and make a contribution to the people of China by:
(1) Advancing economic and technical development of Hunan and
China;
(2) Advancing the level of managerial and marketing skills by
providing an environment utilizing modern and proven scientific
business methods; and
(3) Promoting the rights and dignity of workers by creating an
equitable and dynamic work environment.
(b) Scope. The scope of the Company is to:
-----
(1) Provide information, engineering, design and operation and
management support and consulting services relating to
broadcasting, television and telecommunications industry;
7
<PAGE>
(2) Design, engineer, renovate and construct transmission
facilities for television and broadcasting;
(3) Purchase and lease telecommunications equipment;
(4) Assemble, manufacture, distribute and sell television and other
telecommunications equipment;
(5) Produce, package, distribute and broadcast television
programming, including advertisements approved by the PRC
government.
4.02 Scale
-----
The initial activity of the Company will be to design, engineer and
renovate Hunan's microwave network, to procure, lease and use the
telecommunications equipment required by such network, and to provide
operation and management consulting services in connection with the
network.
ARTICLE 5 - TOTAL AMOUNT OF INVESTMENT AND
------------------------------------------
REGISTERED CAPITAL
------------------
5.01 Total Investment. The Company's total investment shall be Eight Million
----------------
United States Dollars (US$8,000,000).
5.02 Registered Capital. The Company's registered capital shall be Four
------------------
Million Eighty One Thousand Six Hundred and Thirty Three United States
Dollars (US$4,081,633).
5.03 Contribution to Capital
-----------------------
(a) The contribution to the registered capital of the Company subscribed
by PARTY A shall be Two Million Eighty One Thousand Six Hundred and
8
<PAGE>
Thirty Three United States Dollars (US$2,081,633), representing a fifty
one percent (51%) share of the registered capital of the Company,
PARTY A's contribution shall consist of (i) buildings, water,
electricity, road access and machinery and equipment more particularly
described in the list set forth as Exhibit C, and (ii) land use rights
described more particularly in Exhibit B, which for purposes of valuation
the PARTIES agree are valued at approximately Two Million Eighty One
Thousand Six Hundred and Thirty Three United States Dollars
(US$2,081,633).
(b) The contribution to the registered capital of the Company subscribed by
PARTY B shall be cash in the amount of Two Million United States Dollars
(US$2,000,000) representing a forty nine percent (49%) share of the
registered capital of the Company.
(c) The capital contributions which shall be made by PARTY A and PARTY B
shall be used by the Company only in the implementation of this Contract.
Except as otherwise provided herein, all of the items contributed by the
PARTIES to the Company shall remain the property of the Company
throughout the entire term of this Contract.
(d) PARTY A's Representations and Warranties. With respect to PARTY A's
----------------------------------------
contributions, PARTY A represents and warrants as follows:
(i) PARTY A is the lawful owner of the Contributed Assets, which are
free and clear of any lien, mortgage or other security interests
and claims;
(ii) PARTY A possesses rights, powers and authorization adequate for it
to contribute the Contributed Assets in the manner described in
this Contract;
9
<PAGE>
(iii) there is no ongoing or future legal procedure, lawsuit,
arbitration procedure, administrative litigation or other
government or court order, interdiction, decision or ruling to
which PARTY A is a party or which binds or affects the Contributed
Assets or is capable of so doing;
(iv) all information provided to PARTY B concerning the Contributed
Assets, business, finances and other aspects of business is true,
accurate and complete in every respect;
(v) as of the date of this Contract and as of the Effective Date, all
of the assets are in good operating condition, consistent with
PARTY A's past practices;
(vi) PARTY A has conducted its business in compliance with all
important laws, regulations, provisions and orders of any
governmental authority with jurisdiction over it, its business,
finances or operations or its property; and
(vii) before and after the execution of this Contract, PARTY A has taken
and shall take all necessary or appropriate actions to cause this
Contract to be adequately performed in accordance with the terms
thereof.
5.04 Payment of Registered Capital and Conditions Precedent Thereto
--------------------------------------------------------------
(a) Subject to Article 5.04 (b) below, each PARTY shall pay into the
Company the capital contribution subscribed by it in accordance with
the Capital Contribution Schedule set forth as Exhibit D hereto.
10
<PAGE>
(b) Notwithstanding the foregoing, the PARTIES' obligations to make
their respective contribution to the Company's registered capital
shall not arise until each of the following conditions has been
fulfilled:
(i) approval of this Contract, the Articles of Association and
the Feasibility Study has been obtained from the Examination
and Approval Authority or other relevant authorities without
varying the terms hereof or imposing any additional terms or
conditions; and
(ii) the issuance of the Company's Business License (with a scope
of business as set forth in Article 4.01 hereof); and
(iii) the Company has established a foreign currency bank account.
5.05 Late Contribution to Registered Capital
---------------------------------------
Any delay in payment of either PARTY's contribution in accordance with
the Capital Contribution Schedule attached as Exhibit B shall result in a
payment of penalty to the Company equal to 1% of the relevant PARTY's
total cash contribution for that month or part thereof that the delay in
payment continues.
5.06 Investment Certificate
----------------------
After each PARTY's contribution to the registered capital has been made
in full, a Chinese registered accountant shall verify the contribution
and issue a contribution verification report. Thereupon, the Company
shall issue within sixty (60) days after the payment of the contribution
an investment certificate to each PARTY signed by the Chairman of the
Board. Each investment certificate shall indicate on its face the amount
of the capital contribution evidenced thereby and a copy shall be
submitted to the Approval Authority for the record. The Board shall
request the Financial Controller to maintain a register identifying the
investment certificates that have been issued to the PARTIES.
11
<PAGE>
5.07 Transfer or Assignment of Registered Capital
--------------------------------------------
Each PARTY hereto undertakes to the other PARTY that, except as permitted
under the laws of China it shall not:
(i) transfer, assign, sell or otherwise dispose of the legal or
beneficial ownership of; or
(ii) create any mortgage, charge, pledge, or other encumbrance over
either the whole or any part of its interest in the Company's registered capital
or its rights, obligations and benefits under this Contract.
5.08 Increase of Registered Capital
------------------------------
If the valuation of PARTY A's contribution by the relevant authority is
in excess of the amount stated in Article 5.03(a), Party A and B shall meet to
determine and agree on the increase in the registered capital. Party B should
correspondingly increase its proportional share of the registered capital. Any
increase in the registered capital of the Company shall be contributed by the
PARTIES in accordance with the ratio of each PARTY's share of the registered
capital at the time of such increase and within the limit and in the form
specified by the Board for such increase. In the event of either PARTY refusing
or failing to contribute to the increase in the capital in full or in part, the
same could be contributed by the other PARTY in addition to its respective share
of the increase within the total increase in capital approved by the Board with
the resultant changes in the proportions of the interests of each PARTY in the
registered capital of the Company.
12
<PAGE>
ARTICLE 6 - RESPONSIBILITIES OF THE PARTIES
------------------------------------------
6.01 Responsibilities of PARTY A
---------------------------
In addition to its other obligations under this Contract, PARTY A shall
be responsible for the following matters:
(a) Approvals. Assist the Company in obtaining (1) the exclusive
---------
commercial right to use the Facility for the Joint Venture Term, and
(2) the approvals, permits and licenses necessary for the
establishment and operation of the Company and the manufacture,
distribution and sale of the Joint Venture Products;
(b) Tax Treatment. Assist the Company in applying for and obtaining the
-------------
most favourable tax and customs duty reductions and exemptions and
other investment incentives available for the Company under the laws
of China, Changsha Municipality, Hunan Province or other local laws;
(c) Imports. Assist with the procedures for applying for, and procuring
-------
licenses for the import of machinery and equipment, materials and
supplies required by the Company and arranging for the transport of
imported equipment;
(d) Employee Assistance. Assist the foreign or expatriate employees and
-------------------
work force of the Company and of the parties with whom it contracts,
and their families, to obtain all entry visas and work permits
necessary, and arrange boarding, lodging, office space,
transportation and medical facilities for such persons in Changsha
during the operation of the Company;
(e) Bank Accounts. Assist the Company in opening RMB and convertible
-------------
currency bank accounts immediately upon issuance of the Company's
Business License; and
13
<PAGE>
(f) Materials. Assist the Company in securing preferential purchasing
---------
status for purchases of materials, machinery and equipment in China,
including, if necessary, the official allocations of all materials
the Company deems critical at the lowest possible price.
6.02 Responsibilities of PARTY B
---------------------------
In addition to its other obligations under this Contract, PARTY B shall
have the following responsibilities:-
(a) Personnel. Assist the Company in recruiting personnel in charge of
---------
management, technical, engineering, production and quality control;
(b) Domestic Materials. Assist the Company in the purchase of the
------------------
equipment and materials manufactured in China to ensure they are of
the proper quantity and quality for the conduct of the Company's
business; and
(c) Offshore Financing. Assist the Company in arranging offshore
------------------
financing subject to the decision of the Board.
(d) Government Activities. PARTY B shall not interfere with governmental
---------------------
access activities on any of China's radio broadcasting and
television stations.
ARTICLE 7 - OTHER CONTRACTS
---------------------------
7.01 Other Contracts
---------------
As soon as possible after the execution of this Contract, the Company
shall execute appropriate Facility Lease Contracts and contracts for the
provision of advertising services with the relevant commercial entities
associated with each of (i) Hunan Television Station; (ii) Hunan Radio
Broadcast Station; and (iii) Hunan Cable
14
<PAGE>
Television Network. PARTY A will use its best efforts to ensure the
execution of such contracts.
ARTICLE 8 - SALE OF SERVICES, PROGRAMMING AND PRODUCTS
------------------------------------------------------
8.01 International Sales and Provision of Services
---------------------------------------------
The Company shall strive to make its products, programming and services
competitive on the international market in terms of price and quality.
8.02 Domestic Sales and Provision of Services
----------------------------------------
The Company, with the assistance of the PARTIES, shall develop effective
sales channels for the domestic market with the aim of maximizing the
Company's profitability. Products, programming and services may be sold
for both Renminbi and foreign exchange (or any combination thereof) upon
approval of the SAEC. The principles for determining the currency of the
Company's sales shall be set by the Board, and the sales prices shall be
implemented and adjusted, as required, by the General Manager.
ARTICLE 9 - BOARD OF DIRECTORS
------------------------------
9.01 The Formation of the Board
--------------------------
(a) Composition. The Board shall consist of seven (7) directors, four
-----------
(4) of whom shall be appointed by PARTY A and three (3) of whom
shall be appointed by PARTY B. At the time this Contract is executed
and each time directors are appointed each PARTY shall notify the
others of the names of its appointees.
(b) Term and Replacement. Each director shall be appointed for a term of
--------------------
three (3) years and may serve consecutive terms if reappointed by
the PARTY
15
<PAGE>
which originally appointed him. If a seat on the Board is vacated by
the retirement, resignation, illness, disability or death of a
director or by the removal of such director by the PARTY which
originally appointed him, the PARTY which originally appointed such
director shall appoint a successor to serve out such director's
term.
(c) Chairman. The Chairman of the Board shall be appointed by PARTY A,
--------
and the Deputy Chairman shall be appointed by PARTY B. The Chairman
of the Board shall be the legal representative of the Company.
Whenever the Chairman of the Board is unable to perform his
responsibilities, he shall authorize any other director to exercise
the Chairman's responsibilities.
(d) Additional Attendees. Reflecting the importance of close
--------------------
communications between the Board and the management of the Company,
the General Manager as the case may be shall attend Board meetings
but shall not vote unless he is a director in his own right. Other
managers, including the Financial Controller, may attend such
meetings upon the invitation of a majority of the Board.
9.02 Meetings and Powers of the Board
--------------------------------
(a) Powers. The Board shall be the highest authority of the Company. It
------
shall discuss and determine all major issues regarding the Company.
(b) Meetings. The first Board meeting shall be held as soon as possible
--------
within sixty (60) days after the date of issuance of the Business
License. Thereafter, regular meetings of the Board shall be held at
least four times each year. Upon the written request of two (2) or
more of the directors of the Company specifying the matters to be
discussed, the Chairman of the Board shall convene meeting of the
Board.
16
<PAGE>
(c) Notice and Agenda. Board meetings shall be held at the registered
-----------------
address of the Company or such other address in China or abroad as
may be designated by the Chairman. Meetings shall be held on ten
(10) days notice to the directors if held in China and thirty (30)
days notice if held abroad, provided that the directors may waive
such notice by unanimous written consent. A notice of a Board
meeting shall cover the agenda, time and place for such meeting. The
Chairman of the Board shall be responsible for convening and
presiding over such meetings. The General Manager shall assist the
Chairman in preparing an agenda for each Board meeting.
(d) Proxies. In case a Board member is unable to participate in a Board
-------
meeting in person, he may issue a proxy and entrust another person
to participate in the meeting on his behalf. The representative so
entrusted shall have the same rights and powers as the Board member.
A Board Member shall be permitted to serve as a proxy for up to two
(2) other Board Members appointed by the same PARTY as such Board
Member. If a Board member fails to participate or to entrust another
to participate, he will be deemed as having waived such right.
(e) Quorum. Five (5) directors present in person or by proxy, out of
------
which at least three must be the nominee of PARTY A and two must be
the nominee of PARTY B, shall constitute a quorum which shall be
necessary for the conduct of business at any meeting of the Board.
(f) Voting. Each director present in person or by proxy at a meeting of
------
the Board of Directors shall have one vote. If upon any resolution
there is a deadlock, the directors shall adjourn the meeting for ten
days and the directors shall meet again after the ten days to
resolve such disagreement. Each director shall use their best
endeavors to resolve the matter. In the event that the directors
again fail to agree after this second meeting, the directors shall
adjourn the meeting and hold a third meeting after ten days. If no
resolution
17
<PAGE>
has been reached at this third meeting, the directors shall
immediately take such steps as may be necessary to terminate this
Contract and commence procedures in accordance with Article 18
below.
(g) Unanimous Votes. Resolutions involving the following matters may
---------------
only be adopted at a duly constituted and convened meeting of the
Board of Directors upon the unanimous affirmative vote of each and
every director of the Board voting in person or by proxy at such
meeting:
(i) the amendment of the Articles of Association;
(ii) the merger of the Company with another organization;
(iii) termination and dissolution of the Company;
(iv) the increase or assignment of the Company's registered
capital;
(v) any amendment or termination of any agreement to which the
Company is a party; and
(vi) allocation to the Three Funds.
(h) Super Majority Vote. Other issues that require resolutions by the
-------------------
Board may be raised at a duly convened meeting of the Board and must
be adopted by the affirmative vote of a majority of the directors
present in person, or by proxy at such meeting where a quorum is
present; provided that the affirmative vote of at least one director
appointed by PARTY B is required.
(i) Action without a Meeting. Any action by the Board which requires the
------------------------
unanimous vote of all directors may be taken without a meeting if
all members of the Board consent in writing to such action. Any
action by the Board which requires a super majority vote of
directors may be taken without a
18
<PAGE>
meeting if five (5) members of the Board consent in writing to such
action. Such written consent shall be filed with the minutes of the
Board proceedings and shall have the same force and effect as a
unanimous or majority vote, as the case may be, taken by members
physically present.
(j) Expenses. The Company shall be responsible for the reasonable
--------
expenses incurred by appointed directors in attending Board
meetings.
ARTICLE 10 - OPERATION AND MANAGEMENT
-------------------------------------
10.01 Management Procedures and Structures
------------------------------------
The policies, structures and procedures concerning management, health and
safety, environment and technology, which may be adopted by the Board
from time to time shall be developed in consultation with PARTY B so as
to be generally in accordance with PARTY B's practices in its worldwide
operations subject to the overall direction and approval of the Board.
10.02 Management Organization
-----------------------
The Company shall adopt a management system under which the management
organization shall be responsible to and under the leadership of the
Board. The Company shall have a General Manager nominated by PARTY B and
a Deputy General Manager nominated by PARTY A and appointed by the Board
pursuant to a duly adopted resolution. The terms of office of the General
Manager and Deputy General Manager shall be as determined by the Board.
The General Manager and Deputy General Manager may be dismissed only by a
resolution of the Board of Directors. If it becomes necessary, due to
dismissal or resignation, to replace the General Manager or Deputy
General Manager, PARTY B shall nominate the General Manager's replacement
and PARTY A shall nominate the Deputy General Manager's replacement for
appointment by the Board.
19
<PAGE>
10.03 Responsibilities and Powers of the General Manager
--------------------------------------------------
The duties of the General Manager shall consist of carrying out the
decisions of the Board and organizing and directing the day-to-day
operation and management of the Company in accordance with the modern
management practices and structures as determined by the Board.
10.04 Management Personnel
--------------------
(a) Other Management Personnel. The Company shall have such number and
--------------------------
types of other Management Personnel as determined by the General
Manager and approved by the Board to be necessary or advisable to
implement the modern management practices and structures determined
by the Board. All Management Personnel shall be responsible to and
under the direction of the General Manager.
(b) Salaries. The salaries and other remuneration of the Management
--------
Personnel of the Company (including the General Manager) shall be
determined by the Board in its sole discretion on an individual
basis.
10.05 Annual Plans and Budgets
------------------------
The General Manager, assisted by the other Management Personnel, shall be
responsible for the preparation of the annual business plan and budget of
the Company. The annual business plan and budget (including the projected
balance sheet, profit and loss statement and cash transaction report) for
each fiscal year shall be submitted to the Board and shall include
comprehensive detailed information on:
(a) the procurement of equipment and other assets of the Company;
(b) the raising and application of funds;
20
<PAGE>
(c) plans with respect to production and sale of Joint Venture Products;
(d) the repair and maintenance of the assets and equipment of the Joint
Venture Company;
(e) the estimated income and expenditures of the Company covered by the
production plan and budget;
(f) plans for training the staff and workers of the Company;
(g) requirements of materials, fuel, water, electricity and other
utilities, and all other inputs for the next year's production;
(h) plans for the proportion of foreign currency sales;
(i) plans for balancing foreign exchange receipts and expenditures; and
(j) any other matter in respect of which the Board may have requested a
report.
The General Manager shall prepare a monthly management report containing
such information as shall be requested by the Board.
10.06 Approval and Implementation of Annual Plans and Budgets
-------------------------------------------------------
The Board shall examine and approve the annual business plan and budget.
The General Manager, assisted by the other Management Personnel, shall be
responsible for the implementation of the plan and budget approved by the
Board.
21
<PAGE>
ARTICLE 11 - LAND
-----------------
11.01 Land Description
----------------
The Land to be contributed by PARTY A is more particularly described in
Exhibit B.
11.02 PARTY A Representations and Warranties
--------------------------------------
PARTY A represents and warrants that:
(i) it is the lawful owner of the use rights for the land and will be
so during the term of this Contract;
(ii) it has the legal capacity and a valid and subsisting right to
contribute the Land to the Company; and
(iii) the Land may be used for all purposes consistent with this
Contract and the business license of the Company.
ARTICLE 12 - SUPPLY AND PURCHASE OF MATERIALS AND SERVICES
----------------------------------------------------------
12.01 Materials and Supplies
----------------------
It is contemplated by the PARTIES that the materials, parts, means of
transportation and other supplies required by the Company will be first
purchased within China provided that such goods and services are of the
requisite quality, competitively priced and otherwise meet the
requirements of the Company.
22
<PAGE>
12.02 Imported Materials, Supplies and Equipment
------------------------------------------
The Company shall subject to Article 12.01 above have the right to import
materials, machinery, equipment, components, spare parts and other
supplies in the qualities, quantities and prices necessary.
12.03 Domestic Materials and Supplies
-------------------------------
Materials, supplies and services purchased by the Company within China
shall be purchased in Renminbi at either the lowest market price, or the
prices charged to local state-owned enterprises for purchases of similar
materials and services.
12.04 Services
--------
The Company shall have the right to appoint foreign architects,
consultants, engineers and contractors to undertake relevant work when
there are no local companies or individuals qualified or available to
undertake such work according to the General Manager.
ARTICLE 13 - LABOR MANAGEMENT
-----------------------------
13.01 Governing Principle
-------------------
The General Manager shall formulate a plan for matters concerning the
recruitment, employment, dismissal, wages, labor insurance, welfare
benefits, reward and discipline of the workers and staff members of the
Company in accordance with modern management standards, practices and
policies determined by the Board, the Regulations of the People's
Republic of China on Labor Management in Joint Ventures Using Chinese and
Foreign Investment and the Provisions of the Ministry of Labor and
Personnel of the People's Republic of China on the Right of Autonomy of
Enterprises with Foreign Investment in the Hiring of Personnel and on
Wages,
23
<PAGE>
Insurance and Welfare Expenses of Staff and Workers. The plan shall be
submitted for the approval of the Board of Directors.
13.02 Working Personnel
-----------------
Working Personnel shall be employed by the Company in accordance with a
labor contract which shall be entered into between the Company and each
individual worker after the establishment of the Company. Such labor
contract shall establish all terms governing the employment, duties and
benefits of that individual. The Board shall approve the general form and
terms and conditions included in such contracts.
13.03 Management Personnel
--------------------
Management Personnel shall be employed by the Company in accordance with
the terms of individual employment contracts. The detailed terms and
conditions of the employment and compensation of the Management Personnel
shall be decided by the Board.
13.04 Expatriate Personnel
--------------------
As the Company's needs require, expatriate Management Personnel and
senior technical personnel shall be hired by the General Manager after
approval by the Board of Directors, upon the recommendation of PARTY B.
Such personnel shall enter into individual employment contracts with the
Company. The PARTIES agree that such expatriate personnel shall receive
salaries and benefits in accordance with PARTY B's personnel policies.
13.05 Conformity with Labor Protection
--------------------------------
The Company shall conform to rules and regulations of the Chinese
government concerning labor protection and ensure safe and civilized
production. Labor
24
<PAGE>
insurance for the working personnel of the Company shall be handled in
accordance with the relevant regulations of the Chinese government.
13.06 Trade Union
-----------
To the extent required by law, the Company shall establish a trade union
to represent the rights and interests of the workers and staff members,
to mediate disputes between the workers and staff members on the one hand
and the Company on the other and to protect the lawful interests of the
workers and staff members. To the extent required by law, the Company
shall actively support the work of the trade union, provide the trade
union facilities to conduct union activities and other lawful activities
after working hours, and allocate trade union funds.
ARTICLE 14 - FINANCIAL AFFAIRS AND ACCOUNTING
---------------------------------------------
14.01 Accounting System
-----------------
(a) Responsibilities. The Financial Controller of the Company, under the
----------------
leadership of the General Manager, shall be responsible for the
financial management of the Company.
(b) Procedures. The General Manager and the Financial Controller shall
----------
prepare the accounting system and procedures in accordance with the
Accounting System of the People's Republic of China for Foreign
Investment Enterprises, the supplementary stipulations promulgated
by the Ministry of Finance and, to the extent possible, general
accepted international accounting principles. All vouchers,
receipts, statistical statements and reports shall be written in
Chinese and English concurrently. In addition, the Company shall
adopt operating and financial policies and procedures and shall
prepare periodic reporting of financial information in accordance
with the requirements of PARTY B.
25
<PAGE>
14.02 Auditing
--------
(a) Independent Audit. An independent accountant registered in China and
-----------------
otherwise qualified to render opinions on the compliance by the
Company with the accounting standards provided herein, shall be
engaged by the Company as its auditor to examine and verify the
annual report on the final accounts ("Independent Auditor"). The
Company shall submit to the PARTIES the annual financial statements
(including the audited Profit and Loss Account, the Balance Sheet
and Cash Flow Balance and Foreign Exchange Balance for the fiscal
year) within three (3) months after the end of the fiscal year,
together with the audit report of the Chinese registered accountant.
The annual financial statements, the audit report and the monthly
reports shall be prepared in both Chinese and English.
(b) Board Review. The Board shall review and approve the periodic audits
------------
of the accounts. In the event that the Board determines that the
audits submitted by the Independent Auditor are unable to properly
meet the standards set forth above, the Board may replace the
Independent Auditor or retain another auditor at Company expense, to
supplement or adjust the work of the Independent Auditor or to
perform specific accounting and auditing tasks.
(c) Notwithstanding anything contained in Article 14.02(a) and (b), at
PARTY B's cost, PARTY B may at any time, employ a foreign auditor or
send its internal auditor to examine the records and procedures of
the Company and PARTY A and the Company shall cooperate and use best
efforts to assist such auditors.
14.03 Bank Accounts and Foreign Exchange Control
------------------------------------------
The Company shall separately open foreign exchange accounts and Renminbi
accounts at banks within or outside China upon approval by the relevant
authorities. The
26
<PAGE>
Company's foreign exchange transactions shall be handled in accordance
with the regulations of China relating to foreign exchange control.
14.04 Foreign Exchange Balance
------------------------
The Company shall be responsible to maintain a balance in its foreign
exchange receipts and expenditures. The principal methods for balancing
foreign exchange will be as follows:
(i) Foreign Currency Sales. The Primary means for balancing foreign
----------------------
exchange will be through the sale of the Joint Venture Products in
foreign currency.
(ii) Export of Domestic Product. Subject to the approval of the
--------------------------
Approval Authority, the Company may purchase products domestically
in Renminbi and export them for foreign currency.
(iii) Other Measures. If the Company is unable to balance its foreign
--------------
exchange using the measures described above, the Board of
Directors will consider all other methods permitted under the laws
and regulations of the People's Republic of China.
14.05 Fiscal Year
-----------
The Company shall adopt the calendar year as its fiscal year for Chinese
statutory accounting purposes, which shall begin on January 1 and end on
December 31 of the same year, provided that the first fiscal year of the
Company shall commence on the date the Company receives its business
license, and shall end on the immediately succeeding December 31.
27
<PAGE>
14.06 Allocations to Three Funds
--------------------------
To the extent required by law, the Company shall make payments in
Renminbi into a reserve fund, an enterprise expansion fund and a bonus
and welfare fund for its workers and staff members (the "Three Funds").
The proportion of each year's payments shall be discussed and unanimously
approved by the Board of Directors on the basis of the Company's
circumstances and in the general interest of the Company and its workers.
Plans for the application of these Three Funds shall be formulated by the
General Manager.
14.07 Profit Distribution
-------------------
(a) Proportionate Distributions. After required allocations, if any,
---------------------------
have been made to the Three Funds in accordance with Article 14.06,
the Board shall determine distribution of profits by way of dividend
among the PARTIES in proportion to their respective shares in the
registered capital of the Company and the balance of net profits
will be retained in the Company and utilized as may be decided by
the Board from time to time. If the Company carries over losses from
the previous year, the profit of the current year shall first be
used to cover such losses. No profit shall be distributed unless a
prior deficit is made up. The profit retained by the Company and
carried over from the previous years may be distributed together
with the distributable profit of the current year, or after the
deficit of the current year is made up therefrom.
(b) Insufficient Foreign Exchange. In the event that there is not
-----------------------------
sufficient foreign exchange to pay PARTY B's share of distributed
profits, the Company shall, to the extent of the unpaid portion,
hold distributed Renminbi profits in trust for PARTY B in a special
interest bearing account set up for that purpose, when such account
is available, in satisfaction of the Company's obligation to
distribute such share of the Company's profit to PARTY B. From and
after the date on which such account is established, the Company
shall not withdraw or use the funds therein except upon PARTY B's
prior written
28
<PAGE>
instructions. When the Company obtains foreign exchange that is
available for distribution to PARTY B pursuant to Article 14.07(a),
the Company shall, at PARTY B's option, replace the Renminbi in such
account (including any interest earned therefrom) with its U.S.
Dollar equivalent in accordance with the average of the buying and
selling rates published by the Bank of China at the time of the
transaction. The Company shall then immediately pay such U.S.
Dollars to PARTY B.
(c) Method of Payment. All payments to be distributed under this Article
-----------------
14 shall at the request of the receiving PARTY be remitted to an
account at a bank specified in advance by such PARTY.
ARTICLE 15 - TAXATION AND INSURANCE
-----------------------------------
15.01 Income Tax. Customs Duties and Other Taxes
------------------------------------------
(a) Tax Payments. The Company shall pay tax under the relevant laws of
------------
China and any special tax regulations applicable to Changsha, Hunan
Province. Chinese and foreign management and working personnel shall
be periodically reminded to pay their individual income tax in
accordance with the tax laws of China.
(b) Tax Preferences. The Company will use its best endeavors to apply
---------------
for and obtain preferential tax treatment, reductions and
exemptions, as provided by the relevant regulations. Promptly after
the execution of this Contract, the PARTIES shall submit an
application to the Changsha Municipal Tax Bureau for confirmation of
the Company's tax treatment.
15.02 Insurance
---------
The Company shall, at its own cost and expense, take out and maintain
full and adequate insurance of the Company against loss or damage by fire
and such other
29
<PAGE>
risks as may be decided by the Board. The property, transportation,
product liability and other items of insurance of the Company shall be
obtained within or outside China, subject to any legal restrictions which
may apply, and such policies will be denominated in Chinese and foreign
currencies, as appropriate. The types and amounts of insurance coverage
shall be determined by the Board in accordance with applicable Chinese
laws, if any.
ARTICLE 16 - CONFIDENTIALITY
----------------------------
16.01 Confidentiality
---------------
(a) Mutual Obligations. From time to time prior to and during the term
------------------
of this Contract either PARTY has disclosed or may disclose
confidential and proprietary information to the other PARTY. In
addition, the PARTIES may, from time to time during the term of this
Contract, obtain confidential and proprietary information of the
Company in connection with the operation of the Company. Except as
otherwise provided in any agreement between the Company and a PARTY,
the PARTIES receiving such information shall, during the term of
this Contract and for twenty (20) years thereafter: (i) maintain the
confidentiality of such information; (ii) not disclose it to any
person or entity, except to their employees who need to know such
information to perform their responsibilities; and (iii) not use
such information except for the benefit of the Company.
(b) Further Advice. Each PARTY shall advise its directors, senior staff,
--------------
and other employees receiving such information of the existence of
and the importance of complying with the obligations set forth in
paragraph (a) above.
30
<PAGE>
ARTICLE 17 - THE JOINT VENTURE TERM
-----------------------------------
17.01 Joint Venture Term
------------------
The Joint Venture Term of the Company shall commence on the Effective
Date and shall expire ten (10) years therefrom.
17.02 Extension of the Joint Venture Term
-----------------------------------
The PARTIES may agree to extend the term of the Company upon expiration
for an additional period and shall cause their directors on the Board to
unanimously approve such extension and to submit an application for such
extension to the Approval Authority for approval no less than six (6)
months prior to the expiration of the Joint Venture Term. PARTY B shall
be offered terms that are no less favourable than the terms of this
Contract and those being offered at that time to other foreign
enterprises negotiating joint venture projects in China.
17.03 Failure to Agree on Extension
-----------------------------
Upon the expiry of the term of the Company as set out in Article 17.01,
and any extension thereof under Article 17.02, this Contract shall
terminate and the provisions of Article 18 hereof shall apply.
17.04 Contract to Continue in Force
-----------------------------
This Contract shall remain in force for the term of the Company and any
extension thereof provided that the rights and obligations of the PARTIES
under Article 16 shall remain in force indefinitely notwithstanding
expiry of this Contract or liquidation of the Company.
31
<PAGE>
ARTICLE 18 - TERMINATION, BUY-OUT AND LIQUIDATION PROCEDURES
------------------------------------------------------------
18.01 Reasons for Termination
-----------------------
A PARTY shall have the right to terminate this Contract by written notice
to the other PARTY and notify of its desire to commence negotiations
under Article 18.02 below if the following occurs:
(a) Material Breach. If the other PARTY materially breaches this
---------------
Contract or violates the Articles of Association, and such breach or
violation is not cured within sixty (60) days of written notice to
the breaching Party;
(b) Liquidation. If the Company or the other PARTY becomes bankrupt, or
-----------
is the subject of proceedings for liquidation or dissolution, or
ceases to carry on business or becomes unable to pay its debts as
they become due;
(c) Expropriation. If all or any material part of the assets of the
-------------
Company are expropriated by any government authority;
(d) Force Majeure. If the conditions or consequences of Force Majeure
-------------
prevail for a period in excess of three (3) consecutive complete
calendar months and the PARTIES have been unable to find an
equitable solution pursuant to Article 19.01(d) hereof;
(e) Economic Necessity. If an event described in Article 22.02 hereof
------------------
occurs and the PARTIES do not reach an agreement on economic
adjustment within sixty (60) days after the initiation of
discussions;
(f) Deadlock. In the event of a Board deadlock under the circumstances
--------
described in Article 9.02(f).
32
<PAGE>
18.02 Notification Procedure
----------------------
In the event that a PARTY gives notice pursuant to Article 18.01 hereof a
desire to terminate this Contract, the PARTIES shall within a one-month
period after such notice is given commence negotiations and endeavor to
resolve the reason for notification of termination. In the event matters
are not resolved to the satisfaction of the PARTIES within one month
after commencement of negotiations or the non-notifying PARTY refuses to
commence negotiations within the period stated above, the notifying PARTY
may terminate this Contract by and effective upon giving the other PARTY
written notice of termination.
18.03 Buy-Out
-------
(a) Subject to Article 18.04, in the event that this Contract is
terminated pursuant to Article 18.01 or for any other reason
(whether by the expiration of the Joint Venture Term, agreement of
the PARTIES or otherwise), then any PARTY shall be entitled to
withdraw from the Joint Venture (the "Withdrawing Party") and the
other PARTY (the "Acquiring Party") shall purchase the Withdrawing
Party's interest in the Joint Venture Company's registered capital
("Interest"). If desired, the Acquiring Party may continue the
operations of the Joint Venture Company. For this purpose:
(i) the PARTIES shall agree upon the value of the Joint Venture
Company and if they are unable to so agree within thirty (30)
days such value will be determined within thirty (30) days
thereafter, at the expense of the Joint Venture Company, on a
going concern basis, and if the PARTIES are not able to
agree, then such value shall be determined by an Expert in
accordance with Article 21;
(ii) the purchase price for the Withdrawing Party's Interest shall
be equal to that percentage figure which is such PARTY's
percentage share of
33
<PAGE>
the registered capital of the Joint Venture Company
multiplied by the value of the Joint Venture Company as so
agreed upon or determined;
(iii) the Withdrawing Party may decline to sell its Interest in the
Joint Venture Company to the Acquiring Party within fifteen
(15) days of notification of the value of the Joint Venture
Company as determined above.
(b) The full purchase price for the Withdrawing Party's Interest shall
be paid by the Acquiring Party in United States Dollars. Such
payment shall be made within sixty (60) days after the PARTIES shall
have agreed upon the value of the Joint Venture Company or
notification of the value of the Joint Venture Company as determined
by the above-mentioned Expert. If PARTY A purchases the Interest of
PARTY B the United States Dollar purchase price will, upon
application to the SAEC, be freely remittable out of China in
accordance with the foreign exchange regulations of China.
(c) Any other provisions of this Contract to the contrary
notwithstanding, until such time as the sale of the Interest of a
Withdrawing Party to the Acquiring Party or Parties is completed,
the Joint Venture Company will continue to conduct its business in
the ordinary course.
18.04 Liquidation
-----------
(a) Option upon Termination. In the event that this Contract has been
-----------------------
terminated in accordance with Article 18.01 hereof or for any other
reason and the PARTIES have not agreed on an acquisition of the
Company as a going concern by either PARTY or by a third party, then
the physical assets of the Company shall be valued by and liquidated
under the direction of a Liquidation Committee formed within 30 days
of termination in accordance with the Joint Venture Regulations.
34
<PAGE>
(b) Valuing and Selling Procedure. In valuing and selling physical
-----------------------------
assets, the Liquidation Committee shall use every effort to obtain
the highest possible price for such assets, including the retention
of an independent third party expert knowledgeable in assessing the
value of the types of assets owned or held by the Company to assist
in such valuation. Any disputes as to valuation by the expert shall
be handled in accordance with Article 21. Sales of the Company's
assets shall be in United States Dollars to the fullest extent
possible.
(c) Settlement and Payment. After liquidation and the settlement of all
----------------------
outstanding debts of the Company and subject to the payment of any
applicable taxes, the joint account shall be paid over to the
PARTIES in proportion to their respective shares in the registered
capital of the Company. Any and all amounts payable to PARTY B
pursuant to this Article 18 shall be paid promptly in United States
Dollars and shall be freely remittable by PARTY B out of China in
accordance with the Foreign Exchange Regulations of China.
18.05 Survival
--------
To the extent permitted by law, the provisions of Articles 16 and the
obligations and benefits hereunder shall survive the termination of this
Contract and the termination, dissolution or liquidation of the Company.
ARTICLE 19 - FORCE MAJEURE
--------------------------
19.01 Force Majeure
-------------
(a) Definition and Examples. "Force Majeure" shall mean all events which
-----------------------
are beyond the control of the PARTIES to this Contract, and which
are unforeseen, or if foreseen, unavoidable, and which prevent total
or partial performance by PARTY. Such events shall include but are
not limited to any
35
<PAGE>
strikes, lockouts, explosions, shipwrecks, acts of nature or the
public enemy, fires, flood, sabotage, accidents, strikes, wars,
riots, interference by government or military authorities,
insurrections, inability to obtain transportation, and any other
similar or different contingency.
(b) Effect. If an event of Force Majeure occurs, to the extent that the
------
contractual obligations of the PARTIES to this Contract (except the
obligations under Article 16 hereof) cannot be performed as a result
of such event, such contractual obligations shall be suspended
during the period of delay caused by the Force Majeure and shall be
automatically extended, without penalty, for a period equal to such
suspension.
(c) Notice Required. The PARTY claiming Force Majeure shall promptly
---------------
inform the other PARTY in writing and shall furnish appropriate
proof of the occurrence and duration of such Force Majeure. The
PARTY claiming Force Majeure shall also use all reasonable
endeavours to terminate the Force Majeure.
(d) Consultation Required. In the event of Force Majeure, the PARTIES
---------------------
shall immediately consult with each other in order to find an
equitable solution and shall use all reasonable endeavours to
minimize the consequences of such Force Majeure.
ARTICLE 20 - SETTLEMENT OF DISPUTES
-----------------------------------
20.01 Consultations and Arbitration
-----------------------------
In the event a dispute arises in connection with the interpretation or
implementation of this Contract, the PARTIES shall first attempt to
resolve such dispute through friendly consultations. If the dispute is
not resolved through friendly consultation within sixty (60) days after
the commencement of discussions or such longer period as the PARTIES
agree to in writing at that time, then notwithstanding any other
36
<PAGE>
provision of this Contract the PARTIES shall resolve the dispute in
Stockholm, Sweden according to the arbitration rules of the International
Chamber of Commerce ("ICC"). Arbitration shall be conducted as follows:
(a) English Proceedings. All proceedings in any such arbitration shall
-------------------
be conducted in Chinese and English and a daily transcript in
English of such proceedings shall be prepared.
(b) One Arbitrator. There shall be one (1) arbitrator, fluent in
--------------
English, appointed by the ICC.
(c) Award Binding. The arbitration award shall be final and binding on
-------------
the PARTIES, and the PARTIES agree to be bound thereby and to act
accordingly.
(d) Obligations to Continue. When any dispute occurs and when any
-----------------------
dispute is under arbitration, except for the matters under dispute
the PARTIES shall continue to exercise their remaining respective
rights, and fulfil their remaining respective obligations under this
Contract.
(e) Enforcement. In any arbitration proceeding, any legal proceeding to
-----------
enforce any arbitration award or any legal action between the
PARTIES relating to this Contract, each PARTY expressly waives the
defense of sovereign immunity and any other defense based on the
fact or allegation that it is an agency or instrumentality of a
sovereign state. Any award of the arbitrators shall be enforceable
by any court having jurisdiction over the PARTY against which the
award has been rendered, or wherever assets of the PARTY against
which the award has been rendered can be located and shall be
enforceable in accordance with the "United Nations Convention on the
Reciprocal Enforcement of Arbitral Awards (1958)."
37
<PAGE>
ARTICLE 21 - EXPERT PROCEDURES
------------------------------
21.01 Appointment of Expert
---------------------
If this Contract so provides, or if the PARTIES otherwise agree, that a
controversy or dispute between them should be resolved by an Expert,
either PARTY may request that such controversy or dispute shall be
resolved by such Expert as provided herein.
21.02 Recourse to ICC
---------------
If any PARTY requests an Expert determination the PARTIES shall attempt
in the first instance to agree on a single expert to whom the matter
shall be referred. If, within fourteen (14) days from receipt of such
request, the PARTIES have failed to agree on the appointment of a single
Expert, then the PARTIES agree to have recourse to the International
Centre for Technical Expertise of the International Chamber of Commerce
("ICC") in accordance with the ICC's Rules for Technical Experts.
21.03 Expert Procedures
-----------------
The Expert so appointed shall promptly fix a reasonable time and place
for receiving submissions or information from the PARTIES and may make
such other enquiries and require such other evidence as the expert deems
necessary for resolving the matter. All information and data submitted by
either PARTY as confidential shall not be disclosed by the Expert to
third parties. The PARTIES shall have the opportunity to make
representations to the Expert.
21.04 Effect of Expert Decision
-------------------------
The Expert shall be deemed not to be an arbitrator but shall render his
decision as an Expert, and no law or regulation relating to arbitration
shall apply to such Expert or his determinations or the procedure by
which he reaches his determinations. The
38
<PAGE>
PARTIES shall rely on the determination of the Expert, unless one or more
of them believes in good faith that the determinations of the Expert are
incorrect or patently unfair or have been made as a consequence of
misconduct on the part of such Expert. In such event, either PARTY shall
have the right to refer the dispute or controversy to arbitration in
accordance with Article 20.
ARTICLE 22 - APPLICABLE LAW
---------------------------
22.01 Applicable Law
--------------
The formation, validity, interpretation and implementation of this
Contract and settlement of disputes arising therefrom shall be governed
by the published and publicly available laws, decrees and regulations
promulgated by the People's Republic of China, but in the event that
there is no published and publicly available law, decree or regulation in
China governing any particular matter relating to this Contract,
reference shall be made to general international commercial practice.
22.02 Economic Adjustment
-------------------
If either Party's economic benefits are adversely and materially affected
by the promulgation of any new laws, rules or regulations of China or the
amendment or interpretation of any existing laws, rules or regulations of
China after the date of this Contract, the PARTIES shall promptly consult
with each other and use their best endeavours to implement any
adjustments necessary to maintain each PARTY's economic benefits derived
from this Contract on a basis no less favourable than the economic
benefits it would have derived if such laws, rules or regulations had not
been promulgated or amended or so interpreted.
39
<PAGE>
22.03 Preferential Treatment
----------------------
The Company and the PARTIES shall be entitled to any tax, investment or
other benefits or preferences that become available or publicly known
after the signing of this Contract and which are more favourable than
those set forth in this Contract.
ARTICLE 23 - MISCELLANEOUS PROVISIONS
-------------------------------------
23.01 Waiver
------
Failure or delay on the part of any PARTY hereto to exercise any right,
power or privilege under this Contract, or under any other contract or
agreement relating hereto, shall not operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege
preclude any other future exercise thereof.
23.02 Amendments
----------
This Contract may not be changed orally, but only by a written instrument
signed by the Parties and approved, if required, by the relevant
authorities in China.
23.03 Language
--------
This Contract is written and executed in Chinese and English, and both
language versions shall be equally valid.
23.04 Severability
------------
The invalidity of any provision of this Contract shall not affect the
validity of any other provision of this Contract.
40
<PAGE>
23.05 Entire Agreement
----------------
This Contract and the Exhibits attached hereto constitute the entire
agreement among the PARTIES with respect to the subject matter of this
Contract and supersede all prior discussions, negotiations and agreements
among them. In the event of any conflict between the terms and provisions
of this Contract and the Articles of Association the terms and provisions
of this Contract shall prevail.
23.06 Headings
--------
The headings used herein are for convenience only and shall not be used
to interpret, construe or otherwise affect the meaning of the provisions
of this Contract.
23.07 Approvals
---------
The PARTIES obligations under this Contract are subject to the requisite
permissions, approvals and sanctions of their respective governmental
authorities under applicable laws.
23.08 Notices
-------
Any notice or written communication provided for in this Contract by one
PARTY to the others, including but not limited to any and all offers,
writings, or notices to be given hereunder, shall be made in English and
Chinese by registered airmail letter or by facsimile or telex confirmed
by registered airmail letter, promptly transmitted or addressed to the
appropriate PARTY. The date of receipt of a notice or communication
hereunder shall be deemed to be twelve (12) days after its postmark in
the case of an airmail letter and two (2) working days after dispatch in
the case of a facsimile or telex. All notices and communications shall be
sent to the appropriate address set forth in Article 2 hereof, until the
same is changed by notice given in writing to the other PARTY or the
PARTIES, as the case be.
41
<PAGE>
23.09 Exhibits
--------
The Exhibits attached hereto are hereby made an integral part of this
Contract and are equally binding with these Articles 1-23. The Exhibits
are as follows:-
Exhibit A Articles of Association
Exhibit B Land Description
Exhibit C List of PARTY A's Contribution of Machinery and Equipment
Exhibit D Capital Contribution Schedule
42
<PAGE>
IN WITNESS WHEREOF, each of the PARTIES hereto have caused this Contract to be
executed by their duly authorized representatives on the date first set forth
above.
PARTY A:
HUNAN TELEVISION BROADCASTING GOODS
AND MATERIALS COMPANY
/s/ Yuan Siqing
- -----------------------------
Name: Yuan Siqing
Nationality: Chinese
PARTY B
UIH Development, Inc.
/s/ Warren L. Mobley, Jr.
- -----------------------------
Name: Warren L. Mobley, Jr.
Nationality: American
43
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated November 18, 1996 on the consolidated financial statements of UIH
Asia/Pacific Communications, Inc. (and to all references to our Firm) included
in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
November 18, 1996
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated 29 March 1996 on the consolidated financial statements of CTV Pty
Limited included in or made a part of UIH Asia/Pacific Communications, Inc.'s
Form S-1 registration statement.
ARTHUR ANDERSEN
Sydney, Australia,
15 November 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated 29 March 1996 on the consolidated financial statements of STV Pty
Limited included in or made a part of UIH Asia/Pacific Communications, Inc.'s
Form S-1 Registration Statement.
ARTHUR ANDERSEN
Sydney, Australia,
15 November 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion of our
report dated 20 February 1996 on the financial statements of Saturn
Communications Limited included in or made a part of UIH Asia/Pacific
Communications, Inc.'s Form S-1 registration statement.
ARTHUR ANDERSEN
Wellington, New Zealand
15 November 1996
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the inclusion in this Registration Statement on Form S-1
and in each Prospectus constituting part of this Registration Statement, our
report dated March 15, 1996 on the financial statements of XYZ Entertainment Pty
Limited included in each Prospectus. We also consent to the reference to our
firm under the caption "Experts" in each Prospectus included in the Registration
Statement.
November 15, 1996
Deloitte Touche Tohmatsu
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
- -------------------------------
We hereby consent to the inclusion in this Registration Statement on Form S-1
and each Prospectus constituting part of this Registration Statement of our
report dated February 16, 1996, on the financial statements of TELEFENUA SA, as
of December 31, 1995, included in each Prospectus.
We also consent to the reference to our firm under the caption "Experts" in
each Prospectus included in the Registration Statement.
Papeete, November 15, 1996
COOPERS & LYBRAND TAHITI
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gene W. Schneider, Michael T. Fries and Bernard
G. Dvorak, and each of them, his or her attorneys-in-fact, with full power of
substitution, for him or her in any and all capacities, to sign a registration
statement to be filed with the Securities and Exchange Commission (the
"Commission") on Form S-1 in connection with the issuance and sale by UIH
Asia/Pacific Communications, Inc., a Delaware corporation (the "Company"), of
shares of the Company's Class A Common Stock, par value $.01 per share ("Common
Stock"), and all amendments (including post-effective amendments) thereto, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission; and to sign all documents in connection with the
qualification and sale of the Class A Common Stock with Blue Sky authorities;
granting unto said attorneys-in-fact full power and authority to perform any
other act on behalf of the undersigned required to be done in the premises,
hereby ratifying and confirming all that said attorneys-in-fact may lawfully do
or cause to be done by virtue hereof.
Date: November 12, 1996 /s/ Gene W. Schneider
-------------------------------------
Gene W. Schneider
Date: November 12, 1996 /s/ Michael T. Fries
-------------------------------------
Michael T. Fries
Date: November 11, 1996 /s/ Bernard G. Dvorak
-------------------------------------
Bernard G. Dvorak
Date: November 4, 1996 /s/ Albert M. Carollo
-------------------------------------
Albert M. Carollo
Date: November 4, 1996 /s/ Lawrence J. DeGeorge
-------------------------------------
Lawrence J. DeGeorge
Date: November 4, 1996 /s/ William J. Elsner
-------------------------------------
William J. Elsner
Date: November 12, 1996 /s/ Joseph E. Giovanni
-------------------------------------
Joseph E. Giovanni
Date: November 4, 1996 /s/ Edward G. Jepsen
-------------------------------------
Edward G. Jepsen
Date: November 8, 1996 /s/ Antony P. Ressler
-------------------------------------
Antony P. Ressler
Date: November 12, 1996 /s/ Curtis Rochelle
-------------------------------------
Curtis Rochelle
Date: November , 1996
--- -------------------------------------
Mark L. Schneider
Date: November 5, 1996 /s/ Bruce H. Spector
-------------------------------------
Bruce H. Spector
Date: November 11, 1996 /s/ Valerie L. Cover
-------------------------------------
Valerie L. Cover
