<PAGE> 1
Pursuant to Rule 424(b)(2)
Registration No. 333-05094
PROSPECTUS
LOGO
Kabelmedia Holding GmbH
$100,179,660 13 5/8% SENIOR DISCOUNT NOTES DUE 2006
NO INTEREST ON THE SENIOR DISCOUNT NOTES (THE "DISCOUNT NOTES") WILL ACCRUE
PRIOR TO AUGUST 1, 2001. THEREAFTER, INTEREST ON THE DISCOUNT NOTES WILL BE
PAYABLE ON FEBRUARY 1 AND AUGUST 1, COMMENCING FEBRUARY 1, 2002. THE
YIELD TO MATURITY OF THE DISCOUNT NOTES, COMPUTED ON THE BASIS
OF SEMI-ANNUAL COMPOUNDING, IS 13 5/8%. THE OFFERING OF
DISCOUNT NOTES MADE HEREBY IS REFERRED TO HEREIN
AS THE "OFFERING."
------------------------
THE DISCOUNT NOTES WILL BE REDEEMABLE, IN WHOLE OR IN PART, AT THE OPTION OF
KABELMEDIA AT ANY TIME ON OR AFTER AUGUST 1, 2001 AT THE REDEMPTION PRICES SET
FORTH HEREIN, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF
REDEMPTION. IN ADDITION, IN THE EVENT OF THE FIRST TO OCCUR PRIOR TO AUGUST 1,
1999 OF (I) A PUBLIC EQUITY OFFERING (AS DEFINED IN "DESCRIPTION OF THE
DISCOUNT NOTES -- CERTAIN DEFINITIONS") BY KABELMEDIA FOR GROSS PROCEEDS
OF DM 30 MILLION OR MORE OR (II) A SALE OR A SERIES OF RELATED SALES BY
KABELMEDIA OF ITS COMMON STOCK TO ONE OR MORE STRATEGIC EQUITY INVESTORS
(AS DEFINED IN "DESCRIPTION OF THE DISCOUNT NOTES -- CERTAIN
DEFINITIONS"), FOR AN AGGREGATE PURCHASE PRICE OF AT LEAST DM 30
MILLION, KABELMEDIA MAY, AT ITS OPTION, REDEEM UP TO 35% OF THE
ORIGINAL AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF THE DISCOUNT NOTES
FROM THE NET PROCEEDS THEREOF AT 110% OF THEIR ACCRETED VALUE (AS
DEFINED IN "DESCRIPTION OF THE DISCOUNT NOTES -- CERTAIN
DEFINITIONS"). SEE "DESCRIPTION OF THE DISCOUNT NOTES -- TERMS OF
THE DISCOUNT NOTES." IN THE EVENT OF CERTAIN CHANGES AFFECTING THE
WITHHOLDING TAX TREATMENT OF CERTAIN PAYMENTS ON THE DISCOUNT
NOTES, THE DISCOUNT NOTES WILL ALSO BE REDEEMABLE, AS A WHOLE
BUT NOT IN PART, AT THE OPTION OF KABELMEDIA, ON OR AFTER AUGUST
1, 2001, AT 100% OF THE PRINCIPAL AMOUNT AT MATURITY THEREOF,
PLUS ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF
REDEMPTION. SEE "DESCRIPTION OF THE DISCOUNT NOTES -- REDEMPTION
FOR CHANGES IN WITHHOLDING TAXES."
------------------------
UPON A CHANGE OF CONTROL (AS DEFINED IN "DESCRIPTION OF THE DISCOUNT NOTES --
CERTAIN DEFINITIONS"), EACH HOLDER WILL HAVE THE RIGHT TO REQUIRE KABELMEDIA TO
REPURCHASE THE DISCOUNT NOTES AT (I) 101% OF THEIR ACCRETED VALUE, IF
REDEEMED PRIOR TO AUGUST 1, 2001, AND (II) 101% OF THEIR PRINCIPAL
AMOUNT, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, THEREAFTER. THERE
CAN BE NO ASSURANCE THAT KABELMEDIA WILL HAVE THE FINANCIAL
RESOURCES NECESSARY TO REPURCHASE THE DISCOUNT NOTES AT THE
TIME OF ANY CHANGE OF CONTROL OR AT THE TIME OF A REPURCHASE
REQUIRED IN CONNECTION WITH CERTAIN ASSET SALES DESCRIBED
HEREIN.
------------------------
THE DISCOUNT NOTES WILL BE ISSUED AS A GLOBAL SECURITY IN REGISTERED FORM, WHICH
WILL BE DEPOSITED WITH THE BANK OF NEW YORK, AS CUSTODIAN FOR THE DEPOSITORY
TRUST COMPANY ("DTC"). EXCEPT AS DESCRIBED UNDER "DESCRIPTION OF THE
DISCOUNT NOTES -- FORM OF DISCOUNT NOTES," THE DISCOUNT NOTES WILL NOT
BE AVAILABLE IN DEFINITIVE FORM TO THE PURCHASERS THEREOF.
BENEFICIAL INTERESTS IN THE DISCOUNT NOTES WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED IN BOOK-ENTRY FORM BY DTC OR ITS NOMINEE AND
ITS PARTICIPANTS (INCLUDING EUROCLEAR AND CEDEL HOLDING
THROUGH THEIR RESPECTIVE DEPOSITARIES, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK AND CITIBANK,
N.A.).
------------------------
THE DISCOUNT NOTES WILL REPRESENT GENERAL UNSECURED OBLIGATIONS OF KABELMEDIA.
KABELMEDIA IS A HOLDING COMPANY WITH LIMITED ASSETS OF ITS OWN WHICH CONDUCTS
SUBSTANTIALLY ALL OF ITS BUSINESS THROUGH SUBSIDIARIES. KABELMEDIA WILL BE
DEPENDENT UPON ACCESS TO THE EARNINGS, IF ANY, OR ASSETS OF ITS SUBSIDIARIES
TO MAKE ANY PAYMENT ON THE DISCOUNT NOTES. THE DISCOUNT NOTES WILL RANK PARI
PASSU IN RIGHT OF PAYMENT WITH ANY OTHER UNSUBORDINATED AND UNSECURED
INDEBTEDNESS AND SENIOR IN RIGHT OF PAYMENT TO ALL SUBORDINATED
INDEBTEDNESS THAT MAY BE INCURRED BY KABELMEDIA IN THE FUTURE. THE
DISCOUNT NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL EXISTING AND FUTURE
INDEBTEDNESS OF KABELMEDIA'S SUBSIDIARIES, INCLUDING BORROWINGS UNDER
THE BANK FACILITY (AS DEFINED IN "DESCRIPTION OF CERTAIN INDEBTEDNESS")
AND OTHER INDEBTEDNESS FOR MONEY BORROWED OF SUCH SUBSIDIARIES.
KABELMEDIA WILL HOLD SUBORDINATED SUBSIDIARY NOTES IN AGGREGATE
PRINCIPAL AMOUNT EQUAL TO THE NET PROCEEDS FROM THE SALE OF THE
DISCOUNT NOTES (THE "SUBORDINATED SUBSIDIARY NOTES"). ON A PRO FORMA
BASIS, AFTER GIVING EFFECT TO THE SHAREHOLDER DEBT CONVERSION AND THE
OFFERING AND THE APPLICATION OF THE PROCEEDS THEREOF, AS AT MARCH
31, 1996, KABELMEDIA'S SUBSIDIARIES WOULD HAVE HAD DM98.5 MILLION
($66.7 MILLION) OF OUTSTANDING BORROWINGS UNDER THE BANK FACILITY
AND DM6.1 MILLION ($4.1 MILLION) OF OTHER INDEBTEDNESS FOR MONEY
BORROWED. ON A PRO FORMA BASIS, AFTER GIVING EFFECT TO THE
SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE APPLICATION OF
THE NET PROCEEDS THEREOF, AND THE PENDING ACQUISITIONS (AS
DEFINED IN "PROSPECTUS SUMMARY -- THE COMPANY"), AS AT MARCH 31,
1996, KABELMEDIA'S SUBSIDIARIES WOULD HAVE HAD DM155.5 MILLION
($105.3 MILLION) OF OUTSTANDING BORROWINGS UNDER THE BANK
FACILITY AND DM6.1 MILLION ($4.1 MILLION) OF OTHER INDEBTEDNESS
FOR MONEY BORROWED. THE TERMS OF CERTAIN INDEBTEDNESS OF
KABELMEDIA'S SUBSIDIARIES MATERIALLY LIMIT THE PAYMENT OF
DIVIDENDS, LOANS OR OTHER DISTRIBUTIONS BY SUCH SUBSIDIARIES
TO KABELMEDIA, PROVIDED THAT SUCH PAYMENTS ARE PERMITTED TO
THE EXTENT NECESSARY TO MAKE INTEREST PAYMENTS ON THE
DISCOUNT NOTES FOR SO LONG AS THERE IS NO EVENT OF DEFAULT
UNDER SUCH INDEBTEDNESS. ACCORDINGLY, KABELMEDIA'S ABILITY
TO MAKE PRINCIPAL PAYMENTS ON, OR ANY REQUIRED REDEMPTIONS
OF, THE DISCOUNT NOTES MAY BE DEPENDENT, IN PART, UPON
KABELMEDIA'S ABILITY TO REFINANCE SUCH INDEBTEDNESS IN
THE FUTURE, WHICH WOULD DEPEND, IN PART, UPON FACTORS
BEYOND THE CONTROL OF KABELMEDIA. IN ADDITION, THE
ABILITY OF KABELMEDIA TO ACCESS THE EARNINGS OF ITS
SUBSIDIARIES MAY BE LIMITED BY GERMAN LAW. SEE
"DESCRIPTION OF THE DISCOUNT NOTES -- RANKING." THE
INDENTURE UNDER WHICH THE DISCOUNT NOTES WILL BE
ISSUED DOES NOT CONTAIN ANY PROVISIONS THAT AFFORD
HOLDERS OF DISCOUNT NOTES PROTECTION IN THE EVENT OF
A HIGHLY LEVERAGED TRANSACTION BY KABELMEDIA, OTHER
THAN THE PROVISIONS CONTAINED THEREIN LIMITING THE
ABILITY OF KABELMEDIA AND ITS RESTRICTED
SUBSIDIARIES (AS DEFINED IN "DESCRIPTION OF THE
DISCOUNT NOTES -- CERTAIN DEFINITIONS") TO INCUR
ADDITIONAL INDEBTEDNESS AND REQUIRING KABELMEDIA
TO OFFER TO REPURCHASE THE DISCOUNT NOTES UPON A
CHANGE OF CONTROL. SEE "RISK FACTORS -- ADVERSE
CONSEQUENCES OF FINANCIAL LEVERAGE", "--
HOLDING COMPANY STRUCTURE" AND "-- POSSIBLE
ADDITIONAL SUBSIDIARY DEBT."
The Discount Notes will not be listed on any United States securities exchange
or on an over-the-counter market system and there can be no assurance that an
active trading market for the Discount Notes will develop.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THE DISCOUNT NOTES 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
PUBLIC(1) AND COMMISSIONS(2) COMPANY(1)(3)
---------------------------------------------------------------------
<S> <C> <C> <C>
Per Discount Note................................ 51.639% 3.50% 49.83%
Total............................................ $100,179,660 $3,506,288 $96,673,372
</TABLE>
- ------------
(1) Plus accrued original issue discount, if any, from July 26, 1996.
(2) Kabelmedia has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by Kabelmedia estimated at $2,544,000.
------------------------
The Discount Notes are offered, subject to prior sale, when, as and if
accepted by the Underwriters and subject to approval of certain legal matters by
Shearman & Sterling, counsel for the Underwriters. It is expected that delivery
of the Discount Notes in global form will be made on or about July 26, 1996 at
the offices of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in same day funds.
------------------------
MORGAN STANLEY & CO. CHASE SECURITIES INC.
Incorporated
July 23, 1996
<PAGE> 2
LOGO
2
<PAGE> 3
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL OCTOBER 21, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE DISCOUNT NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Enforceability of Certain Civil
Liabilities.......................... 4
Prospectus Summary..................... 5
Risk Factors........................... 16
Use of Proceeds........................ 26
Exchange Rate Data..................... 26
Capitalization......................... 27
Selected Consolidated Financial Data... 28
Unaudited Pro Forma Condensed
Consolidated Financial Data.......... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 43
Industry............................... 52
Business............................... 56
<CAPTION>
PAGE
------
<S> <C>
Certain Regulatory Matters............. 71
Management............................. 76
Certain Related Party Transactions..... 81
Principal Shareholders................. 85
Description of Certain Indebtedness.... 88
Description of the Discount Notes...... 91
Certain Income Tax Considerations...... 121
Underwriting........................... 126
Legal Matters.......................... 127
Experts................................ 127
Available Information.................. 128
Index to Financial Statements.......... F-1
Appendix A: Glossary................... A-1
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DISCOUNT NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE DISCOUNT NOTES OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH DISCOUNT NOTES MAY BE SOLD ONLY TO (a) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, (b) BANKS,
SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH
SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A
CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL
STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY AUDITED, BY
OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE
FOREGOING, (c) ANY NATURAL PERSON OR ANY CORPORATION, PARTNERSHIP OR
ORGANIZATION
3
<PAGE> 4
(OTHER THAN A CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE
PURPOSE OF PURCHASING THE DISCOUNT NOTES BEING OFFERED HEREBY) WHO PURCHASES AT
LEAST $1,000,000 AGGREGATE AMOUNT OF THE DISCOUNT NOTES OFFERED HEREBY, OR (d)
ANY NATURAL PERSON WHO (i) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR
(ii) HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS
AND PERSONAL AUTOMOBILES).
------------------------
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Kabelmedia is a limited liability company organized under the laws of
Germany, and a majority of its Executive Committee members, managing directors
and executive officers reside outside the United States. All or a substantial
portion of the assets of the Company and certain of its Executive Committee
members, managing directors and executive officers also are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon Kabelmedia or such persons with
respect to matters arising under the U.S. federal securities laws or to enforce
against Kabelmedia or such persons located outside the United States judgments
of U.S. courts predicated upon the civil liability provisions of the U.S.
federal securities laws.
Kabelmedia has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Germany, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the federal securities laws of the United States. In addition, awards of
punitive damages in actions brought in the United States or elsewhere may be
unenforceable in Germany. Kabelmedia has appointed CT Corporation System as its
agent to receive service of process in any action against Kabelmedia in any
state or federal court in the State of New York arising out of the Offering made
by this Prospectus or any purchase or sale of the Discount Notes in connection
with such Offering.
------------------------
In this Prospectus, references to "U.S. dollars" or "$" are to United
States currency and references to "Deutsche Mark" or "DM" are to German
currency. For the convenience of the reader, this Prospectus contains
translations of certain Deutsche Mark amounts into U.S. dollars which should not
be construed as a representation that such Deutsche Mark amounts actually
represent such U.S. dollar amounts or could be, or could have been, converted
into U.S. dollars at the rates indicated or at any other rate. Unless otherwise
stated, such dollar amounts have been derived by converting from Deutsche Mark
to U.S. dollars at the rate of DM1.4766 equals $1.00, the Noon Buying Rate in
The City of New York for cable transfers in Deutsche Mark as announced by the
Federal Reserve Bank of New York for customs purposes (the "Noon Buying Rate")
on March 29, 1996. This rate may differ from the actual rates in effect during
the periods covered by the financial information discussed herein. See "Exchange
Rate Data."
------------------------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
------------------------
The principal executive office of the Company is located at Oberer Steinweg
10, 08523 Plauen, The Federal Republic of Germany ("Germany"), and its telephone
number is (###-##-####)26060.
4
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, the "Company" refers to Kabelmedia Holding GmbH ("Kabelmedia"),
a limited liability company formed under the laws of Germany, together with its
subsidiaries and, where appropriate, its predecessors. Certain terms used in
this Prospectus are defined in the Glossary included herein as Appendix A.
THE COMPANY
The Company acquires, owns and operates cable television systems that serve
primarily medium- and small-sized communities in Germany. Principally as a
result of completing 14 acquisitions since its inception in 1992, the Company
owned and operated cable systems passing approximately 492,000 homes and serving
approximately 359,000 customers as of March 31, 1996. In addition, the Company
has entered into non-binding letters of intent and commenced negotiations of
definitive purchase agreements to acquire two cable companies serving an
aggregate of approximately 46,000 customers (the "Pending Acquisitions"). See
"Business -- Acquisitions and Pending Acquisitions."
The Company has followed a systematic approach in acquiring, consolidating
and operating cable television systems, based on the goal of increasing
operating cash flow while maintaining or improving service standards. A key
element of the Company's strategy is to expand its existing regional clusters of
cable television systems and to establish new regional clusters of systems large
enough to serve as cores for new operating regions. In addition, the Company
aggressively consolidates cable systems following their acquisition to improve
operating performance by eliminating duplicative personnel and office locations,
creating regional customer service centers and signal distribution facilities
and centralizing corporate support functions, including accounting, billing,
marketing and technical and administration services. Between January 1, 1994 and
March 31, 1996, the Company completed 12 acquisitions, thereby adding cable
systems serving approximately 317,500 customers (measured at the date of the
respective acquisitions), while reducing the number of office locations serving
customers of such acquired systems and the Company's other systems from 25 to
seven and the number of employees serving such acquired systems and the
Company's other systems from 211 to 125.
The following tables provide certain data for the Company's cable
television systems (i) on an actual basis as at and for the years ended December
31, 1993, 1994 and 1995 and the three months ended March 31, 1996; (ii) on a pro
forma basis as at and for the year ended December 31, 1995 giving effect to the
Recent Acquisitions (as defined in "-- Recent and Pending Acquisitions"), the
Shareholder Debt Conversion (as defined in "-- Shareholder Debt Conversion") and
the Offering and the application of the proceeds therefrom as if such
transactions had occurred on January 1, 1995; (iii) on a pro forma basis as at
and for the year ended December 31, 1995 giving effect to the Recent
Acquisitions, Shareholder Debt Conversion, the Offering and the application of
the proceeds therefrom and the Pending Acquisitions as if such transactions had
occurred on January 1, 1995; and (iv) on a pro forma basis as at and for the
three-month period ended March 31, 1996 giving effect to the InfoSat Acquisition
(as defined in "-- Recent and Pending Acquisitions"), the Shareholder Debt
Conversion, the Offering and the application of the proceeds therefrom and the
Pending Acquisitions as if such transactions had occurred on January 1, 1996.
See "Business -- Acquisitions and Pending Acquisitions."
5
<PAGE> 6
<TABLE>
<CAPTION>
HISTORICAL(1)
-------------------------------------------------------------------
DECEMBER 31, MARCH 31,
------------------------------------------- -------------------
1993 1994 1995 1995(2) 1996 1996(2)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Homes passed(3)................................. 23,890 71,032 452,948 -- 491,863 --
Customers(3).................................... 22,655 58,613 342,752 -- 358,784 --
Penetration(3)(4)............................... 94.8% 82.5% 75.7% -- 72.9% --
Average monthly revenue per customer(5)......... DM9.24 DM9.37 DM12.44 $8.42 DM14.30 $9.68
Average monthly EBITDA per customer(5).......... DM4.22 DM1.59 DM 4.60 $3.11 DM 7.50 $5.08
EBITDA margin(6)................................ 45.7% 17.0% 37.0% -- 52.4% --
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------------------------
DECEMBER 31, 1995 MARCH 31, 1996
--------------------------------------- -----------------
FOR THE RECENT FOR THE INFOSAT
FOR THE RECENT ACQUISITIONS, ACQUISITION,
ACQUISITIONS, THE SHAREHOLDER THE SHAREHOLDER
THE SHAREHOLDER DEBT CONVERSION, DEBT CONVERSION,
DEBT CONVERSION THE OFFERING THE OFFERING
AND THE AND THE PENDING AND THE PENDING
OFFERING(2) ACQUISITIONS(2)(7) ACQUISITIONS(2)(7)
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Homes passed(3)........................................ 467,184 -- 517,394 -- 542,073 --
Customers(3)........................................... 356,251 -- 402,251 -- 404,784 --
Penetration(3)(4)...................................... 76.3% -- 77.7% -- 74.7% --
Average monthly revenue per customer(5)................ DM13.98 $9.47 DM13.43 $9.10 DM13.71 $9.28
Average monthly EBITDA per customer(5)................. DM 6.98 $4.73 DM 6.88 $4.66 DM 7.35 $4.98
EBITDA margin(6)....................................... 49.9% -- 51.2% -- 53.6% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through March
31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(3) At end of period. Homes passed and penetration at March 31, 1996 reflect
results reported to the Company during 1996 of a survey commissioned by the
Company of the number of homes in certain of its concession areas and, to a
lesser extent, the build-out of existing systems.
(4) Customers as a percentage of homes passed.
(5) "EBITDA" consists of earnings (loss) before extraordinary items, minority
interests, net interest expense, income taxes and depreciation and
amortization. The Company believes that EBITDA and related measures of cash
flow from operating activities serve as important financial indicators in
measuring and comparing cable television companies in several areas,
including liquidity, operating performance and leverage. EBITDA is not a
U.S. GAAP measure of income (loss) or cash flow from operations and should
not be considered as an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flow from
operating activities as a measure of liquidity. Historical average monthly
revenue and EBITDA per customer equals (a)(i) historical revenues and EBITDA
for the period divided by (ii) twelve for the annual periods and three for
the quarterly periods divided by (b) the average monthly number of customers
for such period. Pro forma average monthly revenue and EBITDA per customer
equals (a)(i) pro forma revenue and EBITDA for the period divided by (ii)
twelve for the annual periods and three for the quarterly periods divided by
(b) the pro forma number of customers at December 31, 1995 or March 31,
1996, as appropriate.
(6) Represents EBITDA as a percentage of revenues.
(7) Computations of pro forma number of homes passed, number of customers and
average monthly revenue per customer reflect information with respect to the
Pending Acquisitions supplied by the respective sellers as of certain dates
during the fourth quarter of 1995. Such information has been subject to only
limited verification by the Company and, in some cases, has been calculated
on a different basis than that used by the Company.
The Company has experienced rapid growth since its inception in 1992 and,
as is common for cable television companies in comparable stages of development,
has incurred significant net losses in each of its first three years of
operations (DM1,501,000 in 1993, DM6,116,000 in 1994 and DM38,282,000 in 1995).
The Company had accumulated deficits amounting to DM1,501,000, DM7,617,000 and
DM45,899,000 as at December 31, 1993, 1994 and 1995, respectively.
6
<PAGE> 7
THE GERMAN CABLE TELEVISION MARKET
Germany is the largest cable television market in Europe and provides a
highly favorable environment for cable television system acquisitions and
operations:
- - Large, Fragmented Cable Television Market -- Germany has a population of
over 81 million people and over 36 million homes. Deutsche Telekom AG
("Deutsche Telekom") is the dominant cable television supplier; its cable
television distribution systems, either directly or indirectly through
private cable system operators, passed approximately 24 million homes and
served over 15 million cable subscribers as of September 30, 1995. Deutsche
Telekom provides cable television signals to over 5,000 private cable
system operators with over 100 subscribers each and to over 475 private
cable system operators with over 1,000 subscribers each. A large number of
German cable system operators also obtain their programming directly
through their own head-ends and provide that programming to a significant
number of additional homes in Germany. This large number of cable system
operators provides the Company with significant consolidation
opportunities.
- - Built-out Infrastructure -- The German cable television infrastructure is
substantially built-out. As of September 30, 1995, Deutsche Telekom cable
television distribution systems, either directly or through cable
transmission lines of private system operators, passed approximately 64% of
the homes in Germany. In addition, systems in which the head-end is owned
by a private cable system operator pass or provide signal to a significant
number of other homes in Germany. The Company estimates that as of March
31, 1996, principal transmission lines passed 84% of the approximately
585,000 homes in its concession areas.
- - High Density -- Germany has an average population density of 562 persons per
square mile, compared to 70 persons per square mile in the United States
and 616 persons per square mile in the United Kingdom. Approximately 86% of
Germany's population resides in urban areas, compared to 75% in the United
States and 89% in the United Kingdom. In addition to generating cost
savings from lower investment in cable plant per home passed, such density
contributes to lower operating costs because fewer technicians are required
to service a given number of customers.
- - Low Churn Rate -- The Company estimates that its churn rate has historically
been less than 5%, which is a significantly lower churn rate than those
which generally prevail in the U.S. and U.K. cable television industries.
The Company believes such lower churn rate to be due primarily to the
greater use of preauthorized payment procedures, fewer alternative tiers of
programming and, when compared with the United States, a less transient
population. See "Business -- Programming."
- - Wide Use of Preauthorized Payment Procedures -- Approximately 70% of the
Company's customers pay their subscription fees through preauthorized
payment procedures, whereby an automatic draw is made on such customer's
bank account. The Company believes that preauthorized payment procedures
result in lower billing costs, less bad debt expense and lower churn rates.
- - Low Programming Costs -- Historically, the Company's cost of programming as
a percentage of revenue has been nominal. Although such costs are expected
to increase due to several factors, including the possible imposition of
copyright royalty fees in respect of programming received on Company-owned
head-ends and pursuant to Deutsche Telekom signal delivery contracts (see
"Risk Factors -- Copyright Royalty Fees") and the increasing market
strength of certain program providers relative to that of Deutsche Telekom
and private cable system operators (see "Risk Factors -- Access to and Cost
of Programming"), the Company believes that for the foreseeable future, the
uncertain state of German copyright law and market conditions in the German
cable television industry will enable the Company and other German cable
system operators to maintain a level of programming cost as a percentage of
revenue which is relatively low as compared to cable television operators
in the United States and the United Kingdom. See "Business -- Programming."
For further information on the German cable television market, see
"Industry," "Business" and "Certain Regulatory Matters."
7
<PAGE> 8
BUSINESS STRATEGY
The Company's objective is to enhance the value of its business by
capitalizing on opportunities presented by the large and fragmented German cable
television market. The Company's business strategy to achieve this objective
focuses on the following general principles:
- - Emphasis on Regional Clusters and Growth Through Acquisitions -- A key
element of the Company's strategy is to develop regional clusters of cable
television systems by acquiring cable systems that are either in close
proximity to its existing systems or large enough to serve as cores for new
operating regions. The Company has established significant regional
clusters of cable systems in the regions surrounding Plauen, Leipzig,
Berlin, Dresden, Stuttgart and Osnabruck. The Company is not aware of any
reliable or consistent published industry data on the relative size of
private cable system operators in Germany. However, on the basis of
discussions with competitors, the Company believes that with over 359,000
existing customers it is the fifth largest private cable system operator in
Germany in terms of customers (not including Deutsche Telekom, which is not
considered a private cable system operator). Approximately 46,000
additional customers are served by the systems expected to be acquired upon
consummation of the Pending Acquisitions, although no assurances can be
given as to when or if any of the Pending Acquisitions will be consummated.
The Company believes that its clustering strategy and the scope of its
operations have enabled it to reduce operating costs. See "Business."
- - Enhancing Efficiency and Margins by Streamlining Operations -- Upon
completion of an acquisition, the Company generally implements extensive
management, operational and organizational changes designed to enhance
operating cash flow and operating margins. The Company's customer account
processing and administrative services for acquired cable systems are
transferred to one centralized location, thereby reducing redundant
overhead costs.
- - Promoting Internal Growth -- The Company seeks to increase revenues in
acquired systems in a number of ways, including selective increases in
rates for cable services that are timed to coincide with published
increases in various cost of living indices or the introduction of new or
improved programming, the continued build-out of existing cable systems and
marketing efforts designed to increase penetration.
- - Technological Enhancement -- The Company strives to maintain high
technological standards in its cable television systems on a cost-effective
basis and continuously upgrades its cable systems to achieve this goal. The
Company monitors and evaluates new technological developments on the basis
of its ability to make optimal use of its existing assets and to anticipate
the introduction of new services and program delivery capabilities. The
Company believes that it is well-positioned in terms of technological
capabilities to take advantage of the introduction of new cable television
and ancillary services in the German market.
- - Customer Service Orientation -- Each of the Company's operating regions is
managed by a regional manager who is responsible for both customer and
technical service within his region and who reports directly to Ernst
Uhlig, the Company's Chief Operating Officer. The Company believes that
this flat operating structure enables it to be more responsive to customer
needs.
- - Ownership and Control of Systems -- The Company owns approximately 98% of
its cable television systems on an equity subscriber basis. The Company
owns 100% of each of its cable systems, with the exception of systems
serving three communities with an aggregate of approximately 33,000
customers, in which it owns 91%, 50% and 80%, respectively.
RECENT AND PENDING ACQUISITIONS
During the year ended December 31, 1995, the Company completed the
acquisition of six cable television companies and the assets of one additional
cable television company serving an aggregate of approximately 270,000 customers
(measured at the dates of the respective acquisitions) in the regions of
Leipzig, Berlin, Stuttgart and Osnabruck (collectively, the "1995
Acquisitions"), and during the first quarter of 1996 the Company completed the
acquisition of InfoSat GmbH (as defined in "Business -- Systems"), a cable
television company serving approximately 13,500 customers in and around the
towns of Aschersleben and Luckenwalde (the "InfoSat Acquisition" and, together
with the 1995 Acquisitions, the "Recent Acquisi-
8
<PAGE> 9
tions"). In addition, the Company has entered into non-binding letters of intent
with respect to the Pending Acquisitions. The Company expects to enter into
definitive agreements with respect to the Pending Acquisitions in the
foreseeable future. The Company estimates that the aggregate consideration,
including acquired indebtedness, brokerage fees and closing costs, payable in
respect of the Pending Acquisitions will be between DM50,000,000 and
DM57,000,000, which the Company would borrow under the Bank Facility (as defined
in "Description of Certain Indebtedness"). There can be no assurance, however,
that the Company will consummate either of such acquisitions. See "Business --
Acquisitions and Pending Acquisitions."
RISK FACTORS
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS. Such risks relate to: (a) the adverse
consequences of financial leverage; (b) the deficiency of the Company's earnings
to fixed charges; (c) the risks associated with a holding company structure; (d)
the ability of the Company's subsidiaries to incur debt senior to the Discount
Notes; (e) the effect of a change of control; (f) the requirement for additional
funds; (g) significant competition; (h) access to and cost of programming; (i)
the potential imposition of copyright royalty fees; (j) extensive government
regulation; (k) the risks associated with an acquisition strategy; (l)
integration of the Company's acquired businesses and the management of growth;
(m) variations in quarterly results; (n) the potential difficulties in enforcing
civil liabilities against the Company; (o) the dependence upon certain key
personnel; (p) rapid technological changes; (q) currency risks and hedging
transactions; (r) limited insurance coverage; (s) influence of the Company's
principal shareholders; (t) certain interests of affiliates of the Underwriters;
(u) the lack of an established market for the Discount Notes; and (v) original
issue discount consequences.
THE OFFERING
$194,000,000 PRINCIPAL AMOUNT AT MATURITY OF 13 5/8% DISCOUNT NOTES DUE 2006
The Discount Notes are to be issued pursuant to the Indenture (as defined
herein). For a more detailed description of the Discount Notes and definitions
of certain terms used in this summary description, see "Description of the
Discount Notes."
TERMS OF THE DISCOUNT NOTES
Issue Price................ $516.39 per $1,000 principal amount at maturity of
Discount Notes.
Maturity Date.............. August 1, 2006.
Yield and Interest......... 13 5/8% per annum (computed on a semi-annual bond
equivalent basis) calculated from July 26, 1996.
Cash interest will not accrue on the Discount Notes
prior to August 1, 2001. Thereafter, cash interest
on the Discount Notes will be payable at a rate of
13 5/8% per annum, semi-annually in arrears on each
February 1 and August 1, commencing February 1,
2002.
Original Issue Discount.... The Discount Notes are being offered at an original
issue discount for U.S. federal income tax
purposes. Thus, although cash interest will not be
payable on the Discount Notes prior to February 1,
2002, original issue discount (i.e., the difference
between the principal amount at maturity of the
Discount Notes and their issue price) will accrue
from the issue date of the Discount Notes and will
be included as interest income periodically
(including for periods ending prior to February 1,
2002) in a Discount Note holder's gross income for
United States federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Certain Income Tax
Considerations."
9
<PAGE> 10
Optional Redemption........ The Discount Notes will be redeemable, at
Kabelmedia's option, in whole or in part, at any
time on or after August 1, 2001 at the redemption
prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, in
the event of the first to occur prior to August 1,
1999, of (i) a Public Equity Offering by Kabelmedia
for gross proceeds of DM 30 million or more or (ii)
a sale or a series of related sales by Kabelmedia
of its Common Stock to one or more Strategic equity
Investors for an aggregate purchase price of at
least DM 30 million, Kabelmedia may, at its option,
use all or any portion of the net proceeds thereof
to redeem an amount of Discount Notes representing
up to 35% of the original aggregate principal
amount at maturity of the Discount Notes at a
redemption price of 110% of their Accreted Value.
See "Description of the Discount Notes --
Limitation on Asset Sales."
Tax Redemption............. In the event of certain changes affecting
withholding taxes applicable to certain payments on
the Discount Notes, the Discount Notes will be
redeemable, as a whole, but not in part, at the
option of Kabelmedia, on or after August 1, 2001,
at 100% of the principal amount thereof, plus
accrued unpaid interest, if any, to the date of
redemption. See "Description of the Discount Notes
-- Redemption for Changes in Withholding Taxes."
Change of Control.......... Upon a Change of Control, each holder of the
Discount Notes will have the right to require
Kabelmedia to purchase such holder's Discount Notes
at a price of 101% of the Accreted Value thereof
(determined at the date of purchase) if such
purchase is prior to August 1, 2001, or 101% of the
principal amount at maturity thereof, plus accrued
and unpaid interest, if any, to the date of
purchase, if such purchase is on or after August 1,
2001. The Company is not required to make a Change
of Control Offer (as defined under "Description of
the Discount Notes -- Change of Control") following
a Change of Control if a third party makes a Change
of Control Offer that would be in compliance with
the Change of Control provisions in the Indenture
if it were made by the Company and purchases the
Discount Notes validly tendered and not withdrawn.
Within 30 days of any Change of Control, the
Company must (i) repay in full all Indebtedness of
the Company that would prohibit the repurchase of
the Discount Notes or (ii) obtain any requisite
consents under instruments governing any such
Indebtedness of the Company to permit the
repurchase of the Discount Notes. The Company is
required, however, to make a Change of Control
Offer within 30 days of a Change of Control,
irrespective of whether any Indebtedness
prohibiting the purchase of the Discount Notes has
been repaid or the holders thereof have given the
requisite consent. If the Company is unable to
repay all of its Indebtedness that would prohibit
repurchase of the Discount Notes or is unable to
obtain the consents of the holders of Indebtedness,
if any, of the Company outstanding at the time of a
Change of Control whose consent would be so
required to permit the repurchase of Discount
Notes, then the Company will have breached the
"Change of Control" covenant. Such a breach would
constitute an Event of Default under the Indenture
if it continues for a period of 30 consecutive days
after written notice is given to the Company by the
Trustee or the Holders of at least 25% in aggregate
principal amount of the Discount Notes outstanding.
In addition, the failure by the Company to
10
<PAGE> 11
repurchase Discount Notes at the conclusion of the
Change of Control Offer would constitute an Event
of Default without any waiting period or notice
requirements. In the event the Change of Control
provisions are triggered, an event of default could
be triggered under the other Indebtedness of the
Company. For example, a Change of Control would
trigger an event of default under the terms of the
Bank Facility, upon which no repayment or
prepayment of any amount owing to the Company from
the Borrowers of the Guarantors (as such terms are
defined in "Description of Certain Indebtedness")
would be permitted until the Bank Facility has been
repaid, prepaid and/or cancelled in full. See
"Description of Certain Indebtedness." Such an
event of default could preclude the flow of money
from the Company's subsidiaries to the Company and
thereby prevent the Company from making any
payment, including Change of Control payments,
under the terms of the Discount Notes. Kabelmedia
does not currently have, and there can be no
assurance that Kabelmedia would have, the financial
resources necessary to purchase the Discount Notes
upon a Change of Control. Furthermore, it is
possible to have a more restrictive definition of
change of control in other Indebtedness of the
Company. For example, an acquisition, directly or
indirectly, of more than 24.9% of the shares in
Kabelmedia, by a person who is not a shareholder of
Kabelmedia at the date of closing of the Bank
Facility, would cause an event of default under the
Bank Facility. The occurrence of a change of
control under such other Indebtedness of the
Company could cause there to be a requirement for
the Company to repay such Indebtedness even though
such requirement would not apply with respect to
the Discount Notes under the Indenture. See "Risk
Factors -- Effect of Change of Control,"
"Description of Certain Indebtedness" and
"Description of the Discount Notes -- Redemption --
Mandatory Redemption; Change of Control; Certain
Asset Sales."
Ranking.................... The Indebtedness evidenced by the Discount Notes
will be senior indebtedness of Kabelmedia and will
rank pari passu in right of payment with any
unsubordinated and unsecured indebtedness which may
be incurred by Kabelmedia in the future and senior
in right of payment to all subordinated
indebtedness of Kabelmedia. Kabelmedia is a holding
company with limited assets and no business
operations of its own. Kabelmedia operates its
business through its subsidiaries. The Discount
Notes will be effectively subordinated to
borrowings under the Bank Facility and other
indebtedness for money borrowed of such
subsidiaries. Kabelmedia will hold Subordinated
Subsidiary Notes in an aggregate principal amount
equal to the net proceeds received by Kabelmedia
from the sale of the Discount Notes and lent to
such subsidiaries. The Subordinated Subsidiary
Notes will be subordinated to indebtedness under
the Bank Facility and existing and future
indebtedness for money borrowed of such
subsidiaries, will have interest and payment terms
identical to those of the Discount Notes and will
prohibit any pledge thereof, except to holders of
Senior Indebtedness (as defined in the Indenture).
The Indenture does not contain any specific
covenant prohibiting Kabelmedia from amending,
waiving any rights under, or terminating the
Subordinated Subsidiary Notes. On a pro forma
basis, after giving effect to the Shareholder Debt
Conversion and the completion of the Offering and
the application of the net proceeds therefrom, as
at
11
<PAGE> 12
March 31, 1996 Kabelmedia's subsidiaries would have
had DM98.5 million ($66.7 million) of outstanding
borrowings under the Bank Facility and DM6.1
million ($4.1 million) of other indebtedness for
money borrowed. On a pro forma basis, after giving
effect to the Shareholder Debt Conversion, the
completion of the Offering and the application of
the net proceeds therefrom, and the Pending
Acquisitions, as at March 31, 1996 Kabelmedia's
subsidiaries would have had DM155.5 million ($105.3
million) of outstanding borrowings under the Bank
Facility and DM6.1 million ($4.1 million) of other
indebtedness for money borrowed. Kabelmedia and one
or more of Kabelmedia's subsidiaries may incur
other debt in the future, including, in the case of
subsidiaries, debt which would be senior to the
Discount Notes. The terms of certain indebtedness
of Kabelmedia's subsidiaries materially limit the
payment of dividends, loans or other distributions
by such subsidiaries to Kabelmedia, provided that
such payments are permitted to the extent necessary
to make interest payments on the Discount Notes for
so long as there is no event of default under such
indebtedness. Accordingly, Kabelmedia's ability to
make principal payments on, or any required
redemptions of, the Discount Notes may be
dependent, in part, upon Kabelmedia's ability to
refinance such indebtedness in the future which
would depend, in part, upon factors beyond the
control of Kabelmedia. In addition, the ability of
Kabelmedia to access the earnings of its
subsidiaries may be limited by German law.
Certain Covenants.......... The Indenture will contain certain covenants which,
among other things, will restrict the ability of
Kabelmedia and the Restricted Subsidiaries to (i)
incur additional indebtedness; (ii) pay dividends
or make distributions in respect of capital stock
of Kabelmedia or make certain other restricted
payments; (iii) create certain liens against or
upon any of its property or assets (including any
pledge of the Subordinated Subsidiary Notes, except
to holders of Senior Indebtedness); (iv) enter into
certain transactions with shareholders or
Affiliates; or (v) sell certain assets. In
addition, the Indenture will limit the ability of
(i) Kabelmedia to consolidate, merge or sell all or
substantially all of its assets and (ii) the
Restricted Subsidiaries to issue capital stock.
These covenants are subject to important exceptions
and qualifications. The Indenture does not contain
any provisions that afford holders of Discount
Notes protection in the event of a highly leveraged
transaction by Kabelmedia, other than the
provisions contained therein limiting the ability
of Kabelmedia and its Restricted Subsidiaries to
incur additional indebtedness and requiring
Kabelmedia to offer to repurchase the Discount
Notes upon a Change of Control.
Form of Discount Notes..... The Discount Notes will be represented by a global
security in registered form (the "Global Discount
Note"), which will be issued in a denomination
equal to the outstanding principal amount at
maturity of the Discount Notes represented thereby.
The Global Discount Note will be deposited with The
Bank of New York, as custodian for DTC. Except as
set forth under "Description of the Discount
Notes," owners of beneficial interests in the
Global Discount Note will not be entitled to
receive physical delivery of Discount Notes in
definitive form or to have Discount Notes issued
and registered in their names and will not be
considered the owners or holders thereof under the
Indenture. See "Description of the Discount Notes."
12
<PAGE> 13
Shareholder Debt
Conversion................. At March 31, 1996, the Company's aggregate
indebtedness included DM156,470,000 principal
amount of subordinated loans from certain of its
shareholders ("ECO I" and "ECO II," as such terms
are defined in "Certain Related Party Transactions
-- Capital Contributions and Subordinated
Shareholder Loans") plus DM20,664,000 of accrued
interest thereon, of which DM13,652,000 was accrued
during 1995 and DM4,495,000 was accrued during the
first quarter of 1996. A further subordinated
shareholder loan of DM10,198,562 was advanced to
the Company by ECO II on May 30, 1996. On June 19,
1996, the aggregate principal amount of the
subordinated shareholder loans to the Company was
DM166,669,000 and as at that date a total of
DM24,458,000 of interest had accrued on such loans
(such principal and interest are referred to
collectively as the "Subordinated Shareholder
Loans"). On June 19, 1996, the Subordinated
Shareholder Loans were contributed to the capital
of Kabelmedia by ECO I and ECO II and its capital
surplus was increased by the equivalent amount of
DM191,127,000 (the "Shareholder Debt Conversion").
As a result of the Shareholder Debt Conversion and
a related increase of DM125,400 to the Company's
capital on July 15, 1996, the aggregate percentage
ownership interest of ECO I and ECO II in the share
capital of the Company increased from 90% to
92.75%. See "Capitalization," "Certain Related
Party Transactions -- Shareholder Agreement" and
"Principal Shareholders."
Use of Proceeds............ The net proceeds to be received by Kabelmedia from
the sale of the Discount Notes are estimated to be
approximately DM138,993,000 ($94,130,000 translated
at a rate of DM1.4766 = $1.00, the Noon Buying Rate
on March 29, 1996). Such net proceeds will be used
to repay outstanding indebtedness under two bank
credit agreements (the "Prior Kabelmedia Facility"
and the "Prior Kabelvision Facility," and
collectively the "Prior Facilities," as such terms
are defined in "Description of Certain
Indebtedness"). The Prior Facilities are scheduled
to be repaid in full concurrently with the closing
of the Offering or on the next following business
day, in part from the estimated net proceeds of the
Offering and in part from borrowings under the Bank
Facility, the aggregate committed principal amount
of which is DM400,000,000. The estimated borrowings
under the Bank Facility to repay the Prior
Facilities are DM98,507,000. The estimated sources
and uses of funds in the Company's refinancing are
as follows:
<TABLE>
<CAPTION>
AMOUNT
-------
DM '000
<S> <C>
SOURCES OF FUNDS:
Discount Notes................................... 138,993
Bank Facility.................................... 98,507
-------
237,500
=======
USES OF FUNDS:
Repayment of Prior Kabelmedia Facility........... 137,500
Repayment of Prior Kabelvision Facility.......... 100,000
-------
237,500
=======
</TABLE>
See "Use of Proceeds," "Certain Related Party
Transactions" and "Description of Certain
Indebtedness."
13
<PAGE> 14
SUMMARY FINANCIAL AND OPERATING DATA
The following tables set forth certain summary historical and pro forma
financial and operating data of the Company. Summary pro forma data for the year
ended December 31, 1995 are provided on two different bases: first, to reflect
the Recent Acquisitions (which have been consummated), the Shareholder Debt
Conversion and the Offering, and second, to reflect the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering as well as the Pending Acquisitions
(consummation of which cannot be assured). Summary pro forma data for the three
months ended March 31, 1996 reflect the InfoSat Acquisition, the Shareholder
Debt Conversion, the Offering and the Pending Acquisitions. Acquisitions of
cable television systems during the periods for which the summary data are
presented below materially affect the comparability of such data from one period
to another. The data presented below should be read in conjunction with the
historical consolidated financial statements of the Company and the notes
thereto, the "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO
HISTORICAL(1) FORMA
-------------------------------------------------------------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR
ENDED
YEAR ENDED THREE MONTHS ENDED DECEMBER
DECEMBER 31, MARCH 31, 31, 1995
------------------------------------- ---------------------------- -------
<CAPTION>
FOR THE
RECENT
ACQUISITIONS,
THE
SHAREHOLDER
DEBT
CONVERSION
AND THE
OFFERING
1993 1994 1995 1995(2) 1995 1996 1996(2) (2)(3)
------ ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000 DM'000 DM'000 $'000 DM'000
STATEMENT OF OPERATIONS DATA:
Revenues............................................ 2,220 4,551 33,510 22,694 5,604 15,327 10,380 59,781
Operating costs and expenses:
Operations........................................ (219 ) (1,275) (6,663) (4,512) (855) (2,919) (1,977 ) (13,569)
Selling, general and administrative............... (987 ) (2,504) (14,465) (9,796) (3,027) (4,370) (2,959 ) (16,387)
Depreciation and amortization..................... (1,460) (3,028) (23,685) (16,040) (4,122) (10,731) (7,267 ) (39,331)
------ ------- ------- -------- ------- ------- -------- -------
Total........................................... (2,666) (6,807) (44,813) (30,348) (8,004) (18,020) (12,203 ) (69,287)
------ ------- ------- -------- ------- ------- -------- -------
Operating loss...................................... (446 ) (2,256) (11,303) (7,654) (2,400) (2,693) (1,823 ) (9,506)
Interest expense:
Cash interest expense............................. (312 ) (812) (11,166) (7,563) (1,771) (3,975) (2,692 ) (5,961)
Non-cash interest expense(5)...................... (743 ) (3,048) (14,177) (9,601) (2,837) (4,626) (3,133 ) (22,259)
------ ------- ------- -------- ------- ------- -------- -------
Total........................................... (1,055) (3,860) (25,343) (17,164) (4,608) (8,601) (5,825 ) (28,220)
Minority interest................................... -- -- 118 80 21 27 18 113
------ ------- ------- -------- ------- ------- -------- -------
Net loss before income tax benefit and extraordinary
item.............................................. (1,501) (6,116) (36,528) (24,738) (6,987) (11,267) (7,630 ) (37,613)
Income tax benefit.................................. -- -- 916 620 599 406 3,416
------ ------- ------- -------- ------- ------- -------- -------
Net loss before extraordinary item.................. (1,501) (6,116) (35,612) (24,118) (6,987) (10,668) (7,224 ) (34,197)
====== ======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures (excluding acquisitions)(6).... 6,635 5,617 10,955 7,419 2,038 2,891 1,958 --
Deficiency of earnings to fixed charges(7).......... (1,501) (6,116) (39,316) (26,626) (7,008) (11,294) (7,649 ) (40,396)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................ 14,761 128,229 420,865 285,023 190,117 430,739 291,709 446,030
Total debt less Subordinated Shareholder Loans...... 7,267 47,178 228,812 154,959 78,049 243,566 164,950 253,335
Subordinated Shareholder Loans...................... 4,833 63,584 172,638 116,915 85,020 177,134 119,961 --
Total debt.......................................... 12,100 110,762 401,450 271,874 163,069 420,700 284,911 253,335
Total liabilities and minority interest............. 15,812 120,559 448,477 303,722 186,434 469,019 317,633 301,004
Shareholders' equity (deficiency)................... (1,051) 7,670 (27,612) (18,699) 3,683 (38,280) (25,924 ) 145,026
<CAPTION>
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 1996
------------------
FOR THE RECENT FOR THE INFOSAT
ACQUISITIONS, THE ACQUISITION, THE
SHAREHOLDER DEBT SHAREHOLDER DEBT
CONVERSION, THE CONVERSION, THE
OFFERING AND THE OFFERING AND THE
PENDING PENDING
ACQUISITIONS(2)(4) ACQUISITIONS(2)(4)
------------------ ------------------
<S> <C> <C> <C> <C> <C>
$'000 DM'000 $'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues............................................ 40,486 64,830 43,905 16,646 11,273
Operating costs and expenses:
Operations........................................ (9,189 ) (14,312) (9,693 ) (3,113) (2,108 )
Selling, general and administrative............... (11,098 ) (17,289) (11,709 ) (4,606) (3,119 )
Depreciation and amortization..................... (26,636 ) (45,054) (30,512 ) (12,225) (8,279 )
-------- ------- -------- ------- --------
Total........................................... (46,923 ) (76,655) (51,914 ) (19,944) (13,506 )
-------- ------- -------- ------- --------
Operating loss...................................... (6,437 ) (11,825) (8,009 ) (3,298) (2,233 )
Interest expense:
Cash interest expense............................. (4,037 ) (9,187) (6,222 ) (2,284) (1,547 )
Non-cash interest expense(5)...................... (15,074 ) (22,259) (15,074 ) (5,393) (3,652 )
-------- ------- -------- ------- --------
Total........................................... (19,111 ) (31,446) (21,296 ) (7,677) (5,199 )
Minority interest................................... 77 113 77 27 18
-------- ------- -------- ------- --------
Net loss before income tax benefit and extraordinary
item.............................................. (25,471 ) (43,158) (29,228 ) (10,948) (7,414 )
Income tax benefit.................................. 2,313 3,416 2,313 599 406
-------- ------- -------- ------- --------
Net loss before extraordinary item.................. (23,158 ) (39,742) (26,915 ) (10,349) (7,008 )
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures (excluding acquisitions)(6).... -- -- -- -- --
Deficiency of earnings to fixed charges(7).......... (27,357 ) (45,941) (31,113 ) (10,975) (7,433 )
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................ 302,066 506,277 342,866 499,919 338,562
Total debt less Subordinated Shareholder Loans...... 171,566 310,361 210,186 309,525 209,620
Subordinated Shareholder Loans...................... -- -- -- -- --
Total debt.......................................... 171,566 310,361 210,186 309,525 209,620
Total liabilities and minority interest............. 203,849 361,251 244,649 361,065 244,525
Shareholders' equity (deficiency)................... 98,217 145,026 98,217 138,854 94,037
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA
-----------------
YEAR ENDED
HISTORICAL(1) DECEMBER 31, 1995
----------------------------------------------------------------- -----------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, FOR THE RECENT
----------------------------------- ---------------------------
1993 1994 1995 1995(2) 1995 1996 1996(2) ACQUISITIONS, THE
------ ------- ------- ------ ------- ------- ------- SHAREHOLDER DEBT
CONVERSION AND
THE
OFFERING(2)(3)
-----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Homes passed(8)....................... 23,890 71,032 452,948 -- 189,914 491,863 -- 467,184 --
Customers(8).......................... 22,655 58,613 342,752 -- 174,392 358,784 -- 356,251 --
Penetration(8)(9)..................... 94.8% 82.5% 75.7% -- 91.8% 72.9% -- 76.3% --
Average monthly revenue per
customer(10)........................ DM9.24 DM9.37 DM12.44 $ 8.42 DM13.01 DM14.30 $ 9.68 DM13.98 $ 9.47
EBITDA DATA:
EBITDA (in thousands)(11)............. 1,014 772 12,382 8,385 1,722 8,038 5,444 29,825 20,198
Average monthly EBITDA per
customer(10)........................ DM4.22 DM1.59 DM4.60 $ 3.11 DM3.99 DM7.50 $ 5.08 DM6.98 $ 4.73
EBITDA margin(12)..................... 45.7% 17.0% 37.0% -- 30.7% 52.4% -- 49.9% --
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996
----------------
FOR THE RECENT FOR THE INFOSAT
ACQUISITIONS, THE
SHAREHOLDER DEBT ACQUISITION, THE
CONVERSION, THE SHAREHOLDER DEBT
OFFERING AND THE CONVERSION, THE
PENDING OFFERING AND THE
ACQUISITIONS(2)(4) PENDING
----------------- ACQUISITIONS(2)(4)
----------------
<S> <<C> <C> <C> <C>
OPERATIONS DATA:
Homes passed(8)....................... 517,394 -- 542,073 --
Customers(8).......................... 402,251 -- 404,784 --
Penetration(8)(9)..................... 77.7% -- 74.7% --
Average monthly revenue per
customer(10)........................ DM13.43 $ 9.10 DM13.71 $ 9.28
EBITDA DATA:
EBITDA (in thousands)(11)............. 33,229 22,504 8,927 6,046
Average monthly EBITDA per
customer(10)........................ DM6.88 $ 4.66 DM7.35 $ 4.98
EBITDA margin(12)..................... 51.2% -- 53.6% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through March
31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(3) Pro forma statement of operations data for the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering reflect such transactions as if
they had occurred on January 1, 1995. Pro forma balance sheet data reflect
the InfoSat Acquisition, the Shareholder Debt Conversion and the Offering as
if they had occurred on December 31, 1995.
(4) Pro forma statement of operations data for the Recent Acquisitions (or the
InfoSat Acquisition), the Shareholder Debt Conversion, the Offering and the
Pending Acquisitions reflect such transactions as if they had occurred at the
beginning of the periods presented. Pro forma balance sheet data reflect the
Recent Acquisitions (or the InfoSat Acquisition), the Shareholder Debt
Conversion, the Offering and the Pending Acquisitions as if they had occurred
on December 31, 1995 or March 31, 1996 (or the InfoSat Acquisitions as of its
acquisition date), as appropriate. Computations of pro forma number of homes
passed, number of customers and average monthly revenue per customer reflect
information with respect to the Pending Acquisitions supplied by the
respective sellers as of certain dates during the fourth quarter of 1995.
Such information has been subject to only limited verification by the Company
and, in some cases, has been calculated on a different basis than that used
by the Company.
(5) Pro forma non-cash interest consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes............................. 20,841 14,114
Amortization of debt issuance costs............... 1,418 960
------ ------
22,259 15,074
====== ======
</TABLE>
Non-cash interest on the Discount Notes is compounded on a semi-annual basis.
Amortization of debt issuance costs includes estimated debt issuance costs of
DM8,933,000 ($6,050,000) amortized over the 10-year term of the Discount
Notes and amortization of debt issuance costs on the Prior Facilities.
(6) Pro forma information for capital expenditures (excluding acquisitions) is
not available.
(7) For purposes of these computations, earnings consist of historical or pro
forma loss before income taxes and minority interest, plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest on
indebtedness (including capitalized interest and amortization of debt
issuance costs) and extraordinary item in 1995 of DM2,670,000 (representing
the full amortization of 1994 debt issuance costs). Fixed charges include
non-cash fixed charges of DM743,000, DM3,048,000 and DM16,847,000 in 1993,
1994 and 1995, and DM2,837,000 and DM4,626,000 as of March 31, 1995 and March
31, 1996, respectively. Non-cash fixed charges on a pro forma basis amounted
to DM24,929,000 for the Recent Acquisitions, the Shareholder Debt Conversion
and the Offering, as well as the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the Pending Acquisitions as of December 31, 1995
and DM5,393,000 for the InfoSat Acquisition, the Shareholder Debt Conversion,
the Offering and the Pending Acquisitions as of March 31, 1996.
(8) At end of period. Homes passed and penetration at March 31, 1996 reflect
results reported to the Company during 1996 of a survey commissioned by the
Company of the number of homes in its concession areas.
(9) Customers as a percentage of homes passed.
(10) Historical average monthly revenue and EBITDA per customer equals (a)(i)
historical revenues and EBITDA for the period divided by (ii) twelve for
annual periods and three for quarterly periods divided by (b) the actual
average monthly number of customers for such period. Pro forma average
monthly revenue and EBITDA per customer equals (a)(i) pro forma revenue and
EBITDA for the period divided by (ii) twelve for annual periods and three for
quarterly periods divided by (b) the pro forma number of customers at
December 31, 1995 or March 31, 1996, as appropriate.
(11) The Company believes that EBITDA and related measures of cash flow from
operating activities serve as important financial indicators in measuring and
comparing cable television companies in several areas, including liquidity,
operating performance and leverage. EBITDA is not a U.S. GAAP measure of
income (loss) or cash flow from operations and should not be considered as an
alternative to net income as an indication of the Company's financial
performance or as an alternative to cash flow from operating activities as a
measure of liquidity.
(12) Represents EBITDA as a percentage of revenues.
15
<PAGE> 16
RISK FACTORS
An investment in the Discount Notes is subject to a number of risks,
including, but not limited to, those set forth below. The following risks,
together with the other information set forth in this Prospectus, should be
considered carefully by prospective investors prior to any purchase of the
Discount Notes.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred, and intends to incur, to finance
acquisitions and expand its operations. After giving effect to the Shareholder
Debt Conversion of the Subordinated Shareholder Loans, which at March 31, 1996
amounted to DM177,134,000, as if such conversion (which actually occurred on
June 19, 1996) had occurred on March 31, 1996, the Company's aggregate
consolidated indebtedness would have been comprised of approximately
DM243,566,000 of debt to banks. After giving effect to the Shareholder Debt
Conversion and the Offering and the application of the net proceeds therefrom as
if such transactions had occurred on March 31, 1996, the Company's aggregate
consolidated indebtedness on a pro forma basis would have been approximately
DM252,499,000; and after giving effect to the foregoing and the Pending
Acquisitions as if such transactions had occurred on March 31, 1996, the
Company's aggregate consolidated indebtedness on a pro forma basis would have
been approximately DM309,525,000. The Company anticipates that, in light of the
amount of its existing indebtedness and its acquisition policy, it will continue
to have substantial leverage for the foreseeable future. Substantial leverage
poses the risks that (i) a significant portion of the Company's cash flow from
operations must be dedicated to servicing the Company's indebtedness, (ii) the
Company may not be able to generate sufficient cash flow to service the Discount
Notes and its outstanding indebtedness and to adequately fund its planned
capital expenditures and operations, (iii) the Company could be more vulnerable
to changes in general economic conditions, (iv) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired, (v) the Company's
operating and financial ability may be impaired by restrictions imposed by
various debt instruments on the payment of dividends and on operations and (vi)
because certain of the Company's borrowings are and will continue to be at
variable rates of interest, higher interest expenses could result in the event
of increases in interest rates. A failure by the Company to comply with the
covenants and other provisions of the Bank Facility or other debt instruments to
which the Company may become party in the future could permit acceleration of
the debt under such instruments and, in some cases, acceleration of debt under
other instruments that contain cross-default or cross-acceleration provisions.
The Bank Facility includes various standard events of default for, among other
things, non-payment of amounts due under the Bank Facility, breach of covenants
or representations, defaults under certain other indebtedness, certain events of
insolvency or bankruptcy and, in addition, the following more specific events of
default: the loss of a material concession or franchise; the termination of any
material contract or any notice given to terminate any material contract; a
change at any time in the regulatory environment in a manner significantly
adverse to the Company; Ben Bartel ceasing to be in charge of the management of
the Company's operating companies, KabelMedia Hannover GmbH ("KMH") and
Kabelvision Management GmbH ("KVM"), or their successors; Kabelmedia ceasing to
own 100% of the shares of KMH or KVM (or their successors); and a person or
persons who or which are not shareholders of Kabelmedia at the closing date of
the Bank Facility, acquiring, directly or indirectly, more than an aggregate
24.9% shareholding in the Company. See "Description of Certain Indebtedness."
Upon any default under the Bank Facility, no repayment or prepayment of any
principal amount of Discount Notes outstanding is permitted thereunder until the
Bank Facility has been repaid, prepaid or cancelled in full. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The accretion of original issue discount on the Discount Notes will cause
an increase in indebtedness of $93,820,340 (DM138,535,114) by August 1, 2001.
Although the Offering is expected to enhance cash flows and to improve the
Company's financial flexibility, the Company's total indebtedness and total
interest expense will be increased as a result of the Offering and the Company
will continue to be subject to significant financial restrictions and
limitations.
16
<PAGE> 17
The Indenture contains certain restrictive covenants. Such restrictions
will affect, and in many respects will significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make prepayments
of certain indebtedness, pay dividends, make investments, engage in transactions
with share-holders and affiliates, issue capital stock of restricted
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. See "Description of the Discount Notes -- Certain Covenants."
The Company expects to require additional external financing to meet its
debt service, working capital and capital expenditure commitments. See "--
Additional Financing Requirements."
DEFICIENCY OF EARNINGS TO FIXED CHARGES
After giving effect to the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom as if
such transactions had occurred on January 1, 1995, the Company's pro forma
consolidated earnings for the year ended December 31, 1995 would have been
insufficient to cover its pro forma consolidated fixed charges by approximately
DM40,396,000. After giving effect to the Recent Acquisitions, the Shareholder
Debt Conversion, the Offering and the application of the net proceeds therefrom
and the Pending Acquisitions as if such transactions had occurred on January 1,
1995, the Company's pro forma consolidated earnings for the year ended December
31, 1995 would have been insufficient to cover its pro forma consolidated fixed
charges by approximately DM45,941,000. After giving effect to the InfoSat
Acquisition, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom and the Pending Acquisitions as if such
transactions had occurred on January 1, 1996, the Company's pro forma
consolidated earnings for the three-month period ended March 31, 1996 would have
been insufficient to cover its pro forma consolidated fixed charges by
approximately DM10,975,000. Substantial amounts of depreciation and amortization
expense are expected to continue to contribute to the net losses experienced by
the Company. These expenses, however, do not result in an outflow of cash on the
Company's statement of operations.
The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
is not a U.S. GAAP measure of income (loss) or cash flow from operations and
should not be considered as an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flow from operating
activities as a measure of liquidity. After giving effect to the Recent
Acquisitions, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom as if such transactions had occurred on January 1,
1995, pro forma EBITDA would have been approximately DM29,825,000 for the year
ended December 31, 1995. After giving effect to the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the application of the net
proceeds therefrom and the Pending Acquisitions as if such transactions had
occurred on January 1, 1995, pro forma EBITDA would have been approximately
DM33,229,000 for the year ended December 31, 1995. After giving effect to the
InfoSat Acquisition, the Shareholder Debt Conversion, the Offering and the
application of the net proceeds therefrom and the Pending Acquisitions as if
such transactions had occurred on January 1, 1996, pro forma EBITDA would have
been approximately DM8,927,000 for the three-month period ended March 31, 1996.
HOLDING COMPANY STRUCTURE
Kabelmedia is a holding company with limited assets of its own that
conducts substantially all of its business through its subsidiaries. The ability
of holders of the Discount Notes, to participate in the assets of any of
Kabelmedia's subsidiaries upon any liquidation or administration of any such
subsidiary will be effectively subordinated to borrowings under the Bank
Facility and other indebtedness for money borrowed of such subsidiaries.
Kabelmedia will hold Subordinated Subsidiary Notes in an aggregate principal
amount equal to the net proceeds received by Kabelmedia from the sale of the
Discount Notes and lent to such subsidiaries. The Subordinated Subsidiary Notes
will be subordinated to indebtedness under the Bank Facility and existing and
future indebtedness for money borrowed of such subsidiaries, will have interest
and payment terms identical to those of the Discount Notes and will prohibit any
pledge thereof, except to holders of Senior Indebtedness (as defined in
"Description of the Discount Notes -- Certain Definitions"). The Indenture does
not contain any specific covenant prohibiting Kabelmedia from amending, waiving
any rights under, or
17
<PAGE> 18
terminating the Subordinated Subsidiary Notes. Accordingly, after giving effect
to the Shareholder Debt Conversion, the Offering and the application of the net
proceeds therefrom as if such transactions had occurred on March 31, 1996,
holders of the Discount Notes would have been effectively subordinated to
approximately DM98.5 million ($66.7 million) of borrowings under the Bank
Facility and DM6.1 million ($4.1 million) of other indebtedness for money
borrowed. Further, after giving effect to the Shareholder Debt Conversion, the
Offering and the application of the net proceeds therefrom, and the Pending
Acquisitions as if such transactions had occurred on March 31, 1996, holders of
the Discount Notes would have been effectively subordinated to approximately
DM155.5 million ($105.3 million) of borrowings under the Bank Facility and DM6.1
million ($4.1 million) of other indebtedness for money borrowed. The ability of
Kabelmedia's creditors, including the holders of the Discount Notes, to
participate in distributions of assets of Kabelmedia's subsidiaries will be
limited to the extent that the outstanding shares of any of its subsidiaries and
the dividend or liquidation proceeds thereof are either pledged to secure other
creditors of Kabelmedia or are not owned by Kabelmedia. The Indenture limits,
but does not prohibit, the incurrence of additional indebtedness by Kabelmedia's
subsidiaries. Such subsidiaries are expected to incur substantial additional
indebtedness to fund further cable television acquisitions or investments and
general working capital and capital expenditures.
The Discount Notes will be obligations solely of Kabelmedia and not
obligations of its subsidiaries. The ability of Kabelmedia to pay interest on
the Discount Notes, or to repay the Discount Notes at maturity or otherwise,
will be dependent upon the cash flow of its subsidiaries, and the payment of
funds by those subsidiaries to Kabelmedia in the form of repayment of loans,
dividends or otherwise. Provisions of applicable law limit the amount of
dividends which may be paid by Kabelmedia's subsidiaries to the extent they do
not have profits available for distribution and other statutory and general law
obligations may limit or eliminate the ability of Kabelmedia's subsidiaries to
declare dividends or to make payments to Kabelmedia on account of the
Subordinated Subsidiary Notes. Specifically, to the extent that the Subordinated
Subsidiary Notes are deemed not to be on terms which are commercially
reasonable, which is generally determined with reference to the terms on which
third party lenders would have extended such indebtedness on an arms-length
basis, the Subordinated Subsidiary Notes are subject to being recharacterized as
quasi-equity. In the event of such recharacterization, any payment of interest
in respect of such recharacterized Subordinated Subsidiary Notes would be deemed
to be a dividend subject to German tax and corporate law limitations, including
the dividend payment limitation that profits be available from which to make
such a deemed distribution. The Subordinated Subsidiary Notes will have the same
financial terms as apply to the Discount Notes, and Kabelmedia believes that it
would be able to establish that such terms are commercially reasonable in the
event any claim were brought seeking to recharacterize such Subordinated
Subsidiary Notes as quasi-equity. Further, the terms of certain indebtedness of
Kabelmedia's subsidiaries limit the payment of dividends, interest, loans and
other distributions to Kabelmedia. In particular, certain of Kabelmedia's
subsidiaries have entered into the Bank Facility which limits the payment of
dividends, interest, loans and other distributions and the making of other
payments to Kabelmedia, except to pay interest on the Discount Notes and for
certain other limited purposes, provided there is no event of default under the
Bank Facility. See "Description of Certain Indebtedness."
POTENTIAL ADDITIONAL SUBSIDIARY DEBT
As noted above under "Holding Company Structure," the terms of the
Indenture permit the Company's subsidiaries to incur additional indebtedness
under certain circumstances. Such indebtedness incurred by the Company's
subsidiaries would be effectively senior to the indebtedness evidenced by the
Discount Notes. See "Description of the Discount Notes -- Ranking."
EFFECT OF A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in "Description of
the Discount Notes -- Certain Definitions"), the Company is required to make an
offer to repurchase the outstanding Discount Notes. Such an occurrence could
cause a default under other Indebtedness (as defined in "Description of the
Discount Notes -- Certain Definitions") of the Company and thereby inhibit the
flow of funds from the Company's subsidiaries to the Company. For example, a
Change of Control would trigger an event of default
18
<PAGE> 19
under the terms of the Bank Facility, under which no repayment or prepayment of
any amount owing to the Company from the Guarantors (as defined in "Description
of Certain Indebtedness") is permitted until the Bank Facility has been repaid,
prepaid and/or cancelled in full. As a result, the ability of the Company to
make any payments to the holders of Discount Notes upon a Change of Control
could be precluded or severely restricted. Further, the Change of Control
provisions in the Indenture require the Company to repay all of its Indebtedness
that would prohibit repurchase of the Discount Notes or obtain the consent of
holders of such Indebtedness to permit the repurchase of the Discount Notes. In
addition, it is possible to have a more restrictive definition of change of
control in other Indebtedness of the Company. For example, an acquisition,
directly or indirectly, of an aggregate of more than 24.9% of the shares in
Kabelmedia, by a person or persons who are not shareholders of Kabelmedia at the
date of closing of the Bank Facility, would cause an event of default under the
Bank Facility. The occurrence of a change of control under such other
Indebtedness of the Company could cause there to be a requirement for the
Company to repay such Indebtedness even though such requirement would not apply
with respect to the Discount Notes under the Indenture. Consequently, the rights
of the holders of Discount Notes to receive payments from the Company upon a
Change of Control could be adversely affected. See "Description of Certain
Indebtedness" and "Description of the Discount Notes -- Change of Control."
ADDITIONAL FINANCING REQUIREMENTS
Future acquisitions and capital expenditures may require the Company to
borrow additional amounts or obtain equity financing. In addition, if the
Company has underestimated its capital or other expenditure requirements or
overestimated future operating results, modifications to the Bank Facility or
additional debt or equity financing may be required. There can be no assurance
that such modifications or financing will be obtainable or, if obtainable, that
the terms thereof would be attractive to the Company. The Company's ability to
secure additional debt or equity financing will be restricted by the terms of
its outstanding indebtedness, including the Bank Facility, and the Discount
Notes.
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
The Company faces significant competition in the provision of cable
television services within Germany. The Company's cable television systems
compete with direct reception of terrestrial broadcast television signals and
with other methods of delivering television signals to the home, such as
direct-to-home ("DTH") satellite-delivered television services and satellite
master antenna television ("SMATV") systems, and may in the future compete with
multi-channel, multi-point distribution services ("MMDS") which use low power
microwave frequencies to transmit programming over the air to customers. The
Company also competes to varying degrees with other communications and
entertainment media, including home video, cinema exhibition of feature films
and live theater. The extent of such competition depends upon, among other
things, the price, variety, availability and quality of the programming offered
and, with respect to terrestrial television, the quality of reception. In the
future, cable television companies may face competition from television services
offered by operators using existing or new delivery systems.
Premiere, the only German-language premium cable television channel, and a
second potential market entrant, which, based on press reports, the Company
believes to be a consortium of program suppliers and DTH (but not cable) system
operators, have each announced that they expect to launch multichannel digital
satellite pay television services in Germany during 1996, and one or more
additional competitors could emerge in this market. However, in order to capture
meaningful penetration of this market, these programmers may make digital
satellite pay television services available to cable system operators.
The cable television industry in Germany is in the process of undergoing
significant consolidation. The Company encounters competition for the
acquisition of cable systems from existing cable television operators, as well
as financial investors. Many of these competitors, including Deutsche Telekom,
have significantly greater resources than the Company. To the extent that any of
such existing or potential competitors significantly expand their activities in
the markets in which the Company operates, the Company's ability to continue the
implementation of its acquisition strategy could be materially adversely
affected. See "Business -- Competition."
19
<PAGE> 20
ACCESS TO AND COST OF PROGRAMMING
The Company obtains programming either directly from program suppliers via
a company-owned head-end or indirectly through a signal delivery contract with
Deutsche Telekom. As of December 31, 1995, approximately 58% of the Company's
customers were served by systems that acquired their programming directly from
program suppliers via company-owned head-ends and approximately 42% of the
Company's customers were served by systems that received programming indirectly
through signal delivery contracts with Deutsche Telekom. The Company's signal
delivery contracts with Deutsche Telekom are generally for a fixed period of
time and are subject to negotiated renewal. The Company is in the process of
negotiating a master signal delivery agreement with Deutsche Telekom covering
all of its existing and future Level 2 Systems procuring signals via Deutsche
Telekon signal delivery agreements and all Level 3 Systems (as defined in
"Industry -- Regulatory and Operating Environment"), which the Company believes
will result in more uniform costs per subscriber supplied with signal procured
through signal delivery contracts with Deutsche Telekom at lower weighted
average prices than those currently applicable under its existing Deutsche
Telekom signal delivery agreements. However, no assurances can be given as to if
or when the Company will enter into any such master signal delivery agreement.
In addition, Deutsche Telekom is scheduled to be privatized in 1996, and it is
possible that Deutsche Telekom's policy or prices with respect to programming
for cable operators could change in the future. See "Industry" and "Business --
Programming."
In common with other cable system operators in Germany, the Company has
generally been able to receive programming directly from program suppliers
without any formal agreements or contact with or approval from such program
suppliers authorizing the retransmission of such programming or setting out
terms applicable to any such retransmission, and the Company has not paid
program suppliers for the right to retransmit any such programming. While the
Company believes, based on discussions with its competitors, including Deutsche
Telekom, that such program suppliers are generally aware that it and other cable
system operators in Germany are retransmitting such programming without formal
authorization, to the best of its knowledge no programming supplier has objected
to such retransmissions. However, such program suppliers are not contractually
obligated to provide programming to the Company, and there can be no assurance
that some or all of such program suppliers will not in the future require the
Company to pay for their programming or offer their programming exclusively or
on substantially more favorable terms (including price and availability) to the
Company's competitors, which could have a material adverse effect on the
Company's business and results of operations.
As satellite channel programmers become more established in Germany, it is
possible that their market strength will increase relative to that of Deutsche
Telekom and private cable system operators, which could lead to satellite
broadcasters assessing programming fees to both Deutsche Telekom and private
cable system operators. While the Company believes that the nature of Deutsche
Telekom's programming sourcing agreements with satellite broadcasters and of its
signal delivery contracts with Deutsche Telekom mitigates the risk of Deutsche
Telekom being assessed any such higher programming costs or of such costs being
passed on to the Company, particularly in the short term, any such developments
could have the effect of increasing the cost of programming for the Company's
systems which obtain programming indirectly through signal delivery contracts
with Deutsche Telekom. The Company is seeking to conclude a master signal
delivery contract with Deutsche Telekom to further reduce these risks and
believes that it will be able to maintain a level of programming cost as a
percentage of revenue which is relatively low as compared to cable television
operators in the United States and the United Kingdom.
COPYRIGHT ROYALTY FEES
Deutsche Telekom pays an annual fee to a German copyright royalty
collecting society in respect of the retransmission of terrestrial broadcasting
on its cable network. Deutsche Telekom has indicated to the Company that it
believes payment of this license fee permits Deutsche Telekom to allow private
cable system operators connected to Deutsche Telekom signal delivery points to
retransmit terrestrial broadcasting on their cable systems. The relevant
copyright fee collecting society has expressed the contrary view, and asserted
that further royalties could be assessed to private cable system operators
retransmitting terrestrial broadcasting received by a Deutsche Telekom signal
delivery point. The Company and other private cable system operators
20
<PAGE> 21
have agreed pursuant to the Deutsche Telekom standard signal delivery contract
to hold Deutsche Telekom harmless against any successful claim by the relevant
copyright fee collecting society for any license fee in addition to those now
paid by Deutsche Telekom. Accordingly, to the extent the belief of the copyright
fee collecting society referred to above is correct, it is possible that the
Company and other private cable system operators in Germany may be assessed
copyright license fees in respect of terrestrial broadcasting received pursuant
to Deutsche Telekom signal delivery contracts.
Further, the Company has been advised by certain German copyright royalty
collecting societies that upon the expected completion of a general agreement
among those societies designating one society to collect cable retransmission
license fees in respect of terrestrial broadcasting, that society expects to
assess a license fee which it estimates will be in the range of 4%-5% of the
revenues of the cable system operators carrying such terrestrial broadcasting,
whether the broadcasting is received on the operators' own head-ends or via
Deutsche Telekom signal delivery points.
To date, the Company does not believe that any satellite broadcaster has
charged Deutsche Telekom or any private cable system operator for its
programming or for copyright license fees in respect of its programming. The
Company attributes this to the desire of satellite programmers to increase
market penetration and thereby enhance advertising revenues. There can be no
assurance that the market strength of satellite programmers will not increase as
compared to that of Deutsche Telekom and private cable system operators or that
this will not lead to fees, including copyright license fees, being assessed to
the Company and other German cable system operators in respect of satellite
programming.
Although the Company believes that there are legal uncertainties in respect
of the possible assessment of copyright license fees in relation to certain
terrestrial broadcasting and that market conditions in the German cable
television industry may lead satellite broadcasters to refrain from assessing
copyright license fees on cable system operators who retransmit their
programming, no assurance can be given that such fees will not be imposed upon
the Company in respect of either terrestrial or satellite broadcasting, or both,
or if such fees are imposed that the Company would be able to increase the fees
it charges to its customers by a comparable amount or without a time delay, or
that its results of operations or financial position would not be materially
adversely affected thereby. See "Business -- Programming."
EXTENSIVE GOVERNMENT REGULATION OF THE CABLE TELEVISION INDUSTRY
The licensing, construction, operation and acquisition of cable television
systems in Germany are principally regulated by the Federal Ministry of Posts
and Telecommunications (the "BMPT"), the Federal Office of Posts and
Telecommunications (the "BAPT") and state media laws. Changes in the regulation
of the Company's activities and those of its competitors (including in the areas
of licensing requirements, the regulations relating to Deutsche Telekom and
interconnection arrangements) could have a material adverse effect on the
Company.
Proposed legislation regulating the telecommunications industry is
currently before the German Federal Parliament and is being considered by the
German federal states. Under such proposed federal legislation, certain basic
telecommunications services could be deemed to be "universal services," and the
provision of such services could become mandatory for a service provider with a
dominant position in a certain market, which could include a regional market. In
addition, the compensation for the provision of such essential services would be
subject to review by the competent authority. Under the present draft of such
federal legislation, which is subject to change, the competent authority could
designate operators of cable television systems to be service providers required
to open their networks to content providers and competitors in order to enhance
competition, and the competent authority could exercise supervisory authority in
respect of standard contractual terms and conditions, rates and particular
billing standards of any such service provider. Under such proposed state
legislation, certain telecommunications services could be deemed to be "media
services," and cable system operators may be required to grant
non-discriminatory network access to providers of such services.
The legislative process is ongoing and the Company cannot predict the final
content of such legislation or its effects. For example, the Company cannot
presently determine whether cable television services will be
21
<PAGE> 22
considered universal services or media services, whether the legislation will
require the Company to open its networks to others or whether or how rates and
other terms and conditions applied to service providers will be regulated.
However, no assurance can be given that such legislation will not be deemed to
apply to the Company and its business or that it will not have a material
adverse effect on the Company's ability to make certain independent business
decisions with respect to customers serviced and rates charged for such services
as well as other matters. It is also probable that other legislation and
regulations will be proposed in connection with the liberalization of
telecommunications regulation throughout Europe, and it is impossible to predict
the impact of any resulting changes in the regulatory environment on the
Company's business. See "Certain Regulatory Matters."
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is expansion by
acquisition of cable television systems that are either located in reasonable
proximity to existing systems or large enough to serve as the basis for a new
regional cluster. There can be no assurance that the Company will be able to
identify and acquire such systems or that it will be able to finance significant
acquisitions in the future. The Company encounters competition for the
acquisition of cable systems from both existing cable television operators and
financial investors. See "Business -- Business Strategy."
The Company searches for appropriate candidates for acquisition on an
ongoing basis. The Company has entered into non-binding letters of intent to
acquire two cable television systems, where negotiations have progressed to a
stage where the Company considers consummation of the acquisitions to be
probable, serving an aggregate of approximately 46,000 customers in the German
States of Thuringen and Sachsen-Anhalt. There can, however, be no assurance that
the Company will consummate either of such acquisitions on the terms set forth
in the respective letters of intent, if at all. See "Business -- Acquisitions
and Pending Acquisitions."
INTEGRATION OF ACQUIRED BUSINESSES; MANAGEMENT OF GROWTH
The Company has experienced rapid growth and development in a relatively
short period of time and intends to continue to do so to meet its strategic
objectives. The management of such growth has placed a strain on the management
resources of the Company and will require, among other things, continued
development of the Company's financial and management controls, stringent
control of construction and other costs, increased marketing activities and the
training of new personnel. Failure to manage its rapid growth and development
successfully could have a material adverse effect on the Company's financial
condition and operating results. See "Business."
Since its inception, the Company has acquired 14 cable television systems.
The Recent Acquisitions have involved, and the Pending Acquisitions, if
consummated, and other possible future acquisitions by the Company will involve,
risks, including successful integration with the Company's existing systems and
operations and, possibly, lower relative operating margins associated with such
acquisitions (before the economic benefits of integration, if successful, are
fully realized). The integration of acquired systems may also lead to the loss
of key employees of the acquired companies and operations and diversion of
management attention from other ongoing business concerns. The costs of
integration have had an adverse impact on short-term operating results. Any or
all of these may have a material adverse effect on the Company's operations in
the future.
VARIATIONS IN QUARTERLY RESULTS
The Company's results of operations are affected by the timing of
acquisitions, the timing and magnitude of integration costs and the degree to
and the rate at which the economic benefits of integration are realized. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Therefore, the operating results of any three-month period are not
necessarily indicative of the results that may be achieved for any subsequent
fiscal quarter or the full fiscal year.
22
<PAGE> 23
POTENTIAL DIFFICULTIES IN PROTECTING RIGHTS OF HOLDERS OF THE DISCOUNT NOTES AND
IN ENFORCING CIVIL LIABILITIES
Kabelmedia is a limited liability company organized under the laws of
Germany, and a majority of its Executive Committee members, managing directors
and executive officers reside outside the United States. All or a substantial
portion of the assets of the Company and certain of its Executive Committee
members, managing directors and executive officers also are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or Kabelmedia or
to enforce against them judgments obtained in U.S. courts predicated upon civil
liability provisions of the federal securities laws of the United States.
Kabelmedia has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Germany, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the federal securities laws of the United States. In addition, awards of
punitive damages in actions brought in the United States or elsewhere may be
unenforceable in Germany. See "Enforceability of Certain Civil Liabilities."
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers, including Ben Bartel, the Chief Executive Officer of the Company,
Ernst Uhlig, the Chief Operating Officer of the Company, and Paul Thomason, the
Chief Financial Officer of the Company, the loss of whose services could have a
material adverse effect on the Company. Each of such persons has entered into an
employment contract with the Company, but there can be no assurance that any of
such persons will not choose to terminate his employment relationship with the
Company or otherwise become unable to continue to perform his services for the
Company. The Company carries key-man insurance on the life of Mr. Bartel. See
"Management."
RAPID TECHNOLOGICAL CHANGE
The cable television industry is subject to rapid and significant changes
in technology. While the Company believes that in the foreseeable future these
changes will neither materially affect the continued use of coaxial technology
nor materially hinder the Company's ability to introduce fiber optic cabling
technologies or necessary additional technologies, the effect of technological
changes on the business of the Company cannot be predicted.
The Company believes that its various network designs are sufficiently
flexible to permit it to deliver a wide variety of existing entertainment and
information services and will enable it to offer anticipated new services in the
future without incurring significant additional construction costs to adapt its
existing underground network. The cost of implementing emerging technologies or
expanding capacity could be significant and the Company's ability to fund such
implementation may be dependent upon its ability to obtain additional financing.
See "Business -- Network Configuration."
CURRENCY RISK AND HEDGING ACTIVITIES
The Company expects certain of its debt obligations (including the Discount
Notes) to be denominated in U.S. dollars, while the Company will generate
revenues in Deutsche Mark. Therefore, the Company will encounter currency
exchange rate risks. While the Company is considering entering into transactions
to hedge the risk of exchange rate fluctuations, there can be no assurance that
it will engage in such transactions, or, if it decides to engage in such
transactions, that they will be successful and that shifts in currency exchange
rates will not have a material adverse effect on the Company.
LIMITED INSURANCE COVERAGE
While the Company carries general liability insurance on its properties,
like many other operators of cable television systems in Germany, it does not
insure the underground portion of its cable television networks. Accordingly,
any catastrophe affecting a significant portion of the Company's cable
television networks could result in substantial uninsured losses and could have
a material adverse effect on the Company.
23
<PAGE> 24
INFLUENCE OF PRINCIPAL SHAREHOLDERS
The Company, each of its existing shareholders and each partner of ECO I
and ECO II (as defined in "Certain Related Party Transactions -- Capital
Contributions and Subordinated Shareholder Loans") has entered into a
Shareholder Agreement (as defined in "Certain Related Party Transactions --
Shareholder Agreement") pursuant to which the making of certain management and
policy decisions, which the Managing Director would otherwise have authority to
take, have been reserved to the shareholders. The shareholders have an ability
to elect the Chief Executive Officer and Managing Director, the Chief Operating
Officer and the Chief Financial Officer of the Company, who, together with the
shareholders, will direct the operations and business of the Company. The
shareholders have also established an Executive Committee, comprised of
shareholder representatives, to facilitate the taking of shareholder action.
There may be conflicts of interest between the shareholders of the Company or
their representatives on the Executive Committee, on the one hand, and the
holders of the Discount Notes, on the other hand, and there can be no assurance
that any such conflict, should it occur, will be resolved in a manner favorable
to the holders of the Discount Notes. No procedures are being adopted to resolve
any conflicts of interest that may arise between the shareholders or their
representatives on the Executive Committee and the holders of the Discount
Notes. See "-- Certain Interests of Affiliates of the Underwriters,"
"Management," "Principal Shareholders" and "Certain Related Party Transactions
- -- Certain Interests of Affiliates of the Underwriters."
CERTAIN INTERESTS OF AFFILIATES OF THE UNDERWRITERS
Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors, L.P. and
Morgan Stanley Capital Investors, L.P. (the "MSCP Funds"), affiliates of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), collectively own approximately
14.34% of the capital stock of Kabelmedia. See "Principal Shareholders."
Pursuant to the terms of the Shareholder Agreement, the MSCP Funds have the
right to appoint one member to the Executive Committee of Kabelmedia. An officer
of Morgan Stanley currently serves on the Executive Committee of Kabelmedia. See
"Management."
Chase Investment Bank Limited ("CIBL") and Chase Manhattan Bank AG are
affiliates of Chase Securities Inc., one of the Underwriters for the Offering,
and are the Arranger and the Agent, respectively, under the Bank Facility. The
initial drawing under the Bank Facility is scheduled to occur concurrently with
or on the business day next following the closing of the Offering, at which time
such initial drawing and the proceeds of the Offering will be used to repay the
Prior Facilities (as defined in "Description of Certain Indebtedness"). The loan
commitments of CIBL to the Company as of December 31, 1995 under the Prior
Facilities were approximately DM55,100,000, representing approximately 18.8% of
the Company's total loan commitments under the Prior Facilities at such date.
CIBL presently has outstanding loan commitments to the Company of DM400,000,000,
representing the entire loan commitment under the Bank Facility. Based on
commitments received by CIBL to date from potential syndicate members, which are
subject to final documentation to be signed prior to the closing of the
Offering, the Company does not expect the percentage of the total commitments
under the Bank Facility of Chase Manhattan Bank AG's (which will be the only
affiliate of Chase Securities Inc. lending under the Bank Facility) to exceed
CIBL's percentage of the total commitments under the Prior Facilities. See
"Certain Related Party Transactions -- Certain Interests of Affiliates of the
Underwriters," "Description of Certain Indebtedness," and "Use of Proceeds."
Certain affiliates of Chase Securities Inc. also collectively own approximately
8.11% of the capital stock of Kabelmedia. See "Principal Shareholders." Under
the Shareholder Agreement, such affiliates of Chase Securities Inc. have the
right to appoint one member to the Executive Committee of Kabelmedia. An officer
of certain affiliates of Chase Securities Inc. currently serves on the Executive
Committee of Kabelmedia. See "Management."
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the holders of the Discount
Notes, on the one hand, and owners of the Company's capital stock and the
Company's lenders, on the other. For example, if the Company encounters
financial difficulties, or is unable to pay its debts as they mature, the
interests of the Company's equity investors or lenders might conflict with those
of the holders of the Discount Notes. In addition, the equity investors may have
an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance
24
<PAGE> 25
their equity investment, even though such transactions might involve risks to
the holders of the Discount Notes.
The Management of the Company does not include any persons affiliated with
the Underwriters or any of the Company's lenders. As noted above, with the
exception of two members of the Executive Committee of the Company, who serve as
representatives of two equity shareholders affiliated in one case with an
Underwriter and in the other case with a different Underwriter that is an
affiliate of the Company's principal lender, no persons affiliated with the
Underwriters or any lender currently serve on the Company's Executive Committee.
See "Management." Further, pursuant to the terms of the Shareholder Agreement,
each of the shareholders has agreed to certain restrictions limiting its ability
to divest its shareholding in the Company, imposing supermajority voting
requirements in relation to specified corporate actions and requiring that
certain business opportunities in the German cable industry of which the
shareholder may become aware in the future be offered to the Company before the
shareholder may pursue such opportunities itself. Accordingly, the Company has
not deemed it necessary to adopt any specific procedures to address potential
conflicts of interest.
LACK OF AN ESTABLISHED MARKET FOR THE DISCOUNT NOTES
The Discount Notes are a new issue of securities for which there is
presently no active trading market. Although the Underwriters have informed
Kabelmedia that they currently intend to make a market in the Discount Notes,
they are not obligated to do so, and any such market-making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Discount Notes. If any active
public market does not develop, the market price and liquidity of the Discount
Notes may be adversely affected.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Discount Notes will be issued at a substantial discount from their
principal amount at maturity. Consequently, purchasers of the Discount Notes
generally will be required to include amounts in gross income for U.S. federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain Income Tax Considerations -- U.S. Federal
Income Tax Considerations" for a more detailed discussion of the U.S. federal
income tax consequences to the owners of the Discount Notes resulting from the
purchase, ownership and disposition of the Discount Notes.
25
<PAGE> 26
USE OF PROCEEDS
The net proceeds to Kabelmedia from the sale of the Discount Notes are
estimated to be approximately DM138,993,000 ($94,130,000 translated at a rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996).
Kabelmedia intends to use all of the net proceeds from the Offering to
repay a portion of the outstanding indebtedness under the Prior Facilities. The
balance of the Prior Facilities will be repaid concurrently with new borrowings
under the Bank Facility. The indebtedness of the Company under the Prior
Facilities matures on December 31, 2003 (but will be repaid in full upon the
closing of the Offering) and at March 31, 1996 accrued interest at a rate of
approximately 5.625% per annum. See "Certain Related Party Transactions,"
"Description of Certain Indebtedness," "Risk Factors -- Adverse Consequences of
Financial Leverage" and "-- Certain Interests of Affiliates of the Underwriters"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The estimated sources and uses
of funds in the Company's refinancing are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
DM '000
<S> <C>
SOURCE OF FUNDS:
Discount Notes........................................... 138,993
Bank Facility............................................ 98,507
-----------
237,500
USES OF FUNDS:
Repayment of Prior Kabelmedia Facility................... 137,500
Repayment of Prior Kabelvision Facility.................. 100,000
-----------
237,500
</TABLE>
EXCHANGE RATE DATA
The following table sets forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rates per U.S. dollar for the
Deutsche Mark.
<TABLE>
<CAPTION>
DEUTSCHE MARK PER $1.00
-----------------------------------------------
YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE(1) PERIOD END
- ------------------------------------------------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1991............................................. 1.8350 1.4450 1.6610 1.5200
1992............................................. 1.6777 1.3907 1.5618 1.6197
1993............................................. 1.7405 1.5675 1.6545 1.7395
1994............................................. 1.7627 1.4920 1.6216 1.5495
1995............................................. 1.5612 1.3565 1.4321 1.4345
1996 (through July 19, 1996)..................... 1.5477 1.4354 1.4978 1.4892
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on each trading day during the period.
26
<PAGE> 27
CAPITALIZATION
The following table sets forth the Company's consolidated cash and
capitalization at March 31, 1996 (i) on an actual basis and (ii) on a pro forma
basis to give effect to the Shareholder Debt Conversion, the Offering and the
application of the net proceeds therefrom and the Pending Acquisitions
(consummation of which cannot be assured). The table should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
PRO FORMA FOR THE
SHAREHOLDER DEBT
CONVERSION,
THE OFFERING AND
THE PENDING
ACTUAL ACQUISITIONS
-------------------- --------------------
DM'000 $'000(1) DM'000 $'000(1)
<S> <C> <C> <C> <C>
Cash.............................................. 6,297 4,264 6,829 4,625
======= ======== ======= ========
Debt:
Bank debt....................................... 243,566 164,950 161,599 109,440
Senior Discount Notes........................... -- -- 147,926 100,180
Subordinated Shareholder Loans.................. 177,134 119,961 -- --
------- -------- ------- --------
Total Debt................................... 420,700 284,911 309,525 209,620
Minority Interest................................. 450 304 450 305
Shareholders' equity (deficiency):
Registered capital.............................. 100 68 100 68
Capital contributions........................... 18,187 12,317 195,321 132,278
Accumulated deficit............................. (56,567) (38,309) (56,567) (38,309)
------- -------- ------- --------
Total shareholders' equity (deficiency)......... (38,280) (25,924) 138,854 94,037
------- -------- ------- --------
Total capitalization............................ 382,870 259,291 448,829 303,962
======= ======== ======= ========
</TABLE>
- ---------------
(1) For convenience, the financial statements have been translated at the rate
of DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
27
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data set forth below as at December
31, 1994 and 1995 and the selected consolidated statement of operations data set
forth below for the three years ended December 31, 1993, 1994 and 1995, have
been derived from the financial statements of the Company included elsewhere in
this Prospectus, which have been audited by Ernst & Young GmbH, independent
auditors. The selected consolidated balance sheet data as at March 31, 1995 and
March 31, 1996 and the selected consolidated statement of operations data for
the three-month periods then ended have been derived from unaudited financial
statements of the Company included elsewhere in this Prospectus and the selected
consolidated balance sheet data as at December 31, 1993 have been derived from
the unaudited financial statements of the Company which are not included in this
Prospectus; however, in the opinion of management each of such unaudited
financial statements contains all adjustments necessary for a fair presentation
of the financial position of the Company as at such dates and the results of
operations for such periods. Acquisitions of cable television systems during the
periods for which the selected financial data are presented below materially
affect the comparability of such data from one period to another. The selected
consolidated financial data should be read in conjunction with the Company's
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL(1)
---------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- -----------------
1993 1994 1995 1995(2) 1996 1996(2)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues.................................. 2,220 4,551 33,510 22,694 15,327 10,380
Operating costs and expenses:
Operations.............................. (219) (1,275) (6,663) (4,512) (2,919) (1,977)
Selling, general and administrative..... (987) (2,504) (14,465) (9,796) (4,370) (2,959)
Depreciation and amortization........... (1,460) (3,028) (23,685) (16,040) (10,731) (7,267)
------- ------- ------- ------- ------- -------
Total................................. (2,666) (6,807) (44,813) (30,348) (18,020) (12,203)
------- ------- ------- ------- ------- -------
Operating loss............................ (446) (2,256) (11,303) (7,654) (2,693) (1,823)
Interest Expense
Cash interest expense................... (312) (812) (11,166) (7,563) (3,975) (2,692)
Non-cash interest expense............... (743) (3,048) (14,177) (9,601) (4,626) (3,133)
------- ------- ------- ------- ------- -------
Total................................. (1,055) (3,860) (25,343) (17,164) (8,601) (5,825)
Minority interest......................... -- -- 118 80 27 18
------- ------- ------- ------- ------- -------
Net loss before income tax benefit and
extraordinary item...................... (1,501) (6,116) (36,528) (24,738) (11,267) (7,630)
Income tax benefit........................ -- -- 916 620 599 406
------- ------- ------- ------- ------- -------
Net loss before extraordinary items....... (1,501) (6,116) (35,612) (24,118) (10,668) (7,224)
========= ========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
Capital expenditures (excluding
acquisitions)........................... 6,635 5,617 10,955 7,419 2,891 1,958
Deficiency of earnings to fixed
charges(3).............................. (1,501) (6,116) (39,316) (26,626) (11,294) (7,649)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................. 14,761 128,229 420,865 285,023 430,739 291,709
Total debt less Subordinated Shareholder
Loans................................... 7,267 47,178 228,812 154,959 243,566 164,950
Subordinated Shareholder Loans............ 4,833 63,584 172,638 116,915 177,134 119,961
Total debt.............................. 12,100 110,762 401,450 271,874 420,700 284,911
Total liabilities and minority interest... 15,812 120,559 448,477 303,722 469,019 317,633
Shareholders' equity (deficiency)......... (1,051) 7,670 (27,612) (18,699) (38,280) (25,924)
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
HISTORICAL(1)
-------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ ----------------
1993 1994 1995 1995(2) 1996 1996(2)
------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Homes passed(4)................................ 23,890 71,032 452,948 -- 491,863 --
Customers(4)................................... 22,655 58,613 342,752 -- 358,784 --
Penetration(4)(5).............................. 94.8% 82.5% 75.7% -- 72.9% --
Average monthly revenue per customer(6)........ DM 9.24 DM9.37 DM 12.44 $ 8.42 DM14.30 $ 9.68
EBITDA DATA:
EBITDA (in thousands)(7)....................... DM1,014 DM 772 DM12,382 $8,385 DM8,038 $5,444
Average monthly EBITDA per customer(6)......... DM 4.22 DM1.59 DM 4.60 $ 3.11 DM 7.50 $ 5.08
EBITDA margin(8)............................... 45.7% 17.0% 37.0% -- 52.4% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through March
31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(3) For purposes of these computations, earnings consist of historical loss
before income taxes and minority interest, plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest on indebtedness
(including capitalized interest and amortization of debt issuance costs).
Fixed charges include non-cash fixed charges of DM743,000, DM3,048,000 and
DM16,847,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and DM4,626,000 for the three months ended March 31, 1996.
(4) At end of period. Homes passed and penetration at March 31, 1996 reflect
results reported to the Company during 1996 of a survey commissioned by the
Company of the number of homes in certain of its concession areas and, to a
lesser extent, the build-out of existing systems.
(5) Customers as a percentage of homes passed.
(6) Equals (a)(i) revenues for the period divided by (ii) twelve for annual
periods and three for quarterly periods divided by (b) the average monthly
number of customers for such period. Equals (a)(i) EBITDA for the period
divided by (ii) twelve for annual periods and three for quarterly periods
divided by (b) the average monthly number of customers for such period.
(7) The Company believes that EBITDA and related measures of cash flow serve as
important financial indicators in measuring and comparing cable television
companies in several areas, including liquidity, operating performance and
leverage. EBITDA is not a U.S. GAAP measure of income (loss) or cash flow
from operations and should not be considered as an alternative to net
income as an indication of the Company's financial performance or as an
alternative to cash flow from operating activities as a measure of
liquidity.
(8) Represents EBITDA as a percentage of revenues.
29
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma financial data of the Company have been
prepared on two different bases and as of both December 31, 1995 and March 31,
1996: first, to reflect the Recent Acquisitions or the InfoSat Acquisition
(which have been consummated), the Shareholder Debt Conversion (see "Summary --
Shareholder Debt Conversion") and the Offering, and second, to reflect the
Recent Acquisitions or the InfoSat Acquisition, the Shareholder Debt Conversion
and the Offering as well as the Pending Acquisitions (consummation of which
cannot be assured).
The first table set forth below reflects (i) pro forma statement of
operations data for 1995 for the Recent Acquisitions, the Shareholder Debt
Conversion and the Offering (reflecting the Recent Acquisitions, the Shareholder
Debt Conversion, the Offering and the application of the net proceeds therefrom
as if such transactions had occurred on January 1, 1995), and (ii) pro forma
balance sheet data as of December 31, 1995 for the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering (reflecting the InfoSat
Acquisition, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom as if such transactions had occurred on December
31, 1995).
The second table set forth below reflects (i) pro forma statement of
operations data for 1995 for the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the Pending Acquisitions (reflecting the Recent
Acquisitions, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom, and the Pending Acquisitions as if such
transactions had occurred on January 1, 1995), and (ii) pro forma balance sheet
data as of December 31, 1995 for the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the Pending Acquisitions (reflecting the InfoSat
Acquisition, the Offering and the application of the net proceeds therefrom, and
the Pending Acquisitions as if such transactions had occurred on December 31,
1995). See "Business -- Acquisitions and Pending Acquisitions."
The third table set forth below reflects pro forma statement of operations
data for the three months ended March 31, 1995 for the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions
(reflecting the Recent Acquisitions, the Shareholder Debt Conversion, the
Offering and the application of the net proceeds therefrom, and the Pending
Acquisitions as if such transactions had occurred on January 1, 1995).
The fourth table set forth below reflects (i) pro forma statement of
operations data for the three months ended March 31, 1996 for the InfoSat
Acquisition, the Shareholder Debt Conversion, the Offering and the Pending
Acquisitions (reflecting the InfoSat Acquisition, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom, and
the Pending Acquisitions as if such transactions had occurred on January 1,
1996), and (ii) pro forma balance sheet data as of March 31, 1996 for the
InfoSat Acquisition, the Shareholder Debt Conversion, the Offering and the
Pending Acquisitions (reflecting the Offering and the application of the net
proceeds therefrom, and the Pending Acquisitions as if such transactions had
occurred on March 31, 1996). See "Business -- Acquisitions and Pending
Acquisitions."
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PROVIDED FOR INFORMATION
PURPOSES ONLY AND DOES NOT PURPORT TO REPRESENT WHAT THE COMPANY'S RESULTS OF
OPERATIONS AND FINANCIAL POSITION ACTUALLY WOULD HAVE BEEN IF SUCH TRANSACTIONS
IN FACT HAD OCCURRED ON SUCH DATES, OR TO PROJECT THE COMPANY'S RESULTS OF
OPERATIONS FOR ANY FUTURE PERIOD.
The unaudited pro forma financial data should be read in conjunction with,
and are qualified in their entirety by reference to, "Selected Consolidated
Financial Data" and the historical consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus.
30
<PAGE> 31
PRO FORMA FOR THE RECENT ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION AND THE
OFFERING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
PRO FORMA FOR THE
RECENT
ACQUISITIONS,
THE SHAREHOLDER
DEBT CONVERSION
HISTORICAL ADJUSTMENTS AND THE OFFERING(1)
---------- ----------- -------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues.................................... 33,510 26,271(a) 59,781 40,486
Operating costs and expenses:
Operations................................ (6,663) (6,906)(b) (13,569) (9,189)
Selling, general and administrative....... (14,465) (1,922)(b) (16,387) (11,098)
Depreciation and amortization............. (23,685) (15,646)(c) (39,331) (26,636)
---------- ----------- ------- -------
Total.................................. (44,813) (24,474) (69,287) (46,923)
---------- ----------- ------- -------
Operating loss............................ (11,303) 1,797 (9,506) (6,437)
Interest Expense:
Cash interest expense.................. (11,166) 5,205(d) (5,961) (4,037)
Non-cash interest expense.............. (14,177) (8,082)(d) (22,259) (15,074)
---------- ----------- ------- -------
Total................................ (25,343) (2,877)(d) (28,220) (19,111)
Exchange gain (loss)...................... -- --(e) -- --
Minority interest......................... 118 (5)(f) 113 77
---------- ----------- ------- -------
Net loss before income tax benefit and
extraordinary item..................... (36,528) (1,085) (37,613) (25,471)
Income tax benefit........................ 916 2,500(f) 3,416 2,313
---------- ----------- ------- -------
Net loss before extraordinary item........ (35,612) 1,415 (34,197) (23,158)
======= ========= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Assets:
Cash...................................... 7,866 474(g) 8,340 5,648
Accounts receivable -- net................ 2,291 505(g) 2,796 1,894
Inventory................................. 1,185 -- 1,185 803
Property, plant and equipment -- net...... 235,327 4,668(g) 239,995 162,532
Goodwill -- net........................... 153,155 10,423(g) 163,578 110,780
Other assets.............................. 21,041 9,095(g)(h) 30,136 20,409
---------- ----------- ------- -------
Total assets........................... 420,865 25,165 446,030 302,066
======= ========= ======= =======
Liabilities and shareholders' equity
(deficiency):
Accounts payable.......................... 13,930 238(g) 14,168 9,595
Accrued expenses and other liabilities.... 21,540 404(g) 21,944 14,861
Deferred revenue.......................... 9,830 -- 9,830 6,657
Bank debt................................. 228,812 (123,403)(i) 105,409 71,386
Senior Discount Notes..................... -- 147,926(j) 147,926 100,180
Subordinated Shareholder Loans............ 172,638 (172,638)(k) -- --
---------- ----------- ------- -------
Total liabilities...................... 446,750 (147,473) 299,277 202,679
Minority interest......................... 1,727 -- 1,727 1,170
Shareholders' equity (deficiency):
Registered capital..................... 100 -- 100 68
Capital contributions.................. 18,187 172,638(k) 190,825 129,233
Accumulated deficit.................... (45,899) -- (45,899) (31,084)
---------- ----------- ------- -------
Total Shareholders' equity
(deficiency)......................... (27,612) 172,638 145,026 98,217
Total liabilities and shareholders'
equity (deficiency).................. 420,865 25,165 446,030 302,066
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
31
<PAGE> 32
PRO FORMA FOR THE RECENT ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION,
THE OFFERING AND THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
PRO FORMA FOR THE
RECENT ACQUISITIONS,
THE SHAREHOLDER DEBT
CONVERSION,
THE OFFERING AND THE
HISTORICAL ADJUSTMENTS PENDING ACQUISITIONS
---------- ----------- --------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000(1)
STATEMENT OF OPERATIONS DATA:
Revenues........................................ 33,510 31,320(l) 64,830 43,905
Operating costs and expenses:
Operations.................................... (6,663) (7,649)(m) (14,312) (9,693)
Selling, general and administrative........... (14,465) (2,824)(m) (17,289) (11,709)
Depreciation and amortization................. (23,685) (21,369)(n) (45,054) (30,512)
---------- ----------- ------- --------
Total...................................... (44,813) (31,842) (76,655) (51,914)
---------- ----------- ------- --------
Operating loss.................................. (11,303) (522) (11,825) (8,009)
Interest expense:
Cash interest expense......................... (11,166) 1,979(o) (9,187) (6,222)
Non-cash interest expense..................... (14,177) (8,082)(o) (22,259) (15,074)
---------- ----------- ------- --------
Total...................................... (25,343) (6,103)(o) (31,446) (21,296)
Exchange gain (loss)............................ -- --(p) -- --
Minority interest............................... 118 (5)(q) 113 77
---------- ----------- ------- --------
Net loss before income tax benefit and
extraordinary item............................ (36,528) (6,630) (43,158) (29,228)
Income tax benefit.............................. 916 2,500(q) 3,416 2,313
---------- ----------- ------- --------
Net loss before extraordinary item.............. (35,612) (4,130) (39,742) (26,915)
======= ========= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Assets:
Cash.......................................... 7,866 1,006(r) 8,872 6,008
Accounts receivable -- net.................... 2,291 673(r) 2,964 2,007
Inventory..................................... 1,185 -- 1,185 803
Property, plant and equipment -- net.......... 235,327 13,776(r) 249,103 168,700
Goodwill -- net............................... 153,155 59,633(r) 212,788 144,107
Other assets.................................. 21,041 10,324(r)(s) 31,365 21,241
---------- ----------- ------- --------
Total assets............................... 420,865 85,412 506,277 342,866
Liabilities and shareholders' equity
(deficiency):
Accounts payable.............................. 13,930 708(r) 14,638 9,913
Accrued expenses and other liabilities........ 21,540 3,155(r) 24,695 16,723
Deferred revenue.............................. 9,830 -- 9,830 6,657
Bank debt..................................... 228,812 (66,377)(t) 162,435 110,006
Senior Discount Notes......................... -- 147,926(u) 147,926 100,180
Subordinated Shareholder Loans................ 172,638 (172,638)(v) -- --
---------- ----------- ------- --------
Total liabilities.......................... 446,750 (87,226) 359,524 243,479
Minority interest............................. 1,727 -- 1,727 1,170
Shareholders' equity (deficiency):
Registered capital............................ 100 -- 100 68
Capital contributions......................... 18,187 172,638(v) 190,825 129,233
Accumulated deficit........................... (45,899) -- (45,899) (31,084)
---------- ----------- ------- --------
Total Shareholders' equity (deficiency)....... (27,612) 172,638 145,026 98,217
---------- ----------- ------- --------
Total liabilities and shareholders' equity
(deficiency)............................. 420,865 85,412 506,277 342,866
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
32
<PAGE> 33
PRO FORMA FOR THE RECENT ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION, THE
OFFERING
AND THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
----------------------------------------------------
PRO FORMA FOR THE
RECENT ACQUISITIONS,
THE SHAREHOLDER DEBT
CONVERSION, THE
OFFERING AND THE
HISTORICAL ADJUSTMENTS PENDING ACQUISITIONS
---------- ----------- --------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000(1)
STATEMENT OF OPERATIONS DATA:
Revenues...................................... 5,604 10,028(w) 15,632 10,586
Operating costs and expenses:
Operations.................................. (855) (2,342)(x) (3,197) (2,165)
Selling, general and administrative......... (3,027) (1,630)(x) (4,657) (3,154)
Depreciation and amortization............... (4,122) (7,050)(y) (11,172) (7,566)
---------- ----------- ------- --------
Total.................................... (8,004) (11,022) (19,026) (12,885)
---------- ----------- ------- --------
Operating loss.............................. (2,400) (994) (3,394) (2,299)
Interest Expense:
Cash interest expense.................... (1,771) (525)(z) (2,296) (1,555)
Non-cash interest expense................ (2,837) (2,556)(z) (5,393) (3,652)
---------- ----------- ------- --------
Total.................................. (4,608) (3,081)(z) (7,689) (5,207)
Exchange gain (loss)........................ -- --(aa) -- --
Minority interest........................... 21 --(bb) 21 14
---------- ----------- ------- --------
Net loss before income tax benefit and
extraordinary item....................... (6,987) (4,075) (11,062) (7,492)
Income tax benefit.......................... -- 625(bb) 625 423
---------- ----------- ------- --------
Net loss before extraordinary item.......... (6,987) (3,450) (10,437) (7,069)
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
33
<PAGE> 34
PRO FORMA FOR THE INFOSAT ACQUISITION, THE SHAREHOLDER DEBT CONVERSION,
THE OFFERING AND THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------
PRO FORMA FOR THE
INFOSAT ACQUISITION,
THE SHAREHOLDER
DEBT CONVERSION,
THE OFFERING AND THE
HISTORICAL ADJUSTMENTS PENDING ACQUISITIONS
---------- ----------- --------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000(1)
STATEMENT OF OPERATIONS DATA:
Revenues...................................... 15,327 1,319(cc) 16,646 11,273
Operating costs and expenses:
Operations.................................. (2,919) (194)(dd) (3,113) (2,108)
Selling, general and administrative......... (4,370) (236)(dd) (4,606) (3,119)
Depreciation and amortization............... (10,731) (1,494)(ee) (12,225) (8,279)
---------- ----------- ------- --------
Total.................................... (18,020) (1,924) (19,944) (13,506)
---------- ----------- ------- --------
Operating loss................................ (2,693) (605) (3,298) (2,233)
Interest expense:
Cash interest expense....................... (3,975) 1,691(ff) (2,284) (1,547)
Non-cash interest expense................... (4,626) (767)(ff) (5,393) (3,652)
---------- ----------- ------- --------
Total.................................... (8,601) 924(ff) (7,677) (5,199)
Exchange gain (loss).......................... -- --(gg) -- --
Minority interest............................. 27 --(hh) 27 18
---------- ----------- ------- --------
Net loss before income tax benefit and
extraordinary item.......................... (11,267) 319 (10,948) (7,414)
Income tax benefit............................ 599 --(hh) 599 406
---------- ----------- ------- --------
Net loss before extraordinary item............ (10,668) 319 (10,349) (7,008)
======= ========= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Assets:
Cash........................................ 6,297 532(ii) 6,829 4,625
Accounts receivable -- net.................. 3,044 168(ii) 3,212 2,175
Inventory................................... 1,389 -- 1,389 941
Property, plant and equipment -- net........ 236,329 9,108(ii) 245,437 166,218
Goodwill -- net............................. 162,872 49,210(ii) 212,082 143,629
Other assets................................ 20,808 10,162(ii)(jj) 30,970 20,974
---------- ----------- ------- --------
Total assets............................. 430,739 69,180 499,919 338,562
Liabilities and shareholders' equity
(deficiency):
Accounts payable............................ 8,259 470(ii) 8,729 5,912
Accrued expenses and other liabilities...... 29,136 2,751(ii) 31,887 21,595
Deferred revenue............................ 10,474 -- 10,474 7,093
Bank debt................................... 243,566 (81,967)(kk) 161,599 109,440
Senior Discount Notes....................... -- 147,926(ll) 147,926 100,180
Subordinated Shareholder Loans.............. 177,134 (177,134)(mm) -- --
---------- ----------- ------- --------
Total liabilities........................ 468,569 (107,954) 360,615 244,220
Minority interest........................... 450 -- 450 305
Shareholders' equity (deficiency):
Registered capital.......................... 100 -- 100 68
Capital contributions....................... 18,187 177,134(mm) 195,321 132,278
Accumulated deficit......................... (56,567) -- (56,567) (38,309)
---------- ----------- ------- --------
Total Shareholders' equity (deficiency)..... (38,280) 177,134 138,854 94,037
---------- ----------- ------- --------
Total liabilities and shareholders'
equity (deficiency).................... 430,739 69,180 499,919 338,562
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
34
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
YEAR ENDED, AND AS AT, DECEMBER 31, 1995 -- PRO FORMA FOR THE RECENT
ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION AND THE OFFERING:
(a) To reflect the revenues of the cable systems acquired in the 1995
Acquisitions for the periods in 1995 prior to their respective acquisition
dates and the InfoSat Acquisition for a full year in 1995.
(b) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the 1995 Acquisitions for the periods in 1995
prior to their respective acquisition dates and the InfoSat Acquisition for
a full year in 1995, net of anticipated savings from the consolidations of
office space and elimination of redundant personnel as follows:
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
PRIOR TO
ACQUISITION ANTICIPATED NET
DATE SAVINGS ADJUSTMENT
------------------- ----------- ---------------
DM DM DM $
------------------- ----------- ----- -----
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Operations.............................. 7,403 (497) 6,906 4,677
Selling, general and administrative..... 6,932 (5,010) 1,922 1,302
</TABLE>
(c) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
1995 Acquisitions for the periods in 1995 prior to their respective
acquisition dates and the InfoSat Acquisition for a full year in 1995.
(d) Interest expense is based upon the pro forma consolidated debt of the
Company, taking into account the Shareholder Debt Conversion and the
Offering and the application of the net proceeds therefrom, based on the
assumed interest rates indicated, and also taking into account the Recent
Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100,180,000 at 13.625%)(1)....... (20,841) (14,114)
Amortization of debt issuance costs(2)............................ (893) (605)
Adjustment to interest expense from Shareholder Debt
Conversion(3)................................................... 13,652 9,246
Additional interest expense from indebtedness incurred or acquired
in connection with the InfoSat Acquisition...................... (882) (597)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 6,087 4,122
------- -------
Adjustment to interest expense.................................... (2,877) (1,948)
======= =======
Cash interest expense............................................. 5,205 3,525
Non-cash interest expense......................................... (8,082) (5,473)
</TABLE>
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(1).......................................... 20,841 14,114
Amortization of debt issuance costs(4)............................ 1,418 960
------- -------
22,259 15,074
======= =======
</TABLE>
- ---------------
(1) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(2) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(3) Represents elimination of non-cash interest expense on the Subordinated
Shareholder Loans during the twelve-month period as if the Shareholder
Debt Conversion had been consummated on January 1, 1995.
35
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(4) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(e) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in 1995 of unrealized exchange rate gains
or losses. Absent any hedging on the part of the Company, the pro forma
unrealized exchange rate gain for 1995 would have been approximately
DM7,244,000 ($4,906,000) due to the substantial depreciation of the U.S.
dollar against the Deutsche Mark in 1995. The Company is considering
entering into transactions to hedge the risk of exchange rate fluctuations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Treasury Policies."
(f) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
(g) To reflect the acquisition of the net assets of the InfoSat Acquisition
assuming the acquisition price and acquired debt were paid with borrowings
under the Prior Facilities. The following represents the preliminary
allocation of the excess of purchase price over the historical net book
value of the net assets acquired in the InfoSat Acquisition:
<TABLE>
<CAPTION>
DM $
------- -------
(IN THOUSANDS)
<S> <C> <C>
Purchase price.................................................... 10,468 7,089
Acquired net assets at book value (December 31, 1995)............. 45 30
------- -------
10,423 7,059
======= =======
</TABLE>
The adjustment to amortization of goodwill includes amortization over 12
years of the excess of purchase price over the historical net book value of
the net assets acquired in the InfoSat Acquisition.
(h) Represents estimated debt issuance costs of DM8,933,000 ($6,050,000) and
other assets acquired in the InfoSat Acquisition of DM162,000 ($110,000).
(i) Represents repayment of the Prior Facilities using the net proceeds of the
Offering, in addition to debt borrowed to fund the purchase price for the
InfoSat Acquisition and debt acquired in the InfoSat Acquisition:
<TABLE>
<CAPTION>
DM $
------- ------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Prior Facilities...................................... 138,993 94,130
Purchase price for InfoSat Acquisition............................. (10,468) (7,089)
Acquired debt in InfoSat Acquisition............................... (5,122) (3,469)
------- ------
123,403 83,572
======= ======
</TABLE>
(j) Represents gross proceeds of the issuance of Discount Notes of
$100,180,000 (DM147,926,000 converted at the rate of DM1.4766=$1.00, the
Noon Buying Rate on March 29, 1996).
(k) To reflect Shareholder Debt Conversion as if consummated on December 31,
1995.
36
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
YEAR ENDED, AND AS AT, DECEMBER 31, 1995 -- PRO FORMA FOR THE RECENT
ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE PENDING
ACQUISITIONS:
(l) To reflect the revenues of the cable systems acquired in the 1995
Acquisitions for the periods in 1995 prior to their respective acquisition
dates, and the InfoSat Acquisition and the Pending Acquisitions for a full
year in 1995.
(m) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the 1995 Acquisitions for the periods in 1995
prior to their respective acquisition dates and the InfoSat Acquisition and
the Pending Acquisitions for a full year in 1995, net of anticipated
savings from the consolidations of office space and elimination of
redundant personnel as follows:
<TABLE>
<CAPTION>
1995 ACQUISITIONS
PRIOR TO
ACQUISITION
DATE AND INFOSAT
ACQUISITION AND
PENDING
ACQUISITIONS FOR A ANTICIPATED NET
FULL YEAR IN 1995 SAVINGS ADJUSTMENT
------------------- ----------- ---------------
DM DM DM $
------------------- ----------- ----- -----
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Operations.............................. 8,228 (579) 7,649 5,180
Selling, general and administrative..... 8,758 (5,934) 2,824 1,913
</TABLE>
(n) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
1995 Acquisitions for the periods in 1995 prior to their respective
acquisition dates and the InfoSat Acquisition and the Pending Acquisitions
for a full year in 1995.
(o) Interest expense is based upon the pro forma consolidated debt of the
Company, taking into account the Shareholder Debt Conversion and the
Offering and the application of the net proceeds therefrom, based on the
assumed interest rates indicated and taking into account the Recent
Acquisitions and the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100,180,000 at 13.625%)(1)....... (20,841) (14,114)
Amortization of debt issuance costs(2)............................ (893) (605)
Adjustment to interest expense from Shareholder Debt
Conversion(3)................................................... 13,652 9,246
Additional interest expense from indebtedness incurred or acquired
in connection with the InfoSat Acquisition...................... (882) (597)
Additional interest expense from indebtedness incurred or acquired
in connection with the Pending Acquisitions(4).................. (3,225) (2,184)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 6,086 4,122
------- -------
Adjustment to interest expense.................................... (6,103) (4,132)
------- -------
Cash interest expense............................................. 1,979 1,340
Non-cash interest expense......................................... (8,082) (5,472)
</TABLE>
37
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(1)............................................ 20,841 14,114
Amortization of debt issuance costs(5).............................. 1,418 960
------ ------
22,259 15,074
</TABLE>
- ---------------
(1) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(2) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(3) Represents elimination of non-cash interest expense on the Subordinated
Shareholder Loans during the twelve-month period as if the Shareholder
Debt Conversion had been consummated on January 1, 1995.
(4) Assumes the consideration for the Pending Acquisitions will be at the
top end of the Company's estimated range of DM50,000,000 to
DM57,000,000.
(5) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(p) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in 1995 of unrealized exchange rate gains
or losses. Absent any hedging on the part of the Company, the pro forma
unrealized exchange rate gain for 1995 would have been approximately
DM7,244,000 ($4,906,000) due to the substantial depreciation of the U.S.
dollar against the Deutsche Mark in 1995. The Company is considering
entering into transactions to hedge the risk of exchange rate fluctuations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Treasury Policies."
(q) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
(r) To reflect the acquisition of the net assets of the InfoSat Acquisition and
the net assets included in the Pending Acquisitions assuming the
acquisition price and acquired debt were paid with borrowings under the
Prior Facilities. The following represents the preliminary allocation of
the excess of purchase price over the historical net book value of the
acquired net assets of the InfoSat Acquisition and the Pending
Acquisitions:
<TABLE>
<CAPTION>
DM $
-------- --------
(IN THOUSANDS)
<S> <C> <C>
InfoSat Acquisition
Purchase price.................................................... 10,468 7,089
Acquired net assets at book value (December 31, 1995)............. 45 30
-------- --------
10,423 7,059
Pending Acquisitions
Purchase price.................................................... 53,526 36,249
Acquired net assets at book value (December 31, 1995)............. 4,316 2,923
-------- --------
49,210 33,326
-------- --------
Goodwill -- net................................................... 59,633 40,385
======= =======
</TABLE>
The adjustment to amortization of goodwill includes amortization over 12
years of the excess of purchase price over the historical net book value of
the acquired net assets of the InfoSat Acquisition and the net assets
included in the Pending Acquisitions.
38
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(s) Represents estimated debt issuance costs of DM8,933,000 ($6,050,000) and
acquired other assets of the InfoSat Acquisition of DM162,000 ($110,000)
and the other assets included in the Pending Acquisitions of DM 1,229,000
($832,000).
(t) Represents the repayment of the Prior Facilities using the net proceeds of
the Offering, in addition to debt borrowed to fund the InfoSat Acquisition
and to be borrowed to fund the Pending Acquisitions and debt acquired in
the InfoSat Acquisition and to be acquired in the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Prior Facilities..................................... 138,993 94,130
Purchase of InfoSat Acquisition................................... (10,468) (7,089)
Acquired debt in InfoSat Acquisition.............................. (5,122) (3,469)
Purchase of Pending Acquisitions.................................. (53,526) (36,249)
Acquired debt in Pending Acquisitions............................. (3,500) (2,370)
------- -------
66,377 44,953
======= =======
</TABLE>
(u) Represents gross proceeds of the issuance of Discount Notes of $100,180,000
(DM147,926,000 converted at the rate of DM1.4766 = $1.00, the Noon Buying
Rate on March 29, 1996).
(v) To reflect Shareholder Debt Conversion as if consummated on December 31,
1995.
THREE MONTHS ENDED MARCH 31, 1995 -- PRO FORMA FOR THE RECENT ACQUISITIONS, THE
SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE PENDING ACQUISITIONS:
(w) To reflect the revenues of the cable systems acquired in the 1995
Acquisitions, the InfoSat Acquisition and the Pending Acquisitions for the
full first quarter in 1995.
(x) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the 1995 Acquisitions, the InfoSat
Acquisition and the Pending Acquisitions for the full first quarter in
1995, net of anticipated savings from the consolidations of office space
and elimination of redundant personnel.
(y) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
1995 Acquisitions, the InfoSat Acquisition and the Pending Acquisitions for
the full first quarter in 1995.
39
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(z) Interest expense is based upon the pro forma consolidated debt of the
Company and the Offering and the application of the net proceeds therefrom,
based on the assumed interest rates indicated and taking into account the
Recent Acquisitions and the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100,180,000 million at
13.625%)(1)..................................................... (5,039) (3,412)
Amortization of debt issuance costs(2)............................ (223) (151)
Adjustment to interest expense from Shareholder Debt
Conversion(3)................................................... 2,706 1,833
Additional interest expense from indebtedness incurred or acquired
in connection with the InfoSat Acquisition...................... (220) (149)
Additional interest expense from indebtedness incurred or acquired
in connection with the Pending Acquisitions(4).................. (806) (546)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 501 338
------- -------
Adjustment to interest expense.................................... (3,081) (2,087)
------- -------
Cash interest expense............................................. (525) (356)
Non-cash interest expense......................................... (2,556) (1,731)
</TABLE>
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(1)............................................ 5,039 3,412
Amortization of debt issuance costs(5).............................. 354 240
------ ------
5,393 3,652
</TABLE>
- ---------------
(1) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(2) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(3) Represents non-cash interest expense on the Subordinated Shareholder
Loans during the three-month period as if the Shareholder Debt
Conversion had been consummated on January 1, 1995.
(4) Assumes the consideration for the Pending Acquisitions will be at the
top end of the Company's estimated range of DM50,000,000 to
DM57,000,000.
(5) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(aa) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in the first quarter 1995 of unrealized
exchange rate gains or losses. Absent any hedging on the part of the
Company, the pro forma unrealized exchange rate gain for the first quarter
in 1995 would have been approximately DM7,552,000 ($5,114,000) due to the
substantial depreciation of the U.S. dollar against the Deutsche Mark in
the first quarter in 1995. The Company is considering entering into
transactions to hedge the risk of exchange rate fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Treasury Policies."
(bb) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
40
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 -- PRO FORMA FOR THE INFOSAT ACQUISITION, THE
SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE PENDING ACQUISITIONS:
(cc) To reflect the revenues of the cable systems acquired in the InfoSat
Acquisition for the period in the first quarter in 1996 prior to its
acquisition date and the Pending Acquisitions for the full first quarter in
1996.
(dd) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the InfoSat Acquisition for the period in the
first quarter in 1996 prior to its acquisition date and the Pending
Acquisitions for the full first quarter in 1996, net of anticipated savings
from the consolidations of office space and elimination of redundant
personnel.
(ee) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
InfoSat Acquisition for the period in the first quarter in 1996 prior to
its acquisition date and the Pending Acquisitions for the full first
quarter in 1996.
(ff) Interest expense is based upon the pro forma consolidated debt of the
Company, taking into account the Shareholder Debt Conversion and the
Offering and the application of the net proceeds therefrom, based on the
assumed interest rates indicated and taking into account the InfoSat
Acquisition and the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100,180,000 million at
13.625%)(1)..................................................... (5,039) (3,412)
Amortization of debt issuance costs(2)............................ (223) (151)
Adjustment to interest expense from Shareholder Debt
Conversion(3)................................................... 4,495 3,044
Additional interest expense from indebtedness incurred or acquired
in connection with the Pending Acquisitions(4).................. (806) (546)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 2,497 1,690
------- -------
Adjustment to interest expense.................................... 924 625
------- -------
Cash interest expense............................................. 1,691 1,145
Non-cash interest expense......................................... (767) (520)
</TABLE>
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(1)............................................ 5,039 3,412
Amortization of debt issuance costs(5).............................. 354 240
------ ------
5,393 3,652
</TABLE>
- ---------------
(1) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(2) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(3) Represents non-cash interest expense on the Subordinated Shareholder
Loans during the three-month period, as if the Shareholder Debt
Conversion had been consummated on January 1, 1996.
(4) Assumes the consideration for the pending acquisitions will be at the
top end of the Company's estimated range of DM50,000,000 to
DM57,000,000.
41
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(5) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(gg) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in the first quarter in 1996 of unrealized
exchange rate gains or losses. Absent any hedging on the part of the
Company, the pro forma unrealized exchange rate loss for the first quarter
in 1996 would have been approximately DM4,361,000 ($2,953,000) due to the
substantial appreciation of the U.S. dollar against the Deutsche Mark in
the first quarter in 1996. The Company is considering entering into
transactions to hedge the risk of exchange rate fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Treasury Policies."
(hh) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
(ii) To reflect the acquisition of the net assets included in the Pending
Acquisitions assuming the acquisition price and acquired debt were paid
with borrowings under the Prior Facilities. The following represents the
preliminary allocation of the excess of purchase price over the historical
net book value of the acquired net assets of the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Pending Acquisitions
Purchase price.................................................... 53,526 36,249
Acquired net assets at book value (December 31, 1995)............. 4,316 2,923
-------- --------
Goodwill -- net................................................... 49,210 33,326
======= =======
</TABLE>
The adjustment to amortization of goodwill includes amortization over 12
years of the excess of purchase price over the historical net book value of
the net assets included in the Pending Acquisitions.
(jj) Represents estimated debt issuance costs of DM8,933,000 ($6,050,000) and
the other assets included in the Pending Acquisitions of DM1,229,000
($832,000).
(kk) Represents the repayment of the Prior Facilities using the net proceeds of
the Offering, in addition to debt to be borrowed to fund the Pending
Acquisitions and debt to be acquired in the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Prior Facilities..................................... 138,993 94,130
Purchase of Pending Acquisitions.................................. (53,526) (36,249)
Acquired debt from Pending Acquisitions........................... (3,500) (2,370)
------- -------
81,967 55,511
======= =======
</TABLE>
(ll) Represents gross proceeds of the issuance of Discount Notes of
$100,180,000 (DM147,926,000 converted at the March 29, 1996 Noon Buying
Rate of DM1.4766 = $1.00).
(mm) To reflect Shareholder Debt Conversion as if consummated on March 31, 1996.
42
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Since its inception in 1992, the Company has generated substantially all of
its revenues from monthly customer charges for basic cable service and, to a
significantly lesser extent, from installation income. The Company operates
solely within Germany and from its inception through April 1995 focused its
efforts on acquiring cable television systems located in the New German States.
During this period, the Company acquired five cable television companies and the
cable network assets of two additional cable television companies serving an
aggregate of approximately 162,600 customers (at the dates of the respective
acquisitions). Subsequent to April 1995, the Company began to make acquisitions
in the Old German States. From April 1995 through January 1996, the Company
acquired three cable television companies located in the Old German States
serving approximately 74,600 customers (at the dates of the respective
acquisitions). In addition, during such period the Company continued to acquire
cable television companies located in the New German States, acquiring an
additional three cable television companies and the cable network assets of one
additional cable television company serving an aggregate of approximately 88,000
customers (at the dates of the respective acquisitions).
The Company's revenues increased 105.0% in 1994 over 1993 and 636.3% in
1995 over 1994. These increases resulted primarily from acquisitions, although
they also reflect some improvements in the operating performance of the
Company's existing cable systems and increases in subscribers due to continued
build-out of cable systems and penetration in the Company's concession areas.
Operations, selling, general and administrative expenses have also increased
significantly due to the Company's growth through acquisitions. The significant
increase in depreciation and amortization expense is primarily due to the number
of acquisitions and to capital expenditures related to continued construction
and upgrading of the cable systems. Depreciation and amortization expense and
interest expense comprised the majority of the Company's expenses, contributing
significantly to the net losses reflected in the financial statements of the
Company.
In addition to other items, some of which are reflected in its statement of
operations data, the Company measures its financial performance by EBITDA. The
Company defines EBITDA as earnings (loss) before extraordinary items, minority
interests, net interest expense, income taxes and depreciation and amortization.
The Company believes that EBITDA is a meaningful measure of performance because
it is commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage and
liquidity. EBITDA is not a U.S. GAAP measure of income (loss) or cash flow from
operations and should not be considered as an alternative to net income as an
indication of the Company's financial performance or as an alternative to cash
flow from operating activities as a measure of liquidity.
43
<PAGE> 44
The following table sets forth, for the periods indicated, certain
statement of operations data and EBITDA in thousands of Deutsche Mark and as a
percentage of total revenues on a historical basis (audited for annual periods
and unaudited for quarterly periods) and on an unaudited pro forma basis.
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
YEAR ENDED
DECEMBER 31, 1995 1995 1996
---------------------------- ------------- ------------
FOR THE FOR THE FOR THE
RECENT RECENT INFOSAT
FOR THE ACQUISITIONS, ACQUISITIONS, ACQUISITION,
RECENT THE THE THE
ACQUISITIONS, SHAREHOLDER SHAREHOLDER SHAREHOLDER
HISTORICAL THE DEBT DEBT DEBT
-------------------------------------------- SHAREHOLDER CONVERSION, CONVERSION, CONVERSION,
THREE MONTHS DEBT THE OFFERING THE OFFERING THE OFFERING
YEAR ENDED DECEMBER 31, ENDED MARCH 31, CONVERSION AND THE AND THE AND THE
------------------------- ---------------- AND THE PENDING PENDING PENDING
1993 1994 1995 1995 1996 OFFERING ACQUISITIONS ACQUISITIONS ACQUISITIONS
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. 2,220 4,551 33,510 5,604 15,327 59,781 64,830 15,632 16,646
Operating costs and
expenses:
Operations.......... (219 ) (1,275) (6,663) (855 ) (2,919) (13,569) (14,312) (3,197) (3,113)
Selling, general and
administrative.... (987 ) (2,504) (14,465) (3,027) (4,370) (16,387) (17,289) (4,657) (4,606)
Depreciation and
amortization...... (1,460) (3,028) (23,685) (4,122) (10,731) (39,331) (45,054) (11,172) (12,225)
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total operating
expenses............ (2,666) (6,807) (44,813) (8,004) (18,020) (69,287) (76,655) (19,026) (19,944)
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Operating loss........ (446 ) (2,256) (11,303) (2,400) (2,693) (9,506) (11,825) (3,394) (3,298)
Interest expense:
Cash interest
expense........... (312 ) (812 ) (11,166) (1,771) (3,975) (5,961) (9,187) (2,296) (2,284)
Non-cash interest
expense........... (743 ) (3,048) (14,177) (2,837) (4,626) (22,259) (22,259) (5,393) (5,393)
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Total............... (1,055) (3,860) (25,343) (4,608) (8,601) (28,220) (31,446) (7,689) (7,677)
Minority interest..... -- -- 118 21 27 113 113 21 27
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Net loss before income
tax
benefit and
extraordinary item.. (1,501) (6,116) (36,528) (6,987) (11,267) (37,613) (43,158) (11,062) (10,948)
Income tax benefit.... -- -- 916 -- 599 3,416 3,416 625 599
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Net loss before
extraordinary
item................ (1,501) (6,116) (35,612) (6,987) (10,668) (34,197) (39,742) (10,437) (10,349)
====== ====== ======= ====== ======= ========= ========== ========== =========
EBITDA................ 1,014 772 12,382 1,722 8,038 29,825 33,229 7,778 8,927
====== ====== ======= ====== ======= ========= ========== ========== =========
AS A PERCENTAGE OF REVENUES
Revenues.............. 100.0 % 100.0 % 100.0% 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and
expenses:
Operations.......... 9.9 % 28.0 % 19.9% 15.3 % 19.1% 22.7% 22.1% 20.5% 18.7%
Selling, general and
administrative.... 44.4 % 55.0 % 43.1% 54.0 % 28.5% 27.4% 26.7% 29.8% 27.7%
Depreciation and
amortization...... 65.8 % 66.6 % 70.7% 73.5 % 70.0% 65.8% 69.5% 71.5% 73.4%
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Total operating
expenses............ 120.1 % 149.6 % 133.7% 142.8 % 117.6% 115.9% 118.3% 121.8% 119.8%
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Operating loss........ 20.1 % 49.6 % 33.7% 42.8 % 17.6% 15.9% 18.3% 21.8% 19.8%
Interest expense:
Cash interest
expense........... 14.0 % 17.8 % 33.3% 31.6 % 25.9% 10.0% 14.2% 14.7% 13.7%
Non-cash interest
expense........... 33.5 % 67.0 % 42.3% 50.6 % 30.2% 37.2% 34.3% 34.5% 32.4%
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Total interest
expense......... 47.5 % 84.8 % 75.6% 82.2 % 56.1% 47.2% 48.5% 49.2% 46.1%
Minority interest..... -- -- 0.4% 0.4 % 0.2% 0.2% 0.2% 0.1% 0.2%
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Net loss before income
tax benefit and
extraordinary
item................ 67.6 % 134.4 % 109.0% 124.7 % 73.5% 62.9% 66.6% 70.9% 65.7%
Income tax benefit.... -- -- 2.7% -- 3.9% 5.7% 5.3% 4.0% 3.6%
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
Net (loss) before
extraordinary
item................ 67.6 % 134.4 % 106.3% 124.7 % 69.6% 57.2% 61.3% 66.9% 62.1%
====== ====== ======= ====== ======= ========= ========== ========== =========
EBITDA................ 45.7 % 17.0 % 37.0% 30.7 % 52.4% 49.9% 51.2% 49.8% 53.6%
====== ====== ======= ====== ======= ========= ========== ========== =========
</TABLE>
44
<PAGE> 45
RESULTS OF OPERATIONS
Set forth below is a discussion and analysis of the Company's results of
operations for the three-month periods ended March 31, 1995 and 1996 and the
years ended December 31, 1993, 1994 and 1995. Because the Company has completed
14 acquisitions since its inception in 1992, the Company believes that
period-to-period comparisons of its financial results to date are not
necessarily meaningful. To facilitate analysis, the discussion of year 1994
versus year 1995 includes: (i) historical data reflecting the inclusion of the
acquisitions in 1994 and 1995 as of the respective dates of such acquisitions;
(ii) pro forma statement of operations data reflecting the Recent Acquisitions,
the Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom; and (iii) pro forma statement of operations data reflecting
the Recent Acquisitions, the Shareholder Debt Conversion and the Offering and
the application of the net proceeds therefrom and the Pending Acquisitions. Pro
forma data has been calculated as set forth in "Unaudited Pro Forma Condensed
Consolidated Financial Data." The Pending Acquisitions are at different stages
of negotiation and, although the Company considers consummation of both of these
transactions to be probable, there can be no assurance that the Company will
consummate either of such acquisitions on the terms set forth in the respective
letters of intent, if at all. See "Business -- Acquisitions and Pending
Acquisitions."
THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
The following discussion compares historical results of operations for the
first quarters of 1995 and 1996. A separate pro forma discussion is not
presented, as all of the Recent Acquisitions (which include the InfoSat
Acquisition) are reflected in the historical data for the first quarter of 1996.
See "Unaudited Pro Forma Condensed Consolidated Financial Data."
Revenues. Revenues increased 173.5% from DM5,604,000 in the first quarter
of 1995 to DM15,327,000 in the first quarter of 1996. This increase was
primarily attributable to a 148.8% increase (from 143,611 to 357,352) in the
average monthly number of customers and a 9.9% increase (from DM13.01 to
DM14.30) in the average monthly revenue per customer from the first quarter of
1995 to the first quarter of 1996. The increase in average monthly number of
customers was primarily related to the Recent Acquisitions, which, as of the
respective dates of the acquisitions, collectively served approximately 283,500
customers. In addition, the Company acquired approximately 16,600 additional
customers by building out its existing systems. Approximately 75% of the
increase in the average monthly revenue per customer is attributable to higher
average monthly revenue per customer in the systems acquired in the Recent
Acquisitions. The remaining 25% of the increase in average monthly revenue per
customer is attributable to rate increases implemented in the first quarter of
1996.
Operations. Operations expenses consist principally of signal delivery
fees paid to Deutsche Telekom for the provision of programming and the rental of
the principal transmission lines to the home, wages and benefits of technicians
and fees paid to sub-contracted service firms for the repair and maintenance of
Company-owned cable networks and head-ends and for connecting additional
subscribers, and the costs of related materials consumed in these maintenance,
repair and connection activities. Operations expenses increased significantly
from approximately DM855,000 in the first quarter of 1995 to DM2,919,000 in the
first quarter of 1996, principally as a result of the increased number of
personnel acquired in the Recent Acquisitions, increased maintenance associated
with a larger customer base and increased costs under the Company's signal
delivery contracts with Deutsche Telekom due to the Company's ownership of Level
4 or B1-Model Systems (as defined in "Industry -- Regulatory and Operating
Environment") in Osnabruck. Signal delivery fees for these systems represent a
higher percentage of revenues than applies to the Company's remaining systems,
which are predominantly Level 2 or Level 3 Systems (as defined in "Industry --
Regulatory and Operating Environment"), because the signal delivery fees for
such Level 4 or B1-Model Systems include a fee for the rental of Deutsche
Telekom's principal transmission lines to the home.
Selling, general and administrative. Selling, general and administrative
expenses consist principally of professional fees, salaries, wages and benefits
of non-technical employees, rental of office space, travel costs and office
related expenses. Selling, general and administrative expenses increased by
44.4% from DM3,027,000 in the first quarter of 1995 to DM4,370,000 in the first
quarter of 1996, principally as a result of
45
<PAGE> 46
increases in legal and financial consulting costs related to acquisition due
diligence, as well as the development of accountancy and other in-house
functions. As a percent of revenue, selling, general and administrative expenses
declined from 54% of revenues to approximately 29% of revenues, reflecting
higher revenue per subscriber and improved efficiencies.
Depreciation and amortization. Depreciation and amortization expenses
consist of depreciation of property, plant and equipment and amortization of
goodwill. Depreciation and amortization increased 160.3% from DM4,122,000 in the
first quarter of 1995 to DM10,731,000 in the first quarter of 1996 principally
as a result of amortization of goodwill associated with the Recent Acquisitions.
Interest expense. Interest expense increased 86.7% from DM4,608,000 in the
first quarter of 1995 to DM8,601,000 in the first quarter of 1996 as a result of
additional indebtedness incurred under the Prior Facilities, which increased
from DM78,049,000 at March 31, 1995 to DM237,500,000 at March 31, 1996, and
Subordinated Shareholder Loans, which increased from DM85,020,000 at March 31,
1995 to DM177,134,000 at March 31, 1996. Of the interest accrued in the first
quarter of 1996, DM4,495,000 related to non-cash interest on Subordinated
Shareholder Loans, which was subsequently contributed to the equity of
Kabelmedia as part of the Shareholder Debt Conversion.
Net loss before extraordinary item. Net loss before extraordinary item
increased 52.7% from DM6,987,000 in the first quarter of 1995 to DM10,668,000 in
the first quarter of 1996 as a result of the factors discussed above.
EBITDA. EBITDA increased significantly from DM1,722,000 for the three
months ended March 31, 1995 to DM8,038,000 for the three months ended March 31,
1996, primarily as a result of revenues increasing at a faster rate than
operating costs and expenses. The Company's EBITDA margin improved from 30.7% to
52.4% reflecting the results of factors discussed above.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Historical results
Revenues. Revenues increased 636.3% from DM4,551,000 in 1994 to
DM33,510,000 in 1995. This increase was primarily attributable to a 454.4%
increase (from 40,494 to 224,516) in the average monthly number of customers
between 1994 and 1995 and a 32.8% increase (from DM9.37 to DM12.44) in the
average monthly revenue per customer. The increase in the average monthly number
of customers was principally related to the 1995 Acquisitions of systems which,
as of the respective dates of acquisition, collectively served approximately
270,000 customers, representing approximately 95.0% of such subscriber growth in
1995. In addition, the Company acquired approximately 14,200 additional
customers by building out its existing systems and increasing the penetration of
such systems, which represented approximately 5.0% of such subscriber growth.
The increase in the average monthly revenue per customer is principally related
to the higher average monthly revenue per customer of systems acquired in the
1995 Acquisitions and to a lesser extent selective rate increases implemented in
the Company's cable operations acquired in 1993 and 1994.
Operations. Operations expenses increased 422.6% from DM1,275,000 in 1994
to DM6,663,000 in 1995, principally as a result of the inclusion of these costs
related to companies acquired in the 1995 Acquisitions. Operations expenses of
companies acquired in the 1995 Acquisitions were DM5,344,000. Operations
expenses in 1995 included a non-recurring charge of approximately DM325,000 for
the write-down of obsolete inventory comprising a portion of the assets of
companies acquired in 1995.
Signal delivery fees paid to Deutsche Telekom increased significantly from
DM180,000 in 1994 to DM2,250,000 in 1995. DM732,500 of the Deutsche Telekom
signal delivery fees relate to three months' ownership of Level 4 or B1-Model
Systems in Osnabruck (acquired at the end of September 1995). Signal delivery
fees for these systems represent a higher percentage of revenues than applies to
the Company's remaining systems, which are predominantly Level 2 or Level 3
Systems, because the signal delivery fees for such Level 4 or B1-Model Systems
include a fee for the rental of Deutsche Telekom's principal transmission lines
to the home.
46
<PAGE> 47
Selling, general and administrative. Selling, general and administrative
expenses increased 477.7% from DM2,504,000 in 1994 to DM14,465,000 in 1995
principally as a result of the inclusion of the companies acquired in the 1995
Acquisitions. Selling, general and administrative expenses of companies acquired
in 1995 amounted to DM6,955,000. Selling, general and administrative expenses in
1995 included approximately DM2,900,000 of consulting, reorganization and
acquisition search related expenses.
Depreciation and amortization. Depreciation and amortization expenses
increased 682.2% from DM3,028,000 in 1994 to DM23,685,000 in 1995 as a result of
the increase in amortization of goodwill associated with the 1995 Acquisitions,
a full year of amortization associated with the acquisitions made in 1994 (the
"1994 Acquisitions"), increases in depreciation related to such acquisitions and
capital expenditures associated with construction activities.
Interest expense. Interest expense increased from DM3,860,000 in 1994 to
DM25,343,000 in 1995, primarily as a result of the Company drawing down
additional bank debt and incurring additional Subordinated Shareholder Loans
(which increased from DM63,584,000 to DM172,638,000) to finance the 1995
Acquisitions. Of the interest incurred in 1995, DM13,652,000 related to non-cash
interest on Subordinated Shareholder Loans, which was subsequently contributed
to the equity in Kabelmedia as part of the Shareholder Debt Conversion. Also
included in interest was DM515,000, representing a non-cash expense associated
with the amortization of loan origination fees.
Net loss before extraordinary item. Net loss before extraordinary item
increased from DM6,116,000 in 1994 to DM35,612,000 in 1995 as a result of the
factors discussed above.
Extraordinary item. Extraordinary item consists of the write-off of a
portion of the loan origination fees paid in 1994 to the Company's banks in
connection with the Company's 1994 bank facility. This facility was refinanced
and replaced by its 1995 bank facility, and the unamortized portion of such loan
origination fees, in the amount of DM2,670,000, was written off.
Net loss. Net loss increased from DM6,116,000 in 1994 to DM38,282,000 in
1995 as a result of the factors discussed above.
EBITDA. EBITDA increased from DM772,000 in 1994 to DM12,382,000 in 1995.
This increase was principally due to the 636.3% increase in revenues in 1995
compared to 1994, primarily as a result of the 1995 Acquisitions and the
reduction in the percentage of revenue of operations expenses (from 28.0% to
19.9%) and selling, general and administrative expenses (from 55.0% to 43.1%).
The reductions in these expense categories as a percentage of revenues were
primarily attributable to the elimination by the Company of duplicative
personnel and office locations and administrative functions in furtherance of
the Company's consolidation strategy. The Company's EBITDA margin improved
substantially from 17.0% to 37.0%.
Pro Forma results
On a pro forma basis for the Recent Acquisitions, the Shareholder Debt
Conversion and the Offering and the application of the net proceeds therefrom,
revenues for 1995 would be DM59,781,000 compared to historical revenues of
DM33,510,000, due to the pro forma impact of reflecting the revenues for the
Recent Acquisitions for the full year. Total pro forma operating expenses of
DM69,287,000 represent 115.9% of pro forma revenues, compared to historical
operating expenses of DM44,813,000, representing 133.7% of historical revenues.
Pro forma operations expenses include DM4,000,000 of Deutsche Telekom signal
delivery fees relating to the Company's Level 4 or B1-Model Systems in
Osnabruck, which are higher as a percentage of revenues than is the case for the
Company's other systems, since the signal delivery fees for Osnabruck include a
fee for the rental of Deutsche Telekom's principal transmission lines to the
home. Such lower pro forma total operating expenses as a percentage of revenues
principally reflect reduced pro forma selling, general and administrative
expenses and, to a lesser extent, reduced pro forma depreciation and
amortization, in each case as a percentage of pro forma revenues. Pro forma
selling, general and administrative expenses are lower as a percentage of
revenues due to the impact of significantly higher revenues and savings
(reflected as DM5,010,000 in the pro forma statement of operations) resulting
from the consolidation of acquired systems following their acquisition to
improve operating performance. Included in 1995 historical and pro forma
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operations expenses and selling, general and administrative expenses are
DM325,000 in write-downs of obsolete inventory and DM2,900,000 of consulting,
reorganization and acquisition search related expenses. Pro forma 1995 interest
expense would be DM28,220,000 compared to historical interest expense of
DM25,343,000, due to higher levels of indebtedness and higher average interest
rates resulting from the Offering and the application of proceeds to repay bank
debt, offset by the Shareholder Debt Conversion. However, pro forma cash
interest expense would decline by DM5,205,000 compared to historical cash
interest expense. DM22,259,000 of the pro forma 1995 interest expense is
non-cash expense, attributable to the Discount Notes (DM20,841,000) and
amortization of bank financing fees (DM1,418,000). Pro forma net loss before
extraordinary item would be DM34,197,000 compared to historical net loss before
extraordinary item of DM35,612,000 as a result of the items discussed above. Pro
forma EBITDA for 1995 would be DM29,825,000, representing an EBITDA margin of
49.9%, compared to historical EBITDA of DM12,382,000, representing an EBITDA
margin of 37.0%. The significant improvement in EBITDA margin reflected in the
pro forma statement of operations is due primarily to significantly higher
revenues and lower selling, general and administrative expenses as a percentage
of revenues.
On a pro forma basis for the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom and
the Pending Acquisitions, revenues for 1995 would be DM64,830,000 compared to
historical revenues of DM33,510,000. Due to the pro forma effect of reflecting
revenues for the Recent Acquisitions and Pending Acquisitions for the full year,
total pro forma operating expenses of DM76,655,000 would represent 118.3% of pro
forma revenues, compared to total historical operating expenses of DM44,813,000,
representing 133.7% of historical revenues. Pro forma interest expense would be
DM31,446,000, compared to historical interest expense of DM25,343,000, due to
higher levels of indebtedness and higher average interest rates resulting from
the Offering, offset in part by the Shareholder Debt Conversion. Pro forma cash
interest would decline by DM1,979,000 to DM9,187,000 compared to historical cash
interest of DM11,166,000. DM22,259,000 of pro forma interest expense would be
non-cash as compared to historical non-cash interest expense of DM14,177,000.
The increase is attributable to the Discount Notes and amortization of debt
issuance costs related to the Offering, which exceed the reduction in non-cash
interest expense as a result of the Shareholder Debt Conversion. Pro forma net
loss before extraordinary item would be DM39,742,000 compared to historical net
loss before extraordinary item of DM35,612,000, as a result of the items
discussed above. Pro forma EBITDA would be DM33,229,000 representing a 51.2%
EBITDA margin, compared to historical EBITDA of DM12,382,000, representing a
37.0% EBITDA margin on a historical basis. The significant improvement in EBITDA
margin reflected in the pro forma statement of operations is due primarily to
significantly higher revenues and lower selling, general and administrative
expenses as a percentage of revenues.
YEARS ENDED DECEMBER 31, 1993 AND 1994
Revenues. Revenues increased 105.0% from DM2,220,000 in 1993 to
DM4,551,000 in 1994. This increase was primarily attributable to an 102.3%
increase (from 20,017 to 40,494) in the average monthly number of customers
between 1993 and 1994 and a modest increase (from DM9.24 to DM9.37) in the
average monthly revenue per customer. The increase in the average monthly number
of customers was principally related to the 1994 Acquisitions, which, as of the
respective dates of acquisition, collectively served approximately 34,000
customers. In addition, the Company acquired approximately 2,000 additional
customers by building out its existing systems and increasing the penetration of
such systems, which represented approximately 5.6% of such subscriber growth.
The increase in average monthly revenue per customer was principally a result of
rate increases implemented in the Company's first cable television company,
which was acquired in April 1993, and an increase in the number of customers who
subscribed to extended basic services. The acquired company's revenue for
December 1994 was approximately 32.0% higher than that for December 1993. The
increase in the Company's average monthly revenue per customer was partially
offset by the lower average monthly revenue per customer of the cable systems
acquired in the 1994 Acquisitions.
Operations. Operations expenses increased from DM219,000 in 1993 to
DM1,275,000 in 1994, principally as a result of the increased number of
personnel acquired in the 1994 Acquisitions, increased
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maintenance associated with a larger customer base and increased costs under
Deutsche Telekom signal delivery agreements due to the larger customer base.
Selling, general and administrative. Selling, general and administrative
expenses increased from DM987,000 in 1993 to DM2,504,000 in 1994, principally as
a result of a substantial increase in legal and financial consulting costs
related to the 1994 Acquisitions, as well as the development of accounting and
other in-house functions during the Company's early growth stage.
Depreciation and amortization. Depreciation and amortization expenses
increased from DM1,460,000 in 1993 to DM3,028,000 in 1994 as a result of the
amortization of goodwill associated with the 1994 Acquisitions, increases in
depreciation related to such acquisitions and capital expenditures associated
with construction activities.
Interest Expense. Interest expense increased from DM1,055,000 in 1993 to
DM3,860,000 in 1994, primarily as a result of DM98,662,000 of additional
indebtedness incurred under the Company's bank facilities (which increased from
DM7,267,000 to DM47,178,000) and Subordinated Shareholder Loans (which increased
from DM4,833,000 to DM63,584,000) to finance the 1994 Acquisitions. Interest
expense in 1994 also includes amortization of financing fees and facilities
payments under the Company's bank facilities.
Net loss before extraordinary item and net loss. Net loss before
extraordinary item and net loss increased from DM1,501,000 in 1993 to
DM6,116,000 in 1994 as a result of the factors discussed above.
EBITDA. EBITDA decreased from DM1,014,000 in 1993 to DM772,000 in 1994.
This decrease was principally due to operations and selling, general and
administrative costs increasing faster than revenues due to the increased number
of personnel and increased legal and financial consulting expenses.
INCOME TAXES
The Company paid no income taxes in 1993, 1994 or 1995 as a result of the
losses it has incurred. At December 31, 1995, the Company had net operating loss
carryforwards for German corporate and trade tax purposes of approximately
DM58,797,000 and DM49,765,000, respectively, which have no time limitation in
respect of their usage. See note 7 to the consolidated financial statements of
the Company included in this Prospectus.
TREASURY POLICIES
To date, the Company's results of operations have not been significantly
affected by exchange rates because substantially all of its revenues, operating
expenses and interest expense has been in Deutsche Mark. The Company expects to
obtain a portion of its financing from the sale of the Discount Notes, which
will be denominated in U.S. dollars, and therefore the Company will encounter
currency exchange rate risk. See "Risk Factors -- Currency Risk and Hedging
Activities." The Company is considering entering into transactions to hedge the
risk of exchange rate fluctuations. Derivative products will not be used to
enhance returns.
Certain of the Company's expenses, principally for wages and benefits as
well as for equipment repair and replacement, generally increase with inflation.
However, the Company does not believe that its financial results have been
materially adversely affected by inflation because the Company has been able to
increase its rates and thereby pass on the impact of inflation to its
subscribers, as generally permitted under the Company's concession and franchise
agreements and terms and conditions with customers. See "Business -- Concession
and Franchise Agreements."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on three sources for necessary funding:
(i) borrowings under its bank facilities; (ii) loans and contributions from
equity investors; and, to a lesser extent, (iii) cash flow from operations.
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At March 31, 1996, the Company's aggregate consolidated indebtedness was
approximately DM420,700,000, comprised of DM243,566,000 of debt to banks and
DM177,134,000 of Subordinated Shareholder Loans. After giving effect to the
Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom as if such transactions had occurred on March 31, 1996, the
Company's aggregate consolidated indebtedness on a pro forma basis would have
been approximately DM252,499,000. After giving effect to the foregoing and the
Pending Acquisitions as if such transactions had occurred on March 31, 1996, the
Company's aggregate consolidated indebtedness on a pro forma basis would have
been approximately DM309,525,000. From the Company's inception through March 31,
1996, it received approximately DM191,000,000 in advances from its equity
investors, of which DM18,187,000 had been in the form of equity capital and
DM177,134,000 had been in the form of Subordinated Shareholder Loans, which
included DM20,664,000 of accrued non-cash interest. A further advance of
DM10,199,000 was made to the Company by the Shareholders on May 30, 1996 and the
Subordinated Shareholder Loans increased accordingly. The Subordinated
Shareholder Loans were subsequently contributed to the equity of the Company in
the Shareholder Debt Conversion. The Company generated cash flows from operating
activities of DM1,801,000, DM1,078,000 and DM3,248,000 for the years ended
December 31, 1993 and 1994 and the quarter ended March 31, 1996, respectively,
and was a net user of DM2,124,000 of cash in 1995. The Company used cash in
investing activities of DM11,621,000, DM88,880,000, DM129,993,000 and
DM14,947,000 for the years ended December 31, 1993, 1994 and 1995 and the
quarter ended March 31, 1996, respectively. Such cash uses were principally
related to acquisitions. Net cash provided by financing activities amounted to
DM9,843,000, DM90,201,000, DM137,505,000 and DM10,130,000 for the years ended
December 31, 1993, 1994, 1995 and the quarter ended March 31, 1996,
respectively. Such cash was principally provided by proceeds from bank debt and
Subordinated Shareholder Loans. Cash flows from operating and financing
activities have been sufficient to meet the Company's debt service, working
capital and capital expenditure requirements, including the purchase cost of
prior acquisitions.
Capital expenditures of DM6,635,000, DM5,617,000 and DM10,955,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, and DM2,891,000 for
the three months ended March 31, 1996 have been related to the continued
construction, expansion and upgrading of existing systems. Over the three-year
period ended December 31, 1995, the Company has added 19,000 customers by
building out its existing systems and increasing penetration of such systems.
The Company has only minimal commitments to make capital expenditures under the
terms of concession or franchise agreements or otherwise, but anticipates that
it will continue to increase its capital expenditures in the near future to
further upgrade existing cable systems and to expand and upgrade new cable
systems once they have been acquired. To the extent cash flow is not sufficient
to fund its capital expenditures, the Company expects to borrow necessary funds
under the Bank Facility.
Substantial amounts of depreciation and amortization expense and accretion
of non-cash interest expenses are expected to continue to contribute to the net
losses experienced by the Company. These expenses, however, do not result in an
outflow of cash.
The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
amounts in each period are not solely available to satisfy cash interest expense
amounts payable by the Company and may also be required for other corporate
purposes, including increases in working capital, principal payments on debt and
capital expenditures. After giving effect to the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom as if such transactions had occurred on January 1, 1995, pro
forma EBITDA would have been approximately DM29,825,000 for the year ended
December 31, 1995. After giving effect to the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom and the Pending Acquisitions as if such transactions had
occurred on January 1, 1995, pro forma EBITDA would have been approximately
DM33,229,000 for the year ended December 31, 1995. After giving effect to the
InfoSat Acquisition, the Shareholder Debt Conversion, the Offering and the
application of the net proceeds therefrom and the Pending Acquisitions as if
such transactions had occurred on January 1, 1996, pro forma EBITDA would have
been approximately DM8,927,000 for the quarter ended March 31, 1996. See "Risk
Factors -- Deficiency of Earnings to Fixed Charges." Cash interest expense on a
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pro forma basis for the Recent Acquisitions, the Shareholder Debt Conversion and
the Offering would have been DM5,961,000 for the year ended December 31, 1995.
Cash interest expense on a pro forma basis for the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions would
have been DM9,187,000 for the year ended December 31, 1995. Cash interest
expense on a pro forma basis for the InfoSat Acquisition, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom and
the Pending Acquisitions would have been DM2,284,000 for the quarter ended March
31, 1996.
After the closing of the Offering and the application of the net proceeds
therefrom (assuming such net proceeds are translated at a rate of DM1.4766 =
$1.00, the Noon Buying Rate on March 29, 1996), the Company expects to have
DM98,507,000 outstanding under its new DM400,000,000 Bank Facility. The Company
anticipates that upon the closing of the Bank Facility, unamortized bank
financing fees relating to its existing facility will be fully written off in
1996 resulting in a non-cash extraordinary loss of approximately DM5,429,000.
For a discussion of the Bank Facility, see "Description of Certain
Indebtedness." Future acquisitions and capital expenditures may require the
Company to borrow additional amounts or obtain equity financing. The Company's
ability to secure additional debt or equity financing will be restricted by the
terms of its outstanding indebtedness, including the Bank Facility and the
Indenture.
Although the Company has not historically generated earnings sufficient to
cover fixed charges, the Company expects that it will continue to generate cash
flow which, together with its existing financing commitments under the Bank
Facility, will be sufficient to meet its debt service, working capital and
capital expenditure requirements for the foreseeable future.
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INDUSTRY
Germany is the largest cable television market in Europe, with a population
of over 81 million people and over 36 million homes. Deutsche Telekom cable
television distribution systems, either directly or indirectly through private
cable system operators, passed approximately 24 million homes and served over 15
million cable subscribers as of September 30, 1995. Deutsche Telekom provides
cable television signals to over 5,000 cable system operators with over 100
subscribers each and over 475 cable system operators with over 1,000 subscribers
each. In addition, a large number of German cable system operators also obtain
their programming directly through their own head-ends and provide that
programming to a significant number of additional homes in Germany.
Additionally, as of December 31, 1995, Germany had approximately 6.8 million
homes served by DTH satellite and SMATV systems.
Although the German cable industry shares many characteristics with the
U.S. cable industry, due to differences in the regulatory and operating
environments, differing demographic and customer characteristics, and the
relatively recent reunification of the Old and New German States, the German
cable industry has developed several distinguishing characteristics.
REGULATORY AND OPERATING ENVIRONMENT
The characteristics of the German cable television industry have been
influenced by the regulatory environment in which the industry operates. German
law provides that Deutsche Telekom, the legal successor of Deutsche Bundespost
Telekom, has in effect a right of first refusal to provide cable infrastructure
and cable television services to all new (i.e., uncabled) areas. However, in
accordance with the Gemeinsame Erklarung von Bundespost und Handwerk dated June
1983, Deutsche Telekom has generally agreed to limit its ownership of cable
infrastructure to those portions located on or in public land. The cabling
inside the private households is generally owned and operated by private cable
companies or, in certain circumstances, the owner of the building. See "Certain
Regulatory Matters." Accordingly, three levels of cable system integration have
developed in Germany.
LOGO
To the extent that Deutsche Telekom has exercised its right of first
refusal with respect to an area, Deutsche Telekom owns and operates the head-end
and the principal transmission lines, and the role of private cable systems
operators generally is limited to extending the cable system from the end of the
principal transmission line at the "front door" of the home, billing the
subscriber, debt collection and customer
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management (a "Level 4 System," referred to in Germany as a "B1-Model System").
In those cases where Deutsche Telekom does not exercise its right of first
refusal with respect to a particular area, private cable system operators are
permitted to establish cable systems similar to those found in the United States
and the United Kingdom, where the operator owns and operates the entire cable
system, from the head-end through the in-house connections (a "Level 2 System").
Approximately 58% of the Company's customers are served by Level 2 Systems.
Notwithstanding this right, many private cable system operators have entered
into signal delivery contracts with Deutsche Telekom in lieu of owning and
operating their own head-end (a "Level 3 System"). Private cable system
operators operating Level 3 or Level 4 Systems are required to pay Deutsche
Telekom a fee for access to Deutsche Telekom's network. Such charges and fees
are not payable to Deutsche Telekom by operators of Level 2 Systems, which are
owned and operated entirely by the cable system operators. The program
generation and transmission are referred to as a "Level 1 System." The Company
does not own or operate any Level 1 Systems. See "Business -- Systems."
Deutsche Telekom is by far the largest cable television system operator in
Germany. In the Old German States, Deutsche Telekom has exercised its right of
first refusal with respect to substantially all communities with over 10,000
inhabitants. Consequently, substantially all private cable systems in the Old
German States are either Level 4 Systems or systems serving communities with
less than 10,000 inhabitants. In contrast, Deutsche Telekom has not exercised
its right of first refusal in the majority of cases in the New German States.
Consequently, many of the communities in the New German States are served by
private cable systems operating either Level 2 or Level 3 Systems.
The German regulatory system has also indirectly influenced the
relationship between cable system operators and suppliers of programming. Unlike
the United States and the United Kingdom where the fees paid by cable system
operators for access to satellite programming are often a significant component
of operating cost, this has not been the case in Germany, where programming
costs have historically been very low. Deutsche Telekom pays an annual fee to a
German copyright royalty collecting society in respect of the retransmission of
terrestrial broadcasting on its cable network. Deutsche Telekom has advised the
Company that it believes payment of this license fee permits Deutsche Telekom to
allow private cable system operators connected to Deutsche Telekom signal
delivery points to retransmit that terrestrial broadcasting on their cable
systems. The relevant copyright fee collecting society has expressed the
contrary view, and has asserted that further royalties could be assessed to
private cable system operators retransmitting terrestrial broadcasting received
via Deutsche Telekom signal delivery points. Aside from this license fee,
Deutsche Telekom has advised that it pays nothing for either terrestrial or
satellite programming carried on its cable network. If the belief of Deutsche
Telekom in respect of the license fee it pays for terrestrial broadcasting is
correct, the Company believes it is appropriate to treat only a small portion of
the signal delivery payments made to Deutsche Telekom as a programming cost, but
if the position of the copyright fee collecting society is correct, the Company
believes it is appropriate to treat no portion of such signal delivery payments
as a programming cost. The Company further believes it is appropriate to treat
the remainder of the signal delivery fee paid to Deutsche Telekom as a network
rental charge in lieu of the cost of building and maintaining a head-end and
principal transmission lines to the home. Although this allocation by the
Company of signal delivery payments made by it to Deutsche Telekom between
programming cost and network rental fees does not affect operating results, the
Company believes such an allocation permits more meaningful comparisons to be
made of the relative significance of such operating expenses between the German
and other cable television markets. The Company attributes the historically low
cost of programming in the German cable television industry principally to a
combination of uncertainties in relation to Germany copyright protection of
retransmission rights in programming and the market strength of Deutsche Telekom
and private cable system operators as compared to that of broadcasters,
particularly satellite broadcasters, which the Company believes have sought to
increase market penetration and thereby enhance advertising revenues by
providing programming without charge and without assessing any copyright license
fees. German copyright royalty collecting societies have indicated to the
Company that they intend to seek to assess license fees for both terrestrial and
satellite broadcasting. See "Risk Factors -- Access to and Cost of Programming,"
"-- Copyright Royalty Fees" and "Business -- Programming."
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DEMOGRAPHIC AND CUSTOMER CHARACTERISTICS
Germany has an average population density of 562 persons per square mile,
compared to 70 persons per square mile in the United States and 616 persons per
square mile in the United Kingdom. Approximately 86% of Germany's population
resides in urban areas, compared to 75% in the United States and 89% in the
United Kingdom. See "Business -- The German Cable Television Market." In
addition to the cost savings resulting from the lower investment in cable plant
per home passed, such density enables cable operators in Germany to operate at a
lower cost because fewer technicians are required to service a given number of
customers. Further, the Company's churn rate is significantly lower than the
churn rates that generally prevail in either the United States or the United
Kingdom. The Company believes that the primary reasons for this lower churn rate
are that the population in Germany is less transient than that of the United
States, the wider use of preauthorized payment procedures in Germany than in the
United States and the United Kingdom, and the availability of fewer alternative
tiers of programming in Germany than in the United States and the United
Kingdom. Approximately 70% of the Company's customers pay their cable
subscription fees through preauthorized payment procedures, whereby an automatic
draw is made on such customer's bank account. The Company believes that
additional advantages of preauthorized payment procedures are lower billing
costs, less bad debt expense and lower churn rates.
REUNIFICATION OF THE OLD AND NEW GERMAN STATES
The cable television industry in the New German States has gone through
rapid change since German reunification in 1990. Prior to reunification, cable
television services in the New German States were provided primarily by
relatively small, government-owned community antennae television systems and
government-owned SMATV systems, with limited channel capacity and inferior
technology when compared with cable television systems in the Old German States.
After reunification, many of these systems were sold for nominal consideration
to the persons previously operating the systems, which resulted in a large
number of under-capitalized cable system operators offering inferior cable
services at relatively low cable subscription fees when compared with the Old
German States. Although many of these systems have been acquired by industry
consolidators and upgraded to increase quality and channel capacity, the
subscription fees for cable services in the New German States remain
significantly lower than those for similar services in the Old German States.
The Company believes that the cost of cable services in the New German States,
in common with the costs of many other services in the New German States, will
continue to converge with the costs of similar services in the Old German
States.
LIMITED PREMIUM PROGRAMMING
The market for premium programming services in Germany is in the early
stages of development, with only one German-language premium channel (Premiere)
currently being offered in Germany and less than 5% of cable subscribers as of
December 31, 1995 subscribing to such channel. The Company believes that the
principal reason for this low penetration of premium programming services in
Germany is consumer resistance to the fees charged by Premiere, which are
incremental to the combined governmental television license fee and subscription
fees charged for basic cable services. As of December 31, 1995, the monthly
subscription fee for Premiere was DM44 per month and customers were required to
pay an up-front deposit of DM120. This monthly fee was approximately twice the
highest basic cable subscription fee charged by Deutsche Telekom. Similarly,
virtually no pay-per-view services are currently being offered in Germany. The
Company believes that the introduction of pay-per-view services and additional
premium programming services in Germany could permit greater opportunities for
innovative packaging of tiered programming services and could create significant
opportunities for cable system operators to increase their revenue per
subscriber.
Premiere and a second potential market entrant, which, based on press
reports, the Company believes to be a consortium of program suppliers and DTH
(but not cable) system operators, have each announced that they expect to launch
multi-channel digital satellite pay television services in Germany during 1996,
and one or more additional competitors could emerge in this market. However, in
order to achieve meaningful penetration of this market, these programmers may
make digital satellite pay television services available to cable system
operators.
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FRAGMENTED AND CONSOLIDATING MARKET
Deutsche Telekom provides cable television signals to over 5,000 cable
system operators with over 100 subscribers each and to over 475 cable system
operators with over 1,000 subscribers each. In addition, a large number of
German cable system operators acquire their programming directly through their
own head-ends and provide that programming to a significant number of additional
homes in Germany. However, since the reunification of the Old and New German
States, the German cable television industry has been consolidating. In addition
to the Company, the industry consolidators include Veba Telekom GmbH, Bosch
Telekom GmbH, Urbana Systemtechnik AG & Co. and Suweda AG. See "Business --
Competition."
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BUSINESS
The Company acquires, owns and operates cable television systems that serve
primarily medium- and small-sized communities in Germany. Principally as a
result of completing 14 acquisitions since its inception in 1992, the Company
owned and operated cable systems passing approximately 492,000 homes and serving
approximately 359,000 customers as of March 31, 1996. In addition, the Company
has entered into non-binding letters of intent and commenced negotiations of
definitive purchase agreements in relation to the Pending Acquisitions of two
cable companies serving an aggregate of approximately 46,000 customers. See "--
Acquisitions and Pending Acquisitions."
The Company has followed a systematic approach in acquiring, consolidating
and operating cable television systems, based on the goal of increasing
operating cash flow while maintaining or improving service standards. A key
element of the Company's strategy is to expand its existing regional clusters of
cable television systems and to establish new regional clusters of systems large
enough to serve as cores for new operating regions. In addition, the Company
aggressively consolidates cable systems following their acquisition to improve
operating performance by eliminating duplicative personnel and office locations,
creating regional customer service centers and signal distribution facilities
and centralizing corporate support functions, including accounting, billing,
marketing and technical and administration services. Between January 1, 1994 and
March 31, 1996, the Company completed 12 acquisitions, thereby adding cable
systems serving approximately 317,500 customers (measured at the date of the
respective acquisitions), while reducing the number of office locations serving
customers of such acquired systems and the Company's other systems from 25 to
seven and the number of employees serving such acquired systems and the
Company's other systems from 211 to 125.
The Company's cable television systems are organized into six operating
regions: the Plauen Region, the Leipzig Region, the Berlin Region and the
Dresden Region, all of which are located within the New German States, and the
Stuttgart Region and the Osnabruck Region, both of which are located within the
Old German States. The following table sets forth certain information relating
to the Company's cable television systems within each of these regions as of
March 31, 1996.
<TABLE>
<CAPTION>
PLAUEN LEIPZIG BERLIN DRESDEN STUTTGART OSNABRUCK
REGION REGION REGION REGION REGION REGION TOTAL
------- ------- ------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed................... 36,367 199,354 46,650 49,611 79,886 79,995 491,863
Customers...................... 31,075 169,946 37,473 42,929 40,118 37,243 358,784
Penetration(1)................. 85.4% 85.2% 80.3% 86.5% 50.2% 46.6% 72.9%
</TABLE>
- ---------------
(1) Customers as a percentage of homes passed.
THE GERMAN CABLE TELEVISION MARKET
Germany is the largest cable television market in Europe and provides a
highly favorable environment for cable television system acquisitions and
operations:
- - Large, Fragmented Market -- Germany has a population of over 81 million
people and over 36 million homes. Deutsche Telekom is the dominant cable
television supplier; its cable television distribution systems, either
directly or indirectly through private cable system operators, passed
approximately 24 million homes and served over 15 million cable subscribers
as of September 30, 1995. Deutsche Telekom provides cable television
signals to over 5,000 cable system operators with over 100 subscribers each
and to over 475 cable system operators with over 1,000 subscribers each. A
large number of German cable system operators also acquire their
programming directly through their own head-ends and provide that
programming to a significant number of additional homes in Germany. This
large number of cable system operators provides the Company with
significant consolidation opportunities.
- - Built-out Infrastructure -- The German cable television market is
substantially built-out. As of September 30, 1995, Deutsche Telekom, either
directly or through cable transmission lines of private system operators,
passed approximately 64% of the homes in Germany. In addition, systems in
which the
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<PAGE> 57
head-end is owned by a private cable system operator pass or provide cable
signal to a significant number of additional homes in Germany. The Company
estimates that as of March 31, 1996, principal transmission lines passed
84% of the approximately 585,000 homes in its concession areas.
- - High Density -- Germany has an average population density of 562 persons per
square mile, compared to 70 persons per square mile in the United States
and 616 persons per square mile in the United Kingdom. Approximately 86% of
Germany's population resides in urban areas, compared to 75% in the United
States and 89% in the United Kingdom. In addition to the cost savings
resulting from the lower investment in cable plant per home passed, such
density is a factor which permits the Company to operate at a lower cost
because fewer technicians are required to service a given number of
customers.
- - Low Churn Rate -- The Company estimates that its churn rate has historically
been less than 5%, which is a significantly lower churn rate than those
which generally prevail in the U.S. and U.K. cable television industries.
The Company believes such lower churn rate to be due primarily to the
greater use of preauthorized payment procedures, fewer alternative tiers of
programming and, when compared with the United States, a less transient
population. See "-- Programming."
- - Wide Use of Preauthorized Payment Procedures -- Approximately 70% of the
Company's customers pay their subscription fees through preauthorized
payment procedures, whereby an automatic draw is made on such customer's
bank account. The Company believes that preauthorized payment procedures
result in lower billing costs, less bad debt expense and lower churn rates.
- - Low Programming Costs -- Historically, the Company's cost of programming as
a percentage of revenue has been nominal. Although such costs are expected
to increase due to several factors, including the possible imposition of
copyright royalty fees in respect of programming received on Company-owned
head-ends and pursuant to Deutsche Telekom signal delivery contracts (see
"Risk Factors -- Copyright Royalty Fees") and the increasing market
strength of certain program providers relative to that of Deutsche Telekom
and private cable system operators (see "Risk Factors -- Access to and Cost
of Programming"), the Company believes that for the foreseeable future, the
uncertain state of German copyright law and market conditions in the German
cable television industry will enable the Company and other German cable
system operators to maintain a level of programming costs as a percentage
of revenue which is relatively low as compared to cable television
operators in the United States and the United Kingdom. See "-- Programming"
and "Industry -- Regulatory and Operating Environment."
BUSINESS STRATEGY
The Company's objective is to enhance the value of its business by
capitalizing on opportunities presented by the large and fragmented German cable
television market. The Company's business strategy to achieve this objective
focuses on the following general principles:
- - Emphasis on Regional Clusters and Growth Through Acquisitions -- A key
element of the Company's strategy is to develop regional clusters of cable
television systems by acquiring cable systems that are either in close
proximity to its existing systems or large enough to serve as cores for new
operating regions. The Company has established significant regional
clusters of cable systems in the regions surrounding Plauen, Leipzig,
Berlin, Dresden, Stuttgart and Osnabruck. The Company is not aware of any
reliable or consistent published industry data on the relative size of
private cable system operators in Germany. However, on the basis of
discussions with competitors, the Company believes that with over 359,000
existing customers it is the fifth largest private cable system operator in
Germany in terms of customers (not including Deutsche Telekom, which is not
considered a private cable system operator). Approximately 46,000
additional customers are served by the systems expected to be acquired upon
consummation of the Pending Acquisitions, although no assurances can be
given as to when or if either of the Pending Acquisitions will be
consummated. The Company believes that its clustering strategy and the
scope of its operations have enabled it to reduce operating costs and
capital expenditures.
- - Enhancing Efficiency and Margins by Streamlining Operations -- Upon
completion of an acquisition, the Company generally implements extensive
management, operational and organizational changes designed to enhance
operating cash flow and operating margins. The Company's customer account
processing and
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administrative services for acquired cable systems are transferred to one
centralized location, thereby reducing redundant overhead costs.
- - Promoting Internal Growth -- The Company seeks to increase revenues in
acquired systems in a number of ways. In the New German States, where the
Company's rates for cable services are lower than in the Old German States
(approximately DM10 versus DM22 per month as of December 31, 1995), these
efforts generally consist of selective increases in rates for cable
services that are timed to coincide with published increases in various
cost of living indices or the introduction of new or improved programming,
which the Company believes improves customer acceptance of the rate
increases. In the Old German States, where penetration levels of the
Company's systems are lower than in the New German States (approximately
55% of homes passed versus 80% of homes passed), the Company focuses its
efforts on increasing penetration through marketing, including innovative
packaging of tiered cable television services. For the year ended December
31, 1995, the Company increased its number of customers by approximately
14,200 as a result of expanding its systems within concession areas or
increasing penetration, which contributed approximately 5% of the Company's
growth in customers in 1995, the remainder being customers acquired through
the acquisition of additional systems.
- - Technological Enhancement -- The Company strives to maintain high
technological standards in its cable television systems on a cost-effective
basis and continuously upgrades its cable systems to achieve this goal. The
Company monitors and evaluates new technological developments on the basis
of its ability to make optimal use of its existing assets and to anticipate
the introduction of new services and program delivery capabilities. As
substantially all of the Company's cable systems have bandwidths of at
least 450MHz, the Company believes that it is well-positioned to benefit
from the development of advertising, security and utility meter monitoring,
pay-per-view and home shopping services, as well as anticipated future
services, such as video games, video-on-demand and other interactive
communications, such as telephony. The Company currently does not intend to
offer telephony services via its cable television systems.
- - Customer Service Orientation -- Each of the Company's operating regions is
managed by a regional manager who is responsible for both customer and
technical service within his region and reports directly to Ernst Uhlig,
the Company's Chief Operating Officer. The Company believes that this flat
operating structure enables it to be more responsive to customer needs.
- - Ownership and Control of Systems -- The Company owns approximately 98% of
its cable television systems on an equity subscriber basis. The Company
owns 100% of each of its cable television systems, with the exception of
the Company's systems serving the communities of Osnabruck, Neuruppin and
Heidenau, which as of December 31, 1995 served approximately 25,111, 4,510
and 3,380 customers, respectively, and included approximately 61,090, 4,600
and 3,080 homes, respectively, in the Company's concession areas. The
Company has an 91%, 50% and 80% ownership interest in the systems serving
the communities of Osnabruck, Neuruppin and Heidenau, respectively.
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<PAGE> 59
SYSTEMS
The Company's cable television systems are organized into six operating
regions: the Plauen Region, the Leipzig Region, the Berlin Region and the
Dresden Region, all of which are located within the New German States, and the
Stuttgart Region and the Osnabruck Region, both of which are located within the
Old German States. The following table lists each of the acquisitions effected
by the Company and the location of the cable systems acquired as a result
thereof.
<TABLE>
<CAPTION>
ACQUISITION
DATE OPERATING REGION(S)
--------------- -------------------------
<S> <C> <C>
1993 ACQUISITIONS
Kabelfernsehen Plauen GmbH & Co. KG................ April 1993 Plauen
Adorf (asset purchase)............................. December 1993 Plauen
1994 ACQUISITIONS
Seemann GmbH....................................... March 1994 Dresden
ERKA I Erfurt (asset purchase)..................... March 1994 Leipzig
Kabelrent Gesellschaft fur den Vertrieb und Service March 1994 Leipzig
von Medientechnik mbH............................
Antech Gesellschaft fur Vermietung und Vertrieb von November 1994 Plauen, Leipzig, Berlin
Satelliten-und Kabelfernsehempfangsanlagen mbH...
1995 ACQUISITIONS
APA Basic Beteiligungsgesellschaft mbH............. January 1995 Berlin, Leipzig, Dresden
PKG Holding GmbH................................... January 1995 Berlin, Leipzig, Dresden
PKG Kabelbetriebsgesellschaft mbH ("PKG Mature January 1995 Berlin, Leipzig, Dresden
Networks").......................................
Kabel Plus Gesellschaft fur Kabel und May 1995 Stuttgart
Satellitenfernsehen mbH and Wiedmann-Dettwiler
St. Georgen GmbH.................................
TELECable Betriebsgesellschaft Halle mbH........... August 1995 Leipzig
BFR Beteiligungsgesellschaft mbH, Kabelcom GmbH and September 1995 Leipzig, Berlin, Dresden,
ISIT GmbH ("BFR Group").......................... Osnabruck
TKB Telekabel Betriebsgesellschaft mbH............. October 1995 Leipzig
ERKA II Erfurt (asset purchase).................... October 1995 Leipzig
KSW GmbH & Co. KG Kabel- und October 1995 Stuttgart
Satellitenempfangsanlagen fur Wohngebiete und
Kommunen.........................................
1996 ACQUISITION
info-Sat Elektro- und Kommunikationstechnik GmbH January 1996 Leipzig, Berlin
("InfoSat GmbH").................................
</TABLE>
Except for its Osnabruck and Gera cable systems, which are Level 4 or
B1-Model Systems where the Company owns only the drop cable running from the end
of the principal transmission line at the front door to the in-house
connections, all of the Company's cable systems are Level 3, where the Company
also owns the principal transmission line from the head-end to the front door,
or Level 2 Systems, where the Company owns the entire cable system, from the
head-end through the in-house connections. See "Industry -- Regulatory and
Operating Environment." The Company procures programming through signal delivery
agreements with Deutsche Telekom for its Level 3 and Level 4 Systems. The fees
paid under such signal delivery agreements are assessed by Deutsche Telekom on
either a flat fee or a per subscriber basis and currently vary among the
Company's systems and operating regions. In each of its operating regions, the
Company believes, based on its market research, that the number and line-up of
channels offered on its systems are competitive with those offered by cable
system operators in neighboring concession areas. See "-- Programming."
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<PAGE> 60
Plauen Region
The Plauen Region includes the first cable television system acquired by
the Company and the Company's corporate headquarters. As of March 31, 1996, the
Plauen Region systems passed approximately 36,000 homes and served approximately
31,100 customers. These systems serve primarily medium- and small-sized
communities primarily located in the southern portion of the New German States
of Thuringen and Sachsen. Approximately 74% of the Company's Plauen Region
customers were served by Level 2 Systems as of March 31, 1996. See "Industry."
As of March 31, 1996, the Company's Plauen Region Level 2 Systems were served by
31 head-ends, the largest of which provided service to approximately 23,420
customers. The Plauen Region systems carry between four and 29 channels and are
generally capable of distributing over 40 channels.
Leipzig Region
The Leipzig Region is the Company's largest region in terms of customers.
As of March 31, 1996, the Leipzig Region systems passed approximately 199,000
homes and served approximately 170,000 customers. These systems serve a mix of
large-, medium- and small-sized communities primarily located in the western
portion of Sachsen, Sachsen-Anhalt and the northern portion of Thuringen.
Approximately 41% of the Company's Leipzig Region customers were served by Level
2 Systems as of March 31, 1996. See "Industry." As of March 31, 1996, the
Company's Leipzig Region Level 2 Systems were served by 72 head-ends, the
largest of which provided service to approximately 18,370 customers. The Leipzig
Region cable systems carry between three and 41 channels and are generally
capable of distributing over 40 channels.
Berlin Region
As of March 31, 1996, the Company's Berlin Region cable systems passed
approximately 51,000 homes and served approximately 46,600 customers. These
systems serve primarily medium- and small-sized communities primarily located in
Brandenburg and Mecklenburg-Vorpommern. Approximately 79% of the Berlin Region
customers were served by Level 2 Systems as of March 31, 1996. See "Industry."
As of March 31, 1996, the Company's Berlin Region Level 2 Systems were served by
98 head-ends, the largest of which provided service to approximately 5,750
customers. The Berlin Region cable systems carry between six and 30 channels and
are generally capable of distributing over 40 channels.
Dresden Region
As of March 31, 1996, the Company's Dresden Region cable systems passed
approximately 49,600 homes and served approximately 43,000 customers. These
systems serve primarily medium- and small-sized communities primarily located in
Sachsen. Approximately 90% of the Dresden Region customers were served by Level
2 Systems as of March 31, 1996. See "Industry." As of March 31, 1996, the
Company's Dresden Region Level 2 Systems were served by seven head-ends, the
largest of which provided service to approximately 27,750 customers. The Dresden
Region systems carry between four and 31 channels and are generally capable of
distributing over 40 channels.
Stuttgart Region
The Company's Stuttgart Region cable systems are characterized by the
highest average revenue and cash flow per customer of all of the Company's cable
systems. As of March 31, 1996, the Stuttgart Region systems passed approximately
80,000 homes and served approximately 40,100 customers. These systems serve
primarily medium- and small-sized communities primarily located in
Baden-Wurttemberg and Hessen. Approximately 89% of the Stuttgart Region
customers were served by Level 2 Systems as of March 31, 1996. See "Industry."
As of March 31, 1996, the Company's Stuttgart Region Level 2 Systems were served
by 32 head-ends, the largest of which provided service to approximately 13,900
customers. The Stuttgart Region systems carry between 18 and 30 channels and are
generally capable of distributing over 40 channels.
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Osnabruck Region
As of March 31, 1996, the Company's Osnabruck Region cable systems passed
approximately 80,000 homes and served approximately 37,200 customers. These
systems serve primarily medium- and small-sized communities primarily located in
the northern portion of Nordrhein-Westfalen and the city of Osnabruck in
Niedersachsen. The Osnabruck Region includes the Company's only Level 4 or
B1-Model Systems. Approximately 12% of the Osnabruck Region customers were
served by Level 2 Systems as of March 31, 1996. See "Industry." As of March 31,
1996, the Company's Osnabruck Region Level 2 Systems were served by five
head-ends, the largest of which provided service to approximately 1,690
customers. The Company's cable systems in the Osnabruck Region carry between 23
and 31 channels and are generally capable of distributing over 40 channels.
ACQUISITIONS AND PENDING ACQUISITIONS
During the year ended December 31, 1995, the Company completed the
acquisition of six cable television companies serving an aggregate of
approximately 270,000 customers (measured at the date of the respective
acquisitions) in the regions of Leipzig, Berlin, Osnabruck and Stuttgart, and
during the first quarter of 1996 the Company completed the InfoSat Acquisition,
and thereby acquired systems serving approximately 13,500 customers. In
addition, the Company has entered into non-binding letters of intent in relation
to the Pending Acquisitions, pursuant to which the Company would acquire systems
serving an aggregate of approximately 46,000 customers in Thuringen and
Sachsen-Anhalt for an aggregate estimated consideration, including acquired
indebtedness, brokerage fees and closing costs, of between DM50 million and DM57
million, which the Company would borrow under the Bank Facility. There can be no
assurance that the Company will consummate either of the Pending Acquisitions.
Set forth below is certain information with respect to the Pending Acquisitions
provided by the respective sellers.
<TABLE>
<CAPTION>
SACHSEN-
THURINGEN ANHALT
--------- -------------
<S> <C> <C>
Homes passed..................................................... 30,100 20,110
Customers........................................................ 27,100 19,000
Penetration(1)................................................... 90.0% 94.5%
Monthly revenue per customer(2).................................. DM10.96 DM11.16
</TABLE>
- ---------------
(1) Customers as a percentage of homes passed.
(2) Consists of monthly revenue per customer supplied by the respective sellers
as of certain dates during the fourth quarter of 1995. Such information has
been subject to only limited verification by the Company and, in some
cases, has been calculated on a different basis than that used by the
Company.
Of the customers of the systems which would be acquired as part of the
Pending Acquisitions, approximately 16,000 are served by Level 3 Systems and
approximately 30,000 are served by Level 2 Systems. The cable systems comprising
the Pending Acquisitions are generally capable of distributing over 40 channels,
with bandwidths generally of at least 450MHz.
NETWORK CONFIGURATION
The Company emphasizes high technological standards in its cable television
systems and considers the application of new technology on the basis of
cost-effectiveness, enhancement of product quality and service delivery and
industry-wide acceptance.
As of December 31, 1995, substantially all of the Company cable systems had
bandwidths of at least 450MHz and were capable of distributing over 40 channels,
and over 80% of the Company's cable systems utilized star architecture.
The Company monitors and evaluates new technological developments on the
basis of its ability to make optimal use of its existing assets and to
anticipate the introduction of new services and program delivery capabilities.
The use of fiber optic cable as an enhancement to coaxial cable is playing a
significant role in
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<PAGE> 62
expanding channel capacity and improving the performance of cable television
systems. Fiber optic cable is capable of carrying hundreds of video, data and
voice channels. To date, the Company has chosen not to implement fiber optic
technology in its systems, primarily because virtually all of its systems have
substantial unused channel capacity, so that the Company does not believe the
cost of implementing fiber optic technology, which at present would be
underutilized, to be warranted. Based on discussions with suppliers of equipment
required to implement these technologies, the Company believes that private
cable system operators with which it competes have not implemented fiber optic
technology, except to a limited extent. Similarly, the Company generally does
not use addressable technology in its cable systems and, based on discussions
with relevant equipment suppliers, does not believe that its competitors have
introduced such technology other than on a modest basis. The principal benefits
of addressable or two-way technology include remote monitoring and extension of
access to selected programming and termination of service for non-payment. Due
to the low churn rate and limited amount of multiple premium programming tiers
and pay-per-view programming offered in Germany, the Company does not believe
that the cost of addressable technology is currently justified. See "Industry."
The Company intends to continue to assess the potential benefits of fiber optic
and addressable technologies.
New technological advances that are anticipated to become commercially
viable in the foreseeable future include digital compression and expanded
bandwidth amplifiers, which offer cable operators the potential for a dramatic
expansion of channel capacity, along with alternative communications delivery
systems. As these new technologies and related services become available, the
Company intends to assess their economic return and market demand, with the goal
of implementing additional services in a cost-effective manner.
PROGRAMMING
The Company's systems typically offer a choice of at least two tiers of
basic cable television programming service: a "lifeline" or "ground" tier
(consisting generally of network and public terrestrial television signals
available over the air in the franchise community) and a "standard package" or
basic satellite programming tier (consisting primarily of satellite-delivered
programming). Additionally, in certain markets, the Company offers either one or
two additional tiers of basic cable television programming service.
Approximately 90% of the Company's customers subscribed to at least the
"standard package" tier of service as of December 31, 1995. The following table
sets forth the programming currently offered on some or all of the Company's
cable systems.
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
NEWS AND INFORMATION -- LOCAL
Infotafel............................... Regional news
Infokanal............................... News and information
24-hour news
NEWS AND INFORMATION -- INTERNATIONAL
CNN International....................... 24-hour international news
Euronews................................ International news
Sky News................................ 24-hour UK news service
MUSIC
CMT..................................... Country music videos
MTV..................................... Music videos
VH-1.................................... Music videos for 25-49 age group
VIVA.................................... 24-hour German music channel
VIVA-2.................................. 24-hour German music channel
SPORTS
DSF..................................... German sports channel
Eurosport............................... European sports channel
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
INTERNATIONAL
A3...................................... French language programming (France)
Fr. Schweiz............................. French language programming (Switzerland)
FR1..................................... French language programming (France)
FR2..................................... French language programming (France)
Ital. Schweiz........................... Italian language programming (Switzerland)
NBC Super Channel....................... English language programming (US)
ORF1.................................... German language programming (Austria)
ORF2.................................... German language programming (Austria)
RAI Uno................................. Italian language programming (Italy)
RAI Due................................. Italian language programming (Italy)
SRG..................................... German language programming (Switzerland)
TNT..................................... English language programming (US)
TRT International....................... Turkish language programming (Turkey)
TVE..................................... Spanish language programming (Spain)
TV 5.................................... French language programming (France)
PREMIUM
Premiere................................ Pay television for movies and sports
GENERAL INTEREST -- REGIONAL
Bayern 3................................ News, sport and entertainment
Berlin 1................................ General interest for Berlin
Hessen 1................................ Evening entertainment for Hessen (ARD)
Hessen 3................................ News, sports and entertainment for Hessen
MDR..................................... News, sports and entertainment
Nord 3.................................. Entertainment for northern Germany
Sudwest 1............................... Evening entertainment for southern Germany (ARD)
Sudwest 3............................... Entertainment for southwestern Germany
West 3.................................. Entertainment for young adults
IA-Brandenburg.......................... General interest
ORB..................................... German programming
GENERAL INTEREST -- NATIONAL
3 sat................................... ADR/ZDF, ORF and SRG news and sports
ARD..................................... News, sports and entertainment
arte.................................... Cultural arts
CTV..................................... General interest
Dt. Welle TV............................ German programming broadcast abroad
Kabel 1................................. Entertainment for young adults
PRO 7................................... News and entertainment
RTL..................................... 24-hour entertainment
RTL 2................................... Entertainment for young people
Sat 1................................... 24-hour entertainment
Super RTL............................... Entertainment-oriented family programming
VOX..................................... News and entertainment for entire family
ZDF..................................... News, sports and entertainment
n-tv.................................... 24-hour news
</TABLE>
The Company obtains its programming either directly from program
broadcasters via a Company-owned head-end or indirectly through a signal
delivery contract with Deutsche Telekom. As of December 31, 1995, approximately
58% of the Company's customers were served by systems that acquired their
programming directly from broadcasters via a Company-owned head-end, and
approximately 42% of the Company's
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customers were served by systems that obtained their programming indirectly
through signal delivery agreements with Deutsche Telekom.
In those cases where the Company acquires its programming indirectly
through Deutsche Telekom, it does so pursuant to signal delivery contracts with
Deutsche Telekom. The cable television systems comprising the Pending
Acquisitions include signal delivery contracts with Deutsche Telekom with
comparable terms to the Company's existing signal delivery contracts. The
Deutsche Telekom contracts are generally for a fixed period of time and are
subject to negotiated renewal. Under these agreements, the Company typically
pays Deutsche Telekom either a flat fee or a fee per customer that is determined
by reference to a published fee schedule based on the number of homes connected
to one connection point. As of December 31, 1995, fees payable by the Company to
Deutsche Telekom under its existing contracts ranged from DM0.57 to DM22.50 per
month for each customer connected to a Deutsche Telekom connection point, with a
weighted average of approximately DM1.90 per month for each such customer. These
costs are offset by obviating the need for a Company-owned head-end. The Company
is in the process of negotiating a master signal delivery agreement with
Deutsche Telekom covering its existing and future Level 2 and Level 3 Systems,
which the Company believes will provide for more uniform costs per customer at
lower weighted average prices than those currently applicable under its existing
Deutsche Telekom signal delivery agreements. However, no assurances can be given
as to if or when the Company will enter into such a master signal supply
agreement. Because the Company's signal delivery contracts with Deutsche Telekom
are generally long-term with either flat rates or rates determined by reference
to a published fee schedule based on the number of homes connected to one
connection point, the Company believes that such contracts provide it with
significant protection against increases in programming costs for its systems
that obtain their programming indirectly through signal delivery agreements with
Deutsche Telekom. See "Industry."
In those cases where the Company acquires its programming directly from
broadcasters via a Company-owned head-end, historically the Company has been
able, and believes that all other German cable system operators have been able,
to acquire such programming at no cost and without any formal agreements or
contact with or approval or authorization from such broadcasters. The Company's
beliefs are based on discussions with its competitors and German copyright
royalty collecting societies, which act as royalty processing and clearing
agencies for those entitled to copyright protection. The Company further
believes, based on those discussions, that with the exception of possible claims
for copyright fees which may be assessed for the retransmission by the Company
of programs received by the Company on its own head-ends, as discussed below,
the Company does not have any potential liability arising from its acquisition
of programming in this manner. The Company has no present plans to enter into
formal agreements with broadcasters for the acquisition of programming via its
own head-ends. See "Risk Factors -- Access to and Cost of Programming."
Other than any portion of the fees paid by the Company to Deutsche Telekom
under signal delivery contracts which may be allocable to copyright license
fees, the Company has not to date paid any copyright license fees in respect of
programming carried on its cable systems. The Company believes, based on
discussions with its competitors and copyright royalty collecting societies,
that, with the exception of one small cable system operator, its competitors
similarly have paid no copyright license fees in respect of programming carried
on their cable systems. The Company expects that copyright license fees will be
imposed in the future in respect of the retransmission of programming on cable
systems in Germany, but the possible imposition of such fees is uncertain. The
complexity of the debate in this area is increased due to the differing
approaches which have and may apply to the retransmission of terrestrial
broadcasting, on the one hand, and satellite broadcasting, on the other. The
applicable legal framework is in the course of being modified by legislation and
the judicial interpretations of that framework include inconsistent decisions.
Discussions within the cable television industry in Germany in respect of
retransmission rights and license fees, in particular between broadcasters and
copyright royalty collecting societies, are ongoing and the Company's
information on the status of those discussions is based solely on informal
discussions with representatives of its competitors, including Deutsche Telekom,
broadcasters and German copyright royalty collecting societies. The Company is
unable to assess the accuracy and completeness of information given by those
sources and believes that some
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<PAGE> 65
of such information may reflect current negotiating positions of the sources and
is subject to change. See "Risk Factors -- Copyright Royalty Fees."
While the Company expects in the foreseeable future to be required to pay
some copyright license fees in respect of programming carried on its cable
systems, it is unable at present to predict when such license fees might become
payable, what programming might attract such fees, the basis and level of the
assessment of such fees or the possible impact on the Company and its financial
position. The Company believes that if it becomes liable for copyright license
fees, such liability will extend generally to cable system operators in Germany
and that the Company and such other operators are likely to be able to increase
the cost of their future cable services in order to recover the amount of any
such license fees from their cable customers. The Company is generally permitted
under the terms of its concession and franchise agreements to increase fees to
cover increased programming costs, and the terms and conditions governing its
provision of cable services to customers either permit increased fees, or
generally could be modified unilaterally by the Company to permit fees to be
increased, subject to the giving of notice by the Company to such customers
conditioning the Company's future provision of cable services on the application
of such modified terms and conditions. However, the Company's ability to recover
future license fees from customers cannot be assured in all instances; it may be
unable to pass on to its customers any copyright license fees which may be
assessed with reference to past periods, and any need to revise applicable
customer terms and conditions would delay the increase in the Company's fees
reflecting such increased costs. See "-- Concession and Franchise Agreements."
An inability to pass on such copyright license fees to customers, any delay in
its ability to do so or any loss of customers which could result from an
increase in the cost of the Company's cable services could have a material
adverse effect on the Company and its financial position.
Deutsche Telekom has informed the Company that it pays a copyright license
fee to the largest German copyright royalty collecting society (referred to as
"GEMA"). GEMA has advised Deutsche Telekom that it is acting as a central
clearing agency for all other German copyright royalty collecting societies and
broadcasting companies. GEMA has also advised the Company that in its view the
license fees paid by Deutsche Telekom relate only to retransmissions by Deutsche
Telekom on its cable system and not by cable system operators connected to
Deutsche Telekom signal delivery connection points. Deutsche Telekom disagrees
with this view and contends that its payment of this license fee entitles it to
grant retransmission rights to private cable operators. Deutsche Telekom has
also advised the Company that it pays no copyright royalties in respect of
satellite broadcasting and that in respect of most satellite programming carried
by it, the broadcasting companies have entered into programming sourcing
agreements in which the broadcasters have agreed to hold Deutsche Telekom
harmless in the event any royalties are owing in respect of the cable
retransmission of such programming. Deutsche Telekom has indicated to the
Company that although it has not paid any copyright royalties to non-German
satellite broadcasters, it has not entered into program sourcing agreements with
certain non-German satellite broadcasters or obtained hold harmless agreements
in respect of copyright royalties from such broadcasters.
The Company has agreed pursuant to its signal delivery contracts with
Deutsche Telekom (and is advised by Deutsche Telekom that other cable system
operators have similarly agreed pursuant to the standard Deutsche Telekom signal
delivery contract) to hold Deutsche Telekom harmless against any successful
claims by the holders of retransmission rights for any copyright license fees
attributable to the retransmission of programming obtained from Deutsche Telekom
pursuant to such signal delivery contracts. No claim has been made by Deutsche
Telekom against the Company for reimbursement of any such copyright license
fees. Deutsche Telekom has also informed the Company that no such claim has been
made by Deutsche Telekom against any other cable system operator, because to
date, with the exception of the fees paid by Deutsche Telekom to GEMA in respect
of the retransmission of German terrestrial broadcasting, no copyright license
fees have been assessed against Deutsche Telekom by any copyright royalty
collecting society or any program broadcaster.
The Company has not paid copyright license fees in respect of programming
received by its own head-ends, whether that programming is broadcast by German
or non-German broadcasters. Based on discussions with its competitors, including
Deutsche Telekom, and copyright royalty collecting societies, the
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Company does not believe that any other cable system operators in Germany have
paid copyright license fees for programming received by the head-ends of those
operators.
Under current German law, parties having copyright protection have the
option of claiming transmission rights in copyrighted material themselves or
transferring those rights to a third party, including one of several German
copyright royalty collecting societies. The Company has been advised by several
German copyright royalty collecting societies that, in part because of
uncertainties created by the possibility of multiple copyright holders and
royalty collecting societies claiming retransmission royalties, to date no
German royalty collecting society or broadcaster has assessed copyright license
fees against German cable system operators, with the exception of the agreement
between GEMA and Deutsche Telekom in respect of the retransmission of public
terrestrial broadcasting by Deutsche Telekom and one agreement entered into in
1992 with a small private cable system operator. However, GEMA has informed the
Company that the German copyright royalty collecting societies are currently
seeking to reduce this uncertainty by negotiating an agreement under which GEMA
would act as the central clearing agency for copyright collections relating to
cable retransmissions of terrestrial television broadcasting.
Legislation is pending before the German Parliament to implement the 1993
directive of the European Union (the "EU") on satellite broadcasting and cable
retransmissions. Legislation implementing the EU directive or containing
comparable terms in respect of retransmission rights will apply to all
programming carried on the Company's cable systems and the cable systems of the
Company's competitors in Germany. The Company has been advised by the German
Ministry of Justice that this legislation is unlikely to be enacted prior to the
end of 1996. This draft legislation provides that retransmission rights in such
broadcasting must be exercised by either copyright royalty collecting societies
or broadcasting companies. Broadcasting companies would not be required under
the draft legislation to designate a collecting society to exercise their own
rights or any rights they have acquired by way of transfer from owners,
producers, actors or other protected parties. Instead, they would be permitted
to seek to collect such royalties from cable system operators directly or to
refrain from assessing such fees if business considerations dictate, including
as a result of their desire to achieve or maintain market penetration and
advertising revenues by not increasing cable television programming costs.
The draft German legislation further provides that copyright royalty
collecting societies and broadcasting companies are under an obligation to enter
into negotiations with cable operators concerning retransmission rights and to
grant such retransmission rights on reasonable terms. The draft legislation
reflects that these provisions are designed to prevent collecting societies and
broadcasting companies from abusing their dominant market position by assessing
unreasonably high license fees, which could adversely affect the investment made
by cable operators in their systems.
The Company is advised by several copyright royalty collecting societies
that in light of the present and anticipated legislative position in Germany,
such societies and television broadcasters are discussing two means of
collecting license fees in respect of retransmission rights, one in respect of
terrestrial broadcasting and the other in respect of satellite broadcasting.
Copyright royalty collecting societies contacted by the Company expect that
retransmission rights in relation to terrestrial broadcasting will be pursued by
GEMA, acting as a central clearing agency. GEMA has expressed the intention to
seek to collect copyright royalties from private cable system operators in
respect of the retransmission of terrestrial broadcasts on cable systems if and
when it succeeds in completing a general agreement with other German copyright
royalty collecting societies and broadcasters allowing it to act as a central
clearing agency in relation to such retransmissions. GEMA has indicated that in
the context of the negotiations for such a general agreement, it has proposed
that a license fee be assessed against cable system operators equal to 4% to 5%
of the revenues of such cable operators.
Based on discussions with its competitors, the Company believes that legal
questions exist concerning the possible assessment of copyright license fees
relating to the retransmission without time delay of German public terrestrial
television within the statutorily assigned broadcast area for that terrestrial
channel and the adjacent (so-called "spill-over") areas into which the broadcast
signal is directed. Although GEMA has indicated that it expects to attempt to
assess a license fee in respect of any retransmission of terrestrial
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broadcasting if it concludes a general agreement with other copyright royalty
collecting societies and broadcasters, the Company believes that legal questions
exist concerning the entitlement of copyright holders to such royalties both in
respect of the retransmission of terrestrial broadcasting within the statutorily
designated broadcast area and the retransmission of such broadcasting into
spill-over areas.
GEMA has advised the Company that to date no satellite broadcasting
companies have assessed copyright license fees for the retransmission of
satellite broadcasting by either Deutsche Telekom or any private cable operator
due to their desire to achieve market penetration. GEMA has also informed the
Company that in the future it expects that license fees will be claimed for the
retransmission of German satellite broadcasting. However, under the pending
legislation amending the German Copyright Act, broadcasters of satellite
programming and other copyright holders would not be required to assign such
retransmission rights to GEMA or any other copyright royalty collecting society,
but could, as they have done historically, retain such rights and decide
themselves on the basis of economic considerations whether or not to seek to
recover license fees from cable system operators.
The Company has been advised by GEMA and a collecting agency that this
agency has been appointed as a central royalty collecting agency for 19
non-German satellite channels. That agency has issued a fee schedule for those
channels, but only one of those 19 satellite channels is carried by the Company
on any of its cable systems. This agency had indicated to the Company that it
was in discussions with a number of other satellite programmers, but as the
agency did not identify the channels broadcast, the Company cannot determine
whether any such channels are carried on its systems.
Deutsche Telekom has indicated to the Company that, contrary to the
statements by GEMA, it does not expect to be assessed royalties by satellite
broadcasters because of the continuing desire of such broadcasters to achieve
and maintain market penetration in order to enhance their advertising revenues.
The Company believes that, as a result of Deutsche Telekom's market strength,
Deutsche Telekom has been and will continue to be paid by or will pay nothing to
satellite channel broadcasters or will agree to pay only nominal amounts to such
broadcasters for the right to retransmit their programming via Deutsche
Telekom's cable network. Because the proposed legislation amending the German
Copyright Act requires copyright royalty collecting societies and broadcasters
to be reasonable in assessing license fees against cable system operators, and
because of protections likely to be available to private cable operators under
the German Antitrust Act, the Company further believes that satellite
broadcasters could not discriminate against private cable system operators or in
favor of Deutsche Telekom in setting royalties for satellite programming.
If, notwithstanding the legal uncertainties relating to the liability of
cable operators for the retransmission of terrestrial broadcasting referred to
above, license fees were successfully assessed against the Company in relation
to retransmissions of terrestrial broadcasting, GEMA has indicated that such
license fees would be assessed against cable operators retroactively from
January 1, 1996 at the rate of 4% to 5% of the revenues of such operators. For
the year ended December 31, 1995, 4% of the Company's revenues on a pro forma
basis, including the Recent and Pending Acquisitions as if such acquisitions had
occurred on January 1, 1995, would have been DM2,593,200, and each increment to
any license fee of 1% of the Company's revenues would have increased that amount
by DM648,300.
Uncertainties exist as to the prospect of satellite broadcasters seeking to
recover copyright license fees from cable operators. Based on discussions with
its competitors, including Deutsche Telekom, the Company does not expect
satellite broadcasters generally to seek to recover copyright license fees from
cable operators. The Company has been unable to elicit information from GEMA and
other copyright royalty collecting societies in respect of the level of any
license fees which might be assessed by such collecting societies or satellite
broadcasters and is not able to estimate the amount of additional programming
expense it might incur if it is assessed copyright license fees in respect of
satellite programming.
CONCESSION AND FRANCHISE AGREEMENTS
The Company's cable television systems are generally operated pursuant to
long-term concession agreements with local governmental authorities and
franchise agreements with housing authorities that administer large housing
blocks. Concession agreements with local governmental authorities provide the
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Company with the right to use public rights-of-way, while franchise agreements
with housing authorities provide the Company with access to potential customers
living in the housing blocks. Each individual franchise agreement typically
provides access to a relatively small number of homes. As of February 20, 1996,
the Company's cable systems operated pursuant to 106 concession agreements with
local governmental authorities and 165 franchise agreements with housing
authorities, providing access to approximately 467,000 homes.
The Company's concession and franchise agreements typically contain
standardized conditions, such as conditions of service and limitations on
commencement and completion of construction. Additionally, most of the Company's
concession and franchise agreements contain provisions that permit the Company
to raise the prices for its existing level of cable services with reference to
general inflation indices and to raise prices to cover increased costs of
programming. However, by timing rate increases to published cost of living
increases or the introduction of new or improved programming, the Company has
generally been able to increase the rates for its cable services without the
objection of the respective housing authority.
Most of the Company's franchise agreements with housing authorities provide
that the Company is the exclusive provider of cable services in the franchise
area. Although the Company generally does not pay concession/franchise fees on
any of its cable systems, in certain cases it pays housing authorities for
billing and collecting subscription fees from homes within the applicable
apartment blocks pursuant to agreements entered into prior to the Company's
acquisition of the related cable system. In addition, certain governmental
authorities have attempted to extract concession fees from the Company, and
there can be no assurance that the Company will not be required to pay
concession fees in the future in connection with the acquisition, establishment
or renewal of concessions.
The table below illustrates the groupings of the concession and franchise
agreements of the Company's cable systems by date of expiration (inclusive of
any period for which the Company can unilaterally extend the term by the giving
or withholding of notice if it is not in breach of the terms thereof) as of
February 20, 1996:
<TABLE>
<CAPTION>
TOTAL NUMBER
NUMBER OF NUMBER OF OF CONCESSION
CONCESSION FRANCHISE AND FRANCHISE
YEAR OF EXPIRATION AGREEMENTS AGREEMENTS AGREEMENTS
- -------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Prior to 2000........................................... 24 2 26
2001 to 2005............................................ 3 18 21
2006 and after.......................................... 79 145 224
--- --- ---
Total................................................... 106 165 271
======== ======== ==========
</TABLE>
Because its concession and franchise agreements have the remaining terms
reflected in the above table, the Company has addressed the possible extension
of concession and franchise agreements in only limited circumstances. Such
limited extensions to date have been and are in the future expected by the
Company to be negotiated on a case-by-case basis, principally with reference to
the services to be provided and the costs of such services. Any cable system
operator competing for a concession or franchise agreement with an existing
operator would be required, if awarded such concession or franchise, to build
out its cable system in the concession or franchise area, which the Company
believes will give existing system operators a competitive advantage when
negotiating extensions.
COMPETITION
The cable television industry in Germany is in the process of undergoing
significant consolidation. The Company encounters competition for the
acquisition of cable systems from both existing cable television operators and
financial investors. Many of these competitors or potential competitors,
including Deutsche Telekom, Veba Telekom GmbH, Bosch Telekom GmbH, Urbana
Systemtechnik AG & Co. and Suweda A.G., have significantly greater assets than
the Company. To the extent that any of such competitors or
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potential competitors significantly expand their acquisition activities in
competition with the Company, the Company's ability to continue to implement its
acquisition strategy could be materially adversely affected.
The costs per subscriber of operating a cable system where a competing
cable service exists (referred to in the cable industry as an "overbuild") is
substantially greater than if there were no competition present. Although the
potential for overbuild theoretically exists, the Company is not aware of any
other company that has obtained permits or concessions for areas presently
served by the Company. Additionally, as a significant portion of the Company's
customers live in large apartment blocks with which the Company has exclusive
service agreements and in most cases "overbuilding" the Company's cable systems
would require the Company's competitors to obtain concessions from local
governmental authorities permitting such competitors to engage in a significant
amount of construction in public rights-of-way, the Company believes that its
exposure to the risk of a competitor overbuilding is mitigated. See "--
Concession and Franchise Agreements."
Cable television systems also face competition from alternative methods of
receiving and distributing television signals, including DTH satellite, MMDS and
SMATV systems, as well as other sources of news, information and entertainment
such as newspapers, movie theaters, live sporting events, interactive computer
programs and home video products, including video tape cassette recorders. The
extent to which cable service is competitive depends, in part, upon the cable
system's ability to provide a greater variety of programming at a reasonable
price to consumers than that available through alternative delivery systems.
DTH satellite users in Germany obtain programming from one of a number of
different satellites, including Astra and Eutelsat. In order to receive DTH
satellite programming, the consumer must have an outdoor reception dish, which
generally is smaller and less expensive than the satellite dish typically used
in the United States. DTH satellite services are widely available in Germany.
The Company believes that DTH satellite will continue to provide significant
competition in the future. However, the Company believes cable television has a
number of competitive advantages over DTH satellite services. First, cable
television does not involve the up-front cost for the purchase of a dish and
related equipment required for DTH. Second, satellite dishes are often perceived
as unsightly, and planning or zoning laws and regulations and building rules
often forbid their being affixed to buildings where cable television services
are available. Third, at present there is a wider range of programming generally
available on cable systems, due in part to the inability of DTH reception dishes
to receive programming from more than one satellite at any time or to switch to
another satellite without being realigned by a technician. Finally, consumers
have expressed concerns as to the level of fees that they will be required to
pay to providers of DTH satellite programming if and when DTH satellite signals
are encrypted. The Company believes that DTH satellite service may become more
competitive with cable service if digital compression technology is implemented
in the industry such that satellite services can provide more channels and
direct specific programming to particular subscribers.
In certain markets, primarily outside of Germany, cable television systems
also compete with MMDS systems, which use low power microwave frequencies to
transmit video programming over the air to customers. MMDS systems are less
capital-intensive than cable television systems and are often developed in areas
that are not served by cable television systems. However, to date, the ability
of MMDS systems to compete with cable television systems has been limited by the
need for unobstructed line-of-site over-the-air transmission. Additionally, the
deployment of MMDS systems in Germany is currently very limited. Cable
television systems also face competition from SMATV systems that serve
condominiums, apartment complexes and other private residential developments.
Advances in communications technology as well as changes in the marketplace
and the regulatory environment are constantly occurring. It is not possible to
predict the effect that ongoing or future developments might have on the cable
industry.
EMPLOYEES
At March 31, 1996, the Company had 125 full-time and five part-time
employees. The Company considers its relations with its employees to be good.
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PROPERTIES
The Company currently operates systems in approximately 275 communities in
Germany. In connection with the operation of its systems, the Company owns or
leases real property for signal reception sights (antennae towers and
head-ends), microwave facilities and business offices. The Company's current
central operation center is located in 12,000 square feet of leased space in
Plauen, Germany. The Company believes that its properties, both owned and
leased, are in good condition and are suitable and adequate for the Company's
business operations.
Cable television systems generally consist of four principal operating
components. The first component is program generation and transmission (referred
to as "level 1" in Germany). The Company does not operate at level 1. The second
component, known as the head-end facility (referred to as "level 2" in Germany),
receives television and radio signals and other programming and information by
means of terrestrial and satellite antennae and microwave relays. The third
component, the principal transmission line from the head-end to the "front door"
or trunk-distribution network (referred to as "level 3" in Germany), extends
throughout the system service area and in the Company's systems consists
primarily of coaxial and to a lesser extent fiber optic cables buried
underground and associated electronic equipment. The fourth component of the
system (referred to as "level 4" in Germany) is a drop cable, which extends from
the end of the distribution network at the "front door" to the in-house
connections in each customer's home, where the distribution system is connected
to the customer's television set.
The Company's cables generally are buried in underground ducts or trenches.
The physical components of the Company's systems require maintenance and
periodic upgrading to keep pace with technological advances.
German law generally provides that where an element, such as a cable
network, is built into real property, ownership of that element automatically
passes on to the owner of the real property. However, where it can be
demonstrated that the parties only intended that the network be on-site
"temporarily," title will remain with the party building the network, rather
than the owner of the real property. It is in each case a question of fact
whether elements of a cable network have been built into real property and
whether it is the intention of the parties that the network will remain there
temporarily. The Company has indicated in many of its concession and franchise
agreements an intention that its network remain on real property only
temporarily, and believes that in such instances title to the cable network
should be retained by the Company. If a court were to determine under these
legal principles that legal title to the network has been transferred to the
owner of the real property, the Company would be entitled under German law to
payment of the value of its cable network.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any
of its subsidiaries are a party or to which any of their respective properties
are subject.
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CERTAIN REGULATORY MATTERS
CABLE TELEVISION LICENSES
General. The establishment and operation of cable television systems in
Germany falls within the monopoly granted to Deutsche Telekom by the Federal
Ministry for Posts and Telecommunications (the "BMPT") pursuant to the
Telecommunications Installation Act of 1989 (the "Telecommunications Act").
However, the BMPT has discretionary authority to grant licenses allowing for the
establishment and operation of private cable television systems as an exemption
to the statutory monopoly granted to Deutsche Telekom. In January 1994, the BMPT
issued Administrative Rule 3/1994 entitled "Licensing Provisions for Radio
Broadcasting Receiving Installations" ("Rule 3/1994") which established the
rules to be followed by the BMPT in exercising its discretionary authority in
the issuance of licenses for cable television operators other than Deutsche
Telekom.
On October 19, 1995, the BMPT adopted the "Ordinance on the Opening of the
Market for Services and on the Regulation of Content, Scope and Procedures for
Licensing in the Telecommunications Sector"
(Telekommunikations-Verleihungsverordnung) (the "Ordinance"), which governs,
among other things, the licensing requirements for the establishment and
operation of private cable television systems on or after November 1, 1995.
Although licenses applied for on or after November 1, 1995 are subject to the
regulatory framework set forth in the Ordinance, licenses issued in accordance
with the provisions of Rule 3/1994 remain valid until the expiration date set
forth in such license. The Company's cable systems are established and operated
pursuant to BMPT licenses issued under either the Ordinance or under Rule
3/1994, the effects of which are discussed below.
THE ORDINANCE
General. Section 3 of the Ordinance regulates the establishment and
operation of private transmission lines in installations or distribution systems
(referred to in the Ordinance as Empfangs- und Verteilanlagen fur
Rundfunksignale or "EVAs") which have been designed to receive broadcast signals
from terrestrial radio broadcasting stations, broadcasting or telecommunications
satellites or at defined interfaces from telecommunications networks for the
distribution of broadcast signals (e.g., Deutsche Telekom's telecommunications
networks). In accordance with this section, the establishment and operation of
antennae installations for the purpose of interconnection with residential
distribution installations and the establishment and operation of private
transmission lines in EVAs require a license. However, either no license is
required or a general license is granted without individual application but
subject to stated conditions for the establishment and operation of (i) antennae
installations for the purpose of receiving and distributing broadcast signals
and (ii) private transmission lines within the confines of contiguous parcels of
real property that are not separated by certain types of public property (e.g.,
roads and waterways). An individual license is required for the establishment
and operation of private transmission lines which extend beyond the confines of
such contiguous parcels of real property and which are to be used in EVAs. In
accordance with the Ordinance, the Federal Office for Posts and
Telecommunications (the "BAPT") will ordinarily grant an individual license
unless Deutsche Telekom submits to the applicant, during the one-month period
following the submission of the license application, a binding declaration that
Deutsche Telekom will provide the requested transmission lines within the four-
month period following the date of Deutsche Telekom's notification. In the event
that Deutsche Telekom does not provide the requested transmission lines during
the four-month period, the individual license will ordinarily be granted;
provided, however, that Deutsche Telekom's four-month deadline may be extended
to one year in situations where Deutsche Telekom is prevented from meeting the
four-month deadline for reasons beyond its control or if Deutsche Telekom
demonstrates that the extension of the time period would constitute a
"substantially less heavy burden" to Deutsche Telekom.
The Ordinance generally provides that the interconnection of Deutsche
Telekom's transmission lines and broadband distribution networks with
residential distribution installations and licensed EVAs will be "freely usable"
for the purpose of receiving and distributing broadcast signals. However, the
Ordinance does not elaborate on the term "freely usable."
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License Term. Unless limited for radio technical reasons, licenses granted
under the Ordinance have an unlimited term.
Revocation of Licenses. The Ordinance provides that a license may be
revoked in situations where essential changes of the technical requirements
result after the granting of the license and the BAPT determines that the
license would not have been granted if the technical changes had been known
prior to the granting of such license. Furthermore, the Ordinance provides that
a license may be revoked by the BAPT in instances where the licensee violates
the obligations set forth in the license or violates other legal
telecommunication provisions.
Restrictions on Ownership and Transfer. No restrictions exist under German
law with respect to the ownership of cable television systems. The transfer of a
license requires the written consent of the BMPT. Changes concerning the
licensee, such as its name or address, must be reported to the BMPT within one
month of the change. However, no consent of or a report to the BMPT is required
in respect of changes in the ownership interests of the licensee by virtue of
the sale of equity interests in the licensee, so that no such consent or report
would be required in the event that the Pending Acquisitions, which are share
acquisitions, are consummated.
Scope of License. Licenses granted to EVAs pursuant to the Ordinance may
only be used in connection with the receipt and distribution of television and
radio broadcast signals, and may not be used in connection with any other data
transmission or telephony services, the provision of which is subject to a
different regulatory scheme.
RULE 3/1994
General. Rule 3/1994 governed the issuance of licenses by the BMPT prior
to November 1, 1995. Although licenses applied for on or after November 1, 1995
are subject to the regulatory framework set forth in the Ordinance, licenses
issued in accordance with Rule 3/1994 remain valid until the expiration date set
forth in such licenses. As a majority of the Company's licenses were granted
prior to November 1, 1995, set forth below is a discussion of certain provisions
of Rule 3/1994 that may affect such licenses in the future.
License Term and Renewals. Under Rule 3/1994, an individual BAPT license
for the establishment and operation of an EVA was initially granted for a period
of 15 years and would ordinarily be renewed for an additional 15-year term
provided that there were no electromagnetic incompatibilities between the EVA
and other electronic equipment, systems or installations. The cable television
licenses held by the Company for its operations in Germany were issued for 15
year periods, with the exception of a limited number of licenses issued on a
provisional basis for a shorter period pending the construction of head-ends by
Deutsche Telekom.
In general, licenses granted under Rule 3/1994 are limited to the number of
residential units connected within the area covered by the EVA. In the event of
an expansion of the coverage area or an increase in the number of connected
residential units, the licensee must submit a new application to the BAPT and
surrender the granted license prior to the issuance of the expanded license by
the BAPT. In addition, changes concerning "important characteristics" of a
granted license, such as the location of antennae and changes of line
transmission routes on public ground, would require that the licensee submit a
new license application.
Revocation of Licenses. Under Rule 3/1994, a license may be revoked by the
BAPT for "important reasons," including the failure to comply with material
provisions of the license.
Restrictions on Ownership and Transfer. No restrictions exist under German
law with respect to the ownership of cable television systems. However, under
Rule 3/1994, an application must be made for a new license in the event of a
change in the identity of the person holding the license as a result of a
transfer of the license or a change in the name or address of the license
holder. Moreover, in instances where a license is jointly held, under Rule
3/1994, an application must be made for a new license in the event of the
withdrawal or addition of one or more of the joint licensees. However, changes
in the ownership interests of the license holder by virtue of the sale of equity
interests in the license holder do not require an application to be made for a
new license.
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Scope of License. Licenses granted under Rule 3/1994 may only be used in
connection with the receipt and distribution of television and radio broadcast
signals, and may not be used in connection with any other data transmission or
telephony services, the provision of which is subject to a different regulatory
scheme. The Company does not expect to apply for such additional licenses in the
foreseeable future.
New German States. Rule 3/1994 provided a transition mechanism for EVAs
established in the former East Germany, under which EVAs established and
operated in the New German States prior to October 3, 1990 were deemed to have
been licensed and may be operated as if licensed under Rule 3/1994.
CONSTRUCTION PERMITS
In the event that an EVA makes use of a public right-of-way, the EVA is
required to obtain a permit from the relevant municipality. See "Business --
Concession and Franchise Agreements."
DEUTSCHE TELEKOM SIGNAL DELIVERY AGREEMENTS
Deutsche Telekom has entered into signal delivery contracts with private
cable television operators in certain designated expansion areas in which
Deutsche Telekom's broadband distribution networks have not been completed.
Private operators may apply for a license to establish and operate a private
cable television system, which may include a head-end station, until Deutsche
Telekom has provided a connection or "interface," including a head-end station
operated by Deutsche Telekom, between the private cable television system and
Deutsche Telekom's broadband distribution network. Under the signal delivery
contracts, when the interface is established, the private operators are required
to connect their EVA to Deutsche Telekom's broadband distribution network and
receive the broadcast signal provided by Deutsche Telekom. Licenses granted for
the operation of a head-end station in instances where a signal delivery
contract has been entered into with Deutsche Telekom are granted subject to
expiration or revocation by the BAPT when the interface becomes available. The
Company is not party to any signal delivery contracts with Deutsche Telekom of
the type described in this paragraph. See "Business -- Programming."
RETRANSMISSION AND CHANNEL LINE-UP PROVISIONS; MEDIA SERVICES
The retransmission of cable television programs within Germany through
private cable television systems is regulated at the federal level pursuant to
The State Treaty on Broadcasting within the United Germany of 1994 (the "State
Broadcasting Treaty") and at the state level pursuant to the media laws of the
various states. The State Broadcasting Treaty authorizes the various states to
make decisions with respect to the assignment and use of transmission
capacities. The State Broadcasting Treaty also provides that the retransmission
of cable television programs which may be received nationwide and which have
been produced in accordance with applicable European legal provisions must be
permitted by the federal states within the framework of existing technical
capabilities. State laws generally provide that the simultaneous retransmission
of an unchanged and complete cable television program is not subject to any
licensing requirement, but does subject the operator to reporting the
retransmission to the relevant state media institution. Broadcasting activity
(which is defined to exclude the simultaneous and unchanged retransmission of
programming), such as the insertion of local commercials, subjects the cable
television operator to a different regulatory regime.
Private broadcasting companies require a broadcasting license issued in
accordance with the provisions of the State Broadcasting Treaty and the media
laws of the federal states. While the State Broadcasting Treaty sets forth the
framework for the admissibility of private broadcasting, the state media laws
set forth the detailed requirements to be met by private broadcasting companies
in order to obtain a broadcasting license, including requirements with respect
to diversity of opinion, observation of constitutional principles, professional
ethics and restrictions on advertisements.
Private cable television operators are required to observe channel line-up
priorities established by the states with reference to the technical
capabilities of the cable television systems in connection with the
retransmission of cable television programs. These requirements have not to date
affected the Company's programming decisions, because its systems have excess
channel capacity, so that all program priorities can be met without limiting the
Company's ability to offer non-prioritized programs. Generally, the
retransmission
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priority has been established as follows: (i) programs which have been legally
prescribed by the state, (ii) local programs (i.e., those programs which may
otherwise be received without additional antennae), (iii) programs which may be
received locally with the use of additional antennae, and (iv) all other
programs. In addition, certain state media laws have established priorities for
programs falling within category (iv) for programming produced within the
European union.
Certain states within Germany, including states where the Company maintains
cable television operations, have adopted channel line-up statutes which
established line-up priorities in situations where the technical capacities of a
licensed cable television system are limited. The Sachsen Channel Line-Up
Statute, for example, provides that when the number of available channels is
insufficient to carry all programs in the same priority category, the German
language programs will be given priority. In addition, the statute requires
cable network operators to report their proposed channel line-up to the state
media authority, which has the right to reconfigure nonconforming proposed
channel line-ups or to exempt certain proposed channel line-ups from the
statutory requirements.
The German federal states are presently preparing a State Treaty on new
media services. A preliminary draft of this proposed State Treaty includes an
obligation of cable system operators to grant non-discriminatory network access
to providers of so-called "media services," which are distinguished from
"broadcasting services." The definitions of the terms "media services" and
"broadcasting services" are the subject of continuing debate, but it is
currently expected that media services will include certain telecommunications
services that are provided to the general public (as opposed to
telecommunications services provided to individual users or to closed user
groups). The legislative process is ongoing and the Company cannot predict the
final content of such legislation or its effects. For example, the Company
cannot presently determine whether cable television services will be considered
media services, which telecommunications services might be construed as being
media services, whether the legislation will require the Company to open its
networks to others or whether or how rates and other terms and conditions
applied to media service providers will be regulated. However, no assurance can
be given that such legislation will not be deemed to apply to the Company and
its business or that it will not have a material adverse effect on the Company's
ability to make certain independent business decisions with respect to the
customers serviced and the rates charged for such services as well as other
matters.
TELEPHONY DEREGULATION
In accordance with the Directive on Competition in the Markets for
Telecommunications Services issued by the European Commission, proposed
legislation regulating the telecommunications industry is presently before the
German Federal Parliament. This proposed legislation would establish a new
regulatory framework for the German telecommunications industry and addresses
the abolition of Deutsche Telekom's voice telephone and network monopolies. It
is currently expected that this legislation will become effective in two stages,
on July 1, 1996 and on January 1, 1998. However, there can be no assurance that
this legislation will become effective on such date or as to the provisions such
legislation will contain when finally adopted. Although the Company currently
has no plans to provide telephony services, it intends to continue monitoring
the development of the new legislation regulating the telecommunications
industry and assessing the opportunities that may be presented thereby.
Under the present draft of such proposed legislation, certain basic
telecommunications services could be deemed to be "universal services," and the
provision of such services could become mandatory for a service provider with a
dominant position in a certain market, which could include a regional market. In
addition, the compensation for the provision of such essential services would be
subject to review by the competent authority. Under the present draft of such
legislation, which is subject to change, the competent authority could designate
operators of cable television systems to be service providers required to open
their networks to content providers and competitors in order to enhance
competition, and the competent authority could exercise supervisory authority in
respect of standard contractual terms and conditions, rates and particular
billing standards of any such service provider.
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The legislative process is ongoing and the Company cannot predict the final
content of such legislation or its effects. For example, the Company cannot
presently determine whether cable television services will be considered
universal services, whether the legislation will require the Company to open its
networks to others or whether or how rates and other terms and conditions
applied to service providers will be regulated. However, no assurance can be
given that such legislation will not be deemed to apply to the Company and its
business or that it will not have a material adverse effect on the Company's
ability to make certain independent business decisions with respect to the
customers serviced and the rates charged for such services as well as other
matters. It is also probable that other legislation and regulations will be
proposed in connection with the liberalization of telecommunications regulation
throughout Europe, and it is impossible to predict the impact of any resulting
changes in the regulatory environment on the Company's business. See "Certain
Regulatory Matters."
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MANAGEMENT
In accordance with its Articles of Association (Gesellschaftsvertrag), the
Company may have one or more Managing Directors (Geschaftsfuhrer) appointed by
the shareholders, who are charged with carrying on the business of the Company.
In addition to its Managing Director, the Company also has an Executive
Committee of Shareholders (the "Executive Committee") comprised of nine members
appointed by the Company's shareholders. The Executive Committee is not a
statutory body under German law, but rather is constituted pursuant to the
Shareholder Agreement. Under the Shareholder Agreement, the Executive Committee
members will be appointed by seven shareholders or groups of affiliated
shareholders. Two members, Messrs. Brown and Prelz Oltramonti, have been
appointed to the Executive Committee by investment funds managed by affiliates
of Advent International Corporation ("Advent International"). Mr. Hoch was
appointed by investment funds managed by affiliates of Morgan Stanley Group Inc.
("Morgan Stanley Group"); Mr. Berylson was appointed by a shareholder affiliated
with General Cinema Theaters Inc. ("General Cinema"); Mr. Meggs was appointed by
a shareholder affiliated with The Chase Manhattan Corporation ("Chase
Manhattan"); Ms. Manfrey was appointed by a shareholder affiliated with APAX
Partners & Co. Ventures Ltd.; Mr. van der Hyden was appointed by a shareholder
affiliated with KPN Kabel BV; and Mr. Bartel represents his own shareholding.
Finally, Dr. van Dohnanyi is an independent member of the Executive Committee
appointed by the vote of 75% of the shareholders as a group. The shareholders of
the Company have agreed to appoint a second independent director, which will
increase the size of the Executive Committee to ten members, and are considering
appropriate candidates.
The Executive Committee has no independent policy or management function
similar to that of a board of directors, but rather is a contractually
constituted body designed to facilitate the making of decisions on certain
matters reserved to the shareholders of the Company. For this reason and because
it is not a statutory body under German law, the Executive Committee members
have no fiduciary duty to the Company arising by reason of their membership on
the Executive Committee. Rather, the members represent the interests of the
respective shareholders who appointed them or, in the case of the independent
directors, are intended to express their independent business judgment. The
authority of the Executive Committee is limited to considering matters which are
reserved pursuant to the Shareholder Agreement for decision by the shareholders
and are removed by contract from the authority of the Managing Director. Matters
requiring shareholder approval as a matter of German law must be considered by a
shareholders' meeting. The Executive Committee can approve by unanimous vote
matters reserved for shareholder approval under the Shareholder Agreement. In
the event such unanimous approval is not obtained, but three or more votes of
Executive Committee members have been cast in support of the matter, the matter
will automatically be referred to a shareholders' meeting, and in the absence of
such a vote any shareholder or shareholders holding 10% or more of the shares of
the Company can place a resolution in respect of the matter before a
shareholders' meeting.
Set forth below is certain information with respect to the Company's
executive officers and members of its Executive Committee.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Ben Bartel....................... 35 Chief Executive Officer, Managing Director
and Member of Executive Committee
Ernst Uhlig...................... 54 Chief Operating Officer
Paul Thomason.................... 40 Chief Financial Officer
Douglas R. Brown................. 42 Chairman of Executive Committee
Massimo Prelz Oltramonti......... 41 Member of Executive Committee
James S. Hoch.................... 36 Member of Executive Committee
John G. Berylson................. 42 Member of Executive Committee
Jonathan Meggs................... 35 Member of Executive Committee
Barbara Manfrey.................. 41 Member of Executive Committee
Jos van der Hyden................ 40 Member of Executive Committee
Klaus von Dohnanyi............... 67 Member of Executive Committee
</TABLE>
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Mr. Bartel has more than ten years' experience in the cable television
industry, having spent eight years working in a variety of capacities in a
family-owned cable television business in Lodi, Ohio from 1977 to 1985. He has
been the Chief Executive Officer and Managing Director of the Company since its
inception. From July 1991 to September 1992, Mr. Bartel was an Assistant Vice
President -- Corporate Finance at First Union National Bank of North Carolina,
where he was primarily involved in the area of specialized lending to companies
in the communications industry. Prior thereto, from September 1989 to May 1991,
he attended the New York University Stern School of Business, from where he
received an M.B.A. degree. During the period from March 1991 to June 1991, Mr.
Bartel was employed by Chappo & Co., a corporate finance company.
Mr. Uhlig has more than five years' experience in the cable television
industry. He has been the Chief Operating Officer of the Company since October
1995. From March 1992 to September 1995, Mr. Uhlig held various positions at
Robert Bosch GmbH ("Bosch"), one of the largest cable television providers in
Germany, including Sales Director for its broadband communications division from
July 1994 to September 1995. From January 1990 to February 1992, he was
Technical Director of Telenorma S.A., Brussels, Belgium, a wholly-owned
subsidiary of Bosch, which was engaged in the sale and rental of telephone and
alarm system equipment. Additionally, from October 1993 to September 1995, Mr.
Uhlig was a member of the board of directors of the broadband division of the
Central Federation of the Electronic Industry (Zentral Verband der
Elektrotechnischen Industrie), headquartered in Frankfurt, Germany.
Mr. Thomason has more than nine years' experience in the communications and
media industry. He has been the Chief Financial Officer of the Company since
January 1996. Additionally, Mr. Thomason has provided financial advice to the
Company since 1993. From 1980 until January 1996, he was employed by the First
Union National Bank of North Carolina, where he served as Senior Vice President
in such bank's communications and media finance group from 1986 to January 1996.
Mr. Brown has more than five years' experience in the cable television
industry. He has served as Chairman of the Executive Committee of the Company
since May 1996. Mr. Brown has been President and Chief Executive Officer of
Advent International since 1995, prior to which and from 1994 he was Chief
Investment Officer for Advent International's worldwide investment activities.
From 1990 through 1994, he headed Advent International's European operations. He
has been employed by Advent International since 1985. Before that he worked for
Ionics, Inc., which manufactured membrane separation and water treatment
systems, where he held engineering and staff positions with responsibilities for
production, marketing and applications development. Mr. Brown has served as a
director of Aspen Technology, Inc., ChemDesign Corporation, Inspec Group plc,
Ionics Inc., and several Advent European fund management companies.
Mr. Prelz Oltramonti has more than three years' experience in the cable
television industry, having been a director of Cable Management (Ireland) Ltd.
since October 1992. He has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since April 1993. Mr.
Prelz Oltramonti is a Senior Vice President of Advent International and a
Managing Director of its affiliate Advent International plc. He assists in the
management of Advent International's European investment activities, with a
particular focus on the media and communications sectors. Prior to joining
Advent International in February 1991, he was General Partner of Alta Berkeley
Associates. Before that he worked with the Boston Consulting Group and Ing. C.
Olivetti & Co, where he focused on mergers and acquisitions and venture capital
and where he assisted in establishing Olivetti's financial information services
business in Italy.
Mr. Hoch has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since September 1995. Since
1994, Mr. Hoch has been Executive Director of Morgan Stanley & Co., Ltd. Since
February 1993, Mr. Hoch has been a Principal of Morgan Stanley & Co.
Incorporated. From January 1991 to February 1993, Mr. Hoch was a Vice President
of Morgan Stanley & Co. Incorporated and prior to such time he was an Associate.
Mr. Hoch has been a director of SITA Telecommunications Holding N.V. since 1995
and a director of Silgan Corporation since 1991. Mr. Hoch has also served as
Chairman of Nokia Alumiini Oy since 1995.
Mr. Berylson has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. He is the
President of GCC Investments Inc., an affiliate of
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General Cinema, responsible for making equity investments with capital generated
by the theater business of the General Cinema group. He is also a director of
Vision Express Group Ltd. Prior to joining General Cinema in August 1993, he was
Vice President and Managing Director of Advent International Financial Services,
Inc., which he joined in 1989. From 1984 to 1989, he was a Partner and founder
of Cowen & Company's corporate finance department. Before that he was a Vice
President at Blyth Eastman Paine Webber in its corporate finance group.
Mr. Meggs has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since April 1994. Mr. Meggs
was employed by The Chase Manhattan Bank, N.A. from 1985 to 1989 and thereafter
by Chase Mezzanine Capital, later known as Chase Capital, where he became a
Principal in 1992. Chase Capital is now known as Chase Capital Partners
following the merger of Chase Manhattan with Chemical Banking Corporation in
April 1996. Mr. Meggs is also a Vice President of The Chase Manhattan Bank, N.A.
and a director of Chase Investment Bank Limited. Prior to joining Chase, Mr.
Meggs worked for Andersen Consulting.
Ms. Manfrey has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. Ms.
Manfrey is a director of Apax Partners & Co. Ventures Ltd. ("Apax"), where she
specializes in media investments. Prior to joining Apax in 1992, she was a
Partner of E.M. Warburg, Pincus & Co, Inc., where she served as Managing
Director from 1988 to 1992 and was a co-founder of the firm's London office, a
Managing Director of the firm's New York office from 1985 to 1992 and an
Associate from 1976 to 1984. Ms. Manfrey currently serves on the board of
directors of Virgin Radio Ltd.
Mr. van der Hyden has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since January 1995. Mr.
van der Hyden has been the Business Development Director of KPN Kabel BV since
February 1995. He is responsible for acquiring and running cable television
networks for KPN Kabel BV in several European countries. He is President of
Reseaux Cables de France, President of Interkabel Polska S.P. z o.o and STK S.P.
z o.o in Poland and a Director of Intercable s.r.o. in the Czech Republic. From
1992 to February 1995, he was employed by PTT Telecom as Marketing Director of
the Mobile Communications Services Business Unit, responsible for the marketing
of mobile telephony and paging, and as the head of the strategy department of
the International Communications Business Unit. From 1989 to 1992, Mr. van der
Hyden was an Associate with McKinsey & Company in Amsterdam and, from 1981 to
1988, he was employed by the Schlumberger Group in New York, where his main
responsibilities were in the development and commercialization of data
interpretation services for clients in the petroleum industry.
Dr. von Dohnanyi has served on the Executive Committee of the Company or a
predecessor body carrying out comparable functions since January 1996. Between
1954 and 1960, he worked for Ford Motor Company, both in the United States and
Germany. From 1960 to 1968, Dr. von Dohnanyi was a co-owner and Managing
Director of the Institut fur Marktforschung und Unternehmensberatung Infratest,
Munich (Market and Social Research, Infratest) and, between 1968 and 1969, he
was Permanent Secretary at the German Ministry of Economics. Dr. von Dohnanyi
was a Member of Parliament in Bonn from 1969 to 1981, Parliamentary
Undersecretary from 1969 to 1972, and Minister for Science, Technology and
Education from 1972 to 1974. From 1976 to 1981, he was Deputy Foreign Minister
(Staatminister), Bonn (in charge of European affairs). From 1981 to 1988, he was
Governor of the City State of Hamburg. From 1990 to 1994, Dr. von Dohnanyi was
Chairman of the Board of TAKRAF Heavy Machinery, Leipzig, and since 1994 he has
been a Special Advisor to the board of directors of the Treuhandanstalt (since
January 1, 1995, Bundesanstalt fur Vereinigungsbedingte Sonderaufgaben), Berlin.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
years ended December 31, 1993, 1994 and 1995 to its Chief Executive Officer. No
other executive officer of the Company was paid more than $100,000 during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
- -------------------------------- ---- --------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Ben Bartel...................... 1995 DM136,730 -- DM174,589 --
Chief Executive Officer 1994 DM 76,930 -- DM102,710 --
1993 DM 76,930 -- DM 68,870 --
</TABLE>
- ---------------
(1) Represents the value of the provision to Mr. Bartel of a housing allowance
(DM22,482 in 1995 and DM12,978 in 1994), an automobile allowance (DM8,757
in 1995 and DM5,056 in 1994) and tax gross-up payments (DM143,350 in 1995,
DM84,676 in 1994 and DM68,870 in 1993).
Mr. Bartel's employment agreement relates to his employment as Managing
Director or Geschaftsfuhrer of the Company. He is required to work exclusively
for the Company and is entitled to an annual salary of L72,000 (approximately
DM165,000 or $110,000 at current exchange rates) and will receive a bonus in
1996 of L36,000 (approximately DM82,500 or $55,000 at current exchange rates),
each of which will be grossed up to cover all German and U.S. tax payments and
social security contributions, so that Mr. Bartel will receive these amounts net
of such taxes and contributions. In addition, he is entitled to benefits typical
for an employee in Germany in his position, a housing allowance and a
performance-related bonus to be calculated on a basis to be negotiated between
members of management and the Remuneration Committee of the Executive Committee.
As at the date hereof, Mr. Bartel holds 5% of the shares of the Company.
Pursuant to the Share Transfer and Option Agreement (as defined in "Certain
Related Party Transactions -- Shareholder Agreement") in the event Mr. Bartel
terminates his employment with the Company or is terminated by the Company for
cause at any time before June 30, 1999, the Company will be entitled to purchase
a portion of his shares at a price of DM1. Until September 30, 1996, 75% of Mr.
Bartel's shares are subject to this contingent redemption provision and on that
date and on each December 31, March 31, June 30 and September 30 thereafter
through June 30, 1999, such percentage will be reduced by 6.25%.
For a period of two years following the termination of his employment, Mr.
Bartel's employment agreement restricts him from engaging in any business in
Germany or elsewhere which competes with the business carried on by the Company.
For the duration of this non-competition obligation, the Company will pay to Mr.
Bartel 50% of his annual salary plus 50% of the average of any bonuses paid to
him in respect of the previous three years.
Mr. Bartel's employment agreement is for a fixed period of three years, but
will automatically be extended if not terminated by either the Company or Mr.
Bartel on twelve months' prior notice. In addition, the Company may terminate
Mr. Bartel's employment for cause.
Mr. Thomason's employment agreement relates to his employment as Chief
Financial Officer of the Company, with the official title of Prokurist. He is
required to work exclusively for the Company and is entitled to an annual salary
of $115,000 (approximately DM171,000 at current exchange rates) and will receive
a special relocation bonus in connection with the commencement of his employment
with the Company of $247,917 (approximately DM369,000 at current exchange
rates), each of which will be grossed up to cover all German and U.S. tax
payments and social security contributions, so that Mr. Thomason will receive
this amount net of such taxes and contributions. In addition, he is entitled to
benefits typical for an employee in Germany in his position, a housing allowance
and a performance-related bonus to be calculated on a basis to be negotiated
between members of management and the Remuneration Committee of the Executive
Committee.
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As at the date hereof, Mr. Thomason holds 1.25% of the shares of the
Company. In the event that he terminates his employment with the Company or is
terminated by the Company for cause at any time before June 30, 1999, the
Company will be entitled to purchase a portion of his shares at a price of DM1.
Until September 30, 1996, 90% of Mr. Thomason's shares are subject to this
contingent redemption provision and on that date and on each December 31, March
31, June 30 and September 30 thereafter through June 30, 1999, such percentage
will be reduced by 7.5%.
For a period of two years following the termination of his employment, Mr.
Thomason's employment agreement restricts him from engaging in any business in
Germany or elsewhere which competes with the business carried on by the Company.
For the duration of this non-competition obligation, the Company will pay to Mr.
Thomason 50% of his annual salary plus 50% of the average of any bonuses paid to
him in respect of the previous three years.
Mr. Thomason's employment agreement is for an indefinite period, but is
subject to termination by either the Company or Mr. Thomason on four weeks'
prior notice, which may be served at any time after June 30, 1998, and which
notice period is, if the termination is by the Company and is not challenged by
Mr. Thomason, extended to twelve months. In addition, the Company may terminate
Mr. Thomason's employment for cause. If terminated by the Company without cause,
Mr. Thomason is entitled to 75% of his annual salary in lieu of any severance
payments to which he may be entitled under German law.
Mr. Uhlig's employment agreement relates to his employment as Chief
Operating Officer of the Company with the official title of Prokurist. He is
required to work exclusively for the Company and is entitled to an annual salary
of DM275,000. In addition, he is entitled to benefits typical for an employee in
Germany in his position and a performance-related bonus to be calculated on a
basis to be negotiated between members of management and the Remuneration
Committee of the Executive Committee, but which may not exceed DM75,000 per
annum.
As at the date hereof, Mr. Uhlig holds 1% of the shares of the Company. In
the event that he terminates his employment with the Company or is terminated by
the Company for cause at any time before June 30, 1999, the Company will be
entitled to purchase a portion of his shares at a price of DM1. Until September
30, 1996, 90% of Mr. Uhlig's shares are subject to this contingent redemption
provision and on that date and on each December 31, March 31, June 30 and
September 30 thereafter through June 30, 1999, such percentage will be reduced
by 7.5%.
Mr. Uhlig is also entitled to a special bonus in the event that either all
of the shares in Kabelvision Management GmbH or all of its assets are sold to
one or more unrelated third parties. The size of the bonus depends upon whether
Mr. Uhlig is still employed at the time of sale or the date upon which he ceased
to be employed, but is subject to a maximum of $750,000 (approximately
DM1,115,000 at current exchange rates) in the event that he is employed for the
a period of four years from January 1, 1996. The bonus remains payable after he
has left the employment of Kabelvision Management GmbH, provided that the
termination of his employment was by mutual agreement with the Company.
Mr. Uhlig's employment agreement is for a fixed period of four years, but
may be terminated by either the Company or Mr. Uhlig on six-months' prior
notice. In addition, the Company may terminate Mr. Uhlig's employment for cause.
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CERTAIN RELATED PARTY TRANSACTIONS
CAPITAL CONTRIBUTIONS AND SUBORDINATED SHAREHOLDER LOANS
On September 1, 1992, Plauen Cable, Inc. ("Plauen Cable"), a company owned
and controlled by Lloyd Bartel, the father of Ben Bartel, the Chief Executive
Officer of the Company, and Charlotte Cable Holdings, Inc. ("Charlotte"), a
company owned and controlled by Ben Bartel, purchased from unaffiliated parties
95% of the ownership interests in KFP Kabelfernsehen Plauen GmbH & Co. KG
("Plauen KG") and in Kabelfernsehen Plauen GmbH ("Plauen GmbH"), the general
partner (Komplementar) of Plauen KG.
On April 2, 1993, Plauen Cable, Charlotte and two other minority
shareholders (the "Minority Shareholders") exchanged their interests in Plauen
KG and Plauen GmbH for 25% of the share capital of Kabelvision Beteiligungs GmbH
("Kabelvision"), which was merged into the Company on June 19, 1996 (the
"Merger"), which at the time of such exchange had no assets other than DM50,000
of contributed capital. The Minority Shareholders held their interest indirectly
through a civil law partnership. The holder of the remaining 75% of the share
capital of Kabelvision was European Special Situations Fund Limited Partnership
("ESSF"), a limited partnership affiliated with Advent International, which
subsequently became the general partner and a limited partner in ECO Holdings
Limited Partnership ("ECO I"). Contemporaneously with this transaction, ESSF
made a loan (the "Initial Loan") to Plauen KG in the sum of DM2,500,000. An
arrangement fee of DM400,000 payable by Plauen KG to ESSF in respect of the
Initial Loan was contributed by ESSF to the capital of Kabelvision, which loaned
that amount to Plauen KG to fund its payment of that arrangement fee. The
Initial Loan bore interest at the rate of 15% per annum and was to be repaid on
December 31, 1993. In May 1994, the Minority Shareholders transferred their
indirect interest in the share capital in Kabelvision to Charlotte in
consideration for the assumption by Charlotte of all obligations of the Minority
Shareholders under the civil law partnership agreement and as former partners in
Plauen KG. In July 1994, the shareholders of Kabelvision, other than Charlotte,
exchanged their interests in the share capital of Kabelvision for limited
partnership interests of ECO I.
On July 19, 1994, the obligations of Plauen KG under the Initial Loan were
assumed by a subsidiary of Kabelvision, the amount of the loan was increased to
DM7,500,000 and the terms of the Initial Loan were amended. The amended loan
bore interest at the rate of 20% per annum until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. ECO I contributed to the
capital of Kabelvision DM6,000,000 by way of assignment of a portion of the loan
and DM2,000,000 of cash. On March 31, 1994, ESSF, the general partner and a
limited partner of ECO I, made a loan to a subsidiary of Kabelvision in the
principal amount of DM13,000,000, which was subsequently assigned by ESSF to ECO
I. The proceeds of such loan were used by Kabelvision to make acquisitions of
cable television systems. The loan bore interest at the rate of 20% per annum
until contributed to the capital of Kabelmedia as part of the Shareholder Debt
Conversion. In 1994 and 1995, ECO I made loans to a subsidiary of Kabelvision in
the principal amounts of DM12,361,000 (of which DM6,787,000 was contributed to
the capital of Kabelvision), DM8,000,000 and DM12,000,000 (DM3,000,000 of which
was contributed to the capital of Kabelvision), which were utilized by
Kabelvision in connection with the acquisition of cable television systems. Each
of these contributions from ECO I to Kabelvision was made by way of assignment
of a portion of the relevant loan by ECO I to Kabelvision. Each of these loans
bore interest at the rate of 15% per annum until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion.
On December 28, 1994, ECO II Holdings Limited Partnership ("ECO II") and
Ben Bartel formed Kabelmedia with DM50,000 of capital and made a loan to the
Company in the principal amount of DM49,300,000, which was utilized by the
Company in connection with the acquisition of cable television systems. On
August 31, 1995, ECO II made a loan to the Company in the principal amount of
DM40,252,000, which was utilized by the Company in connection with the
acquisition of Beta Asset Management GmbH ("Beta Asset"), which then acquired
TELECable Betriebsgesellschaft mbH. The loan bore interest at the rate of 12%
per annum commencing January 1, 1996, until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. The Company acquired Beta
Asset from Morgan Stanley Partners III, Inc. and certain of its affiliates for
DM58,000. Morgan Stanley Partners III, Inc. is an affiliate of Morgan Stanley
and certain of its affiliates were limited partners of ECO II. On October 6,
1995,
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ECO II made a loan to the Company in the principal amount of DM30,900,000, which
was utilized by the Company in connection with the acquisition of cable
television systems. The loan bore interest at the rate of 12% per annum
commencing January 1, 1996, until contributed to the capital of Kabelmedia as
part of the Shareholder Debt Conversion. On May 30, 1996, ECO II made a loan to
the Company of DM10,199,000, which will be used by the Company for general
corporate purposes. The loan bore interest at the rate of 12% per annum, until
contributed to the capital of Kabelmedia as part of the Shareholder Debt
Conversion.
Each of the loans described above was subordinated and was repayable in a
single installment on January 1, 2007. The interest on such loans was not
required to be currently paid, but rather was to accrue until maturity. The
total principal amount of such loans plus accrued interest thereon through June
14, 1996 were contributed to the capital of Kablemedia in the Shareholder Debt
Conversion. See "Summary -- Shareholder Debt Conversion."
On or about the date of closing of the Offering, ECO I and ECO II will be
dissolved and the capital stock of Kabelmedia will be distributed to the
partners of ECO I and ECO II, who will become shareholders in Kabelmedia. As
part of a capital increase on July 15, 1996, Paul Thomason and Ernst Uhlig, the
Chief Financial Officer and Chief Operating Officer of the Company,
respectively, subscribed for 1.25% and 1%, respectively, of the shares of the
Company, at a price equal to the nominal value thereof, DM2,500 and DM2,000,
respectively. The Company and its shareholders, other than Ben Bartel,
Charlotte, Paul Thomason and Ernst Uhlig, have entered into a Registration
Rights Agreement which, under certain circumstances, would permit such
shareholders to require the Company to register their shares under the
Securities Act.
CERTAIN INTERESTS OF AFFILIATES OF THE UNDERWRITERS
The MSCP Funds, affiliates of Morgan Stanley, collectively own
approximately 14.34% of capital stock of Kabelmedia. See "Principal
Shareholders." Pursuant to the terms of the Shareholder Agreement, MSCP III,
L.P., as general partner of the MSCP Funds, has the right to appoint one member
of the Executive Committee of Kabelmedia. An officer of Morgan Stanley currently
serves on the Executive Committee of Kabelmedia. See "Management," "Risk Factors
- -- Certain Interests of Affiliates of the Underwriters" and "Underwriting."
Chase Investment Bank Limited ("CIBL") and Chase Manhattan Bank AG are
affiliates of Chase Securities Inc., one of the Underwriters for the Offering,
and are the Arranger and the Agent, respectively, under the Bank Facility. The
loan commitments of CIBL to the Company as of December 31, 1995 under the Prior
Facilities were approximately DM55,100,000, representing approximately 18.8% of
the total loan commitments under the Prior Facilities at such date. Based on
commitments received by CIBL to date from potential syndicate members, which are
subject to final documentation to be signed prior to the closing of the
Offering, the Company does not expect the percentage of the total commitments
under the Bank Facility of Chase Manhattan Bank AG (which will be the only
affiliate of Chase Securities Inc. lending under the Bank Facility) to exceed
CIBL's percentage of the total commitments under the Prior Facilities. The
initial drawing under the Bank Facility is scheduled to occur concurrently with
or on the business day next following the closing of the Offering, at which time
such initial drawing and the proceeds of the Offering will be used to repay the
Prior Facilities. Certain customary fees have been paid to certain affiliates of
Chase Securities Inc. in connection with the arrangement of the Bank Facility,
the Prior Facilities and earlier credit facilities of the Company and its
services as agent thereunder. See "Description of Certain Indebtedness." Certain
affiliates of Chase Securities Inc. also collectively own approximately 8.11% of
the capital stock of Kabelmedia. Pursuant to the terms of the Shareholder
Agreement, such affiliates of Chase Securities Inc. have the right to appoint
one member of the Executive Committee of Kabelmedia. An officer of such
affiliates of Chase Securities Inc. currently serves on the Executive Committee
of Kabelmedia. See "Management," "Risk Factors -- Certain Interests of
Affiliates of the Underwriters," "Use of Proceeds" and "Underwriting."
SHAREHOLDER AGREEMENT
The Company, each of its current shareholders and each of the partners of
ECO I and ECO II have entered into a Shareholders' Agreement (the "Shareholder
Agreement") pursuant to which the capital of
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Kabelmedia was increased effective July 15, 1996 from DM74,600 to DM200,000 by
way of a cash contribution in amounts which, following the dissolution of ECO I
and ECO II, will result in the respective percentage shareholdings reflected in
"Principal Shareholders."
In addition, the Shareholder Agreement provides for a further increase in
the nominal capital of Kabelmedia by DM9,800,000 to DM10,000,000, by the
conversion of capital surplus to nominal capital, without changing the
percentage holdings of the shareholders, which was filed with the relevant
Commercial Court on July 19, 1996, and will become effective upon the recording
thereof with the Commercial Register, which is expected on or about the date of
closing of the Offering. The parties to the Shareholder Agreement have also
agreed to take all necessary steps to dissolve ECO I and ECO II, which is
expected to occur on or about the date of closing of the Offering, whereupon ECO
I and ECO II will distribute the assets held by them, comprised of the shares in
the Company, to their partners, pro rata to their respective partnership
interests.
As reflected under "Management," the Shareholder Agreement reserves certain
matters for decision by the shareholders of the Company. Certain shareholder
approvals can be granted upon the unanimous approval of the Executive Committee.
The matters which are reserved to the shareholders by German law or the
Shareholder Agreement can be categorized as follows:
(i) matters which are required by law to be approved by the shareholders
by either a simple majority or a 75% majority of the shareholders
present at a meeting called to consider such resolution, which under the
Shareholder Agreement uniformly require the prior written consent of a
75% majority of the shareholders;
(ii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a 75% majority of the
shareholders present at a meeting called to consider such resolution;
and
(iii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a simple majority of the
shareholders present at a meeting called to consider such resolution.
The matters referred to in clause (i) above include any change to the share
capital of the Company, the grant of any option over or interest in, or the
issue of any instrument carrying rights of conversion into, any other security
of the Company, the redemption, purchase, reorganization, consolidation,
cancellation or conversion of any share capital or other securities issued by
the Company, a change of the Company's auditors or fiscal year, the declaration
of any dividend, the appointment or removal of any Geschaftsfuhrer or Prokurist
of the Company, a change of the Company's name, the adoption of the Company's
annual financial statements, any variation of the Company's accounting policies
and any amendment of the Company's Articles of Association.
The matters referred to in clause (ii) above include refinancings involving
over DM150,000,000 or new financings involving over DM50,000,000, acquisitions
or disposals of any assets which account for more than 10% of the operating cash
flow, net revenues or total assets of the Company, the acquisition of any
capital asset for more than DM1,000,000, entering into any joint venture or
similar arrangement, implementing any change in the nature of the business or
commencing business outside Germany, entering into any contract with a related
party, approving the annual business plan and entering into any contract
affecting more than 10% of the homes passed by the Company's cable television
systems.
The matters referred to in clause (iii) above include any financing,
acquisition or disposal involving more than DM1,000,000 in any calendar year,
any loan (subject to a de minimis exception) and any political or charitable
donation.
The Shareholder Agreement provides that shareholders may only transfer
shares (i) to a "connected person," which is defined in the Company's Articles
of Association as including a family member, a family trust or, in the case of a
transfer by a partnership, any of its partners, provided such transfer is a
distribution made in accordance with the relevant partnership agreement; or (ii)
to a third party, provided (A) such
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transfer takes place after June 12, 1997, (B) the transferring shareholder
complies with the right of first offer procedure which is set out in the
Articles of Association, pursuant to which each of the other shareholders has
the right to purchase all or a portion of the shares to be sold by the
shareholder at a price not greater than the price to be paid by the proposed
third party acquiror and (C) the proposed third party acquiror, in the event
that the price per DM100 of nominal capital to be paid by the proposed third
party acquiror is no greater than 110% of the price at which such shares were
offered to the other shareholders, has made an offer to acquire on like terms
the same percentage of any shares which were offered for sale by other
shareholders as part of the same first offer procedure or, in the event that the
price per DM100 of nominal capital to be paid by the proposed third party
acquiror is greater than 110% of the price at which such shares were offered to
the other shareholders, has made an offer to acquire on like terms the same
percentage of shares held by all other shareholders.
In addition, if a person makes an offer to all of the shareholders to
acquire all of their shares and such offer is accepted by shareholders holding
at least 66 2/3% of the share capital of the Company (excluding any capital held
by any offeror), the remaining shareholders can be forced by such accepting
shareholders to accept such offer.
Prior to pursuing any acquisition or other business opportunity in the
cable television industry in Germany, each shareholder is required under the
Shareholder Agreement to offer such opportunity to the Company.
Pursuant to a Share Transfer and Option Agreement, which is an exhibit to
the Shareholder Agreement (the "Share Transfer and Option Agreement"), each of
ECO I and ECO II has agreed to the Shareholder Debt Conversion, in return for
which Ben Bartel and Charlotte have agreed that, upon the increase in the
capital of the Company from DM74,600 to DM200,000, they will only subscribe for
such amount of share capital as will result in their aggregate percentage
holding of such increased share capital being 5% of the Company's share capital.
In addition, Ben Bartel and Charlotte have granted options to the Company
implementing the contingent share purchase provisions applicable upon certain
terminations of Mr. Bartel's employment, as described in "Management." Further,
the Share Transfer and Option Agreement contains provisions which the parties
thereto have agreed to include in the Articles of Association, designed to
protect Ben Bartel and Charlotte from dilution of their shareholdings by
permitting Ben Bartel and Charlotte to sell their rights to participate in
future capital increases to the extent that such capital increases are not made
by unrelated third parties and are made at a subscription price per DM100 of
nominal capital which is below certain valuation thresholds.
Paul Thomason and Ernst Uhlig have entered into Share Transfer and Option
Agreements, which are exhibits to their respective employment agreements and
which include comparable terms to the Share Transfer and Option Agreement,
implementing the contingent share purchase provisions applicable upon certain
terminations of their respective employment and designed to protect them from
dilution of their respective shareholdings.
The Company and its shareholders, other than Ben Bartel, Charlotte, Paul
Thomason and Ernst Uhlig, have entered into a Registration Rights Agreement
which, under certain circumstances, permits such shareholders to require the
Company to register their shares under the Securities Act.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the share capital of the Company as of the date hereof by: (i) each
person known by the Company to own beneficially 5% or more of the outstanding
share capital of the Company; (ii) each of the Company's Executive Committee
members; (iii) each of the executive officers of the Company; and (iv) all
Executive Committee members and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1)(2) PERCENTAGE OF SHARES(3)
- ------------------------------------------------------------------------ ------------------------
<S> <C>
SHAREHOLDERS
Advent International(4)............................................... 42.48%
Morgan Stanley Group(5)............................................... 14.34%
General Cinema(6)..................................................... 9.56%
Chase Manhattan(7).................................................... 8.11%
APAX Partners(8)...................................................... 7.17%
KPN Kabel(9).......................................................... 7.17%
Ben Bartel(10)........................................................ 5.00%
MANAGEMENT AND EXECUTIVE COMMITTEE(11)
Ben Bartel............................................................ 5.00%
Paul Thomason......................................................... 1.25%
Ernst Uhlig........................................................... 1.00%
All Executive Committee members and executive officers as a 7.25%
group(10)..........................................................
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to the share
capital of the Company shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Each shareholder (other than Ben Bartel) currently holds its respective
interest in the Company through ECO I, ECO II or both. ECO I and ECO II
will be dissolved effective on or about the date of closing of the Offering
and the shares in the Company distributed to the partners in ECO I and ECO
II, who will become shareholders in the Company. The percentages shown in
the table reflect the shareholders' aggregate percentage holdings in the
Company subsequent to the Merger and the dissolution of ECO I and ECO II.
Advent International and Chase Manhattan are limited partners in both ECO I
and ECO II. The other limited partner of ECO I is Plauen Cable, which will
hold 1.53% of the Company's shares. The other limited partners of ECO II
are the entities described in this table as Morgan Stanley, General Cinema,
APAX Partners and KPN Kabel; plus Allstate Insurance Company, which will
hold 2.39% of the Company's shares. Ben Bartel holds his shares in the
Company directly and through Charlotte.
Prior to the Shareholder Debt Conversion, ECO I held 90% of the shares of
Kabelvision, ECO II held 90% of the shares of Kabelmedia, Ben Bartel held
10% of the shares of Kabelvision and Charlotte held 10% of the shares of
Kabelmedia. In consideration of the Shareholder Debt Conversion, pursuant
to which ECO I and ECO II contributed Subordinated Shareholder Loans to the
capital of Kabelvision and Kabelmedia, respectively, Ben Bartel and
Charlotte agreed in the Share Transfer and Option Agreement that, upon an
increase in the capital of the Company from DM 74,600 to DM 200,000, which
occurred on July 15, 1996, to permit their aggregate interests to be
diluted to 5%. As part of the same capital increase to DM 200,000, Messrs
Thomason and Uhlig subscribed pursuant to comparable agreements for 1.25%
and 1%, respectively, of the shares of the Company, at a price equal to the
nominal value thereof, DM 2,500 and DM 2,000, respectively. The interests
of ECO I and ECO II increased accordingly, by an aggregate of 2.75% of the
increased share capital.
(3) The total nominal share capital (Stammkapital) of the Company (or of any
other limited liability company or GmbH organized under German law) is
expressed as a particular Deutsch Mark amount. The interests held by the
shareholders are represented by individual shares in the total capital,
each of
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which carries a Deutsch Mark nominal value (the aggregate of which is the
total nominal capital of the GmbH) and entitles the holder to a
proportional share in the capital of GmbH. Such an interest entitles the
holder to participate upon distribution in an equivalent percentage of
capital other than nominal capital, such as capital surplus and retained
earnings, if any. For convenience, interests in the nominal capital of the
Company are referred to herein as shares.
(4) Represents shares held by European Special Situations Fund Limited
Partnership, which holds 15.83% of the Company's shares, Global Private
Equity II Limited Partnership, which holds 13.98% of the Company's shares,
Kabelgate L.L.C., which holds 11.29% of the Company's shares, Advent
Partners Limited Partnership, which holds .67% of the Company's shares,
Advent Crown Fund C.V., which holds .65% of the Company's shares, Advent
International Investors II Limited Partnership, which holds .02% of the
Company's shares, and Advent International Investors III Limited
Partnership, which holds .05% of the Company's shares. The general partners
or members of the above limited partnerships and limited liability company
are affiliates of Advent International and such shares of the Company may
be deemed to be beneficially owned by Advent International. Advent
International disclaims beneficial ownership of shares held by such
investment limited partnerships and limited liability company, except to
the extent of its pecuniary interest therein. The address for each of the
above limited partnerships and limited liability company is c/o Advent
International Corporation, 101 Federal Street, Boston, Massachusetts 02110.
(5) Represents shares held by Morgan Stanley Partners III, L.P., which holds
12.68% of the Company's shares, MSCP III 892 Investors, L.P., which holds
1.30% of the Company's shares, and Morgan Stanley Capital Investors, L.P.,
which holds .36% of the Company's shares. The general partner of each of
these investment limited partnerships is an affiliate of Morgan Stanley
Group. Morgan Stanley Group disclaims beneficial ownership of shares of the
Company held by such investment limited partnerships, except to the extent
of its pecuniary interest therein. The address for each of the above
limited partnerships is c/o Morgan Stanley Capital Partners, 1221 Avenue of
the Americas, New York, New York 10020.
(6) Represents shares held by Chestnut Hill Media, an affiliate of General
Cinema Corporation. General Cinema disclaims beneficial ownership of the
shares held by Chestnut Hill Media Inc., except to the extent of its
pecuniary interest therein. The address for Chestnut Hill Media Inc. is 27
Boylston Street, Chestnut Hill, Massachusetts 02167.
(7) Represents shares held by Willard Holdings Inc., which holds 4.05% of the
Company's shares, and Woodward Holdings Inc., which holds 4.05% of the
Company's shares, each of which is an affiliate of Chase Manhattan. Chase
Manhattan disclaims beneficial ownership of shares held by such companies,
except to the extent of its pecuniary interest therein. The address for
each of Willard Holdings Inc. and Woodward Holdings Inc. is c/o The Chase
Manhattan Bank, N.A., Woolgate House, Coleman Street, London EC2P 2HD,
England.
(8) Represents shares held by ECO Holdings (Cayman) Limited. APAX Partners
disclaims beneficial ownership of the shares held by ECO Holdings (Cayman)
Limited, except to the extent of its pecuniary interest therein. ECO
Holdings (Cayman) Limited is not affiliated with either ECO I or ECO II,
other than as a limited partner in ECO II and to the extent of its
precuniary interest therein. The address of ECO Holdings (Cayman) Limited
is c/o Maples & Calder, Ugland House, George Town, Grand Cayman, Cayman
Islands, British West Indies.
(9) The address for KPN Kabel BV is Polarisavenue 27, 2132 JH Hoofddorp, The
Netherlands.
(10) Represents shares held by Ben Bartel and Charlotte. The address for Ben
Bartel is Oberer Steinweg 10, 08523 Plauen, Germany.
(11) Pursuant to the Shareholder Agreement, eight members of the Executive
Committee are appointed by a designated shareholder or affiliated group of
shareholders of the Company to represent those shareholders, and one
independent member of the Executive Committee is elected by the vote of 75%
of the shareholders as a group. See "Management." Other than Ben Bartel, no
member of the Executive
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Committee is the registered holder of any of the share capital of the
Company. Mr. Brown and Mr. Prelz Oltramonti were appointed to the Executive
Committee by shareholders affiliated with Advent International; Mr. Hoch by
shareholders affiliated with Morgan Stanley Group; Mr. Berylson by a
shareholder affiliated with General Cinema; Mr. Meggs by shareholders
affiliated with Chase Manhattan; Ms. Manfrey by a shareholder affiliated
with APAX Partners & Co. Ventures Ltd. and Mr. van der Hyden by a
shareholder affiliated with KPN Kabel BV, in each case to represent its or
their interests, and certain members of the Executive Committee are
officers or shareholders of general partners of limited partnerships which
are shareholders of the Company. None of such Executive Committee members
is a registered holder of any shares and each such person disclaims
beneficial ownership of the shares held by the shareholder whose interest
he represents on the Executive Committee, except to the extent of his
pecuniary interest therein.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a summary of the Bank Facility. The following summary
does not purport to be complete and is qualified in its entirety by reference to
the agreements described herein, copies of which have been filed with the
Securities and Exchange Commission as exhibits to the Registration Statement of
which this Prospectus forms a part.
BANK FACILITY
GENERAL
Prior to the closing of the Offering, certain operating companies, which
are wholly owned subsidiaries of Kabelmedia (collectively, "the Borrowers"),
will enter into a facility agreement and related documentation (the "Bank
Facility") with Chase Investment Bank Limited (the "Arranger"), as arranger, and
Chase Manhattan Bank AG (the "Agent"), as agent for the banks and financial
institutions named therein (together with the Agent, the "Lenders"), pursuant to
which the Lenders will agree to lend to the Borrowers or their respective
subsidiaries up to DM400,000,000 aggregate principal amount, which is subdivided
into three tranches as follows:
Tranche 1 is a DM375,000,000 revolving credit facility (the "Revolving
Credit Facility"), which may be repaid and redrawn as described below;
Tranche 2 is a DM20,000,000 working capital facility (the "Working Capital
Facility"), which may be drawn until one month prior to June 30, 2004
("Final Maturity"); and
Tranche 3 is a DM5,000,000 overdraft facility (the "Overdraft Facility"),
which is to be repaid at Final Maturity.
The proceeds from the three facilities referred to above are to be used by
the Borrowers to refinance indebtedness outstanding under the Facility Agreement
dated June 1995 between a group of lenders and Kabelvision Management GmbH (the
"Prior Kabelvision Facility") and the Facility Agreement dated August 1995
between a group of lenders and KabelMedia Holding Hannover GmbH, then known as
PKG Holding GmbH (the "Prior Kabelmedia Facility" and, together with the Prior
Kabelvision Facility, the "Prior Facilities"), to finance acquisitions and
capital expenditures, for general corporate purposes, and to finance the
Borrowers' day-to-day liquidity requirements.
AVAILABILITY, CONVERSION, REPAYMENT AND INTEREST
The maximum aggregate number of loans under the Revolving Credit Facility
and the Working Capital Facility that may be outstanding is eight, each of which
must be for a minimum principal amount of DM2,500,000, and each of which will
only be made if, inter alia, certain financial tests are met and no event of
default has occurred or potential event of default exists. These conditions
provide that no drawdown may be made unless (i) the senior leverage ratio is,
prior to December 31, 1996, less than or equal to 6.50:1; between January 1,
1997 and June 30, 1997, less than or equal to 6.25:1; between July 1, 1997 and
December 31, 1997, less than or equal to 5.75:1; between January 1, 1998 and
June 30, 1998, less than or equal to 5.25:1; between July 1, 1998 and December
31, 1998, less than or equal to 4.75:1; between January 1, 1999 and June 30,
1999, less than or equal to 4:1; between July 1, 1999 and December 31, 1999,
less than or equal to 3.75:1; and thereafter less than or equal to 3.25:1 and
(ii) the ratio of senior debt to contributed equity is less than 55:45. The
"senior leverage ratio" is defined as the ratio of senior debt divided by
annualized operating cash flow, "senior debt" is defined as all indebtedness for
money borrowed of the Company, excluding Subordinated Subsidiary Notes,
subordinated loans which may be made to the Company by its shareholders and the
Discount Notes, and "contributed equity" as defined includes the aggregate
amount contributed by way of capital contribution to the Borrower, Subordinated
Subsidiary Notes and subordinated loans made to the Company by its shareholders.
The Revolving Credit Facility provides that loans will be made to finance
acquisitions of cable television systems without the Lenders' prior approval
where the pro forma ratio of total debt to annualized operating cash flow is
less than 4.50:1. In addition, where such ratio is equal to or greater than
4.50:1, the loans will be made available without the Lenders' prior consent
where the consideration for
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such acquisition is equal to or less than DM20,000,000, provided that the
following conditions are satisfied: the Borrowers' pro forma total indebtedness
does not exceed DM850 per Equivalent Subscriber (as defined in the Bank
Facility) and the consideration to be paid per Equivalent Subscriber does not
exceed DM1,250; or, if certain financial ratios are met, the consideration per
Equivalent Subscriber does not exceed DM1,650. The term of each loan made
pursuant to the Revolving Loan Facility will be one, two, three or six months,
as designated by the Borrowers, or such other period as may be agreed by the
Lenders. If the above financial conditions are not met, loans will be available
to finance acquisitions of cable television systems on provision to the Lenders
of a full description of the proposed transaction and satisfactory completion of
a due diligence report by counsel to the Lenders. Acquisitions for consideration
of between DM20,000,001 and DM50,000,000 may be made on the approval of an
Instructing Group of the Lenders (as defined in the Bank Facility). Acquisitions
for consideration in excess of DM50,000,000 may be made on approval of all
Banks.
All amounts borrowed under the Revolving Loan Facility will automatically
be consolidated into no more than three term loans (collectively, the "Term
Loan") on December 31, 1997 (the "Revolving Facility Term Date"). The Term Loan
will be required to be repaid in quarterly installments over the seven-year
period following the Revolving Facility Term Date, such that 5%, 10%, 15%,
17.5%, 20%, 20% and 12.5% of the outstanding principal amount of the Term Loan
are repaid during the first through seventh years, respectively, following the
Revolving Facility Term Date. The Working Capital Facility and the Overdraft
Facility are repayable in full on Final Maturity. The Revolving Credit Facility
requires that amounts outstanding thereunder pursuant to the Term Loan be
prepaid by an amount equal to 50% of Excess Cash Flow (as defined in the Bank
Facility). Loans under the Revolving Credit Facility and the Working Capital
Facility bear interest at an annual rate equal to LIBOR (as defined in the Bank
Facility) plus a margin ranging from 1.25% per annum to 2.00% per annum,
depending on the ratio of indebtedness for borrowed money to the Company's
annualized operating cash flow.
The Overdraft Facility bears interest at the Agent's usual overdraft rate
plus the Margin applicable to the Revolving Credit Facility.
SECURITY
All principal, interest and other obligations of the Borrowers in respect
of loans under the Bank Facility will be secured by, among other things, liens
on the receivables from cable television subscribers, concession agreements,
equipment, intercompany loans, partnership interests and shares of the Borrowers
and have been guaranteed by certain of the Company's subsidiaries (the
"Guarantors").
COVENANTS
The Bank Facility contains certain financial and other covenants, including
covenants with respect to cash flow, interest coverage, debt service and
shareholders' equity, and requiring the Borrowers to maintain key man insurance
on the life of Ben Bartel in an amount of at least DM2,500,000. The Borrowers'
ability to borrow under the Revolving Credit Facility is subject to, among other
things, its compliance with the covenants contained therein, and the failure to
so comply could result in all amounts outstanding under the facility becoming
immediately due and payable.
EVENTS OF DEFAULT
The Bank Facility contains various standard events of default for, among
other things, non-payment of amounts due under the facility, breach of covenants
or representations, defaults under certain other indebtedness, certain events of
insolvency or bankruptcy and, in addition, the following more specific events of
default:
(a) loss of a material concession or franchise;
(b) termination of any material contract or any notice given to terminate
any material contract;
(c) change at any time in the regulatory environment in a manner
significantly adverse to the Company;
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(d) Ben Bartel ceasing to be in charge of the management of the Company's
operating companies, KabelMedia Holding Hannover GmbH ("KMH") and
Kabelvision Management GmbH ("KVM") or their successors;
(e) Kabelmedia ceasing to own 100% of the shares of KMH or KVM (or their
successors); and
(f) a person or persons, who or which are not shareholders of Kabelmedia
at the date upon which the Bank Facility closes, acquiring, directly or
indirectly, more than an aggregate 24.9% shareholding in Kabelmedia.
The occurrence of any event of default could result in all amounts outstanding
under the Bank Facility becoming immediately due and payable and the
cancellation of the Bank Facility.
BORROWINGS
As of March 31, 1996, the Borrowers had drawn down DM237,500,000 under the
Prior Facilities, which they intend to repay from the proceeds of the Offering
and borrowings under the Bank Facility. See "Use of Proceeds."
FEES
In connection with the Bank Facility, an arrangement fee will be paid to
the Arranger and a facility agency fee and a security agency fee will be paid to
the Agent.
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DESCRIPTION OF THE DISCOUNT NOTES
The Discount Notes are to be issued under an Indenture, to be dated as of
July 23, 1996 (the "Indenture") between the Company and The Bank of New York, as
Trustee (the "Trustee"). Except as otherwise provided in the following summary,
references to the "Company" shall mean Kabelmedia, in its capacity as issuer of
the Discount Notes.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended. Certain capitalized terms used in this Section of the
Prospectus are defined below. Whenever particular Sections or defined terms of
the Indenture not otherwise defined herein are referred to, such Sections or
defined terms are incorporated herein by reference.
GENERAL
A paying agent will be maintained for the Discount Notes in New York, New
York (the "Paying Agent").
TERMS OF THE DISCOUNT NOTES
The Discount Notes will be unsecured senior obligations of the Company, and
will mature on August 1, 2006. The Discount Notes will accrete at a rate of
13 5/8%, compounded semi-annually, to their aggregate principal amount at
maturity by August 1, 2001. At maturity, the Company will pay the aggregate
principal amount at maturity of the Discount Notes then outstanding. Cash
interest will not accrue on the Discount Notes prior to August 1, 2001.
Thereafter, cash interest on the Discount Notes will be payable, at a rate of
13 5/8% per annum, semi-annually in arrears on each February 1 and August 1
(each an "Interest Payment Date"), commencing February 1, 2002, to the holder
thereof, on January 15 or July 15, as the case may be, immediately preceding
such Interest Payment Date. Cash interest will accrue from the most recent
Interest Payment Date to which interest has been paid or duly provided for or,
if no interest has been paid or duly provided for, from August 1, 2001. Cash
interest will be computed on the basis of a 360-day year of twelve 30-day
months. For additional information concerning payments on the Discount Notes,
see "-- Form of Discount Notes" and "-- Book-Entry; Delivery and Form."
Optional Redemption
The Discount Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after August 1, 2001 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice, at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date, if redeemed during
the 12-month period commencing August 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---------------------------------------------------------- ----------------
<S> <C>
2001...................................................... 106.813%
2002...................................................... 103.406%
</TABLE>
and thereafter at 100% of the principal amount plus accrued and unpaid interest,
if any, to the Redemption Date.
In addition, in the event of the first to occur prior to August 1, 1999, of
(i) a Public Equity Offering for gross proceeds of DM 30 million (or, if
non-Deutsche Mark denominated, the Deutsche Mark Equivalent thereof) or more or
(ii) a sale or series of related sales by the Company of its Common Stock to one
or more Strategic Equity Investors for an aggregate purchase price of DM 30
million (or, if non-Deutsche Mark denominated, the Deutsche Mark Equivalent
thereof) or more, the Company may, at its option, use all or any portion of the
net proceeds thereof to redeem up to a maximum of 35% of the original aggregate
principal
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amount at maturity of the Discount Notes at a redemption price equal to 110% of
the Accreted Value of the Discount Notes (determined at the Redemption Date).
See definition of Accreted Value under "-- Certain Definitions." Any such
redemption may only be effected once and must be effected upon not less than 30
nor more than 60 days' notice given within 30 days following such Public Equity
Offering or the most recent such sale to a Strategic Equity Investor, as the
case may be.
The determination of whether a "series of related sales" has occurred to
one or more Strategic Equity Investors that permits a redemption of the Discount
Notes under the preceding paragraph will be made by the Company. The Trustee
will become aware of any such occurrence upon receipt of the notice of
redemption. In addition, as a result of the Company's ongoing obligation to
submit compliance certificates to the Trustee, the Trustee will be kept informed
with respect to the Company's compliance with all of the covenants, conditions
and obligations in the Indenture.
Redemption for Changes in Withholding Taxes
The Discount Notes will be subject to redemption as a whole, but not in
part, at the option of the Company at any time on or after August 1, 2001, at
100% of the aggregate principal amount at maturity thereof, together with
accrued interest thereon to the Redemption Date, if the Company has become or
would become obligated to pay, on the next date on which any amount would be
payable with respect to the Discount Notes, any Additional Amounts (as defined
below) as a result of a change in laws (including any regulations promulgated
thereunder) or in the interpretation or administration thereof, if such change
is announced and becomes effective on or after the Issue Date.
For more information concerning redemption, see "-- Redemption."
FORM OF DISCOUNT NOTES
The Discount Notes will be represented by a single global security in fully
registered form (the "Global Discount Note") and will be deposited with The Bank
of New York or any successor, as custodian for DTC. The Global Discount Note
will be registered in the name of Cede & Co., as nominee of DTC, and will
represent the Discount Notes kept in custody for DTC Participants (including
Euroclear and Cedel). Definitive certificates representing individual Discount
Notes shall not be issued except as described under "Book-Entry; Delivery and
Form."
ADDITIONAL AMOUNTS
All payments made by the Company under or with respect to the Discount
Notes will be made free and clear of and without withholding or deduction for or
on account of any present or future Taxes imposed or levied by or on behalf of
any Taxing Authority within Germany, or within any other jurisdiction in which
the Company is organized or engaged in business for tax purposes, unless the
Company is required to withhold or deduct Taxes by law or by the interpretation
or administration thereof. If the Company is required to withhold or deduct any
amount for or on account of Taxes imposed by a Taxing Authority within Germany,
or within any other jurisdiction in which the Company is organized or engaged in
business for tax purposes, from any payment made under or with respect to the
Discount Notes, the Company will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder of
Discount Notes (including Additional Amounts) after such withholding or
deduction will not be less than the amount the holder and beneficial owner would
have received if such Taxes had not been withheld or deducted; provided that no
Additional Amounts will be payable with respect to a payment made to a holder of
Discount Notes (an "Excluded Holder") with respect to any Tax which would not
have been imposed, payable or due: (i) but for the existence of any present or
former connection between the holder (or the beneficial owner of, or person
ultimately entitled to obtain an interest in, such Discount Notes) and Germany
or other jurisdiction in which the Company is organized or engaged in business
for tax purposes other than the holding of, or the receipt of payments under,
the Discount Notes; (ii) if the payment could have been made by or through
another paying agent without such withholding; or (iii) if the beneficial owner
of, or person ultimately entitled to obtain an interest in, such Discount Notes
had been the holder of the Discount Notes and would not be
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<PAGE> 93
entitled to the payment of Additional Amounts. In addition, Additional Amounts
will not be payable with respect to any Tax which is payable otherwise than by
withholding from payments of, or in respect of principal of, or any interest on,
the Discount Notes. The Company will also (i) make such withholding or deduction
and (ii) remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Company will make reasonable efforts to
obtain certified copies of tax receipts evidencing the payment of any Taxes so
deducted or withheld from each Taxing Authority imposing such Taxes. The Company
will furnish to the holders of the Discount Notes, within 60 days after the date
the payment of any Taxes so deducted or withheld is due pursuant to applicable
law, either certified copies of tax receipts evidencing such payment by the
Company or, if such receipts are not obtainable, other evidence of such payments
by the Company.
At least 30 days prior to each date on which any payment under or with
respect to the Discount Notes is due and payable, if the Company will be
obligated to pay Additional Amounts with respect to such payment, the Company
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable and the amounts so payable and will set forth
such other information necessary to enable the Trustee to pay such Additional
Amounts to the holders of Discount Notes on the payment date. Whenever in the
Indenture or in this "Description of the Discount Notes" there is mentioned, in
any context, the payment of amounts based upon the principal amount or Accreted
Value of the Discount Notes or of principal, premium, if any, interest or of any
other amount payable under or with respect to any of the Discount Notes, such
mention shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof.
REDEMPTION
Optional Redemption
See "-- Terms of the Discount Notes."
Mandatory Redemption; Change of Control; Certain Asset Sales
The Company will not be required to make any mandatory redemption or
sinking fund payments in respect of the Discount Notes. However, upon the
occurrence of a Change of Control, the Company will be obligated to make an
offer to purchase all outstanding Discount Notes, (A) in the case of Discount
Notes purchased prior to August 1, 2001, at a price of 101% of the Accreted
Value thereof (determined at the date of purchase)and (B) in the case of
Discount Notes purchased on or after August 1, 2001, at a price of 101% of the
principal amount at maturity thereof, plus accrued and unpaid interest thereon,
if any, to the date of purchase. See definition of Accreted Value under "--
Certain Definitions." In addition, upon the occurrence of an Asset Sale, the
Company may be obligated to make an offer to purchase all or a portion of the
outstanding Discount Notes. See "-- Certain Covenants -- Limitation on Asset
Sales; Change of Control."
Within 30 days of any Change of Control Offer (as defined under "Change of
Control"), the Company must (i) repay in full all Indebtedness of the Company
that would prohibit the repurchase of the Discount Notes or (ii) obtain the
requisite consent of the holder of any such Indebtedness of the Company to
permit the repurchase of the Discount Notes. The Company is required, however,
to make a Change of Control Offer within 30 days of a Change of Control,
irrespective of whether any Indebtedness prohibiting the purchase of the
Discount Notes has been repaid or the holders thereof have given the requisite
consent. If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Discount Notes or is unable to obtain the consents of
the holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control, if any, would be so required to permit the repurchase of
Discount Notes, the Company will have breached the "Change of Control" covenant
in the Indenture. Such a breach would constitute an Event of Default under the
Indenture if it continues for a period of 30 consecutive days after written
notice is given to the Company by the Trustee or the Holders of at least 25% in
aggregate principal amount of the Discount Notes outstanding. In addition, the
failure by the Company to repurchase Discount Notes at the conclusion of the
Change of Control Offer would constitute an Event of Default without any waiting
period or notice requirements. In the event the Change of Control provisions are
triggered, an event of default could be
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triggered under the other indebtedness of the Company. For example, a Change of
Control would trigger an event of default under the terms of the Bank Facility,
upon which no repayment or prepayment of any amount owing to the Company from
the Borrowers or the Guarantors (as such terms are defined in "Description of
Certain Indebtedness") would be permitted until the Bank Facility has been
repaid, prepaid or cancelled in full. Such an event of default could preclude
the flow of money from the Company's subsidiaries to the Company and thereby
prevent the Company from making any payment, including Change of Control
payments, under the terms of the Discount Notes. Furthermore, it is possible to
have a more restrictive definition of change of control in other credit
agreements of the Company. For example, an acquisition, directly or indirectly,
of more than 24.9% of the shares in Kabelmedia, by a person who is not a
shareholder of Kabelmedia at the date of closing of the Bank Facility, would
cause an event of default under the Bank Facility. See "Description of Certain
Indebtedness" and "-- Change of Control."
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 80% of such consideration consists of cash or Cash
Equivalents. See "-- Certain Covenants -- Limitation on Asset Sales." To the
extent the Net Cash Proceeds of any Asset Sale are not required to be applied to
repay, and permanently reduce the commitments under, any Restricted Subsidiary
Indebtedness pursuant to the terms of the agreement or instrument under which
such Restricted Subsidiary Indebtedness was incurred, or are not so applied, the
Company or any Restricted Subsidiary may apply such Net Cash Proceeds within 365
days thereof, to an investment in properties and assets that will be used in a
Cable Business (or in Capital Stock of any Person that will become a Restricted
Subsidiary as a result of such investment if such Person's primary business
consists of a Cable Business) of the Company or any Restricted Subsidiary
("Replacement Assets"). Notwithstanding the foregoing, the Company or its
Restricted Subsidiaries may retain up to DM10 million (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof) of Net Cash Proceeds from any
Asset Sale for any purpose. Any Net Cash Proceeds from any Asset Sale that are
neither used to repay, and permanently reduce the commitments under, any
Restricted Subsidiary Indebtedness nor invested in Replacement Assets within
such 365-day period (exclusive of up to DM10 million referred to in the
preceding sentence) shall constitute "Excess Proceeds" subject to disposition as
provided below. Within 30 days after the aggregate amount of Excess Proceeds
equals or exceeds DM20 million (or, if non-Deutsche Mark denominated, the
Deutsche Mark Equivalent thereof), the Company shall make an offer to purchase
(an "Excess Proceeds Offer") (i) from all Holders of the Discount Notes, that
aggregate principal amount of Discount Notes as can be purchased by application
of such Excess Proceeds at a price in cash equal to 100% of the Accreted Value
thereof on any purchase date prior to August 1, 2001 or 100% of the outstanding
principal amount at maturity thereof plus accrued and unpaid interest, if any,
on any purchase date on or after August 1, 2001. See definition of Accreted
Value under "-- Certain Definitions." See "-- Certain Covenants -- Limitation on
Asset Sales."
There can be no assurance that the Company will have the financial
resources necessary to repurchase the Discount Notes at the time of any Change
of Control or in connection with any Excess Proceeds Offer.
Selection; Effect of Redemption Notice
In the case of any partial redemption, selection of the Discount Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Discount Note of $1,000 in principal amount or
less shall be redeemed in part. If any Discount Note is to be redeemed in part
only, the notice of redemption relating to such Discount Note shall state the
portion of the principal amount thereof to be redeemed. A new Discount Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Discount Note. Upon
giving of any redemption notice, the interest on the Discount Notes called for
redemption will cease to accrue (in the case of the Discount Notes redeemed on
or after August 1, 2001), or the principal amount of Discount Notes called for
redemption will cease to accrete (in the case of Discount Notes redeemed prior
to August 1, 2001) from and after the date fixed for
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<PAGE> 95
redemption (unless the Company defaults in providing the funds for such
redemption) and such Discount Notes will then cease to be outstanding.
RANKING
The Indebtedness evidenced by the Discount Notes will be senior
indebtedness of the Company and will rank pari passu in right of payment with
each other and with all other unsubordinated and unsecured indebtedness of the
Company and senior in right of payment to all subordinated indebtedness of the
Company. The Discount Notes will be unsecured.
The Company is a holding company with limited assets of its own and
conducts substantially all of its business through its subsidiaries. The Company
is dependent upon access to the earnings, if any, or assets of its subsidiaries
to make any payment on the Discount Notes. The ability of the Company to access
the earnings of its subsidiaries may be limited by German law, which requires
that profits be available for the payment of dividends and under which
intercompany indebtedness incurred on terms deemed to be commercially
unreasonable may be recharacterized as quasi-equity and interest payments
thereon treated as constructive dividends subject to the requirement that such
payments be made from profits. Any right of the Company and its creditors,
including Holders of the Discount Notes, to participate in the assets of any of
the Company's subsidiaries upon any liquidation or administration of any such
subsidiary will be effectively subordinated to borrowings under the Bank
Facility and other indebtedness for money borrowed. Kabelmedia will hold
subordinated notes from certain of its subsidiaries ("Subordinated Subsidiary
Notes") in an aggregate principal amount equal to the net proceeds received by
Kabelmedia from the sale of the Discount Notes and lent to such subsidiaries.
The Subordinated Subsidiary Notes will be subordinated to indebtedness under the
Bank Facility and future indebtedness for money borrowed of such subsidiaries,
will have interest and payment terms identical to the Discount Notes and will
prohibit any pledge thereof, except to holders of Senior Indebtedness. Senior
Indebtedness is indebtedness under the Discount Notes and the Indenture, so that
any pledge of Subordinated Subsidiary Notes to holders of such indebtedness
would result in the Subordinated Subsidiary Notes and any payments of principal
or interest thereunder being available only to holders of the Discount Notes,
and not to other creditors of Kabelmedia. On a pro forma basis, after giving
effect to the Shareholder Debt Conversion, the Offering and the application of
the net proceeds thereof, as at March 31, 1996, the Company's subsidiaries would
have had DM104.6 million ($70.8 million) of outstanding indebtedness under the
Bank Facility and other indebtedness. On a pro forma basis, after giving effect
to the Shareholder Debt Conversion, the Offering and the application of the net
proceeds thereof and the Pending Acquisitions, as of March 31, 1996, the
Company's subsidiaries would have had DM161.6 million ($109.4 million) of
outstanding indebtedness under the Bank Facility and other indebtedness. The
Company and one or more of the Company's subsidiaries may incur other debt in
the future, including secured debt, which, in the case of the debt of the
Company's subsidiaries, would be effectively senior to the Discount Notes. The
provisions of certain indebtedness of the Company's subsidiaries materially
limit the payment of dividends, loans or other distributions by such
subsidiaries to the Company, provided that such payments are permitted to the
extent necessary to make interest payments on the Discount Notes for so long as
there is no event of default under such indebtedness. Accordingly, the Company's
ability to make principal payments on, or any required redemptions of, the
Discount Notes may be dependent, in part, upon the Company's ability to
refinance such indebtedness in the future, which would depend, in part, upon
factors beyond the control of the Company.
CERTAIN COVENANTS
Limitation on Indebtedness
(a) Under the terms of the Indenture, the Company will not, and will not
permit any Restricted Subsidiary to, Incur any Indebtedness (including Acquired
Indebtedness) other than the Discount Notes, Indebtedness existing on the Issue
Date, and Permitted Indebtedness; provided that the Company or a Restricted
Subsidiary may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
ratio of Total Consolidated Indebtedness to Annualized Pro Forma Consolidated
Operating Cash Flow would be less than or equal to 8.0 to 1.0.
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(b) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For purposes
of determining compliance with this "Limitation on Indebtedness" covenant, (A)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness provided for in paragraph (a) or described in the
definition of Permitted Indebtedness, the Company shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in paragraph (a) or in one of the clauses in the definition of
Permitted Indebtedness and (B) the amount of Indebtedness issued at a price that
is less than the principal amount thereof shall be equal to the amount of the
liability in respect thereof determined in conformity with GAAP.
Limitation on Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of the Restricted Subsidiaries to, make, directly or indirectly, any
Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Company would be able to incur DM1.00 of Indebtedness under the proviso in
paragraph (a) of the covenant "Limitation on Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (a) the
difference between (x) the Cumulative Available Cash Flow determined at the
time of such Restricted Payment and (y) 150% of the cumulative Consolidated
Interest Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the latest fiscal quarter for
which consolidated financial statements of the Company are available
preceding the date of such Restricted Payment, plus (b) the aggregate net
cash proceeds received by the Company either (x) as capital contributions
to the Company after the Issue Date or (y) from the issue or sale (other
than to a Subsidiary of the Company) of its Capital Stock (other than
Disqualified Stock) on or after the Issue Date, plus (c) the aggregate net
proceeds received by the Company from the issuance (other than to a
Subsidiary of the Company) after the Issue Date of its Capital Stock (other
than Disqualified Stock) upon the conversion of, or exchange for,
Indebtedness of the Company, plus (d) in the case of the repayment of any
Investment constituting a Restricted Payment made after the Issue Date, an
amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case less the cost of
the disposition of such Investment. For purposes of the preceding clauses
(b)(y) and (c), the value of the aggregate net proceeds received by the
Company upon the issuance of Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental amount received by the Company upon the
conversion, exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other than
cash shall be valued at its Fair Market Value.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
Discount Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange or conversion for, (A) shares of Capital Stock
(other than Disqualified Stock) of the Company or (B) Indebtedness Incurred
under clause (i) of the definition of Permitted Indebtedness; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the proceeds of a substantially concurrent offering of,
shares of Capital
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Stock (other than Disqualified Stock) of the Company; (iv) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company; (v) the extension by the Company or any
Restricted Subsidiary of trade credit to Unrestricted Subsidiaries, represented
by accounts receivable, extended on usual and customary terms in the ordinary
course of business; (vi) advances by the Company or any Restricted Subsidiary to
fund the working capital or network construction requirements or to refinance
Indebtedness of Unrestricted Subsidiaries in an aggregate amount not to exceed
DM10 million (or, if non-Deutsche Mark denominated, the Deutsche Mark Equivalent
thereof) at any time outstanding; (vii) Investments in Unrestricted Subsidiaries
promptly made with the proceeds of a substantially concurrent (1) capital
contribution to the Company or (2) issue or sale of Capital Stock (other than
Disqualified Stock) of the Company; and (viii) Investments of any Person
acquired by the Company or by any Restricted Subsidiary, which Investments were
existing at the time of such acquisition; provided that, except in the case of
clauses (i), (iii) and (v), no Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (ii)(A), (iii), (iv), (v),
(vi) or (vii) of the foregoing paragraph shall be included as Restricted
Payments.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Discount Notes are outstanding, the Company will not,
and will not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction of any kind on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by the Company or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict (A) in the case of clause (i),
(ii), (iii) or (iv), any such encumbrance or restriction (I) existing on the
Issue Date, including those provided for in the Indenture; (II) applicable to a
Restricted Subsidiary which encumbrance or restriction is contained in an
agreement or instrument governing or relating to Indebtedness (an "Indebtedness
Instrument") provided that, in the case of this clause (II) such encumbrance or
restriction applies only to amounts which (x) at any point in time other than
during such periods as are described in the following clause (y)(1) are in
excess of interest and, at stated maturity, principal (after giving effect to
any realization by the Company under any applicable Currency Agreement) due and
payable (or which are to become due and payable within 30 days) in respect of
the Discount Notes or the Indenture or are either in excess of the amount
permitted by, or in an amount that would be prohibited as a result of, financial
covenants contained in such Indebtedness Instrument, or (2) if paid, would
result in an event described in the following clause (y) of this sentence,
and/or (y) during the pendency of any event that causes, permits or, after
notice and/or lapse of time, would cause or permit the holder(s) of the
Indebtedness governed by the Indebtedness Instrument to declare any such
Indebtedness to be immediately due and payable and/or require cash
collateralization or cash cover for such Indebtedness for so long as such cash
collateralization or cash cover has not been provided; (III) existing under or
by reason of applicable law; (IV) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary and existing at the time of such acquisition, which encumbrance or
restriction is not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; or (V) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or (B), in the case of clause (iv) only, any such
encumbrance or restriction (I) that restricts in a customary manner the
subletting, assignment or transfer or any property or asset that is a lease,
license, conveyance or contract or similar property or asset; (II) existing by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any
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property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture; or (III) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness, and that does not
individually, or together with all such encumbrances or restrictions, detract
from the value of property or assets of the Company or any Restricted Subsidiary
in any manner material to the Company or Restricted Subsidiary. Nothing
contained in this "Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens Securing Certain
Indebtedness" covenant or (2) restricting the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Indenture, the Company will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to the
Company or a Wholly-Owned Restricted Subsidiary, (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary, or (iii) in the case of issuances of
Capital Stock by a non-Wholly-Owned Restricted Subsidiary if, after giving
effect to such issuance, the Company maintains its percentage ownership of such
non-Wholly-Owned Restricted Subsidiary.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Discount Notes issued under the
Indenture by such Restricted Subsidiary and (ii) such Restricted Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary and (y) was not Incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is
(A) pari passu with the Discount Notes, then the Guarantee of such Guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Discount Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Discount Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale, lease
or exchange of property or assets, or the rendering of any service) with any
holder (or any Affiliate of such holder) of 5% or more of the Capital Stock of
the Company or with any Affiliate of the Company or any Restricted Subsidiary
(together, "Related Persons"), except upon fair and reasonable terms to the
Company or such Restricted Subsidiary. Specifically, the Company will not, and
will not permit any
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Restricted Subsidiary to, (x) provide credit support for, or a Guarantee of, any
Indebtedness of any Unrestricted Subsidiary (including any agreement,
undertaking or instrument evidencing such Indebtedness), provided that the
Company or any Restricted Subsidiary may pledge Capital Stock or Indebtedness of
any Unrestricted Subsidiary on a nonrecourse basis such that the pledgee has no
claim whatsoever against the Company or any Restricted Subsidiary other than to
obtain such pledged property, (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except in the case of clause (x), (y) or (z) to the
extent permitted under the covenant "Limitation on Indebtedness" and, in the
case of clause (x) or (y), to the extent permitted under the covenant
"Limitation on Restricted Payments."
The foregoing limitation does not limit, and shall not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to members of the Executive Committee of the Company who are not
employees of the Company; (iii) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; (iv) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant; (v) any
transaction pursuant to an agreement in effect on the Issue Date; or (vi) any
transaction in the ordinary course of business between the Company or any
Restricted Subsidiary and any Affiliate thereof engaged in the Cable Business.
The foregoing limitation also does not limit, and shall not apply to,
transactions (A) approved by a majority of the disinterested members of the
Executive Committee or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of an Independent Financial Advisor,
stating that the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view.
Any transaction (or series of related transactions) with a Related Person
(other than those transactions set forth in clauses (i) through (vi) of the
immediately preceding paragraph and any payments of interest or principal to
CIBL or Chase Manhattan Bank AG under the Bank Facility) in which any Person
receives in excess of DM5 million in any fiscal year shall be approved by a
majority of the disinterested members of the Executive Committee of the Company
or in the absence of such a body, a majority of the disinterested shareholders
of the Company. Any transaction (or series of related transactions) with a
Related Person involving in excess of DM10 million, or as to which there are no
disinterested Executive Committee members, is subject to the further requirement
that the Company obtain an opinion of an Independent Financial Advisor with
experience in appraising the terms and conditions of the relevant type of
transactions (or series of related transactions) stating that the transaction
(or series of related transactions) is fair, from a financial point of view, to
the Company or such Restricted Subsidiary.
Limitation on Liens Securing Certain Indebtedness
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets (including any pledge
of the Subordinated Subsidiary Notes, except to holders of Senior Indebtedness),
or any proceeds therefrom, which secure either (x) Subordinated Indebtedness
unless the Discount Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to the Liens securing such Subordinated
Indebtedness or (y) Pari Passu Indebtedness, unless the Discount Notes are
equally and ratably secured with the Liens securing such Pari Passu
Indebtedness.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 80% of such consideration consists of cash or Cash
Equivalents. To the extent the Net Cash
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Proceeds of any Asset Sale are not required to be applied to repay, and
permanently reduce the commitments under, any Restricted Subsidiary Indebtedness
pursuant to the terms of the agreement or instrument under which such Restricted
Subsidiary Indebtedness was incurred, or are not so applied, the Company or any
Restricted Subsidiary may apply such Net Cash Proceeds within 365 days thereof,
to an investment in properties and assets that will be used in a Cable Business
(or in Capital Stock of any Person that will become a Restricted Subsidiary as a
result of such investment if such Person's primary business consists of a Cable
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding the foregoing, the Company or its Restricted Subsidiaries may
retain up to DM10 million (or, if non-Deutsche Mark denominated, the Deutsche
Mark Equivalent thereof) of Net Cash Proceeds from any Asset Sale for any
purpose. Any Net Cash Proceeds from any Asset Sale that are neither used to
repay, and permanently reduce the commitments under, any Restricted Subsidiary
Indebtedness nor invested in Replacement Assets within such 365-day period
(exclusive of the up to DM10 million referred to in the preceding sentence)
shall constitute "Excess Proceeds" subject to disposition as provided below.
Within 30 days after the aggregate amount of Excess Proceeds equals or
exceeds DM20 million (or, if non-Deutsche Mark denominated, the Deutsche Mark
Equivalent thereof), the Company shall make an offer to purchase (an "Excess
Proceeds Offer"), from all Holders of the Discount Notes, that aggregate
principal amount of Discount Notes as can be purchased by application of such
Excess Proceeds at a price in cash equal to 100% of the Accreted Value thereof
on any purchase date prior to August 1, 2001 or 100% of the outstanding
principal amount at maturity thereof, plus accrued and unpaid interest, if any,
to any purchase date on or after August 1, 2001. Each Excess Proceeds Offer
shall remain open for a period of 20 Business Days or such longer period as may
be required by law. To the extent that the aggregate of the Accreted Value (if
applicable) and principal and accrued interest, as the case may be, of Discount
Notes validly tendered and not withdrawn pursuant to an Excess Proceeds Offer is
less than the Excess Proceeds, the Company may use such surplus for general
corporate purposes. If the aggregate of the Accreted Value or principal and
accrued interest (as appropriate) of the Discount Notes validly tendered and not
withdrawn by Holders thereof exceeds the amount of Discount Notes which can be
purchased with the Excess Proceeds, Discount Notes to be purchased will be
selected on a pro rata basis among Holders of Discount Notes. Upon completion of
such Excess Proceeds Offer, the amount of Excess Proceeds shall be reset to
zero.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without compliance with the two immediately preceding paragraphs to the extent
(i) at least 80% of the consideration for such Asset Sale constitutes
Replacement Assets and (ii) such Asset Sale is for Fair Market Value; provided
that any consideration not constituting Replacement Assets received by the
Company or any of the Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.
The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this "Limitation on Asset Sales" covenant and that all Discount
Notes validly tendered will be accepted for payment on a pro rata basis among
Holders of Discount Notes; (ii) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (iii)
that any Discount Note not tendered will continue to accrete or accrue interest,
as the case may be, pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the Excess Proceeds Payment, any Discount Note
accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrete or accrue interest, as the case may be, on and after the Excess Proceeds
Payment Date; (v) that Holders electing to have a Discount Note purchased
pursuant to the Excess Proceeds Offer will be required to surrender the Discount
Note, together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of the Discount Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day immediately preceding the Excess Proceeds Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately preceding
the Excess Proceeds Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal
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amount of Discount Notes delivered for purchase and a statement that such Holder
is withdrawing his election to have such Discount Notes purchased; and (vii)
that Holders whose Discount Notes are being purchased only in part will be
issued new Discount Notes equal in principal amount to the unpurchased portion
of the Discount Notes surrendered; provided that each Discount Note purchased
and each new Discount Note issued shall be in a principal amount of $1,000 or
integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Discount Notes or portions thereof tendered pursuant
to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Discount Notes or portions thereof
so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all
Discount Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Discount Notes or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail to the Holders of
Discount Notes so accepted payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail to such Holders a new Discount
Note equal in principal amount to any unpurchased portion of the Discount Note
surrendered; provided that each Discount Note purchased and each new Discount
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof. The Company will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this "Limitation On Asset Sales" covenant, the Trustee shall act as
the Paying Agent.
If the Company is required to make an Excess Proceeds Offer, the Company
will comply with all applicable tender offer rules, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any other applicable securities laws
and regulations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Discount Notes by the Company in cash
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the Accreted Value thereof (determined at the
date of purchase) if such purchase is prior to August 1, 2001, or 101% of the
principal amount at maturity thereof, plus accrued and unpaid interest thereon,
if any, to the date of purchase if such purchase is on or after August 1, 2001
(the "Change of Control Payment"). The Company is not required to make a Change
of Control Offer following a Change of Control if a third party makes a Change
of Control Offer that would be in compliance with the provisions described in
this section if it were made by the Company and purchases the Discount Notes
validly tendered and not withdrawn. Prior to the mailing of the notice to
Holders provided for in the succeeding paragraph, but in any event within 30
days following any Change of Control, the Company covenants to (i) repay in full
all Indebtedness of the Company that would prohibit the repurchase of the
Discount Notes as provided for in the succeeding paragraph or (ii) obtain any
requisite consents under instruments governing any such Indebtedness of the
Company to permit the repurchase of the Discount Notes as provided for in the
succeeding paragraph. The Company shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase Discount Notes
pursuant to this "Change of Control" covenant. The Company is required, however,
to make a Change of Control Offer within 30 days of a Change of Control,
irrespective of whether any Indebtedness prohibiting the purchase of the
Discount Notes has been repaid or the holders thereof have given the requisite
consent.
Within 30 days following the Change of Control, the Company shall mail a
notice to the Trustee and each Holder stating: (i) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to this
"Change of Control" covenant and that all Discount Notes validly tendered will
be accepted for payment; (ii) the purchase price and the date of purchase (which
shall be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Change of Control Payment Date"); (iii) that
any Discount Note not tendered will continue to accrete or accrue interest, as
the case may be, pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the Change of Control Payment, any Discount Note accepted for
payment pursuant to the Change of Control Offer shall cease to accrete or accrue
interest, as the case may be, on and after the Change of Control Payment Date;
(v) that Holders electing to have any Discount Note or portion thereof purchased
pursuant to the Change of
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Control Offer will be required to surrender such Discount Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of such Discount Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day immediately
preceding the Change of Control Payment Date; (vi) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the third Business Day immediately preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Discount Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Discount Notes purchased; and (vii) that Holders whose
Discount Notes are being purchased only in part will be issued new Discount
Notes equal in principal amount to the unpurchased portion of the Discount Notes
surrendered; provided that each Discount Note purchased and each new Discount
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for
payment Discount Notes or portions thereof tendered pursuant to the Change of
Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Discount Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Discount Notes or
portions thereof so accepted together with an Officers' Certificate specifying
the Discount Notes or portions thereof accepted for payment by the Company. The
Paying Agent shall promptly mail, to the Holders of Discount Notes so accepted,
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Discount Note equal in principal
amount to any unpurchased portion of the Discount Notes surrendered; provided
that each Discount Note purchased and each new Discount Note issued shall be in
a principal amount of $1,000 or integral multiples thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
"Change of Control" covenant, the Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Discount Notes under this "Change of
Control" covenant.
If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Discount Notes or is unable to obtain the consents of
the holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Discount Notes, then the Company will have breached this "Change of Control"
covenant. This breach will constitute an Event of Default under the Indenture if
it continues for a period of 30 consecutive days after written notice is given
to the Company by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Discount Notes outstanding. In addition, the failure by
the Company to repurchase Discount Notes at the conclusion of the Change of
Control Offer will constitute an Event of Default without any waiting period or
notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Discount Notes) required by the foregoing covenant (as
well as may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to repurchase
the Discount Notes will, unless the consents referred to above are obtained,
require the Company to repay all Indebtedness then outstanding which by its
terms would prohibit such Discount Note repurchase, either prior to or
concurrently with such Discount Note repurchase.
SEC REPORTS AND REPORTS TO HOLDERS
The Company shall deliver to the Trustee and to the Holders, within 30 days
after it files them with the Securities and Exchange Commission (the
"Commission"), copies of its annual and quarterly reports which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms
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provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Indenture requires the Company to
continue to file with the Commission and provide to the Trustee and to the
Holders annual audited financial statements and quarterly unaudited financial
statements, along in each case with a management's discussion and analysis
thereof, all in the form the Company would be required to file were it subject
to such reporting requirements. The Company shall not be obligated to file any
such reports with the Commission if the Commission does not permit such filings.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of or premium on any Discount
Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest or Additional
Amounts on any Discount Note when the same becomes due and payable, and such
default continues for a period of 30 days; (c) failure to perform or comply with
the provisions described under "-- Consolidation, Merger and Sale of Assets";
(d) the Company fails to repurchase Discount Notes at the conclusion of the
Change of Control Offer or Excess Proceeds Offer referred to under "-- Change of
Control" or "-- Limitation on Asset Sales" above; (e) the Company defaults in
the performance of or breaches any other covenant or agreement of the Company in
the Indenture or under the Discount Notes and such default or breach continues
for a period of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Discount Notes
outstanding; (f) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Significant Subsidiary having an outstanding
principal amount of DM10 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holders thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days following such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (g) any final judgment or order for the
payment of money in excess of DM10 million in the aggregate for all such final
judgments or orders against all such Persons shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed DM10 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; and
(h) certain events of bankruptcy, insolvency, reorganization or administration
affecting the Company or any Significant Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(h) above that occurs with respect to the Company) occurs and is continuing
under the Indenture, the Trustee thereto or the Holders of at least 25% in
aggregate principal amount then outstanding of the Discount Notes, by written
notice to the Company (and to the Trustee if such notice is given by the Holders
(the "Acceleration Notice")), may, and the Trustee at the request of such
Holders shall, declare the Discount Notes to be immediately due and payable at
100% of the Accreted Value thereof (determined at the date of such declaration)
if such declaration is prior to August 1, 2001, or 100% of the principal amount
at maturity thereof, plus accrued and unpaid interest thereon, if any, to the
date of such declaration, if such declaration is on or after August 1, 2001.
Upon a declaration of acceleration, such principal of, premium, if any, and
accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (f)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Significant Subsidiaries or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (h) above
occurs with respect to the Company, the Discount Notes then outstanding shall
ipso facto become and be immediately due and payable at 100% of the Accreted
Value thereof at the date of such Event of Default, if such date is prior to
August 1, 2001, or at 100% of the outstanding principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to the date of such
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Event of Default, if such date is on or after August 1, 2001, in each case
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding
Discount Notes, by written notice to the Company and to the Trustee, may waive
all past defaults and rescind and annul a declaration of acceleration and its
consequences if, in addition to certain other covenants, (i) all existing Events
of Default, other than the nonpayment of the principal of, premium, if any, and
interest on such Discount Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment, decree or order of a court of competent
jurisdiction. The Holders of at least a majority in aggregate principal amount
of the outstanding Discount Notes, by notice to the Trustee, may waive an
existing Default or Event of Default and the consequences under the relevant
Indenture, except a Default in the principal of, premium, if any, or interest on
the Discount Notes or in respect of a covenant or provision of the Indenture
that cannot be modified or amended without the consent of the Holder of each
outstanding Discount Note affected.
The Holders of at least a majority in aggregate principal amount of the
outstanding Discount Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Discount Notes, not joining in
the giving of such direction and may take any other action it deems proper that
is not inconsistent with any such direction received from Holders of Discount
Notes. A Holder may not pursue any remedy with respect to the Indenture or the
Discount Notes unless: (i) the Holder gives the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount at maturity of outstanding Discount Notes make a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer
the Trustee indemnity satisfactory to the Trustee against any costs, liability
or expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and (v) during such
60-day period, the Holders of a majority in aggregate principal amount of the
outstanding Discount Notes do not give the Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to the
right of any Holder of a Discount Note to receive payment of the principal of,
premium, if any, or interest on, such Discount Note or to bring suit for the
enforcement of any such payment, on or after the due date expressed in the
Discount Notes, which right shall not be impaired or affected without the
consent of such Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries, and of the Company's and its Restricted Subsidiaries' performance
under the Indenture, and that the Company has, to the best of their knowledge,
fulfilled all obligations under the Indenture, or, if there has been a default
in the fulfilment of any such obligation, specifying each such default and the
nature and status thereof. The Company will also be obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
consolidation or merger with or into a Wholly-Owned Restricted Subsidiary with a
positive net worth; provided that, in connection with any such merger or
consolidation, no consideration (other than Common Stock in the surviving Person
or the Company) shall be issued or distributed to the stockholders of the
Company) or permit any Person to merge with or into the Company unless: (i) the
Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
or of any country that is a member of the European Union and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company under the Indenture; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall
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have occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Discount Notes, as the case may be, could Incur at
least DM1.00 of Indebtedness under the proviso in paragraph (a) of the
"Limitation on Indebtedness" covenant; and (iv) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clause (iii)) and Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with.
DEFEASANCE
The Indenture will provide that (A) if applicable, the Company will be
discharged from any and all obligations in respect of all outstanding Discount
Notes other than certain obligations of the Company to transfer the Discount
Notes, or (B) if applicable, the Company may omit to comply with certain
restrictive covenants, and certain events will cease to be Events of Default
under the Indenture and the Discount Notes, in either case (A) or (B), upon
irrevocable deposit by the Company with the Trustee, in trust, of money and/or
U.S. Government Obligations which will provide money in an amount sufficient to
pay the principal of and each installment of interest, if any, on the
outstanding Discount Notes. With respect to Clause (B), the obligations under
the Indenture other than with respect to certain covenants and Events of Default
will remain in full force and effect. Such trust may only be established if,
among other things, (i) with respect to Clause (A), the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
there has been a change in law, which, in the opinion of counsel provides that
holders of the Discount Notes will not recognize income, gain or loss for U S.
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to U.S. federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; or, with respect to Clause
(B), the Company has delivered to the Trustee an opinion of counsel (which may
be based on an Internal Revenue Service ruling) to the effect that the holders
of the Discount Notes will not recognize gain or loss for U.S. federal income
tax purposes as a result of such deposit and defeasance and will be subject to
U.S. federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred; (ii) no Default shall have occurred and be continuing; (iii) the
Company has delivered to the Trustee an opinion of counsel to the effect that
such deposit shall not cause the Trustee or the trust so created to be subject
to the Investment Company Act of 1940 and (iv) certain other customary
conditions precedent are satisfied.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the relevant Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Discount Notes;
provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the Stated Maturity of the
principal of any Discount Note, or any installment of interest on any Discount
Note, (ii) reduce the Accreted Value or principal amount of, or the rate of
interest on, or any premium payable upon, any Discount Note, whether payable
upon redemption, repurchase or at maturity, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Discount
Note, (iv) adversely affect any right of repayment exercisable at the option of
any Holder of any Discount Note, (v) impair the right to institute a suit for
the enforcement of any payment on or after the Stated Maturity (or, in the case
of a redemption, on or after the Redemption Date) of any Discount Note, (vi)
amend or modify the provisions described under "Additional Amounts" in any
manner adverse to the Holders, (vii) reduce the above-stated percentage of
outstanding Discount Notes the consent of whose Holders is necessary to modify
or amend the Indenture, or (viii) reduce the percentage or aggregate principal
amount of outstanding Discount Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
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NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS,
EXECUTIVE COMMITTEE MEMBERS OR EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of
or interest on any of the Discount Notes or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture or in the Discount Notes
or because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee, Executive
Committee member or controlling person of the Company or of any successor Person
thereof. Each Holder, by accepting the Discount Notes, waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Discount Notes. Such waiver may not be effective to waive
liabilities under German or the U.S. federal securities laws and it is the view
of the SEC that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should either become a creditor of the Company, to obtain payment
of claims in certain cases or to realize on certain property received by the
Trustee in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if they
acquire any conflicting interest, it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture provides that the Indenture and the Discount Notes thereunder
will be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflict of laws.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Accreted Value" is defined to mean, as at any date of determination prior
to August 1, 2001, the amount provided for each $1,000 principal amount at
maturity of Discount Notes:
(i) if the date of determination occurs on one of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
-------------------------------------------------------- --------------
<S> <C>
February 1, 1997........................................ $ 552.58
August 1, 1997.......................................... 590.23
February 1, 1998........................................ 630.44
August 1, 1998.......................................... 673.39
February 1, 1999........................................ 719.26
August 1, 1999.......................................... 768.26
February 1, 2000........................................ 820.60
August 1, 2000.......................................... 876.50
February 1, 2001........................................ 936.22
August 1, 2001.......................................... 1,000.00
</TABLE>
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(ii) if the date of determination occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the original
issue price and (b) an amount equal to the product of (1) the Accreted
Value for the first Semi-Annual Accrual Date less the original issue
price multiplied by (2) a fraction, the numerator of which is the number
of days from the issue date of the Discount Notes to the date of
determination, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the issue date
of the Discount Notes to the first Semi-Annual Accrual Date, using a
360-day year of twelve 30-day months;
(iii) if the date of determination occurs between the two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted
Value for the Semi-Annual Accrual Date immediately preceding such date
of determination and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date
to the date of determination, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the date of determination occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person became a Restricted Subsidiary and not Incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Annualized Pro Forma Consolidated Operating Cash Flow" is defined to mean
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (i) any Subsidiary of the
Company that is a Restricted Subsidiary on the Transaction Date shall be deemed
to have been a Restricted Subsidiary at all times during such fiscal quarter and
(ii) any Subsidiary of the Company that is not a Restricted Subsidiary on the
Transaction Date shall be deemed to have been a Restricted Subsidiary at all
times during such fiscal quarter and (iii) any Subsidiary of the Company that is
not a Restricted Subsidiary on the Transaction Date shall be deemed not to have
been a Restricted Subsidiary at any time during such fiscal quarter. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated Operating Cash Flow" shall be calculated after giving effect on a
pro forma basis for the applicable fiscal quarter to, without duplication, any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the period commencing on the first day of such fiscal quarter to and including
the Transaction Date (the "Reference Period"), as if such Asset Sale or Asset
Acquisition occurred on the first day of the Reference Period.
"Asset Acquisition" is defined to mean (i) an Investment or capital
contribution (by means of transfers of cash or other property to others or
payments for property or services for the account or use of others, or
otherwise) by the Company or any Restricted Subsidiary in any other Person, or
any acquisition or purchase of Capital Stock of another Person by the Company or
any Restricted Subsidiary, in either case pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into or consolidated
with the Company or any Restricted Subsidiary or (ii) an acquisition by the
Company or any Restricted Subsidiary of the property and assets of any Person
other than the Company or any Restricted Subsidiary which
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<PAGE> 108
constitute substantially all of a division, operating unit or line of business
of such Person or which is otherwise outside the ordinary course of business.
"Asset Sale" is defined to mean any direct or indirect sale, transfer,
conveyance or lease (which has the effect of a disposition and is not for
security purposes) or other disposition (including by way of merger,
consolidation or sale-leaseback transactions, but not including Restricted
Payments permitted under the Indenture) in one transaction or a series of
related transactions by the Company or any Restricted Subsidiary to any Person
other than the Company or any Restricted Subsidiary of (i) all or any of the
Capital Stock of any Restricted Subsidiary, (ii) any material license or other
authorization of the Company or any Restricted Subsidiary pertaining to a Cable
Business, (iii) all or substantially all of the property and assets of an
operating unit or business of the Company or any Restricted Subsidiary or (iv)
any other property and assets of the Company or any Restricted Subsidiary
outside the ordinary course of business of the Company or such Restricted
Subsidiary and, in each case, that is not governed by the provisions of the
Indenture applicable to mergers, consolidations and sales of assets of the
Company; provided, however, that the term "Asset Sale" shall in no case include
any sale, transfer, conveyance, lease or other disposition in one transaction or
a series of related transactions (i) of property or equipment that has become
worn out, obsolete or damaged or otherwise unsuitable for use in connection with
the business of the Company or any Restricted Subsidiary, as the case may be,
(ii) involving assets with a Fair Market Value not in excess of DM500,000 (or,
if non-Deutsche Mark denominated, the Deutsche Mark Equivalent thereof), or
(iii) of inventory in the ordinary course of business.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Business Day" is defined to mean any day (other than a Saturday or Sunday)
on which DTC, Euroclear or Cedel and banks in London and New York are open for
business.
"Cable Acquisition" is defined to mean an Asset Acquisition of properties
or assets to be used in a Cable Business or of the Capital Stock of any Person
that becomes a Restricted Subsidiary or, subject to the covenant "Limitation on
Restricted Payments," an Unrestricted Subsidiary as a result of such Asset
Acquisition, provided that such Person's assets and properties consist
principally of properties or assets that will be used in a Cable Business.
"Cable Business" is defined to mean any business operating a cable system
located entirely in the territory comprised of the 15 countries which are
members of the European Union on the Issue Date and of the Czech Republic,
Hungary, Norway, Poland and Switzerland, or any business reasonably related
thereto, including, without limitation, any business conducted by the Company or
any Restricted Subsidiary on the Issue Date.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated, whether voting or non-voting) in equity of such Person, whether
outstanding at the Issue Date or issued after the Issue Date, including, without
limitation, all Common Stock and Preferred Stock, and any and all rights,
warrants or options exchangeable for or convertible into any thereof.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
or license of, or other agreement conveying the right to use, any property
(whether real, personal or mixed, movable or immovable) of which the present
value of the obligations of such Person to pay rent or other amounts is
required, in conformity with GAAP, to be classified and accounted for as a
finance lease obligation; and "Capitalized Lease Obligation" is defined to mean
the capitalized present value of the obligations to pay rent or other amounts
under such lease or other agreement, determined in accordance with GAAP.
"Cash Equivalents" is defined to mean (i) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the Federal Republic of Germany or the United States of America or
any agency or instrumentality thereof (provided that the full faith and credit
of the
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<PAGE> 109
Federal Republic of Germany or the United States of America, as the case may be,
is pledged in support thereof or such Indebtedness constitutes a general
obligation of such country); (ii) deposits, certificates of deposit or
acceptances with a maturity of 180 days or less of any institution which is
authorized by the Deutsche Bundesbank of the Federal Republic of Germany or
financial institution that is a member of the Federal Reserve System, in each
case having combined capital and surplus and undivided profits (or any similar
capital concept) of not less than DM500 million (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof); (iii) commercial paper with
a maturity of 180 days or less issued by a corporation (other than an Affiliate
of the Company) organized under the laws of the Federal Republic of Germany or
any part thereof or the United States of America or any state thereof or the
District of Columbia and rated at least "A-1" by Standard & Poor's Corporation
or "P-1" by Moody's Investors Service; and (iv) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the government of the Federal Republic of
Germany or the United States Government (in the case of any United States
Government Obligations), in each case maturing within one year from the date of
acquisition.
"Cedel" is defined to mean Cedel Bank, societe anonyme.
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; or (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or (2) cash, securities and other property
in an amount which could be paid by the Company as a Restricted Payment under
the Indenture and (ii) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
excluding the Permitted Holders, is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the surviving or transferee corporation; provided that (i) to the extent that
one or more regulatory approvals are required for one or more of the events or
circumstances described in clauses (a) or (b) to become effective under
applicable law, such events or circumstances shall be deemed to have occurred at
the time such approvals have been obtained and become effective under applicable
law, and (ii) no Change of Control shall be deemed to occur solely by reason of
the placement of any Voting Stock held by a Permitted Holder into a trust or
similar arrangement as a result of a prohibition under the laws or regulations
of the European Community or any of its predecessors or successors (the "EC") or
the European Union or any of its predecessors or successors (the "EU") or
Germany on the ownership of Voting Stock of the Company by persons not organized
under or citizens of a country which is a member of the EC or EU or Germany, if
the Company delivers an Opinion of Counsel to the Trustee prior thereto
confirming such trust or similar arrangement is necessary as a result of such
prohibition.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of such Person's common stock or
ordinary shares, whether or not outstanding at the Issue Date, and includes,
without limitation, all series and classes of such common stock or ordinary
shares.
"Consolidated Income Tax Expense" is define to mean, for any period, the
provision for local, foreign and all other income taxes of the Company and its
Restricted Subsidiaries for such period as determined in accordance with GAAP.
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"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Protection
Obligations; and Indebtedness that is Guaranteed or secured by the Company or
any of its Restricted Subsidiaries) and all but the principal component of rent
or other amounts in respect of Capitalized Lease Obligations paid, accrued or
scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, any premiums, fees and
expenses (and any amortization thereof) payable in connection with the offering
of the Discount Notes, all as determined on a consolidated basis in conformity
with GAAP.
"Consolidated Net Income" is defined to mean, for any period, the
consolidated net income (or loss) of the Company and the Restricted Subsidiaries
for such period determined in accordance with GAAP, adjusted, to the extent
included in calculating such consolidated net income, by excluding, without
duplication, (i) all extraordinary gains or losses of such Person (net of fees
and expenses relating to the transaction giving rise thereto) for such period,
(ii) income of the Company and the Restricted Subsidiaries derived from or in
respect of all Investments in Persons other than Subsidiaries of the Company or
any Restricted Subsidiary, (iii) the portion of net income (or loss) of such
Person allocable to minority interests in unconsolidated Persons for such
period, except to the extent actually received by the Company or any Restricted
Subsidiary, (iv) net income (or loss) of any other Person combined with such
Person on a "pooling of interests" basis attributable to any period prior to the
date of combination, (v) any gain or loss, net of taxes, realized by such Person
upon the termination of any employee pension benefit plan during such period,
(vi) gains or losses in respect of any Asset Sales (net of fees and expenses
relating to the transaction giving rise thereto) during such period and (vii)
except the net income of any Restricted Subsidiary for such period to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted directly or indirectly,
by operation of the terms of its constitutional documents or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Operating Cash Flow" is defined to mean, with respect to any
period, the Consolidated Net Income of the Company and the Restricted
Subsidiaries for such period increased by the sum of (i) the Consolidated Income
Tax Expense of the Company and the Restricted Subsidiaries accrued according to
GAAP for such period (other than taxes attributable to extraordinary, unusual or
nonrecurring gains or losses); (ii) Consolidated Interest Expense for such
period; (iii) depreciation of the Company and the Restricted Subsidiaries for
such period; and (iv) amortization of the Company and the Restricted
Subsidiaries for such period, including, without limitation, amortization of
capitalized debt issuance costs for such period, all determined on a
consolidated basis in accordance with GAAP.
"Cumulative Available Cash Flow" is defined to mean, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
currency values.
"Deeply Subordinated Shareholder Loans" is defined to mean any indebtedness
of the Company for money borrowed from a shareholder of the Company or any
Affiliate thereof, provided such indebtedness of the Company has been expressly
subordinated in right of payment and postponed as to all payments of interest or
principal prior to the earlier of (a) the end of the sixth month after the final
maturity of the Discount Notes and (b) the payment in full in cash of all
Discount Notes (or due provision therefor which results in the
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discharge of all obligations under the Discount Notes and the Indenture);
provided further that the terms of the subordination agreement are in the form
annexed to the Indenture and the Company receives one or more Opinions of
Counsel as to the validity and enforceability of such subordination agreement.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Deutsche Mark Equivalent" is defined to mean, with respect to any monetary
amount in a currency other than German Deutsche Marks, at any time for the
determination thereof, the amount of Deutsche Marks obtained by converting such
foreign currency involved in such computation into Deutsche Marks at the spot
rate for the purchase of Deutsche Marks with the applicable foreign currency as
quoted by the Financial Times (European edition) published on the last Business
Day immediately preceding such determination.
"Disqualified Stock" is defined to mean, with respect to any Person, any
Capital Stock of such Person which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is exchangeable for Indebtedness, or is
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the final maturity date of the Discount Notes.
"Euroclear" is defined to mean Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Executive Committee" is defined to mean the executive committee of the
Company or other similar body established by the Company's shareholders pursuant
to the Company's Articles of Incorporation.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the price that could be negotiated in an arms-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under pressure or compulsion to complete the transaction. Unless
otherwise specified in the Indenture, Fair Market Value shall be determined by
the Managing Director and approved by either a unanimous resolution of the
Executive Committee or a majority of the Shareholders of the Company acting in
good faith and shall be evidenced by a Resolution delivered to the Trustee.
"GAAP" is defined to mean, at any date of determination, generally accepted
accounting principles in effect in the United States which are applicable as of
the Issue Date.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the Payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" is defined to mean any Person obligated under a Guarantee.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise, contingently or otherwise, become
liable, directly or indirectly, for or with respect to, or become responsible
for, the payment of such Indebtedness, including an Incurrence of Indebtedness
by reason of the acquisition of more than 50% of the Capital Stock of any
Person; provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of Indebtedness. The
term "Incurrence" used as a noun has a corresponding meaning.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) any liability, contingent or
otherwise, of such Person for borrowed money, (ii) all obligations
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of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto and purchase money obligations), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than 180 days after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by or is otherwise the legal liability of such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the Fair Market Value of
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
or which is otherwise the legal liability of such Person, to the extent such
Indebtedness is Guaranteed by or is otherwise the legal liability of such
Person, (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Protection Obligations,
(ix) any and all deferrals, renewals, extensions and refundings of, or
amendments of or supplements to, any liability or obligation of the kind
described in this definition, and (x) Disqualified Stock; provided, however,
that Indebtedness shall not include Deeply Subordinated Shareholder Loans. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Independent Financial Advisor" is defined to mean a United States or
German investment banking firm of national standing in the United States or
Germany, as the case may be, (i) which, in the judgment of the Managing
Director, approved by either a unanimous resolution of the Executive Committee
or a majority of the shareholders of the Company, does not, and whose
shareholders, members, directors, officers or Affiliates do not, have a material
direct or indirect financial interest in the Company, and (ii) which, in the
judgment of the Managing Director, approved by either a unanimous resolution of
the Executive Committee or a majority of the shareholders of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Indirect Participant" is defined to mean a Person who holds an interest
through a Participant.
"Interest Rate Protection Obligations" is defined to mean the obligations
of any Person pursuant to any arrangement with any other Person whereby,
directly, or indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars, forward interest rate agreements and
similar agreements.
"Investment" is defined to mean, with respect to any Person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by means
of transfers of property to others, payments for property or services for the
account or use of others, or otherwise), or any purchase or ownership of any
stocks, bonds, notes, debentures or other securities, of any other Person.
Notwithstanding the foregoing, in no event shall any issuance of Capital Stock
(other than Disqualified Stock) of the Company in exchange for Capital Stock,
property or assets of another Person constitute an Investment by the Company in
such other Person. For purposes of the definition of "Unrestricted Subsidiary"
described below and the "Limitation on Restricted Payments" covenant described
above, (i) "Investment" shall include the Fair Market Value of the assets (net
of liabilities) of any Restricted Subsidiary of the Company at the time that
such Restricted Subsidiary of the Company is designated an Unrestricted
Subsidiary and shall exclude the Fair Market Value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company, and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its Fair Market Value at the time of such transfer, in each case as determined
by the Executive Committee of the
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Company in good faith or, if it may be in excess of DM2 million (or, if
non-Deutsche Mark denominated, the Deutsche Mark Equivalent thereof), by an
Independent Financial Advisor.
"Issue Date" is defined to mean the original date of issuance of the
Discount Notes.
"Lien" is defined to mean any mortgage, charge, pledge, security interest,
encumbrance, lien (statutory or other), hypothecation, assignment for security,
claim, or preference or priority or other encumbrance of any kind upon or with
respect to any property (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents if converted within 12
months after receipt, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of Cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Officer" is defined to mean the Chairman of the Executive Committee, the
Chief Executive Officer, any Managing Director (Geschaftsfuhrer), the Chief
Financial Officer, any Senior Vice President, the Chief Operating Officer, the
Treasurer, the General Counsel, the Secretary, the Controller or any Executive
Committee member of the Company.
"Officers' Certificate" is defined to mean a certificate signed by any two
of the Managing Director, Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer of the Company.
"Opinion of Counsel" is defined to mean a written opinion from legal
counsel who is reasonably acceptable to the Trustee, which may include an
individual employed as counsel to the Trustee.
"Pari Passu Indebtedness" is defined to mean any indebtedness of the
Company which ranks pari passu in right of payment with the Discount Notes.
"Participant" is defined to mean, with respect to DTC, Euroclear or Cedel,
Persons who have accounts with DTC, Euroclear or Cedel, respectively (and, with
respect to DTC, shall include Euroclear and Cedel).
"Permitted Holders" is defined to mean Advent International Corporation, a
Delaware corporation, General Cinema Corporation, a Delaware corporation, Morgan
Stanley Group Inc., a Delaware corporation, The Chase Manhattan Corporation, a
Delaware corporation, and their controlled Affiliates.
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"Permitted Indebtedness" is defined to mean the following indebtedness
(each of which shall be given independent effect):
(a) Indebtedness under the Discount Notes and the Indenture;
(b) Indebtedness of the Company and any Restricted Subsidiary
outstanding on the Issue Date;
(c) Indebtedness, including under any bank term loan and/or revolving
credit facility (which may include any guarantee, bonding and/or letter of
credit facility) or any capitalized lease, of the Company and/or any
Restricted Subsidiary to the extent that the proceeds of or credit support
provided by any such Indebtedness are used to finance or support working
capital for, or the construction of, a Cable Business of the Company or any
Restricted Subsidiary existing on the Issue Date, the acquisition of
properties or assets to be used by the Company or any Restricted Subsidiary
existing on the Issue Date (other than pursuant to an Asset Acquisition) or
the acquisition of capital stock in any Person to the extent necessary to
maintain the ownership interest of the Company or any Restricted Subsidiary
therein on the Issue Date, or to make any other Investment in any Person in
which an Investment has been made on or prior to the Issue Date, provided
such new Investment is made pro rata with the other equity holders of such
Person;
(d) (i) Indebtedness of the Company and/or any Restricted Subsidiary
to the extent the proceeds thereof or credit support are used to finance or
support a Cable Acquisition or working capital for, or to finance the
construction of, the business or network acquired and refinancings thereof
and (ii) Acquired Indebtedness;
(e) (i) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or a Restricted Subsidiary and (ii) Indebtedness of the Company
owed to and held by any Restricted Subsidiary; provided that an Incurrence
of Indebtedness shall be deemed to have occurred upon (x) any sale or other
disposition of any Indebtedness of the Company or a Restricted Subsidiary
referred to in this clause (e) to a Person other than the Company or a
Restricted Subsidiary or (y) any sale or other disposition of Capital Stock
of a Restricted Subsidiary, or (z) any designation as an Unrestricted
Subsidiary of a Restricted Subsidiary which holds Indebtedness of the
Company or another Restricted Subsidiary;
(f) Interest Rate Protection Obligations of the Company and/or any
Restricted Subsidiary to the extent relating to (i) Indebtedness of the
Company and/or such Restricted Subsidiary, as the case may be (which
Indebtedness (x) bears interest at fluctuating interest rates and (y) is
otherwise permitted to be incurred under the "Limitation on Indebtedness"
covenant), and/or (ii) Indebtedness for which a lender has provided a
commitment in an amount reasonably anticipated to be Incurred by the
Company and/or any Restricted Subsidiary in the following 12 months after
such Interest Rate Protection Obligation has occurred, but only to the
extent that the notional principal amount of such Interest Rate Protection
Obligation does not exceed the principal amount of the Indebtedness (and/or
Indebtedness subject to commitments) to which such Interest Rate Protection
Obligation relates;
(g) Indebtedness of the Company and/or any Restricted Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the
Company or a Restricted Subsidiary and/or (ii) obligations to purchase
assets, properties or services incurred in the ordinary course of business
of the Company or any Restricted Subsidiary; provided that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and its Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities or compensation payable thereunder;
(h) Indebtedness of the Company and/or any Restricted Subsidiary in
respect of performance bonds of the Company or any Restricted Subsidiary or
surety bonds provided by the Company or any Restricted Subsidiary incurred
in the ordinary course of business in connection with the construction or
operation of a Cable Business;
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(i) Indebtedness of the Company and/or any Restricted Subsidiary to
the extent it represents a replacement, renewal, refinancing, or extension
of outstanding Indebtedness of the Company and/or any Restricted Subsidiary
incurred or outstanding pursuant to clause (a), (b), (c), (d) or this
clause (i) of this definition or the proviso to the covenant "Limitation on
Indebtedness"; provided that (A) Indebtedness of the Company may not be
replaced, renewed, refinanced or extended under this clause (i) with
Indebtedness of any Restricted Subsidiary, (B) any such replacement,
renewal, refinancing or extension (x) shall not result in such Indebtedness
having a shorter Average Life as compared with the Indebtedness being
replaced, renewed, refinanced or extended and (y) shall not exceed the sum
of the principal amount (or, if such Indebtedness provides for a lesser
amount to be due and payable upon a declaration or acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing or
extension and such reasonable fees and expenses incurred in connection
therewith, and (C) in the case of any Indebtedness replacing, renewing,
refinancing, or extending Indebtedness which is pari passu to the Discount
Notes, any such replacing, renewing, refinancing or extending Indebtedness
is made pari passu to the Discount Notes or subordinated to the Discount
Notes, and, in the case of any Indebtedness replacing, renewing,
refinancing, or extending Indebtedness which is subordinated to the
Discount Notes or is Disqualified Stock, any such replacing, renewing,
refinancing or extending Indebtedness is subordinated to the Discount Notes
to the same extent as the Indebtedness being replaced, renewed, refinanced
or extended or is Disqualified Stock; and
(j) Indebtedness of the Company and/or any Restricted Subsidiary other
than Indebtedness described in the foregoing clauses (a) through (i), which
Indebtedness does not in aggregate principal amount exceed DM50 million
(or, if non-Deutsche Mark denominated, the Deutsche Mark Equivalent
thereof) outstanding at any time.
"Permitted Investment" is defined to mean (a) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to the Company or a Restricted
Subsidiary; (b) Cash Equivalents; (c) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (d) loans and advances to
employees made in the ordinary course of business; (e) Interest Rate Protection
Obligations and Currency Agreements; (f) Investments made in the ordinary course
of business as partial payment for constructing a network relating principally
to a Cable Business; and (g) Investments in any Person engaged in a Cable
Business.
"Person" is defined to mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock, whether now outstanding, or
issued after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" is defined to mean an underwritten public offering
or floatation of Common Stock of the Company which has been registered under the
Securities Act of 1933, as amended.
"Redemption Date" is defined to mean, with respect to any Discount Note,
the date on which such Discount Note is to be redeemed by the Company pursuant
to the terms of the Discount Note.
"Restricted Payment" is defined to mean any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company (other than dividends
or distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Company); (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company (other than any such
Capital Stock owned by the Company or a Restricted Subsidiary); (iii) the
purchase,
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redemption, defeasance or other acquisition or retirement for value of any
Subordinated Indebtedness (other than any Subordinated Indebtedness held by a
Restricted Subsidiary); or (iv) the making of any Investment (other than a
Permitted Investment) in any Person (other than an Investment by a Restricted
Subsidiary in the Company or an Investment by the Company or a Restricted
Subsidiary in either (x) a Restricted Subsidiary or (y) a Person that becomes a
Restricted Subsidiary as a result of such Investment).
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) other
than an Unrestricted Subsidiary.
"Restricted Subsidiary Indebtedness" is defined to mean Indebtedness of any
Restricted Subsidiary which is not subordinated to any other Indebtedness of
such Restricted Subsidiary.
"Share Capital" is defined to mean, at the time of determination, the
stated capital of the preference shares (other than Disqualified Stock) and
ordinary shares and additional paid-in capital of the Company, all as determined
in accordance with GAAP.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Restricted Subsidiary of the Company that, together with its Subsidiaries,
(i) for the most recent fiscal year of the Company, accounted for more than 10%
of the consolidated revenues of the Company and its Restricted Subsidiaries or
(ii) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Stated Maturity" is defined to mean (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Strategic Equity Investor" is defined to mean any company which is (or a
controlled Affiliate of which is), or a controlled Affiliate of any company
which is, engaged principally in a Cable Business; provided, however, that
Strategic Equity Investor shall not include any Subsidiary of the Company, or
any Person that is an Affiliate of the Company.
"Subordinated Indebtedness" is defined to mean any Indebtedness of the
Company which is expressly subordinated in right of payment to the Discount
Notes.
"Subordinated Subsidiary Notes" is defined to mean the notes issued by
subsidiaries of the Company, and which are subordinated in right of payment to
certain indebtedness of such subsidiaries for money borrowed pursuant to the
subordination provisions contained in the form attached to the Indenture.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity (i) of which outstanding
Capital Stock having at least a majority of the votes entitled to be cast in the
election of directors is owned, directly or indirectly, by such Person and one
or more other Subsidiaries of such Person, or (ii) of which at least a majority
of voting interest is owned, directly or indirectly, by such Person and one or
more other Subsidiaries of such Person.
"Tax" is defined to mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and other liabilities related
thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Total Consolidated Indebtedness" is defined to mean, at the time of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and the Restricted Subsidiaries outstanding (without duplication) as
of the date of determination.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other Indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any
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of its Subsidiaries arising in the ordinary course of business in connection
with the acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean any Subsidiary of the Company
(other than a Subsidiary which would constitute a Significant Subsidiary based
on the financial test set forth in the definition thereof) that at the time of
determination shall have been designated an Unrestricted Subsidiary by the
Managing Director with the approval of either a unanimous resolution of the
Executive Committee or a majority of the shareholders, in the manner provided
below and which remains so designated at the time of determination. The Managing
Director with the approval of either a unanimous resolution of the Executive
Committee or a majority of the shareholders may, by a Resolution delivered to
the Trustee, designate any Restricted Subsidiary of the Company (other than a
Significant Subsidiary) (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Restricted
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary, and provided that (i) no Default
or Event of Default shall have occurred and be continuing at the time of or
after giving effect to such designation, and (ii) either (A) the Subsidiary to
be so designated has total assets of DM2,000 (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof) or less or (B) if such
Subsidiary has assets greater than DM2,000 (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof), that such designation would
be permitted under the "Limitation on Restricted Payments" covenant described
above. The Managing Director with the approval of either a unanimous resolution
of the Executive Committee or a majority of the shareholders, may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company, provided
that (i) no Default shall have occurred and be continuing at the time of or
after giving effect to such designation and (ii) all Liens and Indebtedness of
such Unrestricted Subsidiary outstanding immediately following such designation
would, if Incurred at such time, have been permitted to be Incurred for all
purposes of the Indenture. Any designation by the Managing Director pursuant to
this paragraph shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complies with the
foregoing provisions.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of Executive Committee members, managing directors, managers or other voting
members of the governing body of such Person.
"Wholly-Owned" is defined to mean, with respect to any Subsidiary of any
Person, such Subsidiary if all the outstanding Capital Stock in such Subsidiary
(other than any directors' qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly-Owned
Subsidiaries of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The Global Discount Note
The Discount Notes will be represented by the Global Discount Note in
registered form, which shall be deposited with The Bank of New York, as
custodian of DTC, and registered in the name of Cede & Co., DTC's nominee.
Investors may elect to hold interests in the Global Discount Note through any of
DTC, Euroclear or Cedel, if they are Participants in such systems, or indirectly
through organizations that are Participants in such systems. Euroclear and Cedel
will hold interests on behalf of their Participants through customers'
securities accounts in Euroclear's and Cedel's names on the books of their
respective depositaries, which in turn will hold such interests in customers'
securities accounts in the depositaries' names on the books of DTC. Except under
limited circumstances detailed below, owners of beneficial interests in the
Global Discount Note will not be entitled to have Discount Notes registered in
their name, will not receive or be entitled to receive Discount Notes in
definitive form and will not be considered holders thereof.
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Upon the issuance of the Global Discount Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of Discount
Notes of the individual beneficial interests represented by such Global Discount
Note to the accounts of persons who have accounts with such depositary. Such
accounts initially will be designated by or on behalf of the Underwriters.
Ownership of beneficial interests in the Global Discount Note will be limited to
Participants or Indirect Participants. Ownership of beneficial interests in the
Global Discount Note will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of Participants) and the records of Participants (with respect to
interests of Indirect Participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Discount Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Discount Notes represented by such
Global Discount Note for all purposes under the Indenture and the Discount
Notes. Accordingly, each beneficial owner of an interest in the Global Discount
Note must rely on the procedures of DTC, Euroclear and Cedel and, if such person
is not a Participant in DTC, on the procedures of the Participant in DTC through
which such person owns its interest, to exercise any rights and remedies of a
holder under the Indenture. No beneficial owner of an interest in the Global
Discount Note will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, the Global Discount Note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Company, the Trustee nor the Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Discount Note or for maintaining, supervising or reviewing any records relating
to such beneficiary ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Discount Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of Discount Notes of
such Global Discount Note as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Discount Note held through such Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a definitive Discount Note for any reason,
including to sell Discount Notes to persons in states which require such
delivery of such Discount Notes or to pledge such Discount Notes, such holder
must transfer its interest in the Global Discount Note in accordance with the
normal procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Discount Notes (including the presentation of Discount
Notes for exchange as described below) only at the direction of one or more
Participants to whose accounts the DTC interests in the Global Discount Note are
credited and only in respect of such portion of the aggregate principal amount
of Discount Notes as to which such Participant or Participants has or have given
such direction.
DTC will exchange the Global Discount Note for definitive Discount Notes,
which it will distribute to its Participants, only if (i) DTC is unwilling or
unable to continue to act as depositary or ceases to be a clearing agency
registered under the Exchange Act and, in either case, a successor depositary is
not appointed by Kabelmedia within 90 days, (ii) an Event of Default under the
Indenture occurs, upon the request delivered in writing to DTC by the holder of
a Discount Note, (iii) at any time Kabelmedia, in its sole discretion,
determines that the Global Discount Note (in whole but not in part) should be
exchanged for definitive debentures, or (iv) an investor is ineligible to trade
through DTC as a Participant or Indirect Participant in such system or is unable
to acquire an interest in the Global Discount Note through a financial
institution that
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is a DTC Participant or Indirect Participant, upon the request delivered in
writing to Kabelmedia by such investor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Discount Note among Participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations. Should DTC discontinue such
procedures, the Company would request DTC to transfer the Global Discount Note
to another depositary willing to perform such procedures. Under the Indenture,
the right of any holder of Discount Notes to receive payment of principal,
premium or interest and to bring suit for the enforcement of such right is
absolute and unconditional and will not be impaired or affected without the
consent of such holder.
Payments on the Global Discount Note
Payments of any amounts owing in respect of the Global Discount Note will
be made through one or more paying agents appointed under the Indenture (which
initially will include The Bank of New York, as Paying Agent for the Discount
Notes) to the respective holders thereof. All such amounts will be payable in
United States dollars.
Upon receipt of any such amounts, The Bank of New York will pay the amount
so received to DTC which will distribute such payments to its Participants.
Payments of all such amounts will be made without deduction or withholding for
or on account of any present or future Taxes of whatever nature except as may be
required by law, and if any such deduction or withholding is required to be made
by any law or regulation of Germany or of any other jurisdiction in which the
Company is engaged in business for tax purposes then, to the extent described
under "-- Additional Amounts" above, the Company has agreed pursuant to the
Indenture, as applicable, that such Additional Amounts will be paid as may be
necessary in order that the net amounts received by any holder of the Global
Discount Note or owner of beneficial interests in the Global Discount Note after
such deduction or withholding will equal the net amounts that such holder or
owner would have otherwise received in respect of the Global Discount Note or
beneficial interests in the Global Discount Note, as the case may be, absent
such withholding or deduction. DTC, upon receipt of any such payment, will
immediately credit Participants' accounts with payments in amounts proportionate
to their respective ownership of beneficial interests in the Global Discount
Note, as shown on the records of DTC. The Company expects that payments by
Participants to owners of beneficial interests in the Global Discount Note held
through such Participants will be governed by standing customer instructions and
customary practices, as is now the case with the securities held for the
accounts of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants.
Distribution with respect to ownership of beneficial interests in the
Global Discount Note owned through Euroclear or Cedel will be credited to the
accounts of Euroclear Participants or Cedel Participants in accordance with the
relevant system's rules and procedures.
Information Concerning DTC, Euroclear and Cedel
The Company understands as follows with respect to DTC, Euroclear and
Cedel:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities of its Participants
and to facilitate the clearance and settlement of transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical movement
of securities certificates. DTC Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own DTC. Access to the DTC book-entry system is also available
to others, such as banks, brokers, dealers and trust
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companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an owner of a
book-entry interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain Persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
book-entry interests to such Person may be limited. In addition, beneficial
owners of book-entry interests through the DTC system will receive distributions
attributable to the Global Discount Note only through DTC Participants.
Euroclear and Cedel hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective Participants through electronic book-entry changes in accounts of
such Participants. Euroclear and Cedel provide to their Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing,
Euroclear and Cedel interface with domestic securities markets. Euroclear and
Cedel Participants are financial institutions such as underwriters, securities
brokers and dealers, banks, trust companies and certain other organizations.
Indirect access to Euroclear or Cedel is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodian
relationship with a Euroclear or Cedel Participant, either directly or
indirectly.
Global Clearance and Settlement Procedures
The Global Discount Note will be delivered to The Bank of New York, as
custodian for DTC. Interests in the Global Discount Note will trade in DTC's
same-day funds settlement system.
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CERTAIN INCOME TAX CONSIDERATIONS
PERSONS CONSIDERING THE PURCHASE OF DISCOUNT NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE ACQUISITION, OWNERSHIP AND DISPOSITION OF DISCOUNT
NOTES AND THE APPLICATION OF GERMAN LAWS AND UNITED STATES FEDERAL INCOME TAX
LAWS TO THEIR PARTICULAR SITUATIONS AND ANY CONSEQUENCES ARISING UNDER THE LAWS
OF ANY OTHER TAXING JURISDICTION.
GERMAN INCOME TAX CONSIDERATIONS
Under German law presently in effect, payment of the principal of or
interest on the Discount Notes by Kabelmedia or the Trustee or a paying agent
located outside of Germany, each acting on behalf of Kabelmedia, will not be
subject to withholding or deduction for or on account of any taxes, assessments
or other governmental charges imposed by the Federal Republic of Germany or any
state (Land), municipality or other political subdivision or taxing authority
thereof or therein, except as set forth below.
Under German law presently in effect, payments of interest on Discount
Notes are subject to withholding tax (Zinsabschlagsteuer) to be withheld (i) if
made by a credit institution located in Germany (including a German branch of a
foreign credit institution, but excluding a foreign branch of a credit
institution), by such credit institution in respect of Discount Notes on deposit
with or administered by such credit institution, or (ii) if made by the debtor
or a paying agent other than a credit institution located in Germany, by the
debtor, if such Discount Notes are held by (x) German tax residents (i.e.,
persons whose residence, customary place of abode, head office or management is
located in Germany), or (y) persons who are not resident in Germany and who are
subject to limited tax liability in Germany only with respect to their
German-source income and the interest on the Discount Notes represents income
from German agriculture or forestry, trade or business, self-employment or
letting or leasing of German property (according to Sections 43(4) and 49 of the
German Income Tax Law). This Zinsabschlagsteuer is imposed at an effective rate
of 32.25% (30% plus an additional 2.25% due to the introduction of the
solidarity tax or Solidaritatszuschlag). In the unlikely event that the
Zinsabschlagsteuer and Solidaritatszuschlag were to become relevant to any
payment with respect to the Discount Notes, a U.S. Holder of Discount Notes
should consult its U.S. tax advisor concerning possible treaty protection and in
the absence thereof, possible foreign tax credit effects.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is the opinion of Baker & McKenzie, special United States tax
counsel to the Company, of the material United States federal income tax
consequences of the ownership and disposition of Discount Notes. The discussion
is based upon the provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), the applicable Treasury Regulations promulgated and
proposed thereunder, judicial authority and current administrative rulings and
practice as of the date hereof. Subsequent developments in these areas could
have a material effect on the statements and conclusions set forth below.
This discussion is limited to the U.S. federal income tax considerations
applicable to a holder who or which is (i) a citizen or resident of the United
States, a corporation organized under the laws of the United States or any
political subdivision thereof or therein, or an estate or trust, the income of
which is subject to United States federal income tax regardless of the source,
or (ii) otherwise subject to U.S. federal income tax on a net basis in respect
of their beneficial interest in the Discount Notes (a "U.S. Holder"). This
discussion deals only with Discount Notes held as capital assets and does not
deal with special tax situations, such as investors in pass-through entities,
U.S. holders who or which are dealers in securities or foreign currency,
financial institutions, insurance companies, tax-exempt organizations, U.S.
Holders holding the Discount Notes as part of a "straddle," "hedge" or
"conversion transaction," or that have "functional currency" other than the
United States dollar, and U.S. Holders who own, directly or indirectly, 10
percent or more of the vote or value of the outstanding stock of the Company.
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed.
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<PAGE> 122
The Company will characterize all Discount Notes as indebtedness of the
Company for all United States federal income tax purposes. This characterization
by the Company will be binding on every U.S. Holder of a Discount Note, unless
the U.S. Holder discloses its inconsistent characterization on such U.S.
Holder's federal income tax return. The United States Internal Revenue Service
(the "Service") will not be bound by the characterization of the Discount Notes
by the Company and the U.S. Holders.
The Discount Notes will be "applicable high yield discount obligations" (as
defined in Section 163(j) of the Code). The designation of the Discount Notes as
applicable high yield discount obligations, however, will not have an adverse or
positive effect on U.S. Holders.
Original Issue Discount. For the reasons discussed below, the Discount
Notes will be deemed to have been issued with original issue discount ("OID")
for U.S. federal income tax purposes. Accordingly, each U.S. Holder will be
required to include in income (regardless of whether such U.S. Holder is a cash
or accrual basis taxpayer) in each taxable year, in advance of the receipt of
cash payments on such Discount Notes, that portion of the OID, computed on a
constant interest basis, attributable to each day during such year on which the
U.S. Holder held the Discount Notes. See "-- Taxation of Original Issue
Discount" below. Such OID will be treated as foreign source passive income (or,
for U.S. Holders that are "financial services entities" as defined in
Regulations under the Code, financial services income) for U.S. foreign tax
credit limitation purposes.
The amount of OID with respect to each Discount Note will be equal to the
excess of (i) its "stated redemption price at maturity" over (ii) its "issue
price."
Because they will be issued for cash, the "issue price" of the Discount
Notes will be the first price at which a substantial amount of the Discount
Notes are sold. For purposes of determining the issue price of the Discount
Notes, sales to bond houses, brokers, or similar persons or organizations acting
in the capacity of underwriters, placement agents or wholesalers are ignored.
Under the Treasury Regulations, the "stated redemption price at maturity"
of each Discount Note will include all payments to be made in respect thereof,
other than payments of "qualified stated interest" (i.e., interest that is
unconditionally payable at least annually). Because prior to February 1, 2002,
no interest will be paid on the Discount Notes, none of the interest actually
paid on the Discount Notes will constitute qualified stated interest.
Accordingly, the "stated redemption price at maturity" of a Discount Note will
equal the sum of all cash payments required to be made on such Discount Note
(including principal and stated interest) and the excess of the aggregate of
such amounts over the issue price of a Discount Note would be included in the
U.S. Holder's income as OID.
The face of each Discount Note will set forth the issue date, issue price,
yield to maturity, amount of OID, the amount of OID allocable to the first short
accrual period, if any, and any other information required by Treasury
Regulations. The Company will furnish to the Service the amount of OID, the
issue date and additional information required by Treasury Regulations. U.S.
Holders, including subsequent U.S. Holders, will be required to determine for
themselves the reportable amount of OID income for a year.
Taxation of Original Issue Discount. An original holder of a debt
instrument issued with OID is required to include in gross income for federal
income tax purposes an amount equal to the sum of the "daily portions" of such
OID for all days during the taxable year in which such holder holds the debt
instrument, including the purchase date and excluding the disposition date. The
daily portions of OID required to be included in a holder's gross income in a
taxable year will be determined on a constant interest rate basis by allocating
to each day during the taxable year on which the holder holds the debt
instrument a pro rata portion of the OID on such debt instrument which is
attributable to the "accrual period" in which such day is included. The amount
of the OID on a Discount Note attributable to each accrual period will be the
product of (i) its "adjusted issue price" at the beginning of such accrual
period multiplied by (ii) its "yield to maturity." The Discount Note's "yield to
maturity" is that discount rate which, when used in computing the present value
of all principal and stated interest payments to be made on a Discount Note,
produces an amount equal to its issue price. The "adjusted issue price" of a
Discount Note at the beginning of an accrual period will be its issue price plus
the aggregate amount of OID that accrued in all prior accrual periods
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<PAGE> 123
(determined without regard to the rules described below concerning acquisition
premium and bond premium) less any cash payments on the Discount Note.
Acquisition Premium. If a subsequent U.S. Holder purchases a Discount Note
at a cost that exceeds the Discount Note's "adjusted issue price" (as defined
above) on the purchase date but is less than or equal to the sum of all amounts
payable on the Discount Note after the purchase date -- such excess being
"acquisition premium" -- the daily portion of the OID (as otherwise determined)
to be included in income by such U.S. Holder will be reduced by an amount equal
to the OID (as otherwise determined to be includible) multiplied by a fraction;
the numerator of which is equal to the amount of such excess and the denominator
of which is the OID for the period remaining after the subsequent purchaser's
purchase to the maturity date of such Discount Note.
Market Discount. Generally, the market discount rules discussed below will
not apply to a U.S. Holder who acquired the Discount Note when it was originally
issued. These rules would apply, however, to any original U.S. Holder whose tax
basis in the Discount Note is less than such Discount Note's "issue price" (as
defined above).
Gain recognized on the disposition (including a redemption) by a subsequent
purchaser of a Discount Note that has accrued market discount will be treated as
ordinary income, and not capital gain, to the extent of the accrued market
discount, provided that the amount of market discount exceeds a
statutorily-defined de minimis amount. "Market discount" is defined as the
excess, if any, of (i) the stated redemption price at maturity or, in the case
of a debt obligation issued with OID (such as the Discount Notes), the "revised
issue price" (as defined below) over (ii) the tax basis of the debt obligation
in the hands of the holder immediately after its acquisition. The "revised issue
price" of a debt obligation equals the sum of its issue price and the total
amount of OID includible in the gross income of all holders for periods before
the acquisition of the debt obligation by the current holder (without regard to
any reduction in such income resulting from acquisition premium) and less any
cash payments in respect of such debt obligation.
Under the de minimis exception, there is no market discount if the excess
of the stated redemption price at maturity of the obligation (or its "revised
issue price" in the case of an obligation issued with OID) over the holder's tax
basis in the obligation is less than 0.25% of the stated redemption price at
maturity (or its "revised issue price") multiplied by the number of complete
years after the acquisition date to the Discount Note's date of maturity. Unless
the holder elects otherwise, the accrued market discount would be the amount
calculated by multiplying the market discount by a fraction, the numerator of
which is the number of days the obligation has been held by the holder and the
denominator of which is the number of days after the holder's acquisition of the
obligation up to and including its maturity date.
If a U.S. Holder of a Discount Note acquired at market discount disposes of
such Discount Note in any transaction other than a sale, exchange or involuntary
conversion, even though otherwise non-taxable (e.g., a gift), such U.S. Holder
will be deemed to have realized an amount equal to the fair market value of the
Discount Note and would be required to recognize as ordinary income any accrued
market discount to the extent of the deemed gain. A holder of a Discount Note
acquired at a market discount also may be required to defer the deduction of all
or a portion of the interest on any indebtedness incurred or maintained to carry
the Discount Note until it is disposed of in a taxable transaction.
A U.S. Holder of a Discount Note acquired at market discount may elect to
include the market discount in income as it accrues. This election would apply
to all market discount obligations acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies. The
election may be revoked only with the consent of the Service. If a U.S. Holder
of a Discount Note so elects to include market discount in income currently, the
above-discussed rules with respect to ordinary income recognition resulting from
sales and certain other disposition transactions and to deferral of interest
deductions would not apply.
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Bond Premium. If a U.S. Holder purchases a Discount Note at a cost that is
in excess of the amount payable on maturity (such excess being the "bond
premium"), the U.S. Holder is not required to include any OID in gross income.
If the Discount Note has bond premium, a U.S. Holder may elect under Section 171
of the Code to amortize such bond premium on a constant interest basis over the
period from the acquisition date to the maturity date of such Discount Note and,
except as future Treasury Regulations may otherwise provide, reduce the amount
of interest included in income in respect of the Discount Note by such amount. A
U.S. Holder who elects to amortize bond premium must reduce its adjusted basis
in the Discount Note by the amount of such allowable amortization. An election
to amortize bond premium would apply to all amortizable bond premium on all
taxable bonds held at or acquired after the beginning of the U.S. Holder's
taxable year as to which the election is made, and may be revoked only with the
consent of the Service.
If an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will generally receive a tax benefit from
the bond premium only upon computing its gain or loss upon the sale or other
disposition or payment of the principal amount of the Discount Note.
Tax Basis. A U.S. Holder's initial tax basis in a Discount Note will be
equal to the purchase price paid by such U.S. Holder for such Discount Note.
A U.S. Holder's tax basis in a Discount Note will be increased by the
amount of OID that is included in such U.S. Holder's income pursuant to the
foregoing rules through the day preceding the day of disposition (and the
accrual of market discount, if any, which the U.S. Holder elected to include in
gross income on an annual basis) and will be decreased by the amount of any cash
payments received (and the accrual of amortizable bond premium, if any, which
the U.S. Holder elected to deduct on an accrual basis).
Sale or Redemption. Unless a nonrecognition provision applies, the sale,
exchange, redemption (including pursuant to an offer by the Company) or other
disposition of a Discount Note will be a taxable event for federal income tax
purposes. In such event, a U.S. Holder will recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of any
property received (other than in respect of accrued and unpaid interest thereon)
and (ii) the U.S. Holder's adjusted tax basis therein (other than any tax basis
attributable to accrued and unpaid interest). Subject to the discussion above
under "-- Market Discount," such gain or loss should be capital gain or loss and
will be long-term capital gain or loss if the Discount Note had been held by the
U.S. Holder for more than one year at the time of such sale, exchange,
redemption or other disposition. Any such gain realized by a U.S. Holder will be
treated as U.S. source income for U.S. foreign tax credit limitation purposes.
There is a substantial risk, however, that any loss realized upon such a sale,
exchange, redemption or other disposition of a Discount Note will be allocated
against foreign source passive income (or, for U.S. Holders that are "financial
services entities" as defined in Regulations under the Code, financial services
income) for U.S. foreign tax credit limitation purposes by reference to the
income arising under the Discount Note.
Election to Treat all Interest as OID. A U.S. Holder of a Discount Note,
subject to certain limitations, may elect to include in gross income for federal
income tax purposes all interest that accrues on the Discount Note by using the
constant interest method described above. For purposes of the election, interest
includes stated and unstated interest, acquisition discount, OID, market
discount and de minimis market discount, as adjusted by an amortizable bond
premium or acquisition premium. Such an election, if made in respect of a
Discount Note with market discount or bond premium, will constitute the
above-discussed elections to include market discount in income currently or to
amortize bond premium, as the case may be. See discussion above under "-- Market
Discount," "-- Acquisition Premium" and "--Bond Premium."
Backup Withholding and Information Reporting. Under the Code, a U.S.
Holder of a Discount Note may be subject, under certain circumstances, to
information reporting and/or backup withholding at a 31% rate with respect to
certain payments in respect of OID, interest or the gross proceeds from
dispositions thereof. This withholding applies only if the U.S. Holder (i) fails
to furnish its social security or other taxpayer identification number ("TIN")
within a reasonable time after a request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report properly interest, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not
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subject to backup withholding. Any amount withheld from a payment to a U.S.
Holder under the backup withholding rules is allowable as a credit (and may
entitle such holder to a refund) against such holder's federal income tax
liability, provided that the required information is furnished to the Service.
Certain persons are exempt from backup withholding, including corporations,
financial institutions and non-U.S. persons, provided the required
certifications are provided to the Company or its agents.
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UNDERWRITING
Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof, Morgan Stanley & Co. Incorporated and Chase Securities
Inc. (the "Underwriters") have agreed to purchase, and Kabelmedia has agreed to
sell to the Underwriters, the following respective principal amounts of Discount
Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
AT MATURITY OF
DISCOUNT NOTES
----------------
<S> <C>
Morgan Stanley & Co. Incorporated.................................... $164,900,000
Chase Securities Inc................................................. 29,100,000
----------------
Total.............................................................. $194,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Discount Notes is subject to
the approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters are obligated to take and pay for all
the Discount Notes if any are taken.
The Underwriters propose to offer part of the Discount Notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
0.250% of the initial price to public of the Discount Notes. The Underwriters
may allow, and such dealers may reallow, a concession, not in excess of 0.125%
of the initial price to public of the Discount Notes, to certain other dealers.
Each Underwriter has agreed that: (a) it has not offered or sold and will
not offer to sell any Discount Notes to persons in the United Kingdom prior to
admission of the Discount Notes to listing in accordance with Part IV of the
Financial Services Act 1986 (the "Act"), except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Act; (b) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the Discount Notes in, from or otherwise involving the
United Kingdom; and (c) it has only issued or passed on, and will only issue or
pass on, in the United Kingdom any document received by it in connection with
the issue of the Discount Notes other than any document which consists of or any
part of listing particulars, supplementary listing particulars or any other
document required or permitted to be published by listing rules under Part IV of
the Act, to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom the document may otherwise lawfully be issued or passed
on.
Because more than 10% of the net proceeds of the Offering, not including
the underwriting compensation, will be used to repay amounts outstanding under
the Prior Bank Facilities for the benefit of Chase Securities Inc., a member of
the National Association of Securities Dealers, Inc. (the "NASD") who is
participating in the Offering as an Underwriter, the Offering is being conducted
pursuant to Article III, Section 44(c)(8) of the NASD Rules of Fair Practice.
See "Risk Factors -- Certain Interests of Affiliates of the Underwriters," "Use
of Proceeds" and "Certain Related Party Transactions -- Certain Interests of
Affiliates of the Underwriters." In accordance with these provisions, Morgan
Stanley & Co. Incorporated is acting as qualified independent underwriter
("QIU"), and the yield on the Discount Notes will be no lower than that
recommended by the QIU. The QIU has participated in the preparation of the
Registration Statement of which this Prospectus is a part and has performed due
diligence with respect thereto.
Kabelmedia has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Kabelmedia has been advised by the Underwriters that they presently intend
to make a market in the Discount Notes, as permitted by applicable laws and
regulations. The Underwriters are not obligated,
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however, to make a market in the Discount Notes and any such market-making may
be discontinued at any time without notice, at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Discount Notes. See "Risk Factors -- Lack of an
Established Market for the Discount Notes."
LEGAL MATTERS
The validity of the Discount Notes offered hereby will be passed upon for
the Company by Baker & McKenzie, New York, New York. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated balance sheets of Kabelmedia Holding GmbH and subsidiaries
as of December 31, 1995 and 1994 and the related consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1995; the balance sheet of Antech
Gesellschaft fur Vermietung und Vertrieb von Satelliten-und
Kabelfernsehempfangsanlagen mbH as of December 31, 1993 and the related
statements of operations and accumulated deficit and cash flows for the period
January 1, 1994 through November 23, 1994 and for the year ended December 31,
1993; the consolidated balance sheet of PKG Holding GmbH as of December 31, 1994
and the related consolidated statements of operations and accumulated deficit
and cash flows for the year then ended; the combined balance sheet of PKG Mature
Networks as of December 31, 1994 and the related combined statements of
operations, shareholders' equity and cash flows for the year then ended; the
balance sheet of TELECable Betriebsgesellschaft Halle mbH as of December 31,
1994 and the related statements of operations, shareholders' deficiency and cash
flows for the eight months ended August 31, 1995 and for each of the two years
in the period ended December 31, 1994; the combined balance sheets of the BFR
Group (Osnabruck and Angelbachtel Operations) as of December 31, 1994 and the
related combined statements of operations, shareholders' equity (deficiency) and
cash flows for the nine months ended September 30, 1995 and for each of the two
years in the period ended December 31, 1994; the statements of operations and
cash flows of the BFR Group (Berlin and Bielefeld Operations) for the nine
months ended September 30, 1995; the balance sheets of KSW GmbH & Co., KG Kabel-
und Satellitenempangsanlagen fur Wohngebiete und Kommunen as of December 31,
1994 and 1993 and the related statements of operations for the years then ended;
the combined balance sheets of the BTV Group at December 31, 1995 and 1994 and
the related combined statements of operations for the years then ended;
appearing in this Prospectus have been audited by Ernst & Young GmbH,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated balance sheet of PKG Holding GmbH as of December 31, 1993
and the related statements of operations and accumulated deficit and cash flows
for the year then ended; the balance sheets of Kabel Plus Gesellschaft fur
Kabel- und Satellitfernsehen mbH as of December 31, 1994 and 1993 and the
related statements of operations for the years then ended; the balance sheets of
Wiedmann-Dettwiler St. Georgen GmbH as of December 31, 1994 and 1993 and the
related statements of operations for the years then ended; appearing in this
Prospectus have been audited by Arthur Andersen GmbH, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The balance sheet of Kabel-Fernsehen Leipzig GmbH as of December 31, 1993
and the related statements of income and cash flows for the year then ended have
been audited by Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
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AVAILABLE INFORMATION
Kabelmedia has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), of
which this Prospectus is a part, with respect to the Discount Notes offered
hereby. This Prospectus, filed as a part of the Registration Statement, omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement for further information with respect to
Kabelmedia and the Discount Notes offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents and when any such document is an exhibit to the Registration
Statement, each such statement is qualified in its entirety by reference to the
copy of such document filed with the Commission.
Kabelmedia will be subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), upon the
consummation of the Offering, and in accordance therewith will file all reports
and other information as required thereby with the Commission. Such reports and
other information filed by Kabelmedia can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its public reference facilities in New York, New
York and Chicago, Illinois at prescribed rates.
So long as Kabelmedia is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the Commission to the Trustee and the holders of the Discount Notes.
Notwithstanding that Kabelmedia may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise
report on an annual and quarterly basis on forms provided for such annual and
quarterly reporting pursuant to rules and regulations promulgated by the
Commission, Kabelmedia will file with the Commission and provide to the Trustee
and to the Holders annual audited financial statements and quarterly unaudited
financial statements, along in each case with a management's discussion and
analysis thereof, all in the form Kabelmedia would be required to file were it
subject to such reporting requirements. Kabelmedia will not be obligated to file
any such reports with the Commission if the Commission does not permit such
filings.
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INDEX TO FINANCIAL STATEMENTS
HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
KABELMEDIA HOLDING GMBH
Independent Auditors Report............................................... F-4
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31,
1996 (unaudited)....................................................... F-5
Consolidated Statements of Operations for the years ended December 31,
1993,
1994 and 1995 and for the three months ended March 31, 1996
(unaudited)............................................................ F-6
Consolidated Statements of Shareholders' Equity (Deficiency) for the years
ended December 31, 1993, 1994 and 1995 and for the three months ended
March 31, 1996 (unaudited)............................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31,
1993,
1994 and 1995 and for the three months ended March 31, 1996
(unaudited)............................................................ F-8
Notes to Consolidated Financial Statements................................ F-9
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON SATELLITEN-UND
KABELFERNSEHEMPFANGSANLAGEN MBH
Independent Auditors Report............................................... F-19
Balance Sheet at December 31, 1993........................................ F-20
Statements of Operations and Accumulated Deficit for the year ended
December 31, 1993 and for the period January 1, 1994 through November
23, 1994............................................................... F-21
Statements of Cash Flows for the year ended December 31, 1993 and for the
period January 1, 1994 through November 23, 1994....................... F-22
Notes to Financial Statements............................................. F-23
PKG HOLDING GMBH
Independent Auditors Report............................................... F-29
Consolidated Balance Sheet at December 31, 1994........................... F-30
Consolidated Statement of Operations and Accumulated Deficit for the year
ended December 31, 1994................................................ F-31
Consolidated Statement of Cash Flows for the year ended December 31,
1994................................................................... F-32
Notes to Consolidated Financial Statements................................ F-33
Independent Auditors Report............................................... F-39
Consolidated Balance Sheet at December 31, 1993........................... F-40
Consolidated Statement of Operations and Accumulated Deficit for the year
ended December 31, 1993................................................ F-41
Consolidated Statement of Cash Flows for the year ended December 31,
1993................................................................... F-42
Notes to Consolidated Financial Statements................................ F-43
KABEL-FERNSEHEN LEIPZIG GMBH
Independent Auditors Report............................................... F-49
Balance Sheet at December 31, 1993........................................ F-50
Statement of Income for the year ended December 31, 1993.................. F-52
Statement of Cash Flows for the year ended December 31, 1993.............. F-53
Notes to Financial Statements............................................. F-54
</TABLE>
F-1
<PAGE> 130
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
PKG MATURE NETWORKS
Independent Auditors Report............................................... F-57
Combined Balance Sheet at December 31, 1994............................... F-58
Combined Statement of Operations for the year ended December 31, 1994..... F-59
Combined Statement of Shareholders' Equity for the year ended December 31,
1994................................................................... F-60
Combined Statement of Cash Flows for the year ended December 31, 1994..... F-61
Notes to Combined Financial Statements.................................... F-62
KABEL-PLUS GESELLSCHAFT FUR KABEL-UND SATELLITFERNSEHEN MBH
Report of Independent Auditors............................................ F-67
Balance Sheet at December 31, 1994........................................ F-69
Statement of Operations for the year ended December 31, 1994 and for the
five months ended May 31, 1995......................................... F-70
Notes to Financial Statements............................................. F-71
Management Report......................................................... F-75
Report of Independent Auditors............................................ F-76
Balance Sheet at December 31, 1993........................................ F-78
Statement of Operations for the year ended December 31, 1993.............. F-79
Notes to Financial Statements............................................. F-80
Management Report......................................................... F-84
WIEDMANN- DETTWILER ST. GEORGEN GMBH
Report of Independent Auditors............................................ F-85
Balance Sheet at December 31, 1994........................................ F-87
Statement of Operations for the year ended December 31, 1994 and for the
five months ended May 31, 1995......................................... F-88
Notes to Financial Statements............................................. F-89
Management Report......................................................... F-94
Report of Independent Auditors............................................ F-95
Balance Sheet at December 31, 1993........................................ F-97
Statement of Operations for the year ended December 31, 1993.............. F-98
Notes to Financial Statements............................................. F-99
Management Report......................................................... F-104
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
Independent Auditors Report............................................... F-105
Balance Sheet at December 31, 1994........................................ F-106
Statements of Operations for the years ended December 31, 1993 and 1994
and for the eight month period ended August 31, 1995................... F-107
Statements of Shareholders' Deficiency for the years ended December 31,
1993 and 1994 and for the eight month period ended August 31, 1995..... F-108
Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the eight month period ended August 31, 1995................... F-109
Notes to Financial Statements............................................. F-110
</TABLE>
F-2
<PAGE> 131
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
BFR GROUP (OSNABRUCK AND ANGELBACHTAL OPERATIONS)
Independent Auditors Report............................................... F-116
Combined Balance Sheet at December 31, 1994............................... F-117
Combined Statements of Operations for the years ended December 31, 1993
and 1994 and for the nine month period ended September 30, 1995........ F-118
Combined Statements of Shareholders' Equity (Deficiency) for the years
ended December 31, 1993 and 1994 and for the nine month period ended
September 30, 1995..................................................... F-119
Combined Statements of Cash Flows for the years ended December 31, 1993
and 1994 and for the nine month period ended September 30, 1995........ F-120
Notes to Combined Financial Statements.................................... F-121
BFR GROUP (BERLIN AND BIELEFELD OPERATIONS)
Independent Auditors Report............................................... F-127
Statement of Operations for the nine month period ended September 30,
1995................................................................... F-128
Statement of Cash Flows for the nine month period ended September 30,
1995................................................................... F-129
Notes to Financial Statements............................................. F-130
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
Independent Auditors Report............................................... F-132
Balance Sheets at December 31, 1993 and 1994.............................. F-133
Statements of Operations for the years ended December 31, 1993 and 1994
and nine months ended September 30, 1995 (unaudited)................... F-134
Notes to Financial Statements............................................. F-135
BTV GROUP
Independent Auditors Report............................................... F-140
Combined Balance Sheets at December 31, 1994 and 1995..................... F-141
Combined Statements of Operations for the years ended December 31, 1994
and 1995............................................................... F-142
Notes to the Combined Financial Statements................................ F-143
</TABLE>
F-3
<PAGE> 132
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
Kabelmedia Holding GmbH
We have audited the accompanying consolidated balance sheets of Kabelmedia
Holding GmbH and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted 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 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kabelmedia
Holding GmbH and subsidiaries at December 31, 1995 and 1994 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
February 28, 1996,
except for Note 1, as to which the date is May 21, 1996.
F-4
<PAGE> 133
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1994 1995 1995 1996 1996
------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DM DM U.S.$ DM U.S.$
(UNAUDITED) (UNAUDITED)
ASSETS
Cash (Note 6)........................... 2,478 7,866 5,327 6,297 4,264
Accounts receivable -- net.............. 340 2,291 1,552 3,044 2,061
Inventory............................... 558 1,185 802 1,389 941
Property, plant and equipment -- net
(Note 5).............................. 32,065 235,327 159,371 236,329 160,049
Goodwill -- net (Note 2)................ 19,889 153,155 103,721 162,872 110,302
Investment advance (Note 3)............. 66,783 -- -- -- --
Other assets............................ 6,116 21,041 14,250 20,808 14,092
------- ------- ------- ----------- -----------
TOTAL ASSETS............................ 128,229 420,865 285,023 430,739 291,709
======= ======= ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Accounts payable........................ 3,258 13,930 9,434 8,259 5,593
Accrued expenses and other
liabilities........................... 5,025 21,540 14,588 29,136 19,732
Deferred revenue........................ 1,514 9,830 6,657 10,474 7,093
Bank debt (Note 6)...................... 47,178 228,812 154,959 243,566 164,950
Subordinated Shareholder Loans (Note
11)................................... 63,584 172,638 116,915 177,134 119,961
------- ------- ------- ----------- -----------
TOTAL LIABILITIES....................... 120,559 446,750 302,553 468,569 317,329
Minority interest in subsidiaries....... -- 1,727 1,169 450 304
Commitments and contingencies (Notes 8
and 9)................................
SHAREHOLDERS' EQUITY (DEFICIENCY)
Registered capital (Note 10)............ 100 100 68 100 68
Capital contributions................... 15,187 18,187 12,317 18,187 12,317
Accumulated deficit..................... (7,617) (45,899) (31,084) (56,567) (38,309)
------- ------- ------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY
(DEFICIENCY).......................... 7,670 (27,612) (18,699) (38,280) (25,924)
------- ------- ------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY -- (DEFICIENCY)................ 128,229 420,865 285,023 430,739 291,709
======= ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 134
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------- -------------------------------------------
1993 1994 1995 1995 1995 1996 1996
------ ------ ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM U.S.$ DM DM U.S.$
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues....................... 2,220 4,551 33,510 22,694 5,604 15,327 10,380
Operating costs and expenses...
Operations................... 219 1,275 6,663 4,512 855 2,919 1,977
Selling, general and
administrative............. 987 2,504 14,465 9,796 3,027 4,370 2,959
Depreciation and
amortization............... 1,460 3,028 23,685 16,040 4,122 10,731 7,267
------ ------ ------- ------- ----------- ----------- -----------
Total.......................... 2,666 6,807 44,813 30,348 8,004 18,020 12,203
------ ------ ------- ------- ----------- ----------- -----------
Operating loss................. (446) (2,256) (11,303) (7,654) (2,400) (2,693) (1,823)
Interest expense:
Bank debt.................... 328 1,671 11,691 7,918 1,902 4,106 2,781
Subordinated Shareholder
Loans...................... 727 2,189 13,652 9,246 2,706 4,495 3,044
Minority interest in net loss
of subsidiaries.............. -- -- 118 80 21 27 18
------ ------ ------- ------- ----------- ----------- -----------
Loss before income taxes....... (1,501) (6,116) (36,528) (24,738) (6,987) (11,267) (7,630)
Income tax benefit............. -- -- 916 620 -- 599 406
------ ------ ------- ------- ----------- ----------- -----------
Net loss before extraordinary
item......................... (1,501) (6,116) (35,612) (24,118) (6,987) (10,668) (7,224)
Extraordinary item............. -- -- 2,670 1,808 -- --
------ ------ ------- ------- ----------- ----------- -----------
Net loss....................... (1,501) (6,116) (38,282) (25,926) (6,987) (10,668) (7,224)
====== ====== ======= ======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 135
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
REGISTERED CAPITAL ACCUMULATED EQUITY
CAPITAL CONTRIBUTIONS DEFICIT (DEFICIENCY)
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
DM DM DM DM
Initial capitalization January 1,
1993.................................. 50 -- -- 50
Net loss................................ -- -- (1,501) (1,501)
Additional shareholder contribution..... -- 400 -- 400
---------- ------------- ------------- -------------
Balance at December 31, 1993............ 50 400 (1,501) (1,051)
Net loss................................ -- -- (6,116) (6,116)
Additional shareholder contribution..... 50 14,787 -- 14,837
---------- ------------- ------------- -------------
Balance at December 31, 1994............ 100 15,187 (7,617) 7,670
Net loss................................ (38,282) (38,282)
Additional shareholder contribution..... 3,000 3,000
---------- ------------- ------------- -------------
Balance at December 31, 1995............ 100 18,187 (45,899) (27,612)
Net loss (unaudited).................... (10,668) (10,668)
---------- ------------- ------------- -------------
Balance at March 31, 1996 (unaudited)... 100 18,187 (56,567) (38,280)
======= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 136
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- -----------------------------------------
1993 1994 1995 1995 1995 1996 1996
------- ------- -------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM U.S. $ DM DM U.S. $
(UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net loss................................ (1,501) (6,116) (38,282) (25,926) (6,987) (10,668) (7,224)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Extraordinary loss on extinguishment
of debt............................. -- -- 2,670 1,808 -- -- --
Depreciation and amortization......... 1,460 3,028 23,685 16,040 4,122 10,731 7,267
Accrued interest on Subordinated
Shareholder Loans................... 727 2,189 13,652 9,246 2,706 4,495 3,044
Amortization of loan financing fees... -- 316 515 349 103 183 124
Deferred income taxes................. -- -- (1,020) (690) -- (750) (508)
Amortization of purchased deferred
revenues............................ -- (128) (1,004) (680) (31) (533) (361)
Minority interest in loss............. -- -- (118) (80) (21) (27) (18)
Changes in assets and liabilities, net
of effects of business acquisitions:
Accounts receivable................... (19) (53) 2,781 1,883 (451) (614) (416)
Inventories........................... (176) 105 615 416 374 (61) (41)
Other assets.......................... (87) (517) 3,445 2,333 179 (3,417) (2,314)
Accounts payable...................... 1,471 (333) 72 48 4,307 (5,898) (3,994)
Accrued expenses and other
liabilities......................... (93) 2,359 (9,099) (6,162) (3,788) 8,630 5,844
Deferred revenue...................... 19 228 (36) (24) (122) 1,177 797
------- ------- -------- ------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................ 1,801 1,078 (2,124) (1,439) 391 3,248 2,200
INVESTING ACTIVITIES
Purchases of property, plant and
equipment............................. (6,635) (5,617) (10,955) (7,419) (2,038) (2,891) (1,958)
Prepayments for investment advance...... -- (66,783) -- -- -- -- --
Acquisition of businesses, less cash
acquired.............................. (4,203) (16,047) (118,445) (80,214) (5,312) (11,951) (8,094)
Acquisition of other assets............. (783) (433) (593) (401) (132) (105) (71)
------- ------- -------- ------- ----------- ----------- -----------
Net cash used for investing
activities............................ (11,621) (88,880) (129,993) (88,034) (7,482) (14,947) (10,123)
FINANCING ACTIVITIES
Proceeds from debt...................... 5,343 40,322 177,311 120,080 -- 15,000 10,158
Increase in registered capital.......... -- 50 -- -- -- -- --
Contributions to capital................ -- 14,787 3,000 2,031 3,000 -- --
Payments of acquired debt............... -- (17,116) (132,804) (89,939) (15,691) (4,625) (3,132)
Payments of capitalized bank financing
costs................................. -- (3,079) (6,047) (4,095) -- -- --
Proceeds from (payments of) bank
overdrafts............................ -- (1,324) 638 432 369 (245) (166)
Proceeds from Subordinated Shareholder
Loans................................. 4,500 56,561 95,407 64,613 18,691 -- --
------- ------- -------- ------- ----------- ----------- -----------
Net cash provided by financing
activities............................ 9,843 90,201 137,505 93,122 6,369 10,130 6,860
Net increase (decrease) in cash and cash
equivalents........................... 23 2,399 5,388 3,649 (722) (1,569) (1,063)
Cash and cash equivalents at beginning
of period............................. 56 79 2,478 1,678 2,478 7,866 5,327
------- ------- -------- ------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................ 79 2,478 7,866 5,327 1,756 6,297 4,264
======= ======= ======== ======= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 137
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION
Kabelmedia Holding GmbH, formerly Kabelmedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On May
21, 1996 the shareholders of Kabelvision Beteiligungs GmbH ("Kabelvision"), a
company controlled by certain shareholders of Kabelmedia, and the shareholders
of Kabelmedia proposed that Kabelvision be merged with and into the Company.
Furthermore, it was proposed that the Subordinated Shareholder Loans (including
accrued interest) be contributed to the capital of Kabelmedia. Kabelvision was
founded in 1992 to acquire, own and operate cable television systems serving
communities throughout Germany. Kabelvision began operations in 1993 when their
first cable system was acquired. The accompanying financial statements have been
prepared as if the merger occurred January 1, 1993, using the historical costs
of each entity as if the merger were a pooling of interests.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP") including
those principles specific to the cable television industry. The Company
maintains its financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). Generally accepted accounting principles in Germany vary in certain
significant respects from U.S. GAAP. Accordingly, the Company has recorded
certain adjustments in order that these financial statements be in accordance
with U.S. GAAP.
Solely for the convenience of the reader, the accompanying consolidated
financial statements as of and for the year ended December 31, 1995 and for the
three months ended March 31, 1996 (unaudited) have been translated into United
States dollars ("U.S. $") at the rate of DM1.4766 per $1.00 the Noon Buying Rate
of the Federal Reserve Bank of New York on March 29, 1996. The translations
should not be construed as a representation that the amounts shown could have
been, or could be, converted into U.S. dollars at that or any other rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of cash and trade receivables. Credit risk on
trade receivables is minimized as a result of the large and diverse nature of
the Company's customer base. The company maintains cash and cash equivalents,
with various financial institutions located throughout Germany. The Company
policy is designed to limit exposure to any one institution.
REVENUE RECOGNITION
Revenue is comprised of revenue earned from subscription fees and charges
for installation and connections. Revenue is recognized at the time services are
provided to customers.
F-9
<PAGE> 138
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories, consisting primarily of supplies used in the construction of
cable television systems, are valued using the first in, first out (FIFO)
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with Statement
of Financial Accounting Standards No. 51 "Financial Reporting by Cable
Television Companies."
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 to 20 years; equipment and
fixtures: 3 to 5 years.
GOODWILL
Goodwill consists of the excess purchase price over the fair value of
assets acquired in various acquisitions. Such amounts are generally amortized
using the straight-line method over 12 years. Accumulated amortization for
goodwill is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Goodwill................................................................. 796 10,925
</TABLE>
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of goodwill by reviewing the
performance of the underlying operations, in particular, the future undiscounted
operating cash flows of the acquired entities.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. "Accounting for Income Taxes", which has
been applied for all periods presented. Under this method, deferred tax assets
and liabilities are based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in the period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value based on the
short-term maturities of these instruments. The carrying value of bank debt
approximates fair value based on quoted market prices for the same or similar
issues as well as the current rates offered to the Company. The fair value of
Subordinated Shareholder Loans is not determinable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE> 139
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The unaudited balance sheet as of March 31, 1996 and the related unaudited
statements of operations, shareholders' equity (deficiency) and cash flows for
the three months ended March 31, 1996 and 1995 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the unaudited interim financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The operating results for the interim
periods are not necessarily indicative of results to be expected for an entire
year.
3. BUSINESS ACQUISITIONS
Kabelmedia and Kabelvision have made a series of acquisitions of cable
television systems and operations. The following table summarizes these
acquisitions through December 31, 1995:
<TABLE>
<CAPTION>
TRANSACTION
DATE COMPANY TYPE
- ----------------------- ---------------------------------------------------------- -----------
<S> <C> <C>
1993 ACQUISITIONS
April 1993............. Kabelfernsehen Plauen GmbH & Co. KG Share
December 1993.......... Adorf Asset
1994 ACQUISITIONS
March 1994............. Seemann GmbH Share
March 1994............. ERKA I Erfurt Asset
March 1994............. Kabelrent Gesellschaft fur den Vertrieb und Service von Share
Medientechnik mbH
November 1994.......... Antech Gesellschaft fur Vermietung und Vertrieb von Share
Satelliten-und Kabelfernsehempfangsanlagen mbH
1995 ACQUISITIONS
January 1995........... APA Basic Beteiligungsgesellschaft mbH Share
PKG Holding GmbH Share
PKG Kabelbetriebsgesellschaft mbH ("PKG Mature Networks") Share
May 1995............... Kabel Plus Gesellschaft fur Kabel und Share
Satellitenfernsehen mbH and
Wiedmann-Dettwiler St. Georgen GmbH Asset
August 1995............ TELECable Betriebsgesellschaft Halle mbH Share
September 1995......... BFR Beteiligungsgesellschaft mbH, Kabelcom GmbH and ISIT Share
GmbH ("BFR Group")
October 1995........... TKB Telekabel Betriebsgesellschaft mbH Share
October 1995........... ERKA II Erfurt Asset
October 1995........... KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Share
Wohngebiete und Kommunen
</TABLE>
The acquisitions referred to above have been accounted for using the
purchase method of accounting and accordingly the accompanying financial
statements reflect the results of operation commencing on the acquisition dates.
The aggregate purchase price of the 1993 Acquisitions, including
acquisition costs, consisted of cash of DM4,241,000. These transactions resulted
in goodwill of DM1,108,000.
F-11
<PAGE> 140
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate purchase price of the 1994 Acquisitions, including
acquisition costs, consisted of cash of DM16,695,000, the assumption of bank
indebtedness and other liabilities of DM17,116,000 and a deferred payment of
DM350,000. These transactions resulted in goodwill of DM19,703,000.
The aggregate purchase price of the 1995 Acquisitions, including
acquisition costs, consisted of cash of DM183,071,000, the assumption of bank
indebtedness and other liabilities of DM133,746,000 and deferred payments of
DM12,583,000. The deferred payments are classified as other liabilities and
represent the remaining purchase price to be paid to the respective sellers for
two separate acquisitions amounting to DM10,000,000 and DM2,583,000. The
purchase price payable of DM10,000,000 is due on December 31, 1998 and is
non-interest bearing. It is included in the balance sheet at its present value
of DM6,919,000 discounted at 12%. The purchase price payable of DM2,583,000 is
due on March 31, 1996 and carries an interest rate based on the Frankfurt
Interbank Offered Rates ("FIBOR") plus 1% (4.87% at December 31, 1995).
Preliminary goodwill on the 1995 Acquisitions amounted to DM143,181,000,
subject to the finalization of certain purchase price adjustments in 1996.
Advance payments for these investments as of December 31, 1994 amounted to
DM66,783,000.
The following represents the unaudited pro forma results of operations as
if the above noted business combinations had occurred at the beginning of the
respective year in which the Companies were acquired as well as at the beginning
of the immediately preceding year:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
(DM IN THOUSANDS)
1995 ACQUISITIONS
Revenue................................................................ 45,625 57,043
Net loss before extraordinary item..................................... (52,535) (46,721)
Net Loss............................................................... (52,535) (49,391)
1994 ACQUISITIONS
Revenue................................................................ 5,253 6,877
Net Loss............................................................... (5,283) (9,095)
</TABLE>
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the periods presented, and is not intended to be a projection of
future results or trends.
4. INVESTMENT GRANTS
Investment grants from the government for certain acquisitions of property,
plant and equipment are recognized by the Company when estimable and realizable.
The basis of property, plant and equipment is reduced by investment grants
recognized, and depreciated over the useful life of the acquired property.
During 1994 and 1995 fixed assets were reduced by investment grants received of
DM716,000 and DM1,603,000, respectively. No investment grants were received in
1993.
Investment grants received are subject to government review. Management
does not anticipate any significant adjustments to the amount of investment
grants recorded.
F-12
<PAGE> 141
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- --------
(DM IN THOUSANDS)
<S> <C> <C>
Cable television systems............................................... 37,921 250,461
Equipment and fixtures................................................. 712 4,036
-------- --------
Total.................................................................. 38,633 254,497
Less accumulated depreciation.......................................... (6,568) (19,170)
-------- --------
Property, plant and equipment -- net................................... 32,065 235,327
======= =======
</TABLE>
6. BANK DEBT
Bank debt consisted of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, -----------
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Revolving credit facilities............................... 46,689 222,500 237,500
Bank notes................................................ -- 2,400 2,400
Bank overdrafts........................................... 489 3,912 3,666
------- ------- -----------
47,178 228,812 243,566
======= ======= =========
current portion thereof................................... 489 5,663 5,752
</TABLE>
The borrowings under revolving credit facilities included in the Balance
Sheet as of December 31, 1994 (hereafter the "1994 facility") were obtained by
Kabelvision under a credit facility entered into during 1994. The total
aggregate amount of the 1994 facility was DM 74,500,000 plus a secured overdraft
facility of DM 500,000. This facility carried an interest rate based on London
Interbank Offered Rates (hereafter "LIBOR") plus a margin of 2.5%. Interest on
the 1994 facility was payable quarterly. LIBOR at December 31, 1994 was 5.25%.
As of December 31, 1994, DM 27,811,000 and DM 500,000 of the 1994 facility and
secured overdraft facility respectively were unused.
Kabelvision and Kabelmedia (collectively the "Borrowers") entered into two
new revolving credit facilities (hereafter the "1995 facilities") with a number
of banks effective June 28, 1995 and August 18, 1995, respectively. The total
aggregate amount of both 1995 facilities is DM 293,250,000 plus secured
overdraft facilities of DM 1,750,000. A portion of the proceeds received under
the 1995 facilities was used to pay off the 1994 facility existing as of
December 31, 1994.
An extraordinary loss of DM 2,670,000 resulting from the full amortization
of unamortized bank financing fees relating to the 1994 facility was recorded in
1995 upon the payment of amounts outstanding under the 1994 facility.
The 1995 facilities are presented at fair value, estimated based on the
quoted market prices for the same or similar issues as well as the current rates
offered to the Borrowers for debt of the same remaining maturities.
Under the terms of the 1995 facilities, advances paid including any portion
of the secured overdraft facilities made available to the borrower shall later
convert into term loans. The conversion will take place on the earlier of the
date following two years after the effective date of the respective facility, or
at the time in
F-13
<PAGE> 142
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which the aggregate amount of the respective facility has been utilized. The
term loans are required to be paid in quarterly installments over a seven year
period following the date of conversion into the term loan.
Maturities for the 1995 facilities as of December 31, 1995 (assuming no
further borrowings) are presented as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1996......................................................................... --
1997......................................................................... 7,419
1998......................................................................... 19,160
1999......................................................................... 27,196
2000......................................................................... 33,375
Thereafter................................................................... 135,350
-----------------
222,500
==============
</TABLE>
The interest rates under the 1995 facilities are determined at the time of
borrowing and are based on LIBOR plus a margin of 2.25%. This margin will
decrease to 2.0% or 1.5% provided that the Borrowers can demonstrate that the
total debt-to-annualized cash flow ratio is less than 5.5:1 or 4.00:1
respectively. Interest on the 1995 facilities is payable monthly. LIBOR at
December 31, 1995 was 3.81%. As of December 31, 1995, DM 70,750,000 and DM
1,750,000 of the 1995 facilities and secured overdraft facility, respectively,
were unused. As of March 31, 1996, DM 55,750,000 and DM 1,750,000 of the 1995
facilities and secured overdraft facility, respectively, were unused.
The 1995 facilities are secured through first ranking security interests on
substantially all assets and revenues of the Borrowers and their subsidiaries, a
pledge of the shares of the Borrowers and their subsidiaries, as well as
guarantees from all subsidiaries. In addition, the 1995 facilities contain
certain covenants which, among other things, require the Company to maintain
specified ratios relating to cash flow and total debt to contributed equity. As
of December 31, 1995, the Company had DM 1,363,000 of cash subject to withdrawal
restrictions.
Bank financing fees of DM 6,047,000 relating to the procurement of the 1995
facilities have been capitalized in other assets as of December 31, 1995. They
are being amortized over a period of 8.5 years representing the term of the 1995
facilities. Commitment fees of 0.5% per year are charged on the unused portion
of the respective facilities.
Bank notes as of December 31, 1995 include short and long term notes
amounting to DM 1,500,000 and DM 900,000 respectively. The short term note is
collateralized with certain fixed assets and accounts receivable at one of the
Company's subsidiaries, and carries an interest rate of 5.25%. The long term
note is not collateralized and carries an interest rate of 7.3%.
The aggregate principal payments of these notes for the next five years
subsequent to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1996......................................................................... 1,751
1997......................................................................... 334
1998......................................................................... 315
</TABLE>
Bank overdrafts represent a short term financing method commonly used in
Germany. Interest rates ranging from 9.75 to 13.0% are generally charged on such
balances.
F-14
<PAGE> 143
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rate on bank notes and overdrafts outstanding
at December 31, 1995 approximated 8.14%.
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED DECEMBER 31, ---------
------------------------------- MARCH 31,
1993 1994 1995 1996
------- ------- ------- ---------
<S> <C> <C> <C> <C>
(DM IN THOUSANDS)
Cash paid on bank debt during the period for
interest....................................... 312 812 11,166 3,975
</TABLE>
7. INCOME TAXES
The Company and its consolidated subsidiaries each file separate tax
returns in accordance with German tax laws. Under German corporate tax law,
taxes on income are composed of corporate taxes and trade taxes. For financial
reporting purposes, the Company and its consolidated subsidiaries calculate
their respective tax liabilities on a separate return basis which are combined
in the accompanying consolidated financial statements.
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... -- -- 104
Deferred.................................................... -- -- (1,020)
------- ------- -------
-- -- (916)
======= ======= =======
</TABLE>
Reconciliations between the German corporate statutory tax rate of 50% for
1993 and 45% for 1994 and 1995 and the Company's effective tax rate before
extraordinary item are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax benefit at German statutory rate........ (751) (2,753) (16,438)
Change in valuation allowance............................... 985 3,414 19,068
Trade taxes on income, net of corporate tax benefit......... (144) (830) (3,345)
Amortization of goodwill.................................... 12 124 2,023
Other....................................................... (102) 45 (2,224)
------- ------- -------
-- -- (916)
======= ======= =======
</TABLE>
F-15
<PAGE> 144
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 and 1995 are presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1994 1995
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Net operating loss carry forwards.................................... 7,346 31,017
Interest expense on Subordinated Shareholder Loans................... -- 3,672
Other................................................................ 56 894
------- -------
7,402 35,583
less -- valuation allowance.......................................... (5,366) (21,576)
------- -------
2,036 14,007
Deferred tax liabilities
Property, plant and equipment........................................ -- (10,865)
Unamortized bank financing fees...................................... (1,532) (3,156)
Capitalized acquisition costs........................................ (216) (2,757)
Other assets......................................................... (288) (2,567)
------- -------
(2,036) (19,345)
------- -------
-- (5,338)
======= =======
</TABLE>
As of December 31, 1995, the Company and its subsidiaries had available
combined cumulative tax loss carry-forwards for corporate income tax of
approximately DM 58,797,000 and for trade tax on income of approximately DM
49,765,000. Under current German tax laws, these loss carryforwards have an
indefinite life and may be used to offset the Company's and its consolidated
subsidiaries future taxable income.
8. COMMITMENTS
The Company obtains certain programming directly from Deutsche Telekom
through signal delivery contracts. The signal delivery contracts with Deutsche
Telekom are generally for a fixed period of time and are subject to negotiated
renewal. Under these contracts the Company typically pays Deutsche Telekom
either a flat fee or a fee per customer that is determined by reference to a
published fee schedule. As of December 31, 1995, fees payable by the Company to
Deutsche Telekom under its existing contracts ranged from DM 0.57 to DM22.50 per
subscriber per month. For the year ended December 31, 1995 total fees paid to
Deutsche Telekom amounted to approximately DM 2,250,000.
The Company operates primarily in leased facilities and in addition leases
certain technical and office equipment. Lease terms generally range up to 5
years with options to renew at varying terms. Rental expense was DM 102,000, DM
409,000 and DM 1,527,000 in 1993, 1994 and 1995, respectively.
F-16
<PAGE> 145
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under noncancellable operating leases with initial
or remaining terms in excess of one year consisted of the following at December
31, 1995:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1996...................................................................... 1,606
1997...................................................................... 1,448
1998...................................................................... 1,362
1999...................................................................... 1,203
2000...................................................................... 390
Thereafter................................................................ 179
------
6,188
==============
</TABLE>
9. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the Company.
10. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000.
Capital contributions represent additional contributions made by the
shareholders in the form of cash or conversion of debt.
11. RELATED PARTY TRANSACTIONS
Subordinated Shareholder Loans due to shareholders represent principal,
accrued interest and an arrangement fee payable due to the Company's majority
shareholder. These loans are subject to annual interest rates ranging between
12% and 20% for the periods presented and are subordinate to bank debt of the
Company and its subsidiaries. The average weighted interest rate on Subordinated
Shareholder Loans at December 31, 1995 was 13.2%. The interest accrues and is
payable with principal in one installment at various dates from March 31, 2002
through December 31, 2003. Interest expense on these loans for the periods
presented amounted to DM 727,000 (including DM 400,000 of arrangement fees), DM
2,189,000 and DM 13,652,000 for 1993, 1994 and 1995, respectively. Accumulated
interest of DM 16,168,000 is included in Subordinated Shareholder Loans at
December 31, 1995.
The arrangement fee payable of DM 400,000 with respect to the initial
Subordinated Shareholder Loans was forgiven and contributed to the capital of
Kabelvision.
Included in other assets are receivables due from officers of DM 10,000 and
DM 76,000 for the years ended December 31, 1994 and 1995, respectively.
12. PENSION AND EMPLOYEE BENEFIT PLANS
The Company provides no significant pension, post retirement or post
employment benefits to its employees.
F-17
<PAGE> 146
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS
In January 1996 the Company acquired all of the registered capital of
info-Sat Elektro-und Kommunicationstechnik GmbH for a preliminary purchase price
of DM 10,468,000. The acquisition was financed through proceeds from borrowings
under the 1995 facilities.
F-18
<PAGE> 147
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
Antech Gesellschaft fur Vermietung und Vertrieb von Satelliten-und
Kabelfernsehempfangsanlagen mbH
We have audited the accompanying balance sheet of Antech Gesellschaft fur
Vermietung und Vertrieb von Satelliten- und Kabelfernsehempfangsanlagen mbH as
of December 31, 1993, and the related statements of operations and accumulated
deficit and cash flows for the period January 1, 1994 through November 23, 1994
and for the year ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Antech Gesellschaft fur
Vermietung und Vertrieb von Satelliten- und Kabelfernsehempfangsanlagen mbH as
of December 31, 1993 and the results of its operations and its cash flows for
the period January 1, 1994 through November 23, 1994 and for the year ended
December 31, 1993, in conformity with accounting principles generally accepted
in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
November 23, 1995
F-19
<PAGE> 148
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN-UND KABELFERNSEHEMPFANGSANLAGEN MBH
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 3
Accounts receivable -- net.................................................... 103
Inventory (Note 2)............................................................ 356
Prepaid expenses.............................................................. 20
Property, plant and equipment -- net (Note 3)................................. 7,826
Loans and other receivables due from shareholders (Note 11)................... 3,122
Other assets (Note 10)........................................................ 391
-------
TOTAL ASSETS.................................................................. 11,821
=============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts payable.............................................................. 596
Accrued expenses.............................................................. 147
Deferred gains (Note 1)....................................................... 1,068
Debt (Note 4)................................................................. 7,550
Capital lease obligations (Note 8)............................................ 5,154
-------
TOTAL LIABILITIES............................................................. 14,515
SHAREHOLDERS' DEFICIENCY
Registered capital.......................................................... 50
Accumulated deficit......................................................... (2,744)
-------
TOTAL SHAREHOLDERS' DEFICIENCY................................................ (2,694)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY................................ 11,821
=============
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 149
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN-UND KABELFERNSEHEMPFANGSANLAGEN MBH
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, 1993 NOVEMBER 23, 1994
----------------- -----------------
<S> <C> <C>
DM DM
(IN THOUSANDS)
Revenues
Cable services........................................... 966 1,654
Amortization of deferred gains........................... 130 133
Net sales of technical equipment........................... 95 335
------- -------
Total revenues............................................. 1,191 2,122
Operating costs and expenses:
Operations............................................... 177 366
Selling, general and administrative...................... 903 1,144
Depreciation and amortization............................ 540 632
------- -------
Total operating costs and expenses......................... 1,620 2,142
------- -------
Operating loss............................................. (429) (20)
Other income............................................... 10 74
Interest income from related parties....................... 341 234
Interest expense........................................... 1,243 1,484
------- -------
Loss before income taxes................................... (1,321) (1,196)
Provision for income taxes................................. -- --
------- -------
Net loss................................................... (1,321) (1,196)
Accumulated deficit, beginning of period................... (1,423) (2,744)
------- -------
Accumulated deficit, end of period......................... (2,744) (3,940)
============= =============
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 150
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN-UND KABELFERNSEHEMPFANGSANLAGEN MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31,1993 NOVEMBER 23,1994
----------------- -----------------
<S> <C> <C>
DM DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss................................................... (1,321) (1,196)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 540 632
Gain on sale of equipment sold........................... (210) --
Accrued interest......................................... -- 58
Changes in assets and liabilities:
Accounts receivable...................................... 324 39
Inventory................................................ (89) 356
Prepaid expenses......................................... (20) 6
Other assets............................................. (260) 12
Other receivables due from shareholders.................. (422) 865
Accounts payable......................................... (282) (317)
Accrued expenses......................................... (112) (62)
Deferred gains........................................... 80 (114)
------- -------
Net cash provided by (used in) operating activities........ (1,772) 279
INVESTING ACTIVITIES
Purchases of property, plant and equipment................. (3,457) (1,866)
Proceeds from sale of equipment............................ 2,472 --
Loans to shareholders...................................... (450) 250
------- -------
Net cash used in investing activities...................... (1,435) (1,616)
FINANCING ACTIVITIES
Net proceeds from bank overdraft accounts.................. 793 1,155
Proceeds from long-term debt............................... 3,034 1,081
Principal payments on long-term debt and capital lease
obligations.............................................. (619) (901)
------- -------
Net cash provided by financing activities.................. 3,208 1,335
Net increase (decrease) in cash and cash equivalents....... 1 (2)
Cash and cash equivalents at beginning of period........... 2 3
------- -------
Cash and cash equivalents at end of period................. 3 1
============= =============
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 151
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Antech Gesellschaft fur Vermietung und Vertrieb von Satelliten- und
Kabelfernsehempfangsanlagen mbH (hereafter the "Company"), a German limited
liability company, was founded on January 15, 1991 for the purpose of the
construction, operation and management of satellite and cable television
systems.
Effective November 4, 1994, the shares of the Company were sold to
Kabelvision Beteiligungs GmbH ("Kabelvision"). The sales price of DM 19,901,000
was based on the number of subscribers as of November 23, 1994 adjusted for
certain assets and closing costs and the assumption of liabilities.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with the
U.S. GAAP.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. As of December 31,
1993, the Company held no cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets, which include assets recorded under capital leases, are
depreciated or amortized in accordance with the United States Statement of
Financial Accounting Standards No. 51 "Financial Reporting by Cable Television
Companies".
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 15 years; equipment and
fixtures: 2 to 5 years.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property, plant and equipment are recognized by the Company when estimable and
realizable. The basis of property, plant and equipment is reduced by investment
grants and depreciated over the useful life of the acquired property. As of
December 31, 1993 property, plant and equipment was reduced by DM 381,000
relating to the recording of investment grants.
Investment grants are subject to government review. Management does not
anticipate significant adjustments to the amount of investment grants recorded.
F-23
<PAGE> 152
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 1993 was DM 82,000.
LEASES
The Company has entered into several agreements for the sale and leaseback
of certain of its cable television systems which have resulted in the
realization of gains. These gains have been deferred and amortized over the
terms of the applicable lease. The noncancellable leaseback agreements, with
terms ranging from 48 to 165 months, are classified as capital leases.
In addition, the Company leases or subleases cable television systems to
building owners and homeowner associations under operating leases.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes", which has
been applied for all periods presented. Deferred income taxes and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the
period that includes the enactment date.
2. INVENTORY
Inventory is recorded at the lower of cost (first-in, first-out) or market
and consists primarily of supplies used in repairs and maintenance and materials
used in the construction of cable television systems.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Cable television systems..................................................... 9,047
Equipment and fixtures....................................................... 77
-------
Total........................................................................ 9,124
Less-accumulated depreciation................................................ (1,298)
-------
Property, plant and equipment -- net......................................... 7,826
==============
</TABLE>
F-24
<PAGE> 153
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Total debt outstanding at December 31,1993 is as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Bank loans
10.50% Notes payable due between October 31, 2000 and November 30, 2004,
payable in monthly installments of DM 36,000, including interest........ 2,411
7.95% Term note payable due in full January 30, 2000....................... 2,400
Various bank overdraft accounts with interest rates ranging from 11% to
12%..................................................................... 1,454
Other........................................................................ 1,285
-------
7,550
==============
</TABLE>
The weighted average interest rate on short term borrowings outstanding at
December 31, 1993 approximated 11.3%. Total interest paid for the year ended
December 31, 1993 and the period January 1, 1994 through November 23, 1994
amounted to DM 1,229,000 and DM 1,444,000, respectively.
Collateral provided under various debt agreements include the assignment of
lease and sublease receivables, security interest in certain cable television
systems, a blanket mortgage of DM 1,250,000, personal guarantees of shareholders
and assignment of life insurance policies of shareholders. The carrying value of
the Company's assets which have been collateralized under the various debt
agreements approximate DM 2,820,000 as of December 31, 1993.
Annual maturities of debt at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1994...................................................................... 1,864
1995...................................................................... 361
1996...................................................................... 460
1997...................................................................... 561
1998...................................................................... 666
Thereafter................................................................ 3,638
-------
7,550
==============
</TABLE>
In connection with the sale of the Company, the above debt was paid by the
purchaser.
5. INCOME TAXES
The Company files a separate tax return in accordance with German tax laws.
Under German corporate tax law, taxes on income are comprised of corporate taxes
and trade taxes. As of December 31, 1993, the Company had available cumulative
tax loss carry-forwards for corporate income tax of approximately DM 1,688,000
and for trade tax on income of approximately DM 812,000. Under current German
tax laws, these loss carryforwards have an indefinite life and may be used to
offset the Company's future taxable income.
There were no current or deferred income taxes for the period January 1,
1994 through November 23, 1994 and for the year ended December 31, 1993.
F-25
<PAGE> 154
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of total tax provisions to the amount computed by applying
the expected German corporate statutory tax rate of 50% in 1993 and 45% in 1994
to loss before income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
1994
YEAR ENDED THROUGH
DECEMBER 31, NOVEMBER 23,
1993 1994
------------ ------------
(DM IN THOUSANDS)
<S> <C> <C>
Computed income tax benefit at German statutory rate............. 661 538
Trade tax on income, net of corporate tax benefit................ 64 69
Change in valuation allowance.................................... (731) (496)
Change due to tax rate fluctuations.............................. -- (125)
Other............................................................ 6 14
------------ ------------
Income tax benefit............................................... 0 0
========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and the deferred tax liability as of
December 31, 1993 are presented below:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets:
Net operating loss carry forwards.......................................... 912
Deferred gains............................................................. 589
less -- valuation allowance................................................ (1,456)
-------
Net deferred tax asset..................................................... 45
==============
Deferred tax liability:
Accounts receivable........................................................ (45)
-------
0
==============
</TABLE>
6. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000. As of December 31, 1993 registered
capital of the Company totaled DM 50,000.
7. PENSION AND RETIREMENT PLANS
The Company provides no significant pension, postretirement or
postemployment benefits to its employees.
8. LEASES
The Company leases a significant portion of its cable television systems
through sale-leaseback agreements. The December 31, 1993 balance sheet includes
cable television systems under capital leases having a cost of DM 5,474,000 and
accumulated amortization of DM 703,000.
F-26
<PAGE> 155
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993, minimum annual rentals for capital leases were as
follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1994......................................................................... 1,330
1995......................................................................... 1,330
1996......................................................................... 1,330
1997......................................................................... 971
1998......................................................................... 475
Thereafter................................................................... 2,484
-------
Total minimum lease payments................................................. 7,920
Less amount representing interest............................................ 2,766
-------
Prevent value of minimum lease payments...................................... 5,154
==============
</TABLE>
In connection with the sale of the Company, all capital leases were
terminated subsequent to November 23, 1994.
As lessor, the Company owns or leases its cable television systems which
are in turn leased or subleased to third parties. These leases and subleases to
third parties are accounted for as operating leases. Future minimum lease
payments receivable under noncancellable leasing arrangements as of December 31,
1993 are approximately DM 1,664,000 per year for 1994 through 1998 and DM
25,552,000 thereafter.
At December 31, 1993, the assets leased or subleased to third parties were
being carried at a cost of approximately DM 8,868,000 with accumulated
depreciation or amortization of DM 1,277,000.
9. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. In the opinion of management, the ultimate resolution of
such legal proceedings and claims will not have a material adverse effect on the
financial position or results of operations of the Company.
10. OTHER ASSETS
At December 31, 1993 other assets in the balance sheet are comprised of the
following:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
VAT receivable............................................................ 254
Deposits.................................................................. 78
Vendor receivables........................................................ 39
Other..................................................................... 20
---
391
==============
</TABLE>
11. RELATED PARTY TRANSACTIONS
At December 31, 1993 the balance sheet reflects loans and other receivables
due from shareholders of DM 3,122,000. Included therein are loans receivable of
DM 2,000,000 and DM 450,000 bearing interest at 12% and 8%, respectively. The
remaining balance is made up of interest receivable of DM 462,000 and
receivables in the regular course of business in the amount of DM 210,000. All
receivables and loans were paid as a result of the sale of the Company on
November 23, 1994.
F-27
<PAGE> 156
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Management fees charged by a shareholder owned company totalled DM 400,000
in 1993 and DM 377,000 for the period January 1 through November 23, 1994.
Interest income charged to related parties was DM 341,000 and DM 234,000 for the
same periods.
Purchases of fixed assets from an affiliated company amounted to DM
1,507,000 in 1993.
F-28
<PAGE> 157
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
PKG Holding GmbH
We have audited the accompanying consolidated balance sheet of PKG Holding
GmbH as of December 31, 1994, and the related consolidated statements of
operations and accumulated deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PKG Holding
GmbH as of December 31, 1994 and the consolidated results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
July 28, 1995
F-29
<PAGE> 158
PKG HOLDING GMBH
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 2,230
Accounts receivable -- net:
Trade (Note 1).............................................................. 530
PKG Mature Networks (Note 11)............................................... 224
Inventory (Note 3)............................................................ 197
Prepaid expenses.............................................................. 26
Property, plant and equipment -- net (Notes 1 and 4).......................... 30,347
Goodwill and other intangible assets -- net (Note 1).......................... 5,645
Other assets (Note 5)......................................................... 1,962
-------
TOTAL ASSETS.................................................................. 41,161
=============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts payable:
Trade....................................................................... 2,728
PKG Mature Networks (Note 11)............................................... 157
Accrued expenses.............................................................. 1,433
Accrued interest.............................................................. 1,101
Other liabilities............................................................. 1,376
Debt:
Related party (Note 11)..................................................... 9,300
Banks (Note 6).............................................................. 30,542
Deferred taxes (Note 7)....................................................... 763
-------
TOTAL LIABILITIES............................................................. 47,400
Minority interest in subsidiaries............................................. 166
SHAREHOLDERS' DEFICIENCY
Registered capital (Note 8)................................................. 492
Accumulated deficit......................................................... (6,897)
-------
TOTAL SHAREHOLDERS' DEFICIENCY................................................ (6,405)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY................................ 41,161
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 159
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
Revenues
Third parties............................................................... 7,272
PKG Mature Networks (Note 11)............................................... 1,059
-------
Total revenues................................................................ 8,331
Operating costs and expenses
Operations.................................................................. 1,710
Selling, general and administrative......................................... 4,709
Depreciation and amortization............................................... 4,266
-------
Total operating costs and expenses............................................ 10,685
-------
Operating loss................................................................ (2,354)
Other income.................................................................. 640
Other expense (Note 1)........................................................ (1,329)
Interest expense.............................................................. (2,838)
Minority interest in net income of subsidiaries............................... (34)
-------
Loss before income taxes...................................................... (5,915)
Provision for income taxes.................................................... (293)
-------
Net loss...................................................................... (6,208)
Accumulated deficit, December 31, 1993........................................ (532)
Cash dividends................................................................ (157)
-------
Accumulated deficit, December 31, 1994........................................ (6,897)
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 160
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss...................................................................... (6,208)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................... 4,266
Amortization of other assets................................................ 317
Loss on sale of property, plant and equipment............................... 166
Minority interest in net income of subsidiaries............................. 34
Provision for losses on receivables......................................... 27
Changes in assets and liabilities, net of effects of business acquisition:
Accounts receivable......................................................... (320)
Prepaid expenses and inventory.............................................. (27)
Other assets................................................................ (1,963)
Accounts payable............................................................ 1,750
Other liabilities and accrued expenses...................................... 2,519
-----------------
Net cash provided by operating activities..................................... 561
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................... (14,132)
Acquisition of business, less cash acquired (Note 2).......................... (1,774)
Other......................................................................... (161)
-----------------
Net cash used in investing activities......................................... (16,067)
FINANCING ACTIVITIES
Principal payments on bank debt............................................... (10,404)
Proceeds from bank debt....................................................... 22,966
Proceeds from related party loans............................................. 4,087
Dividends paid................................................................ (157)
-----------------
Net cash provided by financing activities..................................... 16,492
-----------------
Net increase in cash and cash equivalents..................................... 986
Cash and cash equivalents at beginning of year................................ 1,244
-----------------
Cash and cash equivalents at end of year...................................... 2,230
=============
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 161
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
PKG Holding GmbH ("PKG" or the "Company") is a German limited liability
company established in December, 1992. PKG acts as a holding company for
subsidiaries engaged in the construction and operation of cable television
systems in Germany. PKG and its subsidiaries operate cable television systems
throughout Germany. Certain subsidiaries also engage in the construction and
general management of affiliated and third-party cable television systems.
Effective January 1, 1995, the Company was sold to Kabelmedia Beteiligungs
GmbH ("Kabelmedia"). The sales price of DM 31,804,000 was based on the number of
subscribers as of December 31, 1994 adjusted for certain assets and the
assumption of liabilities. Costs incurred by PKG in relation to the sale during
1994 (DM 1,163,000) have been fully accrued and recorded within other expense in
the accompanying consolidated statement of operations.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with U.S.
GAAP.
The financial statements include the accounts of the Company and its
majority-owned and controlled subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. As of December 31, 1994
the Company held no cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with the United
States Statement of Financial Accounting Standards No. 51 "Financial Reporting
by Cable Television Companies."
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 5 to 12 years; equipment and
fixtures: 5 years.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property, plant and equipment are recognized by the Company when estimable and
realizable. The basis of property, plant and equipment is reduced by investment
grants and depreciated over the useful life of the acquired property. As of
December 31, 1994, property, plant and equipment was reduced by DM 599,000
relating to the recording of investment grants.
F-33
<PAGE> 162
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment grants are subject to government review. Management does not
anticipate any significant adjustments to the amount of investment grants
recorded.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill arising from business acquisitions (DM 4,483,000) is amortized on
a straight line basis generally over 12 years. Other intangible assets (DM
1,739,000) consist primarily of costs associated in obtaining per-mission
agreements. Permission agreements are entered into with the owners/authorized
users of residential units and provide the Company the right to connect the
residential units to the cable network once a contract has been set up with that
specific unit. Amounts incurred in obtaining permission agreements are amortized
over the life of the agreements which is generally 12 years. Accumulated
amortization for goodwill and other intangible assets aggregated DM 577,000 as
of December 31, 1994.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of goodwill and other intangible assets
by reviewing the performance of the underlying operations, in particular, the
future undiscounted operating cash flows of the acquired entities.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 1994 was DM 53,000.
REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in Germany and from the construction and management of cable
television systems.
The Company receives cash from its subscribers principally through
automatic bank withdrawals initiated at the beginning of each month. The Company
also may charge an initial fee (installation fee), which is recorded as income
to the extent of direct selling costs with the remainder deferred. Deferred
revenue related to installation fees is amortized on a straight-line basis into
income over two years. Revenues generated from cable services provided to
subscribers for the year ended December 31, 1994 approximated DM 6,207,000.
Revenues generated from the construction and management of cable television
systems approximated DM 2,124,000 for the year ended December 31, 1994.
EQUITY IN NET LOSS OF AFFILIATE
The Company holds a 50 percent interest in BKG Breitbandkabelgesellschaft
mbH ("BKG"), a German limited liability company engaged in the operation and
management of cable television systems. The investment is accounted for using
the equity method. As of December 31, 1994, the Company's share in the net
losses of BKG exceeded its investment. The Company will not recognize equity in
earnings in subsequent periods until the accumulated losses have been recovered.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which has
been applied for 1994. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the enactment date.
F-34
<PAGE> 163
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS ACQUISITION
Effective January 1, 1994 PKG acquired HAFI GmbH Vertrieb und Vermietung
von Satellitenempfangsanlagen (HAFI), a German limited liability company engaged
in the operation of cable television systems. The purchase price approximated DM
1,779,000. The acquisition has been accounted for by the purchase method of
accounting. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately DM 1,718,00 was recognized as
goodwill and is being amortized over 12 years.
3. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market
and consists primarily of supplies used in repairs and maintenance and for use
in future construction of cable television systems.
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Cable television systems..................................................... 34,762
Equipment and fixtures....................................................... 700
-------
Total........................................................................ 35,462
Less-accumulated depreciation................................................ (5,115)
-------
Property, plant and equipment -- net......................................... 30,347
==============
</TABLE>
5. OTHER ASSETS
Other assets is comprised principally of capitalized sales commissions of
DM 951,000 and VAT (sales tax) receivable of DM 744,000. Sales commissions
relate to one-time payments made in connection with obtaining new subscribers.
These charges have been capitalized and are amortized on a straight-line basis
into selling, general and administrative expense over two years.
6. DEBT
Total debt outstanding at December 31, 1994 was comprised solely of bank
loans as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
7% Notes payable............................................................. 18,657
Credit facilities............................................................ 11,820
Other........................................................................ 65
-------
30,542
==============
</TABLE>
The notes payable to bank are comprised of two notes of DM 17,144,000
("Note 1") and DM 1,513,000 ("Note 2"). Note 1 is due in equal monthly
installments, including interest, of DM 188,000 commencing January 1996 through
December 2003. In December 2003, the interest rate for Note 1 is subject to
renegotiation with the bank and payments continue in equal installments through
December 2006. Note 2 is due in equal monthly installments, including interest,
of DM 16,000.
The credit facilities provide for total borrowings of DM 50,000,000. As of
December 31, 1994, the unused portion of the credit facilities was DM
38,180,000. The interest rates range from 9.0% to 12.5%. The Company is also
required to pay a fee of .25% on the unused portion of the credit facilities.
F-35
<PAGE> 164
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All of the assets of the consolidated group are pledged as collateral under
the Company's note and credit facilities. The note and credit facilities also
contain various warranties and covenants. In connection with the sale of the
Company's shares as of January 1, 1995, the majority of the outstanding balance
of the notes and the credit facilities were paid in 1995.
Interest expense charged to operations during 1994 was DM 1,819,000.
Interest paid on debt during 1994 amounted to DM 1,769,000. The weighted average
interest rate on short term borrowings outstanding as of December 31, 1994 was
9.7%.
Annual maturities of bank debt as of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 9,961
1996......................................................................... 1,191
1997......................................................................... 1,280
1998......................................................................... 1,376
1999......................................................................... 1,479
Thereafter................................................................... 15,255
-------
30,542
==============
</TABLE>
7. INCOME TAXES
PKG and its consolidated subsidiaries each file separate tax returns in
accordance with German tax laws. Under German corporate tax law, taxes on income
are comprised of corporate taxes and trade taxes. For financial reporting
purposes, PKG and such subsidiaries calculate their respective tax liabilities
on a separate return basis which are combined in the accompanying consolidated
financial statements.
As of December 31, 1994, the Company had available cumulative tax loss
carryforwards for corporate income tax of approximately DM 9,978,000 and for
trade tax on income of approximately DM 7,393,000. Under current German tax
laws, these loss carryforwards have an indefinite life and may be used to offset
PKG's and its consolidated subsidiaries future taxable income.
The provision for income taxes consisted of the following for the year
ended December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Current provision......................................................... 293
Deferred provision........................................................ 0
-------
Total provision........................................................... 293
==============
</TABLE>
A reconciliation of total tax provisions to the amount computed by applying
the expected German corporate statutory tax rate of 45% to loss before income
taxes is as following for the year ended December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Computed income tax benefit at German statutory rate...................... (2,662)
Trade tax on income, net of corporate tax benefit......................... (488)
Valuation allowance on losses incurred in 1994............................ 3,443
-------
293
==============
</TABLE>
F-36
<PAGE> 165
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 are presented below:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets
Net operating loss carry forwards.......................................... 5,100
less -- valuation allowance................................................ (5,100)
-------
Net deferred tax assets.................................................... 0
Deferred tax liabilities
Cable television systems................................................... 750
Other...................................................................... 13
-------
Deferred tax liability..................................................... 763
-------
Net deferred tax liability................................................... 763
==============
</TABLE>
8. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000. As of December 31, 1994 registered
capital of the Company totalled DM 492,000.
9. PENSION AND RETIREMENT PLANS
The Company provides no significant pension, postretirement or
postemployment benefits to its employees.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has certain noncancelable operating leases with renewal options
for buildings and equipment. In 1994, rental expenses for all leases totalled DM
272,000.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 327
1996......................................................................... 257
1997......................................................................... 234
1998......................................................................... 214
1999......................................................................... 210
Thereafter................................................................... 1,515
</TABLE>
LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. In the opinion of management, the ultimate resolution of
such legal proceedings and claims will not have material adverse effect on the
consolidated financial position or results of operations of the Company.
F-37
<PAGE> 166
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS
APA-Basic Beteiligungsgesellschaft, an 80% shareholder in PKG, has provided
loans to the Company totalling DM 9,300,000. The loans bear interest at 14% per
annum and are subordinated to all other creditors of PKG. The loans plus accrued
interest are due in full in 1998. Interest expense incurred during the year
totalled DM 1,019,000. In connection with the sale of the Company, the loans and
related accrued interest were paid in full in 1995.
The Company has entered into agreements with four affiliated companies
(collectively, the "PKG Mature Networks") to provide construction, management
and marketing services through 1998. The PKG Mature Networks are principally
owned by the shareholders of the Company. Sales to the PKG Mature Networks
during 1994 totalled DM 1,059,000. In addition, the Company engaged in 1994 the
PKG Mature Networks to construct certain cable television systems. Charges
incurred and capitalized during the year totalled DM 1,221,000.
F-38
<PAGE> 167
INDEPENDENT AUDITORS REPORT
FOR 1993 FINANCIAL STATEMENTS
To PKG Holding GmbH
Hannover
We have audited the accompanying consolidated balance sheet of PKG Holding GmbH,
Hannover (see note 1), as of December 31, 1993, and the related consolidated
statement of operations and accumulated deficit and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PKG Holding
GmbH, Hannover, as of December 31, 1993 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles in the United States.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
VON SPERBER STEINWEG
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Hannover, Germany
June 29, 1994
F-39
<PAGE> 168
PKG HOLDING GMBH
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM
---------
<S> <C>
ASSETS
Cash........................................................................... 1,243,792
Accounts receivable -- trade................................................... 363,150
Accounts receivable -- affiliate............................................... 87,620
Inventory...................................................................... 144,101
Other receivables and prepaid expenses......................................... 297,315
Property and equipment -- net.................................................. 19,598,639
Permission agreements and goodwill -- net...................................... 4,390,599
Other assets................................................................... 32,100
---------
Total assets................................................................... 26,157,316
=========
LIABILITIES AND CAPITAL DEFICIT
Accounts payable -- trade...................................................... 1,134,441
Accrued expenses............................................................... 389,171
Other liabilities.............................................................. 492,544
Debt -- banks.................................................................. 17,924,399
Debt -- related party.......................................................... 5,213,000
Deferred taxes................................................................. 912,000
---------
Total liabilities.............................................................. 26,065,555
---------
Minority interest in subsidiaries.............................................. 131,864
---------
Capital deficit................................................................
Capital subscribed............................................................. 492,000
Accumulated deficit............................................................ (532,103)
---------
Total capital deficit.......................................................... (40,103)
---------
Total liabilities and capital deficit.......................................... 26,157,316
=========
</TABLE>
See accompanying notes to the consolidated financial statements
F-40
<PAGE> 169
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Revenues (including amounts of affiliates: DM1,896,872).......................... 3,761,456
Operating costs and expenses
Operating...................................................................... (1,909,968)
Selling, general and administrative............................................ (2,120,866)
Depreciation and amortization.................................................. (116,305)
---------
(4,147,139)
Operating loss................................................................... (385,683)
Equity in losses of affiliated company........................................... (30,000)
Other income, net................................................................ 179,444
Interest expenses................................................................ (157,664)
Minority interest in consolidated subsidiaries................................... (31,095)
---------
Loss before income taxes......................................................... (424,998)
Provision for income taxes....................................................... (107,105)
---------
Net loss......................................................................... (532,103)
Accumulated deficit, balance as of December 31, 1992............................. 0
---------
Accumulated deficit, balance as of December 31, 1993............................. (532,103)
=========
</TABLE>
See accompanying notes to the consolidated financial statements
F-41
<PAGE> 170
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... (532,103)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................. 116,305
Minority interests in consolidated subsidiaries................................ 31,095
Equity in loss of affiliate.................................................... 30,000
Change in assets and liabilities:
Accounts receivable, trade.................................................. 386,342
Accounts receivable, affiliate.............................................. (87,620)
Inventory................................................................... (60,182)
Other receivables and prepaid expenses...................................... (199,700)
Accounts payable, trade..................................................... (242,437)
Accrued expenses............................................................ 239,274
Other liabilities........................................................... (17,600)
---------
Net cash used in operating activities..................................... (336,626)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................. (386,454)
Purchase of business, net of cash acquired..................................... 821,716
Additions to other assets...................................................... (30,000)
Additions to permission agreements............................................. (24,676)
---------
Net cash provided by investing activities................................... 380,586
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank borrowings.............................................. 620,242
Capital contributions from minority interests.................................. 29,499
Proceeds from capital contributions............................................ 402,000
---------
Net cash provided by financing activities................................... 1,051,741
---------
INCREASE IN CASH................................................................. 1,095,701
CASH, BEGINNING OF YEAR.......................................................... 148,091
---------
CASH, END OF YEAR................................................................ 1,243,792
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................................... 0
=========
Income taxes................................................................... 9,585
=========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired........................... 24,481,646
Liabilities assumed.............................................................. 1,858,546
---------
Consideration paid............................................................. 22,623,100
Less -- Amounts borrowed......................................................... 22,623,100
---------
Net cash paid for acquisition.................................................. 0
=========
</TABLE>
See accompanying notes to the consolidated financial statements
F-42
<PAGE> 171
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
PKG Holding GmbH (PKG) is a German limited liability company established in
December, 1992. PKG acts as a holding company for subsidiaries engaged in the
construction and operation of cable television systems in Germany. During 1993
PKG and its subsidiaries (collectively, the Company) operated cable television
systems in three separate locations in Germany along with separate operations
engaged in the construction and general management of affiliated and third-party
cable television systems.
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
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.
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned and controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated. All amounts in the
consolidated financial statements are shown in Deutsche Mark (DM).
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with U.S.
GAAP.
B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. The carrying amount of
cash and cash equivalents approximates fair value due to the short maturity of
these investments. There were no cash equivalents at December 31, 1993.
C) INVENTORY
Inventory is stated at lower of cost (first-in, first-out) or market and
consists primarily of supplies used in repairs and maintenance and for use in
future construction of cable television systems.
D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are comprised principally of
assets used in the development and operation of cable television systems. Major
additions and improvements are charged to the property accounts, while
maintenance and repairs are charged to operations as incurred. Construction
costs of cable systems are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 51 "Financial Reporting by Cable
Television Companies". Subscriber related costs and general and administrative
expenses are charged to operation as incurred.
SFAS 51 generally requires cable television companies engaged in
construction or development activities to account for cable television assets in
service based upon anticipated subscriber levels of each system. As actual
subscriber levels are achieved, cable television assets are deemed to be placed
in service and depreciated in accordance with industry standards.
F-43
<PAGE> 172
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 6 years, equipment and
fixtures: 5 years.
E) PERMISSION AGREEMENTS AND GOODWILL
Permission Agreements (DM 4,377,203) consist of costs associated in
obtaining permission agreements acquired in connection with the acquisition of
Kabel Beteiligungsgesellschaft mbH (see Note 2). Permission agreements are
entered into with the owners or authorized users of residential units and
provide the Company the right to connect the residential units to the cable
network once a contract has been set up with that specific unit. Goodwill (DM
13,396) is recorded to reflect the excess of the cost of an acquisition over the
fair value of the net assets acquired. Permission agreements and goodwill are
amortized using the straight line method over a useful life of 12 years.
Accumulated amortization is DM 1,218 as of December 31, 1993.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of permission agreements and goodwill
by reviewing the performance of the underlying operations, in particular, the
future undiscounted operating cash flows of the acquired entities.
F) REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in Germany and from the construction and management of cable
television systems and is recognized as revenue as services are performed.
G) INCOME TAXES
The company has decided to apply the requirements of SFAS No. 108 as of
January 1, 1993.
Deferred income taxes and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in the period that includes the enactment date. A
valuation allowance is recognized if based on the weight of the available
evidence it is more likely than not that some portion or all of a deferred tax
asset will not be realized in the foreseeable future.
2. ACQUISITION
Effective December 31, 1993, PKG acquired Kabel-Fernsehen Leipzig GmbH
(KFL), a German limited liability company engaged in the operation of cable
television systems. The aggregate purchase price of KFL was DM 22,507,800. In
addition the Company paid approximately DM 115,300 of direct acquisition cost,
DM 25,000 of direct financing costs and assumed liabilities of DM 1,858,546. The
cost of the acquisition was financed by borrowings under the companies credit
facilities and a loan from an affiliate. The acquisition was accounted for using
the purchase method of accounting; accordingly KFL's assets were recorded at
fair market values at the date of acquisition. The results of operations of KFL
have been included in the consolidated financial statements since the date of
acquisition.
The following unaudited pro forma consolidated condensed results of
operations are presented for the year ended December 31, 1993 as if the
acquisition of KFL had occurred on January 1, 1993.
<TABLE>
<S> <C>
Net Revenues................................................................. DM 7,396,053
Net Loss..................................................................... DM(3,927,724)
</TABLE>
F-44
<PAGE> 173
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
The components of property and equipment as of December 31, 1993, are as
follows:
<TABLE>
<CAPTION>
DM
----------
<S> <C>
Cable television systems....................................................... 19,042,187
Equipment and fixtures......................................................... 457,131
----------
19,499,318
Less -- accumulated depreciation............................................... (196,933)
Construction-in-process........................................................ 296,254
----------
19,598,639
=========
</TABLE>
4. INVESTMENTS IN AFFILIATED COMPANIES
The Company has a 50% ownership interest in Breitband Kabelgesellschaft
(BKG) which is engaged in the operation and management of cable television
systems in Germany. BKG is managed jointly by the Company and the other partner
who holds the remaining 50% interest. Accordingly, the investment is recorded in
accordance with the equity method of accounting. As of December 31, 1993, the
Company's portion of the cumulative losses of BKG exceeded its investment by
approximately DM 168,000. The Company will not recognize equity in earnings in
subsequent periods until the accumulated losses have been recovered.
5. DEBT
Debt consists of the following as of December 31, 1993:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Note payable to a bank........................................................... 17,144,000
Credit facilities with banks..................................................... 731,414
Other debt....................................................................... 48,985
---------
17,924,399
=========
</TABLE>
Note payable to a bank is due in equal monthly installments of DM 187,541
commencing on January 15, 1996 through December 13, 2003, including interest at
an annual rate of 7%. Subsequent to December 13, 2003, the interest rate is
subject to renegotiation with the bank and payments continue in equal
installments through December 13, 2006. In connection with the acquisition of
the company by KMH the outstanding balance was paid in full in August 1995.
The Company has credit facilities available from banking institutions which
provided for total borrowings of approximately DM 1,550,000. The interest rates
range from 9.75% to 12.25%.
The notes payable and credit facilities contain covenants which include
certain limitations on the assignment of receivables and the, transfer of rights
on operating assets including intangibles.
Interest expense in 1993 amounted to DM 123,200.
F-45
<PAGE> 174
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of debt are as follows:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
1994............................................................................. 780,399
1995............................................................................. --
1996............................................................................. 1,084,778
1997............................................................................. 1,163,196
1998............................................................................. 1,247,284
Thereafter....................................................................... 13,648,742
---------
17,924,399
=========
</TABLE>
6. INCOME TAXES
PKG and its consolidated subsidiaries each file separate tax returns in
accordance with German tax laws. For financial reporting purposes, PKG and such
subsidiaries calculate their respective tax liabilities on a separate return
basis which are combined in the accompanying consolidated financial statements.
At December 31, 1993, the Company had available cumulative tax loss
carryforwards for corporate income tax of approximately DM 2,945,480 and for
Trade tax on income of approximately DM 2,631,300. Under current German tax
laws, these loss carryforwards have an indefinite life and may be used to offset
PKG's and its consolidated subsidiaries future taxable income. Giving the
Company's significant operating losses, it is more likely than not that these
loss carry forwards will not be realized and therefore a full valuation
allowance has been provided at December 31, 1993.
The provision for income taxes consists of the following for the year ended
December 31, 1993:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Current provision................................................................ 107,105
Deferred provision............................................................... 0
---------
Total provision.................................................................. 107,105
=========
</TABLE>
A reconciliation of total tax provisions to the amount computed by applying
the expected German statutory tax rate of 54% to loss before provision for tax
is as following for the year ended December 31, 1993:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Computed 'expected' tax benefit.................................................. (229,498)
Valuation allowance on operating losses incurred in 1993......................... 331,800
Other............................................................................ 4,803
---------
107,105
=========
</TABLE>
F-46
<PAGE> 175
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993, are presented below:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Deferred tax assets:
Net operating loss carry forwards.............................................. 1,562,300
less-valuation allowance....................................................... (1,562,300)
---------
Net deferred tax assets........................................................ 0
---------
Deferred tax liabilities:
Cable television systems....................................................... 898,500
Other assets................................................................... 13,500
---------
Deferred tax liability......................................................... 912,000
---------
Net deferred tax liability..................................................... 912,000
=========
</TABLE>
7. CAPITAL SUBSCRIBED
In 1993 the subscribed capital of the Company was increased through
contributions totaling DM 402,000. At December 31, 1993, the subscribed capital
of the Company is held by two individuals totaling DM 92,000 and APA
Basic-Beteiligungsgesellschaft mbH, Dusseldorf, a German limited liability
company, totaling DM 400,000.
8. COMMITMENTS AND CONTINGENCIES
A) OPERATING LEASES AND RENTALS
The Company has certain noncancellable operating leases and rentals with
renewal options for land, buildings and equipment. In 1993 expenses totaled DM
119,112.
At December 31, 1993, future payments under noncancelable operating leases
and rentals having an initial or remaining terms of one year or more are as
follows:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
1994............................................................................. 240,416
1995............................................................................. 162,716
1996............................................................................. 21,557
1997............................................................................. 0
1998............................................................................. 0
Thereafter....................................................................... 0
---------
424,689
=========
</TABLE>
B) LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
will not have a material adverse effect on the Company's financial condition or
results of operations.
F-47
<PAGE> 176
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C) OTHER MATTERS
KFL has entered into a service agreement with GfD Gesellschaft fur
Datenverwaltung mbH, Delmenhorst, for billing and cash collection services.
The operating companies set up so-called permission or user transfer
agreements ("Gestattungs-/Nutzungsvertrage") with the owners or authorized
individuals of residential units. These agreements can be looked upon as
framework agreements obliging the operating companies to connect the residential
units to the cable network at the companies own cost as soon as a supply and
service agreement for that specific unit has been set up. This supply and
service agreement regulates in detail the rights and obligations of the
contractual partners in relation to the specific object.
Kabel-Fernsehen Leipzig GmbH, Leipzig, has, according to information
received from the company, provided dates to perform the cable network which
have already elapsed. As a result all owners or authorized individuals of
residential units not yet connected could terminate their agreements because of
the noncompliance with the set dates established. To date the Company has no
additional information regarding the termination of material
"Gestattungsvertrage". In the opinion of management, the resolution of this
matter will not have a material adverse effect on the Company's financial
condition or results of operations.
9. RELATED PARTY TRANSACTIONS
The Company has different sales agreements with four affiliated companies
to deliver reconstruction care, installations and services for the broad band
cable nets which have various expiration dates through 1998. These companies are
owned by two shareholders of PKG Holding GmbH. The total revenues recorded by
the Company in 1993 were DM 1,521,763. In addition, the four companies paid
sales commissions for subscribers acquired by the Company in the amount of DM
375,109.
The APA-Basic Beteiligungsgesellschaft mbH, a shareholder of the Company,
extended to the Company a line of credit of DM 6,600,000 at an annual interest
rate of 14 %. The line of credit is secured by the investments of PKG Holding
GmbH in its subsidiaries and subordinated it to all other creditors of the
Company. In connection with the acquisition of Kabel-Fernsehen Leipzig GmbH in
December 1993 the Company borrowed DM 5,213,000. The interest expenses in 1993
amounted to DM 34,464. Repayments of the outstanding borrowings under the line
of credit are due in full on December 31, 1998.
10. NEW ACCOUNTING PRONOUNCEMENTS
In December 1991, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 107 "Disclosure about Fair value of
Financial Instruments". This statement requires the disclosure of the fair Value
of Financial Instruments for both assets and liabilities recognized and not
recognized in the balance sheet, for which it is practicable to estimate fair
value. The Company is required to implement SFAS No. 107 no later than December
31, 1995. The Company has not determined when it will adopt this standard,
however estimates that the impact of implementation will not be material.
In November 1992, the FASB issued SFAS No. 112 "Employers' Accounting for
Postemployment Benefits". This statement requires the recognition of obligations
to provide postemployment benefits when certain defined conditions are met. The
Company is required to implement SFAS No. 112 no later than December 31, 1994.
The Company estimates that the impact of adoption of this SFAS will not be
material.
F-48
<PAGE> 177
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
Kabel-Fernsehen Leipzig GmbH, Leipzig
We have audited the accompanying balance sheets of Kabel-Fernsehen Leipzig
GmbH, Leipzig, as of December 31, 1993 and the related statement of income and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Germany and 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 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 statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Kabel-Fernsehen Leipzig GmbH, Leipzig, as of
December 31, 1993 and the results of its operations and its cash flow for the
year then ended, in conformity with accounting principles generally accepted in
Germany.
Generally accepted accounting principles in Germany vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have effected the determination of net income
for the period ended December 31, 1993 and the determination of shareholders'
equity and financial position to the extent summarised in Note 3.
The accompanying financial statements have been translated into English for
the convenience of readers in the United States of America.
Wollert-Elmendorff
Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungsgesellschaft
Berlin, June 28, 1994
Fab/bu
F-49
<PAGE> 178
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM DM DM
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
A. Fixed assets
I. Intangible assets
Concessions, industrial and similar
rights and assets and licenses in such
rights and assets...................... 2,305,627.00
II. Tangible assets
1. Technical equipment and machines.... 16,441,242.29
2. Other equipment, factory and office
equipment......................... 68,731.00
3. Payments on account and assets under
construction...................... 114,932.77
------------
16,624,906.06
III. Financial assets
Other loans.............................. 2,100.00
------------
18,932,633.06
B. Current assets
I. Inventories
Raw materials and supplies............... 1.00
II. Receivables and other assets
1. Trade receivables, of which with a
remaining term of more than one
year: DM --.--.................... 50,447.12
2. Receivables from enterprises and
persons of the Knapp Group, of
which with a remaining term of
more than one year: DM --.--...... 0.00
3. Other assets, of which with a
remaining term of more than one
year: DM --.--.................... 21,698.72
------------
72,145.84
III. Cheques, cash-in-hand postal giro
balances, bank balances
821,715.67
------------
893,862.51
C. Prepaid expenses............................... 7,304.57
------------
19,833,800.14
============
</TABLE>
F-50
<PAGE> 179
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM DM DM
------------ ------------ ------------
<S> <C> <C> <C>
EQUITY AND LIABILITIES
A. Equity
I. Subscribed capital....................... 75,000.00
II. Capital reserves......................... 20,832,843.52
III. Silent participation..................... 0.00
------------
20,907,843.52
IV. Accumulated losses carry forward.......... (1,707,908.63)
V. Net income/net loss for the year.......... (306,679.56)
18,893,255.33
B. Accruals
Other accruals........................... 76,380.00
C. Liabilities
1. Trade payables, of which with a remaining
term of more than one year: DM
630,156.98............................. 630,156.98
2. Payable to affiliated enterprises, of
which with a remaining term of more
than one year: DM--.--................. 0.00
3. Payable to enterprises and persons of the
Knapp Group, of which with a remaining
term of more than one year: DM
220,536.67............................. 220,536.67
4. Other liabilities, of which with a
remaining term of more than one year: DM
13,471.16
of which taxes; DM 3,470.72
of which relating to social security and
similar obligations: DM 10,448.26........ 13,471.16
------------
864,164.81
D. Deferred Income................................ 0.00
------------
19,833,800.14
============
</TABLE>
F-51
<PAGE> 180
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
STATEMENT OF INCOME
FOR THE PERIOD 1 JANUARY TO 31 DECEMBER 1993
<TABLE>
<CAPTION>
1993
------------
<S> <C> <C>
DM DM
1. Sales................................................... 3,598,716.99
2. Other operating income.................................. 112,163.95
3. Cost of materials:
(a) Cost of raw materials, consumables and supplies and
of purchased merchandise......................... 8,754.18
(b) Cost of purchased services.......................... 70,465.00 79,219.18
------------
4. Personnel expenses:
(a) Wages and salaries.................................. 425,261.35
(b) Social security and other pension costs............. 69,938.67 495,200.02
------------
5. Depreciation:
(a) On intangible fixed assets and tangible assets...... 1,949,863.80
(b) On current assets to the extent that it exceeds
depreciation which is normal for the company..... 12,999.00 1,962,862.80
6. Other operating expenses................................ 819,009.22
7. Other interest and similar income....................... 7,795.49
8. Interest and similar expenses........................... 483,129.51
------------
9. Results from ordinary activities........................ (120,744.30)
10. Other taxes.............................................. (920.91)
11. Expenses from profit and loss transfer agreements with
the atypical silent partner........................... (185,014.35)
12. Income from loss absorption.............................. 0.00
------------
13. Net income/net loss for the year......................... (306,679.56)
============
</TABLE>
F-52
<PAGE> 181
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, 1993
-------------
DM
<S> <C>
OPERATING ACTIVITIES
Net result (loss)............................................................ (306,679.56)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................................. 1,790,863.80
Special tax deductible depreciation........................................ 159,000.00
Loss on sale of fixed assets............................................... 2,867.46
Changes in assets and liabilities:
Accounts receivables....................................................... 62,457.03
Inventories................................................................ 12,999.00
Prepaid expenses........................................................... (5,101.83)
Accounts payable and deferred income....................................... 355,607.43
Other provisions........................................................... (2,020.00)
-------------
Net cash provided by operating activities.................................... 2,069,993.33
=============
INVESTING ACTIVITIES
Purchase of fixed assets..................................................... (2,875,290.67)
Capitalization of valuation reserves (Note 3(f))............................. (10,547,101.64)
-------------
Net cash used in investing activities........................................ (13,422,392.31)
=============
FINANCING ACTIVITIES
Increase in additional paid-in capital....................................... 20,332,843.52
Repayment accounts payable related companies and due to the Knapp-Group...... (6,640,051.06)
Repayment paid-in capital silent partner..................................... (1,976,829.38)
-------------
Net cash provided by financing activities.................................... 11,715,963.08
=============
INCREASE IN NET CASH......................................................... 363,564.10
CASH AT BEGINNING OF YEAR.................................................... 458,151.57
-------------
CASH AT END OF YEAR.......................................................... 821,715.67
=============
</TABLE>
F-53
<PAGE> 182
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993
1. EXPLANATION TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
BASIS OF PRESENTATION
Effective December 31, 1993, KFL was acquired by PKG Holding GmbH. The
aggregate purchase price of KFL was DM 22,507,800.
The financial statements as of December 31, 1993, have been prepared in
accordance with the accounting principles set forth for small companies
(sec.sec. 264, 267 paragraph (1) of the German Commercial Code).
FIXED ASSETS
Fixed assets are valued at acquisition cost, or manufacturing cost
determined in accordance with tax law provisions (excluding interest on debt),
and subsequently reduced by scheduled and non-scheduled depreciation.
Scheduled depreciation is calculated under the straight-line method and
charged over the assets' expected useful lives. Non-scheduled depreciation of DM
159,000 was made in accordance with sec.sec. 254, 279 paragraph (2) of the
Commercial Code in connection with sec. 4 of the Fordergebietsgesetz. Fixed
assets with acquisition or manufacturing cost of less than DM 800 are expensed
in the year of acquisition or manufacturing in accordance with sec. 6 paragraph
(2) of the Income Tax Law.
INVENTORIES
Inventories are written down to a pro memoria figure of DM 1. -- because of
their technical obsolescence.
OTHER CURRENT ASSETS AND PREPAID EXPENSES
Trade receivables are shown at their nominal value. Uncollectible accounts
were depreciated. Lump-sum valuation adjustments were made in recognition of
cost, interest and non-payment risks. All receivables have a remaining term of
less than one year.
Prepaid expenses do not include a discount within the meaning of sec. 268
paragraph (6) of the German Commercial Code.
EQUITY
The subscribed capital comprises the share capital of the company. The
subscribed capital has been paid in full.
ACCRUALS
Other accruals were set up on the basis of sound business judgement and
caution to the extent that would be necessary to cover the respective risks and
uncertain liabilities. Accruals according to 249 paragraph (1) third sentence
and paragraph (2) of the Commercial Code have not been set up.
LIABILITIES
Liabilities are shown at their repayment amount. Liabilities with a
remaining term of more than five years and liabilities secured by rights of lien
or similar rights did not exist at the balance sheet date.
F-54
<PAGE> 183
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993 -- (CONTINUED)
PROFIT AND LOSS ACCOUNT
Depreciation is composed as shown hereunder:
<TABLE>
<CAPTION>
DM
------------
<S> <C>
Scheduled depreciation........................................................ 1,787,070.52
Special depreciation allowances (according to 254 of the Commercial Code in
connection with 4 of the Fordergebietsgesetz)............................... 159,000.00
Immediate write-off of fixed assets with acquisition or manufacturing cost of
less than DM 800............................................................ 3,793.28
------------
Total amount.................................................................. 1,949,863.80
------------
</TABLE>
Expenses from profit and loss transfer agreements comprise the profit
shares of the former silent partners at an amount of DM 185,014.35.
2. MANAGEMENT
General manager of the company during the period under audit was Mr. Rainer
Strehle, Leipzig.
3. SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The KFL financial statements comply with generally accepted accounting
principles in Germany as prescribed by the German Commercial Code, which can
differ significantly in certain respects from those applicable in the United
States. Such differences can be summarized as follows:
(A) DEPRECIATION OF TECHNICAL EQUIPMENT
The Company depreciates their technical equipment over an average useful
live of 8 years and using the straight line method. In application of FAS-51,
the capitalized cost shall be amortised or depreciated using the prematurity
accounting. Applying the different approach under US GAAP, the useful life would
be less than 8 years.
(B) CAPITALIZATION OF INTEREST COST
In application of FAS-51 and under the provisions of FAS-34 certain
interest costs, if material, have to be capitalized and added to the acquisition
cost of assets which require a certain time to get ready for their intended use.
German GAAP does not allow for the capitalization of interest related to
constructed assets.
(C) ACCRUALS AND PROVISIONS
According to German GAAP, accruals or provisions can be recorded for
uncertain Liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German GAAP may require
the set-up of accruals already when the occurrence of a future event is
reasonably possible which may only trigger disclosure under U.S. GAAP. This
regards the accrual for vacation-payments and other uncertain liabilities.
(D) TAXFREE INVESTMENT GRANTS
The Company received in 1992 and in 1993 taxfree investment grants which
have been recorded directly as income. Under U.S. GAAP investment grants would
be netted from the related acquisition or manufacturing costs.
F-55
<PAGE> 184
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993 -- (CONTINUED)
(E) SPECIAL TAX DEDUCTIBLE DEPRECIATION
The Company used in 1993 special tax deductible depreciation. Under U.S.
GAAP it would be necessary to reverse the special tax depreciation in the
financial statements. In case of a reversal, the tax effected portion
representing the estimated future tax effects of temporary differences should be
recognized as a deferred tax liability.
(F) CAPITALIZATION OF VALUATION RESERVES
In connection with capital contributions in order to buy out the silent
partner (we refer also to the first paragraph in the Management Report) the
Company capitalized identifiable valuation reserves in intangible assets and in
technical equipment. The capitalized valuation reserves in intangible assets are
amortised over 8 years and in technical equipment over 6 years. For 1993, the
amortisation has been computed pro-rated-basis. Under U.S. GAAP the
capitalization of valuation reserves would not be appropriate.
(G) INCOME TAX
For income tax purposes under U.S. GAAP, FAS-109 would have to be
considered for deferred taxation. Taxable temporary differences and an operating
loss carryforward as of December 31, 1993 would result in a deferred tax asset.
This includes the effect of the special tax deductible depreciation under e.
above. However, we are not in the position to judge the possibility for the
realization of the tax asset.
Leipzig
April 6, 1994
F-56
<PAGE> 185
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
PKG Mature Networks
We have audited the accompanying combined balance sheet of PKG Mature
Networks as of December 31, 1994, and the related combined statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of PKG Mature Networks
as of December 31, 1994 and the combined results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
December 13, 1995
F-57
<PAGE> 186
PKG MATURE NETWORKS
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 352
Accounts receivable -- net:
Trade (Note 1).............................................................. 49
PKG Holding GmbH (Note 9)................................................... 157
Inventory (Note 2)............................................................ 194
Property, plant and equipment -- net (Notes 1 and 3).......................... 11,247
Intangible assets -- net (Note 1)............................................. 76
Other assets.................................................................. 353
-------
TOTAL ASSETS.................................................................. 12,428
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable:
Trade....................................................................... 458
PKG Holding GmbH (Note 9)................................................... 224
Accrued expenses.............................................................. 106
Other liabilities............................................................. 65
Debt (Note 4)................................................................. 10,103
-------
TOTAL LIABILITIES............................................................. 10,956
SHAREHOLDERS' EQUITY
Registered capital (Note 6)................................................. 200
Paid-in capital............................................................. 2,733
Accumulated deficit......................................................... (1,461)
-------
TOTAL SHAREHOLDERS' EQUITY.................................................... 1,472
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... 12,428
=============
</TABLE>
See accompanying notes to combined financial statements.
F-58
<PAGE> 187
PKG MATURE NETWORKS
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
Revenues
Third parties............................................................... 4,592
PKG Holding GmbH (Note 9)................................................... 1,221
-------
Total revenues................................................................ 5,813
Operating costs and expenses
Operations.................................................................. 1,656
Selling, general and administrative......................................... 2,764
Depreciation and amortization............................................... 1,352
-------
Total operating costs and expenses............................................ 5,772
-------
Operating income.............................................................. 41
Interest and other income..................................................... 100
Interest expense.............................................................. 896
-------
Loss before income taxes...................................................... ( 755)
Provision for income taxes.................................................... 16
-------
Net loss...................................................................... ( 771)
=============
</TABLE>
See accompanying notes to combined financial statements.
F-59
<PAGE> 188
PKG MATURE NETWORKS
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID IN ACCUMULATED
CAPITAL DEFICIT TOTAL
COMMON ------- ----------- ------
STOCK DM DM DM
------
DM
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at December 31, 1993...................... 200 2,932 (589) 2,543
Net loss.......................................... -- -- (771) (771)
Cash dividends.................................... -- -- (300) (300)
Assumption of loss by silent partnership (Note
6).............................................. -- (199) 199 --
------ ------- ----------- ------
Balance at December 31, 1994...................... 200 2,733 (1,461) 1,472
====== ====== ========= ======
</TABLE>
See accompanying notes to combined financial statements.
F-60
<PAGE> 189
PKG MATURE NETWORKS
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss...................................................................... (771)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................... 1,352
Amortization of other assets................................................ 501
Provision for inventory..................................................... 51
Changes in assets and liabilities:
Accounts receivable......................................................... (169)
Inventory and other assets.................................................. (252)
Accounts payable............................................................ 48
Accrued expenses and other liabilities...................................... 76
-------
Net cash provided by operating activities..................................... 836
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................... (934)
-------
Net cash used in investing activities......................................... (934)
FINANCING ACTIVITIES
Proceeds from debt............................................................ 6,003
Principal payments on debt.................................................... (5,476)
Dividends paid................................................................ (300)
-------
Net cash provided by financing activities..................................... 227
-------
Net increase in cash and cash equivalents..................................... 129
Cash and cash equivalents at beginning of year................................ 223
-------
Cash and cash equivalents at end of year...................................... 352
=============
</TABLE>
See accompanying notes to combined financial statements.
F-61
<PAGE> 190
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying financial statements represent the combined operations of
the following four German limited liability companies (collectively, the "PKG
Mature Networks" or "Combined Companies"):
- PKG Kabelbetriebsgesellschaft mbH, Anklam ("Anklam")
- PKG Kabelbetriebsgesellschaft mbH, Grafenhainichen ("Grafenhainichen")
- PKG Kabelbetriebsgesellschaft mbH, Hoyerswerda ("Hoyerswerda")
- PKG Kabelbetriebsgesellschaft mbH, Stavenhagen ("Stavenhagen")
The PKG Mature Networks are held under common control and are located in
Germany. Each of the companies is engaged in the operation and management of
cable television systems. Hoyerswerda is also engaged in the construction of
cable television systems.
Effective January 1, 1995, the shares of the PKG Mature Networks were sold
to Kabelvision Beteiligungs GmbH ("Kabelvision"). The sales price of DM
33,057,000 was based on the number of subscribers as of December 31, 1994
adjusted for certain assets and the assumption of liabilities.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The PKG Mature Networks
maintain their financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). Generally accepted accounting principles in Germany vary in certain
significant respects from U.S. GAAP. Accordingly, the PKG Mature Networks have
recorded certain adjustments in order that these financial statements be in
accordance with U.S. GAAP. All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS
The PKG Mature Networks consider all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. As of December
31, 1994 the PKG Mature Networks held no cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the PKG Mature Networks to
concentrated credit risks consist primarily of accounts receivable. Credit risk
on accounts receivable is minimized as a result of the large and diverse nature
of the Combined Companies' customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with the United
States Statement of Financial Accounting Standards No. 51 "Financial Reporting
by Cable Television Companies."
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 years; equipment and
fixtures: 3 to 5 years.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property, plant and equipment are recognized by the PKG Mature Networks when
estimable and realizable. The basis of property, plant and equipment is reduced
by investment grants and depreciated over the useful life of the acquired
property. As of December 31, 1994, property, plant and equipment was reduced by
DM 8,000 relating to the recording of investment grants.
F-62
<PAGE> 191
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Investment grants are subject to government review. Management does not
anticipate any significant adjustments to the amount of investment grants
recorded.
INTANGIBLE ASSETS
Intangible assets consist primarily of start-up costs, licenses and other
rights and are amortized over their useful lives which are generally 2 to 4
years. Accumulated amortization aggregated DM 220,000 as of December 31, 1994.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 1994 was DM 25,000.
REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in Germany and from the construction and management of cable
television systems.
The PKG Mature Networks receive cash from subscribers principally through
automatic bank withdrawals initiated at the beginning of each month. Revenues
generated from cable services provided to subscribers for the year ended
December 31, 1994 approximated DM 4,373,000.
Revenues generated from the construction and management of cable television
systems approximated DM 1,440,000 for the year ended December 31, 1994.
INCOME TAXES
The PKG Mature Networks account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which has been applied for 1994. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the
period that includes the enactment date.
2. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market
and consists primarily of supplies used in repairs and maintenance and for use
in future construction of cable television systems.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Cable television systems..................................................... 14,475
Equipment and fixtures....................................................... 86
-------
Total........................................................................ 14,561
Less-accumulated depreciation................................................ (3,314)
-------
Property, plant and equipment -- net......................................... 11,247
==============
</TABLE>
F-63
<PAGE> 192
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Total debt outstanding at December 31,1994 is as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Bank Loans
7.05% Note due 2004 and payable in monthly installments of DM 50,000 plus
interest................................................................ 5,700
9.75% Note due 2008 and payable in monthly installments of DM 25,000
including interest...................................................... 1,883
7.00% Note due 2005 and payable in monthly installments of DM 16,000
including interest...................................................... 1,463
10.50% Note due 2008 and payable in monthly installments of DM 13,000
including interest...................................................... 985
-------
10,031
Other........................................................................ 72
-------
10,103
==============
</TABLE>
All of the PKG Mature Networks assets are pledged as collateral under the
bank agreements. In connection with the sale of the shares in the PKG Mature
Networks as of January 1, 1995, the outstanding balance of the bank loans were
paid in full by Kabelvision during 1995.
Interest expense charged to operations and paid during 1994 was DM 896,000.
Annual maturities of debt as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 866
1996......................................................................... 889
1997......................................................................... 915
1998......................................................................... 943
1999......................................................................... 974
Thereafter................................................................... 5,516
-------
10,103
==============
</TABLE>
5. INCOME TAXES
Each of the PKG Mature Networks files separate tax returns in accordance
with German tax laws. Under German corporate tax law, taxes on income are
comprised of corporate taxes and trade taxes. For financial reporting purposes,
the PKG Mature Networks calculate their respective tax liabilities on a separate
return basis which are aggregated in the accompanying combined financial
statements.
As of December 31, 1994, the PKG Mature Networks had available cumulative
tax loss carryforwards for corporate income tax of approximately DM 2,332,000
and for trade tax on income of approximately DM 1,568,000. Under current German
tax laws, these loss carryforwards have an indefinite life and may be used to
offset future taxable income.
F-64
<PAGE> 193
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following for the year ended
December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Current provision............................................................ 16
Deferred provision........................................................... 0
------
Total provision.............................................................. 16
==============
</TABLE>
A reconciliation of total tax provisions to the amount computed by applying
the expected German corporate statutory tax rate of 45% to loss before income
taxes is as follows for the year ended December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Computed income tax benefit at German statutory rate......................... (340)
Trade tax on income, net of corporate tax benefit............................ (62)
Valuation allowance on losses incurred in 1994............................... 418
------
16
==============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 are presented below:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets
Net operating loss carry forwards.......................................... 1,179
less -- valuation allowance................................................ (1,179)
-------
Net deferred tax assets.................................................... 0
==============
Deferred tax liabilities..................................................... 0
==============
</TABLE>
6. REGISTERED CAPITAL
The PKG Mature Networks are limited liability companies (hereafter "GmbH")
under German law. Shareholders are generally not liable for the company's
obligations, except to the extent of their capital investment. Registered
capital of a GmbH is not in the form of shares and does not represent negotiable
securities. The minimum capital requirement is DM 50,000. As of December 31,
1994 registered capital of the Combined Companies totaled DM 200,000.
During the year cash dividends of DM 300,000 were paid to a silent
partnership who, through December 29, 1994, held a 30% interest in Hoyerswerda.
The silent partnership also during 1994 assumed DM 199,000 of losses incurred by
Hoyerswerda through a reduction of its share in paid-in capital.
7. PENSION AND EMPLOYEE BENEFIT PLANS
The PKG Mature Networks provide no significant pension, postretirement or
postemployment benefits to its employees.
F-65
<PAGE> 194
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The PKG Mature Networks have certain noncancellable operating leases with
renewal options for buildings and equipment. In 1994, rental expense for all
leases totaled DM 38,000.
At December 31, 1994, commitments under noncancellable lease agreements
were as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 38
1996......................................................................... 34
1997......................................................................... 15
1998......................................................................... 12
1999......................................................................... 8
</TABLE>
In connection with the sale of the shares in the PKG Mature Networks as of
January 1, 1995, the Grafenhainichen lease was cancelled by Kabelvision.
Commitments reflected above for the Grafenhainichen lease totaled DM 19,000 for
the period 1995 through 1998.
LEGAL MATTERS
The PKG Mature Networks are subject to litigation from time to time in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have material adverse
effect on the combined financial position or results of operations of the PKG
Mature Networks.
9. RELATED PARTIES
Shareholders of the PKG Mature Networks are also shareholders in PKG
Holding GmbH ("PKG"), a German holding company whose subsidiaries are engaged in
the construction and operation of cable television systems. For the year ended
December 31, 1994, amounts charged by PKG subsidiaries for administrative and
marketing services totaled DM 565,000 and DM 494,000, respectively. Included in
the marketing services are sales commissions of DM 373,000, which relate to
one-time payments made in connection with obtaining new subscribers. These
charges have been capitalized into other assets and are amortized on a
straight-line basis into selling, general and administrative expense over two
years.
During 1994, Hoyerswerda was engaged by certain PKG subsidiaries to
construct cable television systems. Amounts billed and recorded as revenues in
the accompanying combined statement of operations totaled DM 1,221,000 for the
year ended December 31, 1994.
Other related party transactions during 1994 include DM 158,000 of charges
incurred for general and administrative services provided by
Ha-Ma-Beratungsgesellschaft, a German cable company that is partially owned by a
shareholder of the PKG Mature Networks.
F-66
<PAGE> 195
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of Kabel-Plus Gesellschaft fur Kabel- und Satellitenfernsehen mbH,
Hofheim am Taunus
We have audited the accompanying balance sheet of Kabel-Plus Gesellschaft
fur Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, as of December 31,
1994 and the related statement of operations for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit 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 Kabel-Plus Gesellschaft fur
Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, at December 31, 1994 and
the results of its operations for the year then ended in conformity with
accounting principles generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1994, and shareholders' equity as of December 31, 1994, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - Depreciation of Technical Equipment
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - Capitalization of Interest Cost
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - Accruals and Provisions
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - Income Tax
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
F-67
<PAGE> 196
- - Cash Flow Statements
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
VON SPERBER STEINWEG
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Hannover, Germany
February 22, 1995
F-68
<PAGE> 197
EXHIBIT I
KABEL PLUS GESELLSCHAFT FUR KABEL- UND SATELLITFERNSEHEN MBH, HOFHEIM AM TAUNUS
BALANCE SHEET AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
DM DM
ASSETS
FIXED ASSETS
Intangible assets
Software......................................................... 680.83 870.83
------------ ------------
680.83 870.83
------------ ------------
Property, plant and equipment
Land........................................................... 10,200.00 10,200.00
Technical equipment, plant and machinery....................... 13,155,388.88 13,712,560.45
Other equipment, operational and office equipment.............. 68,219.89 87,191.84
------------ ------------
13,233,808.77 13,809,952.29
------------ ------------
13,234,489.60 13,810,823.12
------------ ------------
CURRENT ASSETS
Accounts receivable and other assets
Accounts receivable, trade..................................... 27,955.77 62,596.80
Accounts due from affiliated companies......................... 45,321.72 1,879,042.18
-- thereof due from shareholders:
DM 41,466.07 (1993: DM 1,833,429.22)
Other assets................................................... 22,079.66 24,151.08
------------ ------------
95,357.15 1,965,790.06
------------ ------------
Cash on hand..................................................... 454.09 440.32
------------ ------------
95,811.24 1,966,230.38
------------ ------------
DEFERRED CHARGES AND PREPAID EXPENSES............................ 7,099.06 5,294.60
------------ ------------
CAPITAL DEFICIT.................................................. 594,768.66 0.00
------------ ------------
13,932,168.56 15,782,348.10
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed............................................... 4,000,000.00 4,000,000.00
Paid-in surplus.................................................. 20,000,000.00 20,000,000.00
Accumulated deficit, beginning of year........................... 23,929,461.68 22,578,444.96
Net loss......................................................... 665,306.98 1,351,016.72
Capital deficit.................................................. 594,768.66 0.00
------------ ------------
0.00 70,538.32
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes.................................................. 53,203.00 7,692.00
Other reserves and accrued liabilities......................... 245,419.56 154,179.89
------------ ------------
298,622.56 161,871.89
------------ ------------
LIABILITIES
Liabilities due to banks......................................... 4,399,228.63 6,349,652.46
Accounts payable, trade.......................................... 200,618.60 178,572.89
Accounts due to affiliated companies............................. 9,008,201.51 8,364,346.52
Other liabilities................................................ 25,497.26 657,366.02
- -- thereof for taxes: DM 18,161.47 (1993: DM 2,661.94)
- -- thereof for social security: DM 6,576.12 (1993: DM 4,748.58)
------------ ------------
13,633,546.00 15,549,937.89
------------ ------------
13,932,168.56 15,782,348.10
============ ============
</TABLE>
F-69
<PAGE> 198
EXHIBIT II
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH,
HOFHEIM AM TAUNUS
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
AND THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
1994 1993
FIVE MONTHS ENDED ------------ ------------
MAY 31, 1995
-----------------
(UNAUDITED)
<S> <C> <C> <C>
DM DM DM
Sales.......................................... 996,427.32 2,329,221.43 2,212,420.49
Other operating income......................... 356,493.80 94,876.01 314,870.24
Cost of purchased services..................... (185,454.55) (510,099.67) (477,603.07)
Personnel expenses
Wages and Salaries........................... (77,301.65) (209,929.37) (177,245.06)
Social security.............................. (14,874.68) (40,623.14) (29,223.77)
Depreciation, amortisation and write-offs on
intangible assets and plant and equipment.... (376,330.74) (891,400.94) (867,466.63)
Other operating expenses....................... (150,278.90) (393,532.71) (455,121.47)
Other interest and similar income.............. 11,964.79 93,663.54 72,252.85
- -- thereof from affiliated companies DM
93648,50 (1993: DM 72.213,22)
Interest and similar expenses.................. (295,251.89) (1,088,359.33) (2,029,701.60)
- -- thereof to affiliated companies DM
584.180,99 (1993: DM 1.480.022,88)
----------------- ------------ ------------
Result from ordinary operations............. 265,393.50 (616,184.18) (1,436,818.02)
----------------- ------------ ------------
Other taxes................................. (289.87) (49,122.80) 85,801.30
----------------- ------------ ------------
Net profit/(loss)........................... 265,103.63 (665,306.98) (1,351,016.72)
============== ============ ============
</TABLE>
F-70
<PAGE> 199
EXHIBIT III
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM
TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
I. GENERAL COMMENTS
The financial statements for the year ended December 31, 1994 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred income have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
still valid.
In particular the following valuation methods have been applied:
Assets are principally stated at acquisition or manufacturing costs less
normal depreciation. Depreciation is calculated under the straight line method
over to the expected useful life of the assets. Extraordinary depreciation has
been considered, if necessary.
Receivables are valued at nominal value at the lower of cost or market
principle.
Other assets and additional items of current assets are capitalized at cost
or at such lower value which is appropriate at the balance sheet date.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence. Liabilities are shown at repayment value.
II. EXPLANATORY NOTES TO THE BALANCE SHEET AND THE STATEMENT OF OPERATIONS
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 4).
F-71
<PAGE> 200
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective location (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
respective location and four head-ends. The named cable levels 3 and 4 are
regarded as independent assets as usual in this industry. In valuating cable
levels 3 and 4 all expenses occurred from third parties for installation have
been capitalized as late acquisition expenses for the respective cable levels 3
or 4. Depreciation is performed on the basis of the remaining useful life of the
respective asset. For the determination of depreciation for cable levels 3 and 4
the company assume an overall useful life of 20 years.
Other assets contain receivables due after one year amounting to DM
12,852.00.
LIABILITIES
The paid-in surplus amounting to DM 20,000,000.00 contains additional
payments from the shareholder according to sec.272 sect. 2 no. 4 HGB (German
Commercial Code) carried out in the business year 1993.
As of December 31, 1994, the Company shows a capital deficit of DM
594,768.66. To avoid a overindebtedness situation, a letter of subordination has
been issued by one creditor referring to his accounts receivables.
Subject to the agreement of the shareholder the composing of the financial
statements assumes that the year end result of the year 1994 and the accumulated
losses brought forward will be carried forward.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to banks the Company has transferred all
future rights and claims against network clients and home owners resulting from
network installation agreements; head-ends and cable networks of block units
have been transferred by means of chattel mortgage.
<TABLE>
<CAPTION>
THEREOF DUE
----------------------------------------------------
TOTAL AMOUNTS AS OF BETWEEN ONE AND
BALANCE SHEET DATE WITHIN ONE YEAR FIVE YEARS AFTER FIVE YEARS
------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
DM DM DM DM
Liabilities due to banks.......... 4,399,228.63 826,874.97 3,412,294.01 160,059.65
(6,349,652.46) (1,002,020.59) (4,471,934.29) (875,697.58)
Accounts payable, trade........... 200,618.60 200,618.60 0.00 0.00
(178,572.89) (178,572.89) (0.00) (0.00)
Accounts due to affiliated
companies....................... 9,008,201.51 9,008,201.51 0.00 0.00
(8,364,346.52) (8,364,346.52) (0.00) (0.00)
- -- thereof to shareholder......... 9,000,602.51 9,000,602.51 0.00 0.00
(120,966.02) (120,966.02) (0.00) (0.00)
Other liabilities................. 25,497.26 25,497.26 0.00 0.00
(657,366.02) (657,366.02) (0.00) (0.00)
------------------- --------------- --------------- ----------------
13,633,546.00 10,061,192.34 3,412,294.01 160,059.65
(15,549,937.89) (10,202,306.02) (4,471,934.29) (875,697.58)
</TABLE>
(prior year's figures in brackets)
STATEMENT OF OPERATIONS
Other taxes contain passed on expenses in amount of DM 45,511.00 resulting
from municipal trade tax due to an allocation agreement with parent in organic
unity ("Organtrager").
F-72
<PAGE> 201
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
III. OTHER NOTES
GENERAL MANAGEMENT
Herbert Leifker, Hildesheim.
PARENT COMPANY
100% of the share capital is held by Tele Columbus GmbH, Hannover, which
itself is an affiliated company of VEBA AG, Dusseldorf/Berlin.
The parent company, VEBA AG, Dusseldorf/Berlin, composes consolidated
financial statements including the most important circle of group companies.
The consolidated financial statements of VEBA AG, Dusseldorf/Berlin, will
be published in "Bundesanzeiger" (Federal Bulletin) and the publication will be
issued to country court Dusseldorf for trade register purposes.
Hofheim am Taunus, 22 February 1995
Herbert Leifker
General Manager
F-73
<PAGE> 202
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH, HOFHEIM AM
TAUNUS
MOVEMENTS IN FIXED ASSETS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------- ------------------------
JAN. 1, 1994 ADDITIONS DISPOSITIONS DEC. 31, 1994 JAN. 1, 1994 ADDITIONS
------------ --------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software........................ 950.00 0.00 0.00 950.00 79.17 190.00
II. PROPERTY, PLANT AND EQUIPMENT
1. Land........................ 10,200.00 0.00 0.00 10,200.00 0.00 0.00
2. Technical equipment, plant
and machinery............... 29,361,386.42 311,293.56 0.00 29,672,679.98 15,648,825.97 868,465.13
3. Other equipment, operational
and office equipment........ 113,654.43 5,873.86 3,751.17 115,777.12 26,462.59 22,745.81
------------ --------- ------------ ------------- ------------ ---------
29,485,240.85 317,167.42 3,751.17 29,798,657.10 15,675,288.56 891,210.94
------------ --------- ------------ ------------- ------------ ---------
29,486,190.85 317,167.42 3,751.17 29,799,607.10 15,675,367.73 891,400.94
============ ========= =========== ============ ============ =========
<CAPTION>
NET BOOK VALUE
-----------------------------
DISPOSITIONS DEC. 31, 1994 DEC. 31, 1994 DEC. 31, 1993
------------ ------------- ------------- -------------
<S> <<C> <C> <C> <C>
DM DM DM DM
I. INTANGIBLE ASSETS
Software........................ 0.00 269.17 680.83 870.83
II. PROPERTY, PLANT AND EQUIPMENT
1. Land........................ 0.00 0.00 10,200.00 10,200.00
2. Technical equipment, plant
and machinery............... 0.00 16,517,291.10 13,155,388.88 13,712,560.45
3. Other equipment, operational
and office equipment........ 1,651.17 47,557.23 68,219.89 87,191.84
------------ ------------- ------------- -------------
1,651.17 16,564,848.33 13,233,808.77 13,809,952.29
------------ ------------- ------------- -------------
1,651.17 16,565,117.50 13,234,489.60 13,810,823.12
=========== ============ ============ ============
</TABLE>
F-74
<PAGE> 203
EXHIBIT IV
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
MANAGEMENT REPORT AS OF DECEMBER 31, 1994
RESULTS OF OPERATIONS
The expansion of cable networks in the financial year 1994 has nearly been
completed; at the end of the year approx. 7,600 households have been in a
collection relationship.
FINANCIAL SITUATION OF THE COMPANY
The net loss for the year 1994 amounts to KDM665. The interest burden was
relieved due to restructuring payments in the amount of DM20,000,000 received
from Tele Columbus GmbH in 1993.
In order to assure the Company's going concern a letter of subordination
has been issued by Tele Columbus GmbH.
Significant events and facts which would have been reported on did not
occur after closing date.
OUTLOOK
In 1995 the acquisition activities will be reinforced to reach the intended
aim of at least 8,000 connected households. This will be realized by means of
local advertising and mailing activities as well as installing additional radio
and TV-channels .
A loss is expected again for the financial year 1995. Nevertheless, a
positive cash flow may be achieved.
In 1995 the sale of shares is intended. Negotiations thereupon are
currently being held.
Hofheim, 22 February 1995
Herbert Leifker
F-75
<PAGE> 204
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of Kabel-Plus Gesellschaft fur Kabel- und Satellitenfernsehen mbH,
Hofheim am Taunus
We have audited the accompanying balance sheet of Kabel-Plus Gesellschaft
fur Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, as of December 31,
1993 and the related statement of operations for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit 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 Kabel-Plus Gesellschaft fur
Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, at December 31, 1993 and
the results of its operations for the year then ended in conformity with
accounting principles generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1993, and shareholders' equity as of December 31, 1993, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - Depreciation of Technical Equipment
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - Capitalization of Interest Cost
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - Accruals and Provisions
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - Income Tax
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
F-76
<PAGE> 205
- - Cash Flow Statements
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
Von Sperber Hentschel
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Hannover, Germany
February 17, 1994
F-77
<PAGE> 206
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
DM DM
ASSETS
FIXED ASSETS
Intangible assets
Software..................................................... 870.83 2,558.03
------------ ------------
870.83 2,558.03
------------ ------------
Property, plant and equipment
Land......................................................... 10,200.00 13,200.00
Technical equipment, plant and machinery..................... 13,712,560.45 14,222,443.98
Other equipment, operational and office equipment............ 87,191.84 51,156.44
------------ ------------
13,809,952.29 14,286,800.42
------------ ------------
13,810,823.12 14,289,358.45
------------ ------------
CURRENT ASSETS
Accounts receivable and other assets
Accounts receivable, trade................................... 62,596.80 26,452.86
Accounts due from affiliated companies....................... 1,879,042.18 477,622.28
-- thereof against shareholders: DM 1,833,429.22
(1992: DM 233,403.73)
Other assets................................................. 24,151.08 1,503,704.45
------------ ------------
1,965,790.06 2,007,779.59
------------ ------------
Cash on hand................................................... 440.32 188.02
------------ ------------
1,966,230.38 2,007,967.61
------------ ------------
DEFERRED CHARGES AND PREPAID EXPENSES.......................... 5,294.60 0.00
------------ ------------
CAPITAL DEFICIT................................................ 0.00 18,578,444.96
------------ ------------
15,782,348.10 34,875,771.02
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed............................................. 4,000,000.00 4,000,000.00
Paid-in surplus................................................ 20,000,000.00 0.00
Accumulated deficit, beginning of year......................... 22,578,444.96 5,302,944.31
Net loss....................................................... 1,351,016.72 17,275,500.65
Capital deficit................................................ 0.00 18,578,444.96
------------ ------------
70,538.32 0.00
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes.................................................. 7,692.00 126,000.00
Other reserves and accrued liabilities......................... 154,179.89 242,769.89
------------ ------------
161,871.89 368,769.89
------------ ------------
LIABILITIES
Liabilities due to banks....................................... 6,349,652.46 6,800,000.00
Accounts payable, trade........................................ 178,572.89 244,231.24
Accounts due to affiliated companies........................... 8,364,346.52 27,447,870.10
- -- thereof due to shareholders DM 120,966.02 (1992: DM
678,176.30)
Other liabilities.............................................. 657,366.02 14,818.94
- -- thereof for taxes: DM 2,661.94 (1992: DM 0.00)
- -- thereof for social security: DM 4,748.58 (1992: DM 0.00)
------------ ------------
15,549,937.89 34,506,920.28
------------ ------------
DEFERRED ITEMS................................................. 0.00 80.85
------------ ------------
15,782,348.10 34,875,771.02
============ ============
</TABLE>
F-78
<PAGE> 207
EXHIBIT II
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH,
HOFHEIM AM TAUNUS
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------ -------------
<S> <C> <C>
DM DM
Sales......................................................... 2,212,420.49 2,079,835.92
Other operating income........................................ 314,870.24 171,509.89
Cost of purchased services.................................... (477,603.07) (565,964.65)
Personnel expenses
Wages and Salaries.......................................... (177,245.06) (141,693.63)
Social security............................................. (29,223.77) (22,670.08)
Depreciation, amortisation and write-offs on intangible assets
and plant and equipment..................................... (867,466.63) (14,070,403.12)
Other operating expenses...................................... (455,121.47) (1,290,523.49)
Other interest and similar income............................. 72,252.85 72,633.80
- -- thereof from affiliated companies
DM 72,213.22 (1992: DM 72,317.15)
Interest and similar expenses................................. (2,029,701.60) (3,402,098.11)
- -- thereof to affiliated companies
DM 1,480,022.88 (1992: DM 2,796,455.88)
------------ -------------
Result from ordinary operations............................... (1,436,818.02) (17,169,373.47)
------------ -------------
Other taxes................................................... 85,801.30 (106,127.18)
------------ -------------
Net loss...................................................... 1,351,016.72 17,275,500.65
============ =============
</TABLE>
F-79
<PAGE> 208
EXHIBIT III
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1993
I. GENERAL COMMENTS TO THE FINANCIAL STATEMENTS, ACCOUNTING AND
VALUATION METHODS
The financial statements for the year ended December 31, 1993 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred income have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
still valid.
In particular the following valuation methods have been applied:
Assets are principally stated at acquisition costs less normal
depreciation. Depreciation is calculated under the straight line method over the
expected useful life of the assets. Extraordinary depreciation has been
considered, if necessary.
Receivables are valued at nominal value at the lower of cost or market
principle.
Other assets and additional items of current assets are capitalized at cost
or at such lower value which is appropriate at the balance sheet date.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence.
Liabilities are shown at repayment value.
II. EXPLANATORY NOTES TO THE BALANCE SHEET AND THE STATEMENT OF OPERATIONS
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 4).
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective locations (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
F-80
<PAGE> 209
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1993 -- (CONTINUED)
respective locations and two head-ends. The named cable levels 3 and 4 are
regarded as independent assets as usual in this industry. In valuating cable
levels 3 and 4 all expenses occurred from third parties for installation have
been capitalized as late acquisition expenses for the respective cable levels 3
or 4. Depreciation is performed on the basis of the remaining useful life of the
respective asset. For the determination of depreciation for cable levels 3 and 4
the company assumes an overall useful life of 20 years.
Other assets contain receivables due after one year in the amount of DM
7,500.00.
LIABILITIES
The paid-in surplus amounting to DM 20,000,000.00 contains additional
payments from the shareholder according to sec. 272 sect. 2 no. 4 HGB (German
Commercial Code) carried out in the business year 1993.
Subject to the agreement of the shareholder the composing of the financial
statements assumes that the year end result of the year 1993 and the accumulated
losses brought forward will be carried forward.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to banks the Company has transferred all
future rights and claims against network clients and home owners resulting from
network installation agreements; head-ends and cable networks of block units
have been transferred by means of chattel mortgage.
<TABLE>
<CAPTION>
THEREOF DUE
--------------------------------------------------------
TOTAL AMOUNTS AS OF BETWEEN ONE AND
BALANCE SHEET DATE WITHIN ONE YEAR FIVE YEARS AFTER FIVE YEARS
------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
DM DM DM DM
Liabilities due to banks.... 6,349,652.46 1,002,020.59 4,471,934.29 875,697.58
(6,800,000.00) (0.00) (0.00) (6,800,000.00)
Accounts payable, trade..... 178,572.89 178,572.89 0.00 0.00
(244,231.24) (244,231.24) (0.00) (0.00)
Accounts due to affiliated
companies................. 8,364,346.52 8,364,346.52 0.00 0.00
(27,447,870.10) (27,447,870.10) (0.00) (0.00)
- -- thereof to shareholder... 120,966.02 120,966.02 0.00 0.00
(678,176.30) (678,176.30) (0.00) (0.00)
Other liabilities........... 657,366.02 657,366.02 0.00 0.00
(14,818.94) (14,818.94) (0.00) (0.00)
------------------- --------------- --------------- ----------------
15,549,937.89 10,202,306.02 4,471,934.29 875,697.58
(34,506,920.28) (27,706,920.28) (0.00) (6,800,000.00)
============== ============= ============ ============
</TABLE>
(prior year's figures in brackets)
STATEMENT OF OPERATIONS
Other taxes contain income from municipal trade tax in the amount of DM
102,865.
III. OTHER NOTES
GENERAL MANAGEMENT
Ulrich Mannes, Pfaffenweiler (until 26 February 1993)
Herbert Leifker, Hildesheim (since 26 February 1993)
F-81
<PAGE> 210
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1993 -- (CONTINUED)
PARENT COMPANY
The Company is included in the consolidated financial statements of Motor
Columbus AG, Baden/Schweiz.
Hofheim am Taunus, 16 February 1994
Herbert Leifker
General Manager
F-82
<PAGE> 211
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH, HOFHEIM AM
TAUNUS
MOVEMENTS IN FIXED ASSETS AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------- ------------------------
JAN. 1, 1993 ADDITIONS DISPOSITIONS DEC. 31, 1993 JAN. 1, 1993 ADDITIONS
------------ --------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software......................... 2,887.40 950.00 2,887.40 950.00 329.37 175.42
II. PROPERTY, PLANT AND EQUIPMENT
1. Land......................... 13,200.00 0.00 3,000.00 10,200.00 0.00 0.00
2. Technical equipment, plant
and machinery................ 29,024,888.20 336,498.22 0.00 29,361,386.42 14,802,444.22 846,381.75
3. Other equipment, operational
and office equipment......... 61,210.81 72,346.71 19,903.09 113,654.43 10,054.37 20,909.46
------------ --------- ------------ ------------- ------------ ---------
29,099,299.01 408,844.93 22,903.09 29,485,240.85 14,812,498.59 867,291.21
------------ --------- ------------ ------------- ------------ ---------
29,102,186.41 409,794.93 25,790.49 29,486,190.85 14,812,827.96 867,466.63
=========== ========= =========== ============ ============ =========
<CAPTION>
NET BOOK VALUE
-----------------------------
DISPOSITIONS DEC. 31, 1993 DEC. 31, 1993 DEC. 31, 1992
------------ ------------- ------------- -------------
<S> <<C> <C> <C> <C>
DM DM DM DM
I. INTANGIBLE ASSETS
Software......................... 425.62 79.17 870.83 2,558.03
II. PROPERTY, PLANT AND EQUIPMENT
1. Land......................... 0.00 0.00 10,200.00 13,200.00
2. Technical equipment, plant
and machinery................ 0.00 15,648,825.97 13,712,560.45 14,222,443.98
3. Other equipment, operational
and office equipment......... 4,501.24 26,462.59 87,191.84 51,156.44
------------ ------------- ------------- -------------
4,501.24 15,675,288.56 13,809,952.29 14,286,800.42
------------ ------------- ------------- -------------
4,926.86 15,675,367.73 13,810,823.12 14,289,358.45
=========== ============ ============ ============
</TABLE>
F-83
<PAGE> 212
EXHIBIT IV
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
MANAGEMENT REPORT AS OF DECEMBER 31, 1993
The expansion of cable networks in the financial year 1993 has nearly been
completed; at the end of the year approx. 7,100 households have been in a
collection relationship.
The net loss for the year 1993 amounts to DM 1,351,016.72. The interest
burden was relieved this year due to restructuring payments in the amount of DM
20,000,000.00 received from Tele Columbus GmbH.
In order to assure the Company's going concern a letter of subordination
has been issued by an affiliated company of Motor Columbus group.
In 1994 the acquisition activities will be reinforced to reach the intended
aim of at least 7,600 connected households. This will be realized by means of
local advertising and mailing activities as well as installing additional radio
and TV-channels .
Despite of the depreciation release, which is due to extraordinary
depreciation, a loss is expected again in the financial year 1994. Nevertheless,
a positive cash flow may be achieved.
Hofheim, 16 February 1994
Herbert Leifker
F-84
<PAGE> 213
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
We have audited the accompanying balance sheet of Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, as of December 31, 1994 and the related statement of
operations for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit 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 Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, at December 31, 1994 and the results of its
operations for the year then ended in conformity with accounting principles
generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1994, and shareholders' equity as of December 31, 1994, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - DEPRECIATION OF TECHNICAL EQUIPMENT
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - CAPITALIZATION OF INTEREST COST
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - ACCRUALS AND PROVISIONS
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - INCOME TAX
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
F-85
<PAGE> 214
- - CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
von Sperber Steinweg
Wirtschaftsprufer Wirtschaftsprufer
Hannover, Germany
February 22, 1995
</TABLE>
F-86
<PAGE> 215
EXHIBIT I
WIEDMANN DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
BALANCE SHEET AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
1993
1994 ------------
------------ DM
DM
<S> <C> <C>
ASSETS
FIXED ASSETS
Intangible assets
Software............................................................. 1,230.73 2,249.07
------------ ------------
1,230.73 2,249.07
------------ ------------
Property, plant and equipment
Land................................................................. 35,870.19 39,465.81
Technical equipment, plant and machinery............................. 17,538,393.57 18,522,751.72
Other equipment, operational and office equipment.................... 75,227.37 104,863.22
Construction in progress............................................. 20,000.00 0.00
------------ ------------
17,669,491.13 18,667,080.75
------------ ------------
Financial assets
Investments.......................................................... 0.00 20,000.00
------------ ------------
17,670,721.86 18,689,329.82
------------ ------------
CURRENT ASSETS
Inventories
Stock................................................................ 425.00 0.00
------------ ------------
Accounts receivable and other assets
Accounts receivable, trade........................................... 64,925.54 69,037.88
Accounts due from affiliated companies............................... 33,989.05 35,597.04
-- thereof due from shareholders: DM 33,989.05 (1993: DM 34,597.04)
Other assets......................................................... 3,364.75 54,175.12
------------ ------------
102,279.34 158,810.04
------------ ------------
Cash on hand and in Federal Bank....................................... 5,458.03 9,786.53
------------ ------------
108,162.37 168,596.57
------------ ------------
DEFERRED CHARGES AND PREPAID EXPENSES.................................. 3,144.30 0.00
------------ ------------
CAPITAL DEFICIT........................................................ 9,127,879.09 7,423,234.13
------------ ------------
26,909,907.62 26,281,160.52
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed..................................................... 10,000,000.00 10,000,000.00
Paid-in surplus........................................................ 2,138,000.00 2,138,000.00
Accumulated deficit, beginning of year................................. 19,561,234.13 17,439,857.95
Net loss............................................................... 1,704,644.96 2,121,376.18
Capital deficit........................................................ 9,127,879.09 7,423,234.13
------------ ------------
0.00 0.00
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes.......................................................... 30,128.00 0.00
Other reserves and accrued liabilities................................. 253,553.71 232,840.10
------------ ------------
283,681.71 232,840.10
------------ ------------
LIABILITIES
Liabilities due to banks............................................... 6,717,830.62 7,856,933.87
Accounts payable, trade................................................ 97,109.28 84,035.47
Accounts due to affiliated companies................................... 19,795,638.64 18,090,320.34
-- thereof against shareholders DM 19,783,541.64 (1993: DM
1,801,221.42)
Other liabilities...................................................... 15,647.37 17,030.74
-- thereof for taxes: DM 3,970.46 (1993: DM 2,439.60)
-- thereof for social security: DM 7,625.11 (1993: DM 5,685.66)
------------ ------------
26,626,225.91 26,048,320.42
------------ ------------
26,909,907.62 26,281,160.52
============== ==============
</TABLE>
F-87
<PAGE> 216
EXHIBIT II
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
1994 1993
FIVE MONTHS ENDED ------------ ------------
MAY 31, 1995
-----------------
(UNAUDITED)
<S> <C> <C> <C>
DM DM DM
1. Sales...................................... 1,090,706.50 2,560,987.50 2,470,895.34
2. Other operating income..................... 125,420.45 85,683.77 44,419.08
3. Cost of materials:
Cost of raw materials, supplies and
trading stock........................ 270.20 75.00 10,473.83
Cost of purchased services.............. 547,332.04 588,688.43 613,860.69
4. Personnel expenses
Wages and salaries...................... 87,177.32 234,188.50 226,834.99
Social security......................... 20,089.85 46,376.11 39,644.75
5. Depreciation on intangible assets, plant
and equipment............................. 541,953.91 1,293,460.17 1,278,506.50
6. Other operating expenses................... 143,319.11 272,743.31 340,551.85
7. Other interest and similar income.......... 6.50 68.86 1,627.52
-- thereof from affiliated companies:
DM 0.00 (1993: DM 1,606.91)
8. Interest and similar expenses.............. 658,565.01 1,876,962.78 2,225,839.66
-- thereof to affiliated companies:
DM 1,264,774.27 (1993: DM
1,524,878.29)
----------------- ------------ ------------
9. Result from ordinary operations............ (782,573.99) (1,665,754.17) (2,218,770.33)
----------------- ------------ ------------
10. Other taxes................................ (11,744.44) (38,890.79) 97,394.15
----------------- ------------ ------------
11. Net loss................................... 794,318.43 1,704,644.96 2,121,376.18
============== ============ ============
</TABLE>
F-88
<PAGE> 217
EXHIBIT III
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
I. GENERAL COMMENTS
The financial statements for the year ended December 31, 1994 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred charges have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
principally still valid.
In particular the following valuation methods have been applied:
Assets are stated at acquisition or manufacturing costs less normal
depreciation. Depreciation is calculated under the straight line method over the
expected useful life of the assets. Extraordinary depreciation has been
considered as far as lower values on account of probably permanent impairments
of value are appropriate at the balance sheet date.
Receivables and other assets are capitalized at nominal value. Forseeable
risks are considered by declines in value.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence.
Liabilities are shown at repayment value. Liabilities in foreign currency
are stated at historic value or the respective higher value valid as of balance
sheet date.
II. EXPLANATORY NOTES TO THE BALANCE SHEET
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 5).
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective locations (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
respective locations and two head-ends ("Kopfstationen"). The named cable levels
3 and 4 are regarded as independent assets as usual in this industry. Valuating
cable levels 3 and 4, all expenses incurred from third
F-89
<PAGE> 218
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
parties for installation have been capitalized as late acquisition expenses for
the respective cable levels 3 or 4. Depreciation is performed on the basis of
the remaining useful life of the respective asset. For the determination of
depreciation for cable levels 3 and 4 the company assumes an overall useful life
of 20 years.
Receivables are due within one year.
LIABILITIES
The capital deficit is stated separately on the asset side, according to
sec.268 sect. 3 HGB (German Commercial Code).
<TABLE>
<CAPTION>
DM
-------------
<S> <C>
Capital subscribed...................................................... 10,000,000.00
Paid-in surplus......................................................... 2,138,000.00
Accumulated deficit, beginning of year.................................. (19,561,234.13)
Net loss................................................................ (1,704,644.96)
-------------
Capital deficit......................................................... (9,127,879.09)
=============
</TABLE>
The paid-in surplus contains additional payments from the shareholders
according to sec.272 sect. 2 no. 4 HGB (German Commercial Code).
In order to avoid an overindebtedness situation, a letter of subordination
has been issued by a creditor.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to Commerzbank AG, Frankfurt am Main, the
Company has ceded all future rights and claims against network clients and home
owners resulting from network installation agreements by means of general
assignment. head-ends and cable networks of block units have been ceded by means
of chattel mortgage. In addition, a credit order of Tele Columbus GmbH
guarantees these liabilities.
The liabilities due to Volksbank e.G., St. Georgen, and to Sparkasse St.
Georgen are guaranteed in the context of a security-pool-agreement
("Sicherheiten-Poolvertrag") by means of land charge amounting to KDM 1,200 as
well as by a cession of subscriber fees ("Abonnementgebuhren") and connection
fees ("AnschluSSgebuhren"), suretyships of Tele Columbus GmbH each in the amount
of KDM 2,100 combined with a letter of comfort of Motor Columbus AG, Baden,
Switzerland, and the cession of purchase price and compensation claims
respectively, due from the Town of St. Georgen in case of early dissolution of
contract.
F-90
<PAGE> 219
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
Subscription and connection fees as well as claims for purchase price and
refunds respectively have been ceded by means of junior security to Commerzbank
AG, Frankfurt/Main.
<TABLE>
<CAPTION>
TOTAL AMOUNTS
AS OF DUE WITHIN DUE BETWEEN ONE
BALANCE SHEET DATE ONE YEAR AND FIVE YEARS
------------------ ------------- ---------------
<S> <C> <C> <C>
DM DM DM
Liabilities due to banks............... 6,717,830.62 1,194,821.63 4,923,008.99
(7,856,933.87) (1,139,103.25) (5,186,010.21)
Accounts payable, trade................ 97,109.28 97,109.28 0.00
(84,035.47) (84,035.47) (0.00)
Accounts due to affiliated companies... 19,795,638.64 19,795,638.64 0.00
(18,090,320.34) (18,090,320.34) (0.00)
Other liabilities...................... 15,647.37 15,647.37 0.00
(17,030.74) (17,030.74) (0.00)
------------------ ------------- ---------------
26,626,225.91 21,103,216.92 4,923,008.99
(26,048,320.42) (19,330,489.80) (5,186,010.21)
============= ============= =============
</TABLE>
- ---------------
(prior year's figures in brackets)
III. EXPLANATORY NOTES TO THE STATEMENT OF OPERATIONS
SALES
This item primarily contains current and once-off fees of subscribers.
OTHER TAXES
Other taxes contain splitted municipal trade tax on capital amounting to DM
30,127.95 charged from the organic unit.
IV. OTHER NOTES
NUMBER OF EMPLOYEES
During the financial year the average number of employees was four.
GENERAL MANAGER
Herbert Leifker, Hildesheim
PARENT COMPANY
100% of the share capital is held by Tele Columbus GmbH, Hannover, which
itself is an affiliated company of VEBA AG, Dusseldorf/Berlin.
The parent company, VEBA AG, Dusseldorf/Berlin, composes consolidated
financial statements including the most important circle of group companies.
The consolidated financial statements of VEBA AG, Dusseldorf/Berlin, will
be published in "Bundesanzeiger" (Federal Bulletin) and the publication will be
issued to country court Dusseldorf for trade register purposes.
F-91
<PAGE> 220
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
CONTINGENCIES AND OTHER FINANCIAL COMMITMENTS
Contingencies and other financial commitments to be indicated have not
occurred up to balance sheet date.
PROPOSED APPROPRIATION OF YEAR END RESULT
General Management proposes, to carry forward the loss.
St. Georgen, February 22, 1995
Herbert Leifker
General Manager
F-92
<PAGE> 221
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
MOVEMENTS IN FIXED ASSETS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
----------------------------------------------------- --------------------------
JAN 1, 1994 ADDITIONS DISPOSITIONS DEC 31, 1994 JAN 1, 1994 ADDITIONS
------------ --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software............................. 5,863.06 0.00 0.00 5,863.06 3,613.99 1,018.34
------------ --------- ----------- ------------ ------------ -----------
II. PROPERTY, PLANT AND EQUIPMENT
1. Land.............................. 49,747.85 0.00 0.00 49,747.85 10,282.04 3,595.62
2. Technical equipment, plant and
machinery.......................... 35,016,840.92 283,932.23 16,365.99 35,284,407.16 16,494,089.20 1,261,248.16
3. Other equipment, operational and
office equipment................... 204,506.77 2,844.72 15,730.38 191,621.11 99,643.55 24,598.05
4. Construction in progress.......... 0.00 20,000.00 0.00 20,000.00 0.00 0.00
------------ --------- ----------- ------------ ------------ -----------
35,271,095.54 306,776.95 32,096.37 35,545,776.12 16,604,014.79 1,289,441.83
------------ --------- ----------- ------------ ------------ -----------
III. FINANCIAL ASSETS
Investments.......................... 20,000.00 0.00 20,000.00 0.00 0.00 3,000.00
------------ --------- ----------- ------------ ------------ -----------
35,296,958.60 306,776.95 52,096.37 35,551,639.18 16,607,628.78 1,293,460.17
============ ========= ========== ============ ============ ===========
<CAPTION>
NET BOOK VALUE
---------------------------
DISPOSITIONS DEC 31, 1994 DEC 31, 1994 DEC 31, 1993
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
DM DM DM DM
I. INTANGIBLE ASSETS
Software............................. 0.00 4,632.33 1,230.73 2,249.07
----------- ------------ ------------ ------------
II. PROPERTY, PLANT AND EQUIPMENT
1. Land.............................. 0.00 13,877.66 35,870.19 39,465.81
2. Technical equipment, plant and
machinery.......................... 9,323.77 17,746,013.59 17,538,393.57 18,522,751.72
3. Other equipment, operational and
office equipment................... 7,847.86 116,393.74 75,227.37 104,863.22
4. Construction in progress.......... 0.00 0.00 20,000.00 0.00
----------- ------------ ------------ ------------
17,171.63 17,876,284.99 17,669,491.13 18,667,080.75
----------- ------------ ------------ ------------
III. FINANCIAL ASSETS
Investments.......................... 3,000.00 0.00 0.00 20,000.00
----------- ------------ ------------ ------------
20,171.63 17,880,917.32 17,670,721.86 18,689,329.82
========== ============ ============ ============
</TABLE>
F-93
<PAGE> 222
EXHIBIT IV
WIEDMANN-DETTWILER ST. GEORGEN GMBH
ST. GEORGEN
MANAGEMENT REPORT
AS OF DECEMBER 31, 1994
RESULTS OF OPERATIONS
To improve the efficiency activities to increase the acceptance rate have
been reinforced.
As a result, the acceptance rate increased from 64.84% (1993) to 66.43% in
1994. Sales from current and once-off fees of 9,600 households amounted to KDM
2,561 in 1994.
FINANCIAL SITUATION OF THE COMPANY
The net loss for the year 1994 amounts to KDM 1,705. The interest burden
was relieved due to restructuring payments in the amount of KDM 2,138 received
from Tele Columbus GmbH in 1993.
The company's capital deficit amounts to KDM 9,128. A letter of
subordination has been issued by Tele Columbus GmbH, Hannover.
OUTLOOK
A loss is expected again for the financial year 1995.
In 1995 the sale of shares is intended. Negotiations thereupon are
currently being held.
St. Georgen, February 22, 1995
Herbert Leifker
F-94
<PAGE> 223
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
We have audited the accompanying balance sheet of Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, as of December 31, 1993 and the related statement of
operations for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit 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 Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, at December 31, 1993 and the results of its
operations for the year then ended in conformity with accounting principles
generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1993, and shareholders' equity as of December 31, 1993, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - DEPRECIATION OF TECHNICAL EQUIPMENT
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - CAPITALIZATION OF INTEREST COST
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - ACCRUALS AND PROVISIONS
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
F-95
<PAGE> 224
- - INCOME TAX
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
- - CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
von Sperber Hentschel
Wirtschaftsprufer Wirtschaftsprufer
Hannover, Germany
February 17, 1994
</TABLE>
F-96
<PAGE> 225
EXHIBIT I
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
1992
1993 ------------
------------ DM
DM
<S> <C> <C>
ASSETS
FIXED ASSETS
Intangible assets
Software........................................................ 2,249.07 3,377.69
------------ ------------
2,249.07 3,377.69
------------ ------------
Property, plant and equipment
Land............................................................ 39,465.81 43,061.44
Technical equipment, plant and machinery........................ 18,522,751.72 19,312,790.38
Other equipment, operational and office equipment............... 104,863.22 71,265.80
------------ ------------
18,667,080.75 19,427,117.62
------------ ------------
Financial assets
Investments..................................................... 20,000.00 0.00
------------ ------------
18,689,329.82 19,430,495.31
------------ ------------
CURRENT ASSETS
Inventories
Stock........................................................... 0.00 10,483.03
------------ ------------
Accounts receivable and other assets
Accounts receivable, trade...................................... 69,037.88 107,142.88
Accounts due from affiliated companies.......................... 35,597.04 24,354.31
-- thereof due from shareholders: DM 34,597.04 (1992: DM
0.00)
Other assets.................................................... 54,175.12 748.59
------------ ------------
158,810.04 132,245.78
------------ ------------
Cash on hand and in Federal Bank.................................. 9,786.53 9,599.81
------------ ------------
168,596.57 152,328.62
------------ ------------
DEFERRED CHARGES AND PREPAID EXPENSES............................. 0.00 755.70
------------ ------------
CAPITAL DEFICIT................................................... 7,423,234.13 7,439,857.95
------------ ------------
26,281,160.52 27,023,437.58
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed................................................ 10,000,000.00 10,000,000.00
Paid-in surplus................................................... 2,138,000.00 0.00
Accumulated deficit, beginning of year............................ 17,439,857.95 4,536,901.01
Net loss.......................................................... 2,121,376.18 12,902,956.94
Capital deficit................................................... 7,423,234.13 7,439,857.95
------------ ------------
0.00 0.00
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes..................................................... 0.00 180,250.00
Other reserves and accrued liabilities............................ 232,840.10 181,945.10
------------ ------------
232,840.10 362,195.10
------------ ------------
LIABILITIES
Liabilities due to banks.......................................... 7,856,933.87 8,632,865.56
Accounts payable, trade........................................... 84,035.47 106,201.54
Accounts due to affiliated companies.............................. 18,090,320.34 17,918,896.30
-- thereof against shareholders DM 1,801,221.42 (1992: DM
967,917.86)
Other liabilities................................................. 17,030.74 3,279.08
-- thereof for taxes: DM 2,439.60 (1992: DM 0.00)
-- thereof for social security: DM 5,685.66 (1992: DM 0.00).....
------------ ------------
26,048,320.42 26,661,242.48
------------ ------------
26,281,160.52 27,023,437.58
============ ============
</TABLE>
F-97
<PAGE> 226
EXHIBIT II
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------- -------------
<S> <C> <C>
DM DM
1. Sales................................................... 2,470,895.34 2,640,826.21
2. Production for own plant and equipment capitalised...... 0.00 14,876.60
3. Other operating income.................................. 44,419.08 180,127.17
4. Cost of materials:
Cost of raw materials, supplies and trading stock..... 10,473.83 25,562.43
Cost of purchased services............................ 613,860.69 434,850.39
5. Personnel expenses
Wages and salaries.................................... 226,834.99 343,913.28
Social security....................................... 39,644.75 66,598.59
6. Depreciation on intangible assets, plant and
equipment............................................... 1,278,506.50 11,884,775.92
7. Other operating expenses................................ 340,551.85 495,845.67
8. Other interest and similar income....................... 1,627.52 10,740.67
-- thereof from affiliated companies: DM 1,606.91 (1992:
DM 8,563.57)
9. Interest and similar expenses........................... 2,225,839.66 2,400,087.14
-- thereof to affiliated companies DM 1,524,878.29
(1992: DM 1,666,193.43)
------------- -------------
10. Result from ordinary operations.......................... (2,218,770.33) (12,805,062.77)
------------- -------------
11. Taxes on income.......................................... 0.00 96,390.00
12. Other taxes.............................................. 97,394.15 (194,284.17)
------------- -------------
13. Net loss................................................. (2,121,376.18) (12,902,956.94)
============= =============
</TABLE>
F-98
<PAGE> 227
EXHIBIT III
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR 1993
I. GENERAL COMMENTS
The financial statements for the year ended December 31, 1994 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred charges have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
principally still valid.
In particular the following valuation methods have been applied:
Assets are stated at acquisition or manufacturing costs less normal
depreciation. Depreciation is calculated under the straight line method over the
expected useful life of the assets. Extraordinary depreciation has been
considered as far as lower values on account of probably permanent impairments
of value are appropriate at the balance sheet date.
Receivables and other assets are capitalized at nominal value. Forseeable
risks are considered by declines in value.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence.
Liabilities are shown at repayment value.
II. EXPLANATORY NOTES TO THE BALANCE SHEET AND THE INCOME STATEMENT
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 5).
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective locations (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
respective locations and two head-ends ("Kopfstationen"). The named cable levels
3 and 4 are regarded as independent assets as usual in this industry. Valuating
cable levels 3 and 4, all expenses incurred from third parties for installation
have been capitalized as late acquisition expenses for the respective cable
levels 3 or 4.
F-99
<PAGE> 228
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is performed on the basis of the remaining useful life of the
respective asset. For the determination of depreciation for cable levels 3 and 4
the company assumes an overall useful life of 20 years.
Receivables are due within one year.
LIABILITIES
The capital deficit is stated separately on the asset side, according to
sec. 268 sect. 3 HGB (German Commercial Code).
<TABLE>
<CAPTION>
DM
-------------
<S> <C>
Capital subscribed.................................................. 10.000.000,00
Paid-in surplus..................................................... 2.138.000,00
Accumulated deficit, beginning of year.............................. (17.439.857,95)
Net loss............................................................ (2.121.376,18)
-------------
(7.423.234,13)
=============
</TABLE>
The Paid-in surplus contains additional payments from the shareholders
according to sec. 272 sect. 2 no. 4 HGB (German Commercial Code) carried out in
the business year 1993.
In order to avoid an overindebtedness situation, a letter of subordination
has been issued by a creditor.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to Commerzbank AG, Frankfurt am Main, the
Company has ceded all future rights and claims against network clients and home
owners resulting from network installation agreements by means of general
assignment. head-ends and cable networks of block units have been ceded by means
of chattel mortgage. In addition, a credit order of Tele Columbus GmbH
guarantees these liabilities.
The liabilities due to Volksbank e.G., St. Georgen, and to Sparkasse St.
Georgen are guaranteed in the context of a security-pool-agreement
("Sicherheiten-Poolvertrag") by means of a land charge amounting to DM
1.200.000,00 as well as by a cession of subscriber fees ("Abonnementgebuhren")
and connection fees ("AnschluSSgebuhren"), suretyships of Tele Columbus GmbH
each in the amount of DM 2.100.000,00 combined with a letter of comfort of Motor
Columbus AG, Baden, Switzerland, and the cession of purchase price and
compensation claims respectively, due from the Town of St. Georgen in case of
early dissolution of contract.
F-100
<PAGE> 229
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subscription and connection fees as well as claims for purchase price and
refunds respectively have been ceded by means of junior security to Commerzbank
AG, Frankfurt/Main.
<TABLE>
<CAPTION>
THEREOF DUE
---------------------------------------------------
BETWEEN ONE
WITHIN ONE YEAR AND FIVE YEARS AFTER FIVE YEARS
TOTAL AMOUNTS --------------- -------------- ----------------
AS OF
BALANCE SHEET DATE DM DM DM
------------------
DM
<S> <C> <C> <C> <C>
Liabilities due to banks............ 7,856,933.87 1,139,103.25 5,186,010.21 1,531,820.41
(8,632,865.56) (866,198.56) (5,066,667.00) (2,700,000.00)
Accounts payable, trade............. 84,035.47 84,035.47 0.00 0.00
(106,201.54) (106,201.54) (0.00) (0.00)
Accounts due to affiliated
companies......................... 18,090,320.34 18,090,320.34 0.00 0.00
(17,918,896.30) (17,918,896.30) (0.00) (0.00)
Other liabilities................... 17,030.74 17,030.74 0.00 0.00
(3,279.08) (3,279.08) (0.00) (0.00)
------------------ --------------- -------------- ----------------
26,048,320.42 19,330,489.80 5,186,010.21 1,531,820.41
(26,661,242.48) (18,894,575.48) (5,066,667.00) (2,700,000.00)
============= ============= ============ ============
</TABLE>
- ---------------
(prior year's figures in brackets)
STATEMENT OF OPERATIONS
Sales
This item primarily contains current and once-off fees of subscribers.
III. OTHER NOTES
NUMBER OF EMPLOYEES
During the financial year the average number of employees was four.
GENERAL MANAGEMENT
<TABLE>
<S> <C>
Ulrich Mannes, Pfaffenweiler......... (until February 26, 1993)
Herbert Leifker, Hildesheim.......... (since February 26, 1993)
</TABLE>
PARENT COMPANY
The company is included in the consolidated financial statements of Motor
Columbus AG, Baden/Switzerland.
CONTINGENCIES AND OTHER FINANCIAL COMMITMENTS
Contingencies and other financial commitments to be indicated have not
occurred at the balance sheet date.
F-101
<PAGE> 230
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPOSED APPROPRIATION OF LOSS
General Management proposes, to carry forward the loss for the year.
St. Georgen, February 16, 1994
Herbert Leifker
General Manager
F-102
<PAGE> 231
EXHIBIT III
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
MOVEMENTS IN FIXES ASSETS AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------- -----------------------------------------
JAN. 1, 1993 ADDITIONS DISPOSITIONS DEC. 31, 1993 JAN. 1, 1993 ADDITIONS DISPOSITIONS
------------ --------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software.............. 5,863.06 0.00 0.00 5,863,06 2,485.37 1,128.62 0.00
------------ --------- ------------ ------------- ------------ ----------- ------------
II. PROPERTY, PLANT AND
EQUIPMENT
1. Land............... 49,747.85 0.00 0.00 49,747.85 6,686.41 3,595.63 0.00
2. Technical
equipment, plant
and machinery...... 34,562,667.01 454,173.91 0.00 35,016,840.92 15,249,876.63 1,244,212.57 0.00
3. Other equipment,
operational and
office equipment... 153,344.74 71,075.04 19,913.01 204,506.77 82,078.94 29,569.68 12,005.07
------------ --------- ------------ ------------- ------------ ----------- ------------
34,765,759.60 525,248.95 19,913.01 35,271,095.54 15,338,641.98 1,277,377.88 12,005.07
------------ --------- ------------ ------------- ------------ ----------- ------------
III. FINANCIAL ASSETS
Investments........... 0.00 20,000.00 0.00 20,000.00 0.00 0.00 0.00
------------ --------- ------------ ------------- ------------ ----------- ------------
34,771,622.66 545,248.95 19,913.01 35,296,958.60 15,341,127.35 1,278,506.50 12,005.07
============ ========= =========== ============ ============ =========== ===========
<CAPTION>
NET BOOK VALUE
-----------------------------
DEC. 31, 1993 DEC. 31, 1993 DEC. 31, 1992
------------- ------------- -------------
<S> <C> <C> <C>
DM DM DM
I. INTANGIBLE ASSETS
Software.............. 3,613.99 2,249.07 3,377.69
------------- ------------- -------------
II. PROPERTY, PLANT AND
EQUIPMENT
1. Land............... 10,282.04 39,465.81 43,061.44
2. Technical
equipment, plant
and machinery...... 16,494,089.20 18,522,751.72 19,312,790.38
3. Other equipment,
operational and
office equipment... 99,643.55 104,863.22 71,265.80
------------- ------------- -------------
16,604,014.79 18,667,080.75 19,427,117.62
------------- ------------- -------------
III. FINANCIAL ASSETS
Investments........... 0.00 20,000.00 0.00
------------- ------------- -------------
16,607,628.78 18,689,329.82 19,430,495.31
============ ============ ============
</TABLE>
F-103
<PAGE> 232
EXHIBIT IV
WIEDMANN-DETTWILER ST. GEORGEN GMBH
ST. GEORGEN
MANAGEMENT REPORT
AS OF DECEMBER 31, 1993
RESULTS OF OPERATIONS
To improve the efficiency of Kesselberg's primary network, activities to
increase the acceptance rate in that location have been continued.
The activities concentrated on the improvement of selling and subscriber's
administration.
As a result, the acceptance rate increased from 60.99% (1992) to 64.87% in
1993. Sales from current and once-off fees of 9.600 households amounted to DM
2,470,000.00 in 1993.
FINANCIAL SITUATION OF THE COMPANY
The net loss for the year 1993 amounts to DM 2,121,376.18. The interest
burden was relieved this year due to restructuring payments in the amount of DM
2,138,000 received from Tele Columbus GmbH.
The company's capital deficit amounts to KDM 7,423. A letter of
subordination in the amount of KDM 15,829 has been issued by an affiliated
company of the Motor-Columbus group.
OUTLOOK
A loss is expected again for the financial year 1994.
St. Georgen, February 16,1994
Herbert Leifker
F-104
<PAGE> 233
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
TELECable Betriebsgesellschaft Halle mbH
We have audited the accompanying balance sheet of TELECable
Betriebsgesellschaft Halle mbH as of December 31, 1994, and the related
statements of operations, shareholders' deficiency and cash flows for the eight
months ended August 31, 1995 and for each of the two years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TELECable
Betriebsgesellschaft Halle mbH as of December 31, 1994 and the results of its
operations and its cash flows for the eight months ended August 31, 1995 and for
each of the two years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
January 5, 1996
F-105
<PAGE> 234
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 9
Accounts receivable -- net (see Note 2)....................................... 223
Property and equipment -- net (see Note 3).................................... 34,357
Other assets (see Note 4)..................................................... 3,129
Deferred income taxes (see Note 6)............................................ 3,961
-------
TOTAL ASSETS.................................................................. 41,679
=============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts payable.............................................................. 803
Accrued expenses.............................................................. 217
Deferred revenue.............................................................. 382
Deferred income taxes (see Note 6)............................................ 9,671
Debt, including shareholder loans (see Note 5)................................ 33,031
-------
TOTAL LIABILITIES............................................................. 44,104
SHAREHOLDERS' DEFICIENCY
Registered Capital (See Note 8)............................................. 50
Capital contribution........................................................ 2,400
Accumulated deficit......................................................... (4,875)
-------
TOTAL SHAREHOLDERS' DEFICIENCY................................................ (2,425)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY................................ 41,679
=============
</TABLE>
See accompanying notes to financial statements.
F-106
<PAGE> 235
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEARS ENDED ENDED AUGUST
DECEMBER 31, 31,
----------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Revenues................................................... 5,801 8,215 5,428
Operating costs and expenses:
Operations............................................... 744 1,147 862
Selling, general and administrative...................... 1,673 2,027 1,399
Depreciation and amortization............................ 1,879 3,194 2,407
------ ------ ------------
Total operating costs and expenses......................... 4,296 6,368 4,668
------ ------ ------------
Operating income........................................... 1,505 1,847 760
Interest and other income.................................. 158 19 116
Interest expense........................................... 728 1,085 1,683
------ ------ ------------
Income (loss) before income taxes.......................... 935 781 (807)
Income tax expense (benefit)............................... 604 503 (372)
------ ------ ------------
Net income (loss).......................................... 331 278 (435)
====== ====== ==========
</TABLE>
See accompanying notes to financial statements.
F-107
<PAGE> 236
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
REGISTERED CAPITAL ACCUMULATED
CAPITAL CONTRIBUTIONS DEFICIT TOTAL
---------- ------------- ----------- -------
<S> <C> <C> <C> <C>
DM DM DM DM
(IN THOUSANDS)
Balance at December 31, 1992................ 50 2,400 (1,871) 579
Net income.................................. -- -- 331 331
Utilization of net operating losses by
silent partners........................... -- -- (1,741) (1,741)
---------- ------------- ----------- -------
Balance at December 31, 1993................ 50 2,400 (3,281) (831)
Net income.................................. -- -- 278 278
Utilization of net operating losses by
silent partners........................... -- -- (1,872) (1,872)
---------- ------------- ----------- -------
Balance at December 31, 1994................ 50 2,400 (4,875) (2,425)
Net loss.................................... -- -- (435) (435)
Purchase of stock........................... -- (2,400) (19,600) (22,000)
---------- ------------- ----------- -------
Balance at August 31, 1995.................. 50 -- (24,910) (24,860)
======= ========== ========= =======
</TABLE>
See accompanying notes to financial statements
F-108
<PAGE> 237
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEARS ENDED ENDED
DECEMBER 31, AUGUST 31,
------------------ ------------
1993 1994 1995
------- ------ ------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)......................................... 331 278 (435)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization........................... 1,879 3,194 2,407
Deferred income taxes................................... 604 503 (372)
(Gains) losses on disposal of fixed assets.............. -- 33 (5)
Changes in assets and liabilities:
Accounts receivable..................................... (166) 8 58
Other assets............................................ (1,890) 333 1,668
Accounts payable........................................ 227 (1,628) (173)
Accrued expenses........................................ (845) 121 651
Deferred revenue........................................ 415 (399) (76)
------- ------ ------------
Net cash provided by operating activities................. 555 2,443 3,723
INVESTING ACTIVITIES
Purchases of property and equipment..................... (17,497) (9,593) (3,571)
Proceeds from sale of property and equipment............ -- 2 10
------- ------ ------------
Net cash used for investing activities.................... (17,497) (9,591) (3,561)
FINANCING ACTIVITIES
Proceeds from long-term bank borrowings................... 18,000 6,000 2,000
Net change in other borrowings............................ (2,040) 281 (2,165)
------- ------ ------------
Net cash provided by (used in) financing activities....... 15,960 6,281 (165)
Net increase (decrease) in cash........................... (982) (867) (3)
Cash at beginning of period............................... 1,858 876 9
------- ------ ------------
Cash at end of period..................................... 876 9 6
======= ====== ==========
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 238
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
TELECable Betriebsgesellschaft Halle mbH (the "Company") has the exclusive
rights to operate communication and information networks primarily for the
distribution of radio and television programming, in several areas in eastern
Germany. The Company began operations in 1990.
Effective September 1, 1995, the shares of the Company were sold to Beta
Asset Management GmbH ("Beta"), a wholly-owned subsidiary of Kablemedia Holding
GmbH. The sales price of approximately DM 68,000,000 was based on the number of
subscribers as of August 31, 1995, adjusted for certain assets and the
assumption of liabilities.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with U.S.
GAAP.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's customer base.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are comprised principally of
assets used in the development and operation of cable television systems. These
assets are depreciated or amortized in accordance with the United States
Statement of Financial Accounting Standards No. 51, "Financial Reporting by
Cable Television Companies".
Depreciation is provided using the straight-line method over estimated
useful lives as follows:
<TABLE>
<S> <C>
Cable networks................................................................. 10 to 15 years
Equipment and fixtures......................................................... 4 to 6 years
</TABLE>
Interest on bank indebtedness of DM 874,200 and DM 1,042,100 was
capitalized on cable networks during the years ended December 31, 1993 and
December 31, 1994. No interest was capitalized during the eight months ended
August 31, 1995.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property and equipment are recognized by the Company when estimable and
realizable. The basis of property and equipment is reduced by investment grants
and depreciated over the useful life of the acquired property. During the years
ended December 31, 1993 and 1994 and the eight months ended August 31, 1995,
property and equipment was reduced by DM 1,442,500, DM 723,900 and DM 169,400,
respectively, relating to the recording of investment grants.
Investment grants are subject to government review. Management does not
anticipate any significant adjustment to the amount of investment grants
recorded.
F-110
<PAGE> 239
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in several areas of eastern Germany and from the construction and
management of its cable television systems. Revenue is recognized at the time
services are provided.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which has
been applied for all periods presented. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the enactment date.
2. ACCOUNTS RECEIVABLES -- NET
Accounts receivables are stated net of allowances for doubtful accounts of
DM 141,000 at December 31, 1994.
3. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
<S> <C>
DM
(IN THOUSANDS)
Cable Networks, including networks under construction of DM 3,480 at December
31, 1994...................................................................... 39,569
Equipment and Fixtures.......................................................... 726
-------
Total........................................................................... 40,295
Less accumulated depreciation................................................... 5,938
-------
Property and Equipment -- net................................................... 34,357
===========
</TABLE>
Depreciation expense totalled DM 1,879,300, DM 3,194,300 and DM 2,407,200
for the years ended December 31, 1993, December 31, 1994 and for the eight month
period ended August 31, 1995, respectively.
4. OTHER ASSETS
Other assets consist primarily of receivables from the German government
related to grants for capital expenditures in former East Germany. Investment
grant receivables totalled DM 2,167,700 as of December 31, 1994.
F-111
<PAGE> 240
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. BANK DEBT
Total bank debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
<S> <C>
DM
(IN THOUSANDS)
Bank indebtedness............................................................... 26,701
Loans from shareholders......................................................... 6,330
-------
Total........................................................................... 33,031
===========
</TABLE>
BANK INDEBTEDNESS
The terms of the loans are shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
DM
<S> <C>
(IN THOUSANDS)
6 1/4% unsecured note, principal due semiannually from 1995 to 2003............. 6,500
7 2/5% unsecured note, principal due quarterly from 1995 to 2003................ 2,500
6.15% unsecured note, principal due 1997........................................ 4,000
Other........................................................................... 13,701
-------
26,701
===========
</TABLE>
Included in other debt are bank overdrafts of DM 2,701,100 at December 31,
1994. Bank overdrafts represent a short term financing method commonly used in
Germany. Interest rates ranging from 9.75% to 13.0% are generally charged on
such balances.
Other debt, excluding bank overdrafts, consists of various bank borrowings
with maturity dates ranging from 1995 to 2003. Interest rates on these
borrowings range from 6% to 9%.
In connection with the change in ownership of the Company effective
September 1, 1995, the outstanding balances of the bank loans were paid in full.
Maturities of bank indebtedness for the five years succeeding December 31,
1994 are as follows:
<TABLE>
<CAPTION>
DM
(IN THOUSANDS)
--------------
<S> <C>
1995............................................................................ 7,326
1996............................................................................ 4,250
1997............................................................................ 4,250
1998............................................................................ 5,250
1999............................................................................ 1,250
2000............................................................................ 1,250
</TABLE>
The above notes include various restrictions, none of which are presently
significant to the Company. However, approximately DM 22,000,000 are secured by
a personal guarantee by a shareholder.
The loans from shareholders outstanding at December 31, 1994 represent
demand notes with interest rates ranging from 8% to 10%.
F-112
<PAGE> 241
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the acquisition of the Company's shares effective September 1,
1995 by Beta, the Company repurchased its shares held by silent partners for
approximately DM 28,000,000. The Company issued demand notes in 1995 bearing 6%
interest to finance the re-acquisition of the shares. Interest expense on these
borrowings totalled DM 728,300, DM 531,900 and DM 634,600 for the years ended
December 31, 1993, December 31, 1994, and the eight month period ended August
31, 1995, respectively.
Interest paid totalled DM 1,602,500, DM 2,127,538 and DM 1,403,700 for the
years ended December 31, 1993, December 31, 1994 and the eight month period
ended August 31, 1995, respectively.
The weighted average interest rate on other debt outstanding at December
31, 1994 approximated 6.8%.
6. INCOME TAXES
The Company files a separate tax return in accordance with German tax laws.
Under German corporate tax law, taxes on income are comprised of corporate taxes
and trade taxes.
Provision for income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Year ended December 31, 1993.................................... -- 604 604
Year ended December 31, 1994.................................... -- 503 503
Eight months ended August 31, 1995.............................. -- (372) (372)
</TABLE>
Provision for income taxes differed from the amounts computed by applying
the German corporate statutory tax rate to pretax income (loss) as a result of
the following:
<TABLE>
<CAPTION>
EIGHT MONTHS
YEARS ENDED ENDED
DECEMBER 31, AUGUST 31,
------------- -------------
1993 1994 1995
---- ---- -------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Income (loss) before taxes.................................... 935 781 (807)
Tax expense (benefit) at German corporate statutory rate of
50% in 1993 and 45% in 1994 and 1995........................ 467 351 (363)
Trade tax on income, net of corporate tax benefit............. 130 166 3
Other......................................................... 7 (14) (12)
---- ---- ------
Income tax expense (benefit).................................. 604 503 (372)
==== ==== ==========
</TABLE>
F-113
<PAGE> 242
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
---------------
<S> <C>
DM
(IN THOUSANDS)
Deferred tax assets:...........................................................
Net operating loss carryforwards............................................. 3,594
Other assets................................................................. 367
-------
Net deferred tax assets...................................................... 3,961
============
Deferred tax liabilities:
Fixed assets................................................................. 9,671
============
Total net deferred tax liabilities........................................... 5,710
============
</TABLE>
At December 31, 1994, the Company has net operating loss carryforwards
available to reduce future taxable income of approximately DM 6,900,000. These
net operating loss carryforwards have an unlimited carryforward period.
7. OPERATING LEASES
The Company has certain noncancelable lease arrangements principally for
the rental of office space. For the years ended December 31, 1993 and 1994 and
the eight months ended August 31, 1995, rental expenses for all leases totalled
DM 101,600, DM 97,600 and DM 71,400, respectively.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<CAPTION>
DM
-------
<S> <C>
1995............................................................................... 121,800
1996............................................................................... 151,100
1997............................................................................... 145,000
1998............................................................................... 142,000
1999............................................................................... 141,000
Thereafter......................................................................... 152,400
</TABLE>
8. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000.
Capital contributions represent additional contributions made by the
shareholders in the form of cash or conversion of debt.
F-114
<PAGE> 243
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company was party to an agreement with INFORMAT Kommunikations-Service
GmbH, which is owned by a shareholder, for management services. Management fees
paid to Informat under this agreement totalled DM 270,000, DM 273,000 and DM
313,400 for the years ended December 31, 1993 and 1994 and the eight months
ended August 31, 1995, respectively. The expenses of DM 313,400 for the eight
months ended August 31, 1995 include a one-time contract termination payment of
DM 175,000.
Additionally, the Company has borrowings from shareholders as discussed in
Note 5.
F-115
<PAGE> 244
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
BFR Group
We have audited the accompanying combined balance sheet of the BFR Group
(Osnabruck and Angelbachtal operations) as of December 31, 1994, and the related
combined statements of operations, shareholders' equity (deficiency) and cash
flows for the nine months ended September 30, 1995 and for each of the two years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted 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 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of the BFR Group
(Osnabruck and Angelbachtal operations) as of December 31, 1994 and the combined
results of its operations and its cash flows for the nine months ended September
30, 1995 and for each of the two years in the period ended December 31, 1994, in
conformity with accounting principles generally accepted in the United States of
America.
Ernst & Young GmbH
Frankfurt, Germany
February, 28 1996
F-116
<PAGE> 245
BFR GROUP
(OSNABRUK AND ANGELBACHTAL OPERATIONS)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash....................................................................... 195
Accounts receivable -- net (Note 3)........................................ 446
Inventory.................................................................. 321
Prepaid expenses........................................................... 150
Property, plant and equipment -- net (Note 4).............................. 55,541
Goodwill and other intangible assets -- net (Note 5)....................... 2,287
Other assets............................................................... 222
-----------------
TOTAL ASSETS............................................................... 59,162
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank debt (Note 6)......................................................... 29,907
Other debt with related parties (Note 7)................................... 2,545
Accounts payable........................................................... 2,286
Payables to related parties (Note 8)....................................... 5,988
Accrued expenses........................................................... 968
Deferred revenue........................................................... 4,498
Deferred income taxes (Note 9)............................................. 2,137
-----------------
TOTAL LIABILITIES.......................................................... 48,329
Minority Interest (Note 10)................................................ 1,674
Registered Capital (Note 11)............................................... 21,638
Additional Paid in Capital................................................. 810
Accumulated Deficit........................................................ (13,289)
-----------------
TOTAL STOCKHOLDERS' EQUITY................................................. 9,159
-----------------
TOTAL LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY............. 59,162
=============
</TABLE>
See accompanying notes to the combined financial statements
F-117
<PAGE> 246
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS TO
------------------ SEPTEMBER 30
1993 1994 1995
------ ------- ------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Revenues.................................................. 9,361 10,663 8,511
Operating costs and expenses
Operating expenses........................................ (2,251) (3,248) (3,226)
Selling, general and administrative....................... (4,012) (4,585) (3,082)
Depreciation and amortization............................. (3,318) (3,826) (3,460)
------ ------- ------------
Total operating costs and expenses........................ (9,581) (11,659) (9,768)
------ ------- ------------
Operating loss............................................ (220) (996) (1,257)
Other income.............................................. 1,618 1,250 293
Interest expense.......................................... (3,110) (3,180) (2,682)
Minority interest......................................... (188) (183) (5)
------ ------- ------------
Loss before income taxes.................................. (1,900) (3,109) (3,651)
Provision for income taxes (Note 10)...................... (24) (2,143) 2,128
------ ------- ------------
Net loss.................................................. (1,924) (5,252) (1,523)
====== ======= ==========
</TABLE>
See accompanying notes to the combined financial statements
F-118
<PAGE> 247
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
ADDITIONAL
REGISTERED PAID IN ACCUMULATED
CAPITAL CAPITAL DEFICIT TOTAL
---------- ---------- ----------- ------
<S> <C> <C> <C> <C>
DM DM DM DM
(IN THOUSANDS)
Balance at December 31, 1992................... 6,488 128 (6,050) 566
Net loss for the year 1993..................... -- -- (1,924) (1,924)
Forgiveness of interest payable to
shareholder.................................. -- 682 -- 682
Dividends...................................... -- -- (10) (10)
Increase in registered capital................. 100 -- -- 100
---------- --- ----------- ------
Balance, December 31, 1993..................... 6,588 810 (7,984) (586)
Acquisition of additional ownership in Kabelcom
GmbH & Co KG................................. 50 -- (47) 3
Net loss for the year 1994..................... -- -- (5,252) (5,252)
Dividends...................................... -- -- (6) (6)
Increase in registered capital................. 2,200 -- -- 2,200
Contribution in kind (Note 8).................. 12,800 -- -- 12,800
---------- --- ----------- ------
Balance, December 31, 1994..................... 21,638 810 (13,289) 9,159
Net loss for the nine month period September
30, 1995..................................... -- -- (1,523) (1,523)
Dividends...................................... -- -- (6) (6)
---------- --- ----------- ------
Balance, September 30, 1995.................... 21,638 810 (14,818) 7,630
======= ======= ========= ======
</TABLE>
See accompanying notes to the combined financial statements
F-119
<PAGE> 248
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS ENDED
------------------- SEPTEMBER 30
1993 1994 1995
------- ------- --------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Operating activities:
Net loss............................................... (1,924) (5,252) (1,523)
Adjustments to reconcile net loss to net cash provided
by
(used for) operating activities:
Depreciation and amortization.......................... 3,268 3,826 3,460
Deferred income taxes.................................. -- 2,137 (2,137)
(Gain)/Loss on disposal of property, plant and
equipment............................................ -- (5) --
Write down of financial assets......................... 50 -- --
Minority interest...................................... 188 183 5
Changes in assets and liabilities:
Accounts receivable.................................... (50) 84 266
Inventory.............................................. 242 (262) (481)
Other assets........................................... (588) 1,108 164
Accounts payable....................................... (5,257) (882) (308)
Accrued expenses....................................... 1,982 (590) (186)
Deferred revenue....................................... 1,205 (581) (1,014)
------- ------- -------
Net cash used in operating activities.................. (884) (234) (1,754)
Investing activities:
Purchase of property, plant and equipment.............. (8,333) (30,665) (1,034)
Proceeds from disposal of property, plant and
equipment............................................ 12 19 --
Increase in investment in affiliate.................... (2,255) -- --
Reduction in investment in affiliate................... 39 -- --
------- ------- -------
Net cash used in investing activities.................. (10,537) (30,646) (1,034)
Financing activities:
Net proceeds from (payments to) related parties........ 7,135 13,820 959
Increase in registered capital......................... 100 2,200 --
Proceeds from bank debt................................ 937 27,306 2,553
Payments on bank debt.................................. (1,956) (25,269) (4,232)
Net change in bank overdrafts.......................... (2,638) 10,193 3,820
Net change in other debt............................... 2,491 54 (232)
Dividends paid......................................... (10) (6) (6)
Forgiveness of interest payable to shareholder......... 682 -- --
------- ------- -------
Net cash provided by financing activities.............. 6,741 28,298 2,862
------- ------- -------
Net (decrease)/increase in cash and cash equivalents... (4,680) (2,582) 74
Cash and cash equivalents at beginning of year......... 7,457 2,777 195
------- ------- -------
Cash and cash equivalents at end of period............. 2,777 195 269
======= ======= ============
</TABLE>
See accompanying notes to the combined financial statements
F-120
<PAGE> 249
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On October 18, 1995 (effective September 30, 1995), the companies listed
below ("BFR Group"), were purchased by Kabelmedia Projektmanagement
Kommunikationsnetze Verwaltungs GmbH ("Kabelmedia") from PKO Osmo GmbH ("PKO").
The sales price of DM 43,200,000, subject to post-closing adjustments, was based
on the number of subscribers as of the closing date adjusted for certain
liabilities and assets. The purchase price is expected to be finalised in 1996.
<TABLE>
<CAPTION>
BFR GROUP COMPANIES ACQUIRED % ACQUIRED BY PKG
-------------------------------------------------- -----------------
<S> <C>
BFR Beteiligungsgesellschaft mbH ("BFR").......... 100.0
Kabelcom GmbH..................................... 66.0
Kabelcom GmbH & Co KG............................. 64.4
</TABLE>
Each of the companies in the BFR Group is engaged in the operation and
management of cable television systems. The BFR Group operates cable television
systems in numerous locations in Germany. The combined financial statements
include only the operations of the cable television systems of BFR located in
the Angelbachtal area and Kabelcom GmbH and Kabelcom GmbH & Co KG whose
operations are located in the Osnabruck area ("the Group"). The combined
financial statements have been prepared in accordance with United States
generally accepted accounting principles including those principles specific to
the cable television industry. The BFR Group maintains its financial records in
accordance with the German Commercial Code, which represents generally accepted
accounting principles in Germany ("German GAAP"). German GAAP varies in certain
significant respects from generally accepted accounting principles in the United
States ("US GAAP") and, therefore, the BFR Group has recorded certain
adjustments in order that these financial statements be in accordance with US
GAAP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION
The Group financial statements represent the combined accounts of the cable
television systems of BFR located in the Angelbachtal area and Kabelcom GmbH and
Kabelcom GmbH & Co KG. All significant intercompany accounts and transactions
have been eliminated in the combination.
CONCENTRATION OF CREDIT RISK
The Group's only significant credit risk consists of trade receivables.
Credit risk on trade receivables is minimized as a result of the large and
diverse nature of the Group's customer base.
REVENUE RECOGNITION
Sales revenue comprises revenue earned (net of refunds, discounts and
allowances) from fees for subscription and installation of services. Sales
revenue is recognized at the time services are provided to customers except for
one-time connection fees. That part of one-time fees in excess of DM 200 is
deferred and released to income over a period of 8 years, a full year's income
being recognised in the year the customer contract becomes effective.
INVENTORIES
Inventories are recorded at cost and valued under the first-in first-out
method. Inventories consist primarily of supplies used in repairs and
maintenance as well as inventory used in the construction of cable networks.
F-121
<PAGE> 250
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with United
States Statement of Financial Accounting Standards ("FAS") No. 51, "Financial
Reporting by Cable Television Companies."
Reception and distribution facilities are depreciated over an estimated
useful life of 15 years using the straight line method. Equipment and fixtures
are depreciated over an estimated useful life of 4 years, using the straight
line method.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist primarily of franchise costs
and goodwill recorded in various acquisitions. Such amounts are generally
amortized over eight years. Management evaluates the amortization periods and
the recoverability of the net carrying value of the intangible assets by
reviewing the performance of the underlying operations, and in particular, the
future undiscounted operating cash flows of the acquired entities.
INCOME TAXES
Income taxes have been accounted for in accordance with FAS 109,
"Accounting for Income Taxes" which has been applied for all periods presented.
Deferred taxes and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and to operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using the effective tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to reverse or be
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period in which the enactment date falls.
3. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful accounts
for the following periods:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(DM IN THOUSANDS)
Allowance for doubtful accounts................... 101
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(DM IN THOUSANDS)
Reception and distribution facilities............. 64,715
Equipment and fixtures............................ 476
-------
Total............................................. 65,191
Less: accumulated depreciation.................... 9,650
-------
Net property, plant and equipment................. 55,541
==============
</TABLE>
F-122
<PAGE> 251
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Interest has been capitalized as prescribed by FAS 34, "Capitalization of
Interest Cost". Interest capitalized is summarised as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER
31, 9 MONTHS TO
----------- SEPTEMBER 30,
1993 1994 1995
--- --- -------------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Interest Capitalized.................... 634 299 0
</TABLE>
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Accumulated amortization for goodwill and other intangible assets was DM
2,254,000 at December 31, 1994.
6. BANK DEBT
Details of bank debt are as follows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(DM IN THOUSANDS)
Long term note, due 2003, interest rate of 9.75%... 12,400
Long term note, due 2002, interest rate of 9.10%... 3,345
Long term note, due 2004, interest rate of 9.75%... 2,960
Long term note, due 2001, interest rate of 8%...... 2,139
Long term note, due 2002, interest rate of 9.75%... 1,180
Long term note, due 1999, interest rate of 7.30%... 900
Other.............................................. 628
-------
Total.............................................. 23,552
=============
</TABLE>
In addition to the preceding bank debt the Group has short-term overdraft
facilities at December 31, 1994 totaling DM 5,050,000. Overdrafts at December 31
1994 were DM 6,355,000. All loans and overdrafts have been collateralized by the
assets of the BFR Group.
Aggregate principal payments on bank debt (excluding overdraft facilities)
for the next five years subsequent to December 31, 1994 are as follows:
<TABLE>
<CAPTION>
DATE
-----------------------------------------------------
<S> <C>
1995................................................. 2,642
1996................................................. 2,768
1997................................................. 2,846
1998................................................. 2,820
1999................................................. 2,506
Thereafter........................................... 9,970
-------
Total................................................ 23,552
===========
</TABLE>
Interest paid on bank debt and overdrafts for the years ended December 31,
1993 and December 31, 1994, and for the period ended September 30, 1995
approximated DM 2,994,000, DM 2,700,000, and
F-123
<PAGE> 252
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DM 2,206,000, respectively. The weighted average interest rate on overdraft
borrowings outstanding as of December 31, 1994 was 9.6%.
7. OTHER DEBT
Other debt represents amounts owed to former shareholders. The interest
rate on the loans is 9.75% and the loans are due in three annual installments
beginning December 31, 1994. Interest paid in 1994 amounted to approximately DM
263,000.
8. RELATED PARTY TRANSACTIONS
Payables to related parties consist of amounts owed by the Group to its
former parent, PKO or related parties of PKO.
<TABLE>
<CAPTION>
ACCOUNTS
LOANS PAYABLE TOTAL
----- -------- -----
(DM IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1994................................................ 637 5,351 5,988
</TABLE>
The loans from PKO to the Group were financed at an interest rate of 2%
over the German Bundesbank preferred rate (6.5% at December 31, 1994). In 1993
the shareholders of the Group made a contribution in kind through interest
forgiveness amounting to DM682 which was credited to additional paid in capital.
The BFR Group provides PKO with marketing and cable maintenance services.
Revenues earned by the Group from providing these services in 1993 were DM
885,000. In 1994, this arrangement was formalized in a contract between BFR
Group and PKO whereby the Group received a minimum of DM 75,000 per month for
services rendered. Total revenues earned from this contract in 1994 amounted to
DM 900,000. This income is included in revenues. This contract was terminated as
a result of the sale of the BFR Group and replaced in 1995 with a new
arrangement between PKO and the BFR Group whereby PKO provides the BFR Group
with services and maintenance of cables until March 1996 for a one time fee of
DM 600,000. PKO and the BFR Group entered into a contract on April 21, 1995
which requires the BFR Group to engage PKO as technical consultants in the event
that the BFR Group plans to expand services offered over the cable network. This
contract was not terminated in connection with the sale of the BFR Group and
therefore continues to remain in effect.
ISIT GmbH ("ISIT"), which has also been acquired by Kabelmedia at October
8, 1995, provides the BFR Group with cash pooling and administrative services
for cable networks in the vicinity of Berlin. The BFR Group entered into a
service contract with ISIT at December 31, 1994 whereby ISIT receives a fixed
fee for maintaining the cable networks and providing customer service. For the
nine month period ended September 30, 1995, the Group recorded DM 130,000
expense as a result of the service contract.
9. INCOME TAXES
The BFR Group does not file a consolidated tax return. All entities
included in the BFR Group file separate tax returns.
As of September 30, 1995, the Group has available cumulative tax loss
carry-forwards of approximately DM 7,247,000 for corporation income tax and DM
4,183,000 for trade tax on income. Under German tax law there is no expiration
date.
F-124
<PAGE> 253
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Group's deferred tax liabilities and assets
as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets:
Goodwill depreciation........................... 613
Tax loss carry forward.......................... 2,185
-------
2,798
Deferred tax liability:
Fixed asset depreciation........................ 4,935
-------
Net deferred tax liability...................... (2,137)
==============
</TABLE>
The deferred tax assets arise from timing differences on the amortization
of goodwill, and tax loss carryforwards. The deferred tax liability arises from
timing differences on depreciation of fixed assets (including interest
capitalization).
The components of the (provision) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS TO
--------------- SEPTEMBER 30,
1993 1994 1995
---- ------ -------------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Current...................................................... (24 ) (6) (9)
Deferred..................................................... -- (2,137) 2,137
---- ------ ------
(24 ) (2,143) 2,128
==== ====== ==========
</TABLE>
A reconciliation of the German statutory tax rate of 57.5% to the actual
rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS TO
----------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Results before taxes....................................... (1,900) (3,109) (3,651)
Expected benefit........................................... 1,092 1,787 2,099
Reduction in loss carryforwards (net of valuation
allowance) due to reorganization......................... -- (4,105) --
Increase in valuation allowance............................ (1,146) -- (358)
Other...................................................... 30 175 387
------ ------ -------------
Actual (provision) benefit................................. (24) (2,143) 2,128
====== ====== ==========
</TABLE>
F-125
<PAGE> 254
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. MINORITY INTEREST
Minority interest represents 35.6% of the limited partners' equity interest
in Kabelcom GmbH & Co KG and the 34.0% separate ownership of Kabelcom GmbH.
Movements in the minority interest were as follows:
<TABLE>
<CAPTION>
MINORITY INTEREST
IN KABLECOM MINORITY INTEREST
GMBH & CO KG IN KABELCOM GMBH TOTAL
----------------- ----------------- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Balance, December 31, 1992.......................... 1,275 31 1,306
Net income attributable to minority interest........ 182 6 188
--
------ -----
Balance, December 31, 1993.......................... 1,457 37 1,494
Net income attributable to minority interest........ 177 6 183
Buy out of a limited partner........................ (3) (3)
--
------ -----
Balance, December 31, 1994.......................... 1,631 43 1,674
Net income attributable to minority interest........ 4 1 5
--
------ -----
Balance, September 30, 1995......................... 1,635 44 1,679
============ ============ =====
</TABLE>
11. REGISTERED CAPITAL
The Group is comprised of limited liability companies (GmbH) and a limited
stock partnership (GmbH & Co KG). As of December 31, 1994, the registered
capital of the Group amounted to DM 21,638,000.
The registered capital of the Group was held by PKO at December 31, 1994.
The contribution in kind represents a forgiveness of amounts due to PKO on
November 11, 1994.
12. PENSION AND RETIREMENT PLANS
The Group provides no pension, post-retirement or post-employment benefits
to their employees or retirees.
13. SUBSEQUENT EVENT
On October 18, 1995, (effective September 30, 1995) the BFR Group was sold
to Kabelmedia for a sales price of DM 43,200,000, subject to closing
adjustments.
F-126
<PAGE> 255
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
BFR Group
We have audited the accompanying statements of operations, and cash flows
of the BFR Group (Berlin and Bielefeld operations) for the nine months ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted 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 of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for the nine
months ended September 30, 1995 of the BFR Group (Berlin and Bielefeld
operations) in conformity with accounting principles generally accepted in the
United States of America.
Ernst & Young GmbH
Frankfurt am Main, Germany
February 28, 1996
F-127
<PAGE> 256
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
9 MONTHS TO
SEPTEMBER 30,
1995
-----------------
(DM IN THOUSANDS)
<S> <C>
Revenues..................................................................... 4,200
Operating costs and expenses
Operating expenses (Note 3).................................................. (1,487)
Selling, general and administrative (Note 4)................................. (700)
Depreciation................................................................. (1,715)
-------
Total operating costs and expenses........................................... (3,902)
Operating income............................................................. 298
Interest expense (Note 5).................................................... (901)
-------
Loss before income taxes..................................................... (603)
Provision for income taxes................................................... --
-------
Net loss..................................................................... (603)
==============
</TABLE>
See accompanying notes to financial statements
F-128
<PAGE> 257
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
9 MONTHS TO
SEPTEMBER 30, 1995
------------------
DM
<S> <C>
Operating activities:
Net loss..................................................................... (603)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation................................................................. 1,715
Changes in assets and liabilities:
Accounts receivable.......................................................... (770)
Prepaid expenses............................................................. 24
Accounts payable............................................................. 251
Other liabilities............................................................ (102)
------
Net cash provided by operating activities.................................... 515
------
Investing activities:
Purchase of property, plant and equipment.................................... (868)
------
Net cash used in investing activities........................................ (868)
------
Financing activities:
Proceeds from bank debt...................................................... 500
Payment on bank debt......................................................... (388)
Net change in overdrafts..................................................... 241
------
Net cash provided by financing activities.................................... 353
------
Net increase in cash and cash equivalents.................................... --
Cash and cash equivalents at beginning of period............................. --
------
Cash and cash equivalents at end of period................................... --
==============
</TABLE>
See accompanying notes to financial statements
F-129
<PAGE> 258
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On October 18, 1995 (effective September 30, 1995), the companies listed
below ("BFR Group"), were purchased by Kabelmedia Projektmanagement
Kommunikationsnetze Verwaltungs GmbH ("Kabelmedia") from PKO Osmo GmbH ("PKO").
The sales price of DM 43,200,000, subject to post-closing adjustments, was based
on the number of subscribers as of the closing date adjusted for certain
liabilities and assets. The purchase price is expected to be finalised in 1996.
<TABLE>
<CAPTION>
BFR GROUP COMPANIES ACQUIRED % ACQUIRED BY PKG
-------------------------------------------------------- -----------------
<S> <C>
BFR Beteiligungsgesellschaft mbH ("BFR")................ 100.0
Kabelcom GmbH........................................... 66.0
Kabelcom GmbH & Co KG................................... 64.4
</TABLE>
Each of the companies in the BFR Group is engaged in the operation and
management of cable television systems. The BFR Group operates cable television
systems in numerous locations in Germany. The financial statements include only
the operations of the cable television systems of BFR located in the Berlin and
Bielefeld areas ("the Group"). The financial statements have been prepared in
accordance with United States generally accepted accounting principles including
those principles specific to the cable television industry. The BFR Group
maintains its financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). German GAAP varies in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP") and, therefore,
the BFR Group has recorded certain adjustments in order that these financial
statements be in accordance with US GAAP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Sales revenue comprises revenue earned (net of refunds, discounts and
allowances) from fees for subscription and installation of services. Sales
revenue is recognised at the time services are provided to customers except for
one-time connection fees. That part of one time fees in excess of DM 200 is
deferred and released to income over a period of 8 years, a full year's income
being recognised in the year the customer contract becomes effective.
DEPRECIATION
Depreciation is calculated in accordance with United States Statement of
Financial Accounting Standards ("FAS") No. 51, "Financial Reporting by Cable
Television Companies." Cable television systems are depreciated over an
estimated useful life of 15 years using the straight line method.
INCOME TAXES
The Group does not file a tax return, as these operations are included in
the tax return of the BFR Group.
3. RELATED PARTY TRANSACTIONS
ISIT GmbH ("ISIT"), which has also been acquired by Kabelmedia at October
8, 1995, provides the Group with cash pooling and administrative services for
cable networks in the vicinity of Berlin. The BFR Group entered into a service
contract with ISIT at December 31, 1994 whereby ISIT receives a fixed fee for
F-130
<PAGE> 259
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maintaining the cable networks and providing customer service for the Group. For
the nine month period ended September 30, 1995 the Group recorded DM 700,000
expense as a result of the service contract.
4. LEASE COMMITMENTS
ISIT leases from third parties certain cable equipment used by the Group
under agreements which expire at various dates. The Group reimburses ISIT for
leasing costs incurred. Certain leases contain renewal provisions. Lease expense
for the first 9 months of 1995 for the Group amounted to DM 612,000. Future
minimum lease payments required under operating leases as of September 30, 1995
are as follows:
<TABLE>
<CAPTION>
ANNUAL LEASE
PAYMENT
-----------------
<S> <C>
(DM IN THOUSANDS)
4th quarter 1995....................................... 195
1996................................................. 840
1997................................................. 840
1998................................................. 840
1999................................................. 771
2000................................................. 127
------
Total.................................................. 3,613
==============
</TABLE>
5. BANK DEBT
Interest paid on bank debt and overdrafts of the nine month period ended
September 30, 1995 approximated DM 901,000.
6. INCOME TAXES
The BFR Group does not file a consolidated tax return. All entities in the
BFR Group file separate tax returns. The Group's results are included in the BFR
tax return.
The Group's tax expense has been calculated as if it had not been included
in the BFR tax return. On this basis no tax benefit has been recorded as a
result of a 100% valuation allowance recorded against deferred tax assets.
Deferred tax assets principally relate to tax-loss carryforwards and
depreciation.
7. PENSION AND RETIREMENT PLANS
The Group provides no pension, post-retirement or post-employment benefits
to their employees or retirees.
8. SUBSEQUENT EVENTS
On October 18, 1995, (effective September 30, 1995) the BFR Group was sold
to Kabelmedia for a sales price of DM 43,200,000 subject to closing adjustments.
F-131
<PAGE> 260
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Wohngebiete und
Kommunen
We have audited the accompanying balance sheets of KSW GmbH & Co. KG Kabel-
und Satellitenempfangsanlagen fur Wohngebiete und Kommunen as of December 31,
1994 and 1993, and the related statements of operations 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 audits in accordance with auditing standards generally
accepted in Germany and 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also include 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 KSW GmbH & Co. KG Kabel- und
Satellitenempfangsanlagen fur Wohngebiete und Kommunen at December 31, 1994 and
1993 and the results of their operations for the years then ended, in conformity
with accounting principles generally accepted in Germany.
Accounting principles generally accepted in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected results of operations for each of the two
years in the period ended December 31, 1994, and partners' equity as of December
31, 1994 and 1993, as summarised in Note G to the financial statements.
Ernst & Young GmbH
Frankfurt, Germany
September 20, 1995
F-132
<PAGE> 261
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR WOHNGEBIETE UND
KOMMUNEN
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
------------------ -------
<S> <C> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
ASSETS
A. FIXED ASSETS
I. Intangible Assets
Franchises, trade marks, and similar rights and
licenses.................................................. 1 5
------- -------
1 5
II. Property, Plant, and Equipment
1. Cable networks......................................... 11,500 17,190
2. Operational and office equipment....................... 7 12
3. Construction in progress............................... -- 3,970
------- -------
11,507 21,172
B. CURRENT ASSETS
I. Inventories
1. Raw materials.......................................... 84 63
2. Incomplete services.................................... 356 270
II. Accounts Receivable and Other Assets
1. Trade accounts receivable.............................. 155 194
2. Other assets........................................... 30 --
III. Cash on Hand.............................................. 1 --
------- -------
626 527
C. PARTNERS' SPECIAL DEFICIT ACCOUNT......................... 16,505 6,254
------- -------
28,639 27,958
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
A. PARTNERS' CAPITAL CONTRIBUTION............................ 2,250 2,250
B. COMPLEMENTARY PARTNERS' CLEARING ACCOUNT.................. 294 348
C. CONSTRUCTION COST GRANTS.................................. 5,653 5,801
D. ACCRUALS
1. Tax accruals........................................... -- 6
2. Other accruals......................................... 130 82
------- -------
130 88
E. LIABILITIES
1. Liabilities due to banks/credit inst. of which DM
14,306 have a remaining term up to one year............... 18,711 18,400
2. Advance payments received with a remaining term up to
one year............................................... 523 523
3. Trade accounts payable with a remaining term up to one
year................................................... 334 340
4. Accounts due to affiliated companies with a remaining
term up to one year....................................... 715 149
5. Other liabilities with a remaining term up to one year
of which DM 6 are for taxes (prior year DM 40) and DM 13
are for social security (prior year DM 9).............. 21 50
------- -------
20,304 19,462
F. DEFERRED INCOME/ACCRUED EXPENSES.......................... 8 9
------- -------
28,639 27,958
====== ======
</TABLE>
F-133
<PAGE> 262
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR WOHNGEBIETE UND
KOMMUNEN
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------------
1995 1994 1993
------------- ------- ------
<C> <S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
1. Sales................................................ 1,901 2,392 2,191
2. (Decrease) increase in incomplete services........... (357) 87 0
3. Production for own plant and equipment capitalized... -- 13 36
4. Other operating income............................... 615 101 115
------ ------- ------
2,159 2,593 2,342
5. Costs of materials
a) Cost of raw material, supplies, and trading
stock........................................... 143 102 44
b) Cost of purchased services....................... 126 160 149
------ ------- ------
269 262 193
6. Personnel expenses
a) Wages and salaries............................... 211 402 431
b) Social security, pension and other benefit costs
of which DM 1, DM 15 and DM 25 are for
pensions........................................ 57 96 100
------ ------- ------
268 498 531
7. Depreciation on
a) Intangible assets................................ 1 4 8
b) Property, plant, and equipment................... 652 1,471 1,188
------ ------- ------
653 1,475 1,196
8. Other operating expenses............................. 315 647 383
9. Other interest and similar income.................... 561 367 258
10. Interest and similar expenses........................ 1,255 1,768 2,013
------ ------- ------
694 1,401 1,755
------ ------- ------
11. Results from normal business activities.............. (40) (1,690) (1,716)
12. Extraordinary depreciation on cable networks......... -- 8,484 --
13. Other taxes.......................................... 20 77 49
------ ------- ------
14. Annual net loss...................................... (60) (10,251) (1,765)
========== ======= ======
</TABLE>
F-134
<PAGE> 263
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED
A. GENERAL REMARKS
The financial statements of KSW GmbH & Co. KG Kabel- und
Satellitenempfangsanlagen fur Wohngebiete und Kommunen (hereafter referred to as
"KSW GmbH & Co. KG" or the "Company") were prepared under the regulations set
forth for small companies in the German Commercial Code (HGB) and in
compliance with amending regulations of the Articles of Association ("German
GAAP"). The classification used in the Statements of Operations was prepared
under the total cost method and in accordance with sec.275 Par. 2 HGB.
The statements of operations for the nine months ended September 30, 1995
are unaudited but, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
results for this period.
B. SHAREHOLDERS
The limited partner (Dommanditist) is Richard Hirschmann GmbH & Co.,
Esslingen. The capital contribution from the limited partner amounted to DM
2,250. As of December 31, 1994 and 1993 the accumulated losses of the limited
partner amounted to DM 16,505 and DM 6,254, respectively.
The unlimited partner is KSW Beteiligungsgesellschaft mbH, Esslingen. The
unlimited partner has the exclusive authorization to represent and manage the
Company.
C. ACCOUNTING AND VALUATION POLICIES
The accounting and valuation methods are applied in a manner consistent
with prior year.
Intangible assets are capitalized at acquisition cost and amortized
straight-line over their respective useful lives (three years).
Tangible assets are recorded at acquisition and manufacturing costs, net of
accumulated depreciation. Fixed assets are depreciated over their expected
useful lives. The term of depreciation is 8 years (network level II and parts of
network level III), the term of depreciation for cables in the street sector is
20 years (network level III). House installations are depreciated over 12 years.
In accordance with tax regulations, the straight-line or the declining
balance methods of depreciation are used, whereby additions of office furniture
and equipment in the first half of the year are depreciated at the full annual
rate and additions in the second half of the year are depreciated at half the
annual rate.
Low value assets (assets with a cost of less than DM .8) are fully
depreciated in the year of acquisition.
In addition to the normal depreciation of DM 1,462, extraordinary
depreciation of DM 8,484 was recorded in 1994.
Inventories are valued at the lower of cost or market.
Receivables and other assets are presented at their nominal value, net of
necessary reserves and allowances for uncollectable amounts.
Accruals have been estimated for all known risks and obligations and are
based on the amount of expected claims.
F-135
<PAGE> 264
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
Liabilities have been presented at the repayment amount.
According to the regulations of the Articles of Association, the capital
accounts of the partners are fixed. Profit and loss shares are recorded to
clearing accounts, whereby a special loss account is maintained for the limited
partner. The annual interest rate applied on this account is 6%.
The expenses incurred by the unlimited partner are reimbursed by KSW GmbH &
Co. KG. Therefore, management remuneration was treated directly as an expense by
the Company.
The unlimited partner receives DM 5 annually for the assumption of the
liability. This amount is also payable during deficit years. The remaining
profit or loss is distributed exclusively to the limited partner.
D. COMMENTARY TO THE BALANCE SHEET
D.I INTANGIBLE AND TANGIBLE ASSETS
A rollforward of the individual fixed asset items is provided below.
<TABLE>
<CAPTION>
COST ACCUMULATED DEPRECIATION BOOK VALUE
----------------------------------------------------- ------------------------------------------ ----------------------
1/1/1994 ADDITIONS DISPOSALS TRANSFERS 12/31/1994 1/1/1994 ADDITIONS DISPOSALS 12/31/1994 12/31/1994 12/31/1993
DM DM DM DM DM DM DM DM DM DM DM
-------- --------- --------- --------- ---------- -------- --------- --------- ---------- ---------- ----------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I. Intangible
Assets
Franchises,
trade
marks,
and
similar
rights
and
licenses... 16 -- 12 -- 4 11 4 12 3 1 5
-- -- --
-------- --------- ----- --- --- ----- ----- -----
II. Property,
Plant,
and
Equipment
1. Cable
networks... 19,628 215 -- 4,041 23,884 2,438 9,946(a) -- 12,384 11,500 17,190
2. Operational
and
office
equip.... 96 3 2 -- 97 83 9 2 90 7 12
3. Construction
in
progress... 3,970 71 -- (4,041) -- -- -- -- -- -- 3,970
-- -- --
-------- --------- ----- --- --- ----- ----- -----
23,694 289 2 -- 23,981 2,521 9,955 2 12,474 11,507 21,172
-- -- --
-------- --------- ----- --- --- ----- ----- -----
23,710 289 14 -- 23,985 2,532 9,959 14 12,477 11,508 21,177
========== ========== ========== ========== ============ ========== ========== ========== ============ ============ ======
</TABLE>
- ---------------
(a) includes DM 8,484 in extraordinary depreciation.
D.II RECEIVABLES AND OTHER ASSETS
Receivables and other assets are due within one year.
D.III SHAREHOLDERS' EQUITY AND ACCUMULATED DEFICIT
With the special deficit account of the limited liability partner amounting
to DM 16,505 the financial statements disclose a negative equity of DM 7,594.
Included in the determination of the negative equity amount is the partners'
capital contribution, the clearing account of the unlimited partner and DM 5,653
in construction grants, as well as DM 714 in liabilities considered as capital
replacing loans towards affiliated companies.
In connection with the draft agreement regarding the sale of shares in KSW
GmbH & Co. KG, the limited partner, Richard Hirschmann GmbH & Co., Esslingen,
has agreed to take over a partial amount of the
F-136
<PAGE> 265
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
existing liabilities due to the Commerzbank AG, Esslingen, insofar as this
partial amount exceeds the sales price of the cable networks.
Taking into account the assumption of debt, thus benefitting the Company's
equity position, a state of over-indebtedness did not exist as of December 31,
1994 and 1993.
A rollforward of the special loss account of the limited partner is
presented below:
<TABLE>
<CAPTION>
DM
------
<S> <C>
Balance as of January, 1 1993....................................................... 4,489
Loss 1993........................................................................... 1,765
------
Balance as of December 31, 1993..................................................... 6,254
Loss 1994........................................................................... 10,251
------
Balance as of December 31, 1994..................................................... 16,505
Loss for the nine months ended September 30, 1995 (unaudited)....................... 40
------
Balance as of September 30, 1995 (unaudited)........................................ 16,545
======
</TABLE>
D.IV CONSTRUCTION COST GRANTS
Construction cost grants for home connections are released in accordance
with the term of the contractual permit with the communities.
D.V LIABILITIES
The liabilities due to banks are secured by the mortgage of goods from the
broadband cable devices (net level 4) and the assignment of subscriber fees.
Liabilities due to affiliated companies are all due to Richard Hirschmann
GmbH & Co., Esslingen, the limited partner of the Company.
D.VI CONTINGENT LIABILITIES AND OTHER COMMITMENTS
There are no contingent liabilities according to sec.251 HGB.
Annual commitments under leasing and rental agreements in the amount of DM
61 exist as of December 31, 1994.
E. COMMENTARY TO THE STATEMENTS OF OPERATIONS
Sales result primarily from providing cable service to private households
in Germany and the partial release of the construction cost grants.
Other operational income includes primarily maintenance fees and costs
charged on to subscribers.
Other interest and similar income include DM 501 and DM 366 interest from
the unlimited partner's clearing account for the nine months ended September 30,
1995 (unaudited) and year ended December 31, 1994, respectively.
Interest and similar expenses include DM 17 and DM 19 interest on the
clearing account of the limited partner, Richard Hirschmann GmbH & Co.,
Esslingen for the nine months ended September 30, 1995 (unaudited) and year
ended December 31, 1994, respectively.
F. OTHER DISCLOSURES
The annual financial statements of the Company are included in the
consolidated financial statements of Richard Hirschmann GmbH & Co.
F-137
<PAGE> 266
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
The unlimited partner is KSW Beteiligungsgesellschaft mbH, Esslingen. The
unlimited partner has the exclusive authorization to represent and manage the
company. Dieter Mann, Esslingen, was the solitary authorized General Manager of
this company.
G. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
GERMANY
AND THE UNITED STATES OF AMERICA
Generally accepted accounting principles in Germany ("German GAAP") vary in
certain respects from generally accepted accounting principles in the United
States of America ("US GAAP"). Application of US GAAP would have affected the
reported results of operations for the nine month period ended September 30,
1995 (unaudited) for each of the two years in the period ended December 31,
1994, and the reported partners' equity for each of the two years ended December
31, 1994. The significant differences between the accounting principles applied
and those which would be applied under US GAAP are summarised below:
CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US GAAP. Cash
flow statements are not required by German GAAP.
SPECIAL ACCELERATED DEPRECIATION
Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP,
accelerated depreciation would not be recorded in the financial statements.
REGULAR DEPRECIATION
Under US GAAP, cable networks are depreciated in accordance with the
Statements of Financial Accounting Standards ("SFAS") No. 51 "Financial
Reporting by Cable Television Companies." German GAAP has no similar
pronouncements or rules. Accordingly, cable networks have been depreciated for
German GAAP using the methods described in note C to the financial statements.
CAPITALIZATION OF INTEREST COSTS
Under US GAAP, interest cost for the construction of nets should be
capitalized if material in accordance with SFAS No. 34 "Capitalization of
Interest Cost" and amortized over the useful life of the cable networks. German
GAAP does not allow for the capitalization of interest related to constructed
assets.
CONSTRUCTION COST GRANTS
Construction cost grants represent connection fees received which are being
amortized into income in accordance with the terms of the contracts. Under
German GAAP the construction cost grants have been classified under the
shareholders' equity section of the balance sheet. Under US GAAP the
construction cost grants would be classified as deferred income within the
balance sheet.
F-138
<PAGE> 267
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
PARTNERS' SPECIAL DEFICIT ACCOUNT
The partners' special deficit account is reflected within the assets
section of the accompanying balance sheets as required by German GAAP and
represents the accumulated losses of the Company. Under US GAAP, such
accumulated losses would be classified in an accumulated deficit account within
the shareholders' equity (deficit) section of the balance sheets.
Esslingen, September 1995
The management
KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Wohngebiete und
Kommunen, Esslingen.
F-139
<PAGE> 268
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
BTV Group
We have audited the accompanying combined balance sheets of
Niersberger-Tecom GmbH & Co. KG, Niersberger-Tecom Verwaltungs GmbH and BTV Jena
GmbH, (hereafter referred to as the "BTV Group") as of December 31, 1995 and
1994, and the related combined statements of operations 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 audits in accordance with auditing standards generally
accepted in Germany and 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 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the BTV
Group at December 31, 1995 and 1994 and the combined results of their operations
for the years then ended, in conformity with accounting principles generally
accepted in Germany.
Accounting principles generally accepted in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected results of operations for each of the two
years in the period ended December 31, 1995, and shareholders' equity as of
December 31, 1995 and 1994, as summarized in Note G to the combined financial
statements.
Ernst & Young GmbH
Frankfurt, Germany
March 22, 1996
F-140
<PAGE> 269
BTV GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
--------------- -----
<S> <C> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
ASSETS
A. FIXED ASSETS..................................................
I. Intangible Assets.............................................
1. EDP software............................................. 31 4
----- -----
31 4
II. Tangible assets
1. Nets..................................................... 1,988 1,572
2. Office furniture and fixtures............................ 70 57
----- -----
2,058 1,629
B. CURRENT ASSETS
I. Receivables and Other Assets
1. Trade accounts receivable................................ 93 147
2. Other assets............................................. 272 135
----- -----
365 282
II. Cash Held in Banks............................................ 532 180
C. PREPAID EXPENSES.............................................. 7 5
----- -----
2,993 2,100
===== =====
SHAREHOLDERS' EQUITY AND LIABILITIES
A. SHAREHOLDERS' EQUITY
I. Registered Capital............................................ 4,100 4,100
II. Accumulated deficit........................................... 3,512 2,941
----- -----
588 1,159
B. ACCRUALS
1. Tax accruals............................................. 32 26
2. Other accruals........................................... 601 226
----- -----
633 252
C. LIABILITIES
1. Liabilities due to banks................................. -- 38
2. Trade accounts payable................................... 470 448
3. Other liabilities thereof DM 63 (1994: DM 23) and social
security DM 13 (1994: DM 4).............................. 1,302 202
----- -----
1,772 688
D. DEFERRED REVENUES............................................. -- 1
----- -----
2,993 2,100
===== =====
</TABLE>
F-141
<PAGE> 270
BTV GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994
----------------- ------
<S> <C> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
1. Sales...................................................... 2,751 1,526
2. Other operational income................................... 864 124
------ ------
3,615 1,650
3. Personal costs
(a) Wages and salaries..................................... 931 434
(b) Social security........................................ 65 41
4. Amortization and depreciation.............................. 2,253 2,511
5. Other operational expenses................................. 859 509
------ ------
4,108 3,495
------ ------
(493) (1,845)
6. Other interest and similar income.......................... 3 1
7. Interest and similar expenses.............................. 71 5
------ ------
8. Results of ordinary business operations.................... (561) (1,849)
9. Extraordinary expenses..................................... -- 1,050
10. Income taxes............................................... 9 26
11. Other taxes................................................ 1 1
------ ------
12. Net loss................................................... (571) (2,926)
====== ======
</TABLE>
F-142
<PAGE> 271
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
A. GENERAL REMARKS
The accompanying financial statements represent the combined operations of
Niersberger-Tecom GmbH & Co. KG, Niersberger-Tecom Verwaltungs GmbH, and BTV
Jena GmbH, (hereafter referred to as the "BTV Group" or the "Combined Group").
The combined financial statements were prepared under the regulations set
forth for small companies in the German Commercial Code (HGB) and the laws for
German limited liability Corporations (HGB). The classification used in the
Statements of Operations was prepared under the total cost method and in
accordance with sec.275 Par. 2 HGB.
The combined financial statements were prepared voluntarily in 1995 and
1994 and represent the first combined financial statements of the BTV Group.
Transactions and balances between the companies have been eliminated for the
purposes of the combination. All of the entities included in the combination are
German companies whose operational currency is the German Mark. No foreign
currency translations were necessary in the combination.
The fiscal year end for all companies included in the combined financial
statements is December 31.
B. SHAREHOLDERS' INTERESTS IN THE BTV GROUP
NIERSBERGER-TECOM GMBH & CO. KG
Niersberger-Tecom GmbH & Co. KG ("Niersberger KG") was established under
the laws of the Federal Republic of Germany as a limited partnership
("Kommanditgesellschaft") by Partnership Articles dated December 12, 1993.
Niersberger KG has its registered office in Jena and is registered in the
Commercial Register maintained with the local court of Gera under reg. No. HRA
851. The contributed capital of Niersberger KG is as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
% DM % DM
<S> <C> <C> <C> <C>
Robert Niersberger........................................ 50.0 2,000 50.0 2,000
Rainer Dippold............................................ 50.0 2,000 -- --
Bernd Bessel-Lorck........................................ -- -- 12.5 500
Rolf Bargel............................................... -- -- 12.5 500
TECOM Telecommunications-Leasing GmbH..................... -- -- 25.0 1,000
----- ----- ----- -----
100.0 4,000 100.0 4,000
===== ===== ===== =====
</TABLE>
F-143
<PAGE> 272
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
NIERSBERGER-TECOM VERWALTUNGS GMBH
Niersberger-Tecom Verwaltungs GmbH ("Niersberger GmbH") was established as
a limited liability company under the laws of the Federal Republic of Germany by
notarial deed No. 3181/1993 of notary public Horst Peter Regler, Nurnberg, dated
December 2, 1993. Niersberger GmbH has its registered office in Jena and is
registered with the Commercial Register maintained with the local court of Gera
under reg. No. HRB 4439. The share capital of Niersberger GmbH is as follows as
of December 31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
% DM % DM
<S> <C> <C> <C> <C>
Robert Niersberger........................................... 50.0 25 50.0 25
Rainer Dippold............................................... 50.0 25 -- --
Bernd Bessel-Lorck........................................... -- -- 12.5 7
Rolf Bargel.................................................. -- -- 12.5 7
TECOM Telecommunications-Leasing GmbH........................ -- -- 25.0 11
----- --- ----- ---
100.0 50 100.0 50
===== === ===== ===
</TABLE>
BTV JENA GMBH
BTV Jena GmbH was established as a limited liability company under the laws
of the Federal Republic of Germany by notarial deed No. 3179/1993 of notary
public Horst Peter Regler, Nurnberg, dated December 2, 1993. The share capital
of BTV Jana GmbH is as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
% DM % DM
<S> <C> <C> <C> <C>
Robert Niersberger........................................ 45.0 22.5 45.0 22.5
Rainer Dippold............................................ 45.0 22.5 -- --
Wohnungsbaugenossenschaft "Carl Zeiss" e.G................ 10.0 5 10.0 5
TECOM Telecommunications-Leasing GmbH..................... -- -- 45.0 22.5
----- ----- ----- -----
100.0 50 100.0 50
===== ===== ===== =====
</TABLE>
C. ACCOUNTING AND VALUATION POLICIES
The accounting and the valuation methods used in the combined financial
statements are applied by all of the individual group companies in a consistent
manner and consistent with the prior year.
Acquired intangible assets are capitalized at cost and amortized over their
respective useful lives.
Tangible assets are presented at acquisition costs, net of accumulated
deprecation. Nets are depreciated principally under the straight line method
over a period of 6 to 8 years. Office furniture and equipment are depreciated
principally under the straight line method over a period of 4 to 6 years.
Special accelerated depreciation under sec.4 of the Fodergebietsgesetz has
been recorded as a charge in the Statements of Operations and as a reduction in
the book value of fixed assets to the amount of DM 1,328 in 1995 and DM 2,035 in
1994. This represents accelerated depreciation allowed for tax purposes as an
investment incentive in the new Federal States of the Republic of Germany.
Low value assets (assets with a cost less than DM .8) are fully depreciated
in the year of acquisition.
Receivables and other assets are presented at their nominal value, net of
necessary reserves and allowances for uncollectible amounts.
F-144
<PAGE> 273
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Accruals have been estimated for all known risks and obligations and are
based on the amount of expected claims.
Liabilities have been presented at the repayment amount.
One time connection fees are treated as other operating income at the date
of connection.
D. COMMENTARY TO THE COMBINED BALANCE SHEETS
D.I. INTANGIBLE AND TANGIBLE ASSETS
A roll forward of the individual fixed asset categories has been provided
below:
<TABLE>
<CAPTION>
COST ACCUMULATED DEPRECIATION BOOK VALUE
--------------------------------------------- --------------------------------------------- -----------------------
1/1/1995 ADDITIONS DISPOSALS 12/31/1995 1/1/1995 ADDITIONS DISPOSALS 12/31/1995 12/31/1995 12/31/1994
DM DM DM DM DM DM DM DM DM DM
-------- --------- --------- ---------- -------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C. Fixed
Assets
I. Intangible
Assets
1. EDP
software... 7 33 -- 40 2 7 -- 9 31 4
-- --
--- --- --- --- --- --- --- ---
7 33 -- 40 2 7 -- 9 31 4
-- --
--- --- --- --- --- --- --- ---
II. Tangible
Assets
1. Nets... 4,051 2,589 -- 6,640 2,479 2,173 -- 4,652 1,988 1,572
2. Office
furniture
and
fixtures... 96 97 12 181 40 73 2 111 70 57
-- --
--- --- --- --- --- --- --- ---
4,147 2,686 12 6,821 2,519 2,246 2 4,763 2,058 1,629
-- --
--- --- --- --- --- --- --- ---
4,154 2,719 12 6,861 2,521 2,253 2 4,772 2,089 1,633
========== ========== ========== ============ ========== ========== ========== ============ ============ ============
</TABLE>
D.II. RECEIVABLES AND OTHER ASSETS
Receivables and other assets are due within one year.
D.III SHAREHOLDERS' EQUITY AND ACCUMULATED DEFICIT
The paid in capital of the Combined Group as of December 31, 1995 and 1994
is comprised as follows:
<TABLE>
<CAPTION>
DM
-----
<S> <C>
Niersberger-Tecom GmbH & Co. KG............................ 4,000
Niersberger-Tecom Verwaltungs GmbH......................... 50
BTV Jena GmbH.............................................. 50
-----
4,100
=====
</TABLE>
A roll forward of the accumulated deficit is presented below:
<TABLE>
<CAPTION>
DM
-----
<S> <C>
Accumulated deficit as of January 1, 1994.................. 15
Net loss 1994.............................................. 2,926
-----
Accumulated deficit as of December 31, 1994................ 2,941
Net loss 1995.............................................. 571
-----
Accumulated deficit as of December 31, 1995................ 3,512
=====
</TABLE>
F-145
<PAGE> 274
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
D.IV. OTHER ACCRUALS
Other accruals include amounts for all known risks and obligations of the
Combined Group. As of December 31, 1995 and 1994 the balance is comprised of
accruals for taxation, professional fees, outstanding invoices and management
bonuses.
D.V. LIABILITIES
Liabilities are all due within one year and are not secured.
Included in other liabilities are tax liabilities amounting to DM 63 (1994:
DM 23) and liabilities in relation to social security of DM 13 (1994: DM 4).
Other liabilities include an unsecured loan from Heizung, Luftung, Sanitar
Haustechnik Jena GmbH & Co. KG of DM 1,221 (1994: TDM Nil), a related party to
certain shareholders of the companies within the Combined Group. This loan is at
a fixed interest rate of 8%.
D.VI. OTHER FINANCIAL COMMITMENTS
Commitments under leasing and rental agreements amount to DM 77 as of
December 31, 1995 (1994: DM 94).
Total capital expenditure commitments amount to DM 179 at December 31,
1995.
E. COMMENTARY TO THE COMBINED STATEMENTS OF OPERATIONS
Sales of the Combined Group relate principally from providing cable service
to private households in Germany and similar services.
Other operating income includes investment grants of DM 245 (1994: Nil).
Thereof DM 242 is included in other assets at December 31, 1995.
Other operational expenses include repair and maintenance DM 267 (1994: DM
83), legal and professional charges DM 78 (1994: DM 209), property rent DM 48
(1994: DM 39) and advertising DM 75 (1994: DM 26). The extraordinary expense of
DM 1,050 in 1994 represents costs incurred by Niersberger-Tecom GmbH & Co. KG
under an agreement with third parties which enabled the company to secure its
rights under signal supply permission contracts with housing associations who
had previously granted exclusive permission agreements to those third parties.
F. OTHER DISCLOSURES
The average number of employees of the Combined Group is 6 (1994: 5).
Niersberger-Tecom GmbH & Co. KG and Niersberger-Tecom Verwaltungs GmbH had no
employees during the fiscal years 1995 and 1994.
DIRECTORS
1995 and 1994
BTV Jena GmbH
-- Rainer Dippold, Pommersfelden
-- Heinz Fedrowitz, Bad Kosen
Niersberger-Tecom GmbH & Co. KG
-- Rainer Dippold, Pommersfelden
-- Bernd Bessel-Lorck, Koln
F-146
<PAGE> 275
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Niersberger-Tecom Verwaltungs GmbH
-- Rainer Dippold, Pommersfelden
-- Bernd Bessel-Lorck, Koln
Salary and bonus expenses amounted to DM 617 and DM 250 in 1995 and 1994,
respectively.
G. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
GERMANY
AND THE UNITED STATES OF AMERICA
Generally accepted accounting principles in Germany ("German GAAP") vary in
certain respects from generally accepted accounting principles in the United
States of America ("US GAAP"). Application of US GAAP would have affected the
reported results of operations for each of the two years in the period ended
December 31, 1995 and the reported shareholders' equity as of December 31, 1995
and 1994. The significant differences between the accounting principles applied
and those which would be applied under US GAAP are summarized below:
CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US GAAP. Cash
flow statements are not required by German GAAP.
SPECIAL ACCELERATED DEPRECIATION
Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP this
depreciation would not be recorded in the combined financial statements.
REGULAR DEPRECIATION
Under US GAAP, cable networks are depreciated in accordance with the
Statements of Financial Accounting Standards ("SFAS") No. 51 "Financial
Reporting by Cable Television Companies." German GAAP has no similar
pronouncements or rules. Accordingly, cable networks have been depreciated for
German GAAP using the methods described in note C to the financial statements.
INVESTMENT GRANTS
The Company has credited to other operating income Federal investment
grants relating to fixed assets acquired during 1993 and 1994 by Niersberger
GmbH & Co. KG and acquired during 1994 and 1995 by BTV Jena GmbH. Under US GAAP
the investment grants, when estimated and realizable, would be deducted from the
acquisition cost of the fixed assets acquired and depreciated over the useful
life of the acquired fixed assets.
EXTRAORDINARY EXPENSE
The Combined Group has classified in the accompanying combined financial
statement costs associated with securing its rights under signal supply
permission contracts with housing authority as extraordinary expense. Under US
GAAP these costs could be capitalized and amortized over the useful life of the
related permission contracts.
Jena, March 1996
BTV Group
F-147
<PAGE> 276
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<PAGE> 277
APPENDIX A
GLOSSARY
Addressable technology: A technology which enables a cable television
operator to activate or deactivate, from the head-end site or another central
location, the cable television services delivered to each customer.
Buildout: The process of digging, filling and covering underground trenches
in the streets which pass by the homes in a franchise, constructing wiring ducts
within the trenches, laying cable in the ducts and installing and connecting the
necessary electronic equipment.
Churn: Cable television subscriber termination rates expressed by
calculating the total number of disconnected cable television customers over a
period as a percentage of the total number of cable television customers.
Customers: A home with one or more television sets connected to a cable
system is counted as one customer. Bulk accounts are included on a customer
equivalent billing unit basis in which the total monthly bill for the account is
divided by the basic monthly charge for a single outlet in the area.
Dish: An antenna shaped like a dish used to receive television signals from
a satellite.
DTH (Direct-to-home): The DTH market is single dwellings, each served by a
single satellite dish, as distinct from a cable or SMATV system.
Equity subscribers: The number of subscribers within franchises owned by a
company multiplied by such company's effective equity interest in such
franchises.
Head-end: Collection of satellite hardware, typically including dish,
satellite receivers, modulators and amplifiers. Signals, when processed, are
then combined for distribution within the cable network.
Homes: The Company's estimate of the number of homes within its concession
areas.
Homes passed: A home becomes "passed" when it can be connected to the cable
television distribution system without any further extension of principal
transmission lines.
MMDS (Multi-Channel, Multi-Point Distribution Services): A television
delivery system to multiple dwelling units that utilizes low power microwave
frequencies.
New German States: The German states that comprised the former East Germany
(the German Democratic Republic).
Old German States: The German states that comprised the former West Germany
(the Federal Republic of Germany).
Overbuild: Operation of a cable system in an area where competing cable
service or services exist.
Pay-per-view: Payment made for individual television programs as opposed to
a monthly subscription for a whole channel or group of channels.
Penetration: The measurement of the take-up of cable services. As of any
date, the penetration rate for cable television is calculated by dividing the
number of customers on such date by the total number of homes passed on that
date, expressed as a percentage.
Premium service: Cable programming service available only for additional
subscription over and above the basic service.
SMATV (Satellite Master Antenna Television): A television delivery system
to multiple dwelling units that utilizes one or more satellite dishes and a
small distribution network.
Star architecture: A design of cable plant in a cable television system
providing an independent path from an individual subscriber to the system
head-end or another central control point, facilitating the provision and
charging for separate tiers of programming, disconnecting non-paying customers
and addressability.
A-1
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LOGO
