<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE NETHERLANDS 4841 98-0191997
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
FRED. ROESKESTRAAT 123
P.O. BOX 74763
1070 BT AMSTERDAM, THE NETHERLANDS
(31) 20-7789840
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MICHAEL T. FRIES, SUPERVISORY BOARD MEMBER
UNITED INTERNATIONAL HOLDINGS, INC.
4643 SOUTH ULSTER STREET, SUITE 1300
DENVER, COLORADO 80237
(303) 770-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
GARTH B. JENSEN, ESQ. KATHERINE ASHTON, ESQ.
HOLME ROBERTS & OWEN LLP DEBEVOISE & PLIMPTON
1700 LINCOLN, SUITE 4100 25 OLD BROAD STREET
DENVER, COLORADO 80203 LONDON EC2N 1HQ ENGLAND
(303) 861-7000 (44) 171-786-9000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE (2) FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Ordinary Shares (1)............................ $10,000,000 $2,780
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- -------------------------------------------------------------------------------
</TABLE>
(1) Includes (i) Ordinary Shares that are to be offered and sold in the form
of Ordinary Shares or American Depositary Shares, (ii) Ordinary Shares
that the Underwriters may purchase in the form of Ordinary Shares or
American Depositary Shares to cover over-allotments, if any, and (iii)
Ordinary Shares that are to be offered and sold to persons outside the
United States but that may be resold by persons from time to time in the
United States during the distribution. The Ordinary Shares are not being
registered hereby for purposes of sale outside the United States. The
American Depositary Shares (each representing one Ordinary Share)
evidenced by American Depositary Receipts upon deposit of the Ordinary
Shares registered hereby are being registered under a separate
registration statement on Form F-6.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE +
+CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT +
+FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS +
+PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT +
+SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR +
+SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated November 24, 1998.
Shares
[LOGO OF UPC APPEARS HERE]
UNITED PAN-EUROPE COMMUNICATIONS N.V.
Ordinary Shares
in the form of American Depositary Shares or Ordinary Shares
-----------
This is an initial public offering of the Ordinary Shares of United Pan-
Europe Communications N.V. UPC is also offering the Ordinary Shares in the form
of American Depositary Shares, each of which represents Ordinary Shares.
This prospectus relates to an offering of shares in the United States. In
addition, shares are being offered outside the United States.
Prior to this offering, there has been no public market for the shares. UPC
and the underwriters currently estimate that the initial public offering price
will be between NLG and NLG per Ordinary Share (between $ and $
per ADS). UPC intends to list the Ordinary Shares in bearer form on the
Official Market of the Amsterdam Stock Exchange under the symbol "UPC". UPC
also intends to have the ADSs quoted on the Nasdaq National Market System under
the symbol "UPCOY".
-----------
See "Risk Factors" beginning on page 15 to read about certain factors you
should consider before buying Ordinary Shares or ADSs.
-----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------
<TABLE>
<CAPTION>
Per Ordinary Share Total
------------------ -----
<S> <C> <C>
Initial public offering price.......................... $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to UPC...................... $ $
</TABLE>
The U.S. underwriters may, under certain circumstances, purchase up to an
additional shares from UPC at the initial public offering price less the
underwriting discount. The international underwriters may similarly purchase up
to an additional shares.
-----------
Joint Global Coordinators
GOLDMAN SACHS INTERNATIONAL MORGAN STANLEY DEAN WITTER
-----------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the ADRs through The Depository Trust Company's
book-entry facilities and to deliver the Ordinary Shares through the book-entry
facilities of NECIGEF (the Dutch clearing house), Euroclear and Cedel on
, 1999.
GOLDMAN, SACHS & CO. MORGAN STANLEY DEAN WITTER
-----------
Prospectus dated , 1999.
<PAGE>
ENFORCEMENT OF CIVIL LIABILITIES AND OTHER INFORMATION
The Company is organized under the laws of The Netherlands and certain
members of its supervisory board, its board of management and certain of the
experts named herein are residents of The Netherlands or other countries
outside the United States. Substantially all of the Company's assets and the
assets of such persons 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 the Company or such persons, or to enforce against the
Company or such persons in courts in the United States judgments of such courts
predicated upon the civil liability provisions of United States securities
laws. The Company has been advised by legal counsel in The Netherlands, Loeff
Claeys Verbeke, that because there is no convention on reciprocal recognition
and enforcement of judgments in civil and commercial matters between the United
States and The Netherlands, a final judgment rendered by a United States court
will not automatically be enforced by the courts in The Netherlands. In order
to obtain a judgment that is enforceable in The Netherlands, the relevant claim
may have to be relitigated before a competent Dutch court. Under current Dutch
law, however, a final judgment rendered by a United States court will be
recognized by a Dutch court (i) if the final judgment results from proceedings
compatible with Dutch concepts of due process and (ii) if the final judgment
does not contravene public policy of The Netherlands. If the final judgment is
recognized by a Dutch court, that court generally will enforce the judgment
without relitigation.
----------------
UPC was incorporated in December 1990 as a Dutch private limited liability
company (besloten vennootschap met beperkte aansprakelijkheid), wholly owned by
Philips Electronics N.V. ("Philips"). UPC was a dormant corporation prior to
beginning operations as a 50/50 joint venture between United International
Holdings, Inc. ("UIH") and Philips in July 1995, when UIH and Philips
contributed most of their European and Israeli multi-channel television system
assets to UPC and UIH acquired 50% of UPC's share capital. In December 1997,
UIH acquired Philips' interest in UPC and UPC was converted into a Dutch public
limited liability company (naamloze vennootschap). Aside from shares held by or
for the benefit of some of UPC's current and former employees, UPC currently is
essentially a wholly-owned subsidiary of UIH. Following the Offering, UIH will
continue to hold approximately % of the Company's Ordinary Shares and all of
the Priority Shares. See "Relationship with UIH and Related Transactions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- History of UPC".
The principal executive office and registered office of the Company is
located at Fred. Roeskestraat 123, 1070 BT Amsterdam, The Netherlands, and its
telephone number is 31 20 778 98 40.
----------------
The Company will furnish to the Depositary copies of its annual reports in
English, which will include a review of the Company's operations and annual
audited consolidated financial statements presented in conformity with U.S.
generally accepted accounting principles ("GAAP"). The Company will also
furnish the Depositary with consolidated unaudited quarterly condensed balance
sheets and statements of income of the Company in English, presented in
conformity with U.S. GAAP, as well as English language versions of all notices
of shareholders' meetings, proxy statements and other reports and
communications that are made generally available to its shareholders. The
Depositary will, at the request of the Company and to the extent permitted by
law, make such notices, reports and communications available to record holders
of ADRs and will mail to all record holders of ADRs a notice containing the
information (or a summary of the information) contained in any notice of a
shareholders' meeting received by the Depositary. See "Description of American
Depositary Shares".
2
<PAGE>
[MAP OF EUROPE AND ISRAEL IDENTIFYING LOCATION OF UPC'S OPERATING SYSTEMS;
DIAGRAM OF TYPICAL UPGRADED NETWORK VIDEO, VOICE AND INTERNET OPERATIONS]
<PAGE>
[MAP OF EUROPE AND ISRAEL IDENTIFYING LOCATION OF UPC'S OPERATING SYSTEMS;
DIAGRAM OF TYPICAL UPGRADED NETWORK VIDEO, VOICE AND INTERNET OPERATIONS]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights more detailed information and financial statements
contained later in this Prospectus. This summary is not complete and does not
contain all of the information that you should consider before investing in the
shares. You should read the entire Prospectus carefully, especially the risks
of investing in the shares discussed under "Risk Factors". Immediately prior to
this Offering, the Company will have a -for- stock split. The Company reports
all of its historical financial results in Dutch guilders ("NLG"). For your
convenience, we have converted some amounts in non-Dutch currencies to Dutch
guilders. These foreign currency translations for amounts prior to December 31,
1997 use the same exchange rates used for the 1997 financial statements. For
amounts after December 31, 1997, we have used September 30, 1998 exchange
rates, except as otherwise noted. These translated amounts may not currently
equal such Dutch guilder amounts nor may they necessarily be converted into
Dutch guilders at the translation exchange rates used. On November 20, 1998,
the exchange rate for U.S. dollars was US$0.5251 per NLG1.00. See "Exchange
Rate Data".
THE COMPANY
OVERVIEW
United Pan-Europe Communications N.V. ("UPC" or the "Company") owns and
operates cable-based communications networks in ten countries in Europe and in
Israel. Today, UPC's systems constitute the largest pan-European broadband
communications platform. UPC has systems in Austria, The Netherlands, Belgium,
Norway and France. These systems are strategically located in the capital
cities of Vienna, Amsterdam, Brussels and Oslo, as well as suburban Paris. The
Company also has systems in Israel, Malta and Eastern Europe. UPC is a
subsidiary of UIH, a leading international provider of video, voice and data
services.
The Company's systems passed an aggregate of approximately 4.9 million homes
and served approximately 3.4 million basic video subscribers as of September
30, 1998. UPC has majority ownership of its systems in Western Europe (other
than the A2000 systems in Amsterdam and surrounding areas) and most of its
other systems. UPC's proportionate equity interest in all of its systems
represented approximately 3.0 million homes passed and approximately
2.0 million subscribers as of September 30, 1998.
UPC currently offers analog video services through its existing network. In
its Western European markets, it is further developing and upgrading this
network to two-way transmission capability, which enables the Company to
provide digital video, telephony and Internet/data services. As of September
30, 1998, UPC's systems had a total of approximately 13,850 cable telephony and
approximately 12,725 Internet access subscribers.
As of September 30, 1998, approximately 54% of the 2.6 million total homes
passed in UPC's Austrian, Belgian, Dutch and French systems were passed by the
upgraded network. Approximately 87% of the homes in these four markets are
scheduled to be passed by the upgraded network by the end of 1999. The
Company's Norwegian systems are being upgraded on a longer timetable.
Generally, this upgrade involves replacing portions of the coaxial cable plant
with fiber optic cable and upgrading the remaining coaxial cable plant to two-
way capability. See "Technology". As of September 30, 1998, the Company had
approximately 4,375 kilometers of high-capacity active fiber plant throughout
its systems. Upon substantial completion of UPC's current upgrade program, UPC
expects to have approximately 8,500 kilometers of high-capacity active fiber
plant in its systems. The Company also has more than 35,340 kilometers of
coaxial distribution plant throughout its systems, approximately 25,200
kilometers of which currently is capable of two-way transmission.
The Company believes there are significant growth opportunities in the
European telecommunications market as a result of the January 1, 1998
liberalization of the telephony
3
<PAGE>
industry in most European Union ("EU") member countries and Norway. This
liberalization allows new providers to offer voice telephony and other
telecommunications services. Because of this liberalization and technological
advances, it has become possible to deliver video, telephony and Internet/data
services to customers through a single cable link to the home. Accordingly, UPC
will be able to offer, and currently offers in some markets, an integrated
package of three services in its upgraded markets where previously it had
offered only one.
UPC currently is a wholly-owned subsidiary of UIH, aside from shares held by
or for the benefit of some of UPC's current and former employees. Following the
Offering, UIH will hold approximately % of the Company's Ordinary Shares and
all of the Priority Shares. See "Description of Share Capital".
The diagram below summarizes UPC's operations and equity ownership
percentages in its operating systems as of September 30, 1998. In November
1998, UPC increased its ownership interest of the Israeli and Maltese systems
to 46.6% and 50.0%, respectively, and sold its 20% interest in its Irish
operating company. See"" -- Recent Developments".
[DIAGRAM OF UPC SHOWING
(1) OPERATING SYSTEMS INCLUDING
CONSOLIDAETD SYSTEMS AND UNCONSOLIDATED
SYSTEMS AND (2) BUSINESS LINES]
Operating Systems
Consolidated Systems:
Austria, Telekabel Group - 95%
Belgium, TVD - 100%
Norway, Janco Multicom - 100%
France, Mediareseaux - 99.6%(2)
Eastern Europe
Hungary(3) - 79.3%
Czech Republic - 100%
Romania(3) - 51-100%
Slovak Republic(3) - 75-100%
Unconsolidated Systems:
The Netherlands, United Telekabel Holding - 51%
A2000 - 50%
CNBH, Telekabel Beheer - 100%
Israel, Tevel - 23.3%
Malta, Melita Cable - 25%
Business Lines
Video Distribution and Programming Services
Telephony Services, Priority Telecom
Internet/Data Services, chello broadband
- -------
(1) This chart excludes UPC's interests in the Hungarian (Monor) telephony
system (46.3%) and the programming services, Tara (75%) and IPS
(approximately 33.5%), which it has agreed to purchase from UIH, and other
interests. See "-- Recent Developments".
(2) A minority partner of Mediareseaux holds warrants giving it the right to
purchase an additional 4.6% of Mediareseaux's share capital. See "Corporate
Ownership Structure -- France".
(3) UPC's 79.3%-owned Hungarian system owns between 70% and 100% of several
local operating companies. UPC owns 51% of one Romanian local operating
company and 100% of two others. UPC owns 75% of one Slovak local operating
company and 100% of two others. See "Business--Corporate Ownership
Structure".
4
<PAGE>
Most of UPC's operating systems have long-established track records of
providing video services. These systems have grown significantly over the past
few years, both in terms of number of subscribers and revenues. UPC has grown
its operations through strategic acquisitions of cable television systems and
development of its existing systems. The tables below present certain operating
and financial information of the Company. Because the Company does not own 100%
of all of its operating companies, the operating data in the second table is
presented on a proportionate equity basis. The financial information in the
third table is presented on a consolidated basis. As of September 30, 1998, UPC
consolidated the results of its operations in Austria, Belgium, the Czech
Republic, France, Hungary, Norway, Romania and the Slovak Republic.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------- AT SEPTEMBER 30,
OPERATING DATA(1) 1993(1) 1994(1) 1995 1996 1997 1998
- ----------------- --------- --------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Homes in service area... 2,657,000 2,626,255 3,323,000 3,693,511 4,134,656 5,867,686
Homes passed............ 1,841,318 1,993,037 2,616,331 2,900,033 3,553,790 4,900,030
Two-way homes
passed(2).............. -- -- -- -- 674,457 1,396,651
Basic Video
subscribers(3)......... 1,233,584 1,341,284 1,877,852 2,049,472 2,311,708 3,430,903
Internet/data
subscribers............ -- -- -- -- 1,907 12,736
Telephony subscribers... -- -- -- -- 3,255 13,849
<CAPTION>
AT DECEMBER 31,
------------------------------------------------- AT SEPTEMBER 30,
PROPORTIONATE OPERATING DATA(4) 1993(1) 1994(1) 1995 1996 1997 1998
- ------------------------------- --------- --------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Homes in service area... 1,748,598 1,754,784 1,908,636 2,427,306 2,870,982 3,821,549
Homes passed............ 1,029,293 1,157,547 1,351,970 1,818,634 2,351,575 3,008,175
Two-way homes
passed(2).............. -- -- -- -- 541,082 919,653
Basic Video
subscribers(3)......... 666,473 751,896 988,462 1,316,798 1,514,606 2,035,753
Internet/data
subscribers............ -- -- -- -- 1,622 8,272
Telephony subscribers... -- -- -- -- 1,627 3,531
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS ENDED DECEMBER 31, FOR THE NINE
DECEMBER 31, --------------- MONTHS ENDED
CONSOLIDATED FINANCIAL INFORMATION 1995(1) 1996 1997 SEPTEMBER 30, 1998
- ---------------------------------- ---------------- ------- ------- ------------------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C>
Revenues.................. 100,179 245,179 337,155 305,237
EBITDA(5)................. 33,756 85,877 116,030 107,792
EBITDA Margin............. 33.7% 35.0% 34.4% 35.3%
</TABLE>
- -------
(1) UPC began operations as a joint venture in July 1995 when its shareholders,
UIH and Philips, contributed various cable television properties to it. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- History of UPC". Operating data and proportionate operating
data at December 31, 1993 and 1994 reflects the respective statistics for
those systems contributed to UPC by UIH and Philips.
(2) Homes passed by coaxial cable or fiber plant capable of both transmitting
and receiving video, voice and data signals. UPC's Israeli systems are not
included in the total as they are capable of providing only two-way impulse
pay-per-view video services.
(3) The Company determines the number of basic video subscribers as follows:
Residential subscribers are counted as one subscriber, with the exception
of cable television subscribers in a multiple dwelling unit (MDU) (such as
a hotel, hospital or housing association) where certain subscribers receive
the basic service for less than the standard basic rate. In this situation,
in some of its operating systems, the Company calculates the number of
subscribers by dividing the subscription fee received from the MDU by the
standard rate at which the Company provides basic video services. In other
systems, an MDU is counted as one subscriber.
(4) Proportionate operating data is calculated by multiplying the applicable
statistic for each operating company by UPC's economic ownership interest
in such operating company at the end of the relevant period and then
totaling the results. You should read the "Corporate Ownership Structure"
section for more information about the Company's ownership interest in
those operating systems that are not wholly owned.
(5) EBITDA represents earnings before net interest expense, income tax expense,
depreciation, amortization, stock-based compensation charges, minority
interest, share in results of affiliated companies (net), currency exchange
gains (losses) and other non-operating income (expense) items.
5
<PAGE>
LINES OF BUSINESS AND COMPANY GROWTH STRATEGY
The Company believes that its position as a leading pan-European provider of
video services will allow it to develop further its three lines of business:
video distribution and programming services, telephony services and
Internet/data services.
Key elements of UPC's strategy to become a leading provider of these three
services include:
. continuing to increase its average revenue per subscriber by further
developing its expanded (analog and digital) basic tier, pay-per-view and
digital audio program offerings;
. capitalizing on UPC's telephony market opportunity by leveraging its unique
infrastructure advantages;
. capitalizing on the Company's Internet/data service opportunity; and
. continuing to make selected acquisitions of systems near its current
operating areas and increasing its ownership interest in some of its
existing systems.
See "Business -- Company Growth Strategy".
VIDEO DISTRIBUTION AND PROGRAMMING SERVICES. UPC owns and operates both
long-established cable television systems and systems under construction in
many European markets. As of September 30, 1998, UPC's operating systems had
approximately 3.4 million subscribers to their basic tier video services. Video
distribution services accounted for approximately 92.4% of the Company's
consolidated revenue in the first nine months of 1998. UPC's basic tier video
services business has high penetration rates, with subscribers as a percentage
of homes passed currently averaging over 70%. UPC offers its subscribers some
of the most advanced analog video services available today and a large choice
of FM radio programs. In addition, as many of UPC's operations are further
becoming two-way capable, the Company has been able to add more services. For
example, in many systems the Company has introduced impulse pay-per-view
services, which enable subscribers to its expanded basic tier (a higher-priced
service with additional channels) to select and purchase programming services,
such as movies and special events, directly by remote control.
The Company is focusing on increasing its average revenue per subscriber
through enhanced and expanded video service offerings. These offerings include
thematic groupings of tiered video services in key genres, enhanced pay-per-
view services and premium movie channels. The weighted average revenue per
subscriber in UPC's systems historically has been significantly below that
realized by cable television operations in the United States and the United
Kingdom, countries of comparable per capita income where these types of
enhanced services have been offered for a longer period.
The Company plans to continue improving its expanded basic tier offerings by
adding new channels. Generally, basic tier pricing is regulated while the
expanded basic tier is not price regulated. Where appropriate and permitted,
the Company may migrate certain highly valued channels from the basic tier to
the expanded basic tier. UPC's Norkabel systems, which are part of Janco
Multicom, its Norwegian operating company, have been offering an expanded basic
tier for several years. As of September 30, 1998, approximately 27% of
Norkabel's subscribers also subscribed to the expanded basic tier, paying more
than twice the price of the basic tier.
To increase further its average revenue per subscriber, UPC has offered
enhanced services such as impulse pay-per-view services in some of its markets
for several years. In Israel, for example, Tevel's 250,000 subscribers with
two-way capability buy an aggregate of more than 100,000 pay-per-view programs
per month, for an average monthly buy rate of 0.4 per subscriber. In the
Company's Austrian and A2000 systems, during the first nine months of 1998, the
average impulse pay-per-view monthly buy rate was over 1.1 and 0.9 per expanded
basic tier subscriber, respectively.
Popular programming is a key factor in increasing the Company's video
services revenue. The Company believes it will also be a potential source of
additional revenue from sales to other cable television operators and satellite
companies in Europe. UIH, UPC and their affiliates have developed 26 channels
of programming over the last several years. The Company, together with
partners, is developing eight new pan-European
6
<PAGE>
channels for the cable television market, five of which are scheduled for
launch by the end of 1999, and has already secured a portion of the content
required for these channels.
The Company is seeking partners to construct a pan-European digital
distribution platform, UPC's EuroHits. Full digitalization, to be made possible
by UPC's network upgrade to full two-way capability, will provide the Company's
Western European systems with substantially more channel capacity. This
increased channel capacity would enable subscribers to customize their
subscriptions for the Company's products and services to suit their lifestyles
and personal interests. If this planned digital distribution platform is
constructed, the Company would convert its impulse pay-per-view services into a
near video-on-demand (NVOD) service that would be able to provide up to 75
channels of first run hit movies, adult programming and special events. The
Company also has acquired the rights to and would launch a low-cost digital
audio service on this digital distribution platform that could provide 20
channels of CD-quality music in the expanded basic tier and 70 additional
channels as a premium service.
UPC is also involved in several country-specific programming ventures
including creating channels for the Czech Republic, Hungary, Israel and Malta.
Together, these programming ventures have developed channels in key genres,
including sports, children, documentary and movies, which are subtitled or
dubbed in the local language. As of September 30, 1998, Tara and IPS, which UPC
has agreed to acquire from UIH, sold programming content to non-UPC cable
operators serving an aggregate of approximately 1.0 million subscribers. UPC
has granted an option to its partner to acquire the Czech and Hungarian
programming interests.
TELEPHONY SERVICES. The Company believes that by leveraging its existing
video subscriber base and upgraded network, it has a unique opportunity to
become a pan-European telephony operator. UPC plans to offer local telephony
services, branded as Priority Telecom (Nedpoint in the A2000 systems), in its
Austrian, Dutch, French and Norwegian systems. UPC also plans to develop
national and international long distance voice and data services. UPC's
operating companies currently are licensed to provide telephony services in
Austria, France, Hungary, The Netherlands and Norway. A2000, which offers cable
telephony service in Amsterdam and the surrounding areas, has an interconnect
agreement with KPN, the Dutch incumbent telecommunications operator. Telekabel
Wien, which operates in Vienna, Austria, has completed an interconnect
arrangement with Post and Telekom Austria ("PTA"), the Austrian incumbent
telecommunications operator. UPC is in the advanced stages of negotiating
interconnect agreements for its other systems in which it plans to offer cable
telephony services.
UPC believes that the ability to leverage its existing subscriber base and
upgraded network will provide it with an advantage over other new entrants in
the telephony market. In particular, management believes that UPC's networks
and facilities provide the opportunity for cost-effective access to both
residential and business customers. Because of the relatively high European
local tariff rates, the Company believes potential customers will be receptive
to Priority Telecom's services, which the Company intends to price at a
discount to services offered by the incumbent telecommunications operators.
A2000 began offering cable telephony services in July 1997 on a trial basis
in Purmerend, a town outside Amsterdam, and since then has begun to offer these
services to its customers in Hilversum, Zaanstad and part of Amsterdam. As of
September 30, 1998, A2000 achieved a penetration rate of approximately 10.8% of
the homes marketed in Purmerend. As of the same date, A2000 served
approximately 16,000 lines covering 13,850 cable telephony subscribers. In
November 1998, UPC launched cable telephony service on a trial basis in Vienna.
UPC is negotiating to connect its local fiber networks, primarily through
interconnections and capacity leases with other new telecommunications service
providers, to provide long-distance telephony services across several
7
<PAGE>
European markets. In October 1998, the Company entered into a contract with
Hermes Europe Railtel for the purchase of pan-European transmission capacity.
This agreement allows chello, UPC's Internet portal and content business, and
Priority Telecom to purchase fiber optic-based high speed transmission capacity
for their services.
Monor, UIH's 46.3%-owned operating company in Hungary, which UPC has agreed
to acquire, has offered traditional twisted pair telephony services since
December 1994 and as of September 30, 1998, served approximately 66,900 lines.
INTERNET/DATA SERVICES. The Company believes it can further develop the
residential and business Internet markets by capitalizing on its existing
network capabilities, continuing network upgrade and broad customer base in
certain markets with high personal computer penetration. UPC has launched a
residential and business cable modem-based high speed Internet access product
in Austria, Belgium, The Netherlands and Norway. The rollout for its Internet
portal and content business, branded as chello, in the Company's upgraded
Western European markets is scheduled to begin during the first quarter of
1999. As of September 30, 1998, UPC had more than 12,125 residential and 600
business cable modem Internet access subscribers. Cable modem technology can
provide Internet access at speeds up to 100 times faster than traditional dial-
up modems thereby enabling multimedia content through the Internet. An integral
part of the Company's strategy is to market chello's services for sale to other
cable television systems.
NETWORK UPGRADE AND INFRASTRUCTURE
Since 1994, the Company has been rebuilding and upgrading the existing cable
television infrastructure of its Western European operating systems. The
network upgrade consists of two phases: the basic network upgrade and the
enhanced upgrade that includes the incremental investments necessary to
introduce digital video, telephony or Internet/data services.
The basic upgrade includes the installation of Hybrid Fiber Coaxial ("HFC")
technology throughout the network. This includes the installation of fiber
optic cable, fiber nodes, fiber optic transmitters and receivers and the
replacement of coaxial amplifiers and multi-port taps. From the formation of
UPC through September 30, 1998, UPC, its consolidated companies and its Dutch
systems had invested over NLG314.5 million in the network upgrade program. The
Company currently expects that, by the end of 1999, approximately 87% of its
homes in Austria, Belgium, France and The Netherlands will be passed by the
upgraded, two-way network. The upgrade of the Norwegian systems began in April
1998 and is being implemented on a longer timetable than UPC's other Western
European systems.
The enhanced upgrade involves the installation of equipment in the master
telecom center, the distribution hubs and the customer premises required to
connect subscribers for digital video, telephony or Internet services. As of
September 30, 1998, UPC, its consolidated companies and its Dutch systems had
invested approximately NLG50.3 million in switches and other telephony-related
equipment and approximately NLG41.3 million in Internet/data-related equipment.
UPC plans to begin building soon a fiber and satellite transmission-based
digital distribution platform to support further programming delivery for its
pan-European networks.
8
<PAGE>
RECENT DEVELOPMENTS
UPC is pursuing a strategy of selectively acquiring and building cable
television and telecommunications systems near its current operating areas, as
well as increasing its ownership interest in certain of its less than wholly-
owned operating systems. Below is a summary of some of these transactions since
September 30, 1998.
INCREASE ISRAELI AND MALTESE SYSTEM OWNERSHIP
UPC held its interests in the Israeli, Maltese and Irish operating systems
through a partnership with a subsidiary of Tele-Communications International,
Inc. ("TINTA"). In November 1998, UPC acquired TINTA's indirect 23.3% and 25.0%
interests in the Israeli and Maltese systems, doubling UPC's respective
interests in these systems to 46.6% and 50%. UPC financed this acquisition
through a loan from its primary partners in the Israeli operating system. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Current Debt Facilities --
DIC Loan".
SALE OF INTEREST IN IRELAND SYSTEM
As part of the Israeli and Maltese transaction described above, UPC
purchased, in exchange for 384,531 shares of UIH held by UPC, Riordan
Communications Ltd.'s ("RCL") indirect 5% interest in an Irish multi-channel
television system and 5% of Tara Television Limited ("Tara"), a company
providing Irish programming to the U.K. markets. In November 1998, the Company
sold the newly-acquired 5% interest in the Irish multi-channel television
system, together with its previously-held 20% interest in this system, to
TINTA. See "Certain Transactions and Relationships".
PURCHASE OF CERTAIN TELEPHONY AND PROGRAMMING ASSETS FROM UIH
In exchange for 7,523,736 newly-issued Ordinary Shares of UPC, UIH has
agreed to sell to UPC UIH's:
. 50% voting and 46.3% economic interest in Monor Communications Group Inc.
("Monor"), a traditional telephony and cable television system in the
Monor region of Hungary (85,000 franchise area homes) with approximately
84,000 traditional telephony homes passed and approximately 67,350 cable
television homes passed and which served approximately 66,900 traditional
telephony lines and approximately 29,150 cable television subscribers as
of September 30, 1998;
.75% interest in Tara; and
. approximately 33.5% interest in Iberian Programming Services ("IPS"), a
group of programming companies focusing on the Spanish and Portuguese-
speaking markets.
These transactions are expected to close in December 1998 and January 1999.
9
<PAGE>
RELATIONSHIP WITH UIH
UPC began operations as a 50/50 joint venture between UIH and Philips in
July 1995 when UIH and Philips contributed most of their extensive European and
Israeli multi-channel television system assets to the Company. In December
1997, UIH acquired Philips' interest in UPC (the "UPC Acquisition"). UPC
currently indirectly holds approximately 2.8 million shares of Class A Common
Stock of UIH, which represents approximately 7% of UIH's outstanding common
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- History of UPC".
UIH is a leading provider of video, voice and data services outside the
United States. Together with its strategic and financial partners, UIH has
ownership interests in multi-channel television systems in operation or under
construction in over 20 countries. UIH's operations are organized in three
geographic regions: (i) Europe, consisting of UIH's interest in UPC; (ii)
Asia/Pacific, including investments in operating systems and development
projects in Australia, New Zealand, the Philippines, Tahiti and China; and
(iii) Latin America, including multi-channel television systems in Brazil,
Chile, Mexico and Peru.
As of September 30, 1998, UIH's systems encompassed the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------
UIH UIH
AGGREGATE PROPORTIONATE
---------- -------------
<S> <C> <C>
Homes in service area.................................. 12,100,000 7,400,000
Homes passed........................................... 9,800,000 6,100,000
Basic video subscribers................................ 4,400,000 2,500,000
Telephony subscribers.................................. 100,500 42,275
Internet/data subscribers.............................. 12,725 8,275
</TABLE>
UIH's Class A Common Stock is listed for trading on the Nasdaq National
Market System under the symbol "UIHIA".
Upon completion of the Offering, UIH will own approximately % of the
outstanding Ordinary Shares and all of the outstanding Priority Shares of the
Company. See "Description of Share Capital", "Summary of Certain Provisions of
the Articles of Association and Other Matters", and "Shares Eligible for Future
Sale". Following the Offering, UIH's Ordinary Shares and Class A Preference
Shares give it a combined % of the total voting interest in UPC. Following
the Offering, five members of the Company's seven-member Supervisory Board will
be directors or officers of UIH. Accordingly, UIH will continue to control the
Company for the foreseeable future, as it has done since December 1997.
UIH has agreed to sell to UPC in exchange for 7,523,736 newly-issued
Ordinary Shares, UIH's interest in Monor, Tara and IPS. As of September 30,
1998, UIH had also loaned UPC approximately $79.0 million (the "UIH Loan") to
repay indebtedness and fund new businesses.
UIH has agreed that so long as it owns 50% or more of the outstanding
Ordinary Shares, it will present any cable television, programming, telephony
and Internet/data services opportunities in Europe and the Middle East to UPC
and will only pursue those opportunities that UPC chooses not to pursue. UPC
has made a similar agreement with UIH for the other parts of the world. UIH
incurs costs for accounting, financial reporting, investor relations, human
resources and other services, which are shared among UIH's operating companies,
including UPC. UPC is also subject to the terms of UIH's indenture governing
UIH debt securities, which imposes limitations on UPC's operations, including
its ability to incur debt.
See "Risk Factors -- Control by UIH; Effects of UIH Indenture" and
"Relationship With UIH and Related Transactions".
10
<PAGE>
THE OFFERING
The following information assumes that the Underwriters do not exercise the
over-allotment option granted by the Company to purchase additional shares in
the Offering.
The Offering............ U.S. Offering shares
International
Offering shares
-----------
Total shares
===========
Price per Share......... NLG per Ordinary Share
$ per ADS
Shares Outstanding...... After the Offering, the Company will have
Ordinary Shares and Priority Shares issued and
outstanding.
Use of Proceeds......... The Company intends to use the net proceeds from
the Offering:
. to fund costs associated with the network
upgrade, the build and launch of the Company's
telephony and Internet/data businesses, and to
fund new activities in the Company's video
distribution and programming businesses;
. to repay approximately NLG million of
indebtedness;and
. for general corporate purposes.
Dividend Policy......... The Company does not expect to pay any cash
dividends in the foreseeable future.
Voting Rights........... Each Ordinary Share has one vote. After the
Offering, UIH will hold % of the total Ordinary
Shares and all of the Priority Shares.
American Depositary
Shares.................. The Company is also offering the Ordinary Shares
in the form of ADSs, each of which represents
Ordinary Shares.
Listing; Trading
Symbol.................. The Company intends to have the ADSs quoted on the
Nasdaq National Market System under the symbol
"UPCOY" and to list the Ordinary Shares in bearer
form on the Official Market of the Amsterdam Stock
Exchange under the symbol "UPC". Trading is
expected to commence on , 1999.
Payment and Delivery.... The expected payment and closing date is ,
1999. Delivery of the ADRs evidencing the ADSs
will be made in New York, New York, through the
book-entry facilities of The Depository Trust
Company, against payment in U.S. dollars in
immediately available funds. Delivery of Ordinary
Shares will be made in book-entry form in
Amsterdam, The Netherlands, through the facilities
of NECIGEF, Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the
Euroclear System, and Cedel Bank, societe anonyme,
against payment in Dutch guilders in immediately
available funds.
Risk Factors............ You should review the "Risk Factors" section for a
discussion of certain factors about the Company,
the industries in which it operates and this
Offering that you should consider before buying
shares.
11
<PAGE>
SUMMARY CONSOLIDATED SELECTED FINANCIAL DATA OF THE COMPANY
UPC began operations as a joint venture in July 1995. The following summary
consolidated selected financial data for the six months ended December 31, 1995
and the years ended December 31, 1996 and 1997 come from the Company's audited
consolidated financial statements included in this Prospectus. Information for
the nine months ended September 30, 1997 and 1998 and as of September 30, 1998
come from unaudited financial statements included in this Prospectus, which the
Company's management believes reflect all adjustments necessary to present
fairly this financial data. You should read the data set forth below together
with UPC's consolidated financial statements and notes and also with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", both included in this Prospectus. All of the financial statements
from which this information is derived have been prepared in accordance with
U.S. GAAP.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SIX MONTHS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------- ----------------------
1995 1996 1997 1997 1998(2)
---------------- ---------- ---------- ---------- ----------
(Dutch guilders, in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service and other
revenue................ 100,179 245,179 337,155 250,061 305,237
Operating expense....... (32,806) (80,479) (111,919) (87,206) (97,472)
Selling, general &
administrative
expense................ (33,617) (78,823) (114,024) (80,061) (132,466)
Depreciation and
amortization........... (36,224) (84,332) (139,216) (99,903) (137,231)
---------- ---------- ---------- ---------- ----------
Net operating (loss)
income................. (2,468) 1,545 (28,004) (17,109) (61,932)
---------- ---------- ---------- ---------- ----------
Net loss before income
taxes and other items.. (19,314) (55,308) (154,084) (113,247) (125,260)
---------- ---------- ---------- ---------- ----------
Net loss................ (41,529) (75,836) (165,966) (129,984) (171,852)
========== ========== ========== ========== ==========
Basic and diluted loss
per common share(1).... (0.77) (1.40) (3.09) (2.41) (3.59)
========== ========== ========== ========== ==========
Weighted-average number
of common shares
outstanding(1)......... 54,000,000 54,000,000 53,659,328 54,000,000 47,867,910
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997(2) AS OF SEPTEMBER 30, 1998(2)
-------------------------- ---------------------------
(Dutch guilders, in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Non-restricted cash and
cash equivalents....... 99,315 44,340
Other current assets.... 84,892 101,177
Investments in
affiliated companies... 384,940 365,724
Property, plant and
equipment.............. 483,693 527,069
Intangible assets....... 725,513 678,741
Other non-current
assets................. 141,462 132,917
Total assets........... 1,919,815 1,849,968
Short-term debt......... 257,515 303,569
Other current
liabilities............ 181,846 198,513
Long-term debt.......... 1,004,018 1,039,632
Other non-current
liabilities............ 58,127 52,642
Total liabilities...... 1,501,506 1,594,356
Minority interest in
subsidiaries........... 6,779 34,265
Total shareholders'
equity................ 411,530 221,347
</TABLE>
- -------
(1) "Basic and diluted loss per common share" is determined by dividing net
loss available to common shareholders by the weighted-average number of
common shares outstanding during each period.
(2) As a result of the UPC Acquisition and associated push-down of UIH's basis
on December 11, 1997, this information is presented on a "post-acquisition"
basis. See "--Summary Pro Forma Financial Information".
12
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
In August 1998, the Company and a Dutch energy company ("NUON") created
United Telekabel Holding ("UTH") by contributing each of their interests in
Dutch cable television systems to the new company (the "UTH Transaction"). The
following unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1997 and the nine months ended September 30,
1998 gives effect to (i) the UPC Acquisition and (ii) the UTH Transaction, as
if each had occurred as of January 1, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --History of UPC".
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management believes are reasonable. The unaudited
pro forma consolidated condensed financial information and accompanying notes
should be read in conjunction with the audited consolidated financial
statements and the notes thereto, and other financial information pertaining to
the Company, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations", included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
---------------------------- ---------------------------
HISTORICAL PRO FORMA (2)(3) HISTORICAL(1) PRO FORMA (3)
---------- ---------------- ------------- -------------
(Dutch guilders, in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service and other
revenue................ 337,155 318,769 305,237 274,091
Operating expense....... (111,919) (107,799) (97,472) (91,349)
Selling, general &
administrative
expense................ (114,024) (110,194) (132,466) (127,404)
Depreciation and
amortization........... (139,216) (150,784) (137,231) (123,437)
---------- ---------- ---------- ----------
Net operating loss...... (28,004) (50,008) (61,932) (68,099)
---------- ---------- ---------- ----------
Net loss before income
taxes and other items.. (154,084) (176,517) (125,260) (125,766)
---------- ---------- ---------- ----------
Net loss................ (165,966) (188,671) (171,852) (165,804)
========== ========== ========== ==========
Basic and diluted loss
per common share(4).... (3.09) (3.94) (3.59) (3.46)
========== ========== ========== ==========
Weighted-average number
of common shares
outstanding(4)......... 53,659,328 47,867,910 47,867,910 47,867,910
</TABLE>
- -------
(1) As a result of the UPC Acquisition and associated push-down of UIH's basis
on December 11, 1997, this information is presented on a "post-acquisition"
basis.
(2) In connection with the UPC Acquisition, the net proportional assets of UPC
acquired by UIH were recorded at fair market value based on the purchase
price paid by UIH. As a result of UPC becoming essentially wholly owned by
UIH, certain purchase accounting adjustments, along with existing basis
differences, were pushed down to the financial statements of UPC and a new
basis of accounting was established for the UPC net assets acquired by UIH.
The pro forma effects on the statement of operations for the year ended
December 31, 1997 include (i) additional depreciation and amortization
related to the step-up in basis in tangible assets and the excess of the
purchase price over Philips' interest in the net assets of UPC, (ii) the
increase in interest expense from the new Tranche A Facility and Tranche B
Facility incurred to finance the UPC Acquisition as well as foreign
exchange loss on the U.S. dollar-denominated Tranche B Facility, (iii)
elimination of historical interest expense and the related foreign exchange
loss on the U.S. dollar-denominated pay-in-kind convertible notes (the "PIK
Notes") and (iv) elimination of historical interest expense on those
existing credit facilities that were refinanced through the proceeds from
the Tranche A and Tranche B Facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- History of
UPC".
(3) As part of the UTH Transaction, UPC contributed 100% of CNBH and its 50%
interest in A2000. NUON contributed N.V. TeleKabel Beheer ("Telekabel
Beheer"). The pro forma effects on the statement of operations for the nine
months ended September 30, 1998 include (i) the contribution (and resulting
de-consolidation) by the Company of the revenues and expenses of CNBH for
the period from January 1, 1998 through July 31, 1998, (ii) the reduction
of the Company's share in results of A2000, (iii) recording the Company's
51% share of the results of operations of UTH for the period from August 1,
1998 through September 30, 1998 and (iv) additional amortization related to
the excess of UPC's interest in UTH over the historical net book value of
the assets contributed to UTH. The pro forma effects on the statement of
operations for the year ended December 31, 1997 include (i) the
contribution (and resulting de-consolidation) by the Company of the
revenues and expenses of KTE (contributed to CNBH) for the period, (ii) the
reduction of the Company's share in results of A2000, (iii) recording the
Company's 51% share in the results of operations of UTH for the period and
(iv) additional amortization related to the excess of UPC's interest in UTH
over the historical net book value of the assets contributed to UTH.
(4) "Basic and diluted loss per common share" is determined by dividing net
loss available to common shareholders by the weighted-average number of
common shares outstanding during each period.
13
<PAGE>
SUMMARY OPERATING AND FINANCIAL DATA
The following table shows aggregate statistics of the Company's cable
television operating systems as of September 30, 1998. UPC does not own 100% of
all of these systems. See "Corporate Ownership Structure".
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
AT SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
--------------------------------------------------------------- -------------------------------
UPC HOMES TWO-WAY BASIC BASIC
OWNERSHIP UNDER HOMES HOMES VIDEO VIDEO TOTAL PROPORTIONATE
INTEREST LICENSE PASSED PASSED SUBSCRIBERS PENETRATION REVENUE EBITDA(1) EBITDA(1)(2)
--------- --------- --------- --------- ----------- ----------- ------- --------- -------------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WESTERN EUROPEAN
SYSTEMS
Austria................ 95.0% 1,070,640 897,938 487,055 442,596 49.3% 130,288 62,735 59,598
Belgium................ 100.0 133,000 133,000 85,939 127,574 95.9% 26,944 9,807 9,807
France................. 99.6 86,000 60,712 60,712 20,955 34.5% 5,189 (2,962) (2,950)
The Netherlands:
A2000................. 25.5 575,000 569,459 329,101 516,729 90.7% 90,234 21,620 5,513
UTH................... 51.0 935,132 907,078 422,902 855,277 94.3% 156,690 79,034 40,307
Norway(3).............. 100.0 529,924 461,759 10,942 319,769 69.3% 69,035 25,750 25,750
--------- --------- --------- ---------
Subtotal.............. 3,329,696 3,029,946 1,396,651 2,282,900
OTHER SYSTEMS
Israel(4)(5)........... 23.3 600,000 568,999 -- 395,680 69.5% 222,481 49,445 11,521
Malta(4)............... 25.0 179,000 161,310 -- 68,149 42.2% 22,226 9,357 2,339
Ireland(4)............. 20.0 380,000 377,206 -- 145,251 38.5% 58,342 22,448 4,490
--------- --------- --------- ---------
Subtotal.............. 1,159,000 1,107,515 -- 609,080
EASTERN EUROPE
Hungary(6)............. 79.3 901,500 490,966 -- 413,119 84.1% 39,225 14,416 11,432
Czech Republic......... 100.0 229,531 148,963 -- 52,268 35.1% 6,618 (1,818) (1,818)
Romania:
Multicanal............ 100.0 70,000 21,200 -- 7,405 34.9% 405 163 163
Control Cable......... 100.0 80,000 48,454 -- 32,128 66.3% 1,890 1,003 1,003
Eurosat............... 51.0 30,000 26,000 -- 19,367 74.5% 562 216 110
Slovak Republic:
Trnavatel............. 75.0 21,839 16,782 -- 11,507 68.6% 923 296 222
Kabeltel.............. 100.0 46,120 10,184 -- 3,129 30.7% 240 (369) (369)
--------- --------- --------- ---------
Subtotal.............. 1,378,990 762,569 -- 538,923
========= ========= ========= =========
Total................. 5,867,686 4,900,030 1,396,651 3,430,903
========= ========= ========= =========
UPC Proportionate
Interest(2).......... 3,821,549 3,008,195 919,653 2,035,753
========= ========= ========= =========
</TABLE>
- -------
(1) EBITDA represents earnings before net interest expense, income tax expense,
depreciation, amortization, minority interest, management fee expense
payable by certain operating systems to the Company, share results in
affiliated companies (net), currency exchange gains (losses) and other non-
operating income (expense) items.
(2) Proportionate information is calculated by multiplying the applicable
statistic and/or financial information for each operating company by UPC's
economic ownership interest in such operating company.
(3) In 1997, Norkabel and Janco were merged to form Janco Multicom. In November
1998, UPC acquired the 12.7% interest of Janco Multicom it did not own.
Because of a put/call option with UPC's minority shareholder and a letter
of credit securing payment for the remaining interest, UPC has treated
Janco Multicom as 100%-owned since Janco Multicom's formation.
(4) In November 1998, UPC acquired additional ownership interests in its
Israeli and Maltese systems, which doubled its interests to 46.6% and 50%,
respectively. As part of this transaction, UPC sold all of its interests in
its Irish system. See "-- Recent Developments".
(5) The Israeli systems have approximately 359,050 two-way homes passed that
are capable only of impulse pay-per-view.
(6) The Hungary information relates to Telekabel Hungary, UPC's Hungarian cable
television system. Kabelkom and Kabeltel were separate entities until they
were merged on June 30, 1998 to form Telekabel Hungary. The financial
information presented for the nine months ended September 30, 1998
comprises: (i) Kabelkom's results for the first six months of 1998
(revenues of approximately NLG18.6 million and EBITDA of approximately
NLG8.6 million); (ii) Kabeltel's results for the first six months of 1998
(revenues of approximately NLG6.8 million and EBITDA of approximately
NLG1.1 million); and (iii) Telekabel Hungary's results for the three months
ended September 30, 1998 (revenues of approximately NLG13.8 million and
EBITDA of approximately NLG4.7 million). This table does not include the
interest in Monor (46.3%), which UPC has agreed to acquire from UIH. This
transaction is expected to close in December 1998.
14
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL OF
THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE BUYING SHARES.
HISTORY OF LOSSES
The Company has experienced net losses since it began operations as a joint
venture in July 1995. As of September 30, 1998, the Company had an accumulated
deficit of approximately NLG318.1 million. The Company had net losses of
NLG41.5 million, NLG75.8 million, NLG166.0 million and NLG171.9 million for the
six months ended December 31, 1995, for the years ended December 31, 1996 and
1997 and for the nine months ended September 30, 1998, respectively. Although
the Company has had positive operating cash flow from July 1995 to September
30, 1998, it is actively building its video services business and introducing
other lines of business. These new business lines currently are experiencing
negative cash flow. The Company expects to incur net losses for the foreseeable
future and expects also that its net losses and negative cash flow from its new
business ventures will increase as these operations expand. The Company may
never become profitable. Continuing net losses could negatively affect the
Company's results of operations and increase the Company's need for additional
capital in the future. If the Company fails to achieve profitability, this may
also negatively affect the value of the shares. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Statements of
Cash Flows".
CAPITAL-INTENSIVE BUSINESS
Developing, constructing and operating cable television and
telecommunications systems and related businesses requires substantial capital
investment. In addition, many of the Company's operating companies are
expanding and upgrading their respective networks to offer additional services.
As technology changes in the cable television and telecommunications industry,
the Company's operating systems may need additional system upgrades to compete
effectively in their respective markets. The Company's existing financial
resources, together with the proceeds from the Offering, may not be enough for
its future capital needs. In addition, the Company plans that a substantial
portion of capital expenditures for equipment for its new services will be
financed by vendors. The Company has not yet secured this vendor financing and
there can be no assurance that UPC will obtain sufficient vendor financing on
satisfactory terms. The Company's inability to upgrade its operating systems'
networks or to make its other planned capital expenditures could have a
negative effect on the Company's operations and competitive position. If the
Company pursues new acquisition or development opportunities, it may need to
raise additional capital, either through asset sales, issuances of debt or
equity securities or through borrowings. The Company is not sure whether it
will be able to raise additional capital through any of these or other methods.
The growth of the Company's business, its operating results and financial
condition would be negatively affected if the Company fails to obtain the
capital it needs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
LEVERAGE
The Company is highly leveraged. As of September 30, 1998, the Company had
outstanding NLG303.6 million and NLG1,039.6 million of consolidated short-term
and long-term debt, respectively. In addition, many of the Company's
unconsolidated subsidiaries and affiliates also have substantial indebtedness,
some of which is due within the next 12 months. Although the Company is
negotiating replacement facilities for this short-term debt, there can be no
assurance it will be successful. Many of the Company's debt facilities limit
UPC's borrowing capacity, the Company's ability to make investments in some of
its subsidiaries and certain transactions between subsidiaries of the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". UPC and its subsidiaries are
subject to UIH's indenture, which, among other things, limits their
15
<PAGE>
ability to incur additional indebtedness. See "-- Control by UIH; Effects of
UIH Indenture".
INTRODUCTION OF NEW SERVICES; RAPID TECHNOLOGICAL CHANGE
Demand for the Company's products and services is influenced by the
changing technology and regulatory requirements of the cable television and
telecommunications services industry. Technology in this industry is changing
very quickly. The Company's ability to anticipate these changes and to develop
and introduce new and enhanced products successfully and on a timely basis will
determine, in part, whether it can continue to grow and be competitive. The
Company plans to offer new services including additional video channels and
tiers, impulse pay-per-view services, high speed data and Internet access
services and cable telephony services. The Company cannot guarantee that it
will be able to achieve the technological advances required for it to remain
competitive or that demand for its enhanced services will develop or be
maintained because of other new technological advances. The Company's new
service introductions such as cable modem-based high speed Internet access and
cable telephony may be delayed in development or may not operate as intended.
IMPLEMENTATION RISKS FOR TELEPHONY AND INTERNET SERVICES
The Company faces several risks in implementing its new services. The
Company recently began offering local telephony services. There are many
operating complexities associated with providing local telephony and
Internet/data services. The Company will be required to develop and enhance new
services, products and systems and will need to develop new marketing
initiatives to sell these services. For example, the Company plans to use
enhanced versions of its existing customer care and billing systems to support
its new telephony and Internet/data businesses until it introduces a more
comprehensive system. Problems with the existing or new systems could delay the
introduction of new services, slow down the penetration of the new services or
increase their costs. If this happens, it could negatively affect UPC's
development plans. See "Business -- UPC Telephony Services: Priority Telecom "
and "Business -- UPC Internet/Data Services: High Speed Access and chello".
The Company's telephony services may not be profitable for a number of
reasons, such as a lack of customer demand, competition and pricing pressure
from the incumbent and other telecommunications operators, and cost overruns in
its network upgrade. Some of the Company's systems have interconnect
agreements, which are necessary to provide telephony services, with the
incumbent telecommunications operators. The Company is currently negotiating
interconnect agreements for its other planned telephony markets. In some cases,
obtaining interconnect agreements may involve time-consuming negotiations and
regulatory proceedings. There can be no assurance that the incumbent
telecommunications operators will agree to such interconnections in a timely
manner or at rates and on other terms that will permit the Company to offer
profitable telephony services. See "Business -- UPC Telephony Services:
Priority Telecom -- Interconnect Agreements".
The Company also cannot guarantee that its new service offerings will be
introduced when the Company expects or that they will meet the Company's
financial expectations. The Company's failure to implement its telephony and
Internet/data expansion plans successfully would negatively affect the
Company's planned growth and financial condition.
UNPROVEN NETWORK SCALABILITY, SPEED AND TECHNOLOGY
Because the Company only recently began offering Internet/data services,
the Company is unsure whether its Internet access business will be able to
connect and manage a large number of online subscribers at high data
transmission speeds. In addition, the Company may not be able to maintain
satisfactory performance levels as its subscriber levels go up. As the number
of subscribers increases, the Company may have to add additional fiber nodes in
order to maintain sufficient data transmission speeds. See "Technology". This
would require more capital. See "-- Capital-intensive Business". If the Company
is unable to maintain high data transmission speeds, consumer demand for its
Internet/data services would be reduced. This
16
<PAGE>
would negatively affect the Company's Internet/data services business,
operating results and financial condition. See "Business -- UPC Internet/Data
Services: High Speed Access and chello". The telephony technology the Company
plans to use has not previously been tested in systems with the number of
subscribers the Company anticipates it will eventually serve. If this
technology does not function successfully at these scales, it would negatively
affect the Company's telephony operations. In addition, the Company's cable
phone technology uses back-up batteries for operation during power failures.
These batteries may not be sufficient for prolonged power failures, which could
lead to interruption in service and customer dissatisfaction.
PROGRAMMING RISKS
The Company's success depends upon its ability to obtain or develop
affordable and popular programming for its subscribers. The Company must rely
on third party programming suppliers for the majority of its programming
offerings. In some markets, there is only a limited amount of local language
programming. In these markets, the Company must repackage available programming
in the local language. The Company plans to commit substantial resources to
obtaining and creating new programming. The Company expects to seek partners in
developing this programming. There can be no assurance that the Company will be
successful in obtaining appropriate partners and/or in implementing these
programming plans. The Company's failure to obtain enough competitive
programming would negatively affect subscriber demand for its video services
and would limit the revenues from these services. Where appropriate and
permitted, the Company may migrate some of its more highly-valued channels from
basic tiers to expanded basic tiers. In many systems, this migration would be
subject to regulatory and third party consent outside the Company's control.
The Company may not be able to obtain such consents on satisfactory terms or on
its desired schedule. This channel migration could also lead to dissatisfaction
of basic tier subscribers.
COMPETITION
The cable television industry in many of the Company's markets is
competitive and subject to rapid change. The Company expects to encounter
increased competition from new entrants with competing multi-channel television
technologies. Competitors may include DTH (direct to home satellite services),
SMATV (private cable systems), MMDS ("wireless" cable) and local multipoint
distribution services. To some extent, the Company may also face competition
from other communications and entertainment media companies, including
incumbent telecommunications operators. The Company does not have the exclusive
right to provide video services in many of its franchise areas and may have to
compete with other cable operators.
The Company will face competition from incumbent telecommunications
operators and other new entrants to the European telephony market. Some of
these competitors have more experience in providing telephony services and
greater resources devoted to telephony services than the Company. As part of
its goal of offering integrated telecommunications services to its customers,
the Company plans to offer local and long distance telephony services. The
local and long distance telephony business is extremely competitive and, with
respect to long distance services, prices have declined significantly in recent
years and are expected to continue to decline. Prices may also decline for
local telephony service. For example, in The Netherlands, KPN, A2000's
principal competitor, may be forced to reduce its rates by regulatory
requirements. This would force A2000 to lower its rates to remain competitive.
See "Business -- UPC Telephony Services: Priority Telecom -- The A2000
Experience". The Company's ability to develop a profitable telephony service
will depend, among other things, on whether the Company can attract residential
and business customers and maintain competitive prices, minimize customer churn
and provide high quality customer care and billing services without incurring
significant additional costs.
The Internet services business in Europe is highly competitive. The Company
currently competes with dial-up ISPs using traditional low speed telephone
lines and higher speed ISDN connections (including many incumbent
telecommunications operators) and expects that chello will face competition
from other broadband cable modem service providers, such as @Home and
Roadrunner as they move to the
17
<PAGE>
European market. In the future, UPC expects to face competition from other
telecommunications service providers, including incumbent operators, using
other broadband technologies.
If the Company fails to compete effectively in the telephony and
Internet/data market, this would negatively affect the Company's business,
operating results and financial condition.
EQUIPMENT RISKS
If the Company does not have adequate access to the equipment necessary for
its existing and planned services, this would have a negative effect on the
Company's business, operating results and financial condition. For example, to
access the Internet through a television set or to obtain other enhanced
services of the Company, customers must obtain a digital set-top box. These
digital set-top boxes currently are under development by several suppliers. If
the Company does not have enough set-top boxes for its subscribers and these
subscribers are unable to obtain other set-top boxes at the same price and
performance, this could delay or impair the Company's expansion plans. See
"Technology".
RISKS ASSOCIATED WITH RAPID GROWTH
The Company is pursuing a new business plan with initiatives across many
new business lines and countries that, if successful, will result in the rapid
growth and expansion of its operations. The Company expects that this will
place significant additional demands on the Company's management, a number of
whom only recently joined UPC. If UPC achieves this growth, its success will
depend, in part, on how well it manages its growth and whether it is able to
improve its information, management, operational and financial systems. The
Company's failure to manage growth effectively could negatively affect its
business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL
There is intense competition for qualified personnel in the Company's
businesses and technologies. The Company's success and growth strategy depend
on its ability to attract and retain key management, technological and
operating personnel. It is more difficult for the Company to retain a
successful management team because many of its key employees are required to
live and work in countries other than their home country and it is difficult to
find other experienced managers. The Company's failure to attract and retain
the necessary qualified employees would hinder the Company's ability to
introduce its new services as planned and may negatively affect its business,
operating results and financial condition.
REGULATION
Cable television operations, programming services and telephony services
generally are subject to government regulations that may change from time to
time. These changes may be significant and could increase the Company's costs,
limit its revenues, subject it to additional competition or otherwise prevent
it from implementing its growth strategies. Regulation can take the form of
price controls, service requirements, programming content restrictions,
restrictions on migrating channels to higher priced tiers and restrictions on
integrating services, among others. Regulation also may affect the Company's
ability to offer profitably some or all of its proposed services in certain
markets. UPC's operating companies must obtain and retain the licenses and
other regulatory approvals necessary to introduce their new services. If they
fail to do so, it would delay introduction of the Company's new services. Time-
consuming regulatory proceedings may impede the Company's ability to obtain
appropriate interconnect arrangements. See "-- Implementation Risks for
Telephony and Internet Services". In addition, if the Company's operating
systems gain a significant market share in telecommunications services
(typically 25% of the relevant market), they may become subject to more
burdensome regulation. For example, they may be required to provide
interconnection with competitive telecommunications operators at regulated
rates. See "Regulation".
The Company's Internet access business currently is subject to limited
regulation. However, the legal and regulatory environment applicable to
Internet access and commerce is in a fluid state of development. New laws and
regulations may be adopted with respect to Internet service offerings, covering
issues such as user privacy, pricing, characteristics and quality of products
and services, the scope and applicability of the
18
<PAGE>
consumer protection laws and regulation of different jurisdictions. The Company
cannot be certain whether or in what respects existing laws and regulations
relating to issues such as libel, copyright, pornography and privacy may be
applied to its role as a provider of Internet services. Because materials
contained on the Internet may be accessed through the Company's services and
then distributed to others, the Company may face claims for defamation,
negligence, copyright or trademark infringement or other claims based on the
nature and content of these materials.
In addition, the conduct of electronic commerce over the Internet may be
subject to sales or other taxes, as well as regulatory requirements applicable
to such transactions and/or the companies involved in such activities. To the
extent that the business environment for electronic commerce on the Internet
remains unsettled or becomes subject to burdensome tax or regulatory treatment,
the growth of electronic commerce on the Internet could be significantly
slowed.
Any of the foregoing regulatory developments could negatively affect the
Company's Internet business, results of operations and financial condition.
CONTROL BY UIH; EFFECTS OF UIH INDENTURE
Upon the completion of the Offering, UIH will own approximately % of the
Ordinary Shares and all of the Priority Shares. The Priority Shares give UIH
rights to nominate Supervisory Board members and approve certain corporate
actions. As a result, UIH will be able to elect all of the members of the
Company's Supervisory Board, other than the member appointed by Philips under
amendments to UPC's articles of association made in connection with the UPC
Acquisition. This will enable UIH to determine the outcome of all corporate
actions requiring approval by the shareholders (other than certain corporate
actions related primarily to the Austrian system that may be blocked by the
Philips appointee). Thus, UIH will continue to control substantially all of the
business affairs and policies of the Company. The Supervisory Board, the
composition of which is controlled by UIH, has the power, subject to directors'
fiduciary duties, to approve transactions in which UIH has an interest.
Conflicts may arise between the interests of UIH and the Company's other
shareholders. For example, in the future UIH may choose to invest in other
properties or face obligations under long-term debt facilities. UIH could cause
UPC to provide financial resources to UPC's shareholders, which could limit
UPC's ability to execute its current strategy of investing in its new
businesses. See "Description of Share Capital", "Summary of Certain Provisions
of the Articles of Association and Other Matters" and "Relationship with UIH
and Related Transactions".
UPC, as a subsidiary of UIH, is subject to the provisions of the UIH
Indenture dated February 5, 1998 (the "UIH Indenture"), governing UIH's senior
secured discount notes. UPC has agreed with UIH that, as long as UPC is subject
to the provisions of the UIH Indenture, it will not take any action that will
result in a breach of the UIH Indenture. The UIH Indenture limits UPC's ability
to incur additional indebtedness and issue certain preferred stock beyond
levels based on certain financial ratios and other factors. The UIH Indenture
also limits UPC's investments in non-controlled entities. Even if UPC has taken
no action to breach the UIH Indenture, UPC may be restricted from incurring
additional indebtedness or taking other actions if there is a breach under the
UIH Indenture. There are many other provisions of the UIH Indenture that affect
the manner in which UPC structures its transactions or operates its business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Restrictions Under UIH Indenture," and "Relationship with UIH
and Related Transactions -- Agreements with UIH".
YEAR 2000 COMPLIANCE RISKS
The Company's operations rely greatly on computer systems and other
technological devices. These computer systems and other technological devices
may not be capable of accurately recognizing dates beginning on January 1,
2000. This problem could cause miscalculations, resulting in the malfunction or
failure of UPC's cable television, telephony, Internet/data systems or
programming operations.
19
<PAGE>
The Board of Directors of UIH has established a task force to assess and try to
remedy the effect of potential Year 2000 problems on the critical operations of
its businesses, including UPC. Where the Company's operations are dependent
upon third-party products, however, UPC does not have the ability to control
such parties in their assessment and remediation procedures for potential Year
2000 problems. UPC and its operating companies are communicating with these
third-party providers on the status of their Year 2000 compliance programs in
an effort to prevent any possible interruptions or failures. Based on these
communications, the task force will evaluate and develop contingency plans as
needed. These contingency plans may not be sufficient, however, to prevent
interruptions from occuring on UPC's systems. The failure of the Company or any
one of these third parties to implement Year 2000 procedures in a timely manner
could negatively affect the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Conversion".
FOREIGN CURRENCY EXCHANGE RATE AND CONVERSION RISKS
Although the Company's operating companies attempt to match costs,
revenues, borrowings and repayments in their respective local currencies,
payment for a majority of purchased equipment has been, and may continue to be,
made in other currencies. Furthermore, some of the Company's operating
companies have notes payable and notes receivable that are denominated in a
currency other than their own functional currency or loans linked to the Dutch
guilder. The value of the Company's investment in an operating company
partially depends on the currency exchange rate between the Dutch guilder and
the applicable local currency. In general, the Company and some of its
operating companies do not execute hedge transactions to reduce the Company's
exposure to foreign currency exchange rate risks. Accordingly, the Company may
suffer a loss solely as a result of foreign currency exchange rate
fluctuations. Since formation, the Company has experienced cumulative foreign
exchange losses of approximately NLG59.1 million. Although it is expected that
the introduction of the single European currency (the "euro"), which is
scheduled for January 1, 1999, will eliminate some of these problems, it is
possible that currency-related problems could actually increase if its
introduction is not fully successful. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Inflation and Foreign
Currency Exchange Rate Risks".
NO PRIOR MARKET FOR THE ORDINARY SHARES OR ADSS; VOLATILITY OF TRADING PRICE
Prior to the Offering, there has been no public market for the Ordinary
Shares or the ADSs. Although the Company intends to list the Ordinary Shares on
the Amsterdam Stock Exchange and the ADSs on the Nasdaq National Market, the
Company cannot guarantee that an active trading market will develop or be
sustained, or that the trading price of the Ordinary Shares and ADSs will
exceed the initial public offering price. The trading price of the Ordinary
Shares and ADSs could fluctuate widely in response to quarter-to-quarter
variations in the Company's operating results, announcements by the Company or
its competitors, governmental regulatory action, general conditions in the
cable television, telecommunications and Internet industries, foreign currency
exchange rate fluctuations or other events or factors, many of which are beyond
the Company's control.
Because the trading price of the Ordinary Shares listed on the Amsterdam
Stock Exchange will be denominated in Dutch guilders (and euros after January
1, 1999) and the price of the ADSs, each of which represents one Ordinary
Share, will be denominated in U.S. dollars, fluctuations in the exchange rate
between the Dutch guilder (or the euro) and the U.S. dollar may cause
fluctuations in the trading price of either the ADSs or the Ordinary Shares. In
addition, the Company's future operating results may be below the expectations
of securities analysts and investors. In such event, the price of the Ordinary
Shares and ADSs could fall substantially. The initial public offering price
will be determined by negotiations between the Company and the Representatives
of the Underwriters and this price may not be indicative of the market price
for the Ordinary Shares or ADSs after the Offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
20
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After the Offering, the shares sold in the Offering will be freely
tradable in the United States without restriction or further registration under
the U.S. securities laws and will be freely tradable on the Amsterdam Stock
Exchange. Sales of shares after the Offering by UIH and officers and directors
of UPC are subject to legal and contractual restrictions. These restrictions do
not apply after varying time periods. Sales of substantial amounts of shares in
the public market, or the perception that such sales could occur, may adversely
affect the market price of the shares and could impair the Company's future
ability to raise capital through an offering of its equity securities. The
Company is unable to predict the effect, if any, that future sales of
securities or the availability of securities for sale may have on the market
price of the shares prevailing from time to time. See "Shares Eligible for
Future Sale".
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares in the Offering will experience immediate and
substantial dilution of NLG per share (based on an initial price to the
public of NLG per share, the midpoint of the estimated offering range). In
addition, the Company has other securities outstanding, that, upon exercise or
conversion, could result in further dilution. See "Dilution".
NO INTENTION TO PAY DIVIDENDS
The Company has never paid dividends on its Ordinary Shares and does not
intend to pay dividends in the foreseeable future. Certain of UPC's debt
facilities currently prevent it from paying dividends. Currently, the Company
does not have sufficient statutory capital under Dutch regulations to make
distributions. Consequently, purchasers of the shares should not expect to
receive dividends on these securities in the foreseeable future. See "Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Liquidity and Capital Resources -- Current Debt
Facilities".
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are expected to be
approximately NLG7.0 million. The Company plans to use the proceeds from the
Offering: (i) to fund costs associated with the network upgrade, the build and
launch of the Company's telephony and Internet/data businesses and to fund new
activities in the Company's video distribution and programming businesses;
(ii) to repay approximately NLG million of indebtedness incurred under the
Company's bridge bank facility (the "Tranche B Facility"); and (iii) for
general corporate purposes. Until the net proceeds of the Offering are used as
described above, the Company intends to hold such proceeds in short-term,
interest-bearing, investment grade securities, including governmental
obligations and other money market instruments.
The Tranche B Facility bears interest at LIBOR plus a margin of 4.5% to
6.0%. The Tranche B Facility was used to fund a portion of the UPC Acquisition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Ordinary
Shares. The Company does not intend to pay dividends for the foreseeable
future. Certain of the Company's debt facilities currently prohibit it from
paying dividends. In addition, Dutch regulations limit the Company's
distributions from statutory capital equity. See "Risk Factors -- No Intention
to Pay Dividends".
22
<PAGE>
EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, information
concerning the Noon Buying Rate and the high and low exchange rates for Dutch
guilders expressed in U.S. dollars per NLG1.00. On November 20, 1998, the Noon
Buying Rate was $0.5251 per NLG1.00.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR AT AND FOR THE
ENDED DECEMBER 31,(1) NINE MONTHS
------------------------ ENDED
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998(1)
---- ---- ---- ---- ---- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange rate at end of
period........................ .51 .58 .62 .58 .49 .53
Average exchange rate during
period(2)..................... .54 .55 .63 .59 .51 .50
Highest exchange rate during
period........................ .57 .60 .66 .62 .58 .53
Lowest exchange rate during
period........................ .51 .51 .57 .57 .47 .48
</TABLE>
- --------
(1) Source: Federal Reserve Statistical Release H.10(512). Exchange rates have
been rounded to the nearest 1/100th of one dollar.
(2) The average of the Noon Buying Rates on the last date of each month during
the applicable period.
The following table presents the spot rates used to translate the balance
sheets and the average rates used to translate the income statements of the
Company's operating systems into Dutch guilders presented in this Prospectus.
The amounts below represent the number of Dutch guilders per unit (unless
otherwise indicated) of each functional currency.
<TABLE>
<CAPTION>
AVERAGE RATE
AVERAGE RATE TWELVE AVERAGE RATE
AVERAGE RATE BALANCE SHEET TWELVE MONTHS BALANCE SHEET MONTHS BALANCE SHEET NINE MONTHS
SIX MONTHS RATE AT ENDED RATE AT ENDED RATE AT ENDED
DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1996 DEC. 31, 1997 DEC. 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------- ------------- ------------- ------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Austrian
Schilling...... 0.1592 0.1595 0.1593 0.1602 0.1599 0.1602 0.16019
Belgian Franc... 0.0544 0.0545 0.0544 0.0546 0.0545 0.0547 0.05463
Czech Koruna.... 0.0606 0.0637 0.0626 0.0585 0.0622 0.0624 0.06121
French Franc.... -- 0.3330 0.3295 0.3369 0.3243 0.3365 0.33627
German Mark..... -- -- -- -- -- 1.12718 1.1276
Hungarian Forint
(per 100
units)......... -- -- -- 0.99 1.05 0.86 0.947
Irish Pound..... -- -- -- 2.89 2.96 2.82 2.829
New Israeli
Shekel......... -- -- -- 0.5720 0.5522 0.4913 0.55342
Maltese Lira.... -- -- -- 5.11 4.99 5.05 5.112
Norwegian
Kroner......... -- 0.2711 0.2645 0.2745 0.2755 0.2553 0.26689
Romania Lei (per
100 units)..... -- -- -- 0.0250 0.0277 0.0204 0.0238
Slovak Koruna... -- -- -- 0.0579 0.0579 0.0542 0.05777
U.S. Dollar..... 1.61 1.74 1.69 2.02 1.95 1.890 2.024
</TABLE>
23
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1998 was
negative NLG million or negative NLG per share. "Net tangible book value
per share" is determined by subtracting the Company's total liabilities from
its total tangible assets and dividing the remainder by the number of shares
outstanding, including those issued shares held by the foundation that
administers UPC's Equity Stock Option Plan. See "Management -- Stock Option
Plans". After giving effect to the sale by the Company of shares in the
Offering at an estimated initial public offering price of NLG per share, and
application of the estimated proceeds therefrom, the net tangible book value of
the Company as of September 30, 1998 would have been NLG million or NLG
per share. This represents an immediate increase in net tangible book value of
NLG per share to existing shareholders and an immediate dilution in net
tangible book value of NLG per share to new shareholders purchasing shares
in the Offering. "Dilution per share" represents the difference between the
price per share to be paid by new shareholders for the shares issued in the
Offering and the net pro forma tangible book value per share as of September
30, 1998. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial public offering price per Ordinary Share.................
Net tangible book value per Ordinary Share.......................
Increase per Ordinary Share attributable to new investors........
Net tangible book value per Ordinary Share after the Offering....
Dilution per Ordinary Share purchased by new investors...........
</TABLE>
The following table sets forth as of September 30, 1998, the number of
shares purchased from the Company, the total cash paid to the Company and the
average price paid per share by existing shareholders and by the purchasers of
the shares offered by the Company hereby, at an assumed initial public offering
price of per share. In connection with the financing of its acquisition of
additional interests in its Israeli and Maltese systems, the Company granted an
option to acquire $90 million of shares at an exercise price per share equal to
90% of the initial public offering price. Investors in the Offering will
experience additional dilution upon issuance of shares if this option is
exercised. The Company also owes UIH approximately $82.6 million of
intercompany indebtedness, including interest, which is convertible into
Ordinary Shares at a conversion rate equal to the initial public offering
price. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Debt Facilities".
<TABLE>
<CAPTION>
ORDINARY SHARES TOTAL CONSIDERATION
--------------------- ---------------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------------- -------
<S> <C> <C> <C> <C>
Existing stockholders... 55,391,646(1) NLG1,141,605,000(2)
New investors...........
---------- --- ------------------- ---
Total................. 100% 100%
========== === =================== ===
</TABLE>
- --------
(1) Includes 7,523,736 Ordinary Shares to be issued to UIH in consideration of
its interests in Monor, Tara and IPS that will be transferred to UPC. Does
not include Priority Shares held by UIH, which do not have the same
economic characteristics as the Ordinary Shares. See "Description of Share
Capital".
(2) Represents the book value of all property contributed by UIH to UPC upon
its formation and afterwards, additional consideration paid by UIH to
Philips upon UPC's formation and the amount paid by UIH to acquire Philips'
interest in UPC.
24
<PAGE>
CAPITALIZATION
The following table sets forth the non-restricted cash and cash
equivalents, the short-term debt and consolidated capitalization of the Company
as of September 30, 1998 and as adjusted to reflect the Offering and the
application of the net proceeds from the Offering. The table should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------------------
AS ADJUSTED
ACTUAL FOR THE OFFERING
--------------- --------------------
(Dutch guilders, in thousands)
<S> <C> <C> <C>
Non-restricted cash and cash
equivalents........................... 44,340
=============== ===============
Short-term debt:
Time Warner Note..................... 34,020
UIH Loan............................. 156,030
Tranche B Facility................... 113,519
--------------- ---------------
Total short-term debt.............. 303,569
=============== ===============
Long-term debt:
Tranche A Facility................... 971,978
Mediareseaux facility................ 20,190
Bank and other loans................. 47,464
--------------- ---------------
Total long-term debt............... 1,039,632
--------------- ---------------
Minority interest in subsidiaries...... 34,265
--------------- ---------------
Shareholders' equity:
Common stock......................... 54,000
Additional paid-in capital........... 631,323
Deferred compensation................ (5,826)
Treasury stock....................... (122,662)
Accumulated deficit.................. (318,089)
Other cumulative comprehensive income
(loss) ............................. (17,399)
--------------- ---------------
Total shareholders' equity......... 221,347
--------------- ---------------
Total capitalization............. 1,295,244
=============== ===============
</TABLE>
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the six months ended
December 31, 1995 and the years ended December 31, 1996 and 1997 have been
derived from the Company's audited consolidated financial statements included
in this prospectus. The following selected consolidated financial data for the
nine months ended September 30, 1997 and 1998 and as of September 30, 1998 have
been derived from unaudited financial statements included in this Prospectus
that, in the opinion of management of the Company, reflect all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial data for such periods and as of such date. The consolidated financial
data for the years ended December 31, 1993 and 1994 have been derived from the
audited financial statements of the European cable television operations of
Philips contributed to the Company upon formation as a joint venture. The
following consolidated financial data for the six months ended June 30, 1995
have been derived from unaudited financial statements that, in the opinion of
management of the Company, reflect all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial data for such
periods and as of such date. Due to the relative value of the assets
contributed by UIH and Philips, the cable television properties contributed by
Philips are deemed to be the predecessor of the Company. The data set forth
below for UPC is qualified by reference to, and should be read in conjunction
with, the audited consolidated financial statements and notes thereto of the
Company and also with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR IN INTEREST(1) UPC(1)
---------------------------- -----------------------------------------------------------
YEAR ENDED SIX MONTHS SIX MONTHS YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, SEPTEMBER 30,
---------------- JUNE 30, DECEMBER 31, ---------------------- ----------------------
1993 1994 1995 1995 1996 1997 1997 1998(2)
------- ------- ---------- ------------ ---------- ---------- ---------- ----------
(Dutch guilders, in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service and other revenue......... 171,300 183,600 91,100 100,179 245,179 337,155 250,061 305,237
Operating expense................. (43,800) (44,100) (23,000) (32,806) (80,479) (111,919) (87,206) (97,472)
Selling, general & administrative
expense.......................... (38,600) (44,500) (23,600) (33,617) (78,823) (114,024) (80,061) (132,466)
Depreciation and amortization..... (44,100) (42,200) (21,100) (36,224) (84,332) (139,216) (99,903) (137,231)
------- ------- ------- ---------- ---------- ---------- ---------- ----------
Net operating income (loss)....... 44,800 52,800 23,400 (2,468) 1,545 (28,004) (17,109) (61,932)
Interest income................... -- -- -- 6,403 2,757 6,512 1,561 4,621
Interest expense.................. -- -- -- (19,873) (38,475) (72,544) (45,522) (74,558)
Provision for loss on investment
related costs.................... -- -- -- -- -- (18,888) (10,000) --
Foreign exchange gain (loss) and
other expense.................... -- -- -- (3,376) (21,135) (41,160) (42,177) 6,609
------- ------- ------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before income
taxes and other items............ 44,800 52,800 23,400 (19,314) (55,308) (154,084) (113,247) (125,260)
Shares in result of affiliated
companies, net................... (300) (2,800) (2,300) (22,179) (17,811) (10,637) (15,807) (42,167)
Minority interests in
subsidiaries..................... (200) (200) -- (191) (2,208) (2,894) (1,339) (4,838)
Income tax benefit (expense)...... -- -- -- 155 (509) 1,649 409 413
------- ------- ------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................. 44,300 49,800 21,100 (41,529) (75,836) (165,966) (129,984) (171,852)
======= ======= ======= ========== ========== ========== ========== ==========
Basic and diluted loss per common
share(3)......................... n/a n/a n/a (.77) (1.40) (3.09) (2.41) (3.59)
========== ========== ========== ========== ==========
Weighted-average number of common
shares outstanding(3)............ n/a n/a n/a 54,000,000 54,000,000 53,659,328 54,000,000 47,867,910
========== ========== ========== ========== ==========
</TABLE>
- --------
(1) The selected consolidated financial data of the predecessor in interest are
based on Dutch generally accepted accounting principles. The differences
with accounting principles generally accepted in the United States of
America ("US GAAP") are not material. The selected consolidated financial
data of UPC are based on US GAAP.
(2) As a result of the UPC Acquisition and the associated push-down of UIH's
basis on December 11, 1997, this information is presented on a "post-
acquisition" basis.
(3) "Basic and diluted loss per common share" is determined by dividing net
loss available to common shareholders by the weighted-average number of
common shares outstanding during each period.
26
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR IN INTEREST UPC
------------------------ ----------------------------------------------
AS OF AS OF AS OF
DECEMBER 31, AS OF AS OF DECEMBER 31, SEPTEMBER 30,
--------------- JUNE 30, DECEMBER 31, ------------------- -------------
1993 1994 1995 1995 1996 1997(1) 1998(1)
------- ------- -------- ------------ --------- --------- -------------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Non-restricted cash and
cash equivalents....... 600 700 400 123,895 42,631 99,315 44,340
Other current assets.... 13,200 14,700 10,000 172,687 82,912 84,892 101,177
Investments in
affiliated companies... 5,200 5,900 5,200 236,262 224,157 384,940 365,724
Property, plant and
equipment.............. 193,400 197,800 192,000 277,785 414,669 483,693 527,069
Intangible assets....... -- 2,300 2,200 297,024 353,657 725,513 678,741
Total assets........... 213,000 222,000 220,400 1,108,442 1,119,180 1,919,815 1,849,968
Short-term debt......... -- -- -- -- 449,892 257,515 303,569
Other current
liabilities............ 25,100 41,000 132,300 92,574 118,659 181,846 198,513
Long-term debt.......... -- -- -- 236,140 275,802 1,004,018 1,039,632
Total liabilities...... 127,000 144,800 132,300 777,506 856,060 1,501,506 1,594,356
Total shareholders'
equity................ 86,000 77,200 86,700 329,536 258,566 411,530 221,347
</TABLE>
- --------
(1) As a result of the UPC Acquisition and the associated push-down of UIH's
basis on December 11, 1997, this information is presented on a "post-
acquisition" basis.
27
<PAGE>
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998 gives effect to (i) the UPC Acquisition and (ii) the UTH
Transaction, as if each had occurred as of January 1, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
History of UPC". The pro forma consolidated condensed statement of operations
and notes thereto do not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact occurred
on such dates.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The
unaudited pro forma consolidated condensed financial information and
accompanying notes should be read in conjunction with the audited consolidated
financial statements and the notes thereto, and other financial information
pertaining to the Company, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included in this Prospectus.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998(1)
----------------------------------------
PRO FORMA
ADJUSTMENTS
--------------
UTH
HISTORICAL TRANSACTION(2) PRO FORMA
---------- -------------- ---------
(Dutch guilders,
in thousands except per share data)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS:
Revenue.............................. 305,237 (31,146) 274,091
Operating expense.................... (97,472) 6,123 (91,349)
Selling, general and administrative
expense............................. (132,466) 5,062 (127,404)
Depreciation and amortization........ (137,231) 13,794 (123,437)
-------- ------- --------
Net operating loss................... (61,932) (6,167) (68,099)
Interest income...................... 4,621 (48) 4,573
Interest expense..................... (74,558) 5,709 (68,849)
Provision for loss on investment
related costs....................... -- -- --
Foreign exchange gain (loss) and
other expense....................... 6,609 -- 6,609
-------- ------- --------
Net loss before income taxes and
other items......................... (125,260) (506) (125,766)
Share in results of affiliated
companies, net...................... (42,167) 8,250 (33,917)
Minority interests in subsidiaries... (4,838) -- (4,838)
Income tax benefit (expense)......... 413 (1,696) (1,283)
-------- ------- ========
Net loss............................. (171,852) 6,048 (165,804)
======== ======= ========
Basic and diluted net loss per common
share(3)............................
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
UPC UTH
HISTORICAL ACQUISITION(4) TRANSACTION(2) PRO FORMA
---------- -------------- -------------- ---------
(Dutch guilders, in thousands except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
STATEMENT OF
OPERATIONS:
Revenue................. 337,155 -- (18,386) 318,769
Operating expense....... (111,919) -- 4,120 (107,799)
Selling, general and
administrative
expense................ (114,024) -- 3,830 (110,194)
Depreciation and
amortization........... (139,216) (19,704) 8,136 (150,784)
-------- ------- ------- --------
Net operating loss...... (28,004) (19,704) (2,300) (50,008)
Interest income......... 6,512 -- (144) 6,368
Interest expense........ (72,544) (12,483) 3,757 (81,270)
Provision for loss on
investment related
costs.................. (18,888) -- -- (18,888)
Foreign exchange gain
(loss) and other
expense................ (41,160) 8,441 -- (32,719)
-------- ------- ------- --------
Net loss before income
taxes and other items.. (154,084) (23,746) 1,313 (176,517)
Share in results of
affiliated companies,
net.................... (10,637) (8,169) 9,351 (9,455)
Minority interests in
subsidiaries........... (2,894) -- -- (2,894)
Income tax benefit
(expense).............. 1,649 -- (1,454) 195
-------- ------- ------- --------
Net loss................ (165,966) (31,915) 9,210 (188,671)
======== ======= ======= ========
Basic and diluted net
loss per common
share(3)...............
</TABLE>
- --------
(1) As a result of the UPC Acquisition and the associated push-down of UIH's
basis on December 11, 1997, this information is presented on a "post-
acquisition" basis.
(2) In August 1998, the Company and NUON created UTH by contributing each of
their interests in Dutch cable television operating companies to the new
company. UPC contributed 100% of CNBH and 50% of A2000. NUON contributed
100% of Telekabel Beheer. UPC owns 51% of UTH and NUON owns the remaining
interest. Although UPC retains a majority economic and voting interest,
because of certain minority shareholder rights of NUON, UPC accounts for
its investment in UTH using the equity method of accounting. See "Corporate
Ownership Structure -- The Netherlands -- UTH".
The pro forma effects on the statement of operations for the nine months
ended September 30, 1998 include (i) the contribution (and resulting de-
consolidation) by the Company of the revenues and expenses of CNBH for the
period, (ii) the reduction of the Company's share in results of A2000, (iii)
recording the Company's 51% share of the results of operations of UTH for
the period and (iv) additional amortization related to the excess of UPC's
interest in UTH over the historical net book value of the assets contributed
to UTH.
The pro forma effects on the statement of operations for the year ended
December 31, 1997 include (i) the contribution (and resulting de-
consolidation) by the Company of the revenues and expenses of KTE for the
period, (ii) the reduction of the Company's share in results of A2000, (iii)
recording the Company's 51% share in the results of operations of UTH for
the period and (iv) additional amortization related to the excess of UPC's
interest in UTH over the historical net book value of the assets contributed
to UTH.
(3) "Basic and diluted loss per common share" is determined by dividing net
loss available to common shareholders by the weighted-average number of
common shares outstanding during each period.
(4)In connection with the UPC Acquisition, the net assets of UPC acquired by
UIH were recorded at fair market value based on the purchase price paid by
UIH. As a result of UPC becoming essentially wholly owned by UIH, certain
purchase accounting adjustments, along with existing basis differences, were
pushed down to the financial statements of UPC and a new basis of accounting
was established for the UPC net assets acquired by UIH. The pro forma
effects on the statement of operations for the year ended December 31, 1997
include (i) additional depreciation and amortization related to the step-up
in basis in tangible assets and the excess of the purchase price over
Philips' interest in the net assets of UPC, (ii) the increase in interest
expense from the new Tranche A Facility and Tranche B Facility incurred to
finance the UPC Acquisition as well as foreign exchange loss on the U.S.
dollar-denominated Tranche B Facility, (iii) elimination of historical
interest expense and the related foreign exchange loss on the U.S. dollar-
denominated PIK Notes and (iv) elimination of historical interest expense on
those existing credit facilities that were refinanced through the proceeds
from the Tranche A and Tranche B Facilities.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. The following discussion and analysis of financial
condition and results of operations covers the six months from July 1, 1995
(commencement of the joint venture between UIH and Philips) to December 31,
1995, the years ended December 31, 1996 and 1997, and the nine months ended
September 30, 1997 and 1998 and should be read together with the Company's
consolidated financial statements and related notes included in this
Prospectus. These consolidated financial statements provide additional
information regarding the Company's financial activities and condition.
INTRODUCTION
Commencing its present business in July 1995, UPC currently owns and
operates the largest pan-European broadband communications platform and offers
analog cable television. The Company is further developing and upgrading its
network to provide digital video, voice and Internet/data services in its
Western European markets. As of September 30, 1998, UPC consolidated the
results from its systems in Austria, Belgium, Norway, France, Hungary, the
Czech Republic, Romania and the Slovak Republic. Unconsolidated systems
included the Company's interests in the Dutch, Israeli and Maltese systems and
programming interests in Hungary and the Czech Republic. UPC accounts for these
unconsolidated systems using the equity method of accounting. During the nine-
month period ended September 30, 1998, UPC consolidated some of its Dutch
systems for a seven-month period ended July 31, 1998. Thereafter, all of the
Dutch systems were accounted for using the equity method.
HISTORY OF UPC
Since formation, UPC has developed largely through acquisitions. The most
recent acquisitions have resulted in significant growth in consolidated
revenues and expenditures.
JULY 1995 UPC operated from July 1995 to December 1997 as a
FORMATION OF UPC 50/50 joint venture between UIH and Philips. At the
formation of the joint venture in July 1995, Philips
contributed to UPC, among other things, its 95% interest
in cable television systems in Austria, its 100% interest
in cable television systems in Belgium and its minority
interests in cable television systems in France
(Citecable), Germany and The Netherlands (KTE). UIH
contributed to UPC, its minority interests in cable
television systems in Hungary, Ireland, Israel, Malta,
Norway, Spain and Sweden and its majority interest in the
Czech Republic and Portugese systems and $75.0 million in
cash (and accrued interest of $3.2 million) and issued to
Philips $50.0 million of UIH common stock. In addition,
Philips received convertible notes of UPC totalling
$133.6 million to make up the difference in values
between the assets contributed by UIH and the assets
contributed by Philips.
JULY 1995 In July 1995, in connection with the formation of
A2000 ACQUISITION UPC, the Company agreed to acquire from Philips 50% of
A2000, which had recently acquired the existing cable
television systems from the City of Amsterdam and four
surrounding municipalities. Although this transaction
closed in September 1995, A2000 was accounted for using
the equity method of accounting, effective as of July 1,
1995.
30
<PAGE>
SEPTEMBER 1995 In September 1995, UPC acquired the remaining 96.2%
KTE ACQUISITION of the KTE system (the "KTE Acquisition") and began
consolidating its results.
SEPTEMBER 1996 In September 1996, UPC increased its ownership in
NORKABEL AND Norkabel (Norway) from 8.3% to 100% (the "Norkabel
KABELKOM Acquisition"), Kabelkom (Hungary) from 3.9% to
ACQUISITIONS effectively 50% and the Swedish system from 2.1% to
25.9%. UPC subsequently sold its interest in the Swedish
system. Norkabel was consolidated effective upon the
Norkabel Acquisition. Kabelkom was accounted for using
the equity method.
JANUARY 1997 In January 1997, UPC acquired 70.2% of Janco, a cable
JANCO ACQUISITION system in Oslo, Norway, from Helsinki Media (the "Janco
Acquisition"). In November 1997, UPC merged Norkabel into
Janco to form Janco Multicom, of which UPC held 87.3%. In
November 1998, UPC acquired the remaining 12.7% of Janco
Multicom for approximately NLG37.2 million. Because of
certain contractual arrangements with Helsinki Media, UPC
has consolidated 100% of the operations of Janco Multicom
since formation.
DECEMBER 1997 On December 11, 1997, UIH and UPC acquired the 50% of
UPC ACQUISITION UPC Ordinary Shares held by Philips for NLG450.0 million.
As part of the UPC Acquisition, (i) UPC purchased 3.17
million shares of Class A Common Stock of UIH held by
Philips (NLG66.8 million) and (ii) UIH and UPC purchased
all of UPC's Pay-in-Kind Notes ("PIK Notes") from Philips
(NLG339.8 million). The UPC Acquisition was financed with
proceeds from the Tranche A and Tranche B Facilities and
cash from UIH.
MISCELLANEOUS UPC sold its unconsolidated interests in its systems
SYSTEM SALES (1996- in France (Citecable) in 1996, Germany in 1997 and Spain
1998) in 1998 and its consolidated interest in Portugal in
1998.
JANUARY 1998 Effective January 1, 1998, UPC acquired the
COMBIVISIE Combivisie cable television systems (the "Combivisie
ACQUISITION AND Acquisition") in the region surrounding its KTE system
CNBH FORMATION for a purchase price of NLG180.8 million. Effective
January 1, 1998, UPC combined the Combivisie and KTE
systems to form CNBH and consolidated the results of CNBH
through July 31, 1998.
JUNE 1998 On June 29, 1998, UPC acquired from Time Warner
EASTERN EUROPE Entertainment Company L.P. ("Time Warner") 50% of
TRANSACTIONS Kabelkom, the Hungarian cable television system holding
company ("Kabelkom"), increasing UPC's ownership to 100%.
The purchase price was approximately $27.5 million, $9.5
million of which was payable in cash and $18.0 million by
delivery of a non-interest bearing note. UPC gave Time
Warner the option, exercisable until December 25, 1998,
to purchase 50% of the Hungarian programming businesses
formerly held by Kabelkom, including HBO Hungary, and
100% of TV Max, a Czech and Slovak Republic programming
business, for approximately $18.0 million. Effective June
30, 1998, UPC combined its interests in Kabelkom with
Kabeltel, a group of Hungarian cable television systems
located in Budapest and other larger cities, forming
Telekabel Hungary (the "Telekabel Hungary Acquisition").
UPC owns 79.25% of Telekabel Hungary, the country's
largest cable television operator and started
consolidating its results as of such date.
31
<PAGE>
AUGUST 1998 In August 1998, UPC and NUON combined all of their
UTH TRANSACTION Dutch broadband cable television and telecommunications
businesses to form UTH. UPC contributed 100% of CNBH and
50% of A2000 for its 51% interest in UTH. NUON
contributed 100% of Telekabel Beheer. UPC and NUON agreed
on the relative values of their respective assets and
NUON made a small balancing payment of approximately
NLG2.0 million for its 49% interest. See "Corporate
Ownership Structure -- The Netherlands -- UTH". As a
result of the UTH Transaction, since August 1, 1998, UPC
no longer consolidated the results of CNBH and accounts
for UTH using the equity method of accounting. See "Pro
Forma Selected Consolidated Financial Data".
UPC held its interest in the Israeli, Maltese and
NOVEMBER 1998 Irish operating systems through a partnership with a
INCREASE IN ISRAELI subsidiary of TINTA. In November 1998, UPC acquired
AND TINTA's indirect 23.3% and 25.0% interests in the Israeli
MALTESE SYSTEMS and Maltese systems for approximately $88.5 million, net
OWNERSHIP of closing adjustments, doubling UPC's respective
interests in these systems to 46.6% and 50%. UPC financed
this acquisition through a loan from its primary partners
in the Israeli operating system. See "--Liquidity and
Capital Resources--Current Debt Facilities--DIC Loan" and
"Shares Eligible for Future Sale".
NOVEMBER 1998 As part of the Israeli and Maltese transaction
SALE OF IRISH described above, in November 1998, UPC purchased RCL's
SYSTEM indirect 5% interest in an Irish multi-channel television
system and 5% of Tara in exchange for 384,531 shares of
UIH indirectly held by UPC. In November 1998, the Company
sold the newly-acquired 5% interest in the Irish multi-
channel television system, together with its previously-
held 20% interest in this system, to TINTA for $20.5
million, offsetting part of the purchase price payable
for the Israeli and Maltese systems. See "Certain
Transactions and Relationships".
PURCHASE OF CERTAIN UIH has agreed to sell to UPC in exchange for
ASSETS FROM UIH 7,523,736 Ordinary Shares of UPC, UIH's (i) 50% voting
and 46.3% economic interest in Monor, a company that
operates a traditional telephony system in the Monor
region of Hungary (See "Business--Operating Companies--
Eastern Europe"); (ii) 75% interest in Tara, a company
providing Irish programming to the U.K. market with
revenues of approximately NLG0.2 million for the year
ended December 31, 1997, and (iii) approximately 33.5%
interest in IPS, a group of programming companies
focusing on the Spanish- and Portuguese-speaking markets
with revenues of approximately NLG19.4 million for the
year ended December 31, 1997. See "Certain Transactions
and Relationships".
32
<PAGE>
OVERVIEW OF COMPANY ACTIVITIES
SERVICES
To date, the Company's primary source of revenue has been video
entertainment services. For the nine months ended September 30, 1998, UPC's
video services accounted for approximately 92.4% of its consolidated revenues.
The Company's operating systems generally offer a range of video service
subscription packages including a basic tier (26 to 32 channels) and an
expanded basic tier (6 to 13 additional channels). In some systems, UPC also
offers mini-tiers, premium programming (typically 2 channels) and pay-per-view
programming (5 to 10 channels).
Historically, video services revenue has increased as a result of: (i)
acquisitions of systems, primarily in The Netherlands and Norway; (ii)
subscriber growth from both well established and developing systems, primarily
in its Austrian and Eastern European systems; and (iii) increases in revenue
per subscriber from basic rate increases and the introduction of expanded basic
tiers and pay-per-view services. For a discussion of UPC's revenue recognition
policies, see "Note 2 of the Notes to Consolidated Financial Statements".
The Company believes that an increasing percentage of its future revenues
will come from telephony and Internet/data services. See "Risk Factors--
Introduction of New Services; Rapid Technological Change," "Business--UPC
Telephony Services: Priority Telecom" and "UPC Internet/Data Services: High
Speed Access and chello".
PRICING
The Company usually charges a one-time installation fee when it connects
subscribers, a monthly subscription fee that depends on the level of service
(ranging from basic to expanded basic tiers), and incremental amounts for those
subscribers purchasing pay-per-view and premium programming, which are
generally offered only to expanded basic tier subscribers.
In the Company's Western European markets, price controls by various local
and national governmental agencies apply to the basic tier services. Expanded
basic tier, pay-per-view and premium programming are not subject to specific
price controls. See "Regulation".
COSTS OF OPERATIONS
Video services operating costs include the direct costs of programming,
franchise fees and operating expenses necessary to provide the service to the
subscriber. Direct costs of programming are variable, based on the number of
subscribers. The cost per subscriber is established by negotiation between the
program supplier and the Company or rates negotiated by cable associations.
Franchise fees, where applicable, are typically based upon a percentage of
revenue and typically in Belgium range from 3% to 5% and are approximately
13.5% for Austria. Other direct operating expenses include operating personnel,
service vehicles, maintenance and plant electricity.
Selling, general and administrative ("SG&A") expenses include personnel-
related costs including stock-based compensation expenses, marketing, sales and
commissions, legal and accounting, office facilities and other overhead costs.
Stock based compensation expense results from the Company's Stock Option
and Phantom Stock Option plans which require variable plan accounting.
Increases in the fair market value of the Company's stock result in
compensation charges (or credits, in the case of decreases in fair market
value) which are expensed for vested options and deferred and amortized over
their remaining vesting period for unvested options. This charge is generally a
non-cash expense unless the option holder puts the vested option to the Company
for cash. After the Offering, the Company has the right to settle the option in
shares upon exercise; therefore options issued pursuant to the Stock Option
Plan will no longer require variable plan accounting.
33
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth information from, or derived from, the
Company's Consolidated Statements of Operations for the six months ended
December 31, 1995, the years ended December 31, 1996 and 1997, and the nine
months ended September 30, 1997 and 1998. For additional information regarding
the operating results of the Company's consolidated and unconsolidated
operating companies, see "Business--Operating Companies".
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE YEARS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ----------------- ------------------
1995 1996 1997 1997 1998(1)
------------ ------- -------- -------- --------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C> <C>
Service and other
revenue.................. 100,179 245,179 337,155 250,061 305,237
Operating expense......... (32,806) (80,479) (111,919) (87,206) (97,472)
Selling, general and
administrative expense
("SG&A")................. (33,617) (78,823) (114,024) (80,061) (132,466)
Depreciation and
amortization............. (36,224) (84,332) (139,216) (99,903) (137,231)
------- ------- -------- -------- --------
Net operating (loss)
income.................. (2,468) 1,545 (28,004) (17,109) (61,932)
Interest income........... 6,403 2,757 6,512 1,561 4,621
Interest expense.......... (19,873) (38,475) (72,544) (45,522) (74,558)
Provision for loss on
investment related
costs.................... -- -- (18,888) (10,000) --
Foreign exchange gain
(loss) and other
expense.................. (3,376) (21,135) (41,160) (42,177) 6,609
------- ------- -------- -------- --------
Net loss before income
taxes and other items... (19,314) (55,308) (154,084) (113,247) (125,260)
Share in results of
affiliated companies,
net...................... (22,179) (17,811) (10,637) (15,807) (42,167)
Minority interests in
subsidiaries............. (191) (2,208) (2,894) (1,339) (4,838)
Income tax benefit
(expense)................ 155 (509) 1,649 409 413
------- ------- -------- -------- --------
Net loss................. (41,529) (75,836) (165,966) (129,984) (171,852)
======= ======= ======== ======== ========
OTHER INFORMATION:
Consolidated EBITDA(2).... 33,756 85,877 116,030 82,794 107,792
AS A PERCENTAGE OF
REVENUE:
Operating expense......... 32.7% 32.8% 33.2% 34.9% 31.9%
Selling, general and
administrative expense... 33.6 32.1 33.8 32.0 43.4
EBITDA(2)................. 33.7 35.0 34.4 33.1 35.3
Depreciation and
amortization............. 36.2 34.4 41.3 40.0 45.0
Net operating (loss)
income................... (2.5) 0.6 (8.3) (6.8) (20.3)
Net loss.................. (41.5) (30.9) (49.2) (52.0) (56.3)
</TABLE>
- --------
(1) As a result of the UPC Acquisition and the associated push-down of UIH's
basis on December 11, 1997, this information is presented on a "post-
acquisition" basis.
(2) EBITDA represents earnings before net interest expense, income tax expense,
depreciation, amortization, stock-based compensation charges, minority
interest, shares in results of affiliated companies (net), currency
exchange gains (losses) and other non-operating income (expense) items.
REVENUE
During the nine months ended September 30, 1998, UPC's revenue increased
NLG55.2 million to NLG305.2 million from NLG250.0 million for the nine months
ended September 30, 1997, a 22.1% increase. Approximately one-third of this
increase was attributable to the Combivisie Acquisition in January 1998 and was
consolidated through July 31, 1998. The balance of this increase came from
growth in subscribers and in revenue per subscriber in Austria, and increased
revenue from developing systems in France and Eastern Europe. In addition,
effective July 1, 1998, the Company began consolidating Telekabel Hungary,
which increased revenues during the period by NLG13.8 million.
During the year ended December 31, 1997, UPC's revenue increased NLG92.0
million to NLG337.2 million from NLG245.2 million for the year ended December
31, 1996, a 37.5% increase. A substantial portion of this increase was
attributable to the Norkabel Acquisition in October 1996 and the Janco
Acquisition in January 1997 (together, NLG77.0 million). The remaining increase
in revenue was attributable to subscriber growth in the Austrian systems and
increases in subscription fees in some systems. In addition, revenue for the
year ended December 31, 1997 included revenues from developing systems in
France, Romania and the Slovak Republic, which were not included in the 1996
operating results.
34
<PAGE>
Revenues for the year ended December 31, 1996 were 22.4% greater than
annualized revenues for the six months ended December 31, 1995, primarily due
to the consolidation of the KTE system for the entire 1996 reporting period and
of Norkabel following the Norkabel Acquisition in October 1996. The remaining
increase in revenue comprised subscriber growth in Austria and the Czech
Republic and increased revenue from other developing systems in Eastern Europe.
OPERATING EXPENSE
During the nine months ended September 30, 1998, UPC's operating expense
increased NLG10.3 million to NLG97.5 million from NLG87.2 million for the nine
months ended September 30, 1997, an 11.8% increase. Approximately one-third of
this increase was attributable to the Combivisie Acquisition. Effective July 1,
1998, the operations of UPC include the results of Telekabel Hungary, which
increased operating expenses during the period by NLG4.9 million. The remaining
increase comprised direct costs related to subscriber growth and increased
operating costs related to the introduction of UPC's Internet/data services. As
a percentage of revenues, operating expense declined from 34.9% for the
comparable nine-month period in 1997 to 31.9%. This was due primarily to the
lower operating costs in the Combivisie system. The Company expects operating
expense as a percentage of revenue to increase as new video, telephony and
Internet/data services are being introduced.
During the year ended December 31, 1997, UPC's operating expense increased
NLG31.4 million to NLG111.9 million from NLG80.5 million the previous year, a
39.0% increase. Most of this increase was attributable to the Norkabel
Acquisition in October 1996 and the Janco Acquisition in January 1997 (together
NLG27.5 million), as well as the inclusion of operating expenses related to
developing systems in France, Romania and the Slovak Republic that were not
included in the 1996 operating results. In addition, operating expenses during
1997 included expenses related to the introduction of expanded basic tier
programming in Austria, Belgium and The Netherlands and Internet/data services
in Austria and Belgium.
Operating expenses for the year ended December 31, 1996 were 22.7% greater
than annualized operating expenses for the six months ended December 31, 1995.
This was due primarily to the consolidation of the KTE system.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
During the nine months ended September 30, 1998, UPC's SG&A expense
increased NLG52.5 million to NLG132.5 million from NLG80.0 million for the nine
months ended September 30, 1997, a 65.6% increase. A substantial portion of
this increase and the increase as a percentage of net revenue resulted from a
stock-based compensation charge of NLG32.5 million attributable to the
Company's stock option plans for the nine months ended September 30, 1998. A
portion of this increase was also attributable to the Combivisie Acquisition
and the Telekabel Hungary Acquisition, with the remaining increase comprising
additional SG&A expenses related to the development of new businesses,
including further development of Internet/data services and preparation for the
launch of telephony in Austria, The Netherlands (CNBH), Norway and France. The
Company expects SG&A expense as a percentage of revenue to continue to increase
as new video, telephony and Internet/data services are introduced and due to
increased stock-based compensation expense. The Company anticipates incurring
stock-based compensation expense of approximately NLG million for the three
months ended December 31, 1998 and at least NLG million in 1999 (based on an
initial public offering price of NLG per share, the mid-point of the filing
range). Increases, if any, in the market price of the Company's Ordinary Shares
would result in additional stock-based compensation expense due to the
Company's Phantom Stock Option plan.
During the year ended December 31, 1997, UPC's SG&A expense increased
NLG35.2 million to NLG114.0 million from NLG78.8 million for the prior year, a
44.7% increase. A substantial portion of this increase was attributable to the
Norkabel Acquisition in October 1996 and the Janco Acquisition in January 1997
(together NLG19.1 million), as well as the inclusion of expenses related to
developing systems in France, Romania and the Slovak Republic that were not
included in 1996. SG&A expense during the year ended December 31, 1997 also
included expenses
35
<PAGE>
related to the introduction of expanded basic tier programming in Austria,
Belgium and The Netherlands and Internet/data services in Austria and Belgium,
as well as a stock- based compensation charge of NLG4.8 million.
SG&A expense for the year ended December 31, 1996 was 17.2% greater than
annualized SG&A expense for the six months ended December 31, 1995, primarily
due to the consolidation of the KTE system for the entire reporting period and
of Norkabel following the Norkabel Acquisition in October 1996.
DEPRECIATION AND AMORTIZATION
During the nine months ended September 30, 1998, UPC's depreciation and
amortization expense increased NLG37.3 million to NLG137.2 million from NLG99.9
million for the nine months ended September 30, 1997, a 37.3% increase. A
substantial portion of this increase (NLG22.1 million) and the increase as a
percentage of net revenue was attributable to the application of push down
accounting, including goodwill created in connection with the UPC Acquisition.
The remaining increase comprised additional depreciation related to the
Combivisie Acquisition and Telekabel Hungary Acquisition, additional capital
expenditures to upgrade the network in UPC's primary systems and new-build for
developing systems.
During the year ended December 31, 1997, UPC's depreciation and
amortization expense increased NLG54.9 million to NLG139.2 million from NLG84.3
million in 1996, a 65.1% increase. The majority of the increase was directly
attributable to the Norkabel Acquisition in October 1996 and the Janco
Acquisition in January 1997 (together, NLG47.5 million). The remaining increase
comprised additional depreciation from capital expenditures to upgrade the
network in UPC's primary systems and new-build for developing systems.
Depreciation and amortization for the year ended December 31, 1996 was
16.4% greater than annualized depreciation and amortization expense for the six
months ended December 31, 1995, primarily due to the consolidation of the KTE
system for the entire reporting period and of Norkabel following the Norkabel
Acquisition in October 1996.
OPERATING INCOME (LOSS); EBITDA
During the nine month period ended September 30, 1998, operating loss
increased NLG44.8 million to NLG61.9 million from NLG17.1 million, a 262.0%
increase. Most of increase resulted from the stock-based compensation charge of
NLG32.5 million related to the Company's stock option plans as well as new
depreciation and amortization expense from the UPC Acquisition, the Combivisie
Acquisition and the Telekabel Hungary Acquisition. The cable television
industry generally measures the performance of a cable television company in
terms of operating income before depreciation, amortization and other non-cash
charges ("EBITDA"). EBITDA increased NLG25.0 million to NLG107.8 million from
NLG82.8 million, a 30.2% increase.
During the year ended December 31, 1997, operating loss increased to
NLG28.0 million from operating income of NLG1.6 million for the year ended
December 31, 1996. This increase was primarily related to depreciation and
amortization expense. EBITDA increased NLG30.1 million to NLG116.0 million from
NLG85.9 million, a 35.0% increase.
During the year ended December 31, 1996, the Company generated operating
income of NLG1.5 million as compared to an annualized operating loss of NLG4.9
million for the six months ended December 31, 1995. This increase was primarily
related to depreciation and amortization expense. EBITDA increased NLG18.4
million to NLG85.9 million as compared to annualized EBITDA of NLG67.5 million
for the six months ended December 31, 1995, a 27.3% increase.
The Company believes that the introduction of telephony services and
Internet/data services will have a negative impact on operating income during
the remainder of 1998 and a significant negative impact on operating income
during 1999. Thereafter, this negative impact is expected to decline. The
financial effect of the development of UPC's video programming businesses and
the construction of its digital distribution platform will depend upon the
Company's ability to find joint venture partners for these new investments. If
the Company is unable to find joint venture partners for these new investments,
it will be required to consolidate all of the losses of these new investments.
See "Risk Factors--Capital-intensive Business".
36
<PAGE>
INTEREST EXPENSE
During the nine months ended September 30, 1998, interest expense increased
NLG29.1 million to NLG74.6 million from NLG45.5 million during the same period
in 1997, a 64.0% increase. This increase was due primarily to increases in
indebtedness related to the UPC Acquisition in December 1997, the Combivisie
Acquisition in January 1998 and the Telekabel Hungary Acquisition in June 1998.
See "--Liquidity and Capital Resources".
During the year ended December 31, 1997, interest expense increased NLG34.0
million to NLG72.5 million from NLG38.5 million during the same period in 1996,
an 88.3% increase. This increase was due primarily to additional indebtedness
incurred for the Norkabel Acquisition in October 1996 and, to a lesser extent,
indebtedness incurred to fund developing systems, corporate overhead and the
UPC Acquisition. See "-- Liquidity and Capital Resources".
Interest expense for the year ended December 31, 1996 was 3.2% less than
annualized interest expense for the six-month period ended December 31, 1995.
PROVISION FOR LOSS ON INVESTMENT RELATED COSTS
The provision for loss on investment related costs totaled NLG18.9 million
for the year ended December 31, 1997 as a result of the writedown to net
realizable value of UPC's Portuguese system, which it subsequently sold in
January 1998.
FOREIGN EXCHANGE GAIN (LOSS) AND OTHER EXPENSE
Foreign exchange gain (loss) and other expense reflected a gain of NLG6.6
million for the nine months ended September 30, 1998 as compared to a loss of
NLG42.2 million for the same period in 1997. The foreign exchange gain during
1998 was due primarily to a more stable Dutch guilder in relation to the U.S.
dollar during the first nine months of 1998 as compared to the same period in
1997. UPC intends to repay part of its remaining U.S. dollar-denominated
indebtedness with proceeds from the Offering. See "Use of Proceeds".
Foreign exchange loss and other expense increased NLG20.1 million to a loss
of NLG41.2 million for the year ended December 31, 1997 from a loss of NLG21.1
million for the previous year. This increase in foreign exchange loss was due
primarily to the weakening of the Dutch guilder in relation to the U.S. dollar
and its related impact on the Company's U.S. dollar-denominated indebtedness,
primarily the PIK Notes.
Foreign exchange loss and other expense increased NLG14.3 million to a loss
of NLG21.1 million for the year ended December 31, 1996 from a loss of NLG6.8
million for the annualized six-month period ended December 31, 1995. This
increase was due primarily to the weakening of the Dutch guilder in relation to
the U.S. dollar and its related impact on the Company's U.S. dollar-denominated
indebtedness, primarily the PIK Notes. See "Risk Factors -- Foreign Currency
Exchange Rate and Conversion Risks".
SHARE IN RESULTS OF AFFILIATED COMPANIES, NET
The table below sets forth the Company's share in results of affiliated
companies for the applicable periods:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS NINE MONTHS
JULY 1, 1995 TO ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
--------------- ---------------- ----------------
1995 1996 1997 1997 1998
--------------- ------- ------- ------- -------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C> <C>
A2000..................... (6,500) (19,965) (25,458) (20,051) (26,631)
UTH....................... -- -- -- -- (8,325)
Hungary (Kabelkom,
programming and cable
television)(/1/)......... -- (262) 4,431 2,179 (6,974)
UII Partnership (Israel,
Ireland and Malta)....... (1,409) 1,896 10,589 3,291 3,414
Other..................... (14,270) 520 (199) (1,226) (3,651)
------- ------- ------- ------- -------
Total................... (22,179) (17,811) (10,637) (15,807) (42,167)
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Effective July 1, 1998 UPC acquired the Hungarian cable television holding
company and began consolidation of its operations. The Hungarian
programming business continues to be accounted for using the equity method
of accounting.
37
<PAGE>
For the nine months ended September 30, 1998, UPC's share in net losses of
affiliated companies increased to NLG42.2 million from NLG15.8 million for the
nine months ended September 30, 1997, a 167.1% increase, for the comparable
period in 1997. A substantial portion of the increase in share in net losses
was attributable to additional amortization of goodwill of A2000, Hungary
(Kabelkom) and the UII Partnership (Israel, Ireland and Malta) related to the
new basis of accounting established in the step acquisition of the Company by
UIH. A2000 also had increased losses as it began to introduce telephony
services during this period. The share in net losses of Hungary (Kabelkom) for
the nine months ended September 30, 1998 as compared to the net income over the
comparable period in 1997 was related to the introduction of a new programming
channel, increased programming fees, a loss of HBO subscribers due to the
introduction of two additional commercial channels by competitors, and
additional overhead costs. Effective July 1, 1998, results from the Hungarian
cable television business were consolidated by the Company and no longer
accounted for in share of results of affiliated companies.
For the year ended December 31, 1997, UPC's share in net losses of
affiliated companies decreased to NLG10.6 million from NLG17.8 million for the
previous year, a 40.4% decrease, primarily as a result of improved earnings
from the partnership holding the Israeli, Irish and Maltese systems.
For the year ended December 31, 1996, UPC's share in net losses of
affiliated companies decreased to NLG17.8 million from NLG44.4 million for the
annualized six-month period ended December 31, 1995, a 60.0% decrease,
primarily as a result of the Company's 1995 write-down to net realizable value
of other investments in Spain, France and Germany.
STATEMENTS OF CASH FLOWS
The Company had cash and cash equivalents of NLG44.3 million as of
September 30, 1998, a decrease of NLG55.0 million from NLG99.3 million as of
December 31, 1997. Cash and cash equivalents as of December 31, 1997
represented an increase of NLG56.7 million from NLG42.6 million as of December
31, 1996. Cash and cash equivalents increased NLG123.9 million during the six
months ended December 31, 1995. Details of the change in cash and cash
equivalents are set forth in the table below.
<TABLE>
<CAPTION>
NINE MONTHS
SIX MONTHS YEARS ENDED ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------ ------------------
1995 1996 1997 1997 1998
------------ -------- -------- -------- --------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities... 38,493 41,542 132,584 75,894 52,071
Cash flows from
investing activities... (500,106) (6,394) (402,340) (246,937) (381,253)
Cash flows from
financing activities... 465,508 (116,756) 326,482 196,913 275,910
Effect of exchange rates
on cash................ 1,950 344 (42) 334 (1,703)
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 5,845 (81,264) 56,684 26,204 (54,975)
Cash and cash
equivalents at
beginning of period.... 118,050 123,895 42,631 42,631 99,315
-------- -------- -------- -------- --------
Cash and cash
equivalents at end of
period................. 123,895 42,631 99,315 68,835 44,340
======== ======== ======== ======== ========
</TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES
During the nine-month period ended September 30, 1998, net cash flow from
operating activities decreased NLG23.8 million to NLG52.1 million from NLG75.9
million for the comparable period in 1997, a 31.4% decrease. This decrease was
primarily related to increased cash needs for working capital.
Net cash flow from operating activities totaled NLG132.6 million for the
year ended December 31, 1997, as compared to NLG41.5 million for the year ended
December 31, 1996, an increase of NLG91.1 million. This increase was primarily
related to cash generated from working capital including increased current
liabilities and a reduction of accounts receivable.
Net cash flow from operating activities totaled NLG38.5 million for the
period ended December 31, 1995.
38
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES
The Company used approximately NLG381.3 million of cash in investing
activities during the nine months ended September 30, 1998, compared to
NLG246.9 million for the nine months ended September 30, 1997. During the nine
months ended September 30, 1998 cash was used principally for new acquisitions
including the acquisitions of Combivisie and Kabelkom (together, NLG200.2
million), and for capital expenditures for property, plant and equipment
including goodwill and other tangible assets (NLG170.2 million) including
system upgrade and new-build activities. During the nine months ended September
30, 1997 cash was used for new acquisitions, primarily Janco for NLG85.1
million and an additional cash-funded letter of credit of NLG47.0 million to
acquire the remaining interest in Janco, and capital expenditures including
upgrade and new-build activities totaling NLG92.7 million.
The Company used approximately NLG402.3 million of cash in investing
activities during the year ended December 31, 1997, compared to NLG6.4 million
for the year ended December 31, 1996. During the year ended December 31, 1997,
cash was used principally for the Janco Acquisition and other acquisitions
(NLG127.9 million), for a cash-funded letter of credit to purchase the
remaining interest in Janco Multicom (NLG47.0 million), for the continuation of
the Company's upgrade and new-build construction program (NLG145.6 million of
capital expenditures and also including goodwill and other tangible assets) and
for the purchase of UIH stock (NLG66.8 million). In contrast, during the year
ended December 31, 1996 cash was used principally for purchases of property,
plant and equipment and goodwill and other intangible assets (NLG106.6
million), for the continuation of the Company's upgrade and new-build
construction and for acquisitions (NLG46.5 million) (primarily the Company's
acquisition of its partner's interest in the partnership that held the
Norwegian, Swedish and Hungarian cable television systems). These investing
activities were offset by repayments from A2000 and its subsidiaries of
NLG146.7 million after these companies obtained long-term financing.
The Company used NLG500.1 million in investing activities during the six
months ended December 31, 1995, principally for capital expenditures (NLG132.2
million), investments in and advances to the Company's affiliates, primarily
A2000 (NLG339.7 million), and acquisitions (NLG28.1 million), mainly in The
Netherlands.
CASH FLOWS FROM FINANCING ACTIVITIES
The Company had NLG275.9 million of cash flows from financing activities
during the nine months ended September 30, 1998, as compared to NLG196.9
million for the nine months ended September 30, 1997. Principal sources of cash
during that period included gross proceeds from long-term debt (NLG338.0
million) including additional borrowings from the Tranche A Facility and the
CNBH Facility and borrowings from UIH (NLG161.9 million). The Company repaid
short-term borrowings of approximately NLG215.4 million during the same period,
including a portion of the Tranche B Facility (NLG131.1 million) and a KTE bank
facility (NLG65.0 million).
Cash flows from financing activities during the year ended December 31,
1997 were NLG326.5 million, as compared to negative cash flow from financing
activities of NLG116.8 million for the year ended December 31, 1996. Principal
sources of cash from financing activities during that period included gross
proceeds of NLG1,402.1 million from short-term and long-term debt including the
Tranche A Facility (NLG883.9 million), the Tranche B Facility (NLG252.5
million), bank loans and other obligations in The Netherlands (NLG65.0 million)
and other obligations primarily related to the Janco Acquisition and the
refinancing of Norkabel (NLG200.7 million). During the same period, the Company
repaid approximately NLG587.9 million of short-term borrowings, including Dutch
credit facilities (NLG384.7 million), short-term debt assumed in the Norkabel
acquisition (NLG138.4 million), other short-term credit arrangements (NLG22.1
million) and other long-term debt (NLG24.8 million). In December 1997, the
Company also repaid NLG170.4 million of the PIK Notes and purchased NLG292.6
million of Ordinary Shares from Philips as part of the UPC Acquisition.
39
<PAGE>
Cash flows from financing activities during the year ended December 31,
1996 were negative NLG116.8 million. Financing activities during the year ended
December 31, 1996 included raising gross proceeds of NLG326.1 million from
short-term and long-term loans and repayment of long-and short-term facilities
of NLG440.4 million.
During the six months ended December 31, 1995, the Company's cash flows
from financing activities was NLG465.5 million. A2000, the KTE Acquisition,
debt assumed in the KTE Acquisition and funding of development projects in
Eastern Europe.
CONSOLIDATED CAPITAL EXPENDITURES
The table below sets forth the Company's consolidated capital expenditures
for the last two fiscal years and the nine months ended September 30, 1998 and
projected capital expenditures for the three months ended December 31, 1998 and
year ended December 31, 1999. The information below does not reflect capital
expenditures by A2000, UTH, Tevel or other unconsolidated systems. See the
"Budgeted Capital Expenditures and Capital Resources" section of the respective
operating systems in "Business --Operating Companies". The Company's actual
capital expenditures for the remainder of 1998 and for the year ended 1999 may
differ significantly from the projected amounts included below. See "Risk
Factors --Capital-intensive Business".
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
--------------------------------------- -------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1998(/1/) 1998 1999
------------ ------------ ------------- ------------ ------------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C> <C>
Cable Network:
Upgrade................ 61,345 48,484 66,744 20,000 196,600
New build.............. 12,581 55,042 38,096 33,500 99,600
------- ------- ------- ------- -------
Total Cable Network.... 73,926 103,526 104,840 53,500 296,200
Master Telecom Center:
Video services......... 8,713 4,734 3,343 1,800 15,500
Cable telephony
(Priority Telecom).... -- -- 4,444 15,700 27,900
Internet/data
services.............. 349 4,480 357 4,000 7,200
------- ------- ------- ------- -------
Total Master Telecom
Center.............. 9,062 9,214 8,144 21,500 50,600
Customer Premise
Equipment (CPE):
Video services......... 4,179 5,833 9,614 5,400 13,500
Cable telephony
(Priority Telecom).... -- -- 4 -- 52,500
Internet/data
services.............. 430 3,890 8,283 6,900 20,300
------- ------- ------- ------- -------
Total CPE............ 4,609 9,723 17,901 12,300 86,300
Support Systems and
Equipment (SSE)........ 8,098 9,221 11,521 19,700 15,500
Other................... 4,347 5,629 11,742 4,800 2,900
------- ------- ------- ------- -------
Total SSE and Other.. 12,445 14,850 23,263 24,500 18,400
New Businesses:
chello................. -- -- 1,340 16,200 31,000
Digital Distribution
Platform.............. -- -- -- -- 32,600
------- ------- ------- ------- -------
Total New
Businesses.......... -- -- 1,340 16,200 63,600
Intangibles and Other... 6,605 8,317 14,682 -- --
------- ------- ------- ------- -------
Total Capital
Expenditures........ 106,647 145,630 170,170 128,000 515,100
======= ======= ======= ======= =======
</TABLE>
- --------
(1) CNBH has been deconsolidated as of August 1, 1998, its capital expenditures
amounting to NLG18.6 million for the first seven months of 1998, are
included for the nine months ended September 30, 1998.
40
<PAGE>
CABLE NETWORK
Since its formation as a joint venture, the Company has been aggressively
upgrading its existing cable television system infrastructure and constructing
its new-build infrastructure with two-way high capacity HFC technology to
support digital video, telephony and Internet/data services. Capital
expenditures for the upgrade and new-build construction can be reduced at
management's discretion, although such reductions require lead-time in order to
complete work in progress and can result in higher total costs of construction.
During the nine months ended September 30, 1998, the Company spent
approximately NLG104.8 million in cable network capital expenditures. The
Company currently anticipates cable network capital expenditures of
approximately NLG53.5 million during the last three months of 1998. For 1999,
the Company has budgeted cable network capital expenditures of approximately
NLG296.2 million.
MASTER TELECOM CENTER
The Master Telecom Center includes the headend and all central network
equipment needed for services provided through the operating system. For cable
television, this includes satellite antennas, encryption devices and original
transmission facilities. For telephony service, this includes the central
office switch and SDH and other telephony-related equipment. For Internet/data
service, this includes servers and equipment for connection to the Internet.
See "Technology".
During the nine months ended September 30, 1998, the Company spent
approximately NLG8.1 million for Master Telecom Center equipment. For the last
three months of 1998, the Company currently anticipates spending approximately
NLG21.5 million. For 1999, the Company has budgeted capital expenditures for
Master Telecom Center equipment of approximately NLG50.6 million.
CUSTOMER PREMISE EQUIPMENT
Customer premise equipment includes television set-top converters for video
services, cablephone equipment for telephony and cable modems and network
interface cards for Internet/data services. Customer premise equipment is a
variable capital expenditure, except for inventory on hand, and generally will
not be incurred unless the Company needs the equipment for a subscriber.
During the nine months ended September 30, 1998, the Company spent
approximately NLG17.9 million on customer premise equipment. During the last
three months of 1998, the Company plans to spend approximately NLG12.3 million.
For 1999, the Company has budgeted capital expenditures for customer
premise equipment of approximately NLG86.3 million. The Company is negotiating
supply arrangements for the development and purchase of an integrated digital
set-top box for video and Internet/data services, as well as IP-based
telephony. Although the Company expects these negotiations to be completed by
the end of 1998 for equipment delivery in late 1999, there can be no assurance
that the Company will be successful in its negotiations or that equipment will
be delivered on the schedule the Company expects. See "Risk Factors --
Equipment Risks".
SUPPORT SYSTEMS AND EQUIPMENT
Support systems and equipment includes ancillary systems such as
operational and business support systems, including network management,
customer care, inventory and billing. During the nine months ended September
30, 1998, the Company spent NLG23.3 million in total support systems and
equipment. The Company anticipates it will spend NLG24.5 million through the
last three months of 1998. For 1999, the Company has budgeted NLG18.4 million
for support systems and equipment. See "Risk Factors -- Implementation Risks
for Telephony and Internet Services".
NEW BUSINESSES
In addition to the network infrastructure and related equipment and capital
resources described
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above, development of the Company's newer businesses, chello and its digital
distribution platform, require capital expenditures for construction and
development of its pan-European distribution and programming facilities,
including its origination facility, network operating center, NVOD server
complex and related support systems and equipment. For the nine months ended
September 30, 1998, the Company incurred capital expenditures of approximately
NLG1.3 million for chello. The Company plans to spend approximately NLG16.2
million for capital expenditures for chello for the last three months of 1998.
The Company has budgeted for 1999 approximately NLG31.0 million and NLG32.6
million, respectively, for capital expenditures for chello and its digital
distribution platform.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and acquisitions primarily from (i)
cash contributed by UIH upon UPC's formation; (ii) debt financed at the UPC
corporate level and project debt financed at the operating company level; and
(iii) operating cash flow. The Company has both well-established and developing
systems. In general, UPC has used the cash contributed by UIH upon formation
and debt financed at the UPC corporate level to fund acquisitions, developing
systems and corporate overhead. Well-established systems and, when possible,
developing systems, have been financed with project debt and operating cash
flow. Also, well-established systems generally have stable positive cash flows
that to the extent permitted by applicable credit facilities, may be used to
fund other operations of the Company. Developing systems are at various stages
of construction and development and generally depend on UPC for some of the
funding for their operating needs until project financing can be secured.
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CURRENT DEBT FACILITIES
UPC, its consolidated subsidiaries and unconsolidated affiliates have the
following long-term and short-term debt outstanding as of September 30, 1998.
<TABLE>
<CAPTION>
OUTSTANDING
AT
FINAL SEPTEMBER 30,
DESCRIPTION (BORROWER) USE OF FUNDS MATURITY INTEREST RATE FACILITY SIZE 1998
---------------------- ------------ -------- ------------- ------------- -------------
(in millions)
<C> <S> <C> <C> <C> <C>
UPC AND CONSOLIDATED SUBSIDIARIES:
LONG-TERM DEBT
Tranche A Facility UIH/Philips transaction; 2006 LIBOR + 0.5% to NLG1,100.0(1) NLG971.9
(UPC, Janco Multicom, Telekabel Refinancing; Acquisitions; 2.0% per annum
Wien) Capital expenditures;
Working Capital
Mediareseaux Facility Capital expenditures; 2007 FRF LIBOR + 0.75% FRF700.0 NLG20.2
(Mediareseaux) Acquisitions; Working to 2.0%
Capital
DIC Loan (UPC) To increase interests in 2000 8.0% per annum $90.0 -- (3)
Israeli and Maltese + 6.0% of principal
operating systems amount at maturity
UIH Loan (UPC) To repay indebtedness and Mar. 2001 10.75% per annum $120.0 NLG156.0(4)
fund new business
Janco Letter of Credit (UPC) To acquire minority share 2001 5% per annum n/a NLG37.6(2)
of Janco Multicom
SHORT-TERM DEBT
Time Warner Note Acquisition of Kabelkom Feb. 1999 Non-interest bearing $18.0 NLG34.0(4)
(UPC) distribution assets
Tranche B Facility (UPC) UPC Acquisition June 1999 LIBOR + 4.5% $125.0 NLG113.5(4)
to 6.0%
Telekabel Hungary Capital Expenditures, April 1999 LIBOR + 2.5% DM65.6 -- (6)
Facility (Telekabel Hungary) Acquisitions; Working
Capital
UNCONSOLIDATED AFFILIATES:
UTH Facility (5) Acquisitions; Capital Dec. 1998 Fixed rate of 6.65% NLG630 NLG576.4
(Telekabel Beheer) expenditures; Working
capital
A2000 Group Facilities Acquisition of 2005-2006 AIBOR + 0.7/0.75% or NLG510.0 NLG492.5
(A2000 and subsidiaries) KT Amsterdam and a fixed rate advance
KT Hilversum; Capital + 0.7/0.75%
Expenditures; Working
Capital
CNBH Facility (CNBH) Acquisition of Combivisie; 2008 AIBOR + 0.60% to NLG266.0 NLG209.3
Capital expenditures 1.6% per annum
Other (CNBH) Various Various Various Various NLG17.4
Tevel Facilities (Tevel) Acquisition of Gvanim; 2005-2010 Fixed rate ranging NIS928.3 NLG513.7(7)
Working Capital from 5.5%-6.0%
Melita Facility (Melita) Capital Expenditures; 2004 Cost of funding Lm9.0 NLG40.9(8)
Refinancing + 1.0% to 2.5%
</TABLE>
- --------
(1) The Tranche A Facility is a revolving credit facility. The total commitment
of NLG1.1 billion is reduced by 5% each quarter beginning December 31, 2001
until final maturity.
(2) UPC paid NLG37.2 million from available restricted cash to acquire 12.7% of
Janco Multicom in November 1998, and the letter of credit was subsequently
cancelled.
(3) A subsidiary of UPC drew down the full amount of this loan in November
1998.
(4) Translated from U.S. dollars to Dutch guilders.
(5) The UTH Facility has been funded by NUON and negotiations are under way
with a group of banks to replace this facility.
(6) This facility was entered into after September 30, 1998. Telekabel Hungary
drew DM26.0 million under this facility in November
(7) Translated from New Israeli shekels to Dutch guilders.
(8) Translated from Maltese lira to Dutch guilders.
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<PAGE>
TRANCHE A FACILITY. In October 1997, UPC and Norkabel as borrowers entered
into a secured NLG1.1 billion multi-currency revolving credit facility with a
syndicate of banks led by The Toronto-Dominion Bank. Norkabel was succeeded as
a borrower by Janco Multicom after the merger of Janco and Norkabel. In
December 1997, Telekabel Wien and the other members of the Telekabel Group also
became borrowers under the Tranche A Facility. Although currently not a
borrower, TVD is a guarantor under the Tranche A Facility. As of September 30,
1998, the amount outstanding under the Tranche A Facility of UPC, Telekabel
Wien and Janco Multicom was NLG620.0 million, NLG213.4 million and NLG138.5
million, respectively.
The borrowings of the Company and its subsidiaries in Austria, Belgium and
Norway are limited by financial covenants under the Tranche A Facility. The
principal amount of all borrowings by the Company and such subsidiaries may not
exceed certain multiples of total annualized net operating cash flow for the
Company and such subsidiaries. In addition, the principal amount of all
borrowings of the Company and such subsidiaries may not exceed certain
multiples of their cable television net operating cash flow. Borrowings by UPC
and certain of its subsidiaries in Austria, Belgium and Norway under the
Tranche A Facility, together with borrowings under the Tranche B Facility, may
not exceed NLG1.3 billion before September 30, 2001. The Tranche A Facility
generally prohibits dividends and other distributions to shareholders of the
Company unless, among other things, the Company achieves certain financial
ratios for at least two consecutive quarters. The Tranche A Facility also
includes financial covenants relating to interest and debt service coverage and
application of proceeds from asset sales and debt or equity offerings.
The Tranche A Facility also generally limits to NLG80.0 million UPC's
investments in, loans to and guarantees for, certain of the Company's
subsidiaries and downstream affiliates that are not borrowers or guarantors
under the Tranche A Facility. These include, among others, chello, Priority
Telecom, UPC's programming business and its Dutch systems. Under this
limitation, as of September 30, 1998, the Company would not have been permitted
to make any additional investments, loans and guarantees. The Company expects,
however, to receive approval from the Tranche A Facility banks for certain
actions in connection with the above and this Offering, including the repayment
of the Tranche B Facility.
MEDIARESEAUX FACILITY. In July 1998, Mediareseaux entered into an FRF680.0
million (NLG228.8 million) secured term facility with Paribas (the
"Mediareseaux Facility") to finance capital expenditures, working capital and
acquisitions. The availability of the Mediareseaux Facility depends on revenue
generated and its debt to equity ratios. Drawings under the Mediareseaux
Facility may be made until December 31, 2002. The repayment period runs from
January 1, 2003 to final maturity in 2007. Mediareseaux may not draw more than
FRF120 million (NLG40.4 million) of this facility for acquisitions. During the
repayment period, Mediareseaux must apply 50% of its excess cash flow in
prepaying the facility. The Mediareseaux Facility generally restricts the
payment of dividends and distributions. This facility also restricts
Mediareseaux from incurring additional indebtedness, subject to certain
exceptions. In July 1998, Mediareseaux also secured a 9.5 year FRF20 million
(NLG6.7 million) overdraft facility, subject to the same terms and conditions
as the Mediareseaux Facility except for the availability tests which are not
applicable. Until certain financial covenants are met, UPC must own more than
51% of Mediareseaux. Generally, investments by Mediareseaux and its
subsidiaries require approval of the facility agent except for investments in
cash and certain marketable securities that are pledged to support the
facility. The Mediareseaux Facility also restricts the amount of management
fees that may be paid by Mediareseaux to UPC.
DIC LOAN. In November 1998, a subsidiary of DIC loaned the Company $90.0
million (the "DIC Loan"). UPC used the proceeds to acquire interests in the
Israeli and Maltese systems. About $22.0 million of the proceeds currently are
held in a collateral account under the Tranche B Facility. The DIC Loan matures
in October 2000 and is secured by the Company's pledge of its ownership
interest in the Israeli system. The DIC Loan bears interest at the nominal rate
of 8% per annum. This interest is payable, together with
44
<PAGE>
an additional 6% of the principal amount, on maturity. The DIC Loan may be
repaid on quarterly prepayment dates with three months' prior notice by the
Company. In connection with the DIC Loan, UPC granted DIC an option to acquire
$90.0 million of Ordinary Shares at a price equal to 90% of the initial public
offering price. The exercise price of this option, which expires upon the
initial public offering, is payable in cash or delivery of the DIC Loan
promissory note. See "Dilution" and "Shares Eligible for Future Sale".
UIH LOAN. UPC has entered into two promissory notes with UIH of $100.0
million (March 1998) and $20.0 million (July 1998). UPC has borrowed a total of
$83.6 million, including accrued interest, under these two notes (together, the
"UIH Loan"). The UIH Loan bears interest at 10.75% per annum. The UIH Loan is
payable on
March 31, 2001 and is convertible at UIH's option into Ordinary Shares at the
initial public offering price. UPC has the option to prepay and intends to
prepay the UIH Loan with any and/or all of the following: (i) shares of UIH
Class A Common Stock owned by UPC at market price, subject to UIH's approval;
or (ii) proceeds from any financing, refinancing or sale of assets at UPC which
would permit the repayment of the UIH Loan. See "Dilution" and "Shares Eligible
for Future Sale".
TIME WARNER NOTE. In connection with the Kabelkom transaction, the Company
entered into an $18.0 million (NLG34.0 million) promissory note with Time
Warner (the "Time Warner Note"). The Time Warner Note matures on the earlier of
(i) June 30, 1999 or (ii) 90 days after written notice from Time Warner. UPC
expects that the Time Warner Note will be cancelled in connection with Time
Warner's exercise of its option to acquire the Company's 50% interest in HBO
Hungary and 100% interest in TV Max.
TRANCHE B FACILITY. In connection with the UPC Acquisition, the Company
entered into a $125.0 million term Tranche B Facility with a syndicate of banks
led by The Toronto-Dominion Bank. In March 1998, UPC repaid $63.0 million of
the Tranche B Facility with proceeds borrowed from UIH. The Tranche B Facility
is a one-year bridge financing due December 5, 1998, and extendable to June 5,
1999 upon certain conditions being met. In November 1998, the lenders agreed,
subject to certain conditions and documentation, to extend this facility until
the earlier of June 5, 1998 or the closing of this Offering.
The Company intends to repay a portion of the Tranche B Facility with
proceeds from the Offering. See "Use of Proceeds".
TELEKABEL HUNGARY FACILITY. In October 1998, Telekabel Hungary entered into
a DM65.6 million (NLG74.0 million) six-month secured bridge facility.
Availability under this facility depends on certain financial covenants. The
DM49.2 million (NLG55.5 million) international tranche of the facility and half
of the DM16.4 million (NLG18.5 million) local tranche bear interest at LIBOR
plus 2.5% per annum. The remaining half of the local tranche must be drawn in
Hungarian forints and bears interest at Budapest interbank offered rates for
Hungarian forints ("BUBOR"), plus 2.5% per annum. Telekabel Hungary is using
the facility, among other things, to finance capital expenditures and to
acquire minority shares in the Company's Kabelkom systems. The Company has
pledged its indirect 79.4% interest in Telekabel Hungary to secure the
facility. The facility also is secured by a pledge over certain assets of the
Telekabel Hungary group and a negative pledge. Telekabel Hungary is currently
negotiating a long-term facility with the lenders to replace this bridge
facility.
UTH FACILITY. NUON has entered into a secured short-term financing
arrangement with Telekabel Beheer, with a maximum availability of NLG630
million (the "UTH Facility"). The UTH Facility bears interest at 6.65% per
annum and matures on November 30, 1998, which is extendable to December 15,
1998. UTH intends to replace this facility and has entered into negotiations
with a group of banks for such refinancing.
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<PAGE>
A2000 FACILITIES. In January 1996 A2000 and its wholly owned subsidiary KT
Amsterdam secured bank facilities of NLG90.0 million and NLG375.0 million,
respectively. In October 1996, KT Hilversum, a wholly-owned subsidiary of
A2000, secured a bank facility of NLG45.0 million. These facilities have nine-
year terms and interest rates ranging from AIBOR + 0.75% and AIBOR + 0.7% per
annum and restrict the borrowers from incurring additional indebtedness,
subject to certain exceptions.
CNBH FACILITY. In February 1998, CNBH entered into a secured NLG250.0
million ten-year term facility with a syndicate of banks led by Rabobank (the
"CNBH Facility"). In August 1998, the CNBH Facility was increased to NLG266.0
million. Most of the proceeds were used to repay in full a Combivisie bridge
facility in connection with the Combivisie Acquisition (NLG122.0 million) and a
KTE bank facility (NLG65.0 million). The remaining amount under the CNBH
Facility is available to finance capital expenditures. Beginning in 2001, CNBH
will be required to apply 50% of its excess cash flow to prepayment of the CNBH
Facility. The facility restricts the payment of dividends and distributions and
limits the amount of payments to UPC under its general services agreement. In
connection with the CNBH Facility, UPC entered into a project support agreement
providing, among other things, for UPC to retain its majority ownership of
CNBH. In connection with the CNBH Facility, CNBH also entered into a NLG5.0
million ten-year term working capital facility with Rabobank.
TEVEL FACILITIES. In August 1998, Tevel entered into three secured loan
agreements totalling NIS928.3 million (NLG456.1 million) to finance the
acquisition of Gvanim and working capital. The loan facilities bear interest at
a fixed margin of 5.5% to 6.0% over the Israeli consumers price index. The
loans mature in the years 2007 to 2010 and the repayment periods are commencing
in the year 2000. The Tevel facilities limit Tevel's ability to pay dividends,
encumber its assets and incur indebtedness.
MELITA FACILITY. In October 1996, UPC's Maltese operating system entered
into a secured term bank facility of Lm9.0 million (NLG45.5 million) to
refinance a then-outstanding term facility and to finance capital expenditures
and working capital. Availability under this facility depends on satisfaction
of various covenants. The loan matures October 2004 and the repayment period
commences in 1999. Melita is currently exploring a refinancing of this facility
that would expand its borrowing capacity.
RESTRICTIONS UNDER UIH INDENTURE
As a subsidiary of UIH, the Company's activities are restricted by the
covenants in UIH's indenture dated February 5, 1998 (the "UIH Indenture"). The
UIH Indenture generally limits the additional amount of debt that UPC or its
subsidiaries or controlled affiliates may borrow, or preferred shares that they
may issue. Generally, additional borrowings, when added to existing
indebtedness, must satisfy, among other conditions, at least one of the
following tests: (i) 7.0 times the borrower's consolidated operating cash flow;
(ii) 1.75 times its consolidated interest expense; or (iii) 225% of the
borrower's consolidated invested equity capital. In addition, there must be no
existing default under the UIH Indenture at the time of the borrowing. The UIH
Indenture also restricts UPC's ability to make certain asset sales and certain
payments. In connection with the Offering, UPC has agreed with UIH that it will
not take any action during the term of the UIH Indenture that would result in a
breach of the UIH Indenture covenants. The maturity date of the UIH Indenture
is February 2008 and interest becomes payable in cash in February 2003. See
"Risk Factors -- Control by UIH; Effects of UIH Indenture" and "Relationship
With UIH and Related Transactions -- UIH Indenture".
SOURCES OF CAPITAL
The Company had approximately NLG44.3 million of unrestricted cash and cash
equivalents on hand as of September 30, 1998. In addition, UPC has additional
borrowing capacity at the corporate and project debt level including CNBH,
Mediareseaux and Telekabel Hungary facilities. The Company also has NLG12.3
million available from excess cash released after it exercised its option to
acquire the remaining interest in Janco. The Company is currently negotiating
with its Tranche A Facility lenders about a potential restructuring of the
facility to reflect the Company's future operations. The Company has obtained a
waiver, under the Tranche B Facility, subject to certain conditions and
documentation,
46
<PAGE>
to use a portion of the remaining DIC Loan proceeds ($22.0 million) received in
November 1998.
The Company is obligated to satisfy significant payment and purchase
obligations in the near term, including, the repayment of: (i) the Time Warner
Note, payable on the later of 90 days after notice by Time Warner or June 30,
1999; (ii) the Tranche B Facility which has been extended to the earlier of the
closing of the Offering or June 1999, subject to certain conditions and
documentation; (iii) the UTH Facility, payable in December 1998, which UTH is
negotiating to replace; and (iv) Telekabel Hungary, payable in April 1999.
The Company believes that its existing capital resources combined with the
anticipated refinancing or extensions of some short-term facilities will enable
it to satisfy its requirements for the coming 12 months. Without such
refinancings and extensions, the Company may need to sell assets or obtain
additional equity or debt financing. See "Risk Factors --Leverage."
The proceeds from the Offering are expected to be used primarily for
capital expenditures and to fund other costs associated with its network
upgrade, the build and launch of the Company's telephony and Internet/data
services new businesses as well as its video distribution and programming
businesses. A portion of the proceeds from the Offering will also be used to
repay the Tranche B Facility. See "Use of Proceeds".
The Company may need to raise additional capital in the future to the
extent the Company pursues new acquisition or development opportunities or if
cash flow from operations is insufficient to satisfy the Company's liquidity
requirements. See "Risk Factors -- Capital-intensive Business".
INFLATION AND FOREIGN CURRENCYEXCHANGE RATE RISKS
To date, the Company has not been impacted materially by inflation.
The Company's monetary assets and liabilities are subject to foreign
currency exchange risk as accounts payable for certain equipment purchases and
certain operating expenses, such as programming expenses, are denominated in
currencies other than the functional currency of the entity making such
payments. UPC and some of its operating companies have notes payable and notes
receivable that are denominated in, and loans payable that are linked to, a
currency other than their own functional currency, exposing the Company to
foreign currency exchange risks on these monetary assets and liabilities. In
general, the Company and its operating companies do not execute hedge
transactions to reduce the Company's exposure to foreign currency exchange rate
risks. Accordingly, the Company may experience economic loss and a negative
impact on earnings and equity with respect to its holdings solely as a result
of foreign currency exchange rate fluctuations. See "Risk Factors --Foreign
Currency Exchange Rate and Conversion Risks".
The functional currency for the Company's operations generally is the
applicable local currency for each operating company. Assets and liabilities of
foreign subsidiaries are translated at the exchange rates in effect at year-
end, and the statements of operations are translated at the average exchange
rates during the period. Exchange rate fluctuations on translating foreign
currency financial statements into Dutch guilders result in unrealized gains or
losses referred to as translation adjustments. Cumulative translation
adjustments are recorded as a separate component of shareholders' equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are
translated based on their reporting currencies. As a result, amounts related to
assets and liabilities reported on the consolidated statements of cash flows
will not agree to changes in the corresponding balances on the consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities. See "Exchange Rate Data".
NEW ACCOUNTING PRINCIPLES
The U.S. Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131, "Disclosures about
47
<PAGE>
Segments of an Enterprise and Related Information" ("SFAS 131"), which requires
that a public business enterprise report certain financial and descriptive
information about its reportable segments. The Company intends to adopt SFAS
131 for the year ended December 31, 1998.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
As of September 30, 1998, the Company's deferred start-up and organization
costs were insignificant. The Company intends to adopt SOP 98-5 for fiscal year
1999.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company currently is assessing the
effect of this new standard.
YEAR 2000 CONVERSION
The Company's cable television, programming, telephony and Internet/data
operations are heavily dependent upon computer systems and other technological
devices with imbedded chips. Such computer systems and other technological
devices may not be capable of accurately recognizing dates beginning on January
1, 2000. The Year 2000 problem could cause miscalculations, resulting in UPC's
cable television and telephony systems or programming services malfunctioning
or failing to operate.
YEAR 2000 COMPLIANCE PROGRAM
In response to possible Year 2000 problems, the Board of Directors of UIH
established a Task Force to assess the impact that potential Year 2000 problems
may have on company-wide operations, including UPC and its operating companies,
and to implement necessary changes to address such problems. The Task Force
includes staff at each of UIH, UPC and subcommittees at the operating company
levels and reports directly to the UIH Board. In creating a program to minimize
Year 2000 problems, the Task Force identified certain critical operations of
UPC's business. These critical operations are service delivery systems, field
and headend devices, customer service and billing systems, and corporate
management and administrative operations (e.g., cash flow, accounts payable and
accounts receivable, payroll and building operations).
The Task Force has established a three phase program to address potential
Year 2000 problems:
. Identification Phase: identify and evaluate computer systems and other
devices (e.g. headend devices, switches and set top boxes) on a system by
system basis for Year 2000 compliance.
. Implementation Phase: establish a database and evaluate the information
obtained in the Identification Phase, determine priorities, implement
corrective procedures, define costs and ensure adequate funding.
. Testing Phase: test the corrective procedures to verify that all material
compliance problems will operate on and after January 1, 2000, and develop,
as necessary, contingency plans for material operations.
A majority of UPC's operating systems have completed the Identification
Phase and the Task Force is working on the Implementation Phase for these
systems. The Task Force has researched almost half of the items identified
during the Identification phase as to Year 2000 compliance. Of the items
researched, approximately 83% are either compliant or can be easily remediated
without significant cost to the Company. Currently, the Task Force expects to
complete its research on substantially all of the items identified during first
quarter 1999. The Identification Phase for
48
<PAGE>
UPC corporate, management and administrative operations has been completed, and
the Task Force is currently evaluating the results of that Phase in order to
implement any necessary corrective procedures. Based on current data, UPC
expects the computer systems for all corporate operations are expected to
comply with Year 2000 by mid-1999 without needing material remediation or
replacement.
The Task Force has targeted mid-1999 for commencement of the Testing Phase.
At this time, UPC anticipates that all material aspects of the program will be
completed before January 1, 2000. Currently, UIH is managing the program with
its internal Task Force. During the Implementation Phase, the Task Force will
also be evaluating the need for external resources to complete the
Implementation Phase and implement the Testing Phase.
In addition to its program, UIH is a member of a Year 2000 working group,
which has 12 cable television companies and meets under the auspices of Cable
Labs. The dialogue with the other cable operators has assisted UIH in
developing its Year 2000 program. Part of the agenda of the working group is to
develop text procedures and contingency plans for critical components of
operating systems for the benefit of all its members.
THIRD-PARTY DEPENDENCE
The Company believes that its largest Year 2000 risk is its dependence upon
third-party products. Two significant areas on which UPC systems depend upon
third-party products are programming and telephony interconnects. UPC does not
have the ability to control such parties in their assessment and remediation
procedures for potential Year 2000 problems. Should these parties not be
prepared for Year 2000, their systems may fail and the Company would not be
able to provide its services to its customers. UPC is in the process of
communicating with these parties on the status of their Year 2000 compliance
programs in an effort to prevent any possible interruptions or failures. To
date, responses to such communications have been limited and the responses
received state only that the party is working on Year 2000 issues and does not
have a definitive position at this time. As a result, UPC is unable to assess
the risk posed by its dependence upon such third parties' systems. The Task
Force is considering certain limited contingency plans, including preparing
back-up programming and stand-by power generators. Such contingency plans may
not, however, resolve the problem in a satisfactory manner. With respect to
other third-party systems, each UPC operating system is responsible for
inquiring of their vendors and other entities with which they do business
(e.g., utility companies, financial institutions and facility owners) as to
such entities' Year 2000 compliance programs.
The Task Force is working closely with the manufacturers of its headend
devices to remedy any Year 2000 problems assessed in the headend equipment.
Recent information from the two primary manufacturers of such equipment
indicate that most of the equipment used in the UPC operating systems are not
date sensitive. Where such equipment needs to be upgraded for Year 2000 issues,
such vendors are upgrading without charge. These upgrades are expected to be
completed before year-end 1999, but such process is not entirely within the
control of the Company or its systems. With respect to billing and customer
care systems, UPC uses standard billing and customer care programs from several
vendors. A few of UPC's operating systems, including two in The Netherlands,
one in Romania and one in Hungary are using Custom Fox-Pro Billing and Customer
Care Systems, which have been examined for Year 2000 compliance, but the
Company is generally upgrading its billing and customer care systems for other
reasons and does not expect the Year 2000 aspect of this cost to be
significant. The Task Force is working with such vendors to achieve Year 2000
compliance for all systems in UPC.
MINORITY-HELD SYSTEMS
UPC also has non-controlling interests in international cable television
and telephony operations, including A2000. Media One International, UPC's
partner in A2000, is undertaking and implementing a program to ensure that the
operations of A2000 will be Year 2000 compliant. The Task Force is including
its other minority investments in its program. Of these investments, a majority
have completed their Identification Phase of the program and the Task
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<PAGE>
Force is in the process of making recommendations to these entities as to Year
2000 compliance matters. No assurance can be given, however, that these
entities will implement the recommendations or otherwise be Year 2000
compliant. On an overall basis, the Task Force continues to analyze the Year
2000 program and will revise the program as necessary throughout the remainder
of 1998 and 1999, including procedures to ensure third parties' Year 2000
compliance.
COST OF COMPLIANCE
The Task Force has not yet determined the full cost of its Year 2000
program and its related impact on the financial condition of UPC. In the course
of its business, the Company has made substantial capital investments over the
past few years in improving its systems, primarily for reasons other than to
anticipate Year 2000 problems. Because the systems' upgrades also result in
Year 2000-compliance, however, the Company has not had to devote a large amount
of investment specifically to the Year 2000 issue. The Task Force has
identified certain replacement and remediation costs and, based on the Task
Force review to date, the Company currently estimated that these costs will not
exceed NLG4.0 million (excluding any costs associated with UPC's interest in
A2000). Although no assurance can be made, UPC believes that the known Year
2000 compliance issues can be remedied without a material financial impact on
UPC. No assurance can be made, however, as to the total cost for the Year 2000
program until all of the data has been gathered. In addition, UPC can not
predict the financial impact it will experience if Year 2000 problems are
caused by third parties upon which its systems are dependent or experienced by
entities in which it holds investments. The failure of any one of these parties
to implement Year 2000 procedures could have a material adverse impact on the
operations and financial condition of UPC.
EUROPEAN ECONOMIC AND MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the euro. The participating countries have agreed to
adopt the euro as their common legal currency on that day. The euro will then
trade on currency exchanges and be available for non-cash transactions during
the transition period between January 1, 1999 and January 1, 2002. During this
transition period, the existing currencies are scheduled to remain legal tender
in the participating countries as denominations of the euro and public and
private parties may pay for goods and services using either the euro or the
participating countries' existing currencies.
During the transition period, all operating companies' billing systems will
include amounts in euro as well as the respective country's existing currency.
All of the Company's accounting and management reporting systems currently are
multi-currency.
The Company intends to use the euro as its reporting currency as soon as
practicable. The Company does not expect the introduction of the euro to affect
materially its cable television and other operations. The Company believes the
introduction of the euro will reduce its exposure to risk from foreign currency
and interest rate fluctuations.
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<PAGE>
BUSINESS
OVERVIEW
The Company owns and operates cable-based communications networks in ten
countries in Europe and in Israel. Today, UPC's systems constitute the largest
pan-European broadband communications platform. UPC has systems in Austria, The
Netherlands, Belgium, Norway and France. These systems are strategically
located in the capital cities of Vienna, Amsterdam, Brussels and Oslo, as well
as suburban Paris. The Company also has systems in Israel, Malta and Eastern
Europe. UPC is a subsidiary of UlH, a leading international provider of video,
voice and data services.
The Company's systems passed an aggregate of approximately 4.9 million
homes and served approximately 3.4 million basic video subscribers as of
September 30, 1998 including 3.0 million homes passed and 2.3 million basic
video subscribers in its Western European markets. UPC has majority ownership
of its systems in Western Europe (other than the A2000 systems) and most of its
other systems. UPC's proportionate equity interest in all of its systems
represented approximately 3.0 million homes passed and approximately 2.0
million subscribers as of September 30, 1998.
UPC currently offers analog video services through its existing network. In
its Western European markets, it is further developing and upgrading this
network to two-way transmission capability, which enables the Company to
provide digital video, telephony and Internet/data services. As of September
30, 1998, UPC's systems had a total of approximately 13,850 cable telephony and
approximately 12,725 Internet access subscribers.
As of September 30, 1998, approximately 54% of the 2.6 million total homes
passed in UPC's Austrian, Belgian, Dutch and French systems were passed by the
upgraded network. Approximately 87% of the homes in these four markets are
scheduled to be passed by the upgraded network by the end of 1999. The
Company's Norwegian systems are being upgraded on a longer timetable.
Generally, this upgrade involves replacing portions of the coaxial cable plant
with fiber-optic cable and upgrading the remaining coaxial cable plant to two-
way capability. See "Technology". As of September 30, 1998, the Company had
approximately 4,375 kilometers of high-capacity active fiber plant throughout
its systems. Upon substantial completion of UPC's current upgrade program, UPC
expects to have approximately 8,500 kilometers of high-capacity active fiber
plant in its systems. The Company also has more than 35,340 kilometers of
coaxial distribution plant throughout its systems, approximately 25,200
kilometers of which currently is capable of two-way transmission.
The Company believes there are significant growth opportunities in the
European telecommunications market as a result of the January 1, 1998
liberalization of the telephony industry in most EU member countries and
Norway. This liberalization allows new providers to offer voice telephony and
other telecommunications services. Because of this liberalization and
technological advances, it has become possible to deliver video, telephony and
Internet/data services to customers through a single cable link to the home.
Accordingly, UPC will be able to offer, and currently offers in some markets,
an integrated package of three services in its upgraded markets where
previously it had offered only one.
UPC OPERATIONS
Most of UPC's operating systems have long-established track records of
providing video services. These systems have grown significantly over the past
few years, both in terms of number of subscribers and revenues. UPC has grown
its operations through strategic acquisitions of cable television systems and
development of its existing systems. The tables below present certain operating
and financial information of the Company. Because the Company does not own 100%
of all of its operating companies, the operating data in the second table is
presented on a proportionate equity basis. The financial information in the
third table is presented on a consolidated basis. As of September 30, 1998, UPC
consolidated the results of its operations in Austria, Belgium, the Czech
Republic, France, Hungary, Norway, Romania and the Slovak Republic.
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<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------- AT SEPTEMBER 30,
OPERATING DATA(1) 1993(1) 1994(1) 1995 1996 1997 1998
- ----------------- --------- --------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Homes in service area... 2,657,000 2,626,255 3,323,000 3,693,511 4,134,656 5,867,686
Homes passed............ 1,841,318 1,993,037 2,616,331 2,900,033 3,553,790 4,900,030
Two-way homes
passed(2).............. -- -- -- -- 674,457 1,396,651
Video subscribers(3).... 1,233,584 1,341,284 1,877,852 2,049,472 2,311,708 3,430,903
Internet/data
subscribers............ -- -- -- -- 1,907 12,736
Telephony subscribers... -- -- -- -- 3,255 13,849
<CAPTION>
AT DECEMBER 31,
------------------------------------------------- AT SEPTEMBER 30,
PROPORTIONATE OPERATING DATA(4) 1993(1) 1994(1) 1995 1996 1997 1998
- ------------------------------- --------- --------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Homes in service area... 1,748,598 1,754,784 1,908,636 2,427,306 2,870,982 3,821,549
Homes passed............ 1,029,293 1,157,547 1,351,970 1,818,634 2,351,575 3,008,175
Two-way homes
passed(2)............... -- -- -- -- 541,082 919,653
Video subscribers(3).... 666,473 751,896 988,462 1,316,798 1,514,606 2,035,753
Internet/data subscrib-
ers..................... -- -- -- -- 1,622 8,272
Telephony subscribers... -- -- -- -- 1,627 3,531
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED FOR THE NINE
SIX MONTHS ENDED DECEMBER 31, MONTHS ENDED
DECEMBER 31, ---------------- SEPTEMBER 30,
CONSOLIDATED FINANCIAL INFORMATION 1995(1) 1996 1997 1998
- ---------------------------------- ---------------- ------- ------- -------------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C>
Revenues..................... 100,179 245,179 337,155 305,237
EBITDA(5).................... 33,756 85,877 116,030 107,792
EBITDA Margin................ 33.7% 35.0% 34.4% 35.3%
</TABLE>
- --------
(1) UPC began operations as a joint venture in July 1995 when its shareholders,
UIH and Philips, contributed various cable television properties to it. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --History of UPC". Operating data and proportionate operating
data at December 31, 1993 and 1994 reflect the respective statistics for
those systems contributed to UPC by UIH and Philips.
(2) Homes passed by coaxial cable or fiber plant capable of both transmitting
and receiving video, voice and data signals. UPC's Israeli systems are not
included in the total as they are capable of providing only two-way impulse
pay-per-view video services.
(3) The Company determines the number of basic video subscribers as follows:
Residential subscribers are counted as one subscriber, with the exception
of cable television subscribers in a multiple dwelling unit (MDU) (such as
a hotel, hospital or housing association) where certain subscribers receive
the basic service for less than the standard basic rate. In this situation,
in some of its operating systems, the Company calculates the number of
subscribers by dividing the subscription fee received from the MDU by the
standard rate at which the Company provides basic video services. In other
systems, an MDU is counted as one subscriber.
(4) Proportionate operating data is calculated by multiplying the applicable
statistic for each operating company by UPC's economic ownership interest
in such operating company at the end of the relevant period and then
totaling the results. You should read the "Corporate Ownership Structure"
section for more information about the Company's ownership interest in
those operating systems that are not wholly owned.
(5) EBITDA represents earnings before net interest expense, income tax expense,
depreciation, amortization, stock-based compensation charges, minority
interest, share results in affiliated companies (net), currency exchange
gains (losses) and other non-operating income (expense) items.
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<PAGE>
COMPANY GROWTH STRATEGY
The Company's goal is to become a leading pan-European provider of
integrated video, telephony and Internet/data services. Key elements of UPC's
strategy to achieve its goal include:
CONTINUE TO INCREASE VIDEO SERVICE REVENUE PER SUBSCRIBER
The Company plans to continue increasing its average revenue per subscriber
by expanding its video services program offerings in the expanded basic tier,
pay-per-view and digital audio areas. The Company plans to continue improving
its expanded basic tier offerings by adding new channels. Generally, basic tier
pricing is regulated while the expanded basic tier is not price regulated.
Increased programming offerings will also help increase the average revenue per
subscriber by making its expanded basic tier more attractive to subscribers.
The Company currently is involved in several country-specific programming
ventures that develop local language programming for various markets. The
Company is also developing, together with partners, eight new pan-European
channels for the cable television market and has already secured a portion of
the content required for these channels.
The Company is seeking partners to construct a pan-European digital
distribution platform, UPC's EuroHits, that will enable digital distribution of
the Company's new channels. Full digitalization, to be made possible by UPC's
network upgrade to full two-way capability, will provide the Company's Western
European systems with substantially more channel capacity. This increased
channel capacity would enable subscribers to customize their subscriptions for
the Company's products and services to suit their lifestyles and personal
interests. See "-- UPC Video Services: Video Distribution and Programming --
Digital Distribution Platform."
CAPITALIZE ON THE UNIQUE INFRASTRUCTURE AND ECONOMIC ADVANTAGES OF UPC'S
TELEPHONY MARKET OPPORTUNITY
UPC believes that the ability to leverage its existing subscriber base and
upgraded network will provide it with an advantage over other new entrants in
the telephony market. In particular, management believes that UPC's networks
and facilities provide the opportunity for cost-effective access to both
residential and business customers. Because of the relatively high European
local tariff rates, the Company believes potential customers will be receptive
to its telephony services, which UPC intends to price at a discount to services
offered by the incumbent telecommunications operator. The Company recently
began marketing its pan-European telephony business as Priority Telecom
(Nedpoint in the A2000 systems) and plans to offer these services in its
Austrian, Dutch, Norwegian and French systems.
CAPITALIZE ON INTERNET/DATA SERVICE OPPORTUNITY
UPC has launched a residential and business cable-modem based high speed
Internet access product in Austria, Belgium, The Netherlands and Norway and
plans to launch its Internet portal and content business, branded as chello, in
the Company's upgraded Western European markets beginning in early 1999. The
Company believes that its chello service will benefit from the rapid growth of
the Internet and will enable it to gain customers in the business and
residential Internet market by capitalizing on UPC's existing network
capabilities, continuing network upgrade and broad customer base in certain
markets with high personal computer penetration. In marketing chello, the
Company intends to emphasize the speed, price advantages and compelling multi-
media portal and content of its cable modem-based Internet service. An integral
part of the Company's strategy is to market chello's services for sale to other
cable television systems.
CONSOLIDATION AND ACQUISITIONS
UPC has realized significant gains in its businesses by selectively
acquiring cable television and telecommunications systems near its current
operating areas and increasing its ownership interest in some of its existing
systems. The Company's strategy also has been to dispose of some minority
ownership interests where control could not be obtained and commence new
greenfield projects where the Company believed it could create significant
value. The Company intends to continue this asset rationalization program.
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IMPLEMENTATION OF NEW SERVICES
The following table shows the status of the implementation of the new
services that the Company is adding in addition to its existing basic video
services.
<TABLE>
<CAPTION>
SERVICES LAUNCHED OR CURRENTLY PLANNED FOR LAUNCH
-------------------------------------------------------------
EXPANDED PREMIUM IMPULSE PAY- INTERNET/DATA CABLE
SYSTEM BASIC TIER CHANNELS PER-VIEW SERVICES TELEPHONY
- ------ ---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Austria................. May 1997 -- May 1997 Sept. 1997 Nov. 1998
Belgium................. Oct. 1996 Planned Planned Sept. 1997 --
The Netherlands(1)...... Oct. 1996 Planned Apr. 1997 Oct. 1997 July 1997
Norway.................. 1989 1990 Planned Mar. 1998 Planned 1999
France.................. Oct. 1996 Oct. 1996 Apr. 1998 Planned 1999 Planned 1999
Israel.................. 1990 -- 1994 -- --
Hungary................. 1991 1991 -- Planned --
Czech Republic.......... 1994 1994 -- -- --
Romania................. Apr. 1998 Feb. 1998 -- -- --
Slovakia................ 1995 April 1997 -- Planned --
Malta................... 1994 1994 Planned Planned --
</TABLE>
- --------
(1) The Company began offering an expanded basic tier in October 1996 in its
A2000 systems in Amsterdam and surrounding areas and in December 1996 in
its KTE system in Eindhoven, impulse pay-per-view in April 1997 in its
A2000 systems and in June 1998 in its CNBH systems, Internet access
services on a trial basis in October 1997 in portions of its A2000 systems,
and cable telephony services on a trial basis in July 1997 in its A2000
system in Purmerend and is currently offering these services in Hilversum,
Zaanstad and portions of Amsterdam.
UPC VIDEO SERVICES: VIDEO DISTRIBUTION AND PROGRAMMING
VIDEO DISTRIBUTION OVERVIEW
UPC owns and operates both long-established cable television systems and
systems under construction in many European markets. As of September 30, 1998,
UPC's operating systems had approximately 3.4 million subscribers to their
basic tier video services. Video distribution services accounted for
approximately 92.4% of the Company's consolidated revenue in the first nine
months of 1998. UPC's basic tier video services business has high basic
penetration rates, with subscribers as a percentage of homes passed currently
averaging over 70%. UPC offers its subscribers some of the most advanced analog
video services available today and a large choice of FM radio programs. In
addition, because many of UPC's operations are two-way capable, the Company has
been able to add more services. For example, in many systems, the Company has
introduced impulse pay-per-view services, which enable subscribers to its
expanded basic tier to select and purchase programming services, such as movies
and special events, directly by remote control.
The Company is focusing on increasing its average revenue per subscriber
through enhanced and expanded video service offerings. These offerings include
thematic groupings of tiered video services in key genres, exclusive channels
created for the cable television market, enhanced pay-per-view services and
premium movie channels.
UPC's management team has substantial experience in the European cable
television industry and has demonstrated the potential to increase revenue per
basic cable television subscriber by offering additional services that appeal
to UPC's subscribers. The Company's management believes that UPC has the
opportunity to apply these principles to its more recently acquired systems,
which currently have much lower revenues per subscriber, while adding major
innovations in pan-European programming and distribution to increase further
UPC's average revenue per subscriber in all systems.
GROWTH STRATEGY
UPC is focusing on a multi-part growth strategy: (i) create and/or acquire
additional channels and programming for pay-per-view
54
<PAGE>
services; (ii) increase sales by integrating its video services with telephony
and Internet/data services; (iii) selectively upgrade its networks to offer
increased programming through digitalization and, (iv) where appropriate and
permitted, migrate high-value channels from the basic tier to the expanded
basic tier.
The Company has demonstrated that it can achieve higher average revenue per
subscriber in its Norwegian (Norkabel), Israeli and Maltese systems, which were
constructed and operated initially by UIH, as compared to average revenue per
subscriber in the former Philips' systems in Austria, Belgium and The
Netherlands (KTE).
The Company has increased its average revenue per subscriber by offering
enhanced services. For example, UPC has offered impulse pay-per-view services
in some of its markets for several years. In Israel, for example, Tevel's
250,000 subscribers with two-way capabilities buy an aggregate of more than
100,000 pay-per-view programs per month, for an average monthly buy rate of 0.4
per subscriber. In the Company's Austrian and A2000 systems, during the first
nine months of 1998, the average impulse pay-per-view monthly buy rate was over
1.1 and 0.9 per expanded basic tier subscriber, respectively.
The chart below sets forth the average monthly revenue per subscriber for
certain of UPC's systems, as well as in the United Kingdom and the United
States, countries of comparable per capita income where these types of enhanced
services have been offered for longer periods. Although the Company does not
expect that it will achieve the average monthly revenue per subscriber in its
systems that is realized in the United Kingdom and the United States, these
figures illustrate the potential to increase the Company's average monthly
revenue per subscriber through the introduction of enhanced service offerings.
Diagram showing average monthly revenue per video subscriber for selected UPC
systems and for the U.K. and the U.S. for the nine months ended September 30,
1998 (in Dutch guilders)
Hungary -- 11.06
The Netherlands
A2000 -- 14.25
UTH -- 17.95
Belgium -- 19.76
Austria -- 29.01
Norway
Janco -- 13.05
Norkabel -- 29.37
France -- 26.26
Malta -- 36.91
Israel -- 67.63
U.K.(1) -- 75.72
U.S.(2) -- 74.82
The higher average revenue per subscriber in the Company's Israeli,
Norwegian and Maltese systems is attributable to offering enhanced video
services. Depending on the system, this was done through introducing new
channels (including country-specific program channels) and stand-alone pay-per-
view (enhanced by controlling the distribution of premium movie products) and
migrating channels from rate-regulated basic service to unregulated tiers.
UPC's systems in Austria, Belgium and The Netherlands have high penetration
rates but generally lower revenues per subscriber than the UPC systems
developed by UIH.
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The digital pan-European distribution platform, if completed as planned,
would make it possible for the improved programming offerings to have a more
robust impact. The Company expects that a digital distribution platform will be
in place in its upgraded markets by the end of 1999. See "-- Digital
Distribution Platform".
VIDEO PROGRAMMING OVERVIEW/GROWTH STRATEGY
Popular programming is another key factor for increasing the Company's
video services revenue. The Company believes it will also be a potential source
of additional revenue from sales to other cable television operators and
satellite companies in Europe. UPC has enhanced its existing, and is continuing
to develop and acquire new ownership interests in, programming services. The
core of UPC's programming strategy is to create high-quality, local-language
channels either through joint ventures with content providers or other partners
or by direct licensing agreements. The Company intends to establish and manage
these joint ventures and also secure and distribute third-party channels and
NVOD programming on a pan-European basis. The Company expects that these new
channels will be added to the expanded basic tier in a number of its operating
systems, furthering its strategy of increasing average revenue per subscriber.
CURRENT PROGRAMMING ACTIVITIES
UPC is involved in several country-specific programming ventures including
creating channels for the Czech Republic (MAX, SuperMAX and HBO Czech), Hungary
(HBO Hungary), Israel (a movie channel and a general entertainment channel) and
Malta (Premiere and Max). Together, these programming ventures have developed
channels in key genres including sports, children, documentary and movies,
which are subtitled or dubbed in the local language. The Company believes that
its current programming ventures add value to UPC's cable television networks
by providing compelling content to its subscribers. In connection with the
Company's acquisition of Time Warner's interest in the Hungary cable television
systems, UPC has granted Time Warner an option to purchase its interests in the
Czech and Hungarian programming services.
UPC has agreed to acquire UIH's interests in the programming companies,
Tara (75%) and IPS (33.8%). Tara provides Irish general entertainment
programming to the U.K. markets. IPS produces a movie channel, a documentary
channel, a children's channel and a music channel for the Spanish and
Portuguese markets. As of September 30, 1998, Tara and IPS sold programming
content to non-UPC cable operators serving an aggregate of approximately 1.0
million subscribers.
PLANNED PROGRAMMING ACTIVITIES
UPC believes that it has a strong competitive opportunity to become a
provider of new channels due to its ready access to its customer base and its
ability to adapt its channels affordably for distribution to multiple European
markets and languages. UPC plans to (i) launch five new 24-hour channels by the
end of 1999 and three channels thereafter, (ii) acquire rights to up to 30
channels created by third parties over the next few years and (iii) acquire
rights to and distribute up to 75 NVOD channels over the next few years. The
initial five planned channels are:
.UPC QuesTV: an action/adventure channel that UPC will adapt for European
markets pursuant to licensing and revenue sharing arrangement from QuesTV;
.Club: a women's interest channel created by licensing content from E!,
Carlton Food Network, and others;
.UPC Sport One: a sports channel created by licensing content from ESPN;
.EX-Extreme Sports: an extreme sports channel created by licensing content
from X-Dream; and
.Wingspan: an Air and Space Channel: a topical channel adapted for European
markets pursuant to a licensing and revenue sharing arrangement with Wingspan
International.
Because QuesTV and Wingspan already exist in other markets, the Company's
role will be limited to subtitling, dubbing and play-out, and therefore, UPC's
costs will be lower than for new channels. In the case of new channels (Club,
UPC Sport One and EX-Extreme Sports), UPC's role will also include content
aggregation, channel design, play-out and uplink. In addition to
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<PAGE>
developing its eight pan-European channels, UPC is negotiating for additional
channels and NVOD programming on a pan-European basis.
DIGITAL DISTRIBUTION PLATFORM
The Company is seeking partners to construct a pan-European digital
distribution platform, UPC's EuroHits, that will enable digital distribution of
the Company's new channels. If this planned digital distribution platform is
constructed, the Company would convert its impulse pay-per-view services into
an NVOD service that would be able to provide up to 75 channels of programming.
The Company is negotiating to acquire rights to broadcast first run hit movies,
adult programming and special events over this planned digital distribution
platform. Upon obtaining appropriate rights, the NVOD service would likely
include between 12 and 16 new movie titles per month that will be broadcast as
frequently as every 15 minutes, thus enabling subscribers to choose a movie at
a convenient start time. Although NVOD channels cannot be offered
simultaneously on a pan-European basis due to licensing restrictions, UPC
intends to use remote content servers located in the cable operator's headend
to store the library for playout at the appropriate time. The Company also has
acquired the rights to and would launch a low-cost digital audio service on
this digital distribution platform that could provide 20 channels of CD-quality
music in the expanded basic tier and 70 additional channels as a premium
service.
Full digitalization, to be made possible by UPC's network upgrade to full
two-way capability, will provide the Company's Western European systems with
substantially more channel capacity. This increased channel capacity would
enable subscribers to customize their subscriptions for the Company's products
and services to suit their lifestyles and personal interests. If full
digitalization is completed, UPC also intends to provide its subscribers with
customizable programming guides that would enable them to program favorite
channels and also allow parents to restrict their children's viewing habits.
The construction of the planned digital distribution platform would involve a
significant amount of capital investment and the use of new technologies. There
can be no assurance that the Company will be able to complete the construction
of the digital distribution platform on the planned schedule. See "Risk
Factors -- Capital-intensive Business" and "Technology -- Planned Digital
Distribution Platform".
UPC TELEPHONY SERVICES: PRIORITY TELECOM
OVERVIEW
UPC believes that by leveraging its existing video subscriber base and
upgraded network, it has a unique opportunity to become a pan-European
telephony operator. UPC plans to offer local telephony services, branded as
Priority Telecom (Nedpoint in the A2000 systems), in its Austrian, Dutch,
French and Norwegian systems. UPC also plans to develop national and
international long distance voice and data services. UPC's operating companies
currently are licensed to provide telephony services in Austria, France,
Hungary, The Netherlands and Norway. The Company believes that its fiber and
broadband, coaxial cable and cable-based subscriber relationships provide ready
access to potential residential telephony subscribers. UPC believes its
networks and facilities also provide the opportunity for cost-effective access
to potential business telephony customers on a pan-European basis.
A2000 began offering cable telephony services in July 1997 on a trial basis
in Purmerend, a town outside Amsterdam, and since then has begun to offer these
services to its customers in Hilversum, Zaanstad and part of Amsterdam. In
November 1998, UPC launched Priority Telecom's cable telephony service on a
trial basis in Vienna.
UPC is negotiating to connect its local fiber networks, primarily through
interconnections and capacity leases with other new telecommunications service
providers, to provide long-distance telephony services across several European
markets. This strategy will allow the Company to keep a greater number of calls
on its own network, thereby reducing the amount of interconnect fees the
Company must pay to other telecommunication operators.
MARKET OPPORTUNITY
The Company believes there are significant growth opportunities in the
European
57
<PAGE>
telecommunications market as a result of the January 1, 1998 liberalization of
the telephony industry in most EU member countries and Norway. This
liberalization allows new providers to offer voice telephony and other
telecommunications services. The telephony market is large in the Company's
Western European markets as evidenced by the revenues of the respective
incumbent national telecommunications operators, which substantially dominate
these markets. The current local telephony rates charged to subscribers are
especially high in comparison to those in the United States, where the market
has been liberalized for a longer period. The following table shows this
disparity:
<TABLE>
<CAPTION>
TOTAL 1995 REVENUE
INCUMBENT OF NATIONAL AVERAGE 1996 MONTHLY
TELECOMMUNICATIONS TELECOMMUNICATIONS LOCAL TELEPHONY REVENUE
OPERATORS OPERATORS(1) PER RESIDENTIAL LINE(2)
------------------ ------------------ -----------------------
(U.S. dollars)
(in millions)
<S> <C> <C> <C>
Austria.......... PTA $ 4,306 $69.95
Belgium.......... Belgacom 4,310 53.89
France........... France Telecom 26,648 43.25
The Netherlands.. KPN 8,488 50.58
Norway........... TeleNor 3,134 44.33
United States.... Various 191,026 13.93
</TABLE>
- --------
(1) Source: Organization for Economic Cooperation and Development (OECD).
(2) Source: OECD monthly basket of local PSTN residential charges, 1996.
Monthly basket includes cost of connection (spread over 60 months/12), the
monthly line rental and 20 hours of local off-peak usage. No long distance
charges are included.
With approximately 3,225 kilometers of telephony capable fiber optic cable
already deployed in its Western European systems, the Company believes that
Priority Telecom has an advantage over other new entrants in the telephony
market. Currently, Priority Telecom has broadband, coaxial cable access to
approximately 2.9 million homes and, through UPC, long standing cable
television-based relationships with approximately 2.2 million residential
subscribers in its planned telephony markets. The Company believes that its
international telephony backbone capacity needs, especially when combined with
UPC's branded Internet/data services business, chello, will create
international traffic volumes that will provide significant economies of scale,
thereby allowing the long-term lease of fiber capacity and the resale of excess
capacity to business and carrier customers.
COMPETITION
Priority Telecom will face competition in its markets from incumbent
telecommunications operators and other competitive operators that have
substantially more experience in providing, and significantly greater resources
devoted to, telephony services. In addition, the Company will depend on
interconnect arrangements provided by incumbent telecommunications operators.
The Company believes, however, that its strategy for Priority Telecom will
allow it to compete effectively with incumbent telecommunications operators and
any other local loop providers who subsequently enter the market. See "Risk
Factors -- Competition".
PRIORITY TELECOM GROWTH STRATEGY
UPC's strategy for Priority Telecom is to achieve high-growth from early
market entry with the goal of establishing a strong market position prior to
market entry by other potential local loop competitors. The key elements of
UPC's telephony penetration strategy are (i) pricing at a discount to the
incumbent telecommunications operators; (ii) waiving or substantially
discounting installation fees; (iii) integrating telephony with its video and
Internet/data services; and (iv) providing an equal or superior quality of
service than that of other providers. The Company also plans to use short-term
promotions, special calling plans and non-cash incentives to support the
marketing of its telephony services. UPC intends to concentrate on building
brand awareness for Priority Telecom as a pan-European telecommunications
brand, which may be co-branded with UPC's existing local video services brands.
The Company also plans to integrate Priority Telecom's residential and Small
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Office/Home Office ("SOHO") telephony productswith its video services and
chello's Internet access services, thus enabling UPC to offer pricing packages
designed to encourage multiple product purchases and minimize churn.
Priority Telecom will pursue this pricing, branding and integration
strategy in the following three market segments:
1.RESIDENTIAL AND SMALL OFFICE/HOME OFFICE (SOHO) SERVED BY CABLE PHONE. In
most cases, Priority Telecom is the only operator other than the incumbent in
its respective operating areas that has direct, facilities-based access to many
potential residential and SOHO customers.
2.MEDIUM BUSINESSES SERVED BY CABLE PHONE. Priority Telecom's network will
be able to reach many medium businesses that may not be reached economically
with direct fiber connections.
3.LARGE BUSINESSES AND OTHER LICENSED OPERATORS SERVED DIRECTLY BY FIBER OR
POINT-TO-POINT MICROWAVE. Priority Telecom plans to exploit its expected early
entry advantage from its existing local fiber rings to provide high quality,
cost competitive telephony service to businesses as an alternative to the
incumbent telecommunications operators.
UPC believes the residential and SOHO market sectors represent the primary
business opportunity for Priority Telecom. Simple marketing offers will be used
to encourage rapid take-up by overcoming consumer inertia and increasing brand
awareness of the Company's products. The approach will include, for example,
innovative offers and periodic deep discounts. Large and medium business
customers will be marketed through a key account management direct sales force
targeting specific industry sectors (such as other licensed operators, Internet
service providers ("ISPs"), banks and financial services, retail, professional
services, etc.).
UPC plans to utilize cable phone equipment with various line capabilities.
For the residential/SOHO market, a one-, two- or four-line unit will be
utilized. Five- and twelve-line cable phone equipment units will be used to
provide service to segments of the medium business market. Large businesses
generally will be connected to the network with direct fiber connections using
self-healing fiber optic ring Synchronous Digital Hierarchy (SDH) technology.
This technology automatically detects disruptions in the fiber and reroutes
calls within 1/20 of a second, thereby providing reliable service to these
customers. See "Technology".
THE A2000 EXPERIENCE
A2000 has successfully launched cable telephony services in parts of its
systems under the brand name Nedpoint. As of September 30, 1998, A2000 had
approximately 16,000 lines covering 13,850 cable telephony subscribers. As of
the same date, A2000 achieved a penetration rate of approximately 10.8% of the
homes marketed in Purmerend, its first market where the service was launched in
July 1997. The installation rate for A2000 has averaged over 350 installations
per week during the three months ended September 30, 1998. Current churn rates
are approximately 2.5% on an annualized basis, although the Company expects
churn rates to increase due to typical subscriber moves and the introduction of
telephone number portability, which is expected to be introduced in A2000's
areas of operations in early 1999.
Following the common European pricing model, A2000's tariffs are usage-
based rather than a flat fee and every call is metered. In September 1998,
A2000's average monthly revenue per telephony subscriber was approximately
NLG76.36. This compares with approximately NLG64.50 for KPN subscribers during
1997, although KPN has recently come under regulatory pressure to decrease its
rates and tariffs. The Company understands that the Dutch telecommunications
regulator, OPTA, is considering requiring KPN, A2000's only competitor in
facilities-based local residential voice telephony services, to reduce its
tariffs significantly over the next three years. A2000 expects that it will
have to reduce its own tariffs in order to continue to offer rates at a
discount to those of KPN. A2000 also believes that interconnect rates with KPN
may decline, thereby reducing its costs. See "Regulation -- The Netherlands".
COST OF IMPLEMENTATION
Traditional telephony is carried over twisted copper pair in the local
loop. Cable phone technology allows telephony traffic to be carried
59
<PAGE>
over UPC's upgraded network without requiring the installation of twisted
copper pair. Therefore, instead of the expensive addition of a second cable
into every home and small business, cable phone technology only requires the
addition of equipment at the Master Telecom Center, the distribution hub and in
the home to transform voice communication into signals capable of transmission
over the fiber and coaxial cable. The equipment required in the home is housed
in a small, secure, self-contained unit that is usually mounted on the wall
inside the home. This box is capable of passing through cable television,
Internet cable modem and radio signals and providing standard telephone
services. It also includes an emergency back-up battery. See "Technology".
Once the network has been upgraded to two-way capability, the cost of
implementation for telephony services will include a typical estimated
equipment cost of $72 per line for the voice switch, $36 per line for the Host
Digital Terminal (HDT) and $404 (for two lines of capacity) for the equipment
required in the home. Nortel has supplied the Company's DMS 100E telephone
switches. UPC has cable phone equipment supply agreements with Tellabs and
Nortel. The Company will also need to undertake a substantial upgrade of its
customer care and billing system for each operating system providing telephony
services. See "Risk Factors -- Implementation Risks for Telephony and Internet
Services" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Liquidity and Capital Resources".
INTERCONNECT AGREEMENTS
A2000 and KPN have entered into an interconnect agreement covering all of
A2000's homes and businesses passed that will be capable of receiving telephony
service. Similarly, Telekabel Wien (Austria) has completed an interconnect
arrangement with PTA covering all of Telekabel Wien's homes and businesses
passed. Interconnect agreements are in advanced stages of negotiations for the
Company's systems in France, The Netherlands (UTH) and Norway representing the
balance of the customers planned to be marketed by late 1999. There can be no
assurance that incumbent telecommunications operators will agree to
interconnections in a timely manner or at rates and on other terms that will
permit the Company to offer profitable telephony services. See "Regulation".
ROLL-OUT AND IMPLEMENTATION SCHEDULE
Cable telephony service in The Netherlands to areas outside of the A2000
systems will be provided by UTH. The rollout for these areas is scheduled to
begin during the second half of 1999. UPC plans to set tariffs at a rate
discounted from those of the incumbent telecommunications operator. Priority
Telecom launched its service on a trial basis in Vienna in November 1998. It
intends to launch service to business and residential areas in Vienna passing
approximately 100,000 homes in early 1999. Priority Telecom's service is
scheduled to be rolled out in Vienna to an additional 362,000 homes during the
second quarter 1999, with plans to offer the service to the balance of the
approximately 217,000 remaining homes passed in Vienna capable of receiving the
service by the end of 1999.
Priority Telecom is scheduled to be launched on the entire network in
France and on upgraded portions of the network in Norway during the first half
of 1999.
Because strong back office systems are important to support and integrate
successfully Priority Telecom and UPC's other services, the Company has
dedicated significant resources to the development of its support plan. The
plan includes a convergent customer care and billing system that will allow
residential customers to receive a single bill for all of the services the
Company intends to offer. See "Risk Factors -- Implementation Risks for
Telephony and Internet Services" and "-- Unproven Network Scalability, Speed
and Technology".
PAN-EUROPEAN BACKBONE
The Company intends to develop a pan-European backbone and
telecommunications resale business. This backbone is designed to link UPC's
major cable and telephony networks through a combination of leased capacity
arrangements to allow the Company to capture more traffic between its operating
areas. In October 1998, UPC entered into a contract with
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<PAGE>
Hermes Europe Railtel for the purchase of high-speed fiber optic-based
transmission capacity. This network is currently expected to be in place by
early to mid-1999. See "Technology".
TRADITIONAL TELEPHONY SYSTEM
In addition to its cable telephony operations, UIH's Monor system in
Hungary, which UPC has agreed to acquire, has offered traditional telephony
services since December 1994 and as of September 30, 1998, had approximately
66,900 traditional telephony lines.
REGULATION
Regulation significantly affects the Company's telephony business,
including its profitability and the timing of its introduction. See
"Regulation".
UPC INTERNET/DATA SERVICES: HIGH SPEED ACCESS AND CHELLO
OVERVIEW
At year-end 1997, International Data Corporation (IDC) estimated that there
were approximately 69 million World Wide Web users, of which approximately 24%
were in Western Europe. By 2002, IDC estimates that the number of World Wide
Web users will increase to approximately 320 million, with approximately 26% of
these in Western Europe. To capitalize on this opportunity, UPC has created
chello, its portal Internet and data service division.
chello is launching a European portal with broadband content enabled by its
pan-European AORTA-branded broadband Internet protocol (IP) backbone to service
the Company's operating companies, as well as third-party cable operators
across Europe.
The Company believes it can further develop the residential and business
Internet markets by capitalizing on its existing network capabilities,
continuing network upgrade and broad customer base in certain markets with high
personal computer penetration. UPC has launched a residential and business
cable modem-based high speed Internet access product in Austria, Belgium, The
Netherlands and Norway. The launch of chello in the Company's upgraded Western
European markets is scheduled to begin during the first quarter of 1999. As of
September 30, 1998, UPC had more than 12,125 residential and 600 business cable
modem Internet access subscribers.
MARKET OPPORTUNITY
The company believes there are significant growth opportunities in the
European Internet market, as evidenced by the projected rapid growth in World
Wide Web users in its Western European markets.
<TABLE>
<CAPTION>
NUMBER OF
WORLD WIDE
WEB USERS(1)
-------------------
1997 2001
--------- ---------
<S> <C> <C>
Austria..................................................... 279,000 1,280,000
Belgium..................................................... 370,000 1,390,000
France...................................................... 1,140,000 4,030,000
The Netherlands............................................. 1,070,000 4,540,000
Norway...................................................... 481,000 1,330,000
</TABLE>
- --------
(1) Source: International Data Corporation, The Global Market Forecast for
Internet Usage and Commerce, July 1998
With approximately 3,225 kilometers of high-capacity two-way active fiber
plant deployed throughout its Western Europe systems, the Company believes that
chello has a competitive advantage over traditional ISPs that rely on dial-up
access. chello has also broadband, coaxial cable access to approximately 3.0
million homes, and is able to leverage UPC's long standing cable television-
based relationships with approximately 2.3 million residential subscribers in
chello's planned Internet markets. As an Internet portal, chello also plans to
associate with other cable television operators to provide service to their
subscribers.
CURRENT INTERNET ACCESS TECHNOLOGIES
The Company believes that the slow speed of current residential Internet
access is a significant deterrent for Internet users. This slowness results
from the predominance of telephone dial-up modems, which have a maximum access
speed of only 56 kb/sec and an actual realized speed that is generally lower.
Although a number of different technologies designed to provide much faster
access than dial-up modems have been proposed and are being tested, UPC
believes that cable modem access technology is superior to all other current
technologies because: (i) cable modem technology
61
<PAGE>
is based on the widely used Transport Control Protocol/Internet Protocol
(TCP/IP), which is used on local area networks (LANs) and the Internet; (ii) a
global standard has been created and accepted; and (iii) customers are served
by a shared infrastructure, which allows for lower cost service offerings.
Cable modem service, such as that employed by chello, consists of a cable
modem in the customer's home or office that permits the customer's personal
computer to connect to the Internet at speeds up to 100 times faster than most
dial-up modem services. Cable modem service initially will be targeted
primarily to high-end Internet users frustrated with the speed of access,
quality of service and high telephone bills associated with their existing
dial-up service. chello intends to store the most popular Internet sites
locally, thus making it available at the high speeds made possible by its
network. The existence of the AORTA pan-European backbone will enable chello to
aggregate the volume of data stored for availability at high speeds to its
customers. Although chello will price its service at a subscription level that
is above that of dial-up services, cable modem users will not incur any
telephone usage charges and thus, depending on usage, the overall monthly cost
to the subscriber may actually be lower than the cost of an analog modem
connection over the telephone network. UPC also intends to target the service
to SOHO and medium-sized business customers who may view the services as a
lower cost alternative to leased lines.
UPC will also enable its cable television operators to offer customers an
"Internet TV" service. Internet TV service consists of a set-top box that
allows customers to use their existing television to access the chello network
and the Internet. See "Technology".
COMPETITION
The Internet services business in Europe is highly competitive. The Company
believes, however, that its strategy for chello, which encompasses competitive
pricing and superior service combined with high speed access and compelling
content, will mitigate the effects of competition from other ISPs in its
markets. The Company currently competes with traditional dial-up ISPs and ISDN
providers (including many incumbent telecommunications service providers) and
expects that chello will face competition from other broadband cable modem
service providers, such as @Home and Roadrunner as they move to the European
market. In the future, UPC expects competition from providers using other
broadband technologies.
CHELLO GROWTH STRATEGY
UPC is creating chello as part of a pan-European strategy designed to
capture value by developing economies of scale and market share by leveraging
its existing cable television and telephony subscriber base. To accomplish this
goal, chello intends to provide, over a pan-European backbone, local cable
television operators with high speed broadband access, server farms,
proprietary high-bandwidth content, and centralized customer service and
billing. These server farms can store the most popular content locally for
quick retrieval by subscribers.
The Company intends to market chello to the residential/SOHO and medium
business segments. The Company believes that local partners, in addition to
UPC's operating systems, will be crucial for chello's success. chello intends
to enter into partnerships with non-UPC local cable operators in order to share
responsibilities in creating the service and revenues generated by the service.
UPC may offer equity securities of chello to its partners or other investors to
fund further development or to encourage third-party cable operators to become
chello affiliates. In these partnering arrangements, UPC expects that chello
will provide connection to the AORTA pan-European backbone network, purchase
and maintain the regional server farms, provide general customer service and
billing and develop proprietary broadband content. The local cable operators
would generally install the customer premise cable modems and termination
modems and offer first level telephone-based technical support. The precise
division of responsibility will be negotiated on a case-by-case basis.
CHELLO CONTENT STRATEGY
chello intends to develop an Internet portal business by partnering with
providers of local, regional, national and international content, rather
62
<PAGE>
than attempting to create the majority of its own content. UPC believes that
high bandwidth and compelling content are necessary from the outset to provide
users with a rewarding broadband experience that is superior to its
competitors' offerings. chello intends to develop as part of its portfolio
interactive content for set top boxes designed to provide cable affiliates with
Internet-enabled content such as electronic programming guides, electronic
banking, home shopping and on-line gaming. chello also intends to leverage its
"first-screen advantage" to drive traffic into its Internet portal.
COST OF IMPLEMENTATION
Cable modem technology allows access to the Internet over UPC's existing
upgraded network. All that is required to transform data communication into
signals capable of transmission over fiber and coaxial cable is the addition of
incremental electronic equipment (servers, routers and switches) at the Master
Telecom Center. The equipment in the home is a small, self-contained cable
modem that is placed nearby the customer's personal computer and connected to
the cable system. The Company also plans to offer customers an Internet TV
service. The Internet TV service will consist of a set-top box that allows
customers to use their existing television as a platform for accessing chello's
network. See "Technology".
Once the network has been upgraded to two-way capability, the cost of
implementation for Internet/data services will include the estimated
incremental Master Telecom Center and distribution hub equipment costs of
approximately NLG400 per subscriber and approximately NLG600 per cable modem
for the required equipment in the home in early 1999. The Company is currently
negotiating with the cable modem suppliers, however, and expects that prices
for cable modems will decrease to approximately NLG400 by 2000. The Company has
entered into supply agreements to obtain cable modems primarily from Bay
Networks/Nortel and Motorola.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Risk Factors --
Capital-intensive Business".
INTERNET ACCESS EXPERIENCE TO DATE
UPC has launched a residential and business cable modem-based, high-speed
Internet access service in Austria, Belgium, The Netherlands and Norway. The
Company has marketed its current Internet service as a high speed Internet
access product excluding many of the value added services that chello expects
to provide. The Company's marketing efforts for its Internet access service
have been limited to date but it intends to implement a more substantial brand
marketing program from the launch of chello's service.
ROLL-OUT AND IMPLEMENTATION SCHEDULE
The launch of chello in the Company's upgraded Western European markets is
scheduled to begin during the first quarter of 1999. The back office support
plan described under "-- UPC Telephony Services: Priority Telecom -- Roll-Out
and Implementation Schedule" is similar to the back office support plan that
chello intends to implement.
PAN-EUROPEAN BACKBONE
chello intends to develop its AORTA- branded pan-European backbone. This
backbone is designed to link UPC's major cable networks through a combination
of leased capacity arrangements to allow the Company to capture more traffic
between its operating areas. The pan-European backbone will also enable chello
to aggregate the volume of data stored for availability at high speeds to its
customers and will facilitate a direct U.S. Internet link in the future. In
October 1998, UPC entered into a contract with Hermes Europe Railtel for the
purchase of high-speed fiber optic-based transmission capacity. This network is
currently expected to be in place by early to mid-1999. See "Technology".
REGULATION
The Company's Internet access business currently is subject to limited
regulation. However, the legal and regulatory environment applicable to the
Internet is in a fluid state. Adverse regulatory developments could negatively
affect the Company's Internet business. See "Regulation".
63
<PAGE>
OPERATING COMPANIES
AUSTRIA: TELEKABEL GROUP
The following selected financial data have been derived from the
financial statements of Telekabel Group ("Telekabel Group"). These
financial statements have been prepared in accordance with generally
accepted accounting principles in The Netherlands with the Austrian
schilling as the functional currency. The following selected financial data
includes a translation using the September 30, 1998 average exchange rate
of 0.16019 Dutch guilders per Austrian schilling ("AS").
<TABLE>
<CAPTION>
TRANSLATION
YEAR ENDED DECEMBER 31, TO GUILDERS
--------------------------- NINE MONTHS ------------------
ENDED NINE MONTHS ENDED
1995 1996 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------- ------- --------- ------------------ ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (AS) 921,000 985,338 1,018,095 813,333 NLG130,288
EBITDA(1)............... (AS) 468,200 512,356 507,022 391,631 NLG 62,735
EBITDA margin........... 50.8% 52.0% 49.8% 48.2% 48.2%
Total capital
expenditures........... (AS) 287,849 388,813 374,717 325,095 NLG 52,077
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------- AT SEPTEMBER 30,
1995 1996 1997 1998
------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)............ 855,246 872,016 890,305 897,938
Basic video subscribers.... 414,775 428,453 435,859 442,596
Basic video penetration.... 48.5% 49.1% 49.0% 49.3%
Avg. mo. service rev. per
video subscriber(3)....... (NLG) 26.43 27.54 27.79 29.01
Two-way homes passed....... -- -- 339,900 487,055
Internet subscribers:
Residential............... -- -- 1,177 5,106
Business.................. -- -- 21 312
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(2) The Company estimates that there are currently approximately 1,071,000
homes under license in Telekabel Group's franchise areas.
(3) Service revenues excluding installation revenue for the years ended
December 31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1998 have been converted to Dutch guilders using the
average exchange rate for the first nine months of 1998.
OVERVIEW/GROWTH STRATEGY. UPC owns 95% of the Telekabel Group, which
provides communications services to the Austrian cities of Vienna, Klagenfurt,
Graz, Baden and Wiener Neustadt and is the largest video distribution system in
Austria with over 40% of the market. Telekabel Group's largest subsidiary,
Telekabel Wien, which serves Vienna and represents approximately 87% of
Telekabel Group's total subscribers, owns and operates one of the larger
clusters of cable systems in the world in terms of subscriber numbers served
from a single headend.
UPC is capitalizing on Telekabel Group's strong market position and
positive perception by its customers by aggressively expanding Telekabel
Group's service offerings as its network is upgraded to full two-way
capability. The upgraded network enabled Telekabel Group to launch an expanded
basic tier, impulse pay-per-view services and Internet/data services in 1997.
Telekabel Group was the first Austrian cable television company to offer tiered
and pay-per-view services when it launched such services in Vienna. The pay-
per-view buy rate has since grown to more than two movies per expanded
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<PAGE>
basic subscriber per month, although Telekabel Group expects this average to
decrease because high-demand customers subscribed early to the expanded basic
tier and later subscribers will likely have a lower demand for pay-per-view
services. Telekabel Group is considering restructuring its basic and expanded
tiers to increase further its average revenue per subscriber, although the
extent and timing of any such restructuring would depend upon market studies
and the approval of the cities that hold 5% of each of the five Telekabel Group
operating companies. See "Regulation -- Austria".
Telekabel Group launched an Internet access service in September 1997 and
had approximately 5,400 Internet access subscribers as of September 30, 1998,
with current average monthly additions of 1,200 customers. It plans to
introduce the chello service in early 1999. In addition, Telekabel Group
launched Priority Telecom's cable telephony service in Vienna on a trial basis
in November 1998. Following intervention of regulatory authorities on behalf of
Telekabel Group, Telekabel Group entered into an interconnect arrangement with
PTA, the incumbent telecommunications service operator, in November 1998. See
"Regulation -- Austria -- Telephony and Internet/Data Services".
NETWORK. Telekabel Group owns the complete cable television infrastructure
for each of its systems from the headend to the home. In early 1992, Telekabel
Wien initiated the rebuild and upgrade of its existing cable network in Vienna.
The upgrade, which incorporates high capacity 860 Mhz technology and is
expected to be 75% completed by the end of 1999, was approximately 54% complete
and passed approximately 487,050 homes as of September 30, 1998.
PROGRAMMING. Telekabel Group offers basic subscribers 32 channels of cable
programming, including substantially all of the broadcast channels from Austria
and Germany, as well as CNN, Super Channel, MTV, an informational channel, Tips
and Hits, Telekino Heute and Vienna cable text. Telekabel Group launched an
expanded basic tier in May 1997 by providing subscribers whose homes are passed
by the upgraded network an advanced analog decoder box, the cost of which is
provided for in the monthly rate. The expanded basic tier currently provides
seven channels of additional programming: ONYX, VH-1 Germany, BET, Muzzik, BBC
World, BBC Prime and an adult channel. In conjunction with the launch of this
tier, Telekabel Group launched an impulse pay-per-view service with up to ten
channels of programming. Telekabel Group also offers approximately 50 channels
of pay digital radio programming to subscribers in Vienna.
RESULTS OF OPERATIONS. For the nine months ended, September 30, 1998,
Telekabel Group had total revenues of approximately NLG130.3 million
representing approximately 42.7% of UPC's consolidated revenues for the same
period, and EBITDA of approximately NLG62.7 million. For the year ended
December 31, 1997, Telekabel Group had total revenues of approximately NLG162.8
million, which represented approximately 48.3% of UPC's consolidated revenues
for the year, and EBITDA of approximately NLG81.1 million. Telekabel Group's
EBITDA margin declined slightly from 49.8% for the year ended December 31, 1997
to 48.2% for the nine months ended September 30, 1998. This decline was due
primarily to the increased start up costs associated with Telekabel Group's
cable telephony and Internet/data services. These costs were approximately
NLG6.5 million for the first nine months of 1998. The EBITDA margin for
Telekabel Group's video services business on a stand-alone basis was
approximately 55.0% for the nine months ended September 30, 1998. A large
component of Telekabel Group's operating expenses are franchise and other fees
paid to the respective municipalities, which were approximately NLG17.5 million
and approximately NLG17.1 million, respectively, for the nine months ended
September 30, 1997 and 1998.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. Telekabel Group has
budgeted approximately NLG87.2 million and NLG197.4 million for capital
expenditures in 1998 and 1999, respectively, primarily to continue to upgrade
its network to full two-way capacity, purchase customer premise equipment for
its new services, install a telephony switch and implement
65
<PAGE>
a subscriber management system. Telekabel Group expects to fund these
expenditures through available cash flow and support from UPC.
Telekabel Group incurred through September 30, 1998 capital expenditures of
approximately AS57.3 million (NLG9.2 million) since December 1997 for the
development of its telephony business and approximately AS139.7 million
(NLG22.4 million) since January 1997 for its Internet/data business.
COMPETITION. Telekabel Group's cable systems compete with a DTH service
that is available throughout Austria. Currently, DTH penetration of the
Austrian market is approximately 35% and is concentrated primarily in the rural
areas of the country. There is less competition from DTH in Vienna where the
Company estimates that DTH penetration is approximately 8%. Competition in the
Internet/data business in Austria is intensifying. PTA, the national incumbent
telephony service provider, is promoting its ISDN lines and a number of other
companies recently have entered, or are expected to enter, the market. Upon
launch of its telephony service in Vienna, Telekabel Group began competing with
PTA. New facilities-based competitors in Telekabel Group's operating areas
include United Telkom Austria, Tele.ring and Citykom. In addition, there are
three wireless telephony providers in Telekabel Group's operating areas.
REGULATORY ISSUES. The regulatory environment in which the Telekabel Group
operates significantly affects the operations of its business, including the
profitability and the timing of introduction of UPC's new business lines. See
"Regulation -- European Union" and "-- Austria".
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BELGIUM: RADIO PUBLIC N.V./S.A.
The following selected financial data have been derived from the
financial statements of Radio Public N.V./S.A., which is marketed under the
name "TVD". These financial statements have been prepared in accordance
with generally accepted accounting principles in The Netherlands with the
Belgian franc as the functional currency. The following selected financial
data includes a translation using the September 30, 1998 average exchange
rate of 0.05463 Dutch guilders per Belgian franc ("BEF").
<TABLE>
<CAPTION>
TRANSLATION
YEAR ENDED DECEMBER 31, TO GUILDERS
------------------------- NINE MONTHS ------------------
ENDED NINE MONTHS ENDED
1995 1996 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------- ------- ------- ------------------ ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (BEF) 681,539 693,990 710,521 493,216 NLG 26,944
EBITDA(1)............... (BEF) 255,000 268,232 267,815 179,803 NLG 9,807
EBITDA margin........... 37.4% 38.7% 37.7% 36.4% 36.4%
Total capital
expenditures........... (BEF) 47,915 56,018 213,728 294,710 NLG 16,100
<CAPTION>
AT ENDED DECEMBER 31,
------------------------- AT SEPTEMBER 30,
1995 1996 1997 1998
------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)......... 133,000 133,000 133,000 133,000
Basic video
subscribers............ 127,843 127,815 127,527 127,574
Basic video
penetration............ 96.1% 96.1% 95.9% 95.9%
Avg. mo. service rev.
per video
subscriber(3).......... (NLG) 18.92 19.20 19.58 19.76
Two-way homes passed.... -- -- 27,600 85,939
Internet subscribers:
Residential............ -- -- 213 926
Business............... -- -- 40 204
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(2) The Company estimates that there are currently approximately 133,000
homes under license in TVD's franchise areas.
(3) Service revenues excluding installation revenue for the years ended
December 31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1998 have been converted to Dutch guilders using the
average exchange rate for the first nine months of 1998.
OVERVIEW/GROWTH STRATEGY. TVD, a 100% owned subsidiary of UPC, provides
cable television and communications services in selected areas of Brussels and
nearby Leuven in Belgium. TVD, which currently has 96% penetration, plans to
grow through the introduction of new services that currently are not subject to
the price regulations applicable to basic cable services.
TVD's management believes there is a strong demand for enhanced services in
its market. TVD introduced expanded basic tier in October 1996 and an Internet
access service in September 1997. As of September 30, 1998, TVD had 5,003
expanded basic subscribers and 926 residential and 204 business Internet access
subscribers. TVD plans to introduce the chello service in 1999. As TVD upgrades
additional portions of its network to full two-way capability, it plans to
introduce impulse pay-per-view in the second quarter of 1999. The Company is
exploring the possibility of providing cable telephony services.
NETWORK. TVD owns the complete cable television infrastructure for each of
its systems from the headend to the home, with the exception of Etterbeek
(15,000 subscribers), where TVD has an agreement with the municipality to
operate the
67
<PAGE>
network until at least 2016. In late 1996, TVD began upgrading its network
through fiber optic overlay of its trunk lines and replacement of all
amplifiers. Employing high capacity 860 Mhz technology, TVD's upgraded networks
passed approximately 85,925 homes, or 65% of its total network as of September
30, 1998. TVD expects to complete this upgrade by mid-1999.
PROGRAMMING. TVD offers in Brussels a basic tier consisting of 32 channels,
17 expanded basic programs in six tiers, 20 FM radio channels and 42 premium
digital radio channels. Its system in Leuven offers a basic tier consisting of
37 channels, an expanded basic tier with six channels, 20 FM radio channels and
42 premium digital radio channels. TVD also distributes five premium channels
(three in Brussels and two in Leuven), which are provided by Canal+.
RESULTS OF OPERATIONS. For the nine months ended September 30, 1998, TVD
had total revenues of approximately NLG26.9 million, representing approximately
8.8% of UPC's consolidated revenues for the same period, and EBITDA of
approximately NLG9.8 million. For the year ended December 31, 1997, TVD had
total revenues of approximately NLG38.7 million, which represented
approximately 11.5% of UPC's consolidated revenues for the year, and EBITDA of
approximately NLG14.6 million. TVD's EBITDA margin declined from 37.7% for the
year ended December 31, 1997 to 36.4% for the nine months ended September 30,
1998. This decline was due primarily to the increased start up costs associated
with TVD's Internet/data services. These costs were approximately NLG1.8
million, for the nine months ended September 30, 1998. The EBITDA margin for
TVD's video services business on a stand-alone basis was approximately 47.2%
for the nine months ended September 30, 1998. In early 1998, TVD ceased
providing engineering services for some UPC affiliates and third parties. This
resulted in a slight decrease in revenue in 1998; however, EBITDA was not
effected.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. TVD has budgeted
approximately NLG19.4 million (BEF355.3 million) and NLG 25.7 million (BEF469.6
million) for capital expenditures in 1998 and 1999, respectively, primarily to
continue its network upgrade to full two-way capacity, purchase customer
premise equipment for its new services and implement a subscriber management
system. TVD expects to fund these expenditures through available cash flow.
Since June 1997, TVD incurred through September 30, 1998 capital
expenditures of approximately BEF53.7 million (NLG2.9 million) for the
development of its Internet/data business.
COMPETITION. TVD has effectively full penetration (approximately 96%) in
its market. TVD faces competition, however, from one other cable television
provider, Iverlek, which was granted a license for the provision of cable
television services in Leuven and is constructing a cable network. As of
September 30, 1998, TVD had approximately 28,400 subscribers in Leuven. To
date, TVD has experienced only limited competition from DTH providers. In its
Internet access business, TVD competes with traditional dial-up ISP's launching
ADSL service. Also, the Company understands that in Leuven, Telenet will offer
a broadband access and content service using Iverlek's new cable network.
REGULATORY ISSUES. The regulatory environment in which TVD operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of UPC's new business lines. See
"Regulation -- European Union" and "-- Belgium".
68
<PAGE>
THE NETHERLANDS: UNITED TELEKABEL HOLDING (UTH)
UPC's Dutch operations are held through UTH, an unconsolidated subsidiary,
of which UPC holds 51% and NUON holds 49%. UTH holds three principal operating
companies: CNBH (formed upon the combination of KTE and Combivisie), Telekabel
Beheer, both of which it wholly owns, and A2000, of which it owns 50%. MediaOne
owns the other 50% of A2000. UTH does not consolidate the results of A2000.
Financial and operating information for UTH's consolidated companies (KTE,
Combivisie and Telekabel Beheer) are presented separately in this section
because of the separate history of each entity. A2000 is also presented
separately.
Prior to the creation of UTH and CNBH, UPC's first investment in The
Netherlands was a 3.8% ownership interest in KTE, which operates in Eindhoven.
KTE was contributed by Philips upon formation of the Company. Shortly after
formation, UPC acquired 50% of A2000, the Amsterdam and surrounding areas
system, and the remaining 96.2% of the KTE system. Effective January 1, 1998,
UPC acquired the Combivisie cable system, which it subsequently combined with
KTE to form CNBH.
In August 1998, UPC and NUON created UTH. UPC contributed 100% of CNBH and
its 50% interest in A2000 and NUON contributed 100% of Telekabel Beheer. UTH is
in the process of integrating all of the operations of CNBH and Telekabel
Beheer. See "Corporate Ownership Structure -- The Netherlands -- UTH". UTH owns
and operates systems in the regions of Brabant, Flevoland, Friesland and
Gelderland, and holds the 50% of A2000. Because of the large number of current
subscribers located in four large clusters in The Netherlands, UTH is
constructing a fiber backbone to interconnect its region-wide networks.
In September 1998, UTH acquired 80% of Uniport, a carrier select telephony
service with approximately 16,000 subscribers.
69
<PAGE>
The following selected financial data have been derived from the
financial statements of Kabeltelevisie Eindhoven ("KTE"), Stichting
Combivisie ("Combivisie") and NV TeleKabel Beheer ("Telekabel Beheer"),
which are now wholly owned by UTH. The Company combined the assets of KTE
and Combivisie in January 1998 to form CNBH. In August 1998, UPC
contributed CNBH and 50% of A2000 and NUON contributed Telekabel Beheer to
form UTH. These financial statements have been prepared in accordance with
generally accepted accounting principles in The Netherlands with the Dutch
guilder as the functional currency.
<TABLE>
<CAPTION>
KTE COMBIVISIE TELEKABEL BEHEER
--------------------------- ------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------- -----------------------------
1995 1996 1997(1) 1995 1996 1997 1995 1996 1997(1)
------- ------- --------- ------- ------- ------- ------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (NLG) 16,544 17,932 20,669 25,661 27,143 29,001 3,656 113,917 137,167
EBITDA(2)............... (NLG) 9,948 11,298 12,719 17,948 19,816 21,032 (188) 45,041 58,813
EBITDA margin........... 60.0% 63.0% 61.5% 60.9% 73.0% 72.5% (5.1)% 39.5% 42.9%
Total capital
expenditures........... (NLG) 2,006 5,591 8,192 6,847 9,250 19,121 2,802 36,000 71,875
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
--------------------------- ------------------------- -----------------------------
1995 1996 1997(1) 1995 1996 1997 1995 1996 1997
------- ------- --------- ------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(3)......... 88,290 89,116 95,442 136,375 139,062 143,376 96,250 511,300 642,000
Basic video
subscribers............ 83,408 84,660 90,671 130,429 133,775 139,249 89,500 475,000 595,000
Basic video
penetration............ 94.5% 95.0% 95.0% 95.6% 96.2% 97.1% 93.0% 92.9% 92.7%
Average mo. service rev.
per video
subscriber(4).......... (NLG) 16.60 17.69 18.03 15.65 16.21 17.19 14.93 15.69 16.20
Two-way homes passed.... -- -- 90,000 -- -- 35,000 -- -- 50,000
</TABLE>
<TABLE>
<CAPTION>
UTH(5)
------------------
NINE MONTHS
ENDED
SEPTEMBER 30, 1998
------------------
<S> <C> <C>
SELECTED FINANCIAL DATA:
Revenues............................................ (NLG) 156,690
EBITDA(2)........................................... (NLG) 79,034
EBITDA margin............................................. 50.4%
Total capital expenditures.......................... (NLG) 117,814
<CAPTION>
AT SEPTEMBER 30,
1998
------------------
<S> <C> <C>
OTHER DATA:
Homes passed(3)........................................... 907,078
Basic video subscribers................................... 855,27
Basic video penetration................................... 94.3%
Average mo. service rev. per video subscriber(4).... (NLG) 17.95
Two way homes passed...................................... 422,902
</TABLE>
--------
(1) In July 1997, UPC acquired a cable system in Son en Breugel with
approximately 5,000 subscribers. KTE's December 31, 1997 data includes
financial data for the six months of the Son en Breugel system as it
has been integrated into KTE. Telekabel Beheer acquired several
networks during 1997.
(2) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(3) The Company estimates that there are approximately 935,100 homes in
UTH's franchise areas.
(4) Service revenue excludes installation revenue.
(5) Because UTH began operations in August 1998, the financial information
presented for the nine-month period includes (i) results of CNBH,
Telekabel Beheer and Uniport for the first seven months of 1998 and
(ii) results of UTH from formation to September 30, 1998.
70
<PAGE>
OVERVIEW/GROWTH STRATEGY. Both KTE and Combivisie introduced an expanded
basic tier in December 1996, and CNBH (into which KTE and Combivisie were
combined in 1998) launched impulse pay-per-view services in June 1998.
UTH intends to launch chello's Internet/data services in the CNBH systems
in January 1999. In addition, UTH plans to introduce the initial phase of cable
telephony services in the CNBH systems in early 1999 upon completion of an
interconnect agreement. Telekabel Beheer introduced an Internet access service
in November 1997 in parts of its networks and also delivers a PBX-based
business telephony service, including leased line management, on-site services
and telephone equipment, to its former 100% shareholder, NUON, and several
other companies.
In August, 1998, UTH acquired from Nutsbedrijf Regio Eindhoven, a 16,700
subscriber cable television system in the Eindhoven region. This acquisition
enabled the Company to increase its cluster of operations in and around the
Eindhoven area.
NETWORK. Each of UTH's systems owns the complete cable television
infrastructure from the headend to the home. In 1997, Combivisie and Telekabel
Beheer began upgrading their networks with high capacity 860 MHz technology.
The upgrade is expected to be 89% completed by year-end 1999. As of September
30, 1998, approximately 47.0% of UTH's homes were passed by the upgraded
network.
PROGRAMMING. UTH currently offers its subscribers an average of 28 channels
of basic programming along with a music channel and 33 FM radio channels. UTH
also distributes two premium channels provided by Canal+. In addition, UTH
offers an impulse pay-per-view service, consisting of four movie channels and
one adult channel. UTH's basic service includes Dutch off-air broadcasting
channels, as well as a variety of German, French and English channels. The
eight channels in UTH's expanded basic tier consist of sports, travel, news,
science fiction, music and general entertainment. UTH is discussing with some
of its higher value programming suppliers the migration of their channels from
the basic tier to the expanded basic tier. UTH is not certain when it will
successfully conclude these discussions. See "Risk Factors--Programming Risks".
RESULTS OF OPERATIONS. For the nine months ended September 30, 1998, UTH
had total revenues of approximately NLG156.7 million, representing
approximately 28.4% of UPC's consolidated revenues for the same period if the
Company consolidated the results of UTH and A2000, and EBITDA of approximately
NLG79.0 million. For the year ended December 31, 1997, KTE had total revenues
of approximately NLG20.7 million, which represented approximately 6.1% of UPC's
consolidated revenues for the year, and EBITDA of approximately NLG12.7
million. During the same period, Combivisie had revenues and EBITDA of NLG29.0
million and NLG21.0 million, respectively and Telekabel Beheer had revenues and
EBITDA of NLG137.2 and NLG58.0, respectively.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. UTH has budgeted
approximately NLG184.9 million and NLG187.2 million for capital expenditures in
1998 and 1999, respectively, primarily to continue its network upgrade to full
two-way capacity, purchase customer premise equipment for its new services,
install a telephony switch and implement a subscriber management system. UTH
expects to fund these expenditures through available cash flow, drawings from
the CNBH Facility and proceeds from the anticipated refinancing of the UTH
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Current Debt
Facilities".
UTH incurred through September 30, 1998 capital expenditures of
approximately NLG5.0 million since May 1998 for the development of its
telephony business and approximately NLG6.8 million since June 1997 for its
Internet/data business.
COMPETITION. UTH is the only cable system in its franchise area. To date,
UTH has maintained a high level of penetration (approximately 94%) and
competition from off-air television signals, DTH and local SMATV systems has
been limited.
71
<PAGE>
In its Internet access business, UTH will compete with dial-up ISPs such as KPN
(World Access/Planet Internet), NLNet and World Online. Upon launch of
telephony services, UTH will compete primarily with KPN.
REGULATORY ISSUES. The regulatory environment in which UTH operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of UPC's new business lines. See
"Regulation -- European Union" and "-- The Netherlands".
THE NETHERLANDS: A2000 HOLDING N.V.
The following selected financial data have been derived from the
financial statements of A2000 Holding N.V. ("A2000"). These financial
statements have been prepared in accordance with generally accepted
accounting principles in The Netherlands with the Dutch guilder as the
functional currency. Since August 6, 1998, through UTH, UPC has a net 25.5%
interest in A2000.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------- ENDED
1995(2) 1996 1997 SEPTEMBER 30, 1998
------- ------- ------- ------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (NLG) 37,493 89,893 101,450 90,234
EBITDA(1)............... (NLG) 17,115 40,829 33,763 21,620
EBITDA margin........... 45.6% 45.4% 33.3% 24.0%
Total capital
expenditures........... (NLG) 6,917 44,740 120,242 80,170
<CAPTION>
AT DECEMBER 31,
------------------------- AT SEPTEMBER 30,
1995 1996 1997 1998
------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(3)......... 516,998 555,459 565,740 569,459
Basic video
subscribers............ 488,631 523,940 518,160 516,729
Basic video
penetration............ 94.5% 94.3% 91.6% 90.7%
Avg. mo. service rev.
per video
subscriber(4).......... (NLG) 12.96 12.96 13.29 14.25
Two way homes passed.... -- -- 125,180 329,101
Telephony subscribers... -- -- 3,255 13,840
Internet subscribers.... -- -- 450 5,456
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(2) Because A2000 was formed in July 1995, these figures represents the six
months ended December 31, 1995 only.
(3) The Company estimates that there are currently approximately 575,000
homes in A2000's franchise areas.
(4) Service revenues excluding installation revenue.
OVERVIEW/GROWTH STRATEGY. A2000, a 50/50 joint venture between UTH and
Media One, currently enjoys basic penetration rates of approximately 91% in its
two systems that serve Amsterdam and its surrounding communities (Landsmeer,
Purmerend, Zaanstad and Ouder-Amstel) and Hilversum. As a result of this high
penetration and the rate regulation of the basic tier in A2000's franchise
areas, A2000 has focused its efforts on increasing its average revenue per
subscriber through the introduction of new video, telephony and Internet/data
services.
A2000 launched a nine channel expanded basic tier in October 1996, impulse
pay-per-view services in April 1997, cable telephony service on a trial basis
in July 1997 and an Internet/data access service in October 1997. A2000
launched
72
<PAGE>
its Nedpoint-branded cable telephony service in August 1998. See "--UPC
Telephony Services: Priority Telecom--The A2000 Experience". As of September
30, 1998, A2000 had approximately 12,000 subscribers to its expanded basic
tier, approximately 13,850 cable telephony subscribers and approximately 5,450
subscribers to its Internet/data access service. Approximately 15% of
subscribers who subscribe for its Internet/data services also subscribe to an
integrated package including one or both of its telephony and expanded basic
tier services and approximately 30% of the subscribers who subscribe to its
telephony services also subscribe to one or both of the other services. UPC
plans to use the information gathered from its telephony experience in A2000 as
it launches cable telephony in its other primary markets. See "-- UPC Telephony
Services: Priority Telecom".
NETWORK. A2000 owns its infrastructure from the head end to the home and is
in the process of upgrading its cable television infrastructure. As of
September 30, 1998, approximately 329,100 homes (or 58% of A2000's systems)
were passed by the high capacity 860 Mhz upgraded network, with total rebuild
expected to be completed by the end of 1999.
PROGRAMMING. A2000 currently offers 26 channels of cable programming and 39
FM radio channels to its basic tier subscribers in the A2000 systems. A2000
offers programming in many languages, including Dutch, English, German,
Italian, French and Turkish.
A2000's expanded basic tier carries 13 channels. Programming includes both
ethnic (Asian, Chinese and Arabic) and thematic (science fiction, travel,
music, adult and art) content. A2000 has moved some popular channels, including
MBC and the National Geographic Channel, from the basic tier service to the
expanded basic tier. A2000 also distributes two premium channels provided by
Canal+.
Increases in the price of the basic tier service are restricted by
agreements between A2000 and Amsterdam and the other municipalities in its
franchise areas. Because these prices are kept at a low level, A2000's basic
tier revenues are limited. A2000, therefore, charges programming suppliers
carriage fees for the transmission of their channels. See "Regulation -- The
Netherlands -- Video Services". Some of A2000's programming suppliers have been
unwilling to pay such carriage fees and Discovery, Eurosport, CNN and MTV have
withdrawn their channels from A2000's basic tier offering. A2000 has offered to
include these channels in its expanded basic tier or in separate mini-tiers,
although it does not expect this issue to be resolved in the near term. While
A2000 has experienced typical and anticipated customer dissatisfaction with the
change of programs in the basic tier, it has not experienced additional churn
that can be directly attributed to these changes.
A2000 plans to continue to introduce new channels on its tiered services when
such programming is available. A2000's impulse pay-per-view service offers
movies from all major studios on four movie channels. This service also
includes an adult channel and one "barker" channel that provides previews of
upcoming pay-per-view events.
RESULTS OF OPERATIONS. For the nine months ended September 30, 1998, A2000
had total revenues of approximately NLG90.2 million, which would have
represented approximately 22.8% of UPC's consolidated revenues for the same
period if the Company consolidated the results of A2000. For the same period,
A2000 had EBITDA of approximately NLG21.6 million. For the year ended December
31, 1997, A2000 had total revenues of approximately NLG101.5 million, which
would have represented approximately 23.1% of UPC's consolidated revenues for
the year if UPC consolidated the results of A2000, and EBITDA of approximately
NLG33.8 million. A2000's EBITDA margin declined from 33.3% for the year ended
December 31, 1997 to 24.0% for the nine months ended September 30, 1998. This
decline was due primarily to the increased start up and operating costs
associated with A2000's Internet/data and cable telephony services. The costs
associated with these services were approximately NLG13.8 million for the nine
months ended September 30, 1998. The EBITDA margin for A2000's video services
business on a stand-alone basis was approximately 43.5% for the nine months
ended September 30, 1998.
73
<PAGE>
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. A2000 has budgeted
approximately NLG109.4 million and NLG134.7 million for capital expenditures in
1998 and 1999, respectively, primarily to continue its network upgrade to full
two-way capacity, purchase customer premise equipment for its new services and
implement a subscriber management system. A2000 expects to fund these
expenditures through available cash flow and support from its shareholders.
Since January 1997, A2000 has incurred capital expenditures through September
30, 1998 of approximately NLG34.3 million for the development of its telephony
business and approximately NLG11.3 million for its Internet/data business.
COMPETITION. A2000 currently has a high penetration rate in its service
area (approximately 91%). Its primary competition is from DTH providers. To
date, however, exclusive programming rights, low basic cable fees, restrictive
regulations on the installation of dishes and high installation costs have
limited DTH as a meaningful competitor. In its Internet access service, A2000
currently is the only high speed access provider in its operating area. A2000
expects to compete with KPN, which is testing an ADSL service, in the near
future. A2000 also competes with traditional dial-up providers, including KPN's
World Access/Planet Internet, NLNet and Euronet. In its telephony business,
A2000 currently competes with KPN, Telfort and Worldcom. A2000 is competing on
the basis of price and the ability to integrate certain of its services.
REGULATORY ISSUES. The regulatory environment in which A2000 operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of UPC's new business lines. See
"Regulation--European Union" and "--The Netherlands". As discussed above under
"--Programming", price increases of basic tier video services are restricted by
agreements with local municipalities, which has led to some difficulties with
programming suppliers. See "Regulation--The Netherlands".
74
<PAGE>
NORWAY: JANCO MULTICOM
The following selected financial data have been derived from the
financial statements of Norkabelgruppen A/S ("Norkabel"), Janco Kabel-TV
A/S ("Janco") and Janco Multicom ("Janco Multicom"). Norkabel and Janco
merged in 1997 to form Janco Multicom. The 1995 and 1996 financial
statements have been prepared in accordance with generally accepted
accounting principles in Norway with the Norwegian kroner as the functional
currency. Because Janco Multicom's financial statements are consolidated
with those of UPC, the 1997 and September 30, 1998 financial statements
have been prepared in accordance with generally accepted accounting
principles in The Netherlands with the Norwegian kroner as the functional
currency. The following selected financial data includes a translation
using the September 30, 1998 average exchange rate of 0.26689 Dutch
guilders per Norwegian kroner ("NKr").
<TABLE>
<CAPTION>
NORKABEL JANCO
-------------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------- --------------------------
1995 1996 1995 1996
--------------- ---------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (NKr) 216,062 215,621 101,488 101,699
EBITDA(1)............... (NKr) 67,939 68,446 37,837 39,619
EBITDA margin........... 31.4% 31.7% 37.3% 39.0%
Total capital
expenditures........... (NKr) 10,857 16,518 24,533 28,600
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
-------------------------------- -------------------------
1995 1996 1995 1996
--------------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)......... 217,267 221,441 222,500 225,000
Basic video
subscribers............ 152,257 156,915 159,210 160,331
Basic video
penetration............ 70.1% 70.9% 71.6% 71.3%
Average mo. service rev.
per video
subscriber(3).......... (NLG) 28.17 27.54 12.14 12.16
<CAPTION>
JANCO MULTICOM
-----------------------------------------------
TRANSLATION TO
GUILDERS
--------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998
--------------- ---------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (NKr) 332,192 258.663 NLG 69,035
EBITDA(1)............... (NKr) 134,660 96.482 NLG 25,750
EBITDA margin........... 40.5% 37.3% 37.3%
Total capital expendi-
tures.................. (NKr) 74,863 114.549 NLG 30,572
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
1997 1998
--------------- ----------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)......... 457,551 461,759
Basic video
subscribers............ 319,654 319,769
Basic video
penetration............ 69.9% 69.3%
Average mo. service rev.
per video
subscriber(3).......... (NLG) 20.13 21.14
Two way homes passed.... 5,171 10,942
Internet subscribers.... 153 471
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(2) The Company estimates that there are approximately 530,000 homes in
Janco Multicom's franchise areas.
(3) Service revenues excluding installation revenue for the years ended
December 31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1998 have been converted to Dutch guilders using the
average exchange rate for the first nine months of 1998.
75
<PAGE>
OVERVIEW/GROWTH STRATEGY. Since its acquisition of control, UPC's strategy
for its Norwegian systems has been to integrate more fully its operating
subsidiaries to take advantage of economies of scale in implementing the
Company's technical, operational and marketing expertise. In an effort to
increase its position in the Norwegian cable television market, UPC acquired
from Helsinki Media in January 1997, 70.2% of Janco, a cable system with a non-
exclusive license to provide cable television services in the Oslo area. In
November 1997, UPC merged Norkabel into Janco forming Janco Multicom. Following
the merger UPC retained 87.3% of Janco Multicom. UPC acquired the remaining
12.7% interest in Janco Multicom in November 1998.
As a result of the merger, Janco Multicom is Norway's largest cable
television operator with approximately 47% of the total Norwegian cable
television market as of September 30, 1998. Janco Multicom owns and operates 16
cable television systems in Norway located primarily in the southeast and along
the southwestern coast, as well as its main network in Oslo. The well-
established Norwegian cable television market has 69% penetration, as of
September 30, 1998, primarily due to poor over-the-air reception in much of
Norway and a significant demand for television entertainment.
UPC's goals for its Norwegian operating systems are to continue to increase
Janco Multicom's homes passed and penetration rate, improve its average revenue
per subscriber by providing additional programming and services and increase
average revenue per subscriber in the former Janco systems at least up to the
levels in the former Norkabel systems. During the nine months ended September
30, 1998, the average revenue per subscriber for the former Norkabel systems
was over twice that for the former Janco systems. Management believes that this
is the result of Norkabel's implementation of expanded basic tiers and its
aggressive migration of channels from the basic tier to the expended basic
tier. Although the former Janco systems also launched an expanded basic tier,
the basic tier continued to carry the most popular channels. These revenue
enhancing techniques are currently being implemented in the former Janco
systems.
Janco Multicom launched an Internet access service in March 1998 and plans
to introduce the chello service in the first quarter of 1999. UPC also plans to
introduce Priority Telecom's cable telephony service in 1999 in the upgraded
portions of its network. See "-- UPC Internet/Data Services: High Speed Access
and chello", and "-- UPC Telephony Services: Priority Telecom ".
NETWORK. Janco Multicom owns the complete cable television infrastructure
for each of its systems from the headend to the home, except for cable and
plant located on housing association property, which is legally owned by the
housing association. Janco Multicom is currently upgrading its network to full
high capacity 860 Mhz two-way capability, with the exception of 75,000 homes in
western rural areas. Its networks vary in capacity from 300 MHz to 550 MHz .
This varying architecture requires the Company to replace more of the network
than in UPC's other primary markets, thereby increasing the costs of this
upgrade. The upgrade, which began in April 1998, is scheduled to be completed
over the next three to four years.
PROGRAMMING. Janco Multicom currently offers subscribers 31 channels of
programming in four tiers: (i) basic, including "must carry" (a limited number
of broadcast channels required by the government to be carried); (ii) an
expanded basic tier; (iii) a "mini-tier" of certain selected channels; and (iv)
premium services. Because English is widely understood in Norway, Janco
Multicom is able to use English-language programming to supplement the limited,
but increasing, supply of available Scandinavian-language programming.
RESULTS OF OPERATIONS. For the nine months ended September 30, 1998, Janco
Multicom had total revenues of approximately NLG69.0 million, representing
approximately 22.6% of UPC's consolidated revenues for the same period, and
EBITDA of approximately NLG25.8 million. For the year ended December 31, 1997,
Janco Multicom had total revenues of approximately NLG91.5 million, which
represented approximately 27.1% of UPC's consolidated revenues for the year,
and EBITDA of approximately NLG37.1 million. Janco Multicom's EBITDA margin
declined from 40.5% for the year ended December 31, 1997 to 37.3%
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for the nine months ended September 30, 1998. This decline was due primarily to
the increased start up costs associated with Janco Multicom's Internet/data
services launched in early 1998 and telephony service scheduled for launch in
1999. For that period, the EBITDA margin for Janco Multicom's video services
business on a stand-alone basis was approximately 39.1% for the nine months
ended September 30, 1998.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. Janco Multicom has
budgeted approximately NLG59.8 million and NLG90.4 million for capital
expenditures in 1998 and 1999, respectively, primarily to continue its network
upgrade to full two-way capacity, purchase customer premise equipment for its
new services, install a telephony switch and implement a subscriber management
system. Janco Multicom expects to fund these expenditures through available
cash flow and support from UPC.
Since December 1997, Janco Multicom has incurred capital expenditures
through September
30, 1998 of approximately NKr24.6 million (NLG6.6 million) for the development
of its telephony business and, since January 1997, capital expenditures of
approximately NKr14.8 million (NLG4.0 million) for its Internet/data business.
COMPETITION. Janco Multicom experiences limited competition from DTH
providers. In its Internet access business, Janco Multicom expects to compete
with TeleNor, the Norwegian incumbent telecommunications operator, which is
expected to launch a broadband Internet access service this fall; and Tele2,
which launched Connect 2 Satellite, a wireless, broadband downstream Internet
access and dial-up return. Upon the launch of telephony services, Janco
Multicom will also compete in this business with TeleNor.
REGULATORY ISSUES. The regulatory environment in which Janco Multicom
operates significantly affects the operations of its business, including the
profitability and the timing of introduction of UPC's new business lines. See
"Regulation -- European Union" and "-- Norway".
77
<PAGE>
ISRAEL: TEVEL ISRAEL INTERNATIONAL COMMUNICATIONS LTD.
The following selected financial data have been derived from the
financial statements of Tevel Israel International Communications Ltd.
("Tevel"). These financial statements have been prepared in accordance with
generally accepted accounting principles in Israel with the New Israeli
shekel as the functional currency adjusted for changes in the general
purchasing power of the New Israeli shekel using the consumer price index
as of September 30, 1998. The following selected financial data includes a
translation using the September 30, 1998 average exchange rate of 0.55342
Dutch guilders per New Israeli shekel ("NIS").
<TABLE>
<CAPTION>
TRANSLATION
YEAR ENDED DECEMBER 31, TO GUILDERS
------------------------- -------------
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1998(4) 1998
------- ------- ------- ---------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ (NIS) 309,430 341,966 373,021 402,011 NLG222,481
EBITDA(1)............... (NIS) 155,561 185,288 204,251 219,251 NLG121,338
EBITDA margin........... 50.3% 54.2% 54.8% 54.5% 54.5%
Total capital
expenditures........... (NIS) 73,315 50,099 58,963 72,820 NLG40,300
<CAPTION>
AT DECEMBER 31,
------------------------- AT SEPTEMBER 30,
1995 1996 1997 1998 (4)
------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)......... 318,721 334,426 350,392 568,999
Basic video
subscribers............ 218,230 231,712 241,874 395,680
Basic video
penetration............ 68.5% 69.3% 69.0% 69.5%
Avg. mo. service rev.
per video
subscriber(3).......... (NLG) 60.88 62.54 64.20 67.68
Two-way homes passed.... 318,721 334,426 350,392 359,050
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(2) The Company estimates that there are currently approximately 594,000
homes under license in Tevel's franchise areas.
(3) Service revenues excluding installation revenue for the years ended
December 31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1998 have been converted to Dutch guilders using the
average exchange rate for the first nine months of 1998.
(4) In April 1998, Tevel acquired the approximately 144,000-subscriber
Gvanim cable television systems in two areas adjacent to Tevel's
existing operations. The financial data as of September 30, 1998
includes six months of Gvanim's operating results.
OVERVIEW/GROWTH STRATEGY. Tevel has exclusive cable television broadcasting
franchises for the entire Tel Aviv metropolitan area, the region of Ashdod-
Ashkelon (30 miles south of Tel Aviv) and the Jezreel Valley (80 miles
northeast of Tel Aviv). UPC currently owns 46.6% of Tevel. In April 1998, Tevel
acquired 100% of Gvanim Cable Television Ltd. ("Gvanim") and has since
integrated fully Gvanim's operations with its own. Gvanim and its 90%-owned
subsidiary Gvanim-Krayot operate cable television systems in the Rishon-
Leziyon, Ramla-Lod, Modiin, Haifa Bay, Karmiel, Maalot and Lower Galilee areas
of Israel. There are approximately 207,000 homes passed in the Gvanim
franchises and as of September 30, 1998, Gvanim and its subsidiary had
approximately 144,500 subscribers. The Gvanim acquisition increased Tevel's
total subscribers as of September 30, 1998 to more than 395,680 in franchise
areas representing over 594,000 homes, or approximately 40% of the total homes
in Israel.
Tevel's growth strategy is to increase its subscriber base by completing
build out within existing franchise areas, particularly in the Gvanim franchise
areas, increase penetration
78
<PAGE>
rates by offering a wider variety of programming and increase sales of enhanced
services, such as impulse pay-per-view in the Gvanim franchise areas. Should
liberalization occur, Tevel may consider launching its own telephony and
Internet/data services. See "Regulation -- Israel".
In addition to its cable operations, Tevel owns 50% of Globcall, a
telecommunications company that designs, installs and maintains switching
systems (PBX) for businesses. As of September 30, 1998, Globcall served
approximately 47,100 outlets. Tevel also owns 33% of Netvision, one of Israel's
leading Internet service providers that had over 80,000 dial-up subscribers as
of September 30, 1998.
NETWORK. Tevel owns the complete cable television infrastructure for each
of its cable systems from the headend to the home. The systems' construction
incorporates 550 MHz capability (approximately 50 channels) with a 60 MHz
return path providing approximately 359,050 homes passed with two-way
capability for impulse pay-per-view services only. Tevel plans to upgrade all
of its systems to 860 MHz HFC technology capable of providing cable telephony
and Internet/data services. Currently, Gvanim's network is a one-way system
with a substantial overlay of fiber optic backbone, but it is being upgraded to
full two-way capability with the installation of 860 MHz HFC technology. Tevel
expects that the upgrade of all of its systems will be substantially complete
by mid-1999.
PROGRAMMING. Tevel offers basic subscribers 45 channels of programming,
including a wide range of entertainment, news, sports, performing arts and
educational channels, as well as five pay-per-view channels in all of Tevel's
areas. Currently, over 40% of Tevel's subscribers purchase at least one pay-
per-view buy per month. Tevel applied recently for a license to provide the
same pay-per-view service to customers in Gvanim's franchise areas, however,
Tevel has doubts whether this license will be granted.
Tevel and the other Israeli cable television operators own a programming
company, I.C.P. Israel Cable Programming Company Limited ("ICP"). See
"Regulation -- Israel". ICP purchases programming rights for subsequent sale to
cable television operators in Israel and produces two cable-exclusive channels:
a general entertainment channel and a movie channel. A children's channel, a
sports channel and a channel showing nature, science and art documentaries are
produced by third parties.
RESULTS OF OPERATIONS. For the nine months ended September 30, 1998, Tevel
had total revenues of approximately NLG222.5 million and EBITDA of
approximately NLG121.4 million. These amounts include six months of revenue
from the Gvanim systems acquired in April 1998. For the year ended December 31,
1997, Tevel had total revenues of approximately NLG206.0 million and EBITDA of
approximately NLG12.8 million. Tevel's EBITDA margin declined slightly from
54.8% for the year ended December 31, 1997 to 54.5% for the nine months ended
September 30, 1998. This decline was due primarily to reorganization costs
after the merger with Gvanim. The costs associated with the reorganization
reduced Tevel's EBITDA by approximately NIS2.5 million (NLG1.4 million).
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. Tevel has budgeted
approximately $25.0 million (NLG50.6 million) and $35 million (NLG70.8 million)
for capital expenditures in 1998 and 1999, respectively, primarily to continue
to upgrade its network. Tevel expects to fund these expenditures through
available cash flow. To finance the Gvanim acquisition, Tevel has borrowed
NIS928.3 million under a nine-year term loan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital
79
<PAGE>
Resources--Current Debt Facilities--Tevel Facilities".
COMPETITION. Because Tevel has exclusive cable television licenses, to date
it has experienced no competition from other multi-channel television
providers. The Israeli government recently passed legislation, however, to
grant licenses to DTH operators. To date, applications for these licenses have
been submitted by Bezeq, the Israeli incumbent telecommunications service
provider, Clal and Canal+. These operators are expected to begin providing DTH
services by mid-1999. ICP may be required to sell to DTH operators its channels
that are currently offered exclusively to cable television operators. Tevel and
other cable television providers are challenging the legality of this DTH law
in the Israeli Supreme Court. See "Regulation -- Israel".
REGULATORY ISSUES. The regulatory environment in which Tevel operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of UPC's new business lines. See
"Regulation -- Israel".
FRANCE: MEDIARESEAUX MARNE, S.A.
OVERVIEW/GROWTH STRATEGY. UPC has an approximate 99% ownership interest and
a 95% economic interest in Mediareseaux Marne S.A. ("Mediareseaux"), which
currently holds cable television franchises for 114,000 homes in the Marne-la-
Vallee area east of Paris. See "Corporate Ownership Structure --France".
Mediareseaux began construction of its network in September 1996, and as of
September 30, 1998, Mediareseaux's system passed approximately 60,700 homes and
had approximately 20,950 basic subscribers, giving it a penetration rate of
34.5%. To increase its average monthly revenue per subscriber, Mediareseaux
began offering pay-per-view services in May 1998, and to date, the pay-per-view
buy rate is approximately 0.24 movies per expanded basic tier subscriber per
month. Since inception, Mediareseaux's average monthly service revenue per
subscriber has averaged over NLG26.
In July 1998, Mediareseaux obtained a 15 year telephony license for 1.5
million homes in the eastern suburbs of Paris and in September 1998,
Mediareseaux began installing a telephony switch. Mediareseaux plans to begin
offering telephony services by mid-1999 within its cable television franchise
area and has also applied for a wireless license. Mediareseaux also plans to
offer chello's Internet access services in 1999. To expand its operations,
Mediareseaux is pursuing potential acquisition opportunities and plans to
develop these franchises as one clustered system offering integrated video,
cable telephony and Internet/data services.
NETWORK. Mediareseaux owns the complete cable television infrastructure for
each of its cable systems from the headend to the home. The HFC network was
started with a 750 MHz UHF-VHF frequency band network with a 5-65 MHz return
path. The systems' post-1998 construction incorporates 860 MHz HFC capacity
with a 5-65 MHz return providing full two-way capability. As of September 30,
1998, Mediareseaux's network passed approximately 71% of the 86,000 homes in
its franchise areas and the Company expects the network to be fully built out
by the end of 1999.
PROGRAMMING. Mediareseaux's current programming offers a basic eight-
channel package containing off-air, local and promotional programs; four
extended basic tiers (News & Current Events, Youth & Discovery, International
channels, Sports & Leisure) containing five to ten channels each; three premium
tiers containing three children's channels, three sports channels and four
movie channels; and ten impulse pay-per-view channels.
RESULTS OF OPERATIONS. As of September 30, 1998, Mediareseaux had total
revenues of approximately NLG5.2 million for the nine months then ended,
representing approximately 1.7% of UPC's consolidated revenues for the same
80
<PAGE>
date, and net operating losses of approximately NLG3.0 million. For the year
ended December 31, 1997, Mediareseaux had total revenues of approximately
NLG2.5 million, which represented approximately 0.7% of UPC's consolidated
revenues for the year, and net operating losses of approximately NLG4.6
million.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. Mediareseaux has
budgeted approximately NLG56.3 million (FF167.4 million) and NLG68.0 million
(FF202.3 million) for capital expenditures in 1998 and 1999, respectively,
primarily to complete construction of the network in its franchise area,
purchase customer premise equipment for its new services, install a telephony
switch and implement a subscriber management system. Mediareseaux expects to
fund these expenditures through drawings under the Mediareseaux Facility and
equity contributions from UPC to match the debt to equity ratio of the
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Debt Facilities --
Mediareseaux Facility".
COMPETITION. Mediareseaux competes with other video service providers in
its license areas including satellite providers such as Canal Satellite and
TPS. Mediareseaux expects to face competition mainly from France Telecom, the
French incumbent telecommunications provider and Cegetel when it launches its
cable telephony services. Upon the launch of its Internet access service,
Mediareseaux expects to face competition from France Telecom's Wanadoo service,
Cegetel (which now includes AOL, Compuserve and HOL) and Infonie, among others.
REGULATORY ISSUES. Mediareseaux is authorized to operate cable networks for
audio-visual services in the territory of Syndicat Mixte de Videocommunication
de l'Est parisien ("SYMVEP") and the territory of the city of Rosny-sous-Bois
pursuant to two definitive licenses, valid until 2026 and 2022 respectively,
granted by the Conseil Superieur de l'Audiovisuel ("CSA") in September 1997. In
order to operate its cable television infrastructure, however, Mediareseaux was
required to enter into public service delegation agreements with local
authorities. The terms of Mediareseaux's agreements with the SYMVEP Rosny-sous-
Bois govern, among other things, Mediareseaux's channel line-up and cable
subscription rates. The agreements also give the respective territories the
option to purchase Mediareseaux's network at the expiration of the agreements
for a price equal to its usage value as estimated under the terms and
conditions of the agreements. Mediareseaux has also entered into public domain
occupancy agreements with each city in the SYMVEP region giving Mediareseaux
the right to establish its cable network in the public domain. Mediareseaux did
not conclude separate public domain occupancy agreements with Rosny-sous-Bois
as such rights were contained in the public service delegation agreement.
Mediareseaux holds licenses granted by the Minister of Telecommunications
in June 1998 for the establishment and operation of a public telecommunications
network and for the provision of voice telephony in three French departments of
the Paris region. The licenses were granted for a period of 15 years, are non-
transferable and can only be revoked for a material breach of
telecommunications regulations. Mediareseaux is currently negotiating an
interconnect agreement with France Telecom. Pursuant to Article L34.8 II of the
Post and Telecommunication Code, France Telecom's interconnection rates must be
cost oriented and offered on non-discriminatory terms. Mediareseaux expects
that the interconnect agreement will be concluded late this year or early next
year, although there can be no assurance that it will be able to reach an
agreement on a timely basis or on favorable terms. .
MALTA: MELITA CABLE TV P.L.C.
OVERVIEW/GROWTH STRATEGY. Melita Cable TV P.L.C. ("Melita") operates an
exclusive franchise network in Malta with a current penetration rate of
approximately 42%. Currently, UPC and Melita Cable Holdings each own 50% of
Melita. As of September 30, 1998, Melita passed approximately 161,300 homes and
had 68,150 basic video subscribers representing 42.3% penetration. Melita's
growth strategy is to continue to market aggressively its service to homes in
its franchise areas, as well as to provide more programming to increase its
appeal to subscribers.
NETWORK. Melita owns the complete cable television infrastructure from the
headend to the home. Currently, Melita passes over 161,300 homes, or 96% of the
network. The upgrade to
81
<PAGE>
high capacity 860 Mhz two-way capability, which has been initiated this year
and is expected to be completed by 2000, will enable Melita to provide Internet
access and other enhanced services.
PROGRAMMING. Melita currently provides 52 channels of programming, grouped
in three tiers: (i) reception (local and foreign off-air channels), (ii) basic
(reception service plus nine additional satellite services); and (iii) TV Plus
(reception and basic services plus nine additional satellite services). Because
English is spoken in Malta by over 90% of the population, Melita is able to
take advantage of the abundant supply of English language programming available
for licensing. In 1996, Melita created a "live" sports channel showing English
Premier League Football and in 1997, introduced a second "live" sports channel
featuring Italian soccer, as well as four other new channels. In August 1998,
the company combined the features into a full-time sports channel, which
includes other sports events and local productions.
RESULTS OF OPERATIONS. For the nine months ended September 30, 1998, Melita
had revenues of approximately NLG22.2 million and EBITDA of approximately
NLG9.4 million. For the same period, Melita had average monthly service revenue
per video subscriber of NLG36.91. For the year ended December 31, 1997, Melita
had total revenues of approximately NLG23.0 million and EBITDA of approximately
NLG5.0 million.
BUDGETED CAPITAL EXPENDITURE AND CAPITAL RESOURCES. Melita has budgeted
approximately NLG15.4 million and NLG24.6 million for capital expenditures in
1998 and 1999, respectively, primarily to upgrade its network to full two-way
capacity, purchase customer premises equipment, implement a subscriber
management system and purchase its own premises. The network upgrade and the
introduction of new services is expected to be funded through available cash
flow and bank financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Current Debt Facilities -- Melita Facility".
COMPETITION. With the exception of a small number of home satellite
receivers and a few hotel SMATV installations, competition in Malta is limited
primarily to approximately 15 foreign (Italian and Sicilian) broadcast
channels.
REGULATORY ISSUES. In 1991, Melita was awarded an exclusive 15 year
renewable license to deliver cable television services for Malta. Rates for the
basic tiers are subject to regulation and requests for rate increases made to
the government must be accompanied by a cost analysis of the increases in cost.
Premium services, "pay-per-view" and other additional services are not subject
to rate regulation.
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EASTERN EUROPE
The following selected financial data have been derived from the
financial statements of the respective companies. The financial statements
for UPC's operating companies in Hungary, the Czech Republic, Romania and
the Slovak Republic have been prepared in accordance with generally
accepted accounting principles in the respective jurisdictions or The
Netherlands with the functional currency of such jurisdictions the
Hungarian forint, Czech koruna, the Romanian lei and the Slovakian koruna,
respectively. The following December 31, 1997 and September 30, 1998
selected financial data has been converted to Dutch guilders using the same
exchange rates used in the 1997 financial statements and the September 30,
1998 average exchange rates, respectively. See "Exchange Rate Data".
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, 1997 ENDED SEPTEMBER 30, 1998
------------------------------------------- ---------------------------------
TOTAL TOTAL
CAPITAL CAPITAL
EBITDA EXPENDI- EBITDA EXPENDI-
REVENUE EBITDA(1) MARGIN TURES REVENUE EBITDA(1) MARGIN TURES
--------- ---------- ------- --------- ------- --------- ------ --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hungary(2)
Kabelkom............... (NLG) 32,717 14,857 45.4% 11,213 -- -- -- --
Kabeltel............... (NLG) 9,555 778 8.1% 6,759 -- -- -- --
Telekabel Hungary...... (NLG) -- -- -- -- 39,225 14,416 36.8% 16,141
Czech Republic.......... (NLG) 7,492 (6,730) n/a 4,217 6,618 (1,818) n/a 831
Romania(3).............. (NLG) 2.192 1,359 63.4% 857 2,857 1,382 48.3% 616
Slovak Republic......... (NLG) 1,547 (1,011) n/a 2,799 1,163 (73) n/a 3,117
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
----------------------------------------------------------
AVG. MO.
BASIC BASIC SERVICE REV.
HOMES VIDEO VIDEO PER VIDEO UPC NET
PASSED SUBSCRIBERS PENETRATION SUBSCRIBER(4) OWNERSHIP
------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Hungary................. 490,966 413,119 84.1% NLG11.06 79.3%
Czech Republic.......... 148,963 52,268 35.1% NLG13.20 100.0%
Romania................. 95,674 58,900 61.6% NLG 6.27 51.0-100.0% (5)
Slovak Republic......... 26,966 14,636 54.2% NLG 8.20 75.0-100.0% (6)
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income tax
expense, depreciation, amortization, minority interest management fee
expense payable to the Company, currency exchange gains (losses) and
other non-operating income (expense) items.
(2) Kabelkom and Kabeltel were separate entities until they were merged on
June 30, 1998 to form Telekabel Hungary. The financial information
presented for the nine months ended September 30, 1998 comprises: (i)
Kabelkom's results for the first six months of 1998 (revenues of
approximately NLG18.6 million and EBITDA of approximately NLG8.6
million); (ii) Kabeltel's results for the first six months of 1998
(revenues of approximately NLG6.8 million and EBITDA of approximately
NLG1.1 million); and (iii) Telekabel Hungary's results for the three
months ended September 30, 1998 (revenues of approximately NLG13.8
million and EBITDA of approximately NLG4.7 million).
(3) Since Eurosat was acquired in May 1998, only four months of its results
have been included financial results for the Romanian Systems.
(4) Service revenues exclude installation revenue for the nine months ended
September 30, 1998 and have been converted using the average exchange
rate for the first nine months of 1998.
(5) UPC owns 100% of each of Control Cable Ventures and Multicanal Holdings
systems and 51% of Eurosat.
(6) UPC owns 75% of the 11,507-subscriber Trnavatel system and 100% of the
3,129-subscriber Kabeltel system.
HUNGARY: TELEKABEL HUNGARY
OVERVIEW/GROWTH STRATEGY. In June 1998, UPC increased its interest in
Kabelkom, Hungary's largest operator of cable television systems, from 50% to
100%. Shortly thereafter, Kabelkom combined operations with Kabeltel, Hungary's
second largest operator of cable television systems, creating Telekabel
Hungary, in which UPC retains a 79.25% interest. As of September 30, 1998,
Telekabel Hungary had approximately 413,100 subscribers.
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<PAGE>
When Kabelkom was formed in the early 1990s, the system had average monthly
revenue per subscriber of less than NLG2.0. Through the addition of local
language programming and other enhanced video services, these systems had an
average monthly revenue per subscriber of more than NLG10.50 for the year ended
December 31, 1997.
NETWORK. Telekabel Hungary, together with local minority partners for some
systems, owns the complete cable television infrastructure for each of its
systems from the headend to the home. The Company is upgrading these networks.
As of September 30, 1998, approximately 17,300 customers were already served by
the rebuilt network. The upgraded network throughout Budapest will be 750 MHz
HFC technology with 65 MHz return path. As of September 30, 1998, Telekabel
Hungary's network passed 380,000 starpoint homes, that are two way capable, and
64,000 HFC homes.
PROGRAMMING. Telekabel Hungary offers subscribers four tiers of programming
comprising approximately 35 channels: (i) basic tier which includes lifeline (a
limited number of broadcast and satellite channels required by the government
to be carried); (ii) an expanded basic tier; and (iii) a premium service, HBO-
Hungary. Approximately 15 channels, including HBO-Hungary, are available in
Hungarian. In the Telekabel Hungary systems, 75% of all subscribers passed by
the upgraded network take the expanded basic tier package.
RESULTS OF OPERATIONS. As of September 30, 1998, total revenues and EBITDA
for the nine months then ended were approximately NLG39.2 million and NLG14.4
million, respectively. For the year ended December 31, 1997, Kabelkom had total
revenues of approximately NLG32.7 and EBITDA of approximately NLG14.9 million.
For the year ended December 31, 1997, Kabeltel had total revenues of
approximately NLG9.6 and EBITDA of approximately NLG0.8 million. The relative
increase in combined revenue is the result of acquisitions in January 1998
(20,000 subscribers), May 1998 (18,000 subscribers) and the rebuild of
approximately 60,000 homes. This rebuild permits Telekabel Hungary to offer
enhanced services in the former Kabeltel systems, generating an average
additional monthly revenue of approximately NLG3.0 per subscriber.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. Telekabel Hungary has
budgeted approximately NLG55.2 million and NLG51.3 million for capital
expenditures in 1998 and 1999, respectively, primarily to continue the network
upgrade, line extensions and acquisitions. Telekabel Hungary expects to fund
these expenditures through available cash flow, the Hungarian Facility and
support from UPC. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources".
COMPETITION. Telekabel Hungary currently has high penetration in its
service area (averaging over 84%) and faces limited competition. The Company
understands, however, that potential competitors may begin to offer DTH
services in Budapest.
REGULATORY ISSUES. Cable operators in Hungary are not granted franchises;
however, all cable operators must be properly registered with the appropriate
government agency. Moreover, although there is no rate regulation in Hungary,
rates are subject to consumer pricing and anti-competition reviews by the
government. Further, a single cable operator may not provide service to homes
exceeding in the aggregate one-sixth of the Hungarian population.
HUNGARY: MONOR
Monor, UIH's 46.3% owned operating company in Hungary, which UPC has agreed
to acquire, has offered traditional telephony services since December 1994.
Monor has 85,000 homes in its franchise area, with approximately 84,000
traditional telephony homes passed and approximately 67,350 cable television
homes passed. It served approximately 66,900 traditional telephony access lines
and approximately 29,150 cable television subscribers as of September 30, 1998.
Revenues for the year ended December 31, 1997 of approximately NLG28.1 million.
As of September 30, 1998, Monor had total revenues of approximately NLG26.6
million and EBITDA of approximately NLG16.8 million for the nine months then
ended. Monor has approximately $46.0 million of outstanding indebtedness as of
September 30, 1998.
CZECH REPUBLIC
OVERVIEW/GROWTH STRATEGY. UPC owns 100% of KabelNet, its Czech Republic
subsidiaries that provide cable and MMDS ("wireless" cable) television services
in the cities of Prague and Brno (the Czech Republic's second largest city). At
September 30, 1998, the MMDS system served approximately 42,600 subscribers in
both cities and the cable system served approximately 9,500
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<PAGE>
subscribers in Prague. KabelNet's penetration rate was 35.1% as of September
30, 1998.
NETWORK. KabelNet's systems currently offer programming over an MMDS
network and coaxial cable network. KabelNet owns the complete cable system
infrastructure for each of its systems from the headend to the home.
PROGRAMMING. The Czech MMDS systems offer subscribers three tiers of
programming comprising approximately 16 channels: (i) five "must carry"
channels; (ii) a 15-channel basic tier (which includes the "must carry"
channels); and (iii) one premium channel, HBO-Czech. Approximately nine
channels, including HBO Czech, are available in Czech/Slovak. Currently,
approximately 12% of KabelNet's cable subscribers take the expanded basic tier
package.
RESULT OF OPERATIONS. For the nine months ended September 30, 1998,
KabelNet had total revenues of approximately NLG6.6 million and net operating
losses of approximately NLG1.8 million. For the year ended December 31, 1997,
KabelNet had total revenues of approximately NLG2.5 million and net operating
losses of approximately NLG2.2 million.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. KabelNet has budgeted
approximately NLG1.1 million and NLG2.3million for capital expenditures in 1998
and 1999 respectively, primarily to expand MMDS distribution. KabelNet expects
to fund these expenditures through available cash flow and funding from UPC.
KabelNet has no third-party debt.
COMPETITION. KabelNet faces competition in its service area. Currently,
parts of its service areas have been overbuilt by Cable Plus and Dattel Kabel
in Prague and Cable Plus in Brno.
REGULATION. There is no rate regulation of cable/MMDS services in the Czech
Republic. Rate increase notifications must be sent out ninety days in advance,
however, as conditions of the franchises awarded by the municipalities. All
cable operators must have a valid Establishment and Operating permit, which is
issued by the Czech Telecommunications office. Additionally, all cable
operators must be registered with the Council for Radio and Television
Broadcasting.
ROMANIA
OVERVIEW/GROWTH STRATEGY. UPC is currently involved in the development of
three cable companies in Romania: its 100%-owned Control Cable Ventures, with
operations in Ploiesti and Slobozia, and Multicanal Holdings, located in
Bucharest, Romania's capital, in which UPC owns 100% interest, and its 51%-
owned Eurosat in Bacau. Since 1993, when UPC first entered the Romanian market,
the Company has widened its customer base through acquisition and marketing
activities in conjunction with build out. As of September 30, 1998, UPC's
combined Romania operations passed approximately 95,675 homes and served
approximately 58,900 subscribers, representing a penetration rate of 61.6%.
NETWORK. In 1994, UPC initiated an intensive upgrade of its Romanian
systems to rebuild the network from 300 MHz to 550 MHz (750 MHz in Bacau). The
rebuild in Ploiesti (24,000 subscribers) is complete and the rebuild in
Slobozia and Bacau (30,000 subscribers) are expected to be completed by 2000.
PROGRAMMING. The Romanian systems offer subscribers one to three tiers of
programming with approximately 28-34 channels: (i) basic tier; (ii) an expanded
basic tier; and (iii) a premium service, HBO Romania. HBO Romania was launched
in Ploiesti and Bucharest in February and April 1998, respectively. UPC also
launched an expanded basic tier in Ploiesti in April 1998. Approximately 12
channels, including HBO Romania, are available in Romanian. Currently, 15.8% of
the basic tier subscribers take the expanded basic tier package.
RESULT OF OPERATIONS. As of September 30, 1998, the combined Romanian
systems had total revenues of approximately NLG2.9 million for the nine months
then ended and EBITDA of approximately NLG1.4 million. For the year ended
December 31, 1997, the UPC's combined Romanian operations had total revenues of
approximately 2.2 million and EBITDA of approximately 1.4 million.
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BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. The combined Romanian
systems have budgeted approximately NLG1.1 million and NLG1.5 million for
capital expenditures in 1998 and 1999 respectively, primarily to finish
upgrading the networks. The Romanian networks are self funding and have no
third party debt.
REGULATION. Exclusive franchises are not awarded in Romania. UPC has
received non-exclusive licenses to operate cable television systems in all of
its service areas. These renewable licenses are valid for another six years.
The cable television industry is regulated by the Romanian audiovisual law,
which went into effect in June 1996, and is administered by the National
Audiovisual Council.
SLOVAK REPUBLIC
OVERVIEW/GROWTH STRATEGY. UPC entered the Slovakian market in 1995 and
currently has over 68,000 homes in its franchise areas. Together with a local
partner, UPC is developing projects in the cities of Trnava ("Trnavatel"),
Zvolen, Nove Zamky and Levice (all three operated as "KabelTel"). UPC owns 75%
of Trnavatel and 100% of KabelTel and Slovatel. Construction of the network in
Trnava has been completed. The three KabelTel cities are all currently under
construction, which is expected to be completed by the end of 1999. As of
September 30, 1998 UPC's Slovakian operations passed approximately 27,000 homes
and served approximately 14,625 subscribers, representing a penetration rate of
54.2%.
NETWORK. The Slovak systems own the cable network from the headend to the
home.
PROGRAMMING. The Slovakian systems offer subscribers three tiers of
programming on approximately 34 channels: (i) a basic tier; (ii) an expanded
basic tier; and (iii) a premium service, HBO Czech. Approximately 12 channels,
including HBO Czech, are available in Slovak/Czech. Currently, 92.7% of the
subscribers take the expanded basic tier package.
RESULT OF OPERATIONS. As of September 30, 1998, the Slovakian systems had
combined total revenues of approximately NLG1.2 million for the nine months
then ended and net operating losses of approximately NLG0.1 million. For the
year ended December 31, 1997, the Slovakian operations had total revenues of
approximately NLG1.5 million and net operating losses of approximately NLG1.0
million.
BUDGETED CAPITAL EXPENDITURES AND CAPITAL RESOURCES. The Slovakian systems
have budgeted approximately NLG3.4 million and NLG2.0 million for capital
expenditures in 1998 and 1999, respectively, primarily to complete construction
of the network. The Slovakian systems expect to fund these expenditures through
available cash flow and support from UPC. The Slovak systems have no third-
party debt.
REGULATION. There is no regulatory body in the Slovak Republic that issues
cable franchises, however, an operating permit is required. Most private cable
operators have their own agreements with each city and/or large co-operative
housing associations. Moreover, there is no rate regulation on cable
activities. Cable operators are subject, however, to consumer pricing reviews
and the laws on monopolistic positioning in the market and must register with
the broadcast council and submit channel line-ups as part of the permit
process.
OTHER BUSINESS INFORMATION
EMPLOYEES
As of September 30, 1998, UPC, together with its consolidated subsidiaries,
had approximately 1,360 employees. The Company believes that its relations with
its employees are generally good.
Certain of the Company's operating subsidiaries, including its Austrian,
Dutch and Norwegian systems, are parties to collective bargaining agreements
with some of their respective employees.
LEGAL PROCEEDINGS
The Company and its operating companies are not parties to any material
legal proceedings. From time to time, the Company and its operating companies
may become involved in litigation relating to claims arising out of its
operations in the normal course of business.
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TECHNOLOGY
PROPERTIES
The Company leases its corporate offices in Amsterdam and London. The
operating companies and subsidiaries of UPC generally lease their offices as
well. The Company owns small parcels of property in various countries that it
uses for its network equipment. In other countries, it has been able to obtain
easements for this equipment.
The following is a general discussion of the technology employed by UPC. It
is presented for illustrative purposes only and, except where indicated, is not
intended to reflect the technology of any particular operating system. For more
information regarding the technology status of UPC's operating companies, see
the "Network" sections of each operating company in "Business -- Operating
Companies".
UPC NETWORK
UPC typically owns the complete cable television infrastructure for each of
its systems from the headend to the home. Since 1994, the Company has been
rebuilding and upgrading the existing one-way video distribution infrastructure
in the majority of its operating systems by replacing the entire coaxial trunk
network with a fiber optic trunk network and upgrading the remaining coaxial
neighborhood distribution network to full two-way capability. UPC's upgraded
network incorporates two-way capable 860 MHz Hybrid Fiber Coaxial ("HFC")
technology that provides sufficient bandwidth in the upstream portion (from the
subscriber to the Master Telecom Center) and the downstream portion (from the
Master Telecom Center to the subscriber) of the network. This provides the
Company with increased channel capacity and permits the introduction of digital
services, such as enhanced video, telephony and Internet/data services.
The network upgrade consists of two phases: (i) the basic network upgrade
and (ii) the enhanced upgrade that includes the incremental investments
necessary to introduce digital video, telephony or Internet/data services. The
basic upgrade includes the installation of HFC technology throughout the
network. This includes the fiber optic cable, fiber nodes, fiber optic
transmitters and receivers, and the replacement of coaxial amplifiers and
multi-port taps in the coaxial neighborhood distribution network.
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NON-UPGRADED NETWORK ARCHITECTURE. A typical UPC non-upgraded network
architecture (from the headend to the subscriber) is depicted in the diagram
below:
[Diagram of UPC Non-Upgraded Network Architecture]
UPC's non-upgraded cable systems usually consist of stand-alone cable
television headends that are connected to a coaxial dual 45-450 MHz trunk
network. The trunk network is connected to a neighborhood distribution network
that terminates at a multi-port tap device, which connects individual
subscribers. The traditional cable television headend collects the satellite
and terrestrial video signals and distributes these signals to the trunk
network. The trunk network carries small numbers of analog television channels
(15-20 channels on each dual trunk) to a neighborhood substation combiner. This
substation combines each of the dual 45-450 MHz trunk systems so that the 30-40
analog television channels can be distributed on one 45-860 MHz coaxial
distribution network. The smaller cascades of distribution amplifiers then
relay these signals to the final amplifiers where the signal is transferred
through a passive multi-port tap device. These multi-port tap devices allow
individual subscribers to be connected to the network through in-home coaxial
cable connected directly to a television set, thereby terminating the cable
television signal. The majority of UPC's systems acquired from Philips did not
use set-top converters to terminate the signals at the television sets. UPC's
Israeli, Maltese and Norwegian systems use analog set-top technology, however,
to decode scrambled analog channels before subscribers can view the channels on
their television sets.
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BASIC NETWORK UPGRADE
The architecture of the basic network upgrade, which is the first phase, is
depicted in the diagram below:
[Diagram of UPC Basic Network Upgrade]
The basic network upgrade consists of the following steps:
CONVERTING HEADENDS INTO DISTRIBUTION HUBS AND THE MASTER TELECOM CENTER
Existing headends are converted into distribution hubs by adding fiber
optic transmitters and fiber optic receivers. The distribution hubs will also
house certain telephony and Internet equipment installed during the enhanced
services upgrade. See "-- Upgrade for Enhanced Services". For telephony and
Internet/data services, these distribution hubs are connected by high speed
Synchronous Digital Hierarchy ("SDH") fiber optic rings (with transmission
speeds of up to 2.4 Gbps per fiber pair) to the Master Telecom Center. SDH
technology automatically detects disruptions in the fiber and reroutes signals
within 1/20th of a second, thereby providing reliable service to these
customers. The Master Telecom Center aggregates the video, voice and data
signals in one central location for transmission to the distribution hubs.
Several distribution hubs are then connected to each other by high-speed
digital SDH backbone networks throughout each country. Video is also
distributed to the distribution hubs over fiber optic cables.
INSERTING FIBER NODES AND CONNECTING THEM TO DISTRIBUTION HUBS
UPC's basic fiber upgrade consists of replacing the trunk network with a
high capacity fiber network. First, fiber optic transmitters and receivers are
installed in the distribution hub. Next, the dual 45-450 MHz trunk amplifiers
are replaced with fiber optic nodes. These nodes consist of conversion
equipment to change the
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optical signals back to radio frequencies. Eight to twelve fiber nodes are
connected by fiber optic cable in a ring configuration to the distribution hub.
The fiber node transmits signals between the fiber connected to the
distribution hub and the coaxial neighborhood distribution network. Each
distribution hub can support enough fiber subrings to interconnect 20,000-
40,000 subscribers. This phase is where the majority of the construction
activity takes place. The old trunk network typically was directly buried
underground without ducts.This phase of construction replaces existing direct-
buried cable with fiber optic cable in underground conduits.
REPLACING THE DISTRIBUTION AMPLIFIERS IN THE REMAINING COAXIAL PLANT
The remaining distribution amplifiers typically have to be replaced to be
able to transmit the two-way signals necessary for enhanced services such as
impulse pay-per-view, telephony and Internet/data services. Typically, these
older generation amplifiers are not capable of operating without distorting the
extra channels or digital signals required for telephony or Internet/data
services. The expanded channel requirements and the "density" of the digital
signals will distort the older distribution amplifiers, causing either poor
picture quality or inadequate performance of telephony or Internet services.
Therefore, replacement of distribution amplifiers is usually required.
UPGRADE THE FINAL AMPLIFIER AND MULTI-PORT TAP
The final stage of the basic two-way upgrade program is the replacement of
final amplifiers and multi-port taps. The final amplifiers are typically one-
way and of an older generation technology, similar to the distribution
amplifiers. Although the multi-port taps are capable of passing frequencies up
to 860 MHz, they are only one-way devices. After these devices are replaced,
the network from the distribution hub to the subscriber's home becomes fully
two-way capable.
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FINAL CONFIGURATION OF THE BASIC UPGRADE
The following diagram depicts the actual structure of the basic upgrade
being constructed for UPC's system in Vienna, Austria. This architecture is
typical of UPC's other upgraded systems. Five distribution hubs are shown
interconnected by fibers configured in a bi-directional SDH ring architecture
operating at 2.4 Gbps per fiber pair. Distribution hub number one is located
with the Master Telecom Center, where the telephony switch and Internet servers
are located. The Master Telecom Center is in the process of being connected to
the pan-European backbone network operating at 140 Mbps.
After the Vienna city backbone is constructed and interconnected to each
distribution hub, the local fiber subrings are constructed to extend fiber into
a neigborhood. The diagram depicts how distribution hub number two fans out
with four separate fiber subrings and connects each fiber node.
[Diagram of UPC Major Market Network Architecture]
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CONCURRENT BROADBAND BANDWIDTH
UPC's upgraded network architecture will provide cost-effective methods to
distribute the greatest amount of concurrent broadband bandwidth into
subscribers' homes. UPC has dedicated one fiber transmitter and associated
receiver per fiber node, thereby allocating the full 5-65 MHz upstream / 85-860
MHz downstream of two-way bandwidth to each home passed. The following two
diagrams show the allocation of upstream (from the subscriber to the Master
Telecom Center) and downstream (from the Master Telecom Center to the
subscriber) bandwidth.
In the upstream direction, UPC has constructed an architecture to support
frequencies from 5-65 MHz. UPC places non-critical upstream transmissions from
subscriber set-top terminals in the 5-15 MHz portion of the bandwidth.
Typically, UPC analog set-top boxes transmit impulse pay-per-view buy
information at 10 MHz. This type of upstream information can be collected at
operator- defined polling intervals and is not disturbed by impulse noise
typical in the 5-15 MHz frequency range. Real-time services such as
Internet/data and telephony require frequencies undisturbed by impulse noise or
other transient disturbances and are allocated upstream spectrum in the 15-
65 MHz range. The following diagram details the allocated spectrum in the
upstream path from the subscriber's home to the fiber node. The fiber node then
converts the electrical signals to optical wavelengths for further transmission
to the distribution hub, then to the Master Telecom Center.
[Diagram of UPC HFC Access Network Upstream Spectrum Allocation Based on Current
Suppliers Technologies]
Upstream Scalability. UPC is currently deploying impulse pay-per-view
(IPPV) set-top boxes, Internet cable modems and telephony cablephone modems in
fiber nodes averaging 1,000 homes passed. Because the IPPV set-top boxes
transmit movie purchase information infrequently, the fiber node could support
in excess of two set-top boxes per home passed.
UPC has allocated two 6 MHz channels for upstream communications from
Internet cable modems to the Master Telecom Center. The currently deployed
technology allows 10 Mbps of digital transmission capacity per 6 MHz channel.
One 6 MHz channel can be allocated to residential subscribers and the other 6
MHz channel is allocated to small and medium enterprises
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(SMEs). These two 6 MHz channels have been designed to support 600 customers in
total with a minimum throughput for each customer of four to five times ISDN
BRI (128 Kbps) speed, or approximately 512-640 Kbps. The design allows for 25%
of the 600 customers (150) to be accessing the bandwidth simultaneously at this
speed. However, burst speeds for an individual subscriber can reach 2 Mbps.
UPC's current suppliers of cablephone technology both use the same
transmission format to transmit thirty 64 Kbps time-slots in a 2 Mbps
bitstream. This means that one 2 Mbps bitstream fits into a 1.5 MHz radio
frequency channel and could support 30 simultaneous phone calls. However, UPC
deploys technology at the distribution hub via the Host Digital Terminal (HDT)
that provides a 4 to 1 concentration. This concentration allows 120 customers
to use the same bandwidth without experiencing a call blocking problem. UPC's
deployment of this concentration technology is designed to allow the customer
at least 99% accessability to the network, the standard for most public
networks.
UPC then allocates 1.5 MHz channels in the upstream direction to allow for
telephony penetrations of 600 lines in the fiber node. More
1.5 MHz channels can be added to support increased penetration.
In summary, assuming 1,000 homes passed per fiber node, UPC's current
technology would support simultaneously in excess of two set-top boxes per home
passed, 600 cable modems and 600 telephony lines.
Improvements in Upstream Transmission Technologies. UPC intends to deploy
the U.S.-based cable modem standard (MCNS/DOCSIS) in 1999, which will increase
the transmission capacity in the same 6 MHz upstream channel from the current
10 Mbps to 30 Mbps. Likewise, UPC expects to take advantage of improving
technologies for placing more phone calls within the same amount of radio
frequency bandwidth.
Downstream Scalability. In the downstream direction, UPC has the
flexibility to allocate the combination of analog and digital channels. The
diagram below depicts a model where UPC would allocate a maximum of 65 analog
television channels and 240 MHz of bandwidth for digital services:
[Diagram of UPC HFC Access Network - Downstream 65 Analog Channels]
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Because both the upstream and downstream frequencies are transmitted
simultaneously and received on a single coaxial cable, the above model would
provide capacity for: 65 analog television channels occupying 520 MHz of
bandwidth, 100 FM radio channels occupying 20 MHz of bandwidth, Digital Video
Broadcast (DVB) streams (280 channels) occupying 224 MHz of digital bandwidth
(840 Mbps of transmission capacity), 24 MHz of Internet capacity (40 Mbps of
transmission capacity) and 16 MHz of telephony capacity (eight 2.048 Mbps
channels). In this example, UPC would bring 65 analog television channels and
approximately 900 Mbps of concurrent digital capacity into each home. UPC has
the flexibility, however, to define the ratio of analog to digital channels
allocated in each market.
UPGRADE FOR ENHANCED SERVICES
The second phase of UPC's network upgrade is the incremental investment
necessary to introduce digital video, telephony or Internet/data services. This
enhanced upgrade involves the installation of certain equipment in the Master
Telecom Center, the distribution hubs and the customer premises required to
connect subscribers for digital video, telephony or Internet/data services
through the upgraded network.
The Master Telecom Center includes the headend and all central network
equipment needed for services provided through the operating system. For cable
television, this includes satellite antennas, encryption devices and original
transmission facilities. For telephony service, this includes the central
office switch, the voice mail platform, SDH transmission and other telephony-
related equipment. For Internet/data service, this includes servers and
equipment for connection to the Internet.
CABLE TELEPHONY NETWORK AND INFRASTRUCTURE
Traditional telephony signals are carried over twisted copper pairs in the
local loop. Cable phone technology allows telephony to be carried over upgraded
HFC technology infrastructure without requiring the costly overbuild of the
local loop in order to install twisted copper pair. Therefore, instead of an
expensive rebuild, cable phone technology only requires the addition of
equipment at the Master Telecom Center, the distribution hub and in the home to
transform voice communication into signals capable of transmission over the
fiber and coaxial cable. The equipment required in the home is housed in a
small, secure, self-contained unit (Customer Interface Unit or "CIU"), that is
usually mounted on the wall inside the home. This box is capable of passing
through cable television, Internet cable modem and radio signals and providing
standard telephone services. It also includes an emergency back-up battery. The
subscriber is connected to the cable phone network using the existing home
telephone wiring and telephones.
UPC plans to utilize cable phone equipment with various line capabilities.
For the residential/SOHO market, a one-, two- or four-line unit will be
utilized. Eight- and twelve-line cable phone equipment units will be used to
provide service to both multiple dwelling units ("MDUs") and segments of the
medium business market. This type of installation uses the HFC-based coaxial
network to terminate into the MDU or business customer's premise. The interface
with the subscriber's phone will be the existing twisted-pair in-house wiring
system. The subscribers receive all the services with voice quality that is
equal to or better than that of the incumbent telecommunications operator.
Large businesses generally will be connected to the network with direct
fiber connections using "self-healing" SDH fiber optic ring technology. This
technology automatically detects disruptions in the fiber and reroutes calls
within 1/20th of a second, thereby providing reliable service to these
customers. Typically, these medium to large businesses will be served by
installing SDH Add/Drop Multiplexors (ADMs) at the business premises.
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The diagram below depicts the technology for adding cable phone at the
distribution hub and subscriber residence, as well as the telephony
configuration for MDUs and medium and large businesses:
[Diagram of UPC Telephony Architecture]
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UPC's upgraded network has been designed to support up to 600 telephony
lines per fiber node. Assuming 1,000 homes passed per fiber node and 35% of
telephony subscribers order a second line, this configuration would support
over 440 subscribers, or approximately 44% of homes passed. Higher penetration
rates could be supported either by allocating another radio frequency channel
(one 1.5 MHz channel can support an additional 120 lines) or sub-dividing the
fiber node by adding another fiber optic transmitter/receiver pair (at an
investment of approximately NLG20 per line). UPC's Network architecture has
been designed to allow for future fiber node subdivision without having to
spend incremental capital on fiber optic construction. UPC also has the extra
fiber capacity at each fiber node to connect directly businesses that require
more capacity than cable phone installations.
Most of the Company's networks have been constructed in a similar manner to
utility networks. These networks are underground, access to the plant is from
access-restricted cabinets and wiring is inside the homes. Some non-UPC cable
phone installations have experienced noise in the line caused by ingress
resulting from a wide range of factors including poor construction practices,
improperly used fittings or cable plant that is exposed to the elements
(overhead, aeriel plant) typical of cable television networks constructed in
the United States before the use of two-way plant was contemplated. The high
quality construction of the Company's Western European networks allows very
little noise in cable phone lines due to ingress.
Consumers expect their telephones, unlike cable television services, to be
powered separately from the main power and thus continue to function in the
event of a power outage. To meet this requirement, UPC is installing
uninterruptable power supplies at the Master Telecom Center, distribution hubs
and fiber nodes to ensure that the network can continue a "lifeline" service if
the local power supply fails. To enable the CIU to function in a power outage,
UPC provides standard emergency back-up power by installing rechargeable,
sealed lead acid batteries with a projected five-year life. These batteries are
housed within the CIU and are able to provide over eight hours of standby time
or two hours of talk time in the event of a power outage. The batteries
recharge themselves from the main electricity source when the power resumes. If
the power outage is longer than eight hours, however, these CIU's would likely
not remain functional. See "Risk Factors -- Unproven Network Scalability, Speed
and Technology".
INTERNET ACCESS TECHNOLOGIES
The Company believes that the slow speed of current residential Internet
access is a significant deterrent for Internet users. This slowness results
from the predominance of telephone dial-up modems as the access means, where
the maximum speed of the fastest dial-up modem on the market is either 56 Kbps
or 64-128 Kpbs ISDN. Although a number of different technologies designed to
provide much faster access than dial-up modems have been proposed and are being
tested, UPC believes that cable modem access technology is superior to all
other current technologies because: (i) cable modem technology is based on the
widely used Transport Control Protocol/Internet Protocol (TCP/IP), which is
used on local area networks (LANs) and the Internet; (ii) a global standard has
been created and accepted (MCNS/DOCSIS); and (iii) customers are served by a
shared infrastructure, which allows for lower cost service offerings.
Cable modem technologies were launched in UPC's Austrian, Belgian, Dutch
and Norwegian networks on a trial basis in 1997. UPC's existing two-way
infrastructure is used to provide high speed Internet access to the subscribing
home or business. Cable modem service, such as that employed by chello,
consists of a cable modem in the customer's home or office that permits the
customer's personal computer to connect to the Internet through the network at
speeds up to 100 times faster than the fastest dial-up modem services. This
service provides extremely fast downloading of most commonly viewed pages, CD
quality video and sound and quality desktop audio/video conferencing.
PAN-EUROPEAN BACKBONE
The Company intends to develop a pan-European backbone
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The backbone is designed to link UPC's major cable networks through a
combination of leased capacity arrangements between Vienna, Amsterdam,
Brussels and Oslo. The UPC pan-European backbone will also be capable of being
linked to the United States through two leased fiber routes. In October 1998,
the Company entered into a contract with Hermes Europe Railtel for the
purchase of transmission capacity. This agreement allows chello and Priority
Telecom to purchase fiber-optic based high speed transmission capacity for
their services.
When fully developed, this pan-European backbone would link Priority
Telecom's and chello's national networks and points-of-presence with other
countries and international gateway facilities, including international
Internet network access points and international voice and data switching
hubs. Through the use of this IP network, Priority Telecom and chello plan to
offer solutions for international carrier traffic distribution and other voice
and data services.
The following diagram depicts this architecture:
[Diagram of Pan-European Backbone Architecture]
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In the above diagram, chello's pan-European backbone, branded AORTA, will
interconnect the 140 Mbps ring to two major Internet exchange points--Amsterdam
(AIX) and Stockholm (GIX). Each of these major European Internet exchange
points will provide chello with Tier 1 Internet connectivity, which is the
highest level of interconnection performance on the Internet backbone, when
chello expands to strategic Internet exchanges. Tier 1 Internet peering offers
transit network rights to and from the large Internet providers throughout
Europe. Chello intends to interconnect to the U.S. network access points in
Washington D.C. and New York via a 45 Mbps transatlantic fiber link.
To provide additional capacity and provide redundancy for the pan-European
backbone, UPC intends to implement a satellite Internet network. This network
will augment the backbone to provide high capacity Internet connectivity in
countries where the costs for high fiber bandwidth is prohibitive. This
satellite architecture also would provide a more cost-effective method to
transmit data from the U.S. to Europe than the transatlantic fiber.
The pan-European backbone and the satellite Internet network will allow
broadband Internet subscribers to experience access speeds that are up to 100
times faster than traditional dial-up services. chello will also implement
caching technology at the local Master Telecom Centers that keeps the most
popular Web content close to the local customer for quick retrieval.
LOCAL ACCESS NETWORK ARCHITECTURE. UPC has implemented in Austria,
Belgium, The Netherlands and Norway a local Internet access architecture with
server farms located in each Master Telecom Center. The broadband content and
backbone interconnection are interfaced with the local Internet access platform
through the caching and other chello servers.
DIGITAL DISTRIBUTION PLATFORM
The Company is seeking partners to construct a pan-European digital video
distribution platform. The pan-European digital video distribution platform, if
constructed, would provide an economical way to deploy digital video avoiding
the expense of separate encoding and conditional access systems at every
headend. The aggregation of programming through a central UPC uplink facility
would provide cost-efficient digital distribution to multiple cable companies
throughout Europe, making it easier for both UPC and other companies to buy
services. UPC would carry programming versioned for multiple languages in one
data stream and use remote storage and playout to deliver NVOD services.
The Company's planned digital distribution platform would accomodate video
compression, playout and overall conditional access control for UPC and non-UPC
affiliates. UPC has designed this distribution architecture to provide the
basis for additional revenues beyond the cost-efficient delivery of digital
channels. First, it includes a unique way to overcome the complexity of rights
issues for NVOD. Simultaneous pan-European broadcasting is not possible with
NVOD, because rights windows vary by country. UPC's solution is to broadcast
NVOD programming to remote content servers at the headend, which will store the
programming and play it out according to local schedules.
UPC believes that if this digital distribution platform is constructed, it
will provide the first pan-European digital video distribution platform with
coverage, content and conditional access mechanisms to attract European cable
companies (including UPC's own operations).
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GLOSSARY OF TECHNICAL TERMS
BACKBONE - A high-capacity network that links together other networks of
lower capacity.
BANDWIDTH - The communications capacity or data transmission rate, measured
in Hertz (cycles per second) or bits per second (bps).
BITSTREAM - A stream of data such that is produced by compressing and
digitizing analog video or audio.
CABLE MODEM TERMINATION SYSTEM (CMTS) - Equipment located in the
Distribution Hub that interconnects the data signals flowing to and from the
fiber optic transmission system to the fiber subring equipment and converts
this data to RF Signals.
CALL BLOCKING - The restriction of telephone lines from making calls to
other lines due to a lack of available capacity.
CENTRAL CONTENT SERVER (CCS) - This is the centralized server element of
the Near Video On Demand (NVOD) portion of the digital distribution facility.
All NVOD programs are stored on this server for subsequent delivery to the
Remote Content Servers (RCS) located within the various cable headends. (See
"-- Remote Content Server").
COAXIAL CABLE (COAX) - A transmission medium consisting of one or more
central wire conductors, surrounded by dielectric insulator, and encased in
either a woven wire mesh or extruded metal sheathing. The electromagnetic wave
travels between the outer shield and the conductor. Coax can carry a much
higher bandwidth than a wire pair.
COMPRESSION - A method that reduces the bandwidth or bits necessary to
transmit or store information.
CONDITIONAL ACCESS (CA) - The functionality within the digital distribution
platform used to control access to what a subscriber may view and how the
digital set-top box will function. The CA coupled with data encryption provides
the primary security element of the distribution system.
DATA OVER CABLE SYSTEM INTERFACE SPECIFICATION (DOCSIS) - U.S.-based
standard for increasing the amount of data that can be transmitted over HFC-
based networks.
DIGITAL VIDEO BROADCASTING (DVB) - Extensive set of standards that defines
the way digital entertainment services (television in particular) are packaged
and transported throughout Europe. The DVB standards have been adopted by the
European Union as the standard for digital broadcasting.
DISTRIBUTION AMPLIFIER - A device used to increase the RF signal to
compensate for cable and passive device signal loss.
DISTRIBUTION HUB (DH) - A building or equipment facility that houses voice,
video and data equipment before sending these signals to the fiber nodes.
DOWNSTREAM - Signals travelling to the subscriber's home from the Master
Telecom Center.
ENCODING - The act of changing data into a series of electrical or optical
pulses that can travel efficiently over a medium, reducing overhead and
bandwidth requirements.
FIBER NODE (FN) - A device that receives and transmits optical signals and
reconverts the optical signal to an electrical signal for transmission on
coaxial cables.
FINAL AMPLIFIER - The last coaxial amplifier between the fiber node and the
subscriber drop. The amplifier feeds the subscriber multi-port tap.
GBPS - Giga bits per second. One billion bits transmitted in one second.
HEADEND - The equipment at a cable system that receives the various program
source signals,
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processes them and retransmits them to subscribers.
HOST DIGITAL TERMINAL (HDT) - Equipment located in the Distribution Hub
that converts optically transmitted telephony signals into RF channels.
HYBRID FIBER COAX (HFC) - A technology designed to receive multiple
broadcast and/or non-broadcast signals and to distribute them via a combination
of coaxial and fiber-optic cable to subscribers. HFC technology also enables
service providers to offer two-way telecommunications services.
IMPULSE PAY-PER-VIEW (IPPV) - A variation of pay-per-view in which the
subscriber can purchase an event by using his set-top box and remote control
(i.e. on impulse) rather than calling the cable operator in advance of the
event.
INTEGRATED SERVICES DIGITAL NETWORK (ISDN) - A set of standards for
transmission of simultaneous voice, data and video information over fewer
channels than would otherwise be needed, through the use of out-of-band
signalling. The most common ISDN system provides one data and two voice
circuits over a traditional copper wire pair (ISDN-BRI), but can represent as
many as 30 channels (ISDN-PRI).
INTERNET PROTOCOL (IP) - A standard used in routing, transmitting and
delivering packets of data between hosts.
KBPS - Kilo bits per second. One thousand bits transmitted in one second.
LOCAL AREA NETWORK (LAN) - A network that spans a limited geographical area
(usually within one building site) and interconnects a variety of computers and
terminals.
MASTER TELECOM CENTER (MTC) - The primary technical facility located within
each cable system. This facility typically includes the cable television
equipment, telephone switch equipment, voice mail platform, fiber optic
equipment, Internet servers and modem interfaces.
MBPS - Mega bits per second. One million bits transmitted in one second.
MULTICHANNEL MULTIPOINT DISTRIBUTION SYSTEM (MMDS) - Wireless cable
transmitting a number of television channels to households in a limited area.
MULTI-PORT TAP - A coaxial device that interconnects one or more customer
drops to the coaxial network. The device provides isolation between each
individual subscriber drop and the network.
NEAR VIDEO-ON-DEMAND (NVOD) - An advanced form of impulse pay-per-view that
is built around offering a greater number of "purchase opportunities" to the
consumer by showing events more frequently than IPPV. NVOD operations require a
greater number of channels on a system than traditional IPPV.
NEIGHBORHOOD SUBSTATION COMBINER (NSC) - A device that combines one of the
upconverted RF frequencies from the dual 450 MHz Trunk network with the RF
frequencies from the other dual 450 MHz Trunk network so the combined output is
in the frequency range of 54-860 MHz.
RADIO FREQUENCY (RF) - Describes the medium that carries modulation
(information). A typical broadband network uses RF frequencies between 80 and
860 MHz to carry signals from the MTC to the subscriber.
RECEIVER (RX) - A device used to receive RF signals. This could be a
satellite receiver or a television receiver in a subscriber's home.
REMOTE CONTENT SERVER (RCS) - This is the remote server element of the NVOD
portion of the digital distribution platform. The RCS is located in the MTC of
a broadband network. All NVOD programs are stored on this server for real-time
playout to the digital set-top box. (See "-- Central Content Server ").
SUBSCRIBER MANAGEMENT SYSTEM (SMS) -Refers to the system used by a
broadband operator to manage its subscribers (CATV, data and telephone).
Typical functions can include billing, marketing, workforce management and
scheduling.
SYNCHRONOUS DIGITAL HIERARCHY (SDH) - The International Telecommunications
Union
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(European) version of the synchronous optical network (SONET) transmission
standard designed for self-healing broadband optical networks.
TELEPORT - A facility that provides "common carrier like" services to
broadcasters, data providers and others requiring the ability to originate or
transmit services to a wide area.
TRANSMITTER (TX) - A device that typically uses RF and various forms of
modulation to transmit information to one or more locations where the
information is recovered utilizing a receiver. (See "-- Receiver (Rx)").
TRANSPORT CONTROL PROTOCOL (TCP) - One of the components of the
transmission control protocol/Internet protocol (TCP/IP) that provides routing
among networks and, in some cases, within a particular network.
TRUNK AMPLIFIER - A device that amplifies the electrical signal on the main
transportation cables of a coaxial network and usually carries signals to and
from the fiber optic node and the distribution amplifier or final amplifier.
UPSTREAM - Signals travelling from the subscriber's home to the Master
Telecom Center.
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CORPORATE OWNERSHIP STRUCTURE
Below is a diagram that summarizes UPC's operations and equity ownership
percentages in its operating systems as of September 30, 1998. In November
1998, UPC increased its ownership of the Israeli and Maltese systems to 46.6%
and 50%, respectively, and sold its 20% interest in its Irish operating
company.
[DIAGRAM OF UPC SHOWING
(1) OPERATING SYSTEMS INCLUDING
CONSOLIDAETD SYSTEMS AND UNCONSOLIDATED
SYSTEMS AND (2) BUSINESS LINES]
Operating Systems
Consolidated Systems:
Austria, Telekabel Group - 95%
Belgium, TVD - 100%
Norway, Janco Multicom - 100%
France, Mediareseaux - 99.6%(2)
Eastern Europe
Hungary(3) - 79.3%
Czech Republic - 100%
Romania(3) - 51-100%
Slovak Republic(3) - 75-100%
Unconsolidated Systems:
The Netherlands, United Telekabel Holding - 51%
A2000 - 50%
CNBH, Telekabel Beheer - 100%
Israel, Tevel - 23.3%
Malta, Melita Cable - 25%
Business Lines
Video Distribution and Programming Services
Telephony Services, Priority Telecom
Internet/Data Services, chello broadband
- --------
(1) This chart excludes UPC's interests in the Hungarian (Monor) telephony
system (46.3%) and the programming services, Tara (75%), and IPS
(approximately 33.5%), which it has agreed to purchase from UIH, and other
interests. See "Prospectus Summary -- Recent Developments".
(2) A minority partner of Mediareseaux holds warrants giving it the right to
purchase an additional 4.6% of Mediareseaux's share capital. See " --
France".
(3) UPC's 79.3%-owned Hungarian system owns between 70% and 100% of several
operating companies. UPC owns 51% of one Romanian local operating company
and 100% of two others. UPC owns 75% of one Slovak local operating company
and 100% of two others. See "Business -- Corporate Ownership Structure".
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The Company owns 100% of its operating systems in Norway, Belgium and the
Czech Republic. Below is a description of those operating systems in which the
Company holds less than 100%.
AUSTRIA
Telekabel Group consists of five Austrian corporations, each of which owns
a cable television operating system. UPC owns 95% of, and manages, each
Telekabel Group company. Each of the respective cities in which the operating
systems are located owns, directly or indirectly, the remaining 5% interest in
each company.
Telekabel Wien's 5% shareholder Kabel-TV-Wien Gesellschaft m.b.H ("KTV") is
owned by the City of Vienna. KTV has the right to appoint a member to Telekabel
Wien's board of directors. KTV's director has a veto right with respect to the
introduction and provision of new cable television and other services
(including the provision of tiered channels, pay-per-view, Internet/data
services and telephony services), the enlargement of the current cable-network,
pricing arrangements and integration of different services. Although UPC
believes the cooperation between KTV's director and the other directors has
been successful in the past, there can be no assurance that KTV's director will
approve the planned new activities in Austria.
In connection with the UPC Acquisition in December 1997, KTV and Philips
agreed that Philips will continue to guarantee the capital level to be
maintained by Telekabel Wien. Philips has also agreed to guarantee the
continued fulfillment of the agreements that were originally concluded between
KTV and Philips and that were assigned by Philips to UPC (the "Vienna
Agreements"). UPC has agreed to indemnify Philips for any liability under
Philips' guarantee.
Due to its position as a guarantor, Philips has the right to appoint one
member to UPC's Supervisory Board. This Supervisory Director has a veto right
that is limited to fundamental decisions and exceptional business matters, such
as the sale or disposition of UPC's interests in Telekabel Wien, if certain
threshold values are not met. See "Certain Transactions and Relationships--
Relationship with Philips".
Philips, KTV and UPC have agreed that the Vienna Agreements will run until
December 31, 2022 with an option to prolong them.
Each city in which a member of the Telekabel Group operates has the right
to purchase UPC's interests at fair market value if UPC elects to terminate the
cooperation agreement with the city after its original term expires. Similarly,
UPC has the right to purchase the city's interest at fair market value if the
city elects to terminate the cooperation agreement after its original term. The
cooperation agreements are part of the Vienna Agreements and also expire on
December 31, 2022.
The City of Vienna's approval is required for any change of control over
UPC, which approval cannot be unreasonably withheld if the buyer is a reputable
telecommunications and/or cable television operator. In the absence of such
approval, the City of Vienna can require UIH to own Telekabel Wien separately
from UPC. See "Certain Transactions and Relationships".
UPC may provide Priority Telecom's services to Telekabel Group's
subscribers through a wholly-owned subsidiary of UPC, even though the services
will continue to be marketed by Telekabel Group.
THE NETHERLANDS
UTH
The Company and NUON own 51% and 49%, respectively, of the ordinary share
capital of UTH. UPC has the right to purchase, and NUON has the right to sell
to UPC, 24.5% of UTH (the "Primary Option"). Either party may exercise the
Primary Option from August 6, 1999 to August 6, 2001. The Primary Option
exercise price depends on which party exercises the Primary Option. If UPC
exercises the Primary Option, the Primary Option exercise price will be
approximately NLG244 million, increased by a fixed interest factor. If NUON
exercises the Primary Option, the Primary Option exercise price will be
approximately NLG166 million, increased by a different fixed interest factor.
In addition, if either
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party exercises the Primary Option, the non-exercising party has the right to
sell or purchase, as the case may be, the remaining 24.5% of UTH (the
"Secondary Option"). The Secondary Option is exercisable within 90 days after
notice of exercise of the Primary Option. The Secondary Option exercise price
and the Primary Option exercise price are the same, except that different
interest factors may apply in certain circumstances.
UTH is managed by a management board, responsible for the day-to-day
management, under the supervision of a non-executive supervisory board.
Pursuant to the agreement between UPC and NUON, the management board has one
managing director (the chief executive officer) who is jointly appointed and
two managing directors appointed upon binding nomination from the Company and
one managing director appointed upon binding nomination from NUON. Currently,
however, UTH's management board consists of only three members (one appointed
upon binding nomination from each of NUON and UPC and the jointly appointed
chief executive officer). UTH's supervisory board has five members, three
appointed by the Company and two appointed by NUON. UPC's representatives on
the supervisory board have a total of two votes, as do NUON's representatives.
Certain management decisions, such as approval of business plans and annual
budgets, require approval of more than 75% of UTH's supervisory board. Certain
major decisions, such as UTH's merger, liquidation and changes in the scope of
its business, require approval by a qualified majority of shareholders
representing more than three-quarters of UTH's issued capital.
UTH has pledged its interest in Telekabel Beheer to secure the UTH
Facility. If NUON is not repaid, it will have the right to sell Telekabel
Beheer to repay the indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Liquidity and Capital
Resources -- Current Debt Facilities -- UTH Facility".
UPC and NUON have agreed not to compete with UTH in respect of certain
telecommunications services in The Netherlands.
UPC and NUON may restructure UTH to create a separate holding company for
A2000 and a separate holding company for UTH's other operating systems. While
the shareholders' net economic interests and management control over the two
holding companies, on a combined basis, will be the same, UPC will hold more of
the A2000 holding company and NUON will hold more of the other holding company.
A2000
UTH and Media One International ("Media One"), an international developer
and manager of cable television, telephony and wireless communications
properties, each own 50% of the ordinary share capital of A2000. A2000 owns
100% of Kabeltelevisie Amsterdam B.V. ("KT Amsterdam"), which operates cable
systems in Amsterdam, Landsmeer, Purmerend, Zaanstad and Ouder-Amstel, and 100%
of A2000 Hilversum B.V. ("KT Hilversum"), which operates a cable system in
Hilversum. The Municipality of Amsterdam owns one priority share in KT
Amsterdam, which gives the municipality the right to block the merger,
demerger, dissolution and liquidation of KT Amsterdam, certain amendments to KT
Amsterdam's articles of association, the issue of KT Amsterdam shares to
persons other than A2000, the appointment of a legal entity as a managing
director and the granting of voting rights to a pledgee of A2000's shares of KT
Amsterdam. Furthermore, the Municipality of Amsterdam's approval is required
for any change of control over A2000, which approval cannot be withheld if the
buyer is a reputable telecommunications and/or cable television operator or
financial institution.
A2000, KT Amsterdam and KT Hilversum are each managed by a management
board, responsible for day-to-day management, under the supervision of a non-
executive supervisory board. The supervisory boards of A2000, KT Amsterdam and
KT Hilversum consist of an even number of directors: one half appointed upon
binding nomination from Media One and one half appointed upon binding
nomination from UTH. Certain major decisions require approval by at least 75%
of the shareholders. The A2000, KT Amsterdam and KT Hilversum management boards
consist of at least one managing director (the chief executive officer),
appointed by UTH, and a chief financial officer, appointed by Media One, as
well as other members appointed by both. Certain major
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decisions affecting KT Amsterdam, such as approval of business plans and annual
budgets, require approval of the majority of the supervisory board of KT
Amsterdam.
FRANCE
UPC owns 99.6% of Mediareseaux, its French operating system. The other
owner of Mediareseaux is an entity controlled by Patrick Drahi, its founder and
current chairman, which holds warrants giving it the right to purchase for a
nominal amount new shares corresponding to 4.6% of Mediareseaux's share
capital. Accordingly, UPC has only a 95% economic interest in Mediareseaux.
Pursuant to an agreement dated June 16, 1998, the Company and the entity
controlled by Patrick Drahi have granted to each other options to purchase and
sell, at a price based on fair market value, the shares of Mediareseaux that
the entity may hold in the future.
ISRAEL
The Company currently owns indirectly 46.6% of Tevel, its Israel operating
system. The Company acquired 23.3% of this interest in November 1998. See
"Prospectus Summary --Recent Developments". An Israeli corporation owned by DIC
Communication and Technology Ltd. and PEC Israel Economic Corporation (the
"Discount Group") owns 48.4% of Tevel and a private Israeli investor holds the
remaining 5% of Tevel.
Tevel is managed by a board of directors. UPC has the right to designate
one of Tevel's five directors for each 17% of Tevel that it owns. Currently,
two Tevel directors are UPC appointees. Each of Tevel's shareholders has agreed
to grant a right of first refusal to the other shareholders in the event of a
transfer of any Tevel shares. If the other shareholders do not exercise this
right, they are permitted to participate in the sale and may require the
selling shareholder to include in the transferred shares such number of shares
equal to each shareholders' pro rata amount. In addition, any shareholder of
Tevel that holds more than a 30% interest may offer its stock to the other
shareholders at a price based upon the appraised fair market value of Tevel. If
the other shareholders do not accept the offer, the offering shareholder may
require that all of the stock of Tevel be sold to a third party at the
appraised value. Any such sales would be conditioned on receipt of appropriate
regulatory and other consents. No shareholder may exercise this forced buyout
option more than once in any 12-month period. Neither party has exercised the
forced buyout option and, if the DIC Option is exercised, the Company and the
Discount Group each would agree not to exercise the forced buyout option for a
specified period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Current Debt Facilities -- DIC Loan".
Tevel's shareholders (other than the private Israeli investor) have agreed
not to compete with Tevel in respect of certain cable telecommunications
services and complementary businesses in Israel unless the Tevel board of
directors decides that Tevel will not participate in such systems or
businesses.
Tevel has entered into two consulting agreements with affiliates of UPC and
the Discount Group. Pursuant to these agreements, Tevel is required to pay to
each of UPC and the Discount Group up to 2.5% of Tevel's annual gross revenues
(excluding customer premise equipment deposits). Tevel is entitled to terminate
the consulting agreement with either UPC or the Discount Group if such holder's
share ownership in Tevel falls below 20%. The validity of the consulting
agreements has been challenged by Tevel's minority shareholder, claiming that
the consulting fee is not proportionate to the services rendered. Accordingly,
the minority shareholder has claimed that these agreements constitute an
oppression of the minority under Israeli law and has demanded cancellation of
the consulting agreements. Tevel, UPC and the Discount Group have rejected
these claims and the parties currently are attempting to settle such
disagreement.
MALTA
UPC currently owns indirectly 50% of the ordinary share capital of Melita.
UPC acquired
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25% of this interest in November 1998. See "Prospectus Summary -- Recent
Developments". The remaining 50% is owned by Melita Cable Holdings Ltd.
("MCHL"), a Maltese company owned by Maltese citizens, as required by Melita's
franchise agreement.
The day-to-day management of Melita is vested in its board of directors.
Melita currently has nine directors of whom the Company appointed four, MCHL
appointed four and the Company and MCHL jointly appointed the president.
Certain major actions require the approval of the Company and a majority of the
directors of MCHL.
None of the Company, MCHL and their affiliates may compete with Melita with
respect to providing video signals to homes in Malta. After December 31, 1998,
each of the Company and MCHL may offer its interest in Melita to the other. If
either party elects not to purchase the other's interest, the parties must
cooperate to sell Melita in its entirety. If either the Company or MCHL sells
its interest in Melita to a third party, the selling party must give the other
an opportunity to participate in the sale by including its interests as part of
the third party sale.
UPC provides management services and seconds personnel to Melita pursuant
to a management agreement that expires December 31, 2004, for which UPC is paid
a fee equal to 5% of the gross revenues of Melita and is reimbursed for
expenses, including costs of its personnel, who provide substantially full-time
service to Melita.
HUNGARY
TELEKABEL HUNGARY
The Company and The First Hungary Fund Ltd. ("FHF"), an investment fund,
indirectly own 79.25% and 20.75%, respectively, of the ordinary share capital
of Telekabel Hungary. Telekabel Hungary owns interests ranging from
approximately 70% to 100% in the eight Kabelkom systems contributed by the
Company and 100% in five and 99.96% in one of the Kabeltel systems contributed
by FHF. The other shareholders are the respective municipalities. UPC's shares
of Telekabel Hungary are pledged in favor of Telekabel Hungary's DEM65.6
million bridge finance lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources--Current Debt Facilities--Telekabel Hungary Facility".
A wholly owned subsidiary of the Company is solely responsible for day-to-
day management of Telekabel Hungary, under the supervision of Telekabel
Hungary's supervisory board. The supervisory board has four members, three of
which are appointed by the Company and one by FHF. The parties have agreed that
the supervisory director appointed by FHF may block the required supervisory
board approval of any element of the business plans and budgets of Telekabel
Hungary and its subsidiaries that he reasonably determines would decrease the
shareholders' value of Telekabel Hungary to the detriment of FHF while the
Company would obtain an increase in value other than through Telekabel Hungary
or its subsidiaries. Certain major decisions concerning Telekabel Hungary and
its subsidiaries, such as the merger, demerger, liquidation and sale of all or
substantially all of the assets of those entities, the amendment of their
articles of association, and the issuance of certain preference shares, require
approval of FHF's representative so long as FHF owns at least 10% of Telekabel
Hungary's share capital.
Moreover, each of UPC and FHF can dispose of its shares in Telekabel
Hungary after December 31, 1999, either to the other at fair market value, to a
third party or through a registration of such shares on a European exchange.
The selling shareholder must first offer its shares to the other and, if the
non-selling shareholder declines to purchase such shares, the shares may be
sold to a third party on terms no less favorable than the terms offered to the
non-selling shareholder.
MONOR
Monor is a Nebraska corporation that controls, through its Hungarian
operating subsidiary, Monor Telefon Tarsasag Rt. ("MTT"), the exclusive, local-
loop telephony concession for the region of Monor, Hungary. Monor owns
approximately 90% of MTT. The Company has agreed to acquire from UIH an
indirect 46.3%
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economic interest and a 50% voting interest in Monor. This transaction is
expected to close by the end of 1998. PenneCom B.V. ("PenneCom") owns the
remaining 50% voting interest in Monor, and together with several other
minority shareholders, the remaining economic interest.
Monor has a six member board of directors (three members of which are
appointed by PenneCom and three of which are appointed by the Company), and MTT
has a nine member board of directors (three members of which are appointed by
PenneCom, three of which are appointed by the Company, one of which is
designated as Monor's chief executive officer by the consortium committee, and
two of which are designated by shareholders of MTT other than the Company and
PenneCom). Following the Company's acquisition of Monor, it is anticipated that
each of PenneCom and the Company will have a right of first refusal with
respect to the sale of all or a portion of its shares in MTT, and a buy-sell
provision will apply to the sale of all of any shareholders' shares in MTT.
ROMANIA
The Company has interests in three Romanian cable companies: indirect 100%
interests in Multicanal Holdings, SRL, located in Bucharest, and Control Cable
Ventures, SRL, with operations in Ploiesti and Slobozia, and a 51% interest in
Eurosat, with operations in Bacau. The other shareholders of Eurosat are local
investors.
SLOVAK REPUBLIC
The Company operates in the Slovak Republic through three Slovak limited
liability companies: Slovatel S.R.O. ("Slovatel"), KabelTel S.R.O.
("KabelTel"), and Trnavatel S.R.O. ("Trnavatel"). The Company has a 100%
indirect interest in Slovatel and KabelTel, and a 75% indirect interest in
Trnavatel. Salko Ltd., a Slovak corporation, owns 20% and the City of Trnava
owns 5% of the remaining interest in Trnavatel. KabelTel has operations in the
cities of Zvolen, Levice and Nove Zamky, while Trnavatel operates in Trnava.
PROGRAMMING COMPANIES
TARA
The Company owns 5% of Tara and has agreed to acquire from UIH, 75% of
Tara. The remaining 20% of Tara is owned by RTE Commercial Enterprises Ltd.
("RTE"), an affiliate of the Irish national broadcasting company. Tara is
managed by a board of directors. The number of votes each director has is equal
to the number of votes to which the shareholder who appointed each respective
director is entitled by virtue of the securities it holds. Certain matters
require RTE's consent, including guarantees of indebtedness, certain
investments or loans and affiliate transactions. Except for affiliate
transfers, no shareholder may transfer or assign its shares before the later of
(i) October 9, 1999, and (ii) the repayment of certain shareholder loans. These
shareholder loans have an aggregate principal amount of approximately NLG17.1
million and bear no interest. UIH, RTE and UPC have granted each other rights
of first refusal to purchase their respective interests in Tara.
IPS
IPS is a group of three related limited partnerships focusing on the
Spanish and Portuguese markets. Following the Company's acquisition of UIH's
interest, it will hold an approximately 33.5% interest in these entities. The
other partners of IPS are a subsidiary of The Walt Disney Corporation and
entities owned by the Urbina Group. Each of the programming entities is managed
by a board of directors or similar management body. Each member of each
partnership is entitled to nominate one director to each board or similar
management body for each 10% equity interest it holds in IPS. Except for
certain decisions that require a 70% or 85% supermajority vote, decisions of
the board of each programming entity may be made by the affirmative vote of a
majority of the directors present at a duly constituted meeting.
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REGULATION
The provision of video, telephony and Internet/data services in the
countries in which the Company operates is regulated. See "Risk Factors --
Regulation". The scope of regulation varies from country to country, although
in some significant respects regulation in UPC's Western European markets is
harmonized under the regulatory structure of the European Union. Below is a
summary of the regulatory environment in the European Union and the European
Economic Area member countries in which the Company operates and of the
regulatory environment in Israel. See "Business -- Operating Companies" for a
discussion of certain regulations in other of UPC's operating markets.
EUROPEAN UNION
Austria, The Netherlands, Belgium and France are all member states of the
European Union (the "EU"). As such, these countries are required to enact
national legislation which implements directives and other legal instruments
issued by the EU Commission and other EU bodies. In recent years, the EU has
led the opening of competition and the liberalization of the telecommunications
and video services sectors, which includes the use of cable networks to provide
voice telephony and telecommunications services, in EU member states. Although
not an EU member state, Norway is a member of the European Economic area and
has generally implemented or is implementing the same principles on the same
timetable as other EU member states. As a result, most of the markets in which
UPC operates have been significantly affected by regulation initiated at the EU
level. As it develops, such EU regulation will continue to have a significant
effect on these markets, including future developments relating to the
convergence of telecommunications, media and information technology.
The EU Commission has started to review the consequences of this
convergence for the regulatory environment. This review will take place during
1999 and may result in changes of the current regulatory framework, but the
scope of such changes cannot be predicted at this time.
TELEPHONY AND INTERNET/DATA SERVICES
Liberalization of Telecommunications Services and Infrastructure. A central
aim of the liberalization process has been to reduce the monopoly power of the
incumbent telecommunications operators in order to introduce competition in the
European telecommunications market. Following the EU Commission's Services
Directive (90/388/EEC), dated June 28, 1990, the exclusive rights of such
incumbent operators to provide telecommunications services were gradually
removed so that competing operators and service providers would be entitled to
offer such services. The incumbent telecommunications operators invariably
owned the national networks, however, and the lack of an alternative
infrastructure to provide such liberalized services operated as a major barrier
to entry into the market by competitors. In an effort to overcome this barrier,
the EU introduced the "Cable Television Networks Directive" (95/51/EC), dated
October 18, 1995, which required member states to remove existing restrictions
on the use of cable television networks to provide telecommunications services
other than cable television services. As a result, cable television operators
became able to use their networks to provide telecommunications services except
for public voice telephony. In 1996, the EU Commission issued the "Full
Competition Directive" (96/19/EC), which required most member states to remove
the exclusive rights of incumbent public voice telephony operators by January
1, 1998. The construction of telecommunications networks was also liberalized
under this directive. As a result of this directive, UPC's Western European
operating companies may provide all telecommunications services, including
voice telephony and Internet/data services, through their cable networks.
Under the Cable Television Networks Directive, telecommunications operators
that have exclusive rights to provide cable television network infrastructure
in a given area and achieve an annual turnover of more than ECU50 million must
account separately for their telecommunications services and any cable
television services. In The Netherlands, Belgium and in certain circumstances,
Norway, this requirement applies to all telecommunications operators providing
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both cable television and other telecommunications services under national law
irrespective of the above-mentioned requirements. Should any of UPC's operating
companies in the EU or Norway with exclusive rights to cable television
infrastructure achieve the requisite turnover, they would become subject to
these requirements.
A draft Directive of the EU Commission, if issued, will require member
states to enact legislation directing incumbent telecommunications operators to
separate their cable television and telecommunications operations into distinct
legal entities. This directive is likely to affect how incumbent
telecommunications operators position themselves in cable television or
broadband services by encouraging them to restructure their existing
operations, which may increase their competition with the Company, although the
incumbent operators do not currently compete in the cable television services
market.
Interconnection. Because new telecommunications operators need to
interconnect their networks with the fixed public telephone network, the EC
Council of Ministers and the European Parliament adopted the Directive on
Interconnection in Telecommunications (97/33/EC), which sets forth the general
framework for interconnection. The directive requires member states to impose
obligations on telecommunications network operators with significant market
power (which, although it may vary, is presumed when an operator has 25% or
more of the relevant market), to allow other telecommunications operators to
interconnect with their networks. They must offer interconnection without
discriminating between operators, which offer similar services, and their
interconnection charges must follow the principles of transparency and be based
on the actual cost of providing the interconnection. As a result, if the
principles in the directive are fully applied, UPC's operating companies in the
EU and Norway should be able to interconnect with the public fixed network and
other major telecommunications networks on a cost basis in order to provide
their services. However, there can be no assurance that the Company will be
able to obtain from incumbent telecommunications operators interconnection on
terms and conditions or at prices satisfactory to the Company without
protracted negotiations or involvement in time-consuming regulatory
proceedings. See "Risk Factors--Regulation" and "--Implementation Risks for
Telephony and Internet Services".
Licensing. EU telecommunications policy has also aimed to harmonize the
licensing requirements for the provision of public telecommunications services.
As a result of the "Licensing Directive" (97/13/EC), which became effective on
December 31, 1997, member states are required to change national legislation so
that providers of telecommunications services require either no authorization
or a general authorization which is conditional upon "essential requirements",
such as the security and integrity of the network's operation. Licensing
conditions must be objective, transparent and non-discriminatory. Member states
may issue individual licenses in certain situations. For example, the provision
of public voice telephony and the establishment or provision of public
telecommunication networks may be subject to individual licenses. In addition,
telecommunications operators with significant market power (typically 25% of
the relevant market), may be required by member states to hold individual
licenses carrying more burdensome conditions than the authorizations held by
other providers.
Regulation of the Internet. Although Internet-specific regulations have not
been issued, EU policy may develop harmonized principles of "responsibility of
content" to apply to Internet access providers analogous to those applicable to
publishing companies. The Company does not expect such regulations to
materially adversely affect the Company's Internet business plans.
VIDEO SERVICES
Video Services through Telecommunications Networks. Most of UPC's operating
companies are the only cable television operators in their franchise areas. As
with the telecommunications sector, the cost of building a network to provide
video services is a considerable disincentive to potential new entrants in the
video services market. UPC's operating companies may face competition in the
long term in their franchise
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areas from new entrants providing video services through the infrastructure of
incumbent telecommunications operators and potential new entrants. In The
Netherlands, for example, where there are no restrictions on the use of
telecommunications infrastructure for the provision of cable television
services, the incumbent telecommunications operator is testing whether it will
be able to provide video services through its fixed networks.
Conditional Access. In order to enable further competition in the video
services market, the EU Commission passed the "Advanced Television Standards
Directive" (95/47/EC), dated October 24, 1995, which requires member states to
regulate the offering of conditional access systems, such as program decoders
used for the expanded basic tier services offered by many of UPC's operating
companies. Providers of such conditional access systems are required to make
them available on a fair, reasonable and non-discriminatory basis to other
video service providers, such as broadcasters.
Broadcasting. The "Television Without Frontiers Directive" (97/36/EG),
dated June 30, 1997, is intended to introduce freedom of broadcasting in the
EU. Generally, broadcasts emanating from and intended for reception within a
country have to respect the laws of that country. Under the directive, other EU
member states will be required to allow broadcast signals to be made into their
territories so long as the broadcaster complies with the law of the originating
member state. Television advertising and sponsorship in member states will have
to comply with certain minimum rules and standards, although member states may
set more detailed and stricter rules for certain matters.
UPC plans to enter into joint venture agreements with programming providers
in order to launch eight new channels in late 1999 which it intends to
broadcast to its operating companies and other cable television operators for
distribution through their networks. UPC understands that the Television
Without Frontiers Directive will apply to the broadcasting of these joint-
venture channels to such operating companies so that one broadcasting license
within an EU member state will permit UPC to broadcast such channels to cable
operators throughout the EU. Where the joint-venture partner is already a
licensed broadcaster within the EU, UPC believes the joint venture activities
may fall within the scope of its partner's broadcast license, and that the
joint venture could operate under the terms and conditions of that license. UPC
also plans to apply for a broadcasting license in an EU country to accommodate
joint ventures with those partners which do not have a broadcast license in a
member state of the EU or channels created without a partner. The Company is
currently in discussions with the regulatory authorities in The Netherlands and
plans to obtain a broadcasting license in The Netherlands.
AUSTRIA
RELATIONSHIP WITH MUNICIPALITIES
Each of the five municipalities in which the Telekabel Group offers
services holds, directly or indirectly, 5% of the local operating company. Each
member of the Telekabel Group has entered into an agreement with its
municipality. Under these agreements, significant decisions of the operating
company must be approved by a unanimous vote of the board of directors, one
member of which is currently appointed by the municipality. Furthermore, in
Vienna, the municipality's appointee is currently in charge of the Vienna
system's programming. Pursuant to these agreements, each of the municipalities
has veto power over significant board decisions including programming changes,
the addition of new programming to the expanded basic tier, migration of
channels from the basic tier to higher tiers, pricing strategies, the
introduction and provision of new services, and other management decisions of
the company. While the municipalities have not used their veto power in the
past, there can be no assurance that the municipalities will not use their veto
power in the future and hinder the implementation of UPC's strategies for its
video, telephony or Internet/data services.
VIDEO SERVICES
Regulatory Framework. The Cable and Satellite Broadcast Radio Law (Kabel
und Satelliten Rundfunkgesetz or "KSRG") governs the provision of video
services in Austria. The
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Regional Radio and Cable Broadcast Authorities regulate the operation of cable
television networks.
Notifications. Telekabel Group does not require a license to provide video
services. It need only notify the Regional Radio and Cable Broadcast Authority
of the services it intends to provide. The right to provide such services is
not exclusive.
Programming. Under the KSRG, Telekabel Group is required to carry two "must
carry" public Austrian channels in its basic tier service. In July 1997,
previous prohibitions on cable network operators transmitting programming
produced by them were lifted. Pursuant to the terms of the agreement with
Vienna, however, Telekabel Wien is prohibited from producing programming.
Price Regulation. Pricing of the basic tier service is subject to price
control by the Austrian Wage and Price Commission. Approval from the Wage and
Price Commission generally must be sought where the desired increase is greater
than 50% of the consumer price index. Historically, all of Telekabel Group's
price increase applications have been approved. Pricing of services other than
the basic tier is not regulated.
TELEPHONY AND INTERNET/DATA SERVICES
Regulatory Framework. The Telecommunications Act which came into force
August 1, 1997 liberalized the telecommunications sector in Austria as of
January 1, 1998, in compliance with EU directives. As a result, cable
television networks may be used to provide telecommunications services as
described above under "-- European Union -- Telephony and Internet/Data
Services".
Licenses. A telecommunications operator or service provider must obtain a
license issued by the Austrian telecommunications regulatory agency, the
Telekom Control Commission, to provide public voice telephony services and for
the public offer of leased lines. Telekabel Wien has received a license to
provide public voice telephony services in the entire Republic of Austria and a
license for the public offer of leased lines through its cable network. The
licenses are granted for an unlimited period of time provided that the offering
of each respective service begins by February 1999 at the latest.
Interconnection. Austria's Telecommunications Act generally implements the
terms of the EU Directive on Interconnection in Telecommunications. In November
1998, the Telekabel Group entered into an interconnect agreement with PTA, the
incumbent operator. Difficulty and delay in negotiations and agreement led
Telekabel Group to seek the intervention of the Austrian telecommunications
regulator, which determined the principal terms of the agreement. See
"Business -- UPC Telephony Services: Priority Telecom -- Interconnect
Agreements".
Price Regulation. Although there are no voice-telephony pricing
regulations, the Telekom Control Commission must be notified of the tariff
structure and any subsequent rate increases. In addition, if the Telekabel
Group were held to have significant market power (as defined in Austria's
Telecommunications Act) with respect to the services offered, certain matters
including tariffs would become subject to the approval of the Telekom Control
Commission.
Internet/Data Services. Internet/data services are regulated as
telecommunications services under the Telecommunications Act. Under Austria's
Telecommunications Act, Telekabel Group does not require licenses to provide
Internet/data services. It need only notify the Telekom Control Commission of
the services it intends to provide.
BELGIUM
VIDEO SERVICES
Regulatory Framework. The law of March 30, 1995, for Brussels, the decree
of January 25, 1995 of the Council of the Flemish Community and the decree of
July 17, 1987 of the Council of the French Community govern the provision of
video services in Belgium. Only the first two regulations are relevant to TVD's
operations.
Authorizations. In Belgium, a cable operator needs to obtain a governmental
authorization from the appropriate Community to operate a cable television
system. The Belgium Communities (the French Community, the Flemish Community,
and the German-speaking Community) have exclusive jurisdiction to regulate
cable television, including
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programming content, in their respective language areas. The Flemish and French
Communities, as well as the Federal government, have overlapping jurisdiction
in the bilingual area of Brussels where TVD operates. During 1996, 1997 and
1998, all of TVD's non-exclusive authorizations were renewed for nine years.
Special authorizations are also required for the distribution of non-EU
programs, both in Flanders and in Brussels and the Company has requested a
special authorization in Brussels.
Programming. In all of the regions of Belgium, cable television operators
are required to transmit particular local, national and other channels as part
of their basic tier service. There are usually between 11 and 13 of these
"must-carry" channels.
Price Regulation. Price increases require the approval of the Ministry of
Economic Affairs and must be justified by an increase in the cost of providing
the service. Increases are generally approved as long as the increase is below
the level of inflation. Historically, all of TVD's price increases have been
approved.
Franchise Fees. Since 1995, cable regulations came into force, which
granted cable operators a right of way for the use of public and private
property to install and exploit cable networks. Prior to the 1995 regulations,
TVD was a party to concession agreements with the municipalities in its
franchise areas, which obliged it to pay certain franchise fees. TVD has not
paid franchise fees since 1995 when the cable regulations went into effect
(although in Etterbeek, TVD pays the municipality an annual amount).
Nonetheless, certain municipalities have requested payment of the old franchise
fees, which amount to 5% of the operating system's annual gross revenues. TVD
does not believe that it is obliged to pay these fees because it believes that
the 1995 regulations have superseded the concession agreements.
TELEPHONY AND INTERNET/DATA SERVICES
Regulatory Framework. The provision of cable telephony is governed by the
law of March 21, 1991, as amended by the law of 1997, together with secondary
regulations. These provisions allow telecommunications services to be provided
through cable television networks as described above under "-- European
Union -- Telephony and Internet/Data Services". In line with the liberalization
process in the EU, the Belgian Parliament adopted in December 1997 a law
amending the law of 1991 and abolishing the remaining monopoly rights of
Belgacom, the incumbent telecommunications operator. As a result, other
telecommunications operators may begin to offer public voice telephony in
Belgium.
Licenses. TVD had a provisional license to build and operate a public
telecommunications network and has applied for a permanent license to build and
operate a telecommunications network. TVD is preparing and intends to submit an
application for a license to offer voice telephony services.
Internet/Data Services. The provision of Internet/data services in Belgium
is also governed by the law of March 21, 1991, as amended, pursuant to which
TVD must make certain notifications to the Institut Belge des Postes et
Telecommunications ("IBPT") regarding the services it intends to provide. In
addition, TVD is required to hold either a provisional or a permanent license
to build and operate a telecommunications network in order to offer
Internet/data services on its own infrastructure.
THE NETHERLANDS
VIDEO SERVICES
Regulatory Framework. The liberalization of the Dutch telecommunications
and cable television sector has generally proceeded at a quicker pace than set
by the EU directives. The new Telecommunications Act is expected to take effect
in The Netherlands by the end of 1998 (the "Dutch Telecommunications Act"),
which will further liberalize these sectors. The Dutch Telecommunications Act
governs the installation and operation of fixed telecommunications
infrastructures (which include cable television networks) and the provision of
telecommunications services, including the provision of telephony and
Internet/data services. The provision of video services through the cable
television network is regulated by the Dutch Media Act, as amended, and the
Media Decree, (collectively, the "Media Laws").
Under the new Dutch Telecommunications Act, the Dutch Independent Post and
Telecommunications Authority ("OPTA") is charged with regulating the provision
of
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telecommunications services. Under the Media Laws, video service providers are
subject to certain content requirements, which are overseen by the
Commissariaat voor de Media (the "Media Authority").
Registration. The new Dutch Telecommunications Act does not require a
license for the installation, maintenance or operation of a network. Existing
network operators need only register with OPTA within six months of taking
effect of the Dutch Telecommunications Act. Because the registration of a
network does not give an operator any exclusive right, any person may install,
maintain and operate a new network alongside the existing one. The new Dutch
Telecommunications Act gives registered cable network operators and providers
of other public telecommunication networks digging rights to install new cable,
which are identical to those currently enjoyed by KPN, the Company's principal
competitor in The Netherlands, and holders of infrastructure licenses issued
under the previous Telecommunications Act.
Programming. Pursuant to the Dutch Telecommunications Act, cable television
network providers must transmit to all of its subscribers at least 15 programs
for television and at least 25 programs for radio, including approximately
seven television and nine radio "must carry" channels. OPTA may grant a total
or partial exemption from these obligations if the provider does not have
significant market power in its area of coverage.
UPC's Dutch operating companies originally purchased their cable television
networks from the local municipalities. Pursuant to the terms of the agreements
with the municipalities, the Dutch operating companies are obligated to
continue to provide basic tier services of between 20 and 30 television
channels, including the 15 required under the Dutch Telecommunications Act.
Cable television operators are allowed to transmit their own programs
within The Netherlands upon obtaining a broadcast license from the Media
Authority. The licensee must comply with the advertising and sponsorship rules
set forth in the Media Laws, which are consistent with the EU Television
without Frontiers Directive.
Price Regulation. The agreements with the municipalities described above
also gave some municipalities control over the price of the basic tier service.
These prices may only be increased from a stipulated rate for costs beyond the
control of the operating companies, such as copyright fees, consumer price
index increases and municipal duties and levies, which can be passed on to
subscribers. Because the base subscription rate for the basic tier service has
been kept at a low level, particularly in Amsterdam, the operating companies
make up their revenue by charging programming suppliers carriage fees for the
transmission of their channels. As A2000's basic tier price has been
particularly restricted, A2000's carriage fees have been higher than those of
the other Dutch systems held by UTH. Some of A2000's programming suppliers have
been unwilling to pay such carriage fees and have withdrawn their channels from
A2000's offering. Some of them have brought legal actions challenging the
carriage fees, arguing that A2000's carriage fees are an abuse of its market
strength. To date, none of A2000's programming suppliers have succeeded in
their actions against A2000. See "Business -- Operating Companies -- The
Netherlands: A2000 Holding N.V.".
The price of the basic tier service may also be regulated by the Dutch
Ministry of Culture, but it has not yet intervened to stop price increases.
TELEPHONY AND INTERNET/DATA SERVICES
Regulatory Framework. Until recently, the fixed telecommunications
infrastructure was a statutory monopoly of KPN, the Dutch incumbent
telecommunications provider. As described above, the Dutch telecommunications
sector has been liberalized in advance of and in accordance with European Union
telecommunications policy and cable television networks may now be used for the
provision of all telecommunications services.
Interconnection. The Dutch Telecommunications Act generally implements EU
telecommunications policy. A2000 has entered into an interconnect agreement
with KPN and UTH is currently negotiating an interconnect agreement for its
systems.
Price Regulation. While A2000's telephony service is not currently subject
to price regulation,
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the prices of its competitor, KPN, are. OPTA has recently indicated that KPN
should substantially reduce its end-user tariffs and its interconnection prices
to reflect costs. The regulation of KPN's rates is likely to put downward
pressure on telephone tariffs generally. This would force A2000 to lower its
rates to remain competitive.
Internet/Data Services. Under the Dutch Telecommunications Act,
Internet/data services are regulated as telecommunications services. As such,
UPC's Dutch operating systems need only register with OPTA as providers of
public telecommunication services and/or networks.
NORWAY
As a member state of the European Economic Area, Norway implements EU
directives in the telecommunications sector.
VIDEO SERVICES
Regulatory Framework. The provision of video services in Norway is
regulated by the Telecommunications Act of June 23, 1995 and The Broadcast Act
of December 4, 1992.
Registration. Under Norway's Telecommunications Act, the installation and
operation of the cable infrastructure and equipment must be authorized by and
registered with the Norwegian Post and Telecommunications Authority on the
basis of certain necessary technical qualifications.
In Norway, the simultaneous and unchanged transmission of television
signals over a cable television network is not subject to any licensing or
registration requirements.
Programming. Cable television providers have "must-carry" obligations
obliging them to include three national channels and typically one local
television channel in their basic tier services. Distribution of any
programming that is not a simultaneous and unchanged retransmission requires a
programming license issued by the Ministry of Cultural Affairs. Since pay-per-
view programming and some other services are not strictly simultaneous
retransmission, Janco Multicom has obtained a three-year programming license.
Price Regulation. The provision of the basic tier service is subject to
price control. A cable operator is only allowed to increase the basic package
subscription fee in line with the Official Consumer Price Index. There are no
specific pricing restrictions on expanded basic tier services.
TELEPHONY AND INTERNET/DATA SERVICES
Regulatory Framework. Since January 1, 1998, alternative networks in Norway
have been permitted to offer voice telephony services in accordance with the
terms of the applicable EU directives. See "-- European Union -- Telephony and
Internet/Data Services".
Registration. For telephony operators and service providers without
significant market power, as is currently the case with Janco Multicom, no
license is required to offer voice telephony services. Such providers need only
register with the Norwegian Post and Telecommunications Authority.
Interconnection. Norway's telecommunications legislation generally
implements EU policy on interconnection. Cable network companies have the right
to interconnect with the public telecommunications network and the national
incumbent operator, TeleNor, has the duty to provide any telecommunication
company with interconnection to its network on a non-discriminatory basis.
Interconnection rates charged by TeleNor must be on a cost-basis. Janco
Multicom is currently negotiating interconnection with TeleNor.
Pricing. Providers of public telephony without significant market power,
including Janco Multicom, are not subject to any specific pricing regulations.
Internet/Data Services. Cable television networks do not require a license
or notification to provide Internet/data services. They need only register the
service with the Norwegian Post and Telecommunications Authority.
ISRAEL
VIDEO SERVICES
Regulatory Framework. As part of the liberalization policy adopted by the
Israeli
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Communications Ministry, the telecommunications and cable television market in
Israel is expected to undergo significant reforms in 1999. The Company expects
that these reforms will include opening the multi-channel television business
to competition by granting licenses to DTH operators and opening the local
telephony and Internet/data transmission markets to competition by granting
licenses to independent operators, thereby allowing competition with Bezeq (the
Israeli incumbent telecommunications operator). Upon expiration of the existing
cable television licenses, franchise exclusivity will be eliminated and other
operators will be permitted to apply for cable television licenses to compete
in the cable television market.
The 1987 Bezeq law, which allowed the introduction of cable television,
gave the new cable companies exclusive rights to download and rebroadcast
satellite programming until 2003. The cable television operators have therefore
challenged the legal basis of the Ministry of Communications policy of
introducing DTH before that date. While the Court has not yet issued a formal
decision, it has suggested to the government that, while the cable companies'
exclusive rights do not prohibit the introduction of DTH, cable operators are
entitled to compensation, in the form of some additional right or rights with
respect to the content or services they provide.
The Communications Ministry announced its schedule in July 1998 for
granting DTH licenses and the Company understands that the Ministry has now
received three license applications.
Franchise Agreements. Tevel holds exclusive cable television franchise
agreements that were granted for a period of 12 years and expire in 2002. These
franchises include a four-year renewal option. Gvanim, which was recently
acquired by Tevel, holds exclusive franchises which expire in 2005 and 2002. As
with the Tevel franchises, the Communications Ministry is authorized to extend
both of these franchises for an additional four years. Tevel and Gvanim pay the
government royalties of 5% of their gross revenues. Upon the opening of the
telecommunications market to competition, exclusive cable television franchises
are expected to be replaced with long-term renewable, non-exclusive licenses
that will permit cable operators to continue providing cable television
services and to begin to offer additional telecommunications services such as
voice telephony and Internet/data services.
Programming. Pursuant to its franchise agreements, Tevel must provide
within its basic service five tape-delivered channels subtitled in Hebrew: a
movie channel, a general entertainment channel, a children's channel, a nature
and science channel, and a sports channel. The movie channel and the general
entertainment channel are produced by Israel Cable Programming Company Limited
("ICP"), a programming company owned by Tevel, Gvanim and the other Israeli
cable television companies. The other three channels are produced by
independent parties. The ownership by the Israeli cable television operators of
ICP is considered a "restrictive arrangement" under Israeli Restrictive Trade
Practices law and is regulated by an arrangement approved by the Restrictive
Trade Practices Tribunal in June 1996, which expires in June 1999 (the "ICP
Agreement"). Pursuant to the ICP Agreement, ICP may continue to produce the
general entertainment and movie channels but must pay $8.5 million in annual
production fees to the three independent channels. In addition, ICP is
obligated to spend 15% of its programming expenses on programming from local
producers.
The Restrictive Trade Practices Tribunal is currently considering requiring
cable network operators either to divest their interests in content suppliers
(which may increase programming costs) or to supply the previously cable-
exclusive content they produce to the DTH providers once they are operational.
In addition, pursuant to the 1987 Bezeq Law, cable operators must obtain
authorization to add or remove channels from their service from the Ministry of
Communications. Further restrictions prohibit cable television operators from
carrying advertisements on their tape-delivered channels. Tevel currently is
required to provide three "must-carry" off-air channels. The ICP Agreement
currently prohibits "tiering" of video services.
ICP is currently negotiating with the Commissioner of Restrictive Trade
Practices regarding its package options when the ICP Agreement expires.
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Pricing. Cable television service subscription fees are subject to
regulation through the franchise agreements and through the ICP Agreement.
Currently, the ICP Agreement is more restrictive than the franchise agreements
and permits basic service subscription fees to be increased by a maximum of
1.9% per year above the cost of living index.
TELEPHONY AND INTERNET/DATA SERVICES
As part of the proposed liberalization of the telecommunications market in
1999, Tevel and Gvanim expect to be permitted to supply Internet/data and local
telephony services in their franchise areas.
OTHER
EU directives and national legislation impose limitations on the offering
of integrated packages of video, telephony and Internet/data services. The
Company does not expect these limitations will significantly affect its
operating strategy. The Company's Israeli operating companies are not currently
permitted to offer integrated services.
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MANAGEMENT
Upon completion of the Offering, UIH will own approximately % of the
outstanding Ordinary Shares and all Priority Shares of the Company. Because UPC
is a strategic holding of UIH, UIH will continue to control the Company for the
foreseeable future. Currently two members of the Company's three-member
Supervisory Board are also directors or officers of UIH and upon completion of
the Offering, five members of the Company's seven-member Supervisory Board will
be directors, officers or employees of UIH.
SUPERVISORY BOARD
The general affairs and business of the Company and the board that manages
the Company (the "Management Board") are supervised by a board appointed by the
general meeting of shareholders (the "Supervisory Board") upon proposal of UIH
as the holder of UPC's priority shares (the "Priority Shareholder"). The
Supervisory Board also provides advice to the Management Board and certain
decisions of the Management Board specified in the Company's Articles of
Association (the "Articles of Association") require the Supervisory Board's
prior approval. The Supervisory Board may also decide that certain other
resolutions of the Management Board are subject to its approval. In fulfilling
their duties, all members of the Supervisory Board must serve the best
interests of the Company and its business.
The Articles of Association provide for at least three directors
("Supervisory Directors") to serve on the Supervisory Board prior to the
Offering and for at least five directors following the Offering. Under Dutch
law, Supervisory Directors cannot serve as members of the Management Board
("Managing Directors") of the Company, nor may a person serve as a Supervisory
Director after the annual general meeting of shareholders during the fiscal
year of such person's 72nd birthday. Accordingly, Mr. Gene Schneider, UIH's
Chairman and Chief Executive Officer and the current Chairman of the
Supervisory Board, will resign from the Supervisory Board immediately prior to
the closing of the Offering. Pursuant to the rules and procedures of the
Supervisory Board, he will become a non-voting Advisor to the Supervisory Board
with the right to attend and participate in the meetings of the Supervisory
Board.
The Supervisory Directors are appointed at the general meeting of
shareholders upon proposal by the Priority Shareholder. The proposal of the
Priority Shareholder may be set aside by two-thirds of the votes cast at the
general meeting of shareholders representing more than one-half of the issued
nominal capital. Furthermore, under the Articles of Association, one
Supervisory Director may be appointed by Philips. See "Summary of Certain
Provisions of the Articles of Association and Other Matters" and "Certain
Transactions and Relationships --Relationship with Philips".
The Supervisory Board appoints a chairman and a vice-chairman from among
its members and may also appoint a delegate Supervisory Director and one or
more vice delegate Supervisory Directors who are charged with the day-to-day
contact with and supervision of the Management Board. Resolutions of the
Supervisory Board generally require the approval of a majority of the votes
cast. The Supervisory Board meets upon the request of its Chairman, two or more
of its members or the Management Board.
Supervisory Directors must retire periodically in accordance with a
rotation plan established by the Supervisory Board, but may be re-appointed.
The Supervisory Directors may be suspended or dismissed at any time by the
general meeting of shareholders. A resolution to suspend or dismiss other than
at the proposal of the Priority Shareholder may only be passed by at least two-
thirds of the votes cast representing more than one-half of the issued capital.
The remuneration and other conditions of employment of each Supervisory
Director are determined by the general meeting of shareholders.
UPC's Supervisory Board currently consists of three members. Five
additional persons will become Supervisory Board members and
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Mr. Gene Schneider will resign immediately prior to the closing of the
Offering. UIH has selected four nominees and will select an additional person
following the Offering who will be an independent director. The Supervisory
Directors and nominees are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gene W. Schneider....................... 72 Supervisory Director and
Chairman of Supervisory Board(1)
Richard De Lange........................ 53 Supervisory Director
Michael T. Fries........................ 35 Supervisory Director
John P. Cole, Jr. ...................... 68 Supervisory Director Nominee
Antony P. Ressler....................... 38 Supervisory Director Nominee
Ellen P. Spangler....................... 49 Supervisory Director Nominee
Tina Wildes............................. 38 Supervisory Director Nominee
</TABLE>
--------
(1)Mr. Gene Schneider will become an advisor to the Supervisory Board
immediately prior to the closing of the Offering.
GENE W. SCHNEIDER has served as a member of the Company's Supervisory Board
since July 1995. Prior to the Offering, Mr. Schneider will resign from and
become an Advisor to the Supervisory Board. Mr. Schneider is also the Chairman
of the Board of Directors of UIH, a position he has held since its inception in
May 1989. In addition to serving as UIH's Chairman, Mr. Schneider has served as
UIH's Chief Executive Officer since October 1995. From October 1995 until
September 1998, Mr. Schneider also served as UIH's President.
RICHARD DE LANGE has been a Supervisory Director of UPC since April 1996.
Since October 1998, Mr. De Lange has been Chairman of the Dutch Philips
organization (Philips Nederlands B.V. and Nederlands Philips Bedijven B.V.). He
also continues to serve as President and Chief Executive Officer of Philips
Media B.V., which position he assumed in February 1996. From April 1995 until
October 1998, Mr. De Lange was Chairman and Managing Director of Philips
Electronics UK Ltd. Previously, Mr. De Lange served since 1970 in various
capacities with subsidiaries of Philips, including President of Philips
Lighting Europe from December 1990 until April 1995.
MICHAEL T. FRIES has been a member of the Supervisory Board since September
1998. He is also President of UIH and President and Chief Executive Officer of
UIH Latin America, Inc., a wholly-owned subsidiary of UIH, positions he has
held since September 1998. Mr. Fries also serves as President and Chief
Executive Officer of UIH Asia/Pacific Communications, Inc., a majority-owned
subsidiary of UIH, positions he has held since June 1995 and December 1996,
respectively. Prior to becoming President of UIH Asia/Pacific Communications,
Inc., Mr. Fries served as UIH's Senior Vice President, Development, in which
capacity he was responsible for managing UIH's acquisitions and new business
development activities since March 1990, including UIH's expansion into the
Asia/Pacific, Latin American and European markets.
JOHN P. COLE JR. has been nominated for membership on the Supervisory Board
following the Offering and has been a director of UIH since March 1998. Mr.
Cole has practiced law in Washington, D.C. since 1956 and has been counsel over
the years in many landmark proceedings before the U.S. Federal Communications
Commission, reflecting the development of the cable television industry. In
1966, he founded the law firm of Cole, Raywid & Braverman, a 30-lawyer firm
specializing in all aspects of communications and media law. Mr. Cole is also a
director of Century Communications Corporation.
ANTONY P. RESSLER has been nominated for membership on the Supervisory
Board following the Offering and has been a director of UIH since October 1993.
Mr. Ressler is one of the founding principals of Apollo Advisors, L.P. and Ares
Management, L.P., which through several funds represent institutional investors
with respect to corporate acquisitions and securities investments. Mr. Ressler
is also a director of Allied Waste Industries, Inc., Vail Resorts, Inc. and Koo
Koo Roo Enterprises, Inc.
ELLEN P. SPANGLER has been nominated for membership on the Supervisory
Board following
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the Offering. Ms. Spangler is the Senior Vice President of Business and Legal
Affairs and Secretary of UIH, positions she has held since December 1996. Prior
to assuming her current positions, she served as a Vice President of UIH and
her responsibilities included business and legal affairs, programming and
assisting on development projects. Prior to joining UIH in January 1991, she
served as Director of Business Affairs, Programming at TeleCommunications, Inc.
from 1987 to 1991 and as Acquisitions Counsel at TeleCommunications, Inc. from
1984 to 1987.
TINA WILDES has been nominated for membership on the Supervisory Board
following the Offering. Ms. Wildes is the Senior Vice President of Operations
and Development Oversight of UIH, a position she has held since May 1998. From
October 1997 until May 1998, Ms. Wildes served as Senior Vice President of
Programming for UIH. From 1994 to 1997, she was Regional Vice President of UIH
Latin America, Inc. From 1988 to 1994, Ms. Wildes served as either a director
or vice president for development, programming and operations for several of
UIH's European operating companies, including operations in Sweden, Norway,
Malta, Israel, Spain and Portugal.
Following the Offering, the Supervisory Board will establish an Audit
Committee and a Compensation Committee. It is expected that these committees
will consist initially of all of the Supervisory Directors until such time as
the Supervisory Board determines the composition of these committees.
FAMILY RELATIONSHIPS
Tina Wildes, Supervisory Board Nominee, and Mark L. Schneider, the Chairman
of the Company's Management Board and UPC's Chief Executive Officer, are sister
and brother. Gene W. Schneider is their father. No other family relationships
exist between any other members of the Company's Supervisory Board or
Management Board.
MANAGEMENT BOARD AND OTHER KEY EXECUTIVE OFFICERS
The management and policy making of the Company and its subsidiaries is
entrusted to the Management Board under the supervision of the Supervisory
Board. The general authority to represent the Company is vested in the
Management Board and two Management Board members acting jointly are authorized
to represent the Company. The Management Board must have at least three members
and the Supervisory Board designates one member as the Chief Executive Officer
of the Company. Management Board members are appointed by the general meeting
of shareholders upon proposal by the Priority Shareholder. This Priority
Shareholder's proposal generally is binding upon the shareholders (i.e., the
shareholder must choose one of the Priority Shareholders' nominees) if the
Priority Shareholder nominates at least two persons for each vacancy.
Notwithstanding the foregoing, the proposal may be set aside by two-thirds of
the votes cast at the meeting representing more than one-half of the issued
nominal capital. Certain decisions by the Management Board set forth in the
Articles of Association require the approval of the Supervisory Board.
Moreover, the Priority Shareholder may, after consultation with the Supervisory
Board, resolve that certain managerial decisions require the approval of the
Priority Shareholder.
Management Board members may be suspended or dismissed by the general
meeting of shareholders upon proposal by the Priority Shareholder, which
proposal must be approved by at least two-thirds of the votes cast at the
meeting representing more than one-half of the issued capital. In addition,
such members may be suspended by the vote of a majority of the Supervisory
Board at a meeting at which at least half of the Supervisory Directors are
present or represented. Such suspension may be discontinued by the general
meeting of shareholders at any time. The remuneration and other conditions of
employment of each Management Board member are determined by the Supervisory
Board.
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The members of the Management Board and other key executive officers of the
Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
MANAGEMENT BOARD
Mark L. Schneider................ 42 Chairman of Management Board and Chief
Executive Officer
John F. Riordan.................. 55 Vice Chairman of Management Board and
President, Advanced Communications
J. Timothy Bryan................. 37 Management Board Member, President and
Chief Financial Officer
Anton H.E. v. Voskuijlen......... 41 Management Board Member, Senior Vice
President, Legal and General Counsel
Nimrod J. Kovacs................. 48 Management Board Member and Managing
Director, Eastern Europe
OTHER KEY EXECUTIVE OFFICERS
Scott Bachman.................... 43 Managing Director, Technology and
Purchasing
Steven D. Butler................. 39 Managing Director, UPC Capital and
Treasurer
Margaret M. Houlihan............. 38 Managing Director, Video Entertainment
Timothy Morel.................... 37 Managing Director, Internet/Data Services
and Chief Executive Officer, chello
Simon Oakes...................... 40 Managing Director, Programming
Ray D. Samuelson................. 45 Managing Director, Finance and Accounting
Joseph Webster................... 35 Managing Director, Telephony and Chief
Executive Officer, Priority Telecom
</TABLE>
MARK L. SCHNEIDER has been Chief Executive Officer of the Company and
Chairman of its Management Board since April 1997. Since December 1996, he has
served as Executive Vice President of UIH and President and Chief Executive
Officer of UIH Europe/Middle East Communications, Inc. and from May 1996 to
December 1996, Mr. Schneider was Chief of Strategic Planning and Operational
Oversight of UIH. He served as President of UIH from July 1992 until March 1995
and was Senior Vice President of UIH from May 1989 until July 1992. Mr.
Schneider also worked as a consultant for UIH from March 1995 to May 1996. Mr.
Schneider has been a member of the board of directors of UIH since 1993.
JOHN F. RIORDAN was appointed the Company's Executive Vice President in
March 1998, and a member of its Management Board in September 1998. In
September 1998, Mr. Riordan also was appointed the Company's Vice Chairman and
President of UPC's Advanced Communications division, overseeing implementation
of the Company's Internet/data services and digital distribution platform. From
April 1997 until March 1998, he was a member of UPC's Supervisory Board. Mr.
Riordan also has served as a director of UIH since March 1998. Mr. Riordan was
Chairman and Chief Executive Officer from 1992 to November 1998 of Princes
Holdings Limited, the Irish multi-channel television operating company of which
UPC owned 20% until its sale in November 1998. From 1987 to 1990, Mr. Riordan
was chairman of the Riordan Group.
J. TIMOTHY BRYAN has been the Company's President and Chief Financial
Officer and a member of its Management Board since September 1998. Prior to
that, he served as a member of the Company's Supervisory Board since December
1996. He was also Chief Financial Officer, Treasurer and Assistant Secretary of
UIH from December 1996 until September 1998. From 1993 until joining UIH,
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Mr. Bryan served as Treasurer of Jones Financial Group, Inc., an affiliate of
Jones International Limited, where he was primarily responsible for corporate
finance activities. Mr. Bryan also served as Treasurer of Jones Intercable,
Inc. from 1990 until 1993.
ANTON H.E. V. VOSKUIJLEN has served as Senior Vice President and Managing
Director, Legal and General Counsel of the Company since April 1997, where he
is responsible for all of UPC's legal affairs. From July 1996 until April 1997,
Mr. van Voskuijlen served as Vice President and General Counsel of UPC. From
March 1994 until joining the Company, he served as Vice President, Business
Affairs and Legal Counsel of Philips Media in New York, New York and prior to
that time, Mr. van Voskuijlen spent 15 years as an attorney with the Philips
Group in its mergers & acquisitions and corporate legal departments in
Eindhoven, The Netherlands.
NIMROD J. KOVACS was appointed UPC's Managing Director of Eastern Europe in
March 1998 and a member of its Management Board in September 1998. He has
served in various positions with UIH, including President of UIH Programming,
Inc., since December 1996, President, Eastern Europe Electronic Distribution &
Global Programming Group from January to December 1996 and Senior Vice
President, Central/Eastern Europe from March 1991 until December 1995.
SCOTT BACHMAN has served as the Company's Managing Director of Technology
and Purchasing since February 1998. From March 1996 until February 1998, Mr.
Bachman was Vice President of Engineering and the Chief Technology Officer of
the Company. From April 1991 to March 1996, Mr. Bachman was Vice President of
Operations & Technology Projects for Cable Television Laboratories, Inc.
STEVEN D. BUTLER was appointed Managing Director of UPC Capital and the
Company's Treasurer in February 1998, responsible for all corporate and project
debt/equity financing activities, as well as banking and investor relations.
From July 1995 until February 1998, Mr. Butler served as Vice President and
Treasurer of the Company. Prior to that, Mr. Butler served as Director of
Finance at UIH since May 1991.
MARGARET M. HOULIHAN was appointed the Company's Managing Director of Video
Entertainment in March 1997, responsible for all the multi-channel television
operations, marketing for all business units, and programming offerings for
UPC. From July 1995 until March 1997, she served as Regional President for
UIH's Western European operations. From June 1990 to July 1995, Ms. Houlihan
served as Vice President of Marketing of UIH.
TIMOTHY MOREL was appointed Managing Director of Internet/Data Services for
the Company in January 1998. In that role, Mr. Morel is responsible for chello
and all related Internet and data activities for UPC. Prior to joining the
Company, Mr. Morel worked with AT&T UK Ltd. as Managing Director of AT&T
Worldnet Dial Services from January 1997 to January 1998, where he was
responsible for the business operations, marketing, technology, sales,
publishing and personnel, developed the Internet commerce strategy and
implemented the service delivery. From May 1995 to December 1996, Mr. Morel
served as Director of Internet Commerce and Multimedia with AT&T and from 1992
to 1995, he served as Business Development Director, Finance sector at Novell
UK Limited.
SIMON OAKES was appointed Managing Director of Programming for the Company
in March 1998, responsible for UPC's programming operations and development
activities. From 1994 until joining the Company, Mr. Oakes independently
developed and produced feature films including Single Girls' Diary (Granada
Films), The Main of Buttermere (Tribeca and United Artists) and Cave (Working
Title and Polygram). From 1989 until 1994, Mr. Oakes served as Co-chairman of
Crossbow Films, a film production company.
RAY D. SAMUELSON was appointed Managing Director of Finance and Accounting
for the Company in February 1998, responsible for all UPC accounting,
reporting, budgeting, management information systems and administrative
activities. From the Company's formation in July 1995 until February 1998, Mr.
Samuelson served as Vice President of Finance & Accounting. From 1992 to 1995,
he was Vice President of Finance and Administration of the
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Cable Operations Division at UIH. Prior to Mr. Samuelson's appointment with
UIH, he was seconded as a U S WEST employee from 1990 to 1992 as the Chief
Financial Officer of UIH and U S WEST's Norway, Sweden and Hungary cable
television partnership and from 1978 to 1990, was a certified public accountant
with Arthur Andersen & Co.
JOSEPH WEBSTER has served as the Company's Managing Director of Telephony
since February 1998 and is also the Chief Executive Officer of Priority
Telecom. From February 1997 until his appointment with UPC, Mr. Webster served
as Regional Vice President & General Manager at Time Warner Communications in
Raleigh, North Carolina. From February 1994 to January 1997, Mr. Webster served
as Vice President & General Manager at Time Warner Communications, where he was
responsible for a start-up provider of competitive telecommunications services.
From May 1993 to February 1994, Mr. Webster served as Vice President of
Teleport Communications Group in Detroit, Michigan.
COMPENSATION OF SUPERVISORY BOARD MEMBERS
All of the members of the Supervisory Board (including those to be
appointed following the Offering) other than Mr. De Lange and the additional
independent director to be nominated are directors or employees of UIH. None of
these members receive additional compensation for serving on UPC's Supervisory
Board. The Company has not yet determined the amount of compensation for the
additional independent director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
UIH and UPC are parties to a Secondment Agreement, pursuant to which
certain U.S. citizens employed by UIH are seconded to UPC. See "Relationship
with UIH and Related Transactions". To date, compensation for all members of
UPC management that are employees of UIH has been set by the compensation
committee of UIH and compensation for all other employees of the Company has
been determined by the Company's Supervisory Board. The Company's Supervisory
Board intends to establish a compensation committee following the completion of
the Offering composed of members of the Supervisory Board. The members of the
UPC management that are employees of UIH, however, will continue to have their
compensation set by the UIH's compensation committee. None of the members of
the UIH compensation committee or Supervisory Directors of UPC has served as a
director or member of a compensation committee of another company that had any
executive officer that was also a Supervisory Director of UPC or a member of
the compensation committee of UIH.
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EXECUTIVE COMPENSATION
The following table sets forth the 1997 compensation for the Company's
current and former chief executive officers and the four other highest
compensated executive officers at fiscal year end 1997 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) COMPENSATION(3)
- --------------------------- ------- ------ --------------- ---------------
(Dutch guilders)
<S> <C> <C> <C> <C>
Mark L. Schneider(4)............ 584,940 -- -- --
Chief Executive Officer
Peter Reinartz(5)............... 287,440 81,975 56,174 --
Managing Director, Belgium
Lars Andersen(6)................ 287,826 75,428 31,829 --
Managing Director, Norway
Scott Bachman(7)................ 356,810 -- 31,673 306,862
Managing Director, Technology
and Purchasing
Michael Simmons(8).............. 379,339 -- 28,783 195,417
Former Managing Director,
Portugal
David D'Ottavio(9).............. 589,202 -- 30,120 130,042
Former Co-Chief Executive
Officer
Jacques Hackenberg(10).......... 257,374 -- 21,614 --
Former Co-Chief Executive
Officer
</TABLE>
- --------
(1) Compensation amounts (except for automobile allowance payments and school
fees, if applicable, which were paid in Dutch guilders) for Mr. Schneider,
Mr. Bachman, Mr. Simmons and Mr. D'Ottavio were converted from U.S.
dollars to Dutch guilders using the 1997 average exchange rate.
Compensation amounts for Mr. Reinartz were converted from Belgian francs
to Dutch guilders using the 1997 average exchange rate. Compensation
amounts for Mr. Andersen were converted from Norwegian kroner to Dutch
guilders using the 1997 average exchange rate.
(2) Consisted of automobile lease, operating and maintenance payments, and
health and life insurance payments for some Named Executive Officers.
(3) UPC executive officers who are United States citizens are employed by UIH
and seconded to UPC. UIH compensates all United States citizens working
for UPC outside the United States for certain expenses and adjustments
related to non-U.S. assignments and UPC reimburses UIH for such expenses.
These expenses and adjustments include home leave payments for trips back
to the employee's home country, housing allowance, school tuition fees for
the employee's children and "hypo tax" payments to equalize the employee's
foreign tax rate with what the employee would have paid in the United
States. See "-- Agreements with Executive Officers". Certain compensation
identified in this column also consisted of matching employer
contributions under UIH's Employee 401(k) Plan or the Company's Pension
Plan, as applicable.
(4) Mr. Schneider was appointed as Chief Executive Officer of the Company in
April 1997. The salary amount shown consisted of salary paid to Mr.
Schneider by UIH for his duties to UPC and UIH.
(5) Mr. Reinartz became the Managing Director of the Company's A2000 systems
in March 1998. Mr. Reinartz received a performance-based bonus for 1997.
Other annual compensation consisted of NLG47,390 for Mr. Reinartz's
automobile allowance and NLG8,784 for matching employer contributions
under the Company's Pension Plan.
(6) Mr. Andersen received a performance-based bonus for 1997. Other annual
compensation consisted of NLG31,829 for Mr. Andersen's automobile
allowance.
(7) Other annual compensation consisted of NLG22,698 for Mr. Bachman's
automobile allowance and NLG8,975 for health and life insurance payments.
Other compensation consisted of NLG232,483 related to Mr. Bachman's non-
U.S. assignment, NLG65,118 of hypo tax payments and NLG9,262 of matching
employer contributions under UIH's Employee 401(k) Plan.
(8) UPC sold its interest in its Portuguese system in February 1998. Mr.
Simmons no longer is an employee of the Company. Other annual compensation
consisted of health and life insurance payments and other compensation
consisted of NLG70,193 related to Mr. Simmons' non-U.S. assignment,
NLG115,962 of hypo tax payments and NLG9,262 of matching employer
contributions under UIH's Employee 401(k) Plan.
(9) Mr. D'Ottavio served as Co-Chief Executive Officer of the Company with Mr.
Hackenberg until May 1997. The above salary amounts reflect payments
through the end of the year. Other annual compensation consisted of
NLG15,105 for Mr. D'Ottavio's automobile allowance and NLG15,015 for
health and life insurance payments and other compensation consisted of
NLG58,835 related to Mr. D'Ottavio's non-U.S. assignment, NLG65,118 of
hypo tax payments and NLG6,074 of matching employer contributions under
UIH's Employee 401(k) Plan.
(10) Mr. Hackenberg served as Co-Chief Executive Officer of the Company with
Mr. D'Ottavio until May 1997. The above salary amounts reflect payments
through the end of the year. Other annual compensation consisted of
NLG21,614 for Mr. Hackenberg's housing allowance.
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The following table sets forth information with respect to those Named
Executive Officers holding unexercised options as of December 31, 1997. No
Named Executive Officers exercised any options during 1997. While all of the
unvested options are currently exercisable, upon termination of employment, all
unvested options are terminated. UPC has the right, pursuant to the Company's
stock option plans, to repurchase at the exercise price any unvested shares
issued upon exercise of the options. This repurchase right by the Company
expires three years from the commencement of the vesting period for options
granted in 1996 and four years for any options granted in 1998 and thereafter.
No options were granted in 1997. Options granted in 1996 vest 1/36th each month
and options granted in 1998 and thereafter vest 1/48th each month. See "--
Stock Option Plans" and "Security Ownership of Certain Beneficial Owners and
Management".
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL YEAR-END IN-THE-MONEY OPTIONS(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter Reinartz.............. 20,139 4,861
Jacques Hackenberg.......... 241,667 58,333
</TABLE>
- --------
(1) Represents the difference between the price of the Ordinary Shares at the
Offering (based on an assumed initial public offering price of NLG , the
midpoint of the range) and the exercise price of the options (NLG15.74 for
all options set forth above).
AGREEMENTS WITH EXECUTIVE OFFICERS
The Company currently has an employment agreement with Mr. Reinartz. The
Company does not have employment agreements with any other Named Executive
Officers, although both of Mr. Bryan and Bachman have employment agreements
with UIH. Mr. Schneider has a consulting agreement with UIH. UIH and UPC are
parties to a Secondment Agreement, pursuant to which Mr. Schneider and Mr.
Bachman, together with all other U.S. citizen employees of the Company, are
seconded to UPC. See "Relationship with UIH and Related Transactions". Pursuant
to the Secondment Agreement, UPC reimburses UIH for all expenses incurred by
UIH in connection with the seconded employees. Mr. Anderson has an employment
agreement directly with Janco Multicom.
Mr. Schneider's agreement with UIH is for a term of five years and expires
May 31, 2000.
Mr. Schneider receives a fee of NLG759,000 per year. If Mr. Schneider is
terminated without cause or dies prior to the end of the term of the agreement,
he or his personal representative shall receive all payments due under the
agreement through its term.
Mr. Bryan's employment agreement with UIH is for a term expiring on March
31, 2001. Mr. Bryan's employment agreement provides for an initial base salary
of NLG607,200 which will be increased to NLG667,920 on January 1, 1999, and is
subject to periodic adjustments. In addition to his base salary, Mr. Bryan is
also entitled to tax equalization payments and other amounts related to his
non-U.S. assignment. If Mr. Bryan's employment is terminated, other than for
cause as specified in the agreement, he is entitled to receive the balance of
payments due under the remaining term of the agreement.
Mr. Bachman's employment agreement with UIH is for a term of three years
and expires on February 6, 1999. Mr. Bachman's employment agreement provides
for an initial base salary of NLG344,080, which was increased to NLG371,606 in
February 1998, and is subject to periodic adjustments. In addition to his base
salary, Mr. Bachman also is entitled to tax equalization payments and other
amounts related to his non-U.S. assignment. If Mr. Bachman's employment is
terminated, he is entitled to receive the balance of payments due under the
remaining term of the agreement.
Mr. Simmons and UIH entered into an employment agreement on July 24, 1995,
pursuant to which Mr. Simmons was seconded to UPC as Managing Director of UPC
Portugal, the Company's former Portuguese operating
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company. Mr. Simmons' employment agreement was for an initial term of three
years at an initial base salary of NLG364,320, which was increased to
NLG380,714 on July 1, 1996 and NLG403,563 on July 1, 1997. UIH recently sold
its Portuguese system and terminated Mr. Simmons' employment effective November
1, 1998 and in connection therewith, entered into a severance agreement with
Mr. Simmons that will pay him the equivalent of three months' salary in
exchange for a release of any claims he may have against UIH or UPC.
Mr. Andersen and Janco Multicom entered into an amended employment
agreement on February 24, 1997, which expires on December 31, 1999. Under the
amended agreement, Mr. Andersen became the Managing Director of Janco Multicom
effective June 30, 1997. The amended agreement increased Mr. Andersen's base
salary to NKr1,137,500 (303,587) effective April 1, 1997. Mr. Andersen is also
eligible for an annual bonus of up to 25% of his base salary upon the
satisfaction of certain objectives specified by UPC, as well as an automobile
allowance. If Mr. Andersen remains with Janco Multicom until the expiration of
the amended agreement, he is entitled to a bonus equal to the total of all
bonuses paid to him during his amended employment term and upon termination of
his employment, he is entitled to six months severance pay, including benefits.
Mr. Andersen's employment agreement contains a confidentiality provision, a
covenant not to compete for six months after termination and a covenant not to
interfere with any other Company employee for one year after termination.
Mr. Reinartz and the Company entered into an employment agreement effective
March 1, 1998, pursuant to which Mr. Reinartz is seconded as the Managing
Director of A2000. Mr. Reinartz is entitled to a base salary of NLG330,000 and
is eligible for an annual bonus of up to 25% of his base salary and at least
15% in 1998. Mr. Reinartz is also eligible for a long-term incentive bonus
based on the financial performance of A2000. The long-term incentive bonus
vests over a four-year period. In addition to salary and bonus payments, Mr.
Reinartz is entitled to an automobile allowance, housing allowance through
December 31, 2001, and a one-time relocation allowance. Mr. Reinartz's
employment agreement is for an indefinite term.
STOCK OPTION PLANS
EQUITY STOCK OPTION PLAN.
Under the Company's Stock Option Plan (the "Plan"), the Supervisory Board
may grant incentive stock options to UPC employees. There are 4,000,000 total
shares available for the granting of options under the Plan. Options under the
Plan must be granted at fair market value (as determined by the Supervisory
Board) at the time of grant. The Ordinary Shares available under the Plan are
held by Stichting Administratiekantoor UPC (the "Foundation"), which
administers the Plan. Each option represents the right to acquire from the
Foundation a depositary receipt representing the economic value of one share.
Upon termination of the lock-up period following consummation of the Offering,
any depositary receipts issued to employees who have exercised their options
will be converted into Ordinary Shares. The majority shareholder of UPC
appoints the board members of the Foundation and thus controls the voting of
the Foundation's Ordinary Shares.
All options are exercisable upon grant and for the next five years. In
order to introduce the element of "vesting" of the options, the Plan provides
that even though the options are exercisable immediately, the shares to be
issued or options granted in 1996 are deemed to "vest" 1/36th each month for a
three-year period from the date of option grant (which is generally the
employee's employment commencement date). For options granted in 1998 and
thereafter, the vesting period has been increased to four years and the options
vest 1/48th each month. No options were granted in 1997. If the employee's
employment terminates (except in the case of death, disability or the like),
all unvested options previously exercised must be resold to the Foundation at
the original purchase price, or all vested options must be exercised, within 30
days of the termination date. The Supervisory Board may alter these vesting
schedules in its discretion.
The Plan also contains anti-dilution protection and provides that, in the
case of change of control, the acquiring company has the right to require UPC
to acquire all of the options outstanding at the per share value determined in
the transaction giving rise to the change of control.
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In 1996 (1998 for Mr. van Voskuijlen), UPC loaned the following officers of
the Company the amounts indicated to enable such officers either to exercise
stock options to acquire shares of the Company, to pay the tax on such exercise
or both: Scott Bachman (exercise and tax, NLG1,635,835); Steve Butler (exercise
and tax, NLG1,226,877); Margaret Houlihan (exercise only, NLG2,361,000); Ray
Samuelson (exercise and tax, NLG2,453,750); Michael Simmons (exercise and tax,
NLG787,000); David D'Ottavio (exercise and tax, NLG6,543,340); and Ton van
Voskuijlen (tax only, NLG40,500). These recourse loans bear interest at the
Dutch statutory rate. For 1998, this rate is 6% per annum.
Through September 30, 1998, options to acquire a total of 4,222,000 shares
have been granted under the Plan. Of these, options representing 250,000 shares
have been exercised and resold to the Foundation and, therefore, are available
for future option grants. Options representing 55,000 shares have been
cancelled. The exercise prices for the options are NLG15.74 (2,660,000 shares),
NLG18.00 (1,463,500 shares) and NLG20.35 (98,500 shares). In September 1998,
the Company granted Mark Schneider options for 650,000 shares at an exercise
price of NLG18.00, the price at which shares were sold in the UPC Acquisition
in December 1997.
PHANTOM STOCK OPTION PLAN
Under the Company's Phantom Stock Option Plan (the "Phantom Plan"), the
Supervisory Board has granted certain of its employees the right to receive a
cash amount equal to the difference between the fair market value of the shares
and the stated grant price for a specified number of phantom options ("Phantom
Options"). Through September 30, 1998, options representing 1,371,500 phantom
shares remained outstanding. The grant prices for the Phantom Options are
NLG18.00 (821,500 options) and NLG20.35 (535,000 options). The Phantom Options
have a four-year vesting period and vest 1/48th each month. The phantom options
may be exercised for ten years following the date of grant. 237,510 of the
outstanding Phantom Options were fully vested on September 30, 1998. The
Phantom Plan contains anti-dilution protection and provides that, in certain
cases of a change of control, all phantom options outstanding become fully
exercisable.
The Phantom Plan also provides that upon the Offering, an employee holding
phantom options may convert these into options for shares under the Plan. If
the employee elects not to do so, upon exercise of the Phantom Options, the
Company may issue such number of shares equal to the value of the cash
difference in lieu of paying the cash.
LIMITATION OF LIABILITY MATTERS
Pursuant to Dutch law, each member of the Supervisory Board and Management
Board is responsible to the Company for the proper performance of his or her
assigned duties. The Articles of Association provide that the adoption by the
general meeting of shareholders of the annual accounts shall discharge the
Supervisory Board and Management Board from liability in respect of the
exercise of their duties during the financial year concerned unless an explicit
reservation is made by the general meeting of shareholders. This discharge of
liability also may be limited by mandatory provisions of Dutch law, such as in
the case of bankruptcy, and this discharge only extends to actions or omissions
not disclosed in or apparent from the adopted annual accounts. In case of such
actions or omissions, the members of the Supervisory Board or Management Board
will be jointly and severally liable toward third parties for any loss
sustained by such third parties as a result of such actions or omissions,
unless the Supervisory Board or Management Board member proves that he or she
is not responsible for the actions or omissions. Generally, under Dutch law,
directors will not be held personally liable for decisions made with reasonable
business judgment. The Company plans to enter into agreements with its
Supervisory Directors and Management Directors to provide for indemnification
in connection with the performance of their duties.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the ownership
of all classes of securities as of November 1, 1998, by (i) each shareholder
who is known by the Company to own beneficially more than 5% of the outstanding
Ordinary Shares at such date; (ii) each Supervisory Director of the Company and
persons nominated to become Supervisory Directors; (iii) each executive officer
of the Company; and (iv) all directors and executive officers of the Company as
a group.
<TABLE>
<CAPTION>
ORDINARY SHARES
---------------------------------
PERCENTAGE
----------------------
PRIOR TO FOLLOWING THE
BENEFICIAL OWNER NUMBER OFFERING OFFERING
---------------- ---------- -------- -------------
<S> <C> <C> <C>
United International Holdings, Inc.(1)...... 43,867,010 91.6%
Gene W. Schneider(2)........................ 43,867,010 91.6
Michael T. Fries............................ -- -- --
Richard De Lange............................ -- -- --
John P. Cole, Jr.(3)........................ 43,867,010 91.6
Antony P. Ressler(4)........................ 43,867,010 91.6
Ellen P. Spangler........................... -- -- --
Tina Wildes................................. -- -- --
Mark L. Schneider(5)........................ 44,517,010 93.0
J. Timothy Bryan............................ -- -- --
John F. Riordan(6).......................... 44,217,010 92.4
Anton H.E. v. Voskuijlen(7)................. 200,000 * *
All directors, director nominees and
executive officers as a group
(11 persons)(1)............................ 45,067,010 94.2
</TABLE>
- --------
* Less than 1%.
(1) UIH owns all of the issued and outstanding Priority Shares. Messrs. G.
Schneider, Cole, Ressler, M. Schneider and Riordan are directors of UIH,
and as such, together with UIH's other directors, share voting and
dispositive power over the shares of UPC held by UIH. The directors of UIH
disclaim any beneficial ownership of these UPC shares. The address of
United International Holdings, Inc. is 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237.
(2) Includes 43,867,010 Ordinary Shares owned by UIH. Mr. G. Schneider is
Chairman of the Board of UIH. He disclaims any beneficial ownership of
UIH's UPC shares.
(3) Includes 43,867,010 Ordinary Shares owned by UIH. Mr. Cole is a Director
of UIH. He disclaims any beneficial ownership of UIH's UPC shares.
(4) Includes 43,867,010 Ordinary Shares owned by UIH. Mr. Ressler is a
Director of UIH. He disclaims any beneficial ownership of UIH's UPC
shares.
(5) Includes 43,867,010 Ordinary Shares owned by UIH. Also includes currently
exercisable options for 650,000 Ordinary Shares of which options for
392,708 Ordinary Shares are subject to the Company's repurchase right,
which expires April 1, 2001. Mr. M. Schneider is a Director of UIH. He
disclaims any beneficial ownership of UIH's UPC shares.
(6) Includes currently exercisable options for 350,000 Ordinary Shares of
which options for 211,458 Ordinary Shares are subject to the Company's
repurchase right, which expires April 1, 2001.
(7) Represents currently exercisable options for 200,000 Ordinary Shares of
which options for 8,333 Ordinary Shares are subject to the Company's
repurchase right, which expires January 1, 1999, and options for 39,583
Ordinary Shares are subject to the Company's repurchase right, which
expires January 1, 2002.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
RELATIONSHIP WITH PHILIPS
UPC began operations as a joint venture between UIH and Philips in July
1995. Both shareholders contributed various assets to UPC and UIH seconded
certain employees to work for UPC. During the year ended December 31, 1997, UPC
incurred approximately NLG11.9 million, for costs associated with the seconded
employees, reimbursable to UIH.
In December 1997, UIH and UPC acquired all of Philips' interest in UPC. As
part of this transaction, UPC purchased from Philips (i) 3.17 million shares of
UIH Class A Common Stock for NLG66.8 million, the then current market value of
such shares, (ii) a portion of the PIK Notes at their fully accreted value for
NLG170.4 million, and (iii) 16.252 million Ordinary Shares for NLG292.6
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- History of UPC".
One of the Supervisory Board members, Mr. De Lange, continues to be a
member of the Supervisory Board pursuant to amendments to UPC's Articles of
Association in connection with the UPC Acquisition. Under the Articles of
Association, Philips may appoint and remove one Supervisory Director of UPC, so
long as Philips has any liability in respect of the agreements relating to the
Telekabel Wien system, which is expected to terminate by 2006. UPC has agreed
to indemnify Philips against such liability. UIH and UPC have agreed to use
their reasonable best efforts to obtain the release of Philips by the City of
Vienna from such liability. Philips' representative on UPC's Supervisory Board
must approve (i) the disposition of assets aggregating more than 30% of the
consolidated assets or generating more than 30% of the consolidated revenues of
the Telekabel Group, or (ii) the merger or consolidation of UPC into any other
entity that is not wholly owned by UIH.
LOANS TO EXECUTIVE OFFICERS
In 1998, UPC loaned Mr. van Voskuijlen NLG40,500 to enable him to pay the
tax on the stock options received that year. This recourse loan bears interest
at the Dutch statutory rate. For 1998, this rate is 6% per annum. The Company
made similar loans to other employees for the purpose of exercising and/or
paying tax on options. See "Management -- Stock Option Plans".
ACQUISITIONS AND DISPOSITIONS
In November 1998, the Company purchased from RCL, an entity owned by a
discretionary trust for the benefit of the members of the family of John
Riordan, a member of the Management Board, (i) a 5% interest in Tara and (ii) a
5% interest in the Company's Irish operating system. The price for these
interests was 384,531 shares UIH Class A Common Stock that UPC acquired as part
of the UPC Acquisition. UPC subsequently sold its newly-acquired 5% interest in
the Irish operating system, together with its existing 20% interest in this
system, to TINTA. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- History of UPC".
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RELATIONSHIP WITH UIH AND RELATED TRANSACTIONS
CONTROL BY UIH
Immediately prior to the Offering, UIH held effectively all of the voting
control of UPC and held all of UPC's issued and outstanding Ordinary Shares,
other than approximately 8.4% of such shares that have been registered in the
name of the Foundation to support UPC's stock option plan. UIH appoints the
board members of the Foundation and thus controls the voting of these shares as
well. See "Management -- Stock Option Plan". Upon completion of the Offering,
UIH will own approximately % of the outstanding Ordinary Shares and all of
the outstanding Priority Shares of the Company. Because UPC is a strategic
holding of UIH, UIH will continue to control the Company for the foreseeable
future. See "Risk Factors -- Control by UIH; Effects of UIH Indenture".
Currently two members of the Company's three-member Supervisory Board are also
directors or officers of UIH and upon completion of the Offering, five members
of the Company's seven-member Supervisory Board will be directors, officers or
employees of UIH.
TRANSACTIONS WITH UIH
Since the UPC Acquisition, UIH has loaned UPC approximately $79.0 million
(the "UIH Loan") to repay indebtedness and fund new business. The UIH Loan is
payable March 31, 2001 and bears interest at a rate of 10.75% per annum. The
UIH Loan is convertible into Ordinary Shares at UIH's option at the initial
public offering price.
As part of the UPC Acquisition, UPC acquired approximately 3.2 million
shares of UIH's Class A Common Stock. The Company subsequently sold 384,531 of
these shares for certain interests in the Irish system and Tara. UPC currently
holds approximately 2.8 million shares, which currently represents
approximately 7% of UIH's outstanding common stock. UPC has given UIH the right
to acquire these shares of UIH Class A Common Stock at their market value,
based on a ten-trading day average.
UIH has agreed to sell to UPC, in exchange for 7,523,736 Ordinary Shares of
UPC, UIH's 50% voting and 46.3% economic interest in Monor and its interests in
the Tara and IPS programming joint ventures.
AGREEMENTS WITH UIH
Subject to certain limitations, beginning one year after the date of this
Offering, UIH may require the Company to file a registration statement under
the Act with respect to all or a portion of UIH's Ordinary Shares (or ADSs if
UIH so requests), and the Company is required to use its best efforts to effect
such registration, subject to certain conditions and limitations. The Company
is not obligated to effect more than three of these demand registrations using
forms other than Form S-3 or F-3, as the case may be. UIH may demand
registration of such securities an unlimited number of times on Form S-3 or F-
3, as the case may be, except that the Company is not required to register
UIH's Ordinary Shares on Form S-3 more than once in any six-month period. UIH
also has the right to have its Ordinary Shares included in any registration
statement the Company proposes to file under the Act except that, among other
conditions, the underwriters of any such offering may limit the number of
shares included in such registration. UPC has also granted UIH rights
comparable to those described above with respect to the listing or
qualification of the Ordinary Shares held by UIH on the Amsterdam Stock
Exchange or on any other exchange and in any other jurisdiction where UPC
previously has taken action to permit the public sale of its securities.
UIH incurs certain overhead and other expenses at the corporate level on
behalf of UPC and its other operating companies. These include expenses not
readily allocable among the operating companies, such as accounting, financial
reporting, investor relations, human resources, information technology,
equipment procurement and testing expenses, corporate offices lease payments
and costs associated with corporate finance activities. UIH also incurs direct
costs for its operating companies such as travel and salaries for UIH employees
performing services on behalf of its respective operating
129
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companies. UIH and the Company are parties to a Management Service Agreement
(the "UIH Service Agreement"), with an initial term through 2009, pursuant to
which UIH will continue to these services for UPC. Under the UIH Service
Agreement, the Company will pay UIH a fixed amount each month (initially
$300,000) as its portion of such unallocated expenses. After the first year of
the UIH Services Agreement, the fixed amount may be adjusted from time to time
by UIH to allocate these corporate level expenses among UIH's operating
companies, including UPC, taking into account the relative size of the
operating companies and their estimated use of UIH resources. In addition, UPC
will continue to reimburse UIH for costs incurred by UIH which are directly
attributable to UPC.
The UIH Services Agreement also specifies the basis upon which UIH may
second certain of its employees to UPC. UIH's secondment of employees to UPC
helps UPC attract and retain U.S. citizens and other employees who want U.S.
benefit plans, without creating a separate U.S. employment subsidiary. The
Company generally is responsible for all costs incurred by UIH with respect to
any seconded employee's employment and severance. UIH may terminate a seconded
employee's employment if the employee's conduct constitutes willful misconduct
that is materially injurious to UIH.
UIH and UPC have agreed that so long as UIH holds 50% or more of the
outstanding Ordinary Shares of the Company, (i) UIH will not pursue any video
services, telephony or Internet access business in Europe or the Middle East or
any programming or Internet content business specifically directed to the
European or the Middle Eastern markets, unless it has first presented such
business opportunity to UPC and UPC has elected not to pursue such business
opportunity, and (ii) UPC will not pursue any video services, telephony or
Internet access business in markets outside of Europe and the Middle East in
which UIH currently operates unless it has first presented such business
opportunity to UIH and UIH has elected not to pursue such business opportunity.
UPC has agreed to sell to UIH, upon request, all or any portion of the UIH
Class A Common Stock held by it at a price based upon the trading price of such
stock during a specified period prior to sale. UIH and UPC have also agreed
that UPC will provide audited financial statements to UIH in such form and with
respect to such periods as shall be necessary or appropriate to permit UIH to
comply with its reporting obligations as a publicly traded company and that UPC
will not change its accounting principles without UIH's prior consent. UPC has
consented to the public disclosure by UIH of all matters deemed necessary or
appropriate by UIH in its sole discretion to satisfy the disclosure obligations
of UIH or any affiliate thereof under the United States federal securities laws
or to avoid potential liability thereunder. UPC has also agreed to indemnify
UIH against all liabilities UIH may incur in connection with UIH's
indemnification obligations under the underwriting agreement.
UIH INDENTURE
UPC, as a subsidiary of UIH, is subject to the provisions of the UIH
Indenture governing UIH's senior secured discount notes due 2008. The UIH
Indenture contains covenants that, among other things, limit the ability of UIH
and its subsidiaries, including UPC, to (i) incur indebtedness and issue
certain preferred stock in amounts exceeding that permitted based upon
financial ratio and other tests; (ii) repurchase its equity interests from
third parties other than UIH; (iii) make investments in non-controlled
entities; (iv) enter into agreements that would restrict the ability to make
distributions, loans or other payments to its equity holders; (v) create
certain liens; (vi) sell assets or issue equity for other than cash or fail to
invest the cash proceeds of such sales within 360 days of the sale periods; and
(vii) enter into transactions with affiliates of UIH. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Restrictions Under UIH Indenture" and "Risk
Factors --
Control by UIH; Effect of UIH Indenture". UPC has agreed with UIH that, for as
long as UPC is subject to the provisions of the UIH Indenture, as amended or
supplemented, or any other indenture or agreement to which UIH is a party
governing indebtedness of UIH that replaces or refinances any indebtedness
governed by the UIH Indenture, as amended or supplemented, it will not take any
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<PAGE>
DESCRIPTION OF SHARE CAPITAL
action that will result in a breach of the UIH Indenture.
UIH's senior secured discount notes were issued pursuant to an indenture (the
"Indenture") dated as of February 5, 1998, by and between UIH and Firstar Bank
of Minnesota N.A., as trustee. The foregoing description of certain covenants
of the UIH Indenture is summary only, does not purport to be complete and is
qualified in its entirety by reference to all of the provisions of the UIH
Indenture, which are hereby incorporated by reference. A copy of the Indenture
has been incorporated as an exhibit to the Registration Statement (the
"Registration Statement") filed with the United States Securities and Exchange
Commission (the "Commission") of which this Prospectus forms a part.
Pursuant to the Articles of Association, the authorized share capital of
the Company is NLG , and includes Ordinary Shares, each with a
nominal value of NLG ; priority shares, each with a nominal value of
NLG ("Priority Shares"); and preference shares, each with a nominal
value of NLG ("Preference Shares"). Upon completion of the Offering,
Ordinary Shares and 1,000 Priority Shares will be issued and fully paid. No
Preference Shares will be outstanding upon completion of the Offering. The
following description of the share capital of the Company is qualified in its
entirety by reference to the full text of the Articles of Association, which
have been included as an exhibit to the Registration Statement.
ORDINARY SHARES
Ordinary Shares may, at the option of the shareholder, be registered shares
or bearer shares. A shareholder may convert Ordinary Shares in bearer form into
registered Ordinary Shares at any time, and vice versa. The Company has applied
for listing of the Ordinary Shares in bearer form on the Amsterdam Stock
Exchange.
Ordinary Shares in bearer form will be embodied in a single Global Share
Certificate (the "Global Share Certificate"), which the Company will lodge with
The Netherlands Centraal Instituut voor Giraal Effectenverkeer B.V.
("NECIGEF"), for safe-keeping on behalf of the parties entitled to such
Ordinary Shares. The Ordinary Shares in bearer form can only be transferred
through the giro-based securities transfer system of NECIGEF.
Holders of registered Ordinary Shares will be entered in the Company's
shareholders register and share certificates will not be issued. At the request
of the registered shareholder, the Company will, without fee, issue a non-
negotiable extract from the shareholders register in the name of the holder. A
deed of transfer, together with an acknowledgment in writing of the Company, is
required to transfer registered shares.
ISSUE OF ORDINARY SHARES; PREEMPTIVE RIGHTS; VOTING RIGHTS. Pursuant to the
Articles of Association, all unissued shares of the authorized capital may be
issued by the Management Board upon approval of both the Supervisory Board and
the Priority Shareholder. The authority of the Management Board to issue
Ordinary Shares will terminate on December 31, 2003 unless extended by the
Articles of Association or by a resolution of the general meeting of
shareholders, for a period not exceeding five years in each instance. If no
such extension is given, issues of Ordinary Shares will require a resolution of
the general meeting of shareholders and approval of the Supervisory Board and
the Priority Shareholder. A resolution of the general meeting of shareholders
to prolong the authority of the Management Board to issue shares is subject to
the approval of both the Supervisory Board and the Priority Shareholder.
Except for issues of Ordinary Shares in return for non-cash consideration
and shares issued to employees of the Company or any subsidiary of the Company
as defined under
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Dutch law (each, a "Group Company"), holders of Ordinary Shares will have
preemptive rights to subscribe for their pro-rata amount of all new Ordinary
Share issuances of the Company. These rights may be restricted or excluded,
however, by a resolution of the Management Board upon approval of both the
Supervisory Board and the Priority Shareholder.
Each Ordinary Share represents the right to cast one vote.
PRIORITY SHARES
All of the Priority Shares are held by UIH. Except for the transfer of
Priority Shares to the Company, Priority Shares can only be transferred with
the approval of the Supervisory Board. As a holder of Priority Shares, UIH is
the Priority Shareholder and has some specific powers within the Company
including (i) approval rights for the issuance of all new shares; (ii) the
right to exclude or restrict preemptive rights of existing shareholders; (iii)
nominating members for appointment to the Management Board and Supervisory
Board, which nominations may only be set aside by a resolution of the general
meeting of shareholders, passed with a majority of at least two-thirds of the
votes cast representing more than one-half of the outstanding share capital;
(iv) the right to require approval by it of certain managerial decisions; and
(v) the exclusive right to propose an amendment to the Articles of Association,
including amendments to dissolve the Company or to merge or split up the
Company. The Priority Shares have no separate voting rights. Priority Shares
are issued in the same way as Ordinary Shares, but carry no preemptive rights.
Priority Shares are entitled to an annual dividend of 5% of nominal value, to
the extent of distributable profits of UPC.
At such time as UIH holds less than 15% of the issued and oustanding
Ordinary Shares, UIH will transfer all of the Priority Shares, the trustees of
which will be the Company's Supervisory Directors.
PREFERENCE SHARES
The Articles of Association provide for the issuance of Preference Shares.
Preference Shares are designed as a preventive measure against unfriendly
takeover bids. The minimum amount required to be paid on the Preference Shares
upon issuance is 25% of the nominal amount. In the event of a hostile takeover
bid, Preference Shares may be issued to a legal entity charged with caring for
the interests of the Company and preventing influences that may threaten the
continuity, independence or identity of the Company. Holders of Preference
Shares do not share in the reserves of the Company and such shares are not
listed. The Preference Shares will be registered shares and share certificates
will not be issued. Preference Shares can be issued in the same way as Ordinary
Shares, but carry no preemptive rights. The dividend and voting rights of
Preference Shares will be designated at the time of issuance by the Management
Board under the direction of the Supervisory Board.
Preference Shares may be issued by the Management Board upon approval of
both the Supervisory Board and the Priority Shareholder if such power has been
granted to the Management Board by a shareholders meeting. Notwithstanding, if
Preference Shares are proposed to be issued and such shares would exceed 50% or
100%, depending on the circumstances, of all other outstanding shares of the
Company, such issuance requires the approval of the general meeting of
shareholders. In all instances where Preference Shares are issued, the Company
must explain the reason for the issuance within four weeks thereof at a general
meeting of shareholders. Within two years after the first issuance of
Preference Shares, a general shareholders meeting must be held to vote on
whether the Preference Shares should be repurchased or cancelled. If such a
resolution is not adopted, another meeting is held within two years of the
previous meeting and this procedure is repeated until no more Preference Shares
are outstanding.
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SUMMARY OF CERTAIN PROVISIONS OF THE
ARTICLES OF ASSOCIATION AND OTHER MATTERS
GENERAL
The Company was incorporated under Dutch law on December 21, 1990 as a
private limited liability company ("besloten vennootschap met beperkte
aansprakelijkheid"), and was converted in connection with the UPC Acquisition
on December 11, 1997 into a public limited liability company ("naamloze
vennootschap"). The Company has its corporate seat in Amsterdam, The
Netherlands and is registered in the Amsterdam Commercial Register under number
33-274-976. UPC is not subject to the rules for large companies
("structuurvennootschappen").
Set forth below is a summary of certain relevant provisions of the Articles
of Association (as the same will be amended following the Offering) and Dutch
corporate law. A statement of no objection by the Minister of Justice to the
proposed Articles of Association was issued under number . This summary
does not purport to be complete and is qualified in its entirety by reference
to the Articles of Association and the law of The Netherlands. Copies of the
Articles of Association and the Company's most recent annual accounts and
annual report may be obtained in both Dutch and English upon written request to
the Company at its principal office.
CORPORATE PURPOSE
Article 3 of the Articles of Association provides that the Company's
business activity shall be, among other things, (i) to own, operate, and
develop subscription and multi-channel television systems, to render related
consulting, engineering and programming services and to provide other
communications services, (ii) to incorporate, manage and finance, and to
participate in other companies and enterprises, and (iii) to take up loans,
land and make investments and acquire, transfer and dispose of claims and
assets in general.
ACQUISITION BY THE COMPANY OF ITS OWN SHARES
The Company may acquire its own shares subject to certain provisions of
Dutch law. The Company may only acquire its own shares for consideration if (i)
the shareholders' equity less the payment required to make the acquisition does
not fall below the sum of the paid-up and called portion of the share capital
and any statutory reserves, and (ii) the Company and its subsidiaries would
thereafter not hold or hold in pledge shares with an aggregate nominal value
exceeding one-tenth of the Company's issued share capital. Shares held by the
Company in its own capital may not be voted or counted for quorum purposes at
shareholders' meetings.
Acquisitions by the Company of its own shares may be effected by the
Company's Management Board, subject to the approval of the Supervisory Board,
only if the general meeting of shareholders has authorized the Management Board
to effect such acquisitions. It is expected that such a resolution will be
adopted prior to the completion of the Offering. Such resolutions expire within
18 months and must be renewed. Acquisitions by the Company of its own shares
that are listed on a stock exchange do not require the above-mentioned
authorization if made for the purpose of transferring such shares to the
employees of the Company or of a Group Company.
OBLIGATIONS TO DISCLOSE HOLDINGS
Pursuant to the Dutch Act of Disclosure of Holdings in Listed Companies
1996 ("Wet melding zeggenschap in ter beurze genoteerde vennootschappen 1996"),
any holder of five percent or more of the Company's issued capital or voting
control at the time the Ordinary Shares are listed on the Amsterdam Stock
Exchange must notify both the Company and the Securities Board of The
Netherlands. Moreover, anyone obtaining or divesting Ordinary Shares after
listing on the Amsterdam Stock Exchange and thereby causing that holder's
percentage of issued capital or voting control to come under a different range
must also notify the Company and the Securities Board of The Netherlands. The
aforementioned ranges are: 0 to 5%, 5 to 10%, 10 to 25%, 25 to 50%, 50 to 66
2/3% and 66 2/3% or more. Failure to disclose one's shareholdings is a
violation of the Dutch Economic Offenses Act, and may result in civil
penalties, including suspension of voting rights.
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SHAREHOLDERS MEETING
The Company is required to hold a shareholders' meeting annually.
ADOPTION OF ANNUAL ACCOUNTS AND DISCHARGE
Within five months following the end of each fiscal year, the Management
Board must prepare annual accounts accompanied by an annual report. This period
may be extended by the general meeting of shareholders on account of special
circumstances for up to six months. The annual accounts and report must then be
submitted to the Supervisory Board, which will present a report on it to the
general meeting of shareholders. The annual accounts and the annual report will
be available to shareholders from the day of notice convening the annual
general meeting of shareholders.
The general meeting of shareholders may discharge the members of the
Management Board and Supervisory Board from liability in respect of the
exercise of their duties during the fiscal year concerned. Such discharge is
subject to mandatory provisions of Dutch law, including those relating to
liability of members of supervisory boards and management boards upon
bankruptcy of a company. Moreover, this discharge does not extend to actions or
omissions not disclosed in or apparent from the adopted annual accounts.
DIVIDENDS
Subject to certain exceptions, dividends are only paid by the Company on
profits as shown in the annual financial statements of the Company. The Company
may not pay dividends if the payment would reduce shareholders' equity below
the sum of the paid-up capital and any reserves required by Dutch law. Pursuant
to the Articles of Association, the Priority Shares have preferential dividend
rights. See "Description of Share Capital -- Priority Shares". Thereafter, the
Management Board upon approval of the Supervisory Board, shall determine how
much of the remaining profit shall be allocated to the Company's reserves
before dividends are paid on the Ordinary Shares. To date, the Company has not
paid dividends on its share capital and does not intend to do so for the
foreseeable future. See "Dividend Policy" and "Risk Factors -- No Intention to
Pay Dividends". The Management Board may declare, upon approval of the
Supervisory Board and the general meeting of the shareholders, that some or all
of the dividends will be paid in shares in the Company thereof, rather than in
cash. The Management Board may, with the prior approval of the Supervisory
Board and subject to certain statutory provisions, distribute one or more
interim dividends.
CAPITAL REDUCTION
Upon the proposal of the Company's Management Board and after approval by
the Supervisory Board, the general meeting of shareholders may resolve to
reduce the issued share capital by cancellation of shares or by reducing the
nominal value of the Company's shares, subject to certain statutory provisions
and the provisions of the Articles of Association.
AMENDMENT OF THE ARTICLES OF ASSOCIATION; DISSOLUTION; LEGAL MERGER; SPLIT-UP
The Priority Shareholder may propose either amendments to the Articles of
Association or that the Company shall effect a legal merger, split-up or
dissolution of the Company. The general meeting of shareholders can only
resolve to accept such proposal if at least two thirds of the votes cast at a
general meeting of shareholders are in favor of the proposal. The general
meeting of shareholders cannot effect a legal merger, split-up or dissolution
of the Company or amend the Articles of Association if the proposal is made by
any shareholder other than the Priority Shareholder.
LIQUIDATION RIGHTS
In the event of the dissolution and liquidation of the Company, the assets
remaining after payment of all debts are to be distributed to holders of the
Company's share capital as follows: first, to any issued and outstanding
Preference Shares in an amount equal to any previously declared but unpaid
dividend and the paid-up amount of such Preference Shares; second,
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
to the holders of Priority Shares in an amount equal to their nominal value;
and, third any remaining assets shall be distributed to the holders of Ordinary
Shares in proportion to the nominal value of their holdings.
The following is a summary of certain provisions of the Deposit Agreement
(the "Deposit Agreement"), to be dated as of , 1999, among the Company,
Citibank, N.A., as depositary (the "Depositary") and all holders ("Holders")
and beneficial owners ("Beneficial Owners") from time to time of the ADSs
evidenced by ADRs issued under the Deposit Agreement. This description does not
purport to be complete and is qualified in its entirety by reference to the
Deposit Agreement. Terms used in this summary and not otherwise defined herein
shall have the meanings set forth in the Deposit Agreement. Copies of the
Deposit Agreement are available for inspection at the New York Office of the
Depositary (the "Principal Office"), currently located at 111 Wall Street, New
York, New York 10043, U.S.A.
AMERICAN DEPOSITARY SHARES
ADSs are issuable only pursuant to the Deposit Agreement and will be
evidenced by ADRs. Each ADR evidences the whole number of ADSs specified
therein. Each ADS represents, as of the date of the issuance of the ADSs,
Ordinary Shares of the Company or rights thereto (such Ordinary Shares or
rights thereto, together with all other securities, cash or property held in
respect or in lieu of such Ordinary Shares or rights under the Deposit
Agreement, being herein referred to as the "Deposited Securities"). Ordinary
Shares will be deposited into accounts maintained by , as the
custodian and agent of the Depositary (the "Custodian"), and registered in the
name of the Depositary in the records of Nederlandse Centraal Instituut voor
Giraal Effectenverkeer B.V. ("NECIGEF"), the Dutch securities registry. Only
persons in whose names ADSs are registered will be treated by the Company and
the Depositary as the absolute owners of such ADSs.
DEPOSIT OF ORDINARY SHARES
The Ordinary Shares to be represented by the ADSs will be deposited in
bearer form with the
Custodian and credited to an account maintained by the Custodian for such
purpose at NECIGEF. The Custodian will be the holder of record of all such
Ordinary Shares. Subject to the terms and conditions of the Deposit Agreement
and applicable law, upon receipt of notice from the Custodian confirming the
deposit of such Ordinary Shares to the account of the Custodian at NECIGEF, the
Depositary will cause ADRs evidencing ADSs to be executed and delivered to or
upon the order of the person(s) named in such notice from the Custodian.
Ownership of beneficial interest in the Ordinary Shares so deposited will be
shown on, and transfers of the ownership of such beneficial interests will be
effected through, the records maintained by NECIGEF or institutions with
accounts at NECIGEF.
Subject to the terms and conditions of the Deposit Agreement and applicable
law, Ordinary Shares or evidence of rights to receive Ordinary Shares other
than Restricted Securities (as hereinafter defined) may be deposited by any
person (including the Depositary in its individual capacity but subject,
however, in the case of the Company or any Affiliate of the Company, to the
limitations set forth in the Deposit Agreement and applicable law) by delivery
of the Ordinary Shares to the Custodian along with (i) appropriate
instrument(s) of transfer or endorsement, in a form satisfactory to the
Custodian, (ii) such certifications and payments (including, without
limitation, the transaction fees and related charges) and evidence of such
payments (including, without limitation, stamping or otherwise marking such
Ordinary Shares as may be required by the Depositary or the Custodian in
accordance with the provisions of the Deposit Agreement), (iii) a written order
directing the Depositary to execute and deliver to, or upon the written order
of, the person or persons stated in such order an ADR or ADRs evidencing the
number of ADSs representing the Ordinary Shares so deposited (iv) evidence
satisfactory to the Depositary that all necessary approvals have been granted
by, or there has been compliance with the rules and regulations of,
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any applicable governmental agency in The Netherlands, and (v) any agreement,
instrument or proxy as may be required by the Depositary or the Custodian in
respect of the Ordinary Shares for any and all purposes until the Ordinary
Shares so deposited are registered in the name of the Depositary, the Custodian
or any nominee. Subject to the terms of the Deposit Agreement, the Depositary
shall instruct the Custodian not to, and the Depositary itself shall not
knowingly, accept for deposit any Ordinary Shares, ADRs or ADSs that are
restricted securities as such term is defined in Rule 144(a)(3) of the
Securities Act of 1933 ("Restricted Securities"), any fractional Ordinary
Shares or fractional Deposited Securities or a number of Ordinary Shares or
Deposited Securities that would give rise to the issuance of fractional ADSs.
No Ordinary Shares shall be accepted for deposit unless accompanied by evidence
(if any is required by the Depositary) satisfactory to the Depositary or the
Custodian that all conditions to such deposit have been satisfied by the person
depositing such Ordinary Shares under Dutch laws and regulations and any
necessary approval has been granted by the governmental body in The
Netherlands, if any, which is then performing the function of the regulation of
currency exchange.
The Depositary may issue ADRs against rights to receive Ordinary Shares
from the Company, any agent of the Company, any custodian, registrar, transfer
agent, clearing agency or other entity involved in ownership or transaction
records in respect of the Ordinary Shares. Neither the Depositary nor the
Custodian, in their capacity as such, may lend Deposited Securities or ADRs;
provided, however, that the Depositary reserves the right to issue ADRs prior
to the receipt of Ordinary Shares ("Pre-Release") and to deliver Ordinary
Shares prior to the receipt and cancellation of ADRs, subject to the conditions
specified in the Deposit Agreement, which require persons to whom ADRs or
Ordinary Shares are so issued or delivered to, among other things, enter into a
written agreement with, and provide collateral to the Depositary. Collateral
provided in connection with any Pre-Release transaction under the terms of the
Deposit Agreement, but not earnings thereon, shall be held for the benefit of
the Beneficial Owners and Holders (but not of the person or entity to whom ADSs
are issued prior to the receipt of Ordinary Shares or to whom Ordinary Shares
are issued prior to the cancellation of ADRs).
WITHDRAWAL OF DEPOSITED SECURITIES
Upon surrender at the Principal Office of the Depositary of ADSs for the
purpose of withdrawal of the Deposited Securities represented thereby,
and upon payment of the charges, fees and expenses of the Depositary provided
in the Deposit Agreement and of any applicable taxes or governmental charges,
subject to the terms and conditions of the Deposit Agreement, the Company's
Articles of Association and other applicable laws, the Holder of such ADSs will
be entitled to delivery, to such Holder or upon such Holder's order, of the
Deposited Securities represented by the ADSs so surrendered. ADSs may be
surrendered for the purpose of withdrawing Deposited Securities by delivery of
an ADR evidencing such ADSs (if held in registered form) or by book-entry
delivery of such ADSs to the Depositary. An ADR surrendered for such purposes
shall (if required by the Depositary) be properly endorsed in blank or
accompanied by proper instruments of transfer in blank, and the Holder thereof
shall execute and deliver to the Depositary a written order containing delivery
instructions. Such endorsements, instruments and instructions shall, in all
cases, meet the requirements set forth in the Deposit Agreement.
Upon receipt of satisfactory documentation, the Depositary shall direct the
Custodian to deliver (without unreasonable delay) at the designated office of
the Custodian (if the Ordinary Shares are not held in electronic book-entry
form), subject to the terms and conditions of the Deposit Agreement, to the
Articles of Association of the Company, and the provisions of or governing the
Deposited Securities and other applicable laws, now or hereafter in effect, to
or upon the written order of the person or persons designated in the order
delivered to the Depositary as provided above, the Deposited Securities
represented by such ADSs, together with any certificate or other proper
documents of or relating to title of the Deposited Securities or evidence of
the electronic transfer thereof (if available), as the case may be, to or for
the account of such person. The Depositary may make delivery to such person or
persons at the Principal Office of the Depositary of any dividends or cash
distributions with respect to
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the Deposited Securities represented by such ADSs, or of any proceeds of sale
of such dividends, distributions or rights, which may at the time be held by
the Depositary. The Depositary will not accept for surrender an ADR evidencing
ADSs representing less than one Ordinary Share. In the case of surrender of an
ADR evidencing a number of ADSs representing other than a whole number of
Ordinary Shares, the Depositary will cause ownership of the appropriate whole
number of Ordinary Shares to be delivered in accordance with the terms of the
Deposit Agreement, and shall issue and deliver to the person surrendering such
Receipt cash proceeds from the sale by the Depositary of any fractional share.
At the request, risk and expense of any Holder so surrendering an ADR, and for
the account of such Holder, the Depositary shall direct the Custodian to
forward any cash or other property (other than securities) held in respect of,
and any certificate or certificates and other proper documents of or relating
to title to, the Deposited Securities represented by such ADR to the Depositary
for delivery at the Principal Office of the Depositary, and for further
delivery to such Holder. Such direction shall be given by letter or, at the
request, risk and expense of such Holder, by cable, telex or facsimile
transmission.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
CASH DIVIDEND. Whenever the Depositary receives confirmation from the
Custodian of receipt of any cash dividend or other cash distribution on any
Deposited Securities, or receives proceeds from the sale of any Ordinary
Shares, rights, securities or other entitlements under the terms of the Deposit
Agreement, the Depositary shall, if at the time of receipt thereof any amounts
received in a foreign currency can in the judgment of the Depositary (pursuant
to the provisions of the Deposit Agreement) be converted on a practicable basis
into U.S. dollars transferable to the United States, promptly convert or cause
to be converted such cash dividend, distribution or proceeds into U.S. dollars
(on the terms described in the Deposit Agreement) and will distribute promptly
the amount thus received (net of (a) the applicable fees and charges of, and
expenses incurred by, the Depositary and (b) taxes withheld) to the Holders
entitled thereto as of the record date in proportion to the number of ADSs held
as of the record date. The Depositary shall distribute only such amount as can
be distributed, however, without attributing to any Holder a fraction of one
cent, and any balance not so distributed shall be held by the Depositary
(without liability for interest thereon) and shall be added to and become part
of the next sum received by the Depositary for distribution to Holders
outstanding at the time of the next distribution. If taxes, duties or other
governmental charges are required to be withheld, the amount distributed to
Holders shall be reduced accordingly.
SHARE DIVIDEND. Upon receipt of confirmation of the deposit of a dividend
in, or free distribution of, Ordinary Shares from the Custodian, the Depositary
shall establish a record date and, subject to the terms of the Deposit
Agreement, either (i) distribute to the Holders as of the record date in
proportion to the number of ADSs held as of such record date, additional ADSs,
which represent in the aggregate the number of Ordinary Shares received as such
dividend, or free distribution, subject to the other terms of the Deposit
Agreement (including, without limitation, (a) the payment of any applicable
fees and charges of, and expenses incurred by, the Depositary and (b) taxes),
or (ii) if additional ADSs are not so distributed, each ADS issued and
outstanding after the record date shall, to the extent permissible by law,
thenceforth also represent rights and interests in the additional Ordinary
Shares distributed upon the Deposited Securities represented thereby (net of
(a) the applicable fees and charges of, and expenses incurred by, the
Depositary and (b) taxes). In lieu of delivering fractional ADSs, the
Depositary shall sell the number of Ordinary Shares represented by the
aggregate of such fractions and distribute the net proceeds of such sale upon
the terms of the Deposit Agreement.
In the event that the Depositary determines that any distribution in
property (including Ordinary Shares) is subject to any tax or other
governmental charges which the Depositary is obligated to withhold, or, if the
Company, in the fulfillment of its obligation under the Deposit Agreement, has
furnished an opinion of U.S. counsel determining that Ordinary Shares must be
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registered under the Securities Act of 1933, as amended (the "Securities Act"),
or other laws in order to be distributed to Holders (and no such registration
statement has been declared effective), the Depositary may dispose of all or a
portion of such property (including Ordinary Shares and rights to subscribe
therefor) in such amounts and in such manner, including by public or private
sale, as the Depositary deems necessary and practicable, and the Depositary
shall distribute the net proceeds of any such sale (after deduction of such (a)
taxes and (b) fees and charges of, and expenses incurred by, the Depositary) to
Holders entitled thereto upon the terms described in the Deposit Agreement. The
Depositary shall hold and/or distribute any unsold balance of such property in
accordance with the provisions of the Deposit Agreement.
ELECTIVE DIVIDEND. Upon receipt of notice that the Company wishes to
distribute a dividend payable at the election of the holders of Deposited
Securities in cash or in additional Ordinary Shares, and the Company wishes
such elective distribution to be made available to Holders and Beneficial
Owners of ADSs, the Depositary, upon consultation with the Company, will
determine, whether it is lawful and reasonably practicable to make such
elective distribution available to the Holders and Beneficial Owners of ADSs.
The Depositary has agreed to make such elective distribution available to
Holders and Beneficial Owners only if (i) the Depositary shall have determined
that such distribution is reasonably practicable and (ii) the Depositary shall
have received satisfactory documentation within the terms of the Deposit
Agreement. If the above conditions are not satisfied, the Depositary shall, to
the extent permitted by law, distribute to the Holders, on the basis of the
same determination as is made in the local market in respect of the Ordinary
Shares for which no election is made, either cash or additional ADSs
representing such additional Ordinary Shares, in either case, upon the terms of
the Deposit Agreement. If the above conditions are satisfied, the Depositary
shall establish a record date and establish procedures to enable Holders to
elect the receipt of the proposed dividend in cash or in additional ADSs.
Holders electing to receive the proposed dividend in cash shall receive such
dividend upon the terms described in the Deposit Agreement representing cash
dividends; Holders electing to receive the dividend in ADSs shall receive such
dividend upon the terms described in the Deposit Agreement respecting dividends
in Ordinary Shares.
Nothing herein shall obligate the Depositary to make available to Holders a
method to receive the elective dividend in Ordinary Shares (rather than ADSs).
There can be no assurance that Holders generally, or any Holder in particular,
will be given the opportunity to receive elective distributions on the same
terms and conditions as the holders of the Deposited Securities.
RIGHTS. The Depositary has agreed, upon receipt of notice that the Company
intends to
make rights available to holders of Deposited Securities, to make such rights
available to any Holder only if (i) the Company shall have requested that such
rights be made available to Holders, (ii) the Depositary shall have received
satisfactory legal documentation from the Company within the terms of the
Deposit Agreement, and (iii) the Depositary shall have determined that such
distribution of rights is reasonably practicable. In the event any of the
conditions set forth above are not satisfied, the Depositary shall proceed with
the sale of the rights as contemplated below. In the event all conditions set
forth above are satisfied, the Depositary shall establish a record date (upon
the terms described in the Deposit Agreement) and establish procedures to
distribute such rights (by means of warrants or otherwise) and to enable the
Holders to exercise the rights upon payment of (a) the applicable fees and
charges of, and expenses incurred by, the Depositary and (b) taxes. The Company
shall assist the Depositary to the extent necessary in establishing such
procedures. Nothing herein shall obligate the Depositary to make available to
the Holders a method to exercise such rights to subscribe for Ordinary Shares
rather than ADSs.
If (i) the Company does not request the Depositary to make the rights
available to Holders or requests that the rights not be made available to
Holders, (ii) the Depositary fails to receive satisfactory legal documentation
from the Company or determines it is not reasonably practicable to make the
rights available to Holders, or (iii) any rights made available are not
exercised and appear to be about to lapse, the Depositary
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shall determine whether it is lawful and reasonably practicable to sell such
rights, in a riskless principal capacity, at such place and upon such terms
(including public and private sale) as it may deem proper. The Depositary
shall, upon such sale, convert and distribute proceeds of such sale (net of (a)
applicable fees and charges of, and expenses incurred by, the Depositary and
(b) taxes) upon the terms set forth in the Deposit Agreement.
If the Depositary is unable to make any rights available to Holders or to
arrange for the sale of the rights upon the terms described in the Deposit
Agreement, the Depositary shall allow
such rights to lapse. The Depositary shall not be responsible for (i) any
failure to determine that it may be lawful or feasible to make such rights
available to Holders in general or any Holders in particular, (ii) any foreign
exchange exposure or loss incurred in connection with such sale, or exercise,
or (iii) the content of any materials forwarded to the Holders on behalf of the
Company in connection with the rights distribution.
If registration under the Securities Act or any other applicable law of the
rights or the securities to which any rights relate may be required in order
for the Company to offer such rights or such securities to Holders and to sell
the securities represented by such rights, the Depositary will not distribute
such rights to the Holders unless and until a registration statement under the
Securities Act covering such offering is in effect. In the event that taxes or
other governmental charges are required to be withheld, the amount distributed
to the ADR Holders shall be reduced accordingly. In the event that the
Depositary determines that any distribution in property (including Ordinary
Shares and rights to subscribe therefor) is subject to any tax or other
governmental charges which the Depositary is obligated to withhold, the
Depositary may dispose of all or a portion of such property (including Ordinary
Shares and rights to subscribe therefor) in such amounts and in such manner,
including by public or private sale, as the Depositary deems necessary and
practicable to pay any such taxes or charges.
There can be no assurance that Holders generally, or any Holder in
particular, will be given the opportunity to exercise rights on the same terms
and conditions as the holders of Deposited Securities or to exercise such
rights. Nothing herein or in the Deposit Agreement shall obligate the Company
to file any registration statement in respect of any rights or Ordinary Shares
or other securities to be acquired upon the exercise of such rights.
DISTRIBUTIONS OTHER THAN CASH, SHARES OR RIGHTS.
The Depositary shall not make a distribution of property other than cash,
Ordinary Shares or rights to purchase additional Ordinary Shares, unless (i)
the Company shall have requested the Depositary to make such distribution to
Holders, (ii) the Depositary shall have received satisfactory legal
documentation within the terms of the Deposit Agreement, and (iii) the
Depositary shall have determined that such distribution is reasonably
practicable.
Upon satisfaction of the requirements in (i)-(iii) above, the Depositary
shall distribute the property so received to the Holders of record as of the
record date, in proportion to the number of ADSs held by them respectively and
in such manner as the Depositary may deem practicable for accomplishing such
distribution (i) upon receipt of payment or net of the applicable fees and
charges of, and expenses incurred by, the Depositary, (ii) net of any taxes
withheld. The Depositary may dispose of all or a portion of the property so
distributed and deposited, in such amounts and in such manner (including public
or private sale) as the Depositary may deem practicable or necessary to satisfy
any taxes (including applicable interest and penalties) or other governmental
charges applicable to the distribution.
If (i) the Company does not request the Depositary to make such
distribution to Holders or requests not to make such distribution to Holders,
(ii) the Depositary does not receive satisfactory legal documentation within
the terms of the Deposit Agreement or (iii) the Depositary determines that all
or a portion of such distribution is not reasonably practicable or feasible,
the Depositary shall sell or cause such property to be sold in a public or
private sale, at such place or places and upon such terms as it may deem proper
and shall (i) cause the proceeds of such
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sale, if any, to be converted into U.S. dollars and (ii) distribute the
proceeds of such conversion received by the Depositary (net of (a) applicable
fees and charges of, and expenses incurred by, the Depositary and (b) taxes) to
the Holders as of the record date upon the terms of cash distributions set
forth in the Deposit Agreement. If the Depositary is unable to sell such
property, the Depositary may dispose of such property in any way it deems
reasonably practicable under the circumstances.
CHANGES AFFECTING DEPOSITED SECURITIES
Upon any change in nominal or par value, split-up, consolidation or any
other reclassification of Deposited Securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the Company
or to which it is party, any securities that shall be received by the
Depositary or the Custodian in exchange for, or in conversion or replacement of
or otherwise in respect of, Deposited Securities shall, subject to the terms of
the Deposit Agreement, be treated as newly deposited securities under the
Deposit Agreement, and the ADSs shall, subject to the terms of the Deposit
Agreement and in compliance with applicable laws (including any registration
requirements under the Securities Act), thenceforth represent the new Deposited
Securities so received in exchange or conversion, provided that the Depositary
may, with the Company's approval, and will, if the Company so requests, subject
to the provisions of the Deposit Agreement and receipt of an opinion of counsel
to the Company satisfactory to the Depositary that such distributions are not
in violation of any applicable laws or regulations, execute and deliver new
ADRs or call for the surrender of outstanding ADRs to be exchanged for new
ADRs.
RECORD DATES
Whenever the Depositary shall receive notice from the Company of the fixing
of a record date for the determination of holders of Deposited Securities
entitled to receive any distribution (whether in cash, shares, rights, or other
distribution) or whenever for any reason the Depositary causes a change in the
number of Ordinary Shares that are represented by each ADS, or whenever the
Depositary receives notice of any meeting of holders of Ordinary Shares or
other Deposited Securities, or for any other reason that the Depositary deems
necessary or convenient in connection with the giving of any notice,
solicitation of any consent or any other matter, the Depositary will fix, after
consultation with the Company, a record date (which shall, to the extent
practicable, be the same as the corresponding record date set by the Company in
respect of Shares) for the determination of the Holders entitled to receive
such dividend or distribution or give instructions for the exercise of voting
rights at any such meeting, or give or withhold such consent, or receive such
notice or otherwise take action, or exercise the rights of Holders with respect
to any changed number of Ordinary Shares represented by each ADS subject to the
provisions of the Deposit Agreement. Subject to the terms and conditions of the
Deposit Agreement, only the Holders of ADRs at the close of business on such
record date shall be entitled to receive such distribution, to give such voting
instructions, to receive such notice or solicitation, or otherwise take action.
VOTING OF THE SHARES
As soon as practicable after receipt of notice of any meeting of holders of
Ordinary Shares or other Deposited Securities at which the holders of Ordinary
Shares or other Deposited Securities are entitled to vote, or of solicitation
of consents or proxies from holders of Ordinary Shares or other Deposited
Securities, the Depositary shall fix a record date applicable to Holders of
ADSs and, if the Company so requests, mail to Holders (a) such information as
is contained in such notice of meeting or solicitation of consent or proxy, (b)
a statement in English, in a form provided by the Company, that the Holders at
the close of business on the record date will be entitled, subject to the terms
of the Deposit Agreement, any applicable provisions of Dutch law, the Company's
Articles of Association and the provisions of or governing the Deposited
Securities (which provisions, if any, shall be summarized in pertinent part by
the Company), to instruct the Depositary as to the exercise of the voting or
other rights, if any, pertaining to the number of Ordinary Shares or other
Deposited Securities represented by such Holder's ADSs, and (c) a brief
statement as to the manner in which such instructions may be given.
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The Depositary shall not, and shall instruct the Custodian and each of
their nominees, if any, not to vote the Ordinary Shares or other Deposited
Securities represented by the ADSs evidenced by an ADR other than in accordance
with such instructions from the Holder. Ordinary Shares or other Deposited
Securities represented by ADSs for which no specific voting instructions are
received by the Depositary from the Holder shall not be voted. The Depositary,
the Custodian and each of their nominees (if any) may not exercise any voting
discretion over any Ordinary Shares or other Deposited Securities.
There can be no assurance that neither Holders generally nor any Holder in
particular will receive the notice described above with sufficient time to
enable the Holder to return voting instructions to the Depositary in a timely
manner.
REPORTS AND NOTICES
On or before the first date on which the Company gives notice, by
publication or otherwise, of any meeting of holders of Ordinary Shares or any
Deposited Securities, or any such meeting at which such holders are entitled to
vote, or any adjourned meeting, or of the taking of any action by such holders
other than at a meeting, or of the taking of any action in respect of any cash
or other distributions or the offering of any rights in respect of deposited
Ordinary Shares, or any Deposited Securities, or for any other reason, pursuant
to the Deposit Agreement, the Company will be required to transmit to the
Depositary and the Custodian a copy of the notice thereof in the English
language in the form given or to be given to holders of Ordinary Shares or any
Deposited Securities. The Company shall also furnish to the Custodian and the
Depositary an English language copy of a summary of any applicable provisions
or proposed provisions of the Articles of Association of the Company that may
be relevant or pertain to such notice or to a vote to be taken at the meeting.
The Depositary will, subject to applicable law, arrange for the prompt
transmittal by the Custodian to the Depositary of such notices and any other
reports and communications that are both received by the Depositary and made
generally available by the Company to the holders of Ordinary Shares and other
Deposited Securities, and arrange for the mailing of copies thereof to all
Holders or make such notices, reports and other communications available to all
Holders on a basis similar to that for holders of Ordinary Shares or other
Deposited Securities or on such other basis as the Company may advise the
Depositary or as may be required by any applicable law, regulation or stock
exchange requirement.
The Depositary will make a copy of any other notices, reports and other
communications issued by the Company in connection therewith available for
inspection by the Holders of the Receipts evidencing the ADSs representing such
Ordinary Shares governed by such provisions at the Depositary's Principal
Office, at the office of the Custodian and at any other designated transfer
office.
DISCLOSURE OF BENEFICIAL OWNERSHIP
The Company or the Depositary may from time to time request the Holders or
former Holders of ADRs to provide information as to the capacity in which they
hold or held ADSs and regarding the identity of any other persons then or
previously holding any beneficial or other interest in such ADRs and the nature
of such interest and various other matters. Each such Holder agrees to provide
any such information reasonably requested by the Company or the Depositary
pursuant to the Deposit Agreement whether or not still a Holder at the time of
such request. To the extent that provisions of or governing any Deposited
Securities or the applicable rules and regulations of any governmental
authority may require the disclosure of, or limit beneficial or other ownership
of Deposited Securities in, other Ordinary Shares and other securities of the
Company and provide for blocking transfer and voting or other rights to enforce
such disclosure or limit such ownership, the Depositary shall use its
reasonable efforts to comply with Company instructions as to ADRs in respect of
any such enforcement or limitation and Holders and Beneficial Owners shall
comply with all such disclosure requirements and ownership limitations and
shall cooperate with the Depositary's compliance with such Company
instructions. Upon request by the Company or any Dutch governmental authority,
the Depositary will as promptly as practicable furnish to it a list, as of
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a recent date, of the names, addresses and holdings of ADSs by all persons in
whose names ADSs are registered on the books of the Depositary.
INSPECTION OF TRANSFER BOOKS
The Depositary will keep books at its New York Office for the registration
and transfer of ADRs, which at all reasonable times will be open for inspection
by Holders and the Company, provided that such inspection shall not to the
Depositary's knowledge be for the purpose of
communicating with Holders in the interest of a business or object other than
the business of the Company or a matter related to the Deposit Agreement or the
ADSs.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the ADRs and any provision of the Deposit Agreement may at any
time and from time to time be amended or supplemented by written agreement
between the Company and the Depositary in any respect that they may deem
necessary or desirable without the consent of the Holders or Beneficial Owners.
Any amendment or supplement that shall impose or increase any fees or charges
(other than charges in connection with foreign exchange control regulations,
and taxes and other governmental charges, delivery and other such expenses), or
that shall otherwise materially prejudice any substantial existing right of
Holders or Beneficial Owners, shall not, however, become effective as to
outstanding ADRs until the expiration of days after notice of such amendment
or supplement shall have been given to the Holders of outstanding ADRs. The
parties to the Deposit Agreement agree that any amendments or supplements that
(i) are reasonably necessary in order for (a) the ADSs to be registered under
the Securities Act or (b) the ADSs or Shares to be traded solely in electronic
book-entry form and (ii) do not in either such case impose or increase any fees
or charges to be borne by Holders, shall be deemed not to materially prejudice
any substantial rights of Holders or Beneficial Owners. Every Holder and
Beneficial Owner at the time any amendment or supplement so becomes effective
shall be deemed, by continuing to hold such ADS or ADSs, to consent and agree
to such amendment or supplement and to be bound by the Deposit Agreement as
amended and supplemented thereby. In no event shall any amendment or supplement
impair the right of the Holder to surrender such ADR and receive therefor the
Deposited Securities represented thereby, except in order to comply with
mandatory provisions of applicable law. Notwithstanding the foregoing, if any
governmental body should adopt new laws, rules or regulations which would
require amendment or supplement of the Deposit Agreement to ensure compliance
therewith, the
Company and the Depositary may amend or supplement the Deposit Agreement and
the ADR at any time in accordance with such changed laws, rules or regulations.
Such amendment or supplement to the Deposit Agreement in such circumstances may
become effective before a notice of such amendment or supplement is given to
Holders or within any other period of time as required for compliance with such
laws, rules or regulations.
The Depositary shall terminate the Deposit Agreement at any time at the
written direction of the Company, by mailing notice of such termination to the
Holders of all ADRs then outstanding at least days prior to the date fixed in
such notice for such termination. If 60 days shall have expired after (i) the
Depositary shall have delivered to the Company a written notice of its election
to resign, or (ii) the Company shall have delivered to the Depositary a written
notice of the removal of the Depositary, and in either case a successor
depositary shall not have been appointed and accepted its appointment as
provided under the Deposit Agreement, the Depositary may terminate the Deposit
Agreement by mailing notice of such termination to the Holders of all ADRs then
outstanding at least days prior to the date fixed for such termination.
On and after the date of termination of the Deposit Agreement, the Holder
will, upon surrender of an ADR at the Principal Office of the Depositary, upon
the payment of the charges of the Depositary for the surrender of ADRs, subject
to the conditions and restrictions of the Depositary Agreement, and upon
payment of any applicable taxes or governmental charges, be entitled to
delivery, to such Holder or upon such Holder's order, of the amount of
Deposited Securities
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represented by such ADR. If any ADRs shall remain outstanding after the date of
termination of the Deposit Agreement, the Registrar thereafter shall
discontinue the registration of transfers of ADRs, and the Depositary shall
suspend the distribution of dividends to the Holders thereof, and shall not
give any further notices or perform any further acts under the Deposit
Agreement, except that the Depositary shall continue to collect dividends and
other distributions pertaining to Deposited Securities, shall sell rights as
provided in the Deposit Agreement, and shall continue to deliver Deposited
Securities, subject to the conditions and restrictions set forth in the Deposit
Agreement, together with any dividends or other distributions received with
respect thereto and the net proceeds of the sale of any rights or other
property, in exchange for ADRs surrendered to the Depositary (after deducting,
or charging, as the case may be, in each case, the charges of the Depositary
for the surrender of a Receipt, any expenses for the account of the Holder in
accordance with the terms and conditions of the Deposit Agreement and any
applicable taxes or governmental charges or assessments). At any time after the
expiration of from the date of termination of the Deposit Agreement, the
Depositary may sell the Deposited Securities and thereafter hold uninvested the
net proceeds, together with any other cash then held by it without liability
for interest for the pro rata benefit of the Holders of ADRs not theretofore
surrendered, thereafter, the Depositary shall be discharged from all
obligations under the Deposit Agreement with respect to the ADRs and the
Ordinary Shares, Deposited Securities and ADSs, except to account for such net
proceeds and other cash (after deducting, or charging, as the case may be, in
each case, the charges of the Depositary for the surrender of an ADR, any
expenses for the account of the Holder in accordance with the terms and
conditions of the Deposit Agreement and any applicable taxes or governmental
charges or assessments). Upon the termination of the Deposit Agreement, the
Company shall be discharged from all obligations under the Deposit Agreement as
to the ADRs and the Ordinary Shares, Deposited Securities and ADSs except for
certain specified obligations to the Depositary under the terms of the Deposit
Agreement.
CHARGES OF DEPOSITARY
The Depositary shall charge the Holders fees for receiving deposits and
issuing ADRs, for delivering Deposited Securities against surrender of ADRs,
for transfer of ADRs, for splits and combination of ADRs, for sales or exercise
of rights or for other services performed upon the terms set forth in the
Deposit Agreement. The Depositary and the Company reserve the right to modify,
reduce or increase any fees or charges for services performed. The Depositary
shall charge any party to whom ADRs are issued (including, without limitation,
deposit or issuance pursuant to
a stock dividend or stock split declared by the Company or an exchange of
shares for the Ordinary Shares or Deposited Securities, or a distribution of
ADRs pursuant to a change in Deposited Securities as contemplated in the
Deposit Agreement), or who surrenders ADRs a fee of $ or less per 100 ADSs
(or portion thereof) for the issuance or surrender, respectively, of an ADR. In
addition, the Depositary shall charge to the Holders a fee of $ or less per
100 ADSs (or portion thereof) for any cash dividend or other cash distribution
(including the sale of rights and other distributions) made pursuant to the
Deposit Agreement, and $ or less per 100 ADSs (or portion thereof) in case of
share dividend or other free share distribution or the exercise of rights, made
pursuant to the Deposit Agreement.
The Depositary will provide, without charge, a copy of its latest fee
schedule to anyone upon request. In addition, Holders, Beneficial Owners and
persons depositing shares will be requested to pay taxes and other governmental
charges, registration fees, cable, telex and facsimile transmission and
delivery expenses, and customary and other expenses incurred by the Depositary
in connection with its obligations and duties under the Deposit Agreement. The
will pay all other charges of the Depositary and those of the registrar,
if any, under the Deposit Agreement, except for (i) taxes (including applicable
interest and penalties) and other governmental charges, (ii) any registration
fees as may from time to time be in effect for the registration of Ordinary
Shares or other Deposited Securities on the share register of the Company and
applicable to the transfer of Ordinary Shares, (iii) such air courier, cable,
telex and facsimile
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transmission, delivery expenses and such expenses as are incurred by the
Depositary in the conversion of foreign currency into dollars, as provided in
the Deposit Agreement, which shall be payable by Holders.
LIABILITY FOR TAXES
Any Dutch or other tax, assessment or other governmental charge or expense
payable by the Depositary or the Custodian or either of their nominees as the
Holder of any deposited Ordinary Shares or other Deposited Securities
represented by ADSs evidenced by an ADR shall be payable by the Holder to the
Depositary. The Custodian may refuse the deposit of Ordinary Shares and the
Depositary may refuse to issue ADSs, to deliver ADRs, register the transfer,
split-up or combination of ADRs and (subject to the terms of the Deposit
Agreement) the withdrawal of Deposited Securities until payment in full of such
tax, charge, penalty or interest is received. Every Holder and Beneficial Owner
agrees to indemnify the Depositary, the Company, the Custodian, and any of
their agents, officers, employees and Affiliates for, and to hold each of them
harmless from, any claims with respect to taxes (including applicable interest
and penalties thereon) arising from any tax benefit obtained for such Holder
and/or Beneficial Owner.
EXECUTION, TRANSFER AND SURRENDER OF ADSS; CERTAIN LIMITATIONS
Subject to the terms and conditions of the Deposit Agreement, transfers of
ADSs shall be registered on the book of the Depositary upon surrender to the
Depositary of the ADR(s) evidencing such ADSs, properly endorsed or accompanied
by proper instrument of transfer (including signature guarantees in accordance
with standard industry practice) and duly stamped as may be required. As a
condition precedent to the execution and delivery, registration, registration
of transfer, split-up, combination or surrender of any ADR or the delivery of
any distribution thereon or withdrawal of any Deposited Securities, the
Depositary or the Custodian may require payment from the depositor of Ordinary
Shares or the presenter of the ADR of a sum sufficient to reimburse it for any
tax or other governmental charge and any stock transfer or registration fee
with respect thereto (including any such tax or charge and fee with respect to
Ordinary Shares being deposited or withdrawn) and any applicable fees and
charges of the Depositary and require the production of proof satisfactory to
it as to the identity and genuineness of any signature appearing on any form,
certification or other document delivered to the Depositary in connection with
the Deposit Agreement, and may also require compliance with any laws or
governmental regulations relating to the execution and delivery of ADRs or ADSs
or to the withdrawal of the Deposited Securities and such other regulations as
the Depositary and the Company may establish consistent with the provisions of
the Deposit Agreement and applicable law.
The delivery of ADRs against deposits of Ordinary Shares generally or
against deposits of particular Ordinary Shares may be suspended, or the
delivery of ADRs against the deposit of particular Ordinary Shares may be
withheld, or the registration of transfer of ADRs in particular instances may
be refused, or the registration of transfers of ADRs generally may be
suspended, during any period when the transfer books of the Company, the
Depositary, a Registrar or the Share Registrar are closed or if any such action
is deemed necessary or advisable by the Depositary or the Company, in good
faith, at any time or from time to time because of any requirement of law, any
government or governmental body or commission or any securities exchange on
which the ADRs or Ordinary Shares are listed, or under any provision of the
Deposit Agreement or provisions of or governing the Deposited Securities, or
any meeting of shareholders of the Company or for any other reason, subject, in
all cases, to the U.S. securities laws. The surrender of outstanding ADSs and
withdrawal of Deposited Securities may not be suspended or refused, except as
permitted by law and regulations in connection with (i) temporary delays caused
by closing transfer books of the Depositary or the Share Registrar or the
deposit of Ordinary Shares in connection with voting at the shareholders;
meeting, or the payment of dividends, (ii) the payment of fees, taxes and
similar charges, and (iii) compliance with any U.S. or foreign laws or
governmental regulations relating to the ADRs or to the withdrawal of the
Deposited Securities.
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GENERAL
Neither the Depositary, the Company nor their respective directors,
officers, agents or affiliates will be liable to any Holder or Beneficial Owner
or other person if prevented from or delayed or subject to civil penalty in
performing their obligations under the Deposit Agreement by the laws of any
country, by any governmental authority or by any circumstances beyond their
control or, in the case of the Depositary, by any provision of the Company's
Articles of Association or of the Deposited Securities. The obligations of the
Company and the Depositary under the Deposit Agreement are expressly limited to
performing their respective duties specified therein in good faith and without
negligence. The Company and the Depositary have each agreed to indemnify the
other in certain circumstances arising out of acts performed or omitted in
connection with the Deposit Agreement as well as arising out of the offer or
sale of the ADSs, ADRs or Ordinary Shares and any offering document relating
thereto.
GOVERNING LAW
The Deposit Agreement and the ADSs will be governed by, and construed in
accordance with, the laws of the State of New York without reference to the
principles of choice of law thereof.
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TAXATION
The following is a summary under current law of the material Dutch and U.S.
federal income tax consequences of the acquisition, ownership and disposition
of the Ordinary Shares or ADSs. This summary does not, however, address the
income taxes imposed by any political subdivision of the United States or The
Netherlands or any tax imposed by any other jurisdiction. This summary does not
discuss every aspect of taxation that may be relevant to a particular taxpayer
under special circumstances or who is subject to special treatment under
applicable law and is not intended to be applicable in all respects to all
categories of investors. For example, certain types of investors, such as
insurance companies, tax-exempt persons, financial institutions, regulated
investment companies, dealers in securities, persons who hold Ordinary Shares
or ADSs as part of a hedging, straddle, constructive sale or conversion
transaction, persons whose functional currency is not the U.S. dollar and U.S.
persons owning (directly, indirectly, or constructively), 10% or more of the
Ordinary Shares or ADSs, may be subject to different tax rules not discussed
below. This summary assumes that the Deposit Agreement and any related
agreement will be performed in accordance with their terms and that UPC is
organized and its business conducted in the manner outlined in this Prospectus.
Changes in the Company's organizational structure or the manner in which it
conducts its business may invalidate this summary. The laws upon which the
summary is based are subject to change, perhaps with retroactive effect. A
change to such laws may invalidate this summary which will not be updated to
reflect changes in laws. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF
THE ORDINARY SHARES OR THE ADSs.
In general, for U.S. federal income tax and Dutch tax purposes, holders of
ADSs will be treated as owners of the Ordinary Shares represented by such ADSs.
DUTCH TAXES
The following is a summary of the Dutch tax consequences of the ownership
of Ordinary Shares and ADSs and is based upon the advice of Arthur Andersen.
The summary represents Arthur Andersen's interpretation of existing law. No
assurance can be given that tax authorities or courts in The Netherlands will
agree with such interpretation.
SUBSTANTIAL INTEREST
A shareholder that owns, directly or indirectly, five percent or more of
any class of the issued share capital of a company resident in The Netherlands
(a "Substantial Interest") is subject to special rules. A shareholder may be
treated as (in)directly holding shares of a Dutch company if it holds
(in)directly an option to acquire (in)directly shares in that company. With
respect to individuals, certain attribution rules exist in determining the
presence of a Substantial Interest. Unless indicated otherwise, the term
"shareholder", as used herein, includes an individual and entities as defined
under Dutch tax law holding Ordinary Shares or ADSs, but does not include any
such person owning a Substantial Interest in UPC.
DUTCH TAX CONSEQUENCES FOR RESIDENTS OR DEEMED RESIDENTS OF THE NETHERLANDS
DUTCH DIVIDEND WITHHOLDING TAX
Dividends distributed by UPC are subject to withholding tax at a rate of
25%, unless the participation exemption applies and the Ordinary Shares or ADSs
are attributable to the business carried out in The Netherlands, or dividends
are distributed to a qualifying EU corporate shareholder satisfying the
conditions of the EU directive, or the rate is reduced by treaty. Dividends may
include distributions of cash; distributions of property in kind; constructive
dividends; hidden dividends; liquidation proceeds in excess of recognized paid-
in capital; proceeds from the redemption of shares in excess of recognized
paid-in capital; stock dividends equal to their nominal value unless
distributed out of UPC's recognized paid-in share premium; and the repayment of
paid-in capital not recognized as
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capital. The term recognized paid-in capital or share premium relates to the
paid-in capital or share premium of UPC as recognized for Dutch tax purposes.
Generally, a shareholder that resides, or is deemed to reside, in The
Netherlands will be allowed a credit against Dutch income tax or corporation
tax for the tax withheld on dividends paid on Ordinary Shares or ADSs. A legal
entity resident in The Netherlands that is not subject to Dutch corporate
income tax, may, under certain conditions, request a refund of the tax
withheld.
Dividends paid by UPC to a corporate shareholder that qualifies for the
"participation exemption" (as defined in Article 13 of The Netherlands
Corporation Tax Act 1969 (the "Corporation Tax Act")) will not be subject to
the dividend withholding tax if the Ordinary Shares or ADSs are attributable to
the shareholder's business carried out in The Netherlands. A resident corporate
shareholder will qualify for the participation exemption if, among other
things, the resident shareholder owns at least five percent of UPC's nominal
paid-up capital.
DUTCH INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX
If the Ordinary Shares or ADSs are held by an individual who resides, or is
deemed to reside, in The Netherlands, income derived from the Ordinary Shares
or ADSs is subject to Dutch income tax on a net income basis at graduated
rates. An individual generally is entitled to a dividend exemption of NLG1,000
a year (NLG2,000 a year for married couples). Ordinary Shares or ADSs
distributed to individual shareholders from UPC's share premium account (as
recognized for Dutch tax purposes) are also exempt from Dutch income tax. The
dividend exemption is not available to an individual shareholder if the
Ordinary Shares or ADSs are (i) attributable to a trade or business carried on
by the shareholder, or (ii) form part of a Substantial Interest. Dividends
accruing to individual shareholders that hold a Substantial Interest are
subject to income tax at a rate of 25% on a net basis.
Dividends received from Ordinary Shares or ADSs by an entity that resides,
or is deemed to reside, in The Netherlands will be subject to Dutch corporation
tax on a net basis unless the company's shareholding qualifies for the
participation exemption. Dividends received from Ordinary Shares or ADSs by a
pension fund as defined in the Corporation Tax Act are not subject to Dutch
corporation tax.
CAPITAL GAINS REALIZED FROM THE SALE OR EXCHANGE OF ORDINARY SHARES OR ADSS
Capital gains derived from the sale, conversion or disposition of Ordinary
Shares or ADSs by an individual shareholder who resides, or is deemed to
reside, in The Netherlands are not subject to Dutch income tax provided: (i)
the Ordinary Shares or ADSs were not acquired directly or indirectly by UPC or
its subsidiaries; (ii) the shareholder did not have a Substantial Interest in
the share capital of UPC at the time of the sale or exchange; and (iii) the
Ordinary Shares or ADSs were not assets of a business.
Capital gains realized by an individual shareholder that is a resident or a
deemed resident of The Netherlands on the disposal of Ordinary Shares or ADSs
forming part of a Substantial Interest are subject to tax at a rate of 25%.
Capital gains realized by an individual resident shareholder from the sale or
exchange of Ordinary Shares or ADSs forming part of the assets of a
shareholder's business are subject to tax on a net income basis at the
progressive income tax rates.
If the Ordinary Shares or ADSs are held by an entity that is a resident or
a deemed resident of The Netherlands, capital gains realized from the sale or
exchange of Ordinary Shares or ADSs are subject to corporation tax unless the
shareholding qualifies for the participation exemption. If the Ordinary Shares
or ADSs are held by a qualifying pension fund, gains realized from the sale or
exchange of Ordinary Shares or ADSs are exempt from Dutch corporation tax.
DUTCH NET WEALTH TAX
An individual who resides, or is deemed to reside, in The Netherlands
generally will be subject to a net wealth tax at a rate of 0.7% on the fair
market value of the Ordinary Shares or ADSs, with certain exceptions.
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DUTCH GIFT TAX AND INHERITANCE TAX
Dutch gift tax or inheritance tax will be due with respect to a gift or
inheritance of Ordinary Shares or ADSs from an individual who resided, or was
deemed to have resided, in The Netherlands at the time of the gift or his or
her death. A Dutch national is deemed to have been a resident of The
Netherlands if he or she was a resident in The Netherlands at any time during
the 10 years preceding the date of the gift or the date of his or her death.
For gift tax purposes, each person (regardless of nationality) is deemed to be
a Dutch resident if he or she was a resident in The Netherlands at any time
during the 12 months preceding the date of the gift. The 10-year and 12-month
residency rules may be modified by treaty.
Liability for payment of the gift tax or inheritance tax rests with the
donee or heir, respectively. The rate at which these taxes are levied is in
principle dependent on the fair market value of the gift or inheritance and the
relationship between the donor and donee or the deceased and heir(s).
Exemptions may apply under specific circumstances.
DUTCH TAX CONSEQUENCES FOR NON-RESIDENTS OF THE NETHERLANDS
DUTCH DIVIDEND WITHHOLDING TAX
Dividends distributed by UPC are subject to withholding tax at a rate of
25%, unless the participation exemption applies and the Ordinary Shares or ADSs
are attributable to the business carried out in The Netherlands, or dividends
are distributed to a qualifying EU corporate shareholder satisfying the
conditions of the EU directive, or the rate is reduced by treaty. Dividends may
include distributions of cash; distributions of property in kind; constructive
dividends; hidden dividends; liquidation proceeds in excess of recognized paid-
in capital; proceeds from the redemption of shares in excess of recognized
paid-in capital; stock dividends equal to their nominal value unless
distributed out of UPC's recognized paid-in share premium; and the repayment of
paid-in capital not recognized as capital. The term recognized paid-in capital
or share premium relates to the paid-in capital or share premium of UPC as
recognized for Dutch tax purposes.
A non-resident shareholder may benefit from a reduced dividend withholding
tax rate pursuant to an income tax treaty in effect between the shareholder's
country of residence and The Netherlands. Under most Dutch income tax treaties,
the withholding tax rate is reduced to 15% or less provided the recipient
shareholder does not have a permanent establishment in The Netherlands to which
the Ordinary Shares and ADSs are attributable and the recipient shareholder is
the beneficial owner of the dividends.
Under the Income Tax Treaty of December 18, 1992, concluded between The
Netherlands and the United States (the "Treaty"), dividends paid by UPC to a
resident of the United States generally will be subject to a dividend
withholding tax rate of 15%. The rate may be reduced to five percent if the
beneficial owner is a United States corporation that directly holds 10% or more
of the voting power of UPC. The Treaty exempts from withholding tax, dividends
received by exempt pension trusts and exempt organizations, under conditions as
defined therein. Except in the case of exempt organizations, dividends paid may
benefit from the reduced dividend withholding tax rate (or exemption from
dividend withholding tax) by filing the proper forms in advance of the dividend
payment. Exempt organizations remain subject to the statutory withholding rate
of 25% and must file a return to claim a refund of the tax withheld.
A shareholder may not claim Treaty benefits unless (i) it is a "resident"
of the United States, as that term is defined in the Treaty, and (ii) Article
26 (the "treaty shopping rules") does not preclude the shareholder's ability to
claim Treaty benefits.
The withholding of tax on Ordinary Share or ADS dividend distributions to a
non-resident corporate shareholder carrying on a business through a Dutch
permanent establishment is not required provided (i) the Dutch participation
exemption applies, and (ii) the Ordinary Shares or ADSs form a part of the
permanent establishment's business assets. To qualify for the
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participation exemption, this entity should hold at least five percent of UPC's
nominal paid-up capital and the Ordinary Shares or ADSs must form a part of the
permanent establishment's business assets.
DUTCH INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX
A non-resident shareholder will not be subject to Dutch income tax on
dividends received from UPC provided such shareholder does not or has not: (i)
carried on a business in The Netherlands through a permanent establishment or a
permanent representative that includes in its assets the Ordinary Shares or
ADSs; (ii) held a Substantial Interest in the share capital of UPC or, in the
event the non-resident shareholder, has held a Substantial Interest in UPC,
such interest was a business asset in the hands of the shareholder; (iii)
shared directly (not through the beneficial ownership of shares or similar
securities) in the profits of an enterprise managed and controlled in The
Netherlands that owned or was deemed to have owned the Ordinary Shares or ADSs;
and (iv) carried out employment activities in The Netherlands or served as a
director or board member of any entity resident in The Netherlands, or served
as a civil servant of a Dutch public entity with which the holding of the
Ordinary Shares or ADSs was connected.
CAPITAL GAINS REALIZED FROM THE SALE OR EXCHANGE OF ORDINARY SHARES OR ADSS
A non-resident shareholder will not be subject to Dutch income tax on
capital gains derived from the sale, conversion or disposition of Ordinary
Shares or ADSs provided the non-resident shareholder does not or has not: (i)
carried on a business in The Netherlands through a permanent establishment or a
permanent representative that included in its assets, the Ordinary Shares or
ADSs; (ii) held a Substantial Interest in the share capital of UPC or, in the
event the non-resident shareholder has held a Substantial Interest in UPC, such
interest was a business asset in the hands of the shareholder; (iii) shared
directly (not through the beneficial ownership of shares or similar securities)
in the profits of an enterprise managed and controlled in The Netherlands which
owned or was deemed to have owned Ordinary Shares or ADSs; and (iv) carried out
employment activities in The Netherlands, or served as a director or board
member of any entity resident in The Netherlands, or served as a civil servant
of a Dutch public entity, with which the holding of the Ordinary Shares or ADSs
was connected.
Capital gains derived from the sale, conversion or disposition of Ordinary
Shares or ADSs by a non-resident corporate shareholder, carrying on a business
through a permanent establishment in The Netherlands, are not subject to Dutch
corporation tax provided the Dutch participation exemption would apply and the
Ordinary Shares or ADSs are attributable to the business carried out in The
Netherlands. To qualify for the participation exemption, the shareholder must
hold at least 5% of UPC's nominal paid-up capital and meet certain other
requirements.
Under most Dutch tax treaties, the right to tax capital gains realized by a
non-resident shareholder from the sale or exchange of Ordinary Shares or ADSs
is allocated to the shareholder's country of residence.
DUTCH NET WEALTH TAX
A non-resident individual shareholder will not be subject to Dutch net
wealth tax in respect of the Ordinary Shares or ADSs provided the non-resident
shareholder does not or has not: (i) carried on a business in The Netherlands
through a permanent establishment or a permanent representative that included
in its assets the Ordinary Shares or ADSs; and (ii) shared directly (not
through the beneficial ownership of shares or similar securities) in the
profits of an enterprise managed and controlled in The Netherlands, which owned
or was deemed to have owned Ordinary Shares or ADSs.
DUTCH GIFT TAX AND INHERITANCE TAX
A gift or inheritance of Ordinary Shares or ADSs from a non-resident
shareholder will not be subject to Dutch gift tax or inheritance tax in the
hands of the donee or heir provided the non-resident shareholder was not: (i) a
Dutch national who has been resident in The Netherlands at any time during the
10 years preceding the date of gift or the date of death or, in the event he or
she was resident in The Netherlands during such period,
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the non-resident shareholder was not a Dutch national at the time of gift or
death; (ii) solely for the purpose of the gift tax, a resident of The
Netherlands at any time during the 12 months preceding the time of the gift;
(iii) engaged in a business in The Netherlands through a permanent
establishment or a permanent representative which included in its assets the
Ordinary Shares or ADSs; and (iv) shared directly (not through the beneficial
ownership of shares or similar securities) in the profits of an enterprise
managed and controlled in The Netherlands which owned or is deemed to have
owned Ordinary Shares or ADSs.
UNITED STATES FEDERAL INCOME TAX
The following is a summary of the material U.S. federal income tax
consequences to U.S. Shareholders of an investment in the Ordinary Shares or
ADSs. This summary of U.S. federal income taxation is based upon the advice of
Holme Roberts & Owen LLP. To the extent the following summarizes the Dutch
taxation rules on the reduction of the amount of dividend withholding tax to be
paid over to the Dutch Tax Administration, it is based on the advice of Arthur
Andersen.
For purposes of this summary a "U.S. Shareholder" is a holder of the
Ordinary Shares or ADSs that is an individual citizen or resident of the United
States, a corporation organized under the laws of the United States or any
state of the United States, or any other person subject to U.S. federal income
tax on a net income basis with respect to the Ordinary Shares or ADSs.
TAXES ON INCOME
The gross amount of any distribution (including Dutch withholding tax
thereon) actually or constructively received by a U.S. Shareholder with respect
to Ordinary Shares or ADSs will be a dividend and included in the gross income
of the U.S. Shareholder as ordinary income to the extent of the current and
accumulated earnings and profits of UPC (as determined under U.S. federal
income tax principles). Dividends paid on Ordinary Shares or ADSs generally
will constitute income from sources outside the United States and will not be
eligible for the dividends received deduction that may be allowed to United
States corporate shareholders on dividends paid by another corporation out of
income from sources within the United States.
A distribution in excess of UPC's current and accumulated earnings and
profits will be treated first as a nontaxable return of capital to the extent
of such U.S. Shareholder's adjusted tax basis in its Ordinary Shares or ADSs,
and any distribution in excess of such basis will constitute gain, which gain
will be capital gain if the Ordinary Shares or ADSs are held as capital assets.
The amount of any distribution paid in Dutch guilders will be the dollar
value of the Dutch guilders on the date of distribution, regardless of whether
the U.S. Shareholder converts the payment into dollars. Gain or loss, if any,
recognized by a U.S. Shareholder on the sale, conversion or disposition of
Dutch guilders will be ordinary income or loss. Such gain or loss will
generally be income or loss from sources within the United States for foreign
tax credit limitation purposes.
Subject to certain conditions and limitations, tax withheld in The
Netherlands in accordance with the Treaty will be treated as a foreign tax that
U.S. Shareholders may elect to deduct in computing their U.S. federal taxable
income or credit against their U.S. federal income tax liability. Amounts paid
in respect of dividends on Ordinary Shares or ADSs will generally be treated
for U.S. foreign tax credit purposes as "passive income" or in the case of
certain holders, "financial services income". Additional withholding tax, if
any, in excess of the rate applicable under the Treaty generally will not be
eligible for credit against the U.S. Shareholder's U.S. federal income tax
liability.
Any Dutch withholding tax may not be creditable against the U.S.
Shareholder's federal income tax liability however, to the extent UPC is
allowed to reduce the amount of dividend withholding tax paid over to the Dutch
Tax Administration by crediting withholding tax imposed on certain dividends
paid to UPC. UPC will endeavor to provide to U.S. Shareholders the information
they will need to calculate their foreign tax credit.
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SALE OR OTHER DISPOSITION OF THE ORDINARY SHARES OR ADSS
A U.S. Shareholder will generally recognize gain or loss for U.S. federal
income tax purposes upon the sale or exchange of Ordinary Shares or ADSs in an
amount equal to the difference between the amount realized from such sale or
exchange and the U.S. Shareholder's tax basis for such Ordinary Shares or ADSs.
Such gain or loss will be a capital gain or loss if the Ordinary Shares or ADSs
are held as a capital asset. Any such gain will generally be income from U.S.
sources. It is presently unclear whether any loss realized by a U.S.
Shareholder would be treated as U.S. or foreign source.
PASSIVE FOREIGN INVESTMENT COMPANY
UPC has determined that it is not currently a passive foreign investment
company ("PFIC") for U.S. federal income tax purposes. This is a factual
determination that must be made annually and thus may change. If UPC were
determined to be a PFIC, any gain from the sale or exchange of Ordinary Shares
or ADSs by a U.S. Shareholder would be allocated ratably to each year in the
holder's holding period and would be treated as ordinary income. U.S. federal
income tax would be imposed on the amount allocated to each year prior to the
year of disposition at the highest rate in effect for that year and interest
would be charged at the rate applicable to underpayments on the tax payable in
respect of the amount so allocated. The same rules would apply to "excess
distributions" defined generally as distributions exceeding 125% of the average
annual distribution made by UPC over the shorter of the holder's holding period
or the three preceding years. UPC will evaluate its PFIC status on an annual
basis and will inform U.S. Shareholders in the event that it determines that it
is a PFIC.
The tax consequences described above would not apply if the U.S.
Shareholder made a qualified electing fund ("QEF") election for the first tax
year in the U.S. Shareholder's holding period in which UPC was a PFIC. If a QEF
election is made, a U.S. Shareholder would include in income its pro rata share
of UPC's ordinary income and net capital gain for years in which UPC is a PFIC
(regardless of whether amounts are distributed to an electing U.S.
shareholder.) In the event that UPC becomes a PFIC, UPC will provide the
information necessary for its U.S. Shareholders to make a QEF election.
A U.S. Shareholder who owns Ordinary Shares or ADSs during any year that
UPC is a PFIC must file Internal Revenue Service Form 8621.
FOREIGN PERSONAL HOLDING COMPANY CLASSIFICATION
UPC could be classified as a foreign personal holding company ("FPHC") if
in any taxable year (i) five or fewer individuals who are U.S. citizens or
residents own (directly or constructively through certain attribution rules)
more than 50% of the total voting power of all classes of UPC's stock entitled
to vote or the total value of the stock of UPC and (ii) at least 60% (50% in
certain cases) of its gross income consists of passive income such as
dividends, interest, gains, rent and royalties. Classification as an FPHC would
in general require each U.S. Shareholder who held Ordinary Shares or ADSs on
the last day of the taxable year to include in gross income as a dividend such
shareholder's pro rata portion of the undistributed income of UPC.
After giving effect to certain ownership attribution rules, five or fewer
U.S. individuals are presently treated as owning more than 50% of the total
voting power of all classes of UPC stock. However, 60% of UPC's gross income
for the current year does not at this time consist of passive income. Thus, UPC
does not expect to be a FPHC for 1998 or for the foreseeable future. This is a
factual determination that must be made annually and thus the status of whether
UPC is a FPHC is subject to change.
BACKUP WITHHOLDING
A U.S. shareholder of Ordinary Shares or ADSs may be subject to backup
withholding at a rate of 31% with respect to dividends on, or the proceeds of a
sale or other disposition of, such Ordinary Shares or ADSs unless (i) such U.S.
Shareholder is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable backup withholding rules.
151
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Ordinary
Shares or the ADSs and no prediction can be made of the effect, if any, that
the sale or availability for sale of Ordinary Shares or ADSs will have on the
market price of the Ordinary Shares or the ADSs. Sales of substantial amounts
of such securities in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Ordinary Shares
and the ADSs and could impair the Company's future ability to raise capital
through an offering of its equity securities.
Upon consummation of this Offering, the Company will have outstanding
Ordinary Shares and Priority Shares. The Ordinary Shares and
ADSs sold in this Offering will be freely tradable in the United States by
persons other than the Company or "affiliates" of the Company as that term is
defined in SEC Rule 144 (discussed below). The Company expects to issue
Ordinary Shares to the Discount Group if it converts its convertible loan. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Current Debt Facilities --
DIC Loan". All of the issued and outstanding Priority Shares and Ordinary
Shares held by UIH, as well as the Ordinary Shares to be acquired by the
Discount Group, are "restricted securities" within the meaning of Rule 144 and
may be sold in the public market only if registered or (discussed below) sold
under an exemption from registration under the Securities Act, including the
exemption provided by Rule 144.
Each of the Company and UIH has agreed with the Underwriters that, without
the prior written consent of the Underwriters, it will not (and in the case of
the Company, that it will not permit any of its subsidiaries to) directly or
indirectly offer, other than in the Offering, sell, contract to sell, announce
its intention to sell, pledge, grant any option to purchase or otherwise
dispose of, or file a registration statement or similar document relating to,
any shares or any security convertible into or exchangeable for shares, or in
any manner transfer all or a portion of the economic consequences associated
with, or any security convertible into or exchangeable for shares, for a
period of one year from the date of this Prospectus, subject to certain
exceptions. See "Underwriting".
Because the Company does not have a history of net profits, Amsterdam Stock
Exchange regulations prohibit members of the Supervisory Board and the
Management Board of the Company from disposing of their Ordinary Shares owned
prior to Offering for a period of four years from the date on which the
Ordinary Shares begin trading on the Amsterdam Stock Exchange. Because no
members of the Supervisory Board or Management Board have exercised their
options or otherwise own Ordinary Shares, however, this provision is not
applicable. In addition, under the Amsterdam Stock Exchange Rules, UIH and any
other holder of 5% or more of the outstanding share capital of UPC
collectively may not, for three years after the Offering, subject to certain
exceptions, sell more than 25% of the shares outstanding prior to the
Offering. This lock-up requirement applies unless UPC reports a profit, in
which case these shareholders collectively are entitled to dispose of a
maximum of (i) 50% of the shares issued prior to the Offering if a profit was
made during one year or (ii) 75% of the shares issued prior to the Offering if
a profit was made during two years. The Amsterdam Stock Exchange has agreed to
grant permission to these shareholders to dispose of their remaining interest
if such disposition is consummated through a public secondary offering
involving a due diligence investigation, the issuance of a prospectus and
compliance with the other listing rules of the Amsterdam Stock Exchange
occurring at least one year after the Offering.
In general, under Rule 144 of the Securities Act, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year (including the
holding period of any prior owner except an affiliate) is entitled to sell in
any three-month period a number of shares that does not exceed the greater of
(i) 1% of the number of shares then outstanding (approximately shares
immediately after the Offering); or (ii) the average weekly trading
152
<PAGE>
EXPERTS
LEGAL MATTERS
AVAILABLE INFORMATION
volume of the ADSs on the Nasdaq National Market during the four calendar weeks
immediately preceding. Sales under Rule 144 are also subject to requirements
relating to manner of sale, notice and availability of current public
information about the Company. Under Rule 144(k), a person (or persons whose
shares are aggregated) who has not been an affiliate of the Company at any time
during the 90 days immediately preceding the sale and who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. In general, under Rule 701 of the
Securities Act, any employee, consultant or advisor of the Company who
purchases shares from the Company pursuant to Rule 701 in connection with a
compensatory stock or option plan or other written agreement is eligible to
resell, unless contractually restricted, such shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with certain restrictions, including the holding period, contained in Rule 144.
The consolidated financial statements of United Pan-Europe Communications
N.V. as of December 31, 1995 and as of and for the years ended December 31,
1996 and 1997 included in this Prospectus have been audited by Arthur Andersen,
independent auditors, as indicated in their report with respect thereto, and
are included herein upon the authority of said firm as experts in giving said
report.
The consolidated financial statements of N.V. Telekabel Beheer for the
period from August 22, 1995 to December 31, 1995, and as of and for the years
ended December 31, 1996 and 1997 included in this Prospectus have been audited
by PricewaterhouseCoopers, independent public accountants, and are included
herein upon the authority of said firm as experts in giving said report.
Certain legal matters in connection with the Offering will be passed upon
for the Company by Holme Roberts & Owen LLP, Denver, Colorado U.S.A. The
validity of the Ordinary Shares offered hereby will be passed upon for the
Company by Loeff Claeys Verbeke, Amsterdam, The Netherlands. Certain legal
matters will be passed upon for the Underwriters by Debevoise & Plimpton, U.S.
counsel to the Underwriters.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act about the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Ordinary Shares and ADSs,
please refer to the Registration Statement, including the exhibits and
schedules thereto, which may be inspected at, and copies thereof may be
obtained at prescribed rates from, the public reference facilities of the
Commission at the addresses set forth below.
After consummation of the Offering, the Company will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith, will file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information and the Registration Statement and exhibits
and schedules thereto may be inspected without charge at, and copies thereof
may be obtained at prescribed rates from, the public reference facilities of
the Commission's principal office at 450 Fifth Street, N.W.,
153
<PAGE>
Washington, D.C. 20549 U.S.A. and at the Commission's regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 U.S.A. and 7 World
Trade Center, Suite 1300, New York, New York 10048 U.S.A. The public may obtain
information on the operation of the Commission's public reference facilities by
calling the Commission in the United States at 1-800-SEC-0330. The Commission
also maintains a web site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. When the ADSs begin trading on the
Nasdaq National Market, copies of reports, proxy statements and other
information may be inspected at the offices of the National Association of
Securities Dealers, Inc. 1735 K Street, N.W., Washington, D.C. 20006 U.S.A.
The Company will also comply with its obligations under Dutch law to
prepare annual financial statements complying with the corporate law of The
Netherlands and to deposit the same at the Commercial Register of the Chamber
of Commerce and Industry in Amsterdam, The Netherlands.
154
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1996 (Pre-Acquisition),
December 31, 1997 and September 30, 1998 (Unaudited) (Post-
Acquisition)......................................................... F-3
Consolidated Statements of Operations for the Six Months Ended
December 31, 1995, for the Years Ended December 31, 1996 and 1997 and
for the Nine Months Ended September 30, 1997 (Unaudited) (Pre-
Acquisition) and September 30, 1998 (Unaudited) (Post-Acquisition)... F-4
Consolidated Statements of Shareholders' Equity for the Six Months
Ended December 31, 1995, for the Years Ended December 31, 1996 and
1997 (Pre-Acquisition) and for the Nine Months Ended September 30,
1998 (Unaudited) (Post-Acquisition).................................. F-5
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1995, for the Years Ended December 31, 1996 and 1997 and
for the Nine Months Ended September 30, 1997 (Unaudited) (Pre-
Acquisition) and September 30, 1998 (Unaudited) (Post-Acquisition)... F-6
Notes to Consolidated Financial Statements............................ F-8
UNITED PAN-EUROPE COMMUNICATIONS N.V. (PARENT ONLY)
Independent Auditors' Report on Schedule.............................. F-37
Schedule I--Condensed Information as to the Financial Condition of
Registrant........................................................... F-38
Schedule I--Condensed Information as to the Operations of Registrant.. F-39
Schedule I--Condensed Information as to the Cash Flows of the
Registrant........................................................... F-40
Note to Parent Only................................................... F-41
N.V. TELEKABEL BEHEER
Report of Independent Accountants..................................... F-43
Consolidated Balance Sheets as of December 31, 1996 and 1997.......... F-44
Consolidated Statements of Operations from August 22, 1995 (date of
incorporation) until December 31, 1995 and for the Years Ended
December 31, 1996 and 1997........................................... F-45
Consolidated Statements of Cash Flows from August 22, 1995 (date of
incorporation) until December 31, 1995 and for the Years Ended
December 31, 1996 and 1997........................................... F-46
Consolidated Statements of Shareholders' Equity from August 22, 1995
(date of incorporation) until December 31, 1995 and for the Years
Ended December 31, 1996 and 1997..................................... F-47
Notes to Consolidated Financial Statements............................ F-48
Report of Independent Accountants..................................... F-58
Condensed Consolidated Balance Sheet as of June 30, 1998 (Unaudited).. F-59
Condensed Consolidated Statements of Operations for the Six Months
Ended June 30, 1997 and 1998 (Unaudited)............................. F-60
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998 (Unaudited)............................. F-61
Notes to Condensed Consolidated Financial Statements.................. F-62
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To United Pan-Europe Communications N.V.
We have audited the accompanying consolidated balance sheets of United Pan-
Europe Communications N.V. (a N.V. registered in The Netherlands) and
subsidiaries as of December 31, 1996 (pre-acquisition -- see Note 1) and
December 31, 1997 (post-acquisition -- see Note 1), and the related
consolidated statements of operations, shareholders' equity and cash flows for
the six months ended December 31, 1995 and the years ended December 31, 1996
and 1997 (pre-acquisition -- see Note 1). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands, which are substantially the same as those
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.
As discussed in Note 1 to the consolidated financial statements, the
Company's parent company (United International Holdings, Inc.) acquired the
remaining 50% interest in the Company effective December 11, 1997. Accordingly,
the assets, liabilities and shareholders' equity acquired have been adjusted to
reflect its parent's basis in the underlying net assets of the Company as of
December 11, 1997. The proportional assets and liabilities acquired were
recorded based upon their relative fair market values at the date of
acquisition. Accordingly, the pre-acquisition and post-acquisition consolidated
financial statements are not comparable in certain significant respects since
these consolidated financial statements report the financial position, results
of operations and cash flows on two separate accounting bases.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United Pan-
Europe Communications N.V. as of December 31, 1996 (pre-acquisition --see Note
1) and December 31, 1997 (post-acquisition -- see Note 1), and the results of
its operations and its cash flows for the six months ended December 31, 1995
and the years ended December 31, 1996 and December 31, 1997 (pre-acquisition --
see Note 1) in conformity with accounting principles generally accepted in the
United States of America.
ARTHUR ANDERSEN
Amstelveen, The Netherlands,
April 29, 1998
F-2
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS OF DUTCH GUILDERS, EXCEPT SHARE AND PER SHARE AMOUNTS)
As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------
1996 1997 1998
------------ --------- -------------
(PRE-
ACQUISITION) (POST-ACQUISITION)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents............................................................... 42,631 99,315 44,340
Restricted cash......................................................................... -- 22,220 9,265
Subscriber receivables, net of allowance for doubtful accounts of 5,835, 7,153 and
9,493, respectively.................................................................... 9,581 9,419 12,369
Costs to be reimbursed by affiliated companies, net of allowance for doubtful accounts
of 4,620, 2,210 and 668, respectively.................................................. 14,351 14,970 25,369
Other receivables....................................................................... 44,020 19,103 18,293
Inventory............................................................................... 12,057 13,040 22,140
Prepaid expenses and other current assets............................................... 2,903 6,140 13,741
--------- --------- ---------
Total current assets.................................................................. 125,543 184,207 145,517
Marketable equity securities of parent, at fair value.................................... -- 66,809 58,025
Investments in and advances to affiliated companies, accounted for under the equity
method, net............................................................................. 224,157 384,940 365,724
Property, plant and equipment, net of accumulated depreciation of 91,819, 7,312 and
64,915, respectively.................................................................... 414,669 483,693 527,069
Goodwill and other intangible assets, net of accumulated amortization of 41,763, 3,791
and 43,198, respectively................................................................ 353,657 725,513 678,741
Deferred financing costs, net of accumulated amortization of 0, 217 and 6,870,
respectively............................................................................ -- 23,943 22,142
Non-current restricted cash and other assets............................................. 1,154 50,710 52,750
--------- --------- ---------
Total assets.......................................................................... 1,119,180 1,919,815 1,849,968
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Accounts payable, including related party payables of 12,319, 12,233 and 10,781,
respectively........................................................................... 62,082 122,587 102,652
Accrued liabilities..................................................................... 11,473 34,726 34,250
Subscriber prepayments and deposits..................................................... 45,104 24,533 61,611
Short-term debt......................................................................... 424,449 1,696 34,020
Note payable to shareholder............................................................. 22,080 -- 156,030
Current portion of long-term debt....................................................... 3,363 255,819 113,519
--------- --------- ---------
Total current liabilities............................................................. 568,551 439,361 502,082
Long-term debt........................................................................... 19,467 1,004,018 1,039,632
Long-term notes payable to shareholder................................................... 256,335 -- --
Deferred taxes........................................................................... 5,202 44,508 7,978
Other long-term liabilities.............................................................. 6,505 13,619 44,664
--------- --------- ---------
Total liabilities..................................................................... 856,060 1,501,506 1,594,356
--------- --------- ---------
Commitments and contingencies (Notes 11 and 12)
Minority interests in subsidiaries....................................................... 4,554 6,779 34,265
--------- --------- ---------
Shareholders' equity
Common stock, 1.00 par value, 100,000,000 shares authorized, 54,000,000 shares issued... 54,000 54,000 54,000
Additional paid-in capital.............................................................. 315,570 621,164 631,323
Deferred compensation................................................................... -- -- (5,826)
Treasury stock, at cost, 6,132,090 shares of common stock............................... -- (122,662) (122,662)
Accumulated deficit..................................................................... (117,365) (146,237) (318,089)
Other cumulative comprehensive income (loss)............................................ 6,361 5,265 (17,399)
--------- --------- ---------
Total shareholders' equity............................................................ 258,566 411,530 221,347
--------- --------- ---------
Total liabilities and shareholders' equity............................................ 1,119,180 1,919,815 1,849,968
- --------------------------------------------------
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS OF DUTCH GUILDERS, EXCEPT SHARE AND PER SHARE AMOUNTS)
As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(PRE- (PRE- (PRE- (PRE- (POST-
ACQUISITION) ACQUISITION) ACQUISITION) ACQUISITION) ACQUISITION)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service and other
revenue................ 100,179 245,179 337,155 250,061 305,237
Operating expense....... (32,806) (80,479) (111,919) (87,206) (97,472)
Selling, general and
administrative
expense................ (33,617) (78,823) (114,024) (80,061) (132,466)
Depreciation and
amortization........... (36,224) (84,332) (139,216) (99,903) (137,231)
---------- ---------- ---------- ---------- ----------
Net operating (loss)
income................ (2,468) 1,545 (28,004) (17,109) (61,932)
Interest income......... 6,403 2,757 6,512 1,561 4,621
Interest expense........ (8,945) (14,263) (43,801) (22,954) (67,410)
Interest expense,
related party.......... (10,928) (24,212) (28,743) (22,568) (7,148)
Provision for loss on
investment related
costs.................. -- -- (18,888) (10,000) --
Foreign exchange loss
and other expense...... (3,376) (21,135) (41,160) (42,177) 6,609
---------- ---------- ---------- ---------- ----------
Net loss before income
taxes and other
items................. (19,314) (55,308) (154,084) (113,247) (125,260)
Share in results of
affiliated companies,
net.................... (22,179) (17,811) (10,637) (15,807) (42,167)
Minority interests in
subsidiaries........... (191) (2,208) (2,894) (1,339) (4,838)
Income tax benefit
(expense).............. 155 (509) 1,649 409 413
---------- ---------- ---------- ---------- ----------
Net loss............... (41,529) (75,836) (165,966) (129,984) (171,852)
========== ========== ========== ========== ==========
Basic and diluted net
loss per common share.. (0.77) (1.40) (3.09) (2.41) (3.59)
========== ========== ========== ========== ==========
Weighted-average number
of common shares
outstanding............ 54,000,000 54,000,000 53,659,328 54,000,000 47,867,910
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(STATED IN THOUSANDS OF DUTCH GUILDERS, EXCEPT SHARE AMOUNTS)
As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.
<TABLE>
<CAPTION>
OTHER
COMMON STOCK ADDITIONAL TREASURY STOCK CUMULATIVE TOTAL
----------------- PAID-IN DEFERRED --------------------- ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION SHARES AMOUNT DEFICIT INCOME (LOSS)(1) INCOME (LOSS)
---------- ------ ---------- ------------ ----------- -------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances upon
contribution of
properties to
joint venture,
July 1, 1995... 54,000,000 54,000 315,570 -- -- -- -- -- --
Cumulative
translation
adjustments.... -- -- -- -- -- -- -- 1,495 1,495
Net loss........ -- -- -- -- -- -- (41,529) (41,529)
--------
Total
comprehensive
income (loss).. -- -- -- -- -- -- -- -- (40,034)
---------- ------ -------- ------- ----------- -------- -------- ------- ========
Balances,
December 31,
1995........... 54,000,000 54,000 315,570 -- -- -- (41,529) 1,495
Change in
cumulative
translation
adjustments.... -- -- -- -- -- -- -- 4,866 4,866
Net loss........ -- -- -- -- -- -- (75,836) (75,836)
--------
Total
comprehensive
income (loss).. -- -- -- -- -- -- -- -- (70,970)
---------- ------ -------- ------- ----------- -------- -------- ------- ========
Balances,
December 31,
1996........... 54,000,000 54,000 315,570 -- -- -- (117,365) 6,361
Change in
cumulative
translation
adjustments.... -- -- -- -- -- -- -- (1,096) (1,096)
Net loss for the
period from
January 1, 1997
to December 10,
1997........... -- -- -- -- -- -- (156,822) -- (156,822)
--------
Total
comprehensive
income (loss).. -- -- -- -- -- -- -- -- (157,918)
---------- ------ -------- ------- ----------- -------- -------- ------- ========
Balances,
December 10,
1997
(PRE-
ACQUISITION)... 54,000,000 54,000 315,570 -- -- -- (274,187) 5,265
Buyout of
shareholder's
interest....... -- -- -- -- (16,252,264) (292,561) -- -- --
Reissuance of
shares upon
conversion of
PIK Notes...... -- -- -- -- 10,120,174 169,899 -- -- --
Application of
push-down
accounting and
step-up in
basis.......... -- -- 442,688 -- -- -- -- -- --
Elimination of
historical
accumulated
deficit of UPC
attributable to
Philips........ -- -- (137,094) -- -- -- 137,094 -- --
Net loss for the
period from
December 11,
1997 to
December 31,
1997........... -- -- -- -- -- -- (9,144) -- (9,144)
--------
Total
comprehensive
income (loss).. -- -- -- -- -- -- -- -- (167,062)
---------- ------ -------- ------- ----------- -------- -------- ------- ========
Balances,
December 31,
1997
(POST-
ACQUISITION)... 54,000,000 54,000 621,164 -- (6,132,090) (122,662) (146,237) 5,265
Deferred
compensation
related to
stock options
(Unaudited).... -- -- 10,159 (10,159) -- -- -- -- --
Amortization of
deferred
compensation... -- -- -- 4,333 -- -- -- -- --
Unrealized loss
on investment
(Unaudited).... -- -- -- -- -- -- -- (8,784) (8,784)
Change in
cumulative
translation
adjustments
(Unaudited).... -- -- -- -- -- -- -- (13,880) (13,880)
Net loss
(Unaudited).... -- -- -- -- -- -- (171,852) -- (171,852)
--------
Total
comprehensive
income (loss)
(Unaudited).... -- -- -- -- -- -- -- -- (194,516)
---------- ------ -------- ------- ----------- -------- -------- ------- ========
Balances,
September 30,
1998
(Unaudited).... 54,000,000 54,000 631,323 (5,826) (6,132,090) (122,662) (318,089) (17,399)
========== ====== ======== ======= =========== ======== ======== =======
<CAPTION>
TOTAL
---------
<S> <C>
Balances upon
contribution of
properties to
joint venture,
July 1, 1995... 369,570
Cumulative
translation
adjustments.... 1,495
Net loss........ (41,529)
Total
comprehensive
income (loss).. --
---------
Balances,
December 31,
1995........... 329,536
Change in
cumulative
translation
adjustments.... 4,866
Net loss........ (75,836)
Total
comprehensive
income (loss).. --
---------
Balances,
December 31,
1996........... 258,566
Change in
cumulative
translation
adjustments.... (1,096)
Net loss for the
period from
January 1, 1997
to December 10,
1997........... (156,822)
Total
comprehensive
income (loss).. --
---------
Balances,
December 10,
1997
(PRE-
ACQUISITION)... 100,648
Buyout of
shareholder's
interest....... (292,561)
Reissuance of
shares upon
conversion of
PIK Notes...... 169,899
Application of
push-down
accounting and
step-up in
basis.......... 442,688
Elimination of
historical
accumulated
deficit of UPC
attributable to
Philips........ --
Net loss for the
period from
December 11,
1997 to
December 31,
1997........... (9,144)
Total
comprehensive
income (loss).. --
---------
Balances,
December 31,
1997
(POST-
ACQUISITION)... 411,530
Deferred
compensation
related to
stock options
(Unaudited).... --
Amortization of
deferred
compensation... 4,333
Unrealized loss
on investment
(Unaudited).... (8,784)
Change in
cumulative
translation
adjustments
(Unaudited).... (13,880)
Net loss
(Unaudited).... (171,852)
Total
comprehensive
income (loss)
(Unaudited).... --
---------
Balances,
September 30,
1998
(Unaudited).... 221,347
=========
</TABLE>
- -------
(1) As of December 31, 1995, 1996 and 1997 Other Cumulative Comprehensive
Income (Loss) represents foreign currency translation adjustments. As of
September 30, 1998 the components of Other Cumulative Comprehensive Income
(Loss) include (8,615) and (8,784) for foreign currency translation
adjustments and unrealized loss on investment, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS OF DUTCH GUILDERS)
As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(PRE- (PRE- (PRE- (PRE- (POST-
ACQUISITION) ACQUISITION) ACQUISITION) ACQUISITION) ACQUISITION)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss................ (41,529) (75,836) (165,966) (129,984) (171,852)
Adjustments to reconcile
net loss to net cash
flows from operating
activities:
Depreciation and
amortization.......... 36,224 84,332 139,216 99,903 137,231
Amortization of
deferred financing
costs................. -- -- 642 -- 6,653
Share in results of
affiliated companies,
net................... 22,179 17,811 10,637 15,807 42,167
Compensation expense
related to stock
options............... -- -- 4,818 -- 32,493
Minority interests in
subsidiaries.......... 191 2,208 2,894 1,339 4,838
Exchange rate
differences in related
party convertible
loans................. 3,474 20,544 43,441 39,301 (12,615)
Provision for loss on
investment related
costs................. -- -- 18,888 10,000 --
Other.................. 1,444 1,173 978 2,452 3,083
Changes in assets and
liabilities:
(Increase) decrease in
receivables........... (50,955) (32,575) 21,504 (131) (20,700)
Increase in
inventories........... (6,956) (2,091) (2,737) (4,721) (4,160)
Increase in other non-
current assets........ (789) (309) (2,544) (63) (2,038)
Increase in other
current liabilities... 76,740 22,353 61,373 31,717 42,729
(Decrease) increase in
deferred taxes and
other long-term
liabilities........... (1,530) 3,932 (560) 10,274 (5,758)
-------- -------- --------- -------- --------
Net cash flows from
operating activities... 38,493 41,542 132,584 75,894 52,071
-------- -------- --------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Restricted cash
(deposited) released... -- -- (22,220) -- 12,955
Purchase of parent
company's stock........ -- -- (66,809) --
(Investments in and
advances to) repayment
from affiliated
companies, net......... (339,737) 146,726 (3,869) (3,354) (13,766)
Capital expenditures.... (132,230) (106,647) (145,630) (92,664) (170,170)
New acquisitions, net of
cash acquired.......... (28,139) (46,473) (127,882) (125,368) (210,272)
Deposit to acquire
minority interest in
subsidiary............. -- -- (47,000) (47,000) --
Sale of affiliated
companies.............. -- -- 11,070 21,449 --
-------- -------- --------- -------- --------
Net cash flows from
investing activities... (500,106) (6,394) (402,340) (246,937) (381,253)
-------- -------- --------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short-term
borrowings............. 465,699 302,959 260,560 241,604 --
Proceeds from long-term
borrowings............. -- 23,113 1,141,539 128,932 337,969
Deferred financing
costs.................. -- -- (24,585) (4,138) (8,016)
Repayments of long and
short-term borrowings.. -- (440,440) (587,929) (169,480) (215,447)
Borrowings on note
payable to
shareholder............ -- -- -- -- 161,925
Dividends paid to
minority shareholders.. (191) (2,388) (171) (5) (521)
Redemption of
convertible loans...... -- -- (170,371) -- --
Purchase shares from
shareholder............ -- -- (292,561) -- --
-------- -------- --------- -------- --------
Net cash flows from
financing activities... 465,508 (116,756) 326,482 196,913 275,910
-------- -------- --------- -------- --------
EFFECT OF EXCHANGE RATES
ON CASH................ 1,950 344 (42) 334 (1,703)
-------- -------- --------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 5,845 (81,264) 56,684 26,204 (54,975)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... -- 123,895 42,631 42,631 99,315
CASH CONTRIBUTED UPON
FORMATION.............. 118,050 -- -- -- --
-------- -------- --------- -------- --------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. 123,895 42,631 99,315 68,835 44,340
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS OF DUTCH GUILDERS)
As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------ ------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(PRE- (PRE- (PRE- (PRE- (POST-
ACQUISITION) ACQUISITION) ACQUISITION) ACQUISITION) ACQUISITION)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of shares upon
conversion of PIK
notes................. -- -- 169,899 -- --
====== ======= ======== ======= ========
Contribution of net
assets of Dutch cable
systems to new joint
venture .............. -- -- -- -- 259,153
====== ======= ======== ======= ========
Purchase money notes
payable to sellers.... -- -- -- -- 36,720
====== ======= ======== ======= ========
Unrealized loss on
investment............ -- -- -- -- (8,784)
====== ======= ======== ======= ========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for
interest.............. (8,945) (32,674) (80,810) (17,619) (60,766)
====== ======= ======== ======= ========
Cash received for
interest.............. 6,403 2,757 5,077 1,561 3,539
====== ======= ======== ======= ========
ACQUISITION OF DUTCH
CABLE ASSETS:
Property, plant and
equipment and other
assets................ -- -- -- -- (106,000)
Goodwill............... -- -- -- -- (74,762)
------ ------- -------- ------- --------
Total cash paid........ -- -- -- -- (180,762)
====== ======= ======== ======= ========
ACQUISITION OF NORWAY
CABLE SYSTEMS:
Working capital........ -- 2,221 3,790 -- --
Property, plant and
equipment............. -- (90,413) (23,541) -- --
Goodwill and other
intangible assets..... -- (71,509) (105,785) -- --
Other assets........... -- -- (57) -- --
Short-term debt........ -- 140,619 2,854 -- --
Other liabilities...... -- 10,271 1,557 -- --
------ ------- -------- ------- --------
Total consideration.... -- (8,811) (121,182) -- --
Less obligation to
seller................ -- -- 36,112 -- --
------ ------- -------- ------- --------
Total cash paid........ -- (8,811) (85,070) -- --
====== ======= ======== ======= ========
ACQUISITION OF REMAINING
INTEREST IN UPC:
Property, plant and
equipment............. -- -- 18,271 -- --
Investments in and
advances to
affiliates............ -- -- 129,742 -- --
Goodwill .............. -- -- 294,675 -- --
------ ------- -------- ------- --------
Total allocation of
purchase accounting
adjustments........... -- -- 442,688 -- --
====== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 (PRE-ACQUISITION),
AS OF AND FOR THE YEAR ENDED DECEMBER 31 1996 (PRE-ACQUISITION),
AS OF DECEMBER 31, 1997 (POST-ACQUISITION),
FOR THE YEAR ENDED DECEMBER 31, 1997 (PRE-ACQUISITION),
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (PRE-ACQUISITION),
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) (POST-
ACQUISITION)
(MONETARY AMOUNTS STATED IN THOUSANDS OF DUTCH GUILDERS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
1. ORGANIZATION AND NATURE OF OPERATIONS
United Pan-Europe Communications N.V., formerly known as United and Philips
Communications B.V. ("UPC" or the "Company"), was formed for the purpose of
acquiring and developing multi-channel television and telecommunications
systems in Europe. On July 13, 1995, United International Holdings, Inc.
("UIH"), a United States of America corporation, and Philips Electronics N.V.
("Philips"), contributed their respective ownership interests in European and
Israeli multi-channel television systems to UPC. Philips contributed to UPC its
95% interest in cable television systems in Austria, its 100% interest in cable
television systems in Belgium, and its minority interests in multi-channel
television systems in Germany, The Netherlands (KTE) and France (Citecable).
UIH contributed its interests in multi-channel television systems in Israel,
Ireland, the Czech Republic, Malta, Norway, Hungary, Sweden and Spain. UIH also
contributed United States dollars ("$")78.2 million in cash (including accrued
interest of $3.2 million) to UPC and issued to Philips 3,169,151 shares of its
Class A Common Stock having a value of $50.0 million (at date of closing). In
addition, UPC issued to Philips $133.6 million of convertible subordinated pay-
in-kind notes (the "PIK Notes"). As a result of this transaction, UIH and
Philips each owned a 50% economic and voting interest in UPC.
On December 11, 1997, UIH acquired Philips' 50% interest in UPC (the "UPC
Acquisition"), thereby making it an effectively wholly-owned subsidiary of UIH
(subject to certain employee equity incentive compensation arrangements)
through its wholly-owned subsidiary UIH Europe, Inc. ("UIHE"). The entity's
name was changed to United Pan-Europe Communications N.V., and its legal seat
was transferred from Eindhoven to Amsterdam. Through its cable-based
communications networks in 10 countries in Europe and in Israel, UPC currently
offers cable television services and is further developing and upgrading its
network to provide digital video, voice and Internet/data services in its
Western European markets.
As part of the UPC Acquisition, (i) UPC purchased the 3,169,151 shares of
Class A Common Stock of UIH held by Philips (66,800), (ii) UIH purchased
169,899 of the accreted amount of UPC's PIK Notes and redeemed them for
10,120,174 shares of UPC, (iii) UPC repaid to Philips the remaining 170,371
accreted amount of the PIK Notes (339,800), (iv) UIH purchased 8,747,736 shares
of UPC directly from Philips, and (v) UPC repurchased Philips' remaining equity
interest in UPC (16,252,264 shares) (450,000). The UPC Acquisition was financed
with proceeds from a long-term revolving credit facility through UPC with a
syndicate of banks (305,200) (the "Tranche A Facility"), a bridge bank facility
through a subsidiary of UPC $111,200 (224,000) (the "Tranche B Facility") and a
cash investment by UIH of 327,400. Approximately 479,000 drawn on the Tranche A
Facility was used to repay existing debt of UPC in conjunction with the UPC
Acquisition.
UIH's acquisition of Philips' interest in UPC was accounted for as a step
acquisition under purchase accounting. As a result of UPC becoming effectively
wholly owned by UIH, such purchase accounting adjustments, along with existing
basis differences, were pushed down to the financial statements of UPC and a
new basis of accounting was established for the UPC net assets acquired by UIH.
As of December 11, 1997, the proportional net assets of UPC acquired by UIH
were recorded at fair market value based
F-8
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the purchase price paid by UIH, along with additional basis differences at
the UIH level existing as of that date. The total purchase accounting
adjustments were allocated to UPC's underlying assets as follows:
<TABLE>
<S> <C>
Property, plant and equipment....................................... 18,271
Investment in and advances to affiliates............................ 129,742
Goodwill............................................................ 294,675
-------
Total............................................................. 442,688
=======
</TABLE>
As a result of the UPC Acquisition and the associated push-down of UIH
basis on December 11, 1997, the consolidated balance sheets as of December 31,
1997 and September 30, 1998 as well as the consolidated statements of
operations and cash flows subsequent to December 31, 1997 are presented on a
"post-acquisition" basis. The primary difference in the consolidated statement
of operations presented on a "post-acquisition" basis compared to a "pre-
acquisition" basis consists of additional depreciation and amortization on the
above purchase accounting adjustments. The consolidated statements of
operations and cash flows for the year ended December 31, 1997 include the
post-acquisition results of the Company for the period from December 11, 1997
through December 31, 1997, which reflects 1,640 of new basis depreciation and
amortization resulting from push-down accounting as well as approximately
4,034 of interest expense from purchase related indebtedness. Due to
immateriality, the entire fiscal year ended December 31, 1997 is presented as
"pre-acquisition" in the accompanying consolidated statements of operations
and cash flows.
F-9
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma consolidated operating results for the years ended
December 31, 1996 and 1997 give effect to the UPC Acquisition as if it had
occurred at the beginning of the periods presented. This pro forma consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transaction had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------- -------------------------
HISTORICAL PRO FORMA (1) HISTORICAL PRO FORMA (1)
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Service and other revenue.. 245,179 245,179 337,155 337,155
Operating expense.......... (80,479) (80,479) (111,919) (111,919)
Selling, general and
administrative expense.... (78,823) (78,823) (114,024) (114,024)
Depreciation and
amortization.............. (84,332) (105,195) (139,216) (158,920)
---------- ---------- ---------- ----------
Net operating income
(loss)................... 1,545 (19,318) (28,004) (47,708)
Interest income............ 2,757 2,757 6,512 6,512
Interest expense........... (14,263) (55,465) (43,801) (85,027)
Interest expense, related
party .................... (24,212) -- (28,743) --
Provision for loss on
investment related costs.. -- -- (18,888) (18,888)
Foreign exchange loss and
other expense............. (21,135) (16,841) (41,160) (32,719)
---------- ---------- ---------- ----------
Net loss before income
taxes and other items.... (55,308) (88,867) (154,084) (177,830)
Share in results of
affiliated companies,
net....................... (17,811) (26,460) (10,637) (18,806)
Minority interests in
subsidiaries.............. (2,208) (2,208) (2,894) (2,894)
Income tax benefit
(expense)................. (509) (509) 1,649 1,649
---------- ---------- ---------- ----------
Net loss.................. (75,836) (118,044) (165,966) (197,881)
========== ========== ========== ==========
Basic and diluted net loss
per common share.......... (1.40) (2.47) (3.09) (4.13)
========== ========== ========== ==========
Weighted-average number of
common shares
outstanding............... 54,000,000 47,867,910 53,659,328 47,867,910
========== ========== ========== ==========
</TABLE>
- --------
(1) Includes additional depreciation and amortization related to the step-up in
basis in tangible assets, investments in and advances to affiliated
companies and new goodwill, interest expense from the Tranche A Facility
and Tranche B Facility, net of elimination of historical interest expense
on the PIK Notes and refinanced credit facilities, and foreign exchange
loss on the U.S. dollar-denominated Tranche B Facility, net of elimination
of historical foreign exchange loss on the PIK Notes.
F-10
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following chart presents a summary of the Company's significant
investments in multi-channel television, programming and telephony operations
as of September 30, 1998:
UPC
<TABLE>
<S> <C>
AUSTRIA:
Telekabel Group ("Telekabel Group")................................... 95.0%
BELGIUM:
Radio Public N.V./S.A. ("TVD")........................................ 100.0%
CZECH REPUBLIC:
KabelNet.............................................................. 100.0%
Ceska Programova Spolecnost SRO ("TV Max")............................ 100.0%
FRANCE:
Mediareseaux Marne S.A. ("Mediareseaux").............................. 99.6%
HUNGARY:
Telekabel Hungary ("Telekabel Hungary")............................... 79.3%
Telekabel Hungary Programming ........................................ 50.0%
IRELAND: (through United International Investments ("UII") (1))
Princes Holdings Ltd ("Princes Holdings")............................. 20.0%
ISRAEL: (through UII (1))
Tevel Israel International Communications Ltd. ("Tevel").............. 23.3%
MALTA: (through UII (1))
Melita Cable TV P.L.C. ("Melita")..................................... 25.0%
THE NETHERLANDS:
United Telekabel Holding N.V. ("UTH") (2)............................. 51.0%
NORWAY:
Janco Multicom ("Janco Multicom")..................................... 100.0%
ROMANIA:
Multicanal Holdings................................................... 100.0%
Control Cable Ventures................................................ 100.0%
Eurosat............................................................... 51.0%
SLOVAK REPUBLIC:
Trnavatel............................................................. 75.0%
Kabeltel.............................................................. 100.0%
</TABLE>
- --------
(1) UII is a United States general partnership between UPC and Tele-
Communications International, Inc. ("TINTA"). In November 1998, UPC
acquired TINTA's interests in Tevel and Melita, and sold UPC's interest in
Princes Holdings to TINTA for a net payment to TINTA of $68.0 million
(128,520). As a result of the transaction, UPC's interest in Tevel and
Melita increased to 46.6% and 50.0% respectively (see Note 16).
(2) On August 6, 1998, UPC merged its Dutch cable television systems consisting
of its 50% interest in A2000 Holding N.V. ("A2000") and its wholly owned
subsidiary Cable Network Brabant Holding B.V. ("CNBH") with those of a
Dutch energy company ("NUON"), forming a new company, UTH. Following the
merger, UPC holds 51% of UTH, with the ability to increase its interest to
75.5% (see Note 3).
F-11
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, the Company incurred a net
operating loss of (61,932) and had a working capital deficit of (356,565). The
Company expects to incur operating losses and net losses for the foreseeable
future as it incurs additional costs associated with the upgrade and expansion
of the Company's network, the expansion of its marketing and sales organization
and the introduction of new services such as digital video, voice and
Internet/data services. The Company is currently in the process of seeking
additional sources of funds, which could include private equity, public equity,
bank financing and/or public debt. The Company may or may not be successful in
completing all or any of such financings. The Company believes, however, that
reduction in the Company's planned capital expenditures combined with, if
necessary, the sale of certain non-strategic assets, are sufficient to sustain
its operations through at least October 1, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the operations
of UPC since its formation effective July 1, 1995 and all subsidiaries where it
exercises majority control and owns a majority economic interest, except for
UTH, where because of certain minority shareholders rights the Company accounts
for its investment in UTH using the equity method of accounting. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
RESTRICTED CASH
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities.
COSTS TO BE REIMBURSED BY AFFILIATED COMPANIES
The Company incurs costs on behalf of affiliated companies, such as
salaries and benefits, travel and professional services. These costs are
reimbursed by the affiliated companies.
F-12
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARKETABLE EQUITY SECURITIES OF PARENT
The Company classifies its investments in marketable equity securities of
UIH as available-for-sale and reports such investments at fair market value.
Unrealized gains and losses are charged or credited to equity, realized gains
and losses and other than temporary declines in market value are included in
operations.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in companies in which the Company's ownership
interest is 20% to 50%, its investments are held through a combination of
voting common stock, preferred stock, debentures or convertible debt and/or the
Company exerts significant influence through board representation and
management authority, or in which majority control is deemed to be temporary,
the equity method of accounting is used. Under this method, the investment,
originally recorded at cost, is adjusted to recognize the Company's
proportionate share of net earnings or losses of the affiliates, limited to the
extent of the Company's investment in and advances to the affiliates, including
any debt guarantees or other contractual funding commitments. The Company's
proportionate share of net earnings or losses of affiliates includes the
amortization of the excess of its cost over its proportionate interest in each
affiliate's net tangible assets or the excess of its proportionate interest in
each affiliate's net tangible assets in excess of its cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions, replacements
and major improvements are capitalized, and costs for normal repair and
maintenance of property, plant and equipment are charged to expense as
incurred. Assets constructed by subsidiaries of UPC incorporate overhead
expense and interest charges incurred during the period of construction;
investment subsidies are deducted. Depreciation is calculated using the
straight-line method over the economic life of the asset, taking into account
the residual value. Upon disconnection of a subscriber, the remaining book
value of the subscriber equipment, excluding converters which are recovered
upon disconnection, and the capitalized labor are written off and accounted for
as an operating cost. The economic lives of property, plant and equipment at
acquisition are as follows:
<TABLE>
<S> <C>
Cable distribution networks................................... 7-20 years
Subscriber premises equipment and converters.................. 5 years
MMDS distribution facilities.................................. 7-20 years
Office equipment, furniture and fixtures...................... 3-8 years
Buildings and leasehold improvements.......................... 20-33 years
Other......................................................... 3-10 years
</TABLE>
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of investments in consolidated subsidiaries over the net
tangible asset value at acquisition is amortized on a straight line basis over
15 years. Licenses in newly-acquired companies are recognized at the fair
market value of those licenses at the date of acquisition and include the
development costs incurred prior to or after the date a new license was
acquired. The license value is amortized on a straight-line basis over the
license period, up to a maximum of 20 years.
RECOVERABILITY OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all tangible and intangible
assets whenever events or circumstances indicate the carrying value of assets
may exceed their recoverable amounts. An impairment
F-13
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loss is recognized when the estimated future cash flows (undiscounted and
without interest) expected to result from the use of an asset are less than the
carrying amount of the asset. Measurement of an impairment loss is based on
fair value of the asset computed using discounted cash flows if the asset is
expected to be held and used. Measurement of an impairment loss for an asset
held for sale would be based on fair market value less estimated costs to sell.
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life
of the debt facility using the effective interest method.
OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which requires that an
enterprise (i) classify items of other comprehensive income by their nature in
a financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, with any excess costs deferred and amortized over the
average subscriber period. To the extent installation fees exceed direct
selling costs, the excess fees would be deferred and amortized over the average
contract period. All installation fees and related costs with respect to
reconnections are recognized in the period in which the reconnection occurs.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across many
different countries in Europe.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method for
the Company's stock option plans, which results in compensation expense for the
difference between the grant price and the fair market value at each new
measurement date.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities and
loss carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are then reduced
by a
F-14
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
valuation allowance if management believes it is more likely than not they will
not be realized. Withholding taxes are taken into consideration in situations
where the income of subsidiaries is to be paid out as dividends in the near
future. Such withholding taxes are generally charged to income in the year in
which the dividend income is generated.
BASIC AND DILUTED LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"). "Basic loss per share" is determined by
dividing net loss available to common shareholders by the weighted-average
number of common shares outstanding during each period. "Diluted loss per
share" includes the effects of potentially issuable common stock, but only if
dilutive. Therefore, the Company's stock option plans and convertible
securities are excluded from the Company's diluted loss per share for all
periods presented because their effect would be anti-dilutive.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company. Assets and liabilities of
foreign subsidiaries for which the functional currency is the local currency
are translated at exchange rates in effect at period-end, and the statements of
operations are translated at the average exchange rates during the period.
Exchange rate fluctuations on translating foreign currency financial statements
into Dutch guilders that result in unrealized gains or losses are referred to
as translation adjustments. Cumulative translation adjustments are recorded as
a separate component of shareholders' equity included in Other Comprehensive
Income (Loss).
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are
translated based on their functional currencies. As a result, amounts related
to assets and liabilities reported on the consolidated statements of cash flows
will not agree to changes in the corresponding balances on the consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities.
The Company and certain of its operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. In general, the Company and the operating companies do not
execute hedge transactions to reduce the Company's exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and
a negative impact on earnings and equity with respect to its holdings solely as
a result of foreign currency exchange rate fluctuations.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which requires that a public
business enterprise report certain financial and descriptive information about
its reportable segments. The Company plans to adopt SFAS 131 for the year ended
December 31, 1998.
F-15
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
The Company does not expect the adoption of SOP 98-5 to have a material effect
on its financial position or results of operations.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company is currently assessing the
effect of this new standard.
3. ACQUISITIONS AND DISPOSITIONS
NORKABEL
In October 1996, the Company increased its ownership in Norkabelgruppen A/S
("Norkabel") from 8.3% to 100% for a purchase price of Norwegian kroner
("NKr")32.5 million (8,811). Details of the net assets acquired were as follows
(using the exchange rate as of December 31, 1996):
<TABLE>
<S> <C>
Working capital................................................ (2,221)
Property, plant and equipment.................................. 90,413
Goodwill and other intangible assets........................... 71,509
Short-term debt................................................ (140,619)
Other liabilities.............................................. (10,271)
--------
Total cash paid.............................................. 8,811
========
</TABLE>
F-16
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma condensed consolidated operating results for the
periods ended December 31, 1995 and 1996 give effect to the acquisition of
Norkabel as if it had occurred at the beginning of the periods presented. This
pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service and other revenue.. 100,179 129,666 245,179 288,749
========== ========== ========== ==========
Net loss................... (41,529) (58,781) (75,836) (108,318)
========== ========== ========== ==========
Basic and diluted net loss
per common share.......... (0.77) (1.09) (1.40) (2.01)
========== ========== ========== ==========
Weighted-average number of
common shares
outstanding............... 54,000,000 54,000,000 54,000,000 54,000,000
========== ========== ========== ==========
</TABLE>
JANCO KABEL-TV
In January 1997, UPC purchased a 70.2% interest in Janco Kabel-TV A/S
("Janco") for NKr313.8 million (85,070). Details of the net assets acquired at
100% were as follows (using the exchange rate as of December 31, 1996):
<TABLE>
<S> <C>
Working capital................................................. (3,790)
Property, plant and equipment................................... 23,541
Goodwill and other intangible assets............................ 105,785
Other assets.................................................... 57
Short-term debt................................................. (2,854)
Other liabilities............................................... (1,557)
-------
Total consideration........................................... 121,182
Less obligation to seller..................................... (36,112)
-------
Total cash paid............................................... 85,070
=======
</TABLE>
In November 1997, UPC's wholly-owned subsidiary Norkabel merged with and
into UPC's 70.2%-owned subsidiary, Janco, to give UPC an 87.3% interest in the
new entity Janco Multicom. Concurrent with the transaction, UPC deposited
47,000 with a bank as collateral for a call option to purchase the remaining
12.7% interest. Including accrued interest, the deposit totaled 49,517 as of
September 30, 1998, and is classified as restricted cash in other non-current
assets. UPC has all the rights and obligations of full ownership of Janco
Multicom and therefore consolidates 100% of its financial results. In November
1998, UPC exercised and paid the call obligation for 37,200 (see Note 16).
F-17
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma condensed consolidated operating results for the
year ended December 31, 1996 gives effect to the acquisition of Janco as if it
had occurred at the beginning of 1996. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transaction had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
----------------------
HISTORICAL PRO FORMA
---------- ----------
<S> <C> <C>
Service and other revenue.......................... 245,179 270,467
========== ==========
Net loss........................................... (75,836) (89,599)
========== ==========
Basic and diluted net loss per common share........ (1.40) (1.66)
========== ==========
Weighted-average number of common shares
outstanding....................................... 54,000,000 54,000,000
========== ==========
</TABLE>
COMBIVISIE
Effective January 1, 1998, UPC acquired certain assets, including The
Netherlands cable systems of Stichting Combivisie Regio ("Combivisie"), for
180,762. The purchase was funded with a 60,000 draw on the Tranche A Facility
and 120,762 of bank financing. Details of the net assets acquired, based on a
preliminary allocation of the purchase price, were as follows:
<TABLE>
<S> <C>
Property, plant and equipment and other assets................... 106,000
Goodwill......................................................... 74,762
-------
Total cash paid................................................ 180,762
=======
</TABLE>
The following pro forma condensed consolidated operating results for the
years ended December 31, 1996 and 1997 give effect to the acquisition of
Combivisie as if it had occurred at the beginning of the periods presented.
This pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
---------------------- ----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service and other revenue.. 245,179 272,322 337,155 366,127
========== ========== ========== ==========
Net loss................... (75,836) (78,140) (165,966) (167,254)
========== ========== ========== ==========
Basic and diluted net loss
per common share.......... (1.40) (1.45) (3.09) (3.12)
========== ========== ========== ==========
Weighted-average number of
common shares
outstanding............... 54,000,000 54,000,000 53,659,328 53,659,328
========== ========== ========== ==========
</TABLE>
F-18
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TELEKABEL HUNGARY
On June 29, 1998, UPC acquired Time Warner Entertainment Company's ("TWE")
interest in its Hungarian multi-channel television system assets for $9,500
(19,380) in cash and a non-interest bearing promissory note in the amount of
$18,000 (36,720) (the "Time Warner Note"). UPC and TWE retained their
respective percentage interests in the programming assets in Hungary. UPC has
granted TWE an option to acquire UPC's interest in such programming assets as
well as TV Max in consideration for the cancellation of the Time Warner Note.
On June 30, 1998, UPC merged its 100%-owned Hungarian multi-channel television
systems ("Kabelkom") with Hungary's second largest multiple system operator to
form the new joint venture Telekabel Hungary. UPC retains a 79.25% ownership
interest in the new entity.
UTH
On August 6, 1998, UPC merged its Dutch cable television systems with those
of NUON, forming a new company, UTH (the "UTH Transaction"). Following the
merger, UPC holds 51% of UTH. The agreement provides UPC with a call option
exercisable after August 6, 1999 to acquire 50% of NUON's 49% ownership
interest in UTH for approximately 244,000 plus an interest payment of 5.5% over
the call price from January 1, 1998 until the exercise date. If the exercise
date is after August 6, 2000, the interest rate will go up to 9.0%. If UPC
exercises the call option, NUON can exercise the secondary put option,
requiring UPC to purchase its remaining interest in UTH for approximately
244,000 plus interest. The agreement provides NUON with a put option
exercisable after August 6, 1999 to require UPC to purchase 50% of NUON's 49%
interest in UTH. The price UPC would have to pay equals approximately 166,000
plus an interest payment of 4.5% over the put price from January 1, 1998 until
the exercise date. If NUON exercises the put option, UPC can exercise the
secondary call option, requiring NUON to sell its remaining interest in UTH to
UPC for approximately 166,000 plus interest. Although UPC retains a majority
economic and voting interest, because of certain minority shareholder rights of
NUON, UPC accounts for its investment in UTH using the equity method of
accounting.
F-19
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma condensed consolidated operating results for the
nine months ended September 30, 1997 and 1998 give effect to the UTH
Transaction as if it had occurred at the beginning of the periods presented.
This pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
--------------------- ---------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Service and other revenue...... 250,061 236,948 305,237 274,091
========== ========== ========== ==========
Net loss....................... (129,984) (122,268) (171,852) (165,804)
========== ========== ========== ==========
Basic and diluted net loss per
common share.................. (2.41) (2.26) (3.59) (3.46)
========== ========== ========== ==========
Weighted-average number of
common shares outstanding..... 54,000,000 54,000,000 47,867,910 47,867,910
========== ========== ========== ==========
</TABLE>
OTHER
The assets of Intercabo, Portugal were sold in January 1998 for 4,000. The
closure of the Portuguese activities resulted in a provision of 18,888, which
was recorded in the statement of operations for the year ended December 31,
1997.
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------------------------------------
INVESTMENTS IN CUMULATIVE
AND ADVANCES TO SHARE IN RESULTS OF VALUATION
AFFILIATED COMPANIES AFFILIATED COMPANIES ALLOWANCE TOTAL
-------------------- ----------------------- --------- -------
<S> <C> <C> <C> <C>
A2000........ 189,802 (26,465) -- 163,337
UII.......... 10,270 487 -- 10,757
Kabelkom..... 41,885 (262) -- 41,623
Other, net... 21,430 (8,804) (4,186) 8,440
------- ------- ------ -------
Total...... 263,387 (35,044) (4,186) 224,157
======= ======= ====== =======
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------------------------
INVESTMENTS IN CUMULATIVE
AND ADVANCES TO SHARE IN RESULTS OF VALUATION
AFFILIATED COMPANIES AFFILIATED COMPANIES(1) ALLOWANCE TOTAL
-------------------- ----------------------- --------- -------
<S> <C> <C> <C> <C>
A2000........ 220,933 (571) -- 220,362
UII.......... 103,029 (64) -- 102,965
Kabelkom..... 57,783 247 -- 58,030
Other, net... 3,583 -- -- 3,583
------- ------- ------ -------
Total...... 385,328 (388) -- 384,940
======= ======= ====== =======
</TABLE>
F-20
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
-----------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE CUMULATIVE
AND ADVANCES TO DIVIDENDS SHARE IN RESULTS OF TRANSLATION
AFFILIATED COMPANIES RECEIVED AFFILIATED COMPANIES ADJUSTMENTS TOTAL
-------------------- --------- -------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
UTH..................... 257,116 -- (8,325) -- 248,791
UII (2)................. 100,948 (12,212) 3,351 (7,081) 85,006
Telekabel Hungary
Programming (3)........ 24,316 -- (6,728) (996) 16,592
Xtra Music.............. 9,450 -- -- -- 9,450
Other, net.............. 9,536 -- (3,651) -- 5,885
------- ------- ------- ------ -------
Total................... 401,366 (12,212) (15,353) (8,077) 365,724
======= ======= ======= ====== =======
</TABLE>
The Company had the following differences related to the excess of cost
over the net tangible assets acquired for its equity investments. Such
differences are being amortized over 15 years:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1997 AS OF SEPTEMBER 30, 1998
----------------------- -------------------------- ----------------------------
BASIS ACCUMULATED BASIS ACCUMULATED BASIS ACCUMULATED
DIFFERENCE AMORTIZATION DIFFERENCE AMORTIZATION(1) DIFFERENCE AMORTIZATION
---------- ------------ ---------- --------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
A2000................... 180,012 (18,000) 231,041 -- -- --
UII (2)................. -- -- 64,618 -- 57,537 (3,605)
Kabelkom................ 33,353 (556) 38,161 -- -- --
Telekabel Hungary
Programming (3)........ -- -- -- -- 14,695 (510)
------- ------- ------- --- ------------ ------------
Total................... 213,365 (18,556) 333,820 -- 72,232 (4,116)
======= ======= ======= === ============ ============
</TABLE>
- --------
(1) In connection with the UPC Acquisition, certain purchase accounting
adjustments were pushed down to the financial statements of UPC, a new
basis of accounting was established on December 11, 1997, and cumulative
share in results of affiliated companies and accumulated amortization was
reset to zero as of that date (see Note 1).
(2) In November 1998 the Company acquired from TINTA its interests in Tevel and
Melita, and sold its interest in Princes Holdings (see Note 16).
(3) Represents the Company's remaining investment in Telekabel Hungary
Programming after the transaction with TWE (see Note 3).
Summary financial information for UTH is as follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
-------------
1998
-------------
(UNAUDITED)
<S> <C>
Liquid assets................................................. 2,562
Other current assets.......................................... 83,337
Financial fixed assets........................................ 151,356
Tangible fixed assets......................................... 779,629
Intangible fixed assets....................................... 403,629
---------
Total assets................................................ 1,420,513
=========
Current liabilities........................................... 711,775
Provisions.................................................... 1,046
Long-term debt................................................ 224,092
Shareholders' value........................................... 483,600
---------
Total liabilities and shareholders' value................... 1,420,513
=========
</TABLE>
F-21
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
AUGUST 6,
1998
(INCEPTION)
TO
SEPTEMBER 30,
-------------
1998
-------------
(UNAUDITED)
<S> <C>
Revenue....................................................... 36,498
Costs......................................................... (21,180)
Depreciation and amortization................................. (14,730)
-------
Net operating income........................................ 588
Financial charges............................................. (7,811)
-------
Net loss before income taxes and other items................ (7,223)
Share in results of affiliated companies...................... (9,053)
-------
Net loss.................................................... (16,276)
=======
</TABLE>
NUON's contribution to UTH included an existing 630,000 debt facility with
an outstanding balance of approximately 543,000 (as of August 6, 1998). The
debt facility is due November 30, 1998, with an extension period of 15 days. As
security for repayment of the debt facility, NUON received a pledge over the
shares of N.V. Telekabel Beheer (the assets contributed by NUON). UTH is
currently negotiating with the lenders to refinance the debt facility, however
there can be no assurance a refinancing will be completed prior to the due date
of the facility.
Summary financial information for A2000 is as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JULY 31,
--------------- -----------
1996 1997 1998(1)
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Liquid assets.................................. 33,389 6,868 2,336
Other current assets........................... 24,997 35,557 53,177
Financial fixed assets......................... 543 543 634
Tangible fixed assets.......................... 230,304 309,291 341,186
Intangible fixed assets........................ 132,018 122,189 117,797
------- ------- -------
Total assets................................... 421,251 474,448 515,130
======= ======= =======
Current liabilities............................ 40,908 67,652 88,372
Provisions..................................... 11,693 2,154 1,508
Long-term debt................................. 366,000 426,000 479,000
Shareholders' value............................ 2,650 (21,358) (53,750)
------- ------- -------
Total liabilities and shareholders' value...... 421,251 474,448 515,130
======= ======= =======
</TABLE>
F-22
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
JUNE 2, 1995 FOR THE YEARS SEVEN MONTHS
TO ENDED DECEMBER ENDED
DECEMBER 31, 31, JULY 31,
------------ ---------------- ------------
1995 1996 1997 1998(1)
------------ ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue......................... 37,493 89,893 101,450 69,668
Costs........................... (20,378) (49,064) (67,687) (52,329)
Depreciation and amortization... (19,830) (43,789) (50,846) (36,114)
------- ------- ------- -------
Net operating loss............ (2,715) (2,960) (17,083) (18,775)
Financial charges and other..... (4,621) (12,745) (16,751) (13,617)
Income tax (provision) benefit.. (287) (224) 9,826 --
------- ------- ------- -------
Net loss...................... (7,623) (15,929) (24,008) (32,392)
======= ======= ======= =======
</TABLE>
- --------
(1) Effective August 6, 1998, A2000 was contributed to UTH as part of the UTH
Transaction.
5. MARKETABLE EQUITY SECURITIES OF PARENT
As a result of the UPC Acquisition, a subsidiary of UPC acquired 3,169,151
UIH Class A Common shares, valued at fair market value of 66,809 as of December
11, 1997. As of September 30, 1998, the fair value of these shares was 58,025,
resulting in an unrealized loss of (8,784) for the nine months ended September
30, 1998. These shares are pledged under the Tranche B Facility (see Note 9).
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- SEPTEMBER 30,
1996 1997(1) 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cable distribution networks................. 325,987 364,655 412,873
Subscriber premises equipment and
converters................................. 128,627 81,301 114,820
MMDS distribution facilities................ 14,845 12,958 13,351
Office equipment, furniture and fixtures.... 15,713 13,074 28,674
Buildings and leasehold improvements........ 6,080 3,713 13,554
Other....................................... 15,236 15,304 8,712
------- ------- -------
506,488 491,005 591,984
Accumulated depreciation.................. (91,819) (7,312) (64,915)
------- ------- -------
Net property, plant and equipment......... 414,669 483,693 527,069
======= ======= =======
</TABLE>
- --------
(1) In connection with the UPC Acquisition, certain purchase accounting
adjustments were pushed down to the financial statements of UPC, a new
basis of accounting was established on December 11, 1997, and accumulated
depreciation was reset to zero as of that date (see Note 1).
F-23
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- SEPTEMBER 30,
1996 1997(1) 1998
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Telekabel Group........................... 200,307 389,513 390,818
Janco Multicom............................ 71,657 190,283 169,825
CNBH(2)................................... 83,851 80,491 --
Telekabel Hungary......................... -- -- 81,716
TVD....................................... 5,852 42,223 43,721
Other..................................... 33,753 26,794 35,859
------- ------- -------
395,420 729,304 721,939
Accumulated amortization................ (41,763) (3,791) (43,198)
------- ------- -------
Net goodwill and other intangible
assets................................. 353,657 725,513 678,741
======= ======= =======
</TABLE>
- --------
(1) In connection with the UPC Acquisition, certain purchase accounting
adjustments were pushed down to the financial statements of UPC, a new
basis of accounting was established on December 11, 1997, and accumulated
amortization was reset to zero as of that date (see Note 1).
(2) Effective August 6, 1998, CNBH was contributed to UTH as part of the UTH
Transaction.
8. SHORT-TERM DEBT
Short-term debt as of December 31, 1996 included 286,028 drawn on a
revolving credit facility and acquisition facility with a Dutch bank as well as
short-term debt of Norkabel of 138,421 assumed as part of the acquisition of
Norkabel in October 1996. The weighted-average interest rate on these short-
term borrowings as of December 31, 1996 was approximately 4.1% per annum. Both
facilities were repaid from proceeds from the Tranche A Facility at the end of
1997. The balance at September 30, 1998 primarily consists of the $18.0 million
(34,020) non-interest bearing Time Warner Note. The Time Warner Note matures on
the earlier of (i) December, 1998 or (ii) 90 calendar days after written notice
from TWE, which notice has not been given as of September 30, 1998.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
----------------- SEPTEMBER 30,
1996 1997 1998
------ --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Tranche A Facility......................... -- 883,948 971,978
Tranche B Facility......................... -- 252,500 113,519
Mediareseaux Facility...................... -- -- 20,190
Bank and other loans....................... 22,830 123,389 47,464
------ --------- ---------
22,830 1,259,837 1,153,151
Less current portion..................... (3,363) (255,819) (113,519)
------ --------- ---------
Total.................................... 19,467 1,004,018 1,039,632
====== ========= =========
</TABLE>
TRANCHE A FACILITY
In October 1997, UPC and Norkabel as borrowers entered into a 1,100,000
multi-currency revolving credit facility with a syndicate of banks. Norkabel
was succeeded as a borrower by Janco Multicom after the merger of Janco and
Norkabel. In December 1997, Telekabel Wien and the other members of the
F-24
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Telekabel Group also became borrowers under the Tranche A Facility. Although
not a borrower, TVD is a guarantor under the Tranche A Facility. As of
September 30, 1998, the amount outstanding under the Tranche A Facility for
UPC, Telekabel Wien and Janco Multicom was 620,000, 213,448 and 138,530,
respectively. Amounts advanced under the Tranche A Facility bear interest at
the London interbank offered rate ("LIBOR") plus a margin ranging from 0.5% to
2.0% per annum. The aggregate amount available for borrowing under the facility
is reduced automatically by 5.0% per quarter beginning December 31, 2001. The
borrowings of the Company and its subsidiaries in Austria, Belgium and Norway
are limited by financial covenants under the Tranche A Facility. The principal
amount of all borrowings by the Company and such subsidiaries may not exceed
certain multiples of total annualized net operating cash flow for the Company
and such subsidiaries. In addition, before December 31, 1998, the principal
amount of all borrowings of the Company and such subsidiaries may not exceed
certain multiples of their cable television net operating cash flow. The
Tranche A Facility generally prohibits dividends and other distributions to
shareholders of the Company unless, among other things, the Company achieves
for at least two consecutive quarters certain financial ratios. The Tranche A
Facility also includes financial covenants relating to interest and debt
service coverage and application of proceeds from asset sales and securities
offerings. Borrowings by UPC and certain of its subsidiaries in Austria,
Belgium and Norway, under the Tranche A Facility together with borrowings under
the Tranche B Facility may not exceed 1,300,000 before September 30, 2001. The
Tranche A Facility also generally limits to 80,000 UPC's investments in, loans
to and guarantees for, certain of the Company's subsidiaries and downstream
affiliates that are not borrowers or guarantors under the Tranche A Facility.
Under this limitation, as of September 30, 1998, the Company would not have
been permitted to make any additional investments, loans and guarantees. In
connection with the potential initial public offering of the Company's
securities (the "Offering"), the Company is negotiating with the Tranche A
Facility banks for certain waivers of covenants and conditions of the Tranche A
Facility. There can be no assurance that the Company will be successful in
obtaining such waivers.
TRANCHE B FACILITY
In connection with the UPC Acquisition, the Company entered into the
consolidated $125.0 million term Tranche B Facility with a syndicate of banks.
The Tranche B Facility is a one year bridge financing due December 5, 1998 and
bears interest at LIBOR plus a margin ranging from 4.5% to 6.0% per annum. The
maturity date is extendable to June 5, 1999 upon certain conditions being met.
The Tranche B Facility generally prohibits dividends and distributions and is
secured by various upstream guarantees from, negative pledges over and, in some
cases, share pledges of, certain share holdings or partnership interests of UPC
in operating systems in The Netherlands, France, Israel and Malta, as well as a
first lien over approximately 3,169,151 shares of UIH's Class A Common Stock
which UPC acquired from Philips as part of the UPC Acquisition. The Tranche B
Facility prohibits all of the companies whose interests are pledged from
incurring additional indebtedness, subject to certain exceptions. The Company
must apply proceeds from disposals, if any, of certain share holdings and
partnership interests to prepayment of the facility, which restricts the manner
and terms on which the Company may dispose of these assets. The Company must
maintain on deposit with the bank a compensating balance, restricted for
payment of interest, until the facility matures. The balance in this interest
reserve account was 9,265 as of September 30, 1998. UPC repaid $64.9 million of
the Tranche B Facility during the nine months ended September 30, 1998
resulting in an outstanding amount of $60.1 million (113,519) as of September
30, 1998. In November 1998 the lenders granted an extension of the maturity
date to June 5, 1999, and agreed to provide a waiver, subject to documentation
and other conditions, to allow the Company to keep the proceeds from the sale
of the Company's interest in Princes Holdings (see Note 16).
F-25
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MEDIARESEAUX FACILITY
In July 1998, Mediareseaux entered into an 9.5 year term facility with a
bank for an amount of French francs ("FRF")680 million ("Mediareseaux
Facility"). The purpose of the facility is to finance on-going capital
expenditures, working capital and acquisitions with a limit of FRF120 million.
The Mediareseaux Facility bears interest at LIBOR plus a margin ranging from
2.0% to 2.75%. The availability of the facility depends on revenue generated
and debt to equity ratios. The availability period ends at December 31, 2002.
The repayment period starts from January 1, 2003 to final maturity in 2007.
During the repayment period, Mediareseaux must apply 50% of its excess cash
flow in prepaying the facility. The Mediareseaux Facility generally restricts
the payment of dividends and distributions. This facility also restricts
Mediareseaux from incurring additional indebtedness, subject to certain
exceptions. In July 1998, Mediareseaux secured an 9.5 year FRF20.0 million
overdraft facility, subject to the same terms and conditions as the
Mediareseaux Facility except that the availability tests are not applicable. As
of September 30, 1998 an amount of FRF60.0 million (20,190) was outstanding
under the Mediareseaux Facility.
BANK AND OTHER LOANS
Bank and other loans includes a payable of 37,634 to the minority
shareholder of Janco Multicom, which accretes interest at 5% per annum. The
payable relates to the contemplated exercise price of the call option for the
remaining 12.7% of Janco Multicom, which was exercised and paid in November
1998 (see Note 16).
DEBT MATURITIES
The maturities of the Company's long-term debt are as follows (Unaudited):
<TABLE>
<S> <C>
12 months ended September 30, 1999............................. 113,519
12 months ended September 30, 2000............................. 23
12 months ended September 30, 2001............................. 37,659
12 months ended September 30, 2002............................. --
12 months ended September 30, 2003............................. 1,704
Thereafter..................................................... 1,000,246
---------
Total........................................................ 1,153,151
=========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is based on market prices for the same or similar issues.
Carrying value is used when a market price is unavailable.
<TABLE>
<CAPTION>
FAIR
BOOK VALUE MARKET VALUE
---------- ------------
(UNAUDITED)
<S> <C> <C>
As of September 30, 1998:
Tranche A Facility................................. 971,978 971,978
Tranche B Facility................................. 113,519 113,519
Mediareseaux Facility.............................. 20,190 20,190
Bank and other loans............................... 47,464 47,464
Note payable to UIH(1)............................. 156,030 156,030
Time Warner Note................................... 34,020 34,020
--------- ---------
Total............................................ 1,343,201 1,343,201
========= =========
</TABLE>
- --------
(1) See Note 15 for terms of the note payable to UIH.
F-26
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY
GENERAL
The equity classifications and amounts as stated in these consolidated
financial statements do not necessarily reflect the statutory equity of the
Company, as the statutory equity is subject to Dutch generally accepted
accounting principles. The statutory equity is the basis for any distributions
to shareholders. As of September 30, 1998, the Company is unable to make
dividend distributions to shareholders because of its accumulated deficit.
In June 1996, the Company effected a stock split whereby the 200 shares of
common stock then outstanding were exchanged for 54,000,000 shares of common
stock. All share and per share amounts have been retroactively restated to
reflect this event.
UIH INDENTURE
As a subsidiary of UIH, the Company's activities are restricted by the
covenants in UIH's indenture dated February 5, 1998 (the "UIH Indenture"). The
UIH Indenture generally limits the additional amount of debt that UPC or its
subsidiaries or controlled affiliates may borrow, or preferred shares that they
may issue. Generally, additional borrowings, when added to existing
indebtedness, must satisfy, among other conditions, at least one of the
following tests: (i) 7.0 times the borrower's consolidated operating cash flow;
(ii) 1.75 times its consolidated interest expense; or (iii) 225% of the
borrower's consolidated invested equity capital. In addition, there must be no
existing default under the UIH Indenture at the time of the borrowing. The UIH
Indenture also restricts UPC's ability to make certain asset sales and certain
payments. In connection with the Offering, UPC has agreed with UIH that it will
not take any action during the term of the UIH Indenture that would result in a
breach of the UIH Indenture covenants. The maturity date of the UIH Indenture
is February 2008 and interest becomes payable in cash in February 2003.
STOCK OPTION PLAN
In June 1996, UPC adopted a stock option plan (the "Plan") for certain of
its employees and those of its subsidiaries. There are 4,000,000 total shares
available for the granting of options under the Plan, which are held by the
Stichting Administratiekantoor UPC (the "Foundation"), which administers the
Plan. Each option represents the right to acquire from the Foundation a
certificate representing the economic value of one share. Following
consummation of the Offering, any certificates issued to employees who have
exercised their options will be convertible into UPC common stock. UIH appoints
the board members of the Foundation and thus controls the voting of the
Foundation's common stock. The options are granted at fair market value
determined by the Company's Supervisory Board at the time of the grant. The
maximum term that the options can be exercised is five years from the date of
the grant. In order to introduce the element of "vesting" of the options, the
Plan provides that even though the options are exercisable immediately, the
shares to be issued or options granted in 1996 vest 1/36th each month for a
three-year period from the effective date set forth in the option grant. In
March 1998, the Plan was revised to increase the vesting period for any new
grants of options to four years and the options vest 1/48th each month. Upon
termination of an employee (except in the case of death, disability or the
like), all unvested options previously exercised must be resold to the
Foundation at the original purchase price, or all vested options must be
exercised, within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules in its discretion. An employee has the right at
any time to put his certificates or shares from exercised vested options to the
Foundation at a price equal to the fair market value. The Company can also call
such certificates or shares for a cash payment upon termination, except for
certain awards, which can not be called by the Company until expiration of the
underlying options. The Plan also contains
F-27
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
anti-dilution protection and provides that, in the case of change of control,
the acquiring company has the right to require UPC to acquire all of the
options outstanding at the per share value determined in the transaction giving
rise to the change of control.
A summary of stock option activity for the Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------- FOR THE NINE MONTHS ENDED
1996 1997 SEPTEMBER 30, 1998
-------------------------- ------------------------- --------------------------------
NUMBER WEIGHTED- NUMBER WEIGHTED- NUMBER WEIGHTED-
OF AVERAGE OF AVERAGE OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- --------- -------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- -- 1,533,611 15.74 1,494,368 15.74
Granted during period... 2,660,000 15.74 -- -- 1,562,000 18.15
Cancelled during
period................. (6,389) 15.74 (39,243) 15.74 (9,368) 15.74
Exercised during
period................. (1,120,000) -- -- -- (250,000) 15.74
---------- ----- --------- ----- -------------- ----------
Outstanding at end of
period................. 1,533,611 15.74 1,494,368 15.74 2,797,000 17.08
========== ===== ========= ===== ============== ==========
Vested at end of
period(1).............. 1,191,265 15.74 2,131,554 15.74 2,752,365 16.12
========== ===== ========= ===== ============== ==========
Exercisable at end of
period(1).............. 1,533,611 15.74 1,494,368 15.74 2,797,000 17.08
========== ===== ========= ===== ============== ==========
</TABLE>
- --------
(1) Includes certificate rights as well as options.
The Company granted no stock options during the year ended December 31,
1997. The combined weighted-average fair values and weighted-average exercise
prices of options granted during the year ended December 31, 1996 and the nine
months ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1998
------------------------ -----------------------------
NUMBER FAIR EXERCISE NUMBER FAIR EXERCISE
OPTIONS VALUE PRICE OPTIONS VALUE PRICE
--------- ----- -------- ----------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to
market price........... 2,660,000 15.74 15.74 1,562,000 18.15 18.15
</TABLE>
The following table summarizes information about stock options outstanding,
vested and exercisable as of September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER REMAINING NUMBER NUMBER
OF OPTIONS CONTRACTUAL LIFE OF OPTIONS OF OPTIONS
EXERCISE PRICE OUTSTANDING (YEARS) VESTED EXERCISABLE
-------------- ----------- ---------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
15.74.................... 1,235,000 2.72 2,295,417 1,235,000
18.00.................... 1,463,500 4.88 454,229 1,463,500
20.35.................... 98,500 4.96 2,719 98,500
--------- ---- --------- ---------
2,797,000 3.93 2,752,365 2,797,000
========= ==== ========= =========
</TABLE>
The Plan is accounted for as a variable plan in accordance with its terms,
resulting in compensation expense for the difference between the grant price
and the fair market value at each financial statement date. Compensation
expense of 4,818 and 28,160 was recognized for the year ended December 31, 1997
and the nine months ended September 30, 1998, respectively.
F-28
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PHANTOM STOCK OPTION PLAN
In September 1998, the Company's Supervisory Board approved a phantom stock
option plan (the "Phantom Plan") which permits the grant of phantom stock
rights in up to 1,600,000 shares of the Company's common stock. The rights are
granted at fair market value determined by the Company's Supervisory Board at
the time of grant, and generally vest in equal monthly increments over the
four-year period following the effective date of grant and may be exercised for
ten years following the effective date of grant. The Phantom Plan gives the
employee the right to receive payment equal to the difference between the fair
market value of a share of UPC common stock and the option base price for the
portion of the rights vested. UPC, at its sole discretion, may make payment in
(i) cash, (ii) freely tradable shares of UIH Class A Common Stock or (iii) if
the Company's stock is publicly traded, freely tradable shares of its stock. If
the Company chooses to make a cash payment, even though its stock is publicly
traded, employees have the option to receive an equivalent number of freely
tradable shares of stock instead. Concurrent with the approval of the Phantom
Plan, the Supervisory Board ratified the grant of 821,500 and 550,000 phantom
stock rights at base prices of 18.00 and 20.35, respectively, and specified
retroactive vesting for several of the grants. The Phantom Plan contains anti-
dilution protection and provides that, in certain cases of a change of control,
all phantom options outstanding become fully exercisable. The Phantom Plan also
provides that upon consummation of the Offering, an employee holding phantom
options may convert these into options for shares under the Plan.
A summary of stock option activity for the Phantom Plan is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
-------------------------------
NUMBER WEIGHTED-
OF AVERAGE
SHARES EXERCISE PRICE
-------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... -- --
Granted during period................... 1,371,500 18.94
Cancelled during period................. -- --
Exercised during period................. -- --
-------------- -----------
Outstanding at end of period............ 1,371,500 18.94
============== ===========
Vested and exercisable at end of
period................................. 237,510 18.05
============== ===========
</TABLE>
The combined weighted-average fair values and weighted-average exercise
prices of options granted during the nine months ended September 30, 1998 are
as follows:
<TABLE>
<CAPTION>
NUMBER FAIR EXERCISE
OPTIONS VALUE PRICE
--------- ----- --------
(UNAUDITED)
<S> <C> <C> <C>
Exercise price equal to market price................... 1,371,500 18.94 18.94
</TABLE>
F-29
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding,
vested and exercisable as of September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE NUMBER OF
NUMBER OF REMAINING OPTIONS
OPTIONS CONTRACTUAL LIFE VESTED AND
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISABLE
- --------------------------------------- ----------- ---------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
18.00.................................. 821,500 8.79 232,302
20.35.................................. 550,000 9.95 5,208
--------- ---- -------
1,371,500 9.25 237,510
========= ==== =======
</TABLE>
The Phantom Plan is accounted for as a variable plan in accordance with its
terms, resulting in compensation expense for the difference between the grant
price and the fair market value at each financial statement date. Compensation
expense of 4,333 was recognized for the nine months ended September 30, 1998.
SUBSIDIARY STOCK OPTION PLAN
In September 1998, the Company's Supervisory Board approved a phantom stock
option plan (the "chello Plan"), which permits the grant of phantom stock
rights in up to 1,500,000 shares of chello, a wholly owned subsidiary of the
Company. The rights are granted at fair market value determined by chello's
Supervisory Board at the time of grant, and generally vest in equal monthly
increments over the four-year period following the effective date of grant and
may be exercised for ten years following the effective date of grant. The
chello Plan gives the employee the right to receive payment equal to the
difference between the fair market value of a share of chello and the option
base price for the portion of the rights vested. UPC, at its sole discretion,
may make payment in (i) cash, (ii) freely tradable shares of UIH Class A Common
Stock or (iii) if the Company's stock is publicly traded, freely tradable
shares of its stock. If the Company chooses to make a cash payment, even though
its stock is publicly traded, employees have the option to receive an
equivalent number of freely tradable shares of stock instead. Concurrent with
the approval of the chello Plan, the Supervisory Board ratified the grant of
570,000 options at a base price of 10.00, and specified retroactive vesting for
several of the grants.
A summary of stock option activity for the chello Plan is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------------------
NUMBER WEIGHTED-
OF AVERAGE
SHARES EXERCISE PRICE
------------- ----------------
(UNAUDITED)
<S> <C> <C>
Outstanding at beginning of period............... -- --
Granted during period............................ 570,000 10.00
Cancelled during period.......................... -- --
Exercised during period.......................... -- --
------------- ------------
Outstanding at end of period..................... 570,000 10.00
============= ============
Vested and exercisable at end of period.......... 35,625 10.00
============= ============
</TABLE>
The weighted-average remaining contractual life for these options is 9.72
years as of September 30, 1998.
F-30
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled 2,528, 4,989, 6,863, 5,147 and 5,769 for the six
months ended December 31, 1995, the years ended December 31, 1996 and 1997 and
the nine months ended September 30, 1997 and 1998, respectively.
The Company has operating lease obligations as follows (Unaudited):
<TABLE>
<S> <C>
12 months ended September 30, 1999................................ 16,126
12 months ended September 30, 2000................................ 13,754
12 months ended September 30, 2001................................ 5,929
12 months ended September 30, 2002................................ 4,539
12 months ended September 30, 2003 and thereafter................. 3,748
------
Total........................................................... 44,096
======
</TABLE>
12. CONTINGENCIES
LEGAL
The Company is not a party to any material legal proceedings, nor is it
currently aware of any threatened material legal proceedings. From time to
time, the Company may become involved in litigation relating to claims arising
out of its operations in the normal course of its business.
FOREIGN CURRENCY EXPOSURE
The Tranche B Facility and the loan payable to UIH are denominated in U.S.
dollars, totaling $142,619 (269,549) as of September 30, 1998. The Company has
not executed any foreign forward exchange contract, or used any other financial
instrument, to hedge against this foreign currency exposure.
13. INCOME TAXES
In general, a Dutch holding company may benefit from the so-called
participation exemption. The participation exemption is a facility in Dutch
corporate tax law which allows a Dutch company to exempt any dividend income
and capital gains in relation with its participation in subsidiaries which are
legal entities of a foreign country. Capital losses are also exempted, apart
from liquidation losses (under stringent conditions). All costs incurred at the
UPC level which relate to an investment in a foreign subsidiary are not tax
deductible, e.g. interest expense on loans used for the financing of the
investment in the foreign subsidiary. In addition, currency exchange results on
these loans are covered by the participation exemption, e.g. gains are exempted
and losses are not tax deductible. For companies which only act as pure holding
companies, only the capital tax paid is tax deductible. For UPC, the primary
difference between taxable loss and net loss for financial reporting purposes
relates to the non-consolidation of its consolidated foreign subsidiaries for
Dutch tax purposes. The consolidated financial statements have been prepared
assuming partial tax basis for license fees capitalized relating to certain
acquisitions. Deferred taxes have been provided for that portion of the
licenses which management believes no tax basis will be allowed.
F-31
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
----------------- SEPTEMBER 30,
1996 1997 1998
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Tax net operating loss carryforward...... 103,635 149,802 129,125
Other.................................... 6,934 540 706
------- -------- --------
Total deferred tax assets.............. 110,569 150,342 129,831
Valuation allowance...................... (75,630) (136,580) (116,434)
------- -------- --------
Deferred tax assets, net of valuation
allowance............................. 34,939 13,762 13,397
------- -------- --------
DEFERRED TAX LIABILITIES:
Intangible assets........................ (31,688) (48,077) (11,229)
Property, plant and equipment, net....... (8,453) (10,193) (10,146)
------- -------- --------
Total deferred tax liabilities......... (40,141) (58,270) (21,375)
------- -------- --------
Deferred tax liabilities, net.......... (5,202) (44,508) (7,978)
======= ======== ========
</TABLE>
The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is reconciled
as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE YEARS ENDED NINE MONTHS ENDED
SIX MONTHS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------- ------------------
1995 1996 1997 1997 1998
---------------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected income tax
benefit at the Dutch
statutory rate of 35%.. (6,760) (19,358) (53,929) (39,636) (43,841)
Tax effect of permanent
and other differences:
Change in valuation
allowance............ 987 14,555 27,471 21,851 9,132
Non-deductible
expenses............. 4,000 3,872 18,427 19,089 34,624
International rate
differences.......... 797 1,105 3,232 1,614 2,424
Provision on
investment........... -- -- 6,611 (3,500) --
Other................. 1,131 (683) (163) 991 (1,926)
------ --------- --------- -------- --------
Total income tax
benefit............ 155 (509) 1,649 409 413
====== ========= ========= ======== ========
</TABLE>
Tax loss carry forwards arise primarily in Norway, The Netherlands, Czech
Republic and Austria. The tax loss carry forwards of Norway, aggregating to
261,967 as of September 30, 1998 will expire during the years 1999-2008. The
tax loss carry forwards of The Netherlands, Belgium and Austria of 110,705 as
of September 30, 1998 have no expiration date. The tax loss carry forwards of
the Czech Republic of 27,950 as of September 30, 1998 will expire in the years
2001-2005.
F-32
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately 256,000 of tax basis associated with
certain amounts of goodwill recorded at Telekabel Group effective January 1,
1997. This change in tax law is expected to be challenged on constitutional
grounds. However, there can be no assurance of a successful repeal of such
legislation. Accordingly, this change caused Telekabel Group's effective tax
rate to increase from the historical effective tax rate through December 31,
1996, due to the non-deductibility of such goodwill amortization subsequent to
January 1, 1997.
14. SEGMENT INFORMATION
The Company's reportable segments are the various geographic regions in
which it operates multi-channel television, programming and/or telephony
operations. The total assets of The Netherlands--corporate include UPC's
investments, advances and current accounts with affiliated companies.
<TABLE>
<CAPTION>
REVENUE
--------------------------------------------------
FOR THE
FOR THE SIX FOR THE YEARS ENDED NINE MONTHS ENDED
MONTHS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -----------------
1995 1996 1997 1997 1998
------------ --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.............. 1,242 4,433 3,088 1,303 10,221
Operating companies.... 4,297 21,633 26,712 17,051 39,141
Austria.................. 72,802 156,964 162,783 121,063 130,288
Belgium.................. 19,752 37,704 38,737 30,585 26,945
Czech Republic........... 2,086 7,746 7,492 5,455 6,618
Norway................... -- 14,541 91,529 70,131 69,035
France................... -- 179 2,526 1,584 5,189
Hungary.................. -- -- -- -- 13,777
Other.................... -- 1,979 4,288 2,889 4,023
------- --------- --------- -------- --------
Total................ 100,179 245,179 337,155 250,061 305,237
======= ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
NET OPERATING (LOSS) INCOME
-----------------------------------------------------
FOR THE
FOR THE SIX FOR THE YEARS ENDED NINE MONTHS ENDED
MONTHS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------- ------------------
1995 1996 1997 1997 1998
------------ --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
The Netherlands:
Corporate............. (631) (872) (2,758) (798) (14,199)
Operating companies... 282 4,828 7,313 2,819 1,822
Austria................. 12,171 23,034 22,182 17,748 (2,080)
Belgium................. (3,518) (2,151) (1,892) (260) (8,828)
Czech Republic.......... (10,772) (12,307) (13,116) (10,386) (6,816)
Norway.................. -- (767) (27,885) (16,963) (26,213)
France.................. -- (4,701) (5,933) (4,585) (6,155)
Hungary................. -- -- -- -- 2,749
Other................... -- (5,519) (5,915) (4,684) (2,212)
------- --------- --------- -------- --------
Total............... (2,468) 1,545 (28,004) (17,109) (61,932)
======= ========= ========= ======== ========
</TABLE>
F-33
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL ASSETS
---------------------------------------
AS OF DECEMBER 31,
------------------- AS OF SEPTEMBER 30,
1996 1997 1998
--------- --------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
The Netherlands:
Corporate.......................... 271,417 479,983 447,789
Operating companies................ 120,626 128,609 8,442
Austria.............................. 409,107 653,062 631,786
Belgium.............................. 76,574 99,392 102,301
Czech Republic....................... 35,149 30,089 28,080
Norway............................... 168,574 471,327 408,836
France............................... 13,283 36,769 69,467
Hungary.............................. -- -- 128,190
Other................................ 24,450 20,584 25,077
--------- --------- ---------
Total............................ 1,119,180 1,919,815 1,849,968
========= ========= =========
</TABLE>
15. RELATED PARTY
RELATED PARTY PAYABLES
The Company classifies any unpaid invoices related to seconded employee
expenses or other expenses incurred by UIH on the Company's behalf as related
party payables on the balance sheet.
LOANS TO EMPLOYEES
In 1996, UPC loaned certain employees of the Company amounts for the
exercise of the employees' stock options, taxes on options exercised, or both.
These recourse loans bear interest at 5.0% per annum. The employees' liability
to the Company is presented in the consolidated financial statements net of the
Company's obligation to the employees under the plan. As of December 31, 1996
and 1997, the receivable from employees, including accrued interest totaled
18,774 and 18,561, respectively.
NOTE PAYABLE TO SHAREHOLDER
UPC has entered into two promissory notes with UIH of $100.0 million (March
1998) and $20.0 million (July 1998). UPC has borrowed $63.0 million and $16.0
million, respectively, under these two notes (together, this "UIH Loan" totals
149,310 as of September 30, 1998). The UIH Loan bears interest at 10.75% per
annum, is payable on demand, and is convertible at UIH's option into ordinary
shares of UPC at 18.00 per share (March 1998) and 20.35 per share (July 1998).
If the Offering is consummated, the UIH Loan would become due on March 31, 2001
and be convertible at UIH's option into ordinary shares of UPC at the Offering
price. Total accrued interest as of September 30, 1998 was $3.6 million
(6,720). UPC intends to repay the UIH loan with any and/or all of the
following: (i) shares of UIH Class A Common Stock owned by UPC at a price equal
to the average of the last ten days' market price for such shares; (ii)
proceeds from any refinancing or sale of assets at UPC which would permit the
repayment of the UIH loan; or (iii) proceeds from the Offering.
As of December 31, 1996, TVD had drawn down 22,080 (including accrued
interest) on a current line of credit with Philips. This account was repaid in
conjunction with the UPC Acquisition on December 11, 1997.
F-34
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PIK NOTES
In conjunction with the formation of UPC in July 1995, UPC issued to
Philips $133.6 million of convertible subordinated pay-in-kind notes due
January 1, 2005. The PIK Notes had an interest rate of 10.0% and were
convertible into common stock of UPC at $8.33 per share prior to the repayment
date. In conjunction with the UPC Acquisition on December 11, 1997, 170,371 of
the outstanding PIK Notes balance was paid by UPC, and UIH acquired the
remaining outstanding balance of 169,899. UIH then converted such PIK Notes
into 10,120,174 common shares of UPC at a conversion rate of 16.79 per share
(see Note 1).
16. SUBSEQUENT EVENTS
PURCHASE OF CERTAIN TELEPHONY AND PROGRAMMING ASSETS FROM UIH
In March 1998, in exchange for 7,523,736 newly-issued ordinary shares of
UPC, UIH has agreed to sell to UPC UIH's:
. 50% voting and 46.3% economic interest in Monor Communications Group,
Inc., a traditional telephony and cable television system in the Monor
region of Hungary;
. 75% interest in Tara Television Limited ("Tara"), a company providing
Irish programming to the U.K. markets; and
. approximately 33.5% interest in Iberian Programming Services, a group of
programming companies focusing on the Spanish and Portuguese-speaking
markets.
These transactions are expected to close in December 1998 and January 1999.
AGREEMENT WITH UIH
UIH and the Company became parties to a Management Service Agreement (the
"UIH Service Agreement"), with an initial term through 2009, pursuant to which
UIH will provide services such as accounting, financial reporting, investor
relations, human resources, information technology, equipment procurement and
testing expenses, corporate offices lease payments and costs associated with
corporate finance activities. Under the UIH Service Agreement, the Company
will pay UIH a fixed amount each month (initially $0.3 million). After the
first year of the UIH Service Agreement, the fixed amount may be adjusted from
time to time by UIH to allocate corporate level expenses among UIH's operating
companies, including UPC, taking into account the relative size of the
operating companies and their estimated use of UIH resources. In addition, UPC
will continue to reimburse UIH for costs incurred by UIH which are directly
attributable to UPC. The UIH Service Agreement also specifies the basis upon
which UIH may second certain of its employees to UPC. The Company generally is
responsible for all costs incurred by UIH with respect to any seconded
employee's employment and severance.
JANCO MULTICOM
In November 1998, the Company exercised and paid the call obligation for
37,200 which was funded from the Company's restricted cash established as
collateral for the purchase. Remaining funds in the account were released from
restriction.
F-35
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UII
In November 1998, the Company (i) acquired from TINTA its indirect 23.3%
and 25% interests in the Tevel and Melita systems for $91.5 million, doubling
the Company's respective ownership in these systems to 46.6% and 50%,
respectively, (ii) purchased an additional 5% interest in Princes Holdings and
5% of Tara in consideration for 384,531 shares of UIH held by UPC, and (iii)
sold the 5% interest in Princes Holdings, together with its existing 20%
interest to TINTA for $20.5 million. The net payment of $71.0 million to TINTA
($68.0 million after closing adjustments) was funded with the proceeds of a
$90.0 million promissory note made by a subsidiary of the Company to its
primary partners in the Tevel system. The promissory note is due in November
2000, bears interest at an effective rate of 11%, including a note premium, and
is secured by a floating charge and pledge on the assets of the Company's
subsidiary which holds the Company's interest in Tevel.
DIC LOAN
In November 1998, a subsidiary of Discount Investment Corporation ("DIC")
loaned the Company $90.0 million (the "DIC Loan") to acquire the additional
interests in Tevel and Melita. The DIC Loan matures in October 2000 and is
secured by the Company's pledge of its ownership interest in Tevel. The DIC
Loan bears interest at 8% and is payable, together with 106% of the principal
amount, on maturity. The DIC Loan may be repaid on quarterly prepayment dates
with three months' prior notice by the Company. In connection with the DIC
Loan, UPC granted DIC an option to acquire $90.0 million of ordinary shares of
UPC at a price equal to 90% of the Offering price. The exercise price of this
option, which expires upon the initial public offering, is payable in cash or
delivery of the DIC Loan promissory note.
A2000 FUNDING
Subsequent to September 30, 1998, UTH entered into a subordinated loan
agreement to provide funding up to $30,000 for A2000. UTH's share of the
funding is $15,000. UPC is obligated to fund drawdowns on the loan in
proportion to its 51% ownership in UTH (representing a total funding obligation
of $7,650). As of November 20, 1998, UPC had funded $1,275 of its commitment.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To United Pan-Europe Communications N.V.
We have audited, in accordance with auditing standards generally accepted
in The Netherlands, which are substantially the same as those generally
accepted in the United States of America, the consolidated financial statements
of United Pan-Europe Communications N.V. included in this Form S-1 and have
issued our report thereon dated April 29, 1998. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The following schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements as indicated in our
report with respect thereto and, in our opinion, based on our audit, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN
Amstelveen, The Netherlands,
April 29, 1998
F-37
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
CONDENSED INFORMATION AS TO THE FINANCIAL CONDITION OF REGISTRANT
(STATED IN THOUSANDS OF DUTCH GUILDERS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1996 1997
----------------- ------------------
(PRE-ACQUISITION) (POST-ACQUISITION)
<S> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents.............. 20,949 43,306
Related party receivables.............. 30,416 36,364
Other receivables, net................. 18,986 18,690
Other current assets................... 2,054 2,761
-------- ---------
Total current assets................. 72,405 101,121
Investments in, loans and other advances
to affiliated companies, accounted for
under the equity method, net............ 772,574 1,119,724
Property, plant and equipment, net of
accumulated depreciation of 333 and 23,
respectively............................ 1,279 1,022
Deferred financing costs, net of
accumulated amortization of 0 and 110,
respectively............................ -- 16,813
Non-current restricted cash and other
assets.................................. 84 48,541
-------- ---------
Total assets......................... 846,342 1,287,221
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Related party accounts payable......... 17,095 34,402
Accrued liabilities.................... 7,408 12,776
Short-term debt........................ 289,360 --
Short-term debt, related party......... -- 228,097
-------- ---------
Total current liabilities............ 313,863 275,275
Long-term debt .......................... -- 528,386
Long-term notes payable to shareholder... 256,335 --
Other related party debt................. 17,578 29,609
Deferred taxes and other................. -- 42,420
-------- ---------
Total liabilities.................... 587,776 875,690
-------- ---------
Shareholders' equity
Common stock, 1.00 par value,
100,000,000 shares authorized,
54,000,000 shares issued.............. 54,000 54,000
Additional paid-in capital............. 315,570 621,164
Other cumulative comprehensive income.. 6,361 5,265
Accumulated deficit.................... (117,365) (146,237)
Treasury stock, at cost, 6,132,090
shares of common stock................ -- (122,662)
-------- ---------
Total shareholders' equity........... 258,566 411,530
-------- ---------
Total liabilities and shareholders'
equity.............................. 846,342 1,287,221
======== =========
</TABLE>
F-38
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
CONDENSED INFORMATION AS TO THE OPERATIONS OF REGISTRANT
(STATED IN THOUSANDS OF DUTCH GUILDERS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEARS ENDED
MONTHS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------
1995 1996 1997
----------------- ----------------- -----------------
(PRE-ACQUISITION) (PRE-ACQUISITION) (PRE-ACQUISITION)
<S> <C> <C> <C>
Management fee income
from related parties... 1,242 4,433 3,088
Corporate general and
administrative
expense................ (3,016) (1,679) (11,605)
Depreciation and
amortization........... (621) (335) (736)
---------- ---------- ----------
Net operating loss.... (2,395) 2,419 (9,253)
Interest income......... 6,212 1,898 2,830
Interest income, related
party.................. 9,169 27,353 44,867
Interest expense........ (6,929) (8,418) (16,949)
Interest expense,
related party.......... (11,068) (27,511) (33,362)
Foreign exchange loss,
net.................... (4,192) (20,236) (12,864)
---------- ---------- ----------
Net loss before income
taxes and other
items................ (9,203) (24,495) (24,731)
Share in results of
affiliated companies,
net.................... (32,326) (51,341) (142,689)
Income taxes............ -- -- 1,454
---------- ---------- ----------
Net loss.............. (41,529) (75,836) (165,966)
========== ========== ==========
Basic and diluted net
loss per common share.. (0.77) (1.40) (3.09)
========== ========== ==========
Weighted-average number
of common shares
outstanding............ 54,000,000 54,000,000 53,659,328
========== ========== ==========
</TABLE>
F-39
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT
(STATED IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------
1995 1996 1997
----------------- ----------------- -----------------
(PRE-ACQUISITION) (PRE-ACQUISITION) (PRE-ACQUISITION)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................. (41,529) (75,836) (165,966)
Adjustments to reconcile
net loss to net cash
flows from operating
activities:
Depreciation and
amortization........... 621 335 736
Share in results of
affiliated companies,
net.................... 29,292 54,375 153,079
Foreign exchange loss,
net.................... 4,192 20,236 12,864
Other................... (1,975) (1,545) (3,638)
Changes in assets and
liabilities:
(Increase) decrease in
receivables............ (147,454) 86,309 (6,359)
Increase in other non-
current assets......... (57) (27) (1,457)
Increase in other
current liabilities.... 20,197 22,022 51,418
Increase in deferred
taxes and other........ -- -- 2,303
-------- -------- --------
Net cash flows from
operating activities.... (136,713) 105,869 42,980
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investments in, loans to
and advances to
affiliated companies,
net..................... (325,087) (44,805) (294,532)
Capital expenditures..... (1,054) (2,249) (1,308)
Deposit to acquire
minority interest in
subsidiary.............. -- -- (47,000)
Sale of affiliated
companies............... -- -- 11,070
Loans repaid by
subsidiaries............ -- -- 350,250
-------- -------- --------
Net cash flows from
investing activities.... (326,141) (47,054) 18,480
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from short-term
borrowings.............. 433,231 -- 91,415
Proceeds from short-term
borrowings, related
party................... -- -- 228,097
Proceeds from long-term
borrowings.............. 23,865 -- 498,699
Deferred financing
costs................... -- -- (17,139)
Repayments long and
short-term borrowings... -- (150,158) (377,443)
Redemption of convertible
loans................... -- -- (170,171)
Purchase shares from
shareholder............. -- -- (292,561)
-------- -------- --------
Net cash flows from
financing activities.... 457,096 (150,158) (39,103)
-------- -------- --------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............. (5,758) (91,343) 22,357
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD.. -- 112,292 20,949
CASH CONTRIBUTED UPON
FORMATION............... 118,050 -- --
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD........ 112,292 20,949 43,306
======== ======== ========
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of shares upon
conversion of PIK
notes.................. -- -- 169,899
======== ======== ========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for interest.. (6,713) (9,271) (52,447)
======== ======== ========
Cash received for
interest............... 3,949 26,277 25,091
======== ======== ========
</TABLE>
F-40
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTE TO PARENT ONLY
SCHEDULE I
AS OF DECEMBER 31, 1996 (PRE-ACQUISITION) AND DECEMBER 31, 1997 (POST-
ACQUISITION)
(MONETARY AMOUNTS STATED IN THOUSANDS OF DUTCH GUILDERS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND NATURE OF OPERATIONS
United Pan-Europe Communications N.V., formerly known as United and Philips
Communications B.V. ("UPC" or the "Company") was formed for the purpose of
acquiring and developing multi-channel television and telecommunications
systems in Europe. On July 13, 1995, United International Holdings, Inc.
("UIH"), a United States of America corporation, and Philips Electronics N.V.
("Philips"), contributed their respective ownership interests in European and
Israeli multi-channel television systems to UPC. Philips contributed to UPC its
95% interest in cable television systems in Austria, its 100% interest in cable
television systems in Belgium, and its minority interests in multi-channel
television systems in Germany, The Netherlands (KTE) and France (Citecable).
UIH contributed its interests in multi-channel television systems in Israel,
Ireland, the Czech Republic, Malta, Norway, Hungary, Sweden and Spain. UIH also
contributed United States dollars ("$")78.2 million in cash (including accrued
interest of $3.2 million) to UPC and issued to Philips 3,169,151 shares of its
Class A Common Stock having a value of $50.0 million (at date of closing). In
addition, UPC issued to Philips $133.6 million of convertible subordinated pay-
in-kind notes (the "PIK Notes"). As a result of this transaction, UIH and
Philips each owned a 50% economic and voting interest in UPC.
On December 11, 1997, UIH acquired Philips' 50% interest in UPC (the "UPC
Acquisition"), thereby making it an effectively wholly-owned subsidiary of UIH
(subject to certain employee equity incentive compensation arrangements)
through its wholly-owned subsidiary UIH Europe, Inc. ("UIHE"). The entity's
name was changed to United Pan-Europe Communications N.V., and its legal seat
was transferred from Eindhoven to Amsterdam. Through its cable-based
communications networks in 10 countries in Europe and in Israel, UPC currently
offers cable television services and is further developing and upgrading its
network to provide digital video, voice and Internet/data services in Western
European markets.
As part of the UPC Acquisition, (i) UPC purchased the 3,169,151 shares of
Class A Common Stock of UIH held by Philips (66,800), (ii) UIH purchased
169,899 of the accreted amount of UPC's PIK Notes and redeemed them for
10,120,174 shares of UPC, (iii) UPC repaid to Philips the remaining 170,371
accreted amount of the PIK Notes (339,800), (iv) UIH purchased 8,747,736 shares
of UPC directly from Philips, and (v) UPC repurchased Philips' remaining equity
interest in UPC (16,252,264 shares) (450,000). The UPC Acquisition was financed
with proceeds from a long-term revolving credit facility through UPC with a
syndicate of banks (305,200) (the "Tranche A Facility"), a bridge bank facility
through a subsidiary of UPC $111,200 (224,000) (the "Tranche B Facility") and a
cash investment by UIH of 327,400. Approximately 479,000 drawn on the Tranche A
Facility was used to repay existing debt of UPC in conjunction with the UPC
Acquisition.
UIH's acquisition of Philips' interest in UPC was accounted for as a step
acquisition under purchase accounting. As a result of UPC becoming effectively
wholly owned by UIH, such purchase accounting adjustments, along with existing
basis differences, were pushed down to the financial statements of UPC and a
new basis of accounting was established for the UPC net assets acquired by UIH.
As of December 11, 1997, the proportional net assets of UPC acquired by UIH
were recorded at fair market value based on the purchase price paid by UIH,
along with additional basis differences at the UIH level existing as of that
date. The total purchase accounting adjustments of 442,688 were allocated to
UPC's underlying net assets.
F-41
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTE TO PARENT ONLY
SCHEDULE I -- (CONTINUED)
As a result of the UPC Acquisition and the associated push-down of UIH
basis on December 11, 1997, the condensed information as to financial position
of registrant as of December 31, 1997 is presented on a "post-acquisition"
basis. The condensed information as to the operations and the cash flows of the
registrant for the year ended December 31, 1997 include the post-acquisition
results of the Company for the period from December 11, 1997 through December
31, 1997, which reflects 1,640 of new basis depreciation and amortization
resulting from push-down accounting as well as approximately 4,034 of interest
expense from purchase related indebtedness which is included in the Parent's
share in result of affiliated companies, net. Due to immateriality, the entire
fiscal year ended December 31, 1997 is presented as "pre-acquisition" in the
accompanying condensed information as to the operations and cash flows of
registrant.
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of N.V. TeleKabel Beheer
We have audited the accompanying consolidated balance sheets of N.V.
TeleKabel Beheer, ("TeleKabel" or the "Company"), as of December 31, 1996 and
1997 and the related consolidated statements of operations, shareholder's
equity and cash flows for the period from August 22, 1995 (date of
incorporation) until December 31, 1995 and the years ended December 31, 1996
and 1997. These consolidated 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 Netherlands, which are substantially the same as those
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 N.V. TeleKabel Beheer as of
December 31, 1996 and December 31, 1997 and the results of its operations and
its cash flows for the period from August 22, 1995 (date of incorporation)
until December 31, 1995 and the years ended December 31, 1996 and 1997 in
conformity with accounting principles generally accepted in The Netherlands.
Accounting principles generally accepted in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. The application of the latter would have affected the
determination of consolidated results for each of the two years in the period
ended December 31, 1997 and shareholders' equity as of December 31, 1996 and
1997 to the extent summarized in note 15 to the consolidated financial
statements.
PricewaterhouseCoopers N.V.
Arnhem, The Netherlands,
September 11, 1998
F-43
<PAGE>
N.V. TELEKABEL BEHEER
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF DUTCH GUILDERS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
NOTE 1996 1997
---- ------- -------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... -- 17,465
Subscriber receivables, net........................ 4 5,184 9,608
Related party receivables.......................... 30,639 6,949
Other receivables.................................. 5 10,804 13,521
Inventory.......................................... 2,635 3,830
Investments........................................ 6 1,577 16,413
------- -------
Total current assets............................... 50,839 67,786
Tangible fixed assets, net......................... 7 396,997 553,499
Intangible assets, net............................. 8 187,980 194,562
Long term investments.............................. 6 4,200 1,222
------- -------
Total assets..................................... 640,016 817,069
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................... 13,844 28,989
Payable to banks................................... 42,916 18,884
Deferred income.................................... 9 4,220 6,341
Short-term debt payable to shareholder............. 10 254,646 500,691
Other payables and accrued expenses................ 77,518 11,901
------- -------
Total current liabilities........................ 393,144 566,806
======= ======= ===
Minority interest in subsidiaries.................. 11 1,820 2,321
Commitments and contingencies...................... 12 -- --
SHAREHOLDER'S EQUITY:
Common stock, NLG 10 par value, 100,000 shares
authorized and issued............................. 1,000 1,000
Additional paid-in capital......................... 251,354 251,354
Accumulated deficit................................ (7,302) (4,412)
------- ------- ---
Total shareholder's equity....................... 245,052 247,942
------- ------- ---
Total liabilities and shareholder's equity..... 640,016 817,069
======= ======= ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-44
<PAGE>
N.V. TELEKABEL BEHEER
CONSOLIDATED STATEMENTS OF OPERATIONS
FROM AUGUST 22, 1995 (DATE OF INCORPORATION) UNTIL DECEMBER 31, 1995 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<CAPTION>
4 MONTHS AND
9 DAYS PERIOD YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, ----------------
1995 1996 1997
------------- ------- -------
<S> <C> <C> <C>
Service and other revenue...................... 3,656 113,917 137,167
Operating expenses:
Purchases relating to sales.................... (1,041) (14,515) (18,615)
Personnel expenses............................. (442) (14,366) (18,034)
Depreciation and amortization.................. (1,440) (22,195) (31,418)
Other operating expenses....................... (2,361) (39,995) (41,705)
------ ------- -------
Net operating (loss) income.................... (1,628) 22,846 27,395
Equity results in associates................... -- (1,033) 1,022
Interest expense, related party................ (757) (14,134) (26,210)
Other income/(expense), net.................... -- (12,875) --
------ ------- -------
Income/(loss) before and after income taxes.... (2,385) (5,196) 2,207
Minority interests in subsidiaries............. -- 279 683
------ ------- -------
Net income/(loss).............................. (2,385) (4,917) 2,890
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-45
<PAGE>
N.V. TELEKABEL BEHEER
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM AUGUST 22, 1995 (DATE OF INCORPORATION) UNTIL DECEMBER 31, 1995 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<CAPTION>
4 MONTHS AND 9 YEARS ENDED
DAYS PERIOD ENDED DECEMBER 31,
DECEMBER 31, ------------------
1995 1996 1997
----------------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)....................... (2,385) (4,917) 2,890
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization........... 1,440 22,195 31,418
Share in results of affiliated
companies.............................. -- 1,033 (1,022)
Provision for doubtfull accounts
receivable............................. -- 458 559
Write off of investment in unlisted
securities............................. -- 8,915 --
Minority interests in subsidiaries...... -- (279) (683)
Changes in operating assets and
liabilities:
(Increase)/decrease in receivables...... (2,376) (43,840) 15,990
Increase in inventories................. -- (2,635) (1,195)
Increase in other current liabilities... (5,749) 10,536 (9,583)
------ -------- --------
Net cash flows from operating
activities............................. (9,070) (8,534) 38,374
------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of unlisted securities......... (900) (9,592) (49)
Investment in affiliated companies...... -- (5,233) (787)
Capital expenditures.................... (2,802) (215,767) (266,118)
New acquisitions, net of cash acquired.. (2,948) -- --
------ -------- --------
Net cash flows from investing
activities............................. (6,650) (230,592) (266,954)
------ -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt to parent
company................................ 16,498 238,148 246,045
Capital contribution.................... 200 -- --
------ -------- --------
Net cash flows from financing
activities............................. 16,698 238,148 246,045
------ -------- --------
Net increase (decrease) in cash and cash
equivalents............................ 978 (978) 17,465
Cash and cash equivalents at beginning
of period.............................. -- 978 --
------ -------- --------
Cash and cash equivalents at end of
period................................. 978 -- 17,465
====== ======== ========
SIGNIFICANT NON-CASH INVESTMENT AND
FINANCING ACTIVITIES:
Contribution in kind of cable networks
by parent company...................... -- 252,154 --
Deferral of payment for acquisition of
CAI Zoetermeer......................... -- 62,800 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-46
<PAGE>
N.V. TELEKABEL BEHEER
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<CAPTION>
ISSUED AND
FULLY PAID SHARE OTHER
CAPITAL PREMIUM RESERVES TOTAL
---------- ------- -------- -------
<S> <C> <C> <C> <C>
Balance as of December 31, 1995............ 200 -- (2,385) (2,185)
Capital contribution....................... 800 251,354 -- 252,154
Net loss................................... -- -- (4,917) (4,917)
----- ------- ------ -------
Balance as of December 31, 1996............ 1,000 251,354 (7,302) 245,052
Net income................................. -- -- 2,890 2,890
----- ------- ------ -------
Balance as of December 31, 1997............ 1,000 251,354 (4,412) 247,942
===== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-47
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DUTCH GUILDERS)
1. ORGANIZATION AND NATURE OF OPERATIONS
N.V. TeleKabel Beheer and its subsidiaries (TeleKabel or the Company) of
Arnhem was a wholly owned subsidiary of the N.V. NUON Energie-Onderneming voor
Gelderland, Friesland en Flevoland (NUON), a local government owned company.
NUON's main activity is the provision of energy to the provinces of Gelderland,
Friesland en Flevoland.
TeleKabel was incorporated in The Netherlands by NUON on August 22, 1995.
Effective January 1, 1996, NUON contributed all of its cable television
networks to the Company in exchange for its equity interest in the Company.
TeleKabel and its subsidiaries main activities comprise investments in and
management of cable television network and related infrastructures, as well as
developing and rendering information, communication and transaction services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in The Netherlands
("Dutch GAAP"). The consolidated financial statements are prepared under the
historical cost convention. The preparation of financial statements in
conformity with Dutch GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
Subsidiary undertakings, which are those companies in which the Company,
directly or indirectly, has an interest of more than one half of the voting
rights or otherwise has power to exercise control over the operations, have
been consolidated. Subsidiaries are consolidated from the date on which
effective interest is transferred to the Company and are no longer consolidated
from the date of disposal. All intercompany transactions, balances and
unrealised surpluses and deficits on transactions between group companies have
been eliminated. Where necessary, accounting policies for subsidiaries have
been changed to ensure consistency with the policies adopted by the Company.
Separate disclosure is made of minority interests.
F-48
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
The following subsidiaries are included in the consolidation as of December
31, 1997. The subsidiaries are wholly-owned, unless indicated otherwise.
<TABLE>
<S> <C>
N.V. TeleKabel (1)........................................... Arnhem
Kabelexploitatie Maatschappij Rijnland B.V. (52.5%).......... Alphen a/d Rijn
TeleKabel Omroep Facilitair Bedrijf B.V...................... Arnhem
Maxinetwerken B.V. .......................................... Ede
TeleKabel Zoetermeer B.V. ................................... Zoetermeer
CAI Over-Betuwe B.V. (1)(2).................................. Utrecht
CAI Heteren B.V. (1)(2)...................................... Heteren
CAI Gendt B.V. (1)(2)........................................ Gendt
CAI Elst B.V. (1)(2)......................................... Elst
CAI Bemmel B.V. (1)(2)....................................... Bemmel
CAI Valburg B.V. (1)(2)...................................... Andelst
CAI Wageningen B.V. (1)(2)................................... Wageningen
Kabelexploitatiemaatschappij CAI Renkum B.V. (1)(2).......... Utrecht
CAI-NKM Nijmegen B.V. (1)(2)................................. Nijmegen
CAI Midden-Betuwe B.V. (1)(2)................................ Veenendaal
</TABLE>
- --------
(1) Statements of joint and several liability pursuant to Article 403, Book 2
of the Dutch Civil Code were issued for these companies.
(2) Cable Networks were acquired through an exchange transaction with Casema as
described in note 3.
CASH AND CASH EQUIVALENTS
For the purposes of the cash flow statement, cash and cash equivalents
comprise cash in hand, deposits held at call with banks, and investments in
money market instruments.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies are accounted for by the equity method
of accounting. These are investments in which the Company has between 20% and
50% of the voting rights, and over which the Company exercises significant
influence, unless such influence is temporary, in which case the investment is
recorded at cost. Provisions are recorded for long-term impairment in value.
Equity accounting involves recognising in the income statement the
Company's share of the affiliate's profit or loss for the year. The Company's
interest in the affiliate is carried in the balance sheet at an amount that
reflects its share of the fair value of the net assets of the affiliate. The
excess of the consideration over the Company's share of fair value of the
affiliate's net assets is recorded as goodwill and amortized over its expected
usefull life.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Additions, replacements
and major improvements are capitalized, and costs for normal repair and
maintenance of property, plant and equipment are charged to expense as
incurred. Assets constructed by incorporate interest charges incurred during
the period of construction, and investment subsidies are deducted. Depreciation
is calculated using the annuity or straight line method over the economic life
of the asset, taking into account the residual value. The annuity method is a
compounded interest method whereby the depreciation is calculated based on the
assumption that depreciation plus the normal cost of capital to finance the
assets
F-49
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
are constant over the life of the assets. This results in lower depreciation
charges in the earlier years of the assets life and higher charges in the later
years. Upon disconnection of a subscriber, the remaining book value of the
subscriber equipment, excluding converters which are recovered upon
disconnection, and the capitalized labor are written off and accounted for as
an operating cost.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is the excess of investments in consolidated subsidiaries and
affiliated companies over the fair value of the net tangible fixed asset value
at acquisition and is amortized on a straight line basis over its expected
usefull life.
RECOVERABILITY OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all tangible and intangible
fixed assets whenever events or circumstances indicate the carrying value of
assets may exceed their recoverable amounts. An impairment loss is recognized
when the estimated future cash flows (undiscounted and without interest)
expected to result from the use of an asset are less than the carrying amount
of the asset. Measurement of an impairment loss is based on fair value of the
asset computed using discounted cash flows if the asset is expected to be held
and used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, with any excess costs deferred and amortized over the
average subscriber period. To the extent installation fees exceed direct
selling costs, the excess fees would be deferred and amortized over the average
contract period. All installation fees and related costs with respect to
reconnections are recognized in the period in which the reconnection occurs.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities and
loss carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are only recorded
if management believes it is more likely than not they will be realized.
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES
During October of 1995 the Company acquired a 72.5% interest in
Kabelexploitatie Maatschappij Rijnland B.V. ("KMR"). The total cash
consideration, for this acquisition amounted to NLG 4,950. The excess of the
total consideration over the fair value of the net assets acquired was
allocated to goodwill.
Effective January 1, 1996 NUON contributed its cable networks with a book
value of approximately NLG 248,550 to TeleKabel. These cable networks were
recorded in TeleKabel at their book values, in exchange for additional paid in
capital by NUON.
F-50
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
Effective January 1, 1996 NUON contributed its shares in N.V. TeleKabel
Friesland to TeleKabel in exchange for 80,000 shares of TeleKabel. The
contribution was recorded at its book value recorded in NUON amounting to NLG
3,604.
In April of 1997 the Company entered into an agreement with Casema to
exchange its cable network interest in TeleKabel Oosterhout B.V., TeleKabel De
Bilt-Bilthoven B.V., TeleKabel Zoetermeer B.V. and Kabelexploitatie
Maatschappij Rijnland B.V. for 100% of the shares of CAI-OverBetuwe B.V., CAI-
Bemmel B.V., CAI-Elst B.V., CAI-Gendt B.V., CAI-Heteren B.V., CAI-Valburg B.V.,
CAI-Midden-Betuwe B.V., Kabelexploitatie Maatschappij CAI-Renkum B.V., CAI-
Buren B.V., CAI-Druten B.V., CAI-Geldermalsen B.V., CAI-Lingewaal B.V., CAI-
NKM-Nijmegen B.V., CAI-Neerijnen-West B.V., CAI-Tiel B.V., CAI-Wageningen B.V.,
CAI-Wychen B.V., CAI-Dodewaard B.V and cable network assets in the cities of
Dronten and Lelystad.
The exchange of cable networks was based on the number of subscriber
connections exchanged, measured as of January 1, 1997. Casema and TeleKabel
agreed that a compensation of NLG 1,200 per subscriber will be paid for any
differences in the number of subscribers exchanged.
Additionally the agreement specified that TeleKabel was to acquire CAI-
Almere B.V. for a consideration of NLG 1,500 per subscriber, based on the
number of subscribers at the date of the share transfer. This acquisition was
not consummated before December 31, 1997.
The transaction with Casema was originally scheduled to be completed as of
December 31, 1997. As of December 31, 1997, TeleKabel transferred its interest
in TeleKabel Oosterhout B.V., TeleKabel De Bilt-Bilthoven B.V. and 47.5% of its
interest in Kabelexploitatie Maatschappij Rijnland B.V. to Casema and received
the interest in the cable networks specified in note 2. Refer to note 14 for
the transfer of the remaining cable networks.
The acquired cable networks were recorded in the books of the Company at
fair value of the cable networks at the date of the exchange.
Effective September 1997 the Company acquired the cable network from the
city of Arnhem and Casema for a total consideration of approximately NLG
84,000, the difference between the consideration and the fair value of the
assets, which approximated NLG 46,000, was recorded as goodwill.
4. SUBSCRIBER RECEIVABLES
Subscriber receivables are stated net of an allowance for doubtfull
accounts of NLG 1,017 and NLG 458 as of December 31, 1997 and 1996,
respectively.
5. OTHER RECEIVABLES
Other receivables can be specified as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
--------- ---------
<S> <C> <C>
Prepayments and accrued income........................... 7,926 877
Taxes and social security premiums....................... 1,771 --
Other receivables........................................ 1,107 12,644
--------- ---------
10,804 13,521
========= =========
</TABLE>
F-51
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
Other receivables as of December 31, 1997 include an amount of NLG 10,560,
relating to the Casema transaction.
6. INVESTMENTS IN AFFILIATED COMPANIES AND UNLISTED SECURITIES
Movements in investments in and advances to affiliated companies can be
summarized as follows:
<TABLE>
<CAPTION>
AFFILIATED UNLISTED
COMPANIES SECURITIES TOTAL
---------- ---------- ------
<S> <C> <C> <C>
Book value as of January 1, 1996............. -- 900 900
Additions.................................. 5,233 10,492 15,725
Write off of investment in unlisted
securities................................ -- (8,915) (8,915)
Share in income of affiliated companies.... (1,033) 0 (1,033)
Other...................................... -- (900) (900)
------ ------ ------
Book value as of December 31, 1996........... 4,200 1,577 5,777
Additions.................................. -- 49 49
Share in income affiliated companies....... 1,022 -- 1,022
Other...................................... -- 787 787
Reclassification........................... (4,000) 14,000 10,000
------ ------ ------
Book value as of December 31, 1997........... 1,222 16,413 17,635
====== ====== ======
</TABLE>
As of December 31, 1996 investment in affiliated companies relate to a
33.3% interest in Interway Holding B.V. and a 30% interest in Euronet Internet
B.V. During 1997 the investment in Euronet Internet B.V. was reclassified to
unlisted securities, because this investment was considered as temporary. The
reclassification in 1997 includes the net book value of Euronet Internet B.V.
of NLG 4,000 and the unamortized goodwill of NLG 10,000. (see note 8).
The write off of investment in unlisted securities in 1996 mainly relates
to the write off of the company's investment in Sport 7, a television channel
that closed its operation in December of 1996.
F-52
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
7. PROPERTY, PLANT AND EQUIPMENT
Tangible fixed assets can be summarized as follows:
<TABLE>
<CAPTION>
OTHER
LAND & CABLE FIXED ASSETS UNDER
BUILDINGS NETWORKS ASSETS CONSTRUCTION TOTAL
--------- -------- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Net book value as of
January 1, 1996......... -- 60,011 378 -- 60,389
Additions................ 2,467 332,341 3,291 13,130 351,229
Disposals................ -- (680) -- -- (680)
Depreciation............. (279) (12,969) (693) -- (13,941)
----- ------- ------ ------- -------
Net book value as of
December 31, 1996....... 2,188 378,703 2,976 13,130 396,997
===== ======= ====== ======= =======
BALANCE AS OF DECEMBER
31, 1996
Historical cost.......... 2,467 391,672 3,669 13,130 410,938
Accumulated
depreciation............ (279) (12,969) (693) -- (13,941)
----- ------- ------ ------- -------
Net book value........... 2,188 378,703 2,976 13,130 396,997
===== ======= ====== ======= =======
YEAR ENDED DECEMBER 31,
1997
Net book value as of
January 1, 1997......... 2,188 378,703 2,976 13,130 396,997
Additions................ 4,438 159,601 12,768 36,748 213,555
Disposals................ -- (26,157) -- (13,130) (39,287)
Depreciation............. (389) (15,359) (2,018) -- (17,766)
----- ------- ------ ------- -------
Net book value as of
December 31, 1997....... 6,237 496,788 13,726 36,748 553,499
===== ======= ====== ======= =======
BALANCE AS OF DECEMBER
31, 1997
Historical cost.......... 6,905 525,454 16,437 36,748 585,544
Accumulated
depreciation............ (668) (28,666) (2,711) -- (32,045)
----- ------- ------ ------- -------
Net book value........... 6,237 496,788 13,726 36,748 553,499
===== ======= ====== ======= =======
</TABLE>
Estimated useful lives and the depreciation method used for tangible fixed
assets are as follows:
<TABLE>
<CAPTION>
USEFUL
LIFE DEPRECIATION
(YEARS) METHODOLOGY
------- ------------
<S> <C> <C>
Land and buildings.................................... 40 Straight line
Cable networks:
Active parts (25%).................................. 7 Annuity method
Passive parts (75%)................................. 20 Annuity method
Other fixed assets.................................... 3-5 Straight line
</TABLE>
During 1995, 1996 and 1997, TeleKabel acquired, exchanged and received cable
networks as a capital contribution from NUON (see note 3). As a result of the
different ways the Company obtained the cable networks it operates and
historical origins of these networks, the basis of valuation of these networks
varied significantly. The Company decided to analyse the value of its complete
network in order to record its cable networks on a consistent basis under fixed
assets. All cable network connections were analysed on a cost per connection
basis and compared to the current cost of a technologically up to date
connection. All connections were valued at the cost of establishing a new and
technologically up to date connection, minus the cost to upgrade the existing
connection to the most current technology, referred to
F-53
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
the "current replacement value". The net difference between the book value and
the current replacement value is recorded under intangible fixed assets.
8. INTANGIBLE FIXED ASSETS
Intangible fixed assets movements and balances can be summarized as
follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1996
Net book value as of January 1, 1996................................ 16,065
Additions........................................................... 180,169
Amortization........................................................ (8,254)
-------
Book value as of December 31, 1996.................................. 187,980
=======
BALANCE AS OF DECEMBER 31, 1996
Historical cost..................................................... 196,234
Accumulated amortization............................................ (8,254)
-------
Net book value...................................................... 187,980
=======
YEAR ENDED DECEMBER 31, 1997
Book value as of January 1, 1997.................................... 187,980
Additions........................................................... 49,057
Reclassification.................................................... (10,000)
Disposals........................................................... (18,823)
Amortization........................................................ (13,652)
-------
Net book value as of December 31, 1997.............................. 194,562
=======
BALANCE AS OF DECEMBER 31, 1997
Historical cost..................................................... 216,444
Accumulated amortization............................................ (21,882)
-------
Net book value...................................................... 194,562
=======
</TABLE>
As described in Note 2 TeleKabel has recorded any differences between the
"current replacement value" of the tangible fixed assets and the book value of
the cable networks on the date of acquisition, contribution or exchange as
goodwill. Such goodwill is amortized on a straight line basis over the
estimated useful life of the cable network. Goodwill paid on the acquisition of
other types of businesses is amortized over 5-10 years depending on the nature
of the business. The reclassification of goodwill in 1997 relates to the
reclassification of Euronet Internet B.V. from an equity investment to
investment recorded at cost (see note 6).
F-54
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
9. DEFERRED INCOME
Deferred income relates to connection fees charged to customers in excess
of the normal cost of creating a connection. Deferred income is released to
income over the expected life of the cable connection.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Balance as of January 1.................................... -- 4,220
Addition: connection charges received from clients......... 4,697 2,445
Less: release to income statement.......................... (477) (324)
------ ------
Balance end of period...................................... 4,220 6,341
====== ======
</TABLE>
10. SHORT TERM DEBT PAYABLE TO SHAREHOLDER
Relates to loans provided by NUON for financing fixed assets. The interest
rate charged in 1997 was 6.5% (1996: 6.35%).
11. MINORITY INTEREST
The movements in the minority interest can be summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Balance as of January 1...................................... 2,099 1,820
Changes of minority interest held by third party............. -- 1,184
Less: share third parties in income.......................... (279) (683)
------ ------
Balance end of period........................................ 1,820 2,321
====== ======
</TABLE>
12. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
TeleKabel has commitments for leasing of company cars amounting to NLG 928
yearly as per December 31, 1997. Maximum maturity period of the lease
agreements is four years.
OTHER COMMITMENTS
In 1997 TeleKabel had other commitments on account of acquisitions. These
commitments were not material.
STATEMENT OF LIABILITY
TeleKabel and some subsidiaries can be held liable to a number of group
companies included in the consolidation, as meant by Article 403, Part 9, Book
2 of the Dutch Civil Code. As partner in a partnership firm, one of the group
companies can be held liable for the commitments of this firm. The maximum risk
amounts to NLG 100.
F-55
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
FISCAL UNITY
Until December 31, 1997, TeleKabel and NUON were included in the same
entity for value added tax and income tax purposes. TeleKabel is severally
liable for the material tax debts of the fiscal entity.
LEGAL
The Company is not a party to any material legal proceedings, nor is it
currently aware of any material legal proceedings. From time to time, the
Company may become involved in litigation relating to claims arising out of its
operations in the normal course of its business.
13. INCOME TAXES
Until October of 1996 the Company did not have an obligation to pay income
taxes, as it was a wholly owned subsidiary of a Dutch local government
institution. As a result of changed shareholders of TeleKabel's parent company,
in Dutch tax laws the Company is subject to Dutch income taxes since October
10, of 1996. The Company is in discussion with the Dutch tax authorities
regarding the tax basis of its assets and liabilites. Based on current best
estimates of the outcome of these discussions the Company believes that the tax
basis of the Company's assets and liabilities will not differ significantly
from their bookvalues.
14. SUBSEQUENT EVENTS
During 1998 the Company surrendered its interest in TeleKabel Zoetermeer
B.V. and the remaining 52.5% share in Kabelexploitatie Maatschappij Rijnland
B.V.in exchange for shares in CAI-Buren B.V., CAI-Druten B.V., CAI-Geldermalsen
B.V., CAI-Lingewaal B.V., CAI-Neerijnen-West B.V., CAI-Tiel B.V., CAI-Wychen
B.V., CAI-Dodewaard B.V and CAI-Almere B.V., CAI-Dronten B.V., and CAI-Lelystad
B.V. as part of the Casema transaction (see note 3).
Early 1998, NUON and United Pan-Europe Communications N.V. (UPC) signed the
merger documents to combine their cable network activities in The Netherlands.
The companies completed the merger on August 6, 1998. As a result, the
TeleKabel shares have been transferred to the newly incorporated holding
company named United TeleKabel Holding N.V.
15. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE
NETHERLANDS AND THE UNITED STATES
The Company's consolidated financial statements are prepared in accordance
with Dutch GAAP, which differs in certain respects from accounting principles
generally accepted in the United States ("US GAAP"). The material differences
as they apply to the Company are summarized below:
(a) Depreciation of fixed assets
Under Dutch GAAP the Company depreciates its cable network assets using the
annuity method of depreciation. Under US GAAP cable network assets are
depreciated on a straight line basis.
(b) Accounting for investments in affiliates
Under Dutch GAAP the Company records certain of its investments in
affiliates in which it holds an interest of 20% to 50% at the historical cost
of the investment (see Note 2). Under US GAAP these investments are accounted
for using the equity method of accounting.
F-56
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
(c) Accrued subscriber fees
Under Dutch GAAP the Company created an accrual for subscriber fees on the
acquisition balance sheet of the cable network in Leiderdorp. Monthly
subscription fees for subscribers in this area were lower than fees charged to
customers in other areas. The Company created an accrual, to be released over
the useful life of the cable network, which results in the equalization of
cable revenues. Under US GAAP this accrual was not recorded resulting in a
decrease of the amount of goodwill paid for the cable network.
Reconciliation of net (loss)/profit (in thousands of Dutch guilders):
<TABLE>
<CAPTION>
4 MONTHS AND
9 DAYS PERIOD YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, --------------
1995 1996 1997
------------- ------ ------
<S> <C> <C> <C>
Net income/(loss) under Dutch GAAP................ (2,385) (4,917) 2,890
US GAAP adjustment:
Depreciation on a straight line basis............. -- (6,477) (8,631)
Equity accounting for affiliates.................. -- 250 (6,540)
Accrued subscriber fees:
Goodwill amortization............................. -- 86 86
Release of subscriber accrual..................... -- (258) (258)
Income tax effect of US GAAP adjustments.......... -- 2,327 3,081
------ ------ ------
Net income/(loss) under US GAAP................... (2,385) (8,989) (9,372)
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Reconciliation of shareholder's equity:
Total shareholders' equity under Dutch GAAP................ 245,052 247,942
US GAAP adjustment:
Depreciation on a straight line basis...................... (6,477) (15,108)
Equity accounting for affiliates........................... 250 (6,290)
Accrued subscriber fees:
Goodwill................................................... 86 172
Accrued subscriber fees.................................... (258) (516)
Income tax effect of US GAAP adjustments................... 2,327 5,408
------- -------
Total shareholder's equity under US GAAP................... 240,980 231,608
======= =======
</TABLE>
F-57
<PAGE>
N.V. TELEKABEL BEHEER
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents...................................... 11,554
Subscriber receivables, net.................................... 46,641
Inventory...................................................... 3,986
-------
Total current assets......................................... 62,181
Tangible fixed assets, net....................................... 578,773
Intangible assets, net........................................... 248,491
Long term investments............................................ 1,375
-------
Total assets................................................. 890,820
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable............................................... 38,410
Deferred income................................................ 5,092
Short-term debt payable to shareholder......................... --
Related party payables......................................... 529,086
Other payables and accrued expenses............................ 75,196
-------
Total current liabilities.................................... 647,784
Shareholder's equity
Common stock, NLG 10 par value, 100,000 shares authorized and
issued........................................................ 1,000
Additional paid-in capital..................................... 251,354
Accumulated deficit............................................ (9,318)
-------
Total shareholder's equity................................... 243,036
-------
Total liabilities and shareholder's equity................... 890,820
=======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
F-58
<PAGE>
N.V. TELEKABEL BEHEER
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE 6 MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
Service and other revenue................................... 64,372 74,328
Operating expenses:
Purchases relating to sales............................... (8,746) (11,145)
Personnel expenses........................................ (8,991) (9,703)
Depreciation and amortization............................. (15,944) (21,765)
Other operating expenses.................................. (18,108) (19,015)
-------- --------
Net operating (loss) income................................. 12,583 12,700
Equity results in associates.............................. (1,037) (15)
Interest expense, related party........................... (11,329) (17,591)
Other income/(expense), net............................... (39) 0
-------- --------
Income/(loss) before and after income taxes................. 178 (4,906)
Minority interests in subsidiaries........................ (58) 0
-------- --------
Net income/(loss)........................................... 120 (4,906)
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
F-59
<PAGE>
N.V. TELEKABEL BEHEER
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 6 MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1998
-------- -------
<S> <C> <C>
Net cash flows from operating activities..................... (8,266) 2,594
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (145,070) (36,900)
New acquisitions, net of cash acquired....................... 0 0
-------- -------
Net cash flows from investing activities..................... (145,070) (36,900)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt to parent company.............. 146,530 28,395
-------- -------
Net cash flows from financing activities..................... 146,530 28,395
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (6,806) (5,911)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. -- 17,465
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... (6,806) 11,554
======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
F-60
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DUTCH GUILDERS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they 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. Operating results for the months ended
June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the consolidated financial statements and footnotes thereto included herein
for the year ended December 31, 1997.
2. SIGNIFICANT ACQUISITIONS AND DIVESTITURES
During 1998 the Company surrendered its interest in TeleKabel Zoetermeer
B.V. and the remaining 52.5% of the shares in Kabelexploitatie Maatschappij
Rijnland B.V. in exchange for shares in CAI-Buren B.V., CAI-Druten B.V., CAI-
Geldermalsen B.V., CAI-Lingewaal B.V., CAI-Neerijnen-West B.V., CAI-Tiel B.V.,
CAI-Wychen B.V., CAI-Dodewaard B.V and CAI-Almere B.V., CAI-Dronten B.V., and
CAI-Lelystad B.V. as part of the Casema transaction.
Early 1998, NUON and United Pan-Europe Communications N.V. (UPC) signed the
merger documents to combine their cable network activities in The Netherlands.
The companies completed the merger on August 6, 1998. As a result, the
TeleKabel shares have been transferred to the newly incorporated holding
company named United TeleKabel Holding N.V.
3. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE
NETHERLANDS AND THE UNITED STATES
The Company's consolidated financial statements are prepared in accordance
with Dutch GAAP, which differs in certain respects from accounting principles
generally accepted in the United States ("US GAAP"). The material differences
as they apply to the Company are summarized below:
(a) Depreciation of fixed assets
Under Dutch GAAP the Company depreciates its cable network assets using the
annuity method of depreciation. Under US GAAP these are depreciated on a
straight line basis.
(b) Accounting for investments in affiliates
Under Dutch GAAP the Company records certain of its investments in
affiliates in which it holds an interest of 20% to 50% at the historical cost
of the investment (see Note 2 of the 1997 figures). Under US GAAP these
investments are accounted for using the equity method of accounting.
(c) Accrued subscriber fees
Under Dutch GAAP the Company created an accrual for subscriber fees on the
acquisition balance sheet of the cable network in Leiderdorp. Monthly
subscription fees for subscribers in this area were lower than fees charged to
customers in other areas. The Company created an accrual, to be released over
the useful life of the cable network, which results in the equalization of
cable revenues. Under US GAAP this accrual was not recorded resulting in a
decrease of the amount of goodwill paid for the cable network.
F-61
<PAGE>
N.V. TELEKABEL BEHEER
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
(IN THOUSANDS OF DUTCH GUILDERS)
Reconciliation of net (loss)/profit (in thousands of Dutch guilders):
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
Net income/(loss) under Dutch GAAP.......................... 120 (4,906)
US GAAP adjustment:
Depreciation on a straight line basis....................... (4,316) (5,264)
Equity accounting for affiliates............................ (3,270) (500)
Accrued subscriber fees:
Goodwill amortization....................................... 43 (172)
Release of subscriber accrual............................... (129) 516
Income tax effect of US GAAP adjustments.................... 1,541 1,722
-------- --------
Net income/(loss) under US GAAP............................. (6,011) (8,604)
======== ========
</TABLE>
Reconciliation of shareholder's equity:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
-------------
<S> <C>
Total shareholders' equity under Dutch GAAP....................... 243,036
US GAAP adjustment:
Depreciation on a straight line basis............................. (20,372)
Equity accounting for affiliates.................................. (6,790)
Income tax effect of US GAAP adjustments.......................... 7,130
-------
Total shareholder's equity under US GAAP.......................... 223,004
=======
</TABLE>
F-62
<PAGE>
UNDERWRITING
The Company and the underwriters for the U.S. offering (the "U.S.
Underwriters") named below have entered into an underwriting agreement with
respect to the Ordinary Shares and ADSs being offered in the United States.
Subject to certain conditions, each U.S. Underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman,
Sachs & Co. and Morgan Stanley & Co. Incorporated are the representatives of
the U.S. Underwriters.
Number
Underwriters of Shares
------------ ---------
Goldman, Sachs & Co............................................
Morgan Stanley & Co. Incorporated..............................
----
Total........................................................
====
----------------
The U.S. Underwriters may choose to take some or all of their shares in the
form of ADSs.
If the U.S. Underwriters sell more shares than the total number set forth
in the table above, the U.S. Underwriters have an option to buy up to an
additional shares from the Company to cover such sales. They may exercise
the option for 30 days. If any shares are purchased pursuant to the option, the
U.S. Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above. The U.S. Underwriters may choose to
take some or all of their additional shares in the form of ADSs.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by the Company. Such
amounts are shown assuming both no exercise and full exercise of the U.S.
Underwriters' option to purchase additional shares.
Paid by the Company
No Exercise Full Exercise
----------- -------------
Per Share... $ $
Total....... $ $
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus.
Any Ordinary Shares sold by the Underwriters to securities dealers may be sold
at a discount of up to NLG per Ordinary Share or $ per ADS from the
initial public offering price. Any such securities dealers may resell any
shares purchased from the Underwriters to certain other brokers or dealers at a
discount of up to NLG per Ordinary Share or $ per ADS from the initial
public offering price. If all the shares are not sold at the initial offering
price, the representatives may change the offering price and the other selling
terms. In accordance with customary practice in public offerings on the
Amsterdam Stock Exchange, seatholders of the Amsterdam Stock Exchange who are
not Underwriters may, in the offering outside the United States, be allowed a
concession not in excess of % of the initial public offering price.
The Company and UIH have entered into an underwriting agreement with the
underwriters for the sale by the Company of shares (in the form of Ordinary
Shares or ADSs) outside the United States. The terms and conditions of both
offerings are the same and the sale of shares in both offerings are conditioned
on each other. Goldman Sachs International and Morgan Stanley & Co.
International Limited are representatives of the underwriters for the offering
outside the United States (the "International Underwriters"). The Company has
granted the International Underwriters an option to purchase up to an aggregate
of an additional shares (in the form of Ordinary Shares or ADSs) similar to
the option granted to the U.S. Underwriters.
The Underwriters for both of the Offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The Underwriters also have agreed that they may sell shares between
each of the underwriting groups.
Each of the Company and UIH has agreed with the Underwriters not to dispose
of or hedge any of their shares or securities convertible into or
U-1
<PAGE>
exchangeable for shares, subject to certain exceptions, during the period from
the date of this Prospectus continuing through the date one year after the date
of this Prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing employee benefit
plans. See "Shares Available for Future Sale" for a discussion of certain
transfer restrictions.
The representatives do not expect sales to discretionary accounts to exceed
5% of the total number of shares (including shares in the form of ADSs)
offered.
Prior to the Offerings, there has been no public market for the Ordinary
Shares or ADSs. The initial public offering price has been negotiated among the
Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the shares, in addition to
prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Ordinary Shares will be listed on the Official Market of the Amsterdam
Stock Exchange under the symbol "UPC" and the ADSs will be quoted on the NASDAQ
National Market under the symbol "UPCOY". MeesPierson is acting as listing
agent in connection with the listing of the Ordinary Shares on the Amsterdam
Stock Exchange.
In connection with the Offerings, the Underwriters may purchase and sell
Ordinary Shares or ADSs in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the Offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the shares
while the Offerings are in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Ordinary Shares or ADSs. As a result, the price
of the Ordinary Shares or ADSs may be higher than the price that otherwise
might exist in the open market. If these activities are commenced, they may be
discontinued by the Underwriters at any time. These transactions may be
effected on the Amsterdam Stock Exchange, on NASDAQ, in the over-the-counter
market or otherwise.
The Company and UIH have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933. The Company and UIH have also agreed to pay the representatives an amount
in reimbursement of some of their expenses.
This Prospectus may be used by the Underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the Underwriters in the Offering being made outside the
United States, to persons located in the United States.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell or to buy only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Enforcement of Civil Liabilities......................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 15
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Exchange Rate Data....................................................... 23
Dilution................................................................. 24
Capitalization........................................................... 25
Selected Consolidated Financial Data..................................... 26
Pro Forma Selected Consolidated Financial Data........................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 51
Technology............................................................... 87
Glossary of Technical Terms.............................................. 99
Corporate Ownership Structure............................................ 102
Regulation............................................................... 108
Management............................................................... 117
Security Ownership of Certain Beneficial Owners and Management........... 127
Certain Transactions and Relationships................................... 128
Relationship with UIH and Related Transactions........................... 129
Description of Share Capital............................................. 131
Summary of Certain Provisions of the Articles of Association and Other
Matters................................................................. 133
Description of American Depositary Receipts.............................. 135
Taxation................................................................. 146
Shares Eligible for Future Sale.......................................... 152
Experts.................................................................. 153
Legal Matters............................................................ 153
Available Information.................................................... 153
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
--------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in the American Depositary
Receipts representing the Ordinary Shares or the Ordinary Shares, whether or
not participating in this offering, may be required to deliver a prospectus.
This requirement is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
UNITED PAN-EUROPE COMMUNICATIONS N.V.
Ordinary Shares in the Form of
American Depositary Shares
or Ordinary Shares
--------------
[LOGO OF UNITED PAN-EUROPE COMMUNICATIONS APPEARS HERE]
--------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee, are estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $2,780
NASD and blue sky fees............................................. *
Depositary fees and expenses....................................... *
Legal fees and expenses............................................ *
Accounting fees.................................................... *
Printing and engraving expenses.................................... *
Miscellaneous...................................................... *
------
Total............................................................ $ *
======
</TABLE>
- --------
*To be filed by amendment
The above expenses will be borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has entered into indemnification agreements with its directors
and executive officers, providing for indemnification by the Company against
any liability to which a director or executive officer may be subject for
judgments, settlements, penalties, fines and expenses of defense (including
attorneys' fees, bonds and costs of investigation), arising out of or in any
way related to acts or omissions as a member of the Management or Supervisory
Board, or an executive officer, or in any other capacity in which services are
rendered to the Company or its subsidiaries. The Company believes that the
indemnification agreements will assist the Company in attracting and retaining
qualified individuals to serve as directors and executive officers. The
agreements provide that a director or officer is not entitled to
indemnification under such agreements (i) if indemnification is expressly
prohibited under applicable law, (ii) for certain violations of securities laws
or (iii) for certain claims initiated by the officer or director. Generally,
under Dutch law, a director will not be held personally liable for decisions
made with reasonable business judgment, absent self dealing. In addition,
indemnification may not be available to directors or officers under Dutch law
if any act or omission by a director or officer would qualify as willful
misconduct or gross negligence. Due to the lack of applicable case law, it is
not clear whether indemnification is available in case of breach of securities
laws of the United States.
ITEM 15. PREVIOUS UNREGISTERED SALES
On July 13, 1995, UIH and Philips contributed their respective ownership
interests in European and Israeli multi-channel television systems to UPC. UIH
also contributed $78.2 million of cash to UPC and issued directly to Philips
approximately 3.17 million shares (with a market value at issuance of
approximately $50.0 million) of UIH's Class A Common Stock as additional
consideration for the transaction. In consideration for UIH's contributions,
the Company issued 100,000, ordinary shares of UPC, to UIH. In consideration
for Philips' contribution, the Company issued to Philips 60,000 ordinary shares
of UPC and approximately $133.6 million of convertible subordinated, pay-in-
kind notes in two series due January 1, 2005 (the "UPC PIK Notes"). On December
11, 1997, the accreted amount of the
II-1
<PAGE>
UPC PIK Notes was approximately $154.1 million, which the Company redeemed in
cash and converted into shares in connection with the UPC Acquisition. Philips
also held 40,000 ordinary shares of UPC which were issued in connection with
the Company's formation in 1990. The nominal value of all of the above UPC
shares was NLG1,000 each.
On July 26, 1996, the Company effected a change in the nominal value of its
shares from NLG1,000 each to NLG1 each resulting in 1000-to-1 stock split.
Subsequently, the Company issued 26.9 million ordinary shares, nominal value
NLG1 each, to UIH and Philips, respectively, against conversion of UPC's
capital reserves. On June 18, 1996, UPC adopted a stock option plan for certain
employees of UPC and its subsidiaries. Each of UIH and Philips transferred 2.0
million ordinary shares to the Stichting Administratiekantoor UPC, which
administers the UPC Stock Option Plan. See "Management -- Stock Option Plans".
On December 11, 1997, UIH acquired Philips' entire interest in UPC. As part
of the UPC Acquisition, (i) UPC purchased from Philips the 3.17 million shares
of Class A Common Stock of UIH owned by Philips; (ii) UIH purchased from
Philips 8,747,736 ordinary shares of UPC; (iii) UPC purchased indirectly from
Philips 16,252,264 ordinary shares of UPC; (iv) UIH purchased from Philips
approximately $77.0 million of the UPC PIK Notes, which the Company converted
into 10,120,174 ordinary shares of UPC; (v) UPC redeemed in cash the
approximate $77.0 million remaining accreted amount of the UPC PIK Notes held
by Philips; and (vi) UIH paid UPC an amount, which UPC in turn paid to Philips
in lieu of the issuance of a stock appreciation right by UPC.
The foregoing sales by the Company of its securities were made in reliance
one or more exemptions from registration under the Securities Act pursuant to
Section 4(2) thereof as transaction not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Association of UPC*
4.1 Form of Depositary Agreement*
4.2 The Articles of Association of UPC is included as Exhibit 3.1.
5.1 Opinion of Loeff Claeys Verbeke as to validity of Ordinary Shares*
8.1 Opinion of Holme Roberts & Owen LLP as to certain tax matters*
8.2 Opinion of Arthur Andersen as to certain tax matters*
10.1 Amended and Restated Securities Purchase and Conversion Agreement
dated as of December 1, 1997, by and among Philip Media B.V.
("Philips Media"), Philips Media Network B.V. ("Philips Networks"),
the Company, Joint Venture, Inc. ("JVI") and the Company (1)
10.2 Loan Agreement for NLG1,100,000,000 multi-currency Revolving Credit
Facility dated as of October 8, 1997, between UPC and certain of its
subsidiaries and The Toronto-Dominion Bank as Agent for the financial
institutions identified therein, as amended by a Supplement Agreement
dated December 8, 1997(2)
10.3 Loan Agreement dated December 5, 1997, between Belmarken Holdings
B.V. ("Belmarken") as the Borrower, Cable Network Netherlands Holding
B.V., Binan Investments B.V. and Stipdon Investments B.V. as
Guarantors, The Toronto-Dominion Bank and Toronto-Dominion Capital as
Arrangers, the banks and financial institutions listed therein, The
Toronto-Dominion Bank as Agent and The Toronto-Dominion Bank as
Security Trustee, as amended by Waiver and amendment letter dated
December 11, 1997(2)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.4 Registration Rights Agreement dated as of December 5, 1997, by and
among the Company, Belmarken, and The Toronto-Dominion Bank as the
Security Trustee(1)
10.5 Indenture dated as of February 5, 1998, between UIH and Firstar Bank
of Minnesota, N.A. (the "1998 Indenture")(2)
10.6 Credit Facility Agreement dated February 20, 1998, between Cable
Network Brabant Holding B.V. ("CNBH") and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A.
10.7 Second Amendment Agreement to Credit Facility Agreement and to
Project Support Agreement dated September 30, 1998, between CNBH and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
10.8 Bank Facility Agreement dated January 31, 1996, between
Kabeltelevisie Amsterdam B.V. and ABN AMRO Bank N.V. in the
principal amount of up to NLG 375,000,000*
10.9 Agreement to borrow money dated August 31, 1998, between N.V.
TeleKabel Beheer, as borrower, and N.V. NUON Energie-Onderneming
voor Gelderland, Friesland en Flevoland, as lender.
10.10 Facility Agreement dated July 26, 1998, between Mediareseaux Marne.
S.A., Paribas and the Banks and Financial Institutions listed in
Schedule 1 thereto
10.11 Promissory Note dated November 9, 1998, made by Cable Network Zuid-
Oost Brabant
Holding B.V. payable to the order of DIC Loans Ltd. in the principal
amount of
$90,000,000
10.12 Option Agreement dated November 5, 1998, among the Company, DIC and
PEC
(Exhibits C and D to the Option Agreement are listed separately as
Exhibits 10.13 and 10.14,
respectively. All other exhibits have been omitted.)
10.13 Form of Registration Rights Agreement among the Company, DIC and PEC
10.14 Form of Shareholders Agreement among the Company, DIC and PEC
10.15 Sales Agreement dated December 17, 1997, between Stichting
Combivisie Regio,
Setelco B.V. and the Company*
10.16 Purchase Agreement dated November 6, 1998, between Binan Investments
B.V., UA-UII,
Inc. and UA-UII Management Inc., including exhibits A and D thereto
10.17 Shareholders Agreement dated July 6, 1995, between The Municipality
of Amsterdam,
A2000 Holding N.V., and Kabeltelevisie Amsterdam B.V.*
10.18 Consent Agreement dated September 27, 1997, between United and
Philips
Communications B.V., US West International, B.V., Philips Media
B.V., UIH and JVI
10.19 Consortium Agreement dated June 26, 1995, concluded between the
Osterreichische
Philips Industrie Ges.m.b.H, Cable Networks Austria Holding B.V. and
Kabel-TV-Wien
Ges.m.b.H.*
10.20 Tax Liability Agreement dated October 7, 1997, between the Company,
Philips Media
B.V., Philips Coordination Center, Philips Media Networks B.V.,
United International
Holdings, Inc. ("UIH"), and Joint Venture, Inc.("JVI")
10.21 Agreement dated April 2, 1998, for the contribution of the Dutch
Cable Assets of the
Company and N.V. Nuon Energie-Onderneming voor Gelderland, Friesland
en Flevoland
to United Telekabel Holding N.V. i.o.*
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.22 Joint Venture Agreement dated February 13, 1996, regarding A2000 Holding N.V.
between US West International B.V. and the Company*
10.23 United Pan-Europe Communications N.V. Phantom Stock Option Plan, March 20, 1998
10.24 Amended Stock Option Plan dated March 18, 1998, between the Company and Stichting
Administrasie Kantoor UPC
10.25 Form of Director and Officer Indemnification Agreement*
10.26 Form of UIH Registration Rights Agreement*
10.27 Form of UIH Management Services Agreement*
21.1 Subsidiaries of UPC*
23.1 Consent of Arthur Andersen (United Pan-Europe Communications N.V.)
23.2 Consent of PricewaterhouseCoopers N.V. (N.V. TeleKabel Beheer)
23.3 The consent of Holme Roberts & Owen LLP is included in Exhibit 8.1
23.4 The consent of Loeff Claeys Verbeke is included in Exhibit 5.1
24.1 Powers of Attorney
27.1 Financial Data Schedule
99.1 Consents of Persons nominated for the Company's Supervisory Board
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated by reference from Form 8-K filed by UIH, dated December 11,
1997 (File No. 0-21974).
(2) Incorporated by reference from Form S-4 filed by UIH, dated March 3, 1998
(File No. 333-47245).
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment of the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by a
final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be a part of this registration statement as of the time it
was declared effective.
(ii) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN LONDON, ENGLAND, ON THIS 24TH DAY OF NOVEMBER 1998.
United Pan-Europe Communications N.V. a
Dutch Public limited liability company
/s/ J. Timothy Bryan
By: ____________________________________
J. TIMOTHY BRYAN, PRESIDENT AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
TITLE/POSITION HELD
SIGNATURE WITH THE REGISTRANT DATE
--------- ------------------- ----
<S> <C> <C>
* Chairman of the November 24, 1998
______________________________________ Supervisory Board
GENE W. SCHNEIDER
* Supervisory Board Member November 24, 1998
______________________________________
MICHAEL T. FRIES
Supervisory Board Member November 24, 1998
______________________________________
RICHARD DE LANGE
* Chairman of Management November 24, 1998
______________________________________ Board and Chief Executive
MARK L. SCHNEIDER Officer
/s/ J. Timothy Bryan Management Board Member, November 24, 1998
______________________________________ President and Chief
J. TIMOTHY BRYAN Financial Officer
* Management Board Member November 24, 1998
______________________________________ and Vice Chairman
JOHN F. RIORDAN
* Management Board Member, November 24, 1998
______________________________________ Senior Vice President and
ANTON H.E. V. VOSKUIJLEN Managing Director
* Management Board Member November 24, 1998
______________________________________ and Managing Director,
NIMROD J. KOVACS Eastern Europe
* Managing Director, Finance November 24, 1998
______________________________________ and Accounting (Principal
RAY D. SAMUELSON Accounting Officer)
/s/ J. Timothy Bryan
*By: _________________________________
J. TIMOTHY BRYAN
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT 10.6
CREDIT FACILITY AGREEMENT
between
CABLE NETWORK BRABANT HOLDING B.V.
and
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.
as Agent
and
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.
as Initial Lender
dated February 20, 1998, as amended on August 7, 1998
<PAGE>
2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS
Section 1.01. Definitions 6
Section 1.02. Singular/Plural - Persons -
References - Headings 26
ARTICLE II - REPRESENTATIONS AND WARRANTIES
Section 2.01. Project and Project Cost 26
Section 2.02. Information provided by the Company 27
Section 2.03. Representations as to this Agreement 27
Section 2.04. Acknowledgement and Warranty 28
Section 2.05 Repetition of Representations
and Warranties 28
ARTICLE IIII - LOAN
Section 3.01. Amount and Currency 29
Section 3.02. Disbursements 29
Section 3.03. Interest 30
Section 3.04. Suspension and Cancellation 31
Section 3.05. Commitment Fee and other Fees 32
Section 3.06. Repayment 32
Section 3.07(a). Voluntary Prepayment 33
Section 3.07(b). Mandatory Prepayment 34
Section 3.08. Payments 35
Section 3.09. Insufficient Payments 36
Section 3.10. Default Interest 37
Section 3.11. Tax Gross up 38
</TABLE>
<PAGE>
3
<TABLE>
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Section 3.12. Unwinding Costs 39
Section 3.13. Increased Costs 40
ARTICLE IV - CONDITIONS OF DISBURSEMENT
Section 4.01. Conditions of First Disbursement 41
Section 4.02. Conditions for Any Disbursement 47
Section 4.03. Conditions of First Disbursement
under Tranche C 49
ARTICLE V - PARTICULAR COVENANTS
Section 5.01. Affirmative covenants 52
Section 5.02. Negative covenants 58
Section 5.03. Furnishing of Information 63
Section 5.04 Financial covenants 66
ARTICLE VI - EVENTS OF DEFAULT
Section 6.01. Acceleration in Events of Default 68
Section 6.02. Automatic Acceleration 71
ARTICLE VII - SYNDICATION AND AGENT
Section 7.01 Syndication 72
Section 7.02 Agent 75
ARTICLE VIII - MISCELLANEOUS
Section 8.01. Notices 77
Section 8.02. Certificate of Authority 78
Section 8.03. English Language 79
Section 8.04. Financial Calculations 79
Section 8.05. Rights, Remedies and Waivers 79
</TABLE>
<PAGE>
4
<TABLE>
<S> <C>
Section 8.06. Term of Agreement 81
Section 8.07. Governing law and Jurisdiction 81
Section 8.08. Successors and Assigns 81
Section 8.09. Counterparts 82
Section 8.10. Amendments 82
Section 8.11. Severability 82
</TABLE>
Schedule 1 Agreed Base Case
Schedule 2 Excess Cash Flow
Schedule 3 Information Package
Schedule 4 Interest Rate Hedging Policy
Schedule 5 Participation Agreement
Schedule 6 Request for Disbursement
Schedule 7 Repayment Schedule
Schedule 8 Authorisation of Auditors
Schedule 9 Quarterly Management Report
Schedule 10 Municipalities
Schedules 11
and 12 see Schedules 3 and 1
Schedule 13 Letters to Municipalities
<PAGE>
5
CREDIT FACILITY AGREEMENT
THE UNDERSIGNED:
1. CABLE NETWORK BRABANT HOLDING B.V., a limited liability company organised
and existing under the laws of the Netherlands, with registered seat at
Eindhoven (hereinafter referred to as the "COMPANY");
and
2. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., a cooperative
association organised and existing under the laws of the Netherlands with
registered seat at Amsterdam (hereinafter referred to as the "AGENT");
and
3. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., a cooperative
association organised and existing under the laws of the Netherlands with
registered seat at Amsterdam (hereinafter referred to as the "INITIAL
LENDER");
WHEREAS:
(A) the objects of the Company include the development, maintenance and
operation of cable networks and systems for the distribution of radio and
television programs and other communication purposes; and the provision of
<PAGE>
6
telecommunication services, including, without limitation, the
distribution of television programs to subscribers; multi-media services,
data transmission and voice services;
(B) the Company intends to carry out the Projects, as contemplated in this
Agreement;
(C) the Initial Lender has offered to finance the Projects up to an amount of
NLG 266,000,000 (two hundred sixty-six million Netherlands Guilders) under
the terms and subject to the conditions of this Agreement;
(D) the Company and the Initial Lender, acting for itself and in its capacity
as agent for the Lenders, now wish to record their agreement regarding the
financing referred to in recital (C) as follows;
HAVE AGREED AS FOLLOWS:
ARTICLE I DEFINITIONS
----------------------
SECTION 1.01. DEFINITIONS
Wherever used in this Agreement or the Schedules hereto, unless the context
otherwise requires, the following terms have the following meanings:
"Affiliate" means of any entity any other person directly or
indirectly, controlling,
<PAGE>
7
controlled by, or under common control with, such
person; for the purposes of this definition,
"control" (including, with correlative meanings,
the terms "controlled by" and "under common control
with"), as used with respect to any person, shall
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 shares or by
contract or otherwise;
"Agreed Base Case" means the financial projections of the Company,
including the explanatory notes thereto, for the
duration of the Loan, as set forth in SCHEDULE 1,
including any Deviation (as defined in Section
5.01(a), any amendment pursuant to Section
-
5.02(e)(4) and any amendment agreed upon between
the Company and the Agent;
"Agreement" means this Credit Facility Agreement, including the
Schedules thereto, as amended from time to time;
"AIBOR Breakage Costs" means such amounts as shall be sufficient to
compensate each of the
<PAGE>
8
Lenders for all losses, costs and expenses
resulting from any repayment or prepayment with
respect to a Disbursement, for any reason
(including, without limitation, the acceleration of
amounts due or outstanding hereunder pursuant to
Section 6.01 or 6.02), on a day before the last day
of an Interest Period of such Disbursement;
"Auditors" means the firm of independent public accountants as
the Company may from time to time, subject to the
provisions of Section 5.01(e), appoint as auditors
of the Company;
"Breakage Costs" means AIBOR Breakage Costs and Interest Hedge
Breakage Costs;
"Bridge Loan" means the NLG 122,012,273 (one hundred and twenty-
two million twelve thousand and two hundred
seventy-three Netherlands Guilders) bridge loan
dated February 3, 1998 provided by the Initial
Lender to the Company;
"Business Day" means a day on which commercial banks and foreign
exchange markets are open for the transaction of
business (of the
<PAGE>
9
kind contemplated in this Agreement) in the
interbank market in Amsterdam, the Netherlands;
"Cash Interest Cover
Ratio" or "CICR" means in respect of a certain period the result
obtained by dividing the sum total of (i) EBITDA,
less (ii) taxes paid and (iii) any increase in Net
Working Capital, plus (iv) any decrease in Net
Working Capital, by all Net Interest Expense under
Financial Debt due and payable in such period;
"Charter" means, in respect of the Company, or any other
company, corporation, partnership or governmental
agency, its founding act and articles of
association (statuten), as amended from time to
time;
"Combivisie" means the foundation Stichting Combivisie Regio,
established at Helmond, and the limited liability
company Setelco B.V., established at Helmond,
jointly;
"Combivisie Assets" means the Combivisie assets sold by Combivisie to
UPC, transferred by
<PAGE>
10
Combivisie to UPC's (indirect) Subsidiary Cable
Network Netherlands Holding B.V., as permitted
under the agreement dated December 17, 1997 between
Combivisie as seller and UPC as purchaser, and
contributed by Cable Network Netherlands Holding
B.V. to the Company pursuant to the notarial deed
of contribution executed by civil law notary Mr
Johan F.L. Bakker in Amsterdam on February 3, 1998;
"Current Assets" means the aggregate (as of the date of calculation)
of the Company's trade and other receivables
realizable within one year, inventories and prepaid
expenses which are to be charged to income within
one year;
"Current Liabilities" means the aggregate (as of the date of calculation)
of all liabilities of the Company falling due on
demand or within one year, excluding the portion of
long-term debt falling due within one year;
"Debt Service Coverage
Ratio" or "DSCR" means in relation to any period the result obtained
by dividing the sum
<PAGE>
11
total of (i) EBITDA, less (ii) taxes paid, less
(iii) any increase in Net Working Capital and less
(iv) capital expenditures, plus (v) any decrease in
Net Working Capital, by all interest and scheduled
repayment amounts due under the Financial Debt in a
given period;
"Default Interest Period" means, with respect to any amount overdue under
this Agreement, a period commencing on the Business
Day on which such payment becomes overdue and
ending on the date of actual payment of the overdue
amount;
"Default Interest Rate" means the interest rate applicable to amounts
overdue under this Agreement, as determined in
accordance with Section 3.10(c);
"Disbursement" means any amount of the Loan which is disbursed
from time to time pursuant to Section 3.02;
"EBITDA" means in relation to any calendar quarter Earnings
Before Interest, Taxes, Depreciation and
Amortization and is (for the period of calculation)
the sum of:
<PAGE>
12
(1) the income (or deficit) of the Company before
provision for income taxes for such period,
plus
(2) Net Interest Expense for such period, plus
(3) all amounts in respect of depreciation and
amortization for such period, plus
(4) all management fees paid or payable by the
Company pursuant to Section 5.04(g) but only
to the extent such fees have been taken into
account in the calculation of income under
(1) above;
provided that, if the context requires that EBITDA
shall be annualised as follows: EBITDA so
calculated for the first period of calculation
shall be multiplied by 4 (four); for the second
period of calculation EBITDA shall be aggregated
with the EBITDA calculated for the first period of
calculation and
<PAGE>
13
multiplied by 2 (two); and for each subsequent
calculation period EBITDA shall be aggregated with
the EBITDA calculated for the immediately preceding
period of calculation and multiplied by 2 (two);
"Euro" means the legal tender of the Netherlands from the
date the Netherlands Guilders shall, by operation
of law, have been replaced entirely as legal tender
of the Netherlands as a result of the Netherlands'
participation in the European Monetary Union;
"Event of Default" means any one of the events specified in Section
6.01;
"Excess Cash Flow" means for any Financial Year, the amount calculated
in accordance with SCHEDULE 2;
"Existing KTE Facility" means the existing NLG 65,000,000 loan provided by
the Initial Lender to KTE under a Credit Facility
Agreement of February 7, 1997;
"Financial Debt" means all component parts of (i) the Loan, (ii) the
Working Capital
<PAGE>
14
Facility, (iii) the KTE Insti tutional Loans and
(iv) the indebtedness incurred by the Company under
Section 5.02(e)(4) of this Agreement;
"Financial Statements" means the unconsolidated and, to the extent
available, the consolidated financial statements of
the Company prepared in agreement with its books of
account and in accordance with Generally Accepted
Accounting Principles;
"Financial Year" means the accounting year of the Company commencing
each year on 1 January and ending on the following
31 December, or such other accounting period of the
Company as the Company may from time to time
designate as the accounting year of the Company;
"Gearing Ratio" means the result obtained by dividing the
Shareholders' Equity by the Financial Debt;
"General Business
Agreements" means the agreements relating to the business of
the Company, including, without limitation, the
agreements which have been assigned and
<PAGE>
15
transferred in favour and for the benefit of the
Company (or any of its Affiliates) under the
acquisition contracts regarding the KTE Assets and
the Combivisie Assets;
"General Services
Agreement" means the General Services Agreement entered into by
the Company and UPC, effective as of January 1,
1998;
"Generally Accepted
Accounting Principles" means accounting principles generally accepted in
the Netherlands consistently applied;
"Increased Costs" has the meaning given to it in Section 3.13;
"Information Package" means the documents and information provided by the
Company and UPC to the Agent, and as described in
detail in SCHEDULE 3;
"Insurance Advisor" means Mees & Zoonen Marsh & McLennan B.V., or any
other reputable internationally recognized
insurance advisor to be appointed by the Agent in
consultation with the Company;
<PAGE>
16
"Insurance Advisory
Agreement" means the insurance advisory agreement to be
entered into by the Insurance Advisor, the Company,
the Agent and the Initial Lender;
"Insurance Report" means the insurance report to be provided to the
Agent by the Insurance Advisor pursuant to the
Insurance Advisory Agreement;
"Interbank Rate"
or "AIBOR" means, for each Interest Period, the Amsterdam
InterBank Offered Rate or "AIBOR", as published by
De Nederlandsche Bank N.V. and which appears on the
AIBOR page (domestic) of the screen operated by
Reuters Monitor Money Rate Service (or such other
page as may replace the Netherlands Guilder page
for the purpose of displaying the AIBOR rates of
leading reference banks) as of 12.00 a.m.,
Amsterdam time, on the relevant Interest
Determination Date for the period which is closest
to the duration of such Interest Period (or, if two
periods are equally close to the duration of such
Interest Period, the
<PAGE>
17
average of the two relevant rates); provided that
(i) if, for any reason, the Interbank Rate cannot
be determined at such time by reference to
the above publication, the Interbank Rate for
such Interest Period shall be the rate which
the Agent determines to be the arithmetic
mean of the offered rates for deposits in
Netherlands Guilders in an amount comparable
to the principal amount of the Disbursement
scheduled to be outstanding during such
Interest Period for a period equal to such
Interest Period which are advised to the
Agent by three major banks active in the
Amsterdam interbank market selected by the
Agent; and
(ii) in the event of modification affecting the
composition or definition of AIBOR, or in the
event of disappearance of AIBOR and the
substitution of an interbank rate of the same
or an equivalent nature, or in the
<PAGE>
18
event of modification affecting the
institution or organisation publishing the
interbank rate pursuant to Article 123(4)
(new numbering -formerly Article 109L(4)) of
the Treaty Establishing the European Economic
Community, as amended by the Treaty on the
European Union (the Maastricht Treaty), the
rate or index resulting from such
modification or substitution shall
automatically apply;
"Interest
Determination Date" means, for any Interest Period, the date 2 (two)
Business Days prior to the first day of such
Interest Period;
"Interest Hedge
Breakage Costs" means the amounts payable by (i) one or more of the
Lenders (the "AFFECTED LENDER") to an interest rate
hedge counterparty in connection with terminating
or unwinding any interest rate hedge transaction
between the Affected Lender and such interest hedge
counterparty or (ii) the Company to one or more of
the Lenders in
<PAGE>
19
connection with terminating any Interest Rate
Hedging Product between the Company and such
Lender(s) as a result of (a) the prepayment of any
Disbursement (or any part or all of the Loan) or
(b) the termination or unwinding of any Interest
Rate Hedging Product pursuant to the terms and
conditions of the ISDA Agreement;
"Interest Payment Date" means the last day of each Interest Period of a
Disbursement, provided, however, that in case the
Company has selected an Interest Period of 12
(twelve) months with respect to a Disbursement, the
Interest Payment Date shall be the day 6 (six)
months after the commencement of such Interest
Period, in addition to the last day of such
Interest Period;
"Interest Period" means each period of 1 (one), 3 (three), 6 (six)
or, subject to availability to the Lenders, 12
(twelve) months, commencing on the date of a
Disbursement and ending on the last day of such
period, provided that if such a day is not a
Business Day such period shall end on the next
<PAGE>
20
succeeding Business Day, unless such next
succeeding Business Day falls within the next
calendar month, in which case such period shall end
on the immediately preceding Business Day;
"Interest Rate Hedging
Policy" means a certain policy with respect to the hedging
of interest rates as detailed in SCHEDULE 4 to this
Agreement;
"Interest Rate Hedging
Product" means any of the products referred to in the
Schedule concerning the Interest Rate Hedging
Policy;
"ISDA Agreement" means a certain ISDA Master Agreement entered into
between the Company and a Lender, including the
Schedule attached to such ISDA Master Agreement,
and the confirm ations with respect to the Interest
Rate Hedging Products entered into between the
Company and such Lender under such ISDA Master
Agreement;
"KTE" means the limited liability company Kabeltelevisie
Eindhoven N.V., an
<PAGE>
21
(indirect) subsidiary of UPC, established at
Eindhoven;
"KTE Assets" means the assets of KTE contributed by KTE to the
Company pursuant to the notarial deed of
contribution executed by civil law notary, Mr Johan
F.L. Bakker in Amsterdam on February 3, 1998;
"KTE Institutional Loans" means the following existing loan agreements of
KTE:
(i) a NLG 25,000,000 (twenty-five million
Netherlands Guilders) loan, dated December 2,
1985 from the Algemeen Burgerlijk
Pensioenfonds;
(ii) a NLG 3,000,000 (three million Netherlands
Guilders) loan, dated January 21, 1985 from
the Stichting Pensioenfonds voor
Fysiotherapeuten;
(iii) a NLG 2,000,000 (two million Netherlands
Guilders) loan, dated January 21, 1985 from
the Stichting Pensioenfonds voor beambten in
de Schoenin dustrie en Lederwarenindustrie;
<PAGE>
22
(iv) a NLG 7,000,000 (seven million Netherlands
Guilders) loan, dated October 1, 1993 from
the N.V. Bank Nederlandse Gemeenten;
(v) a NLG 5,000,000 (five million Netherlands
Guilders) loan, dated May 15, 1994 from the
Stichting NMS Spaarbank;
"KTSB" means the limited liability company Kabeltelevisie
Son en Breugel B.V., established at Son en Breugel;
"Lenders" means the Initial Lender and each of the financial
institutions which, from time to time, may or shall
accede to this Agreement by way of a Participation
Agreement;
"Leverage Ratio" means in relation to any period the result obtained
by dividing all amounts of principal outstanding as
per the end of such period under the Financial Debt
by annualised EBITDA for such period;
"Loan" means the loan provided for in Section 3.01 or, as
the context may require, the aggregate principal
amount of all
<PAGE>
23
Disbursements from time to time outstanding as of
the Tranche B Stop Date;
"Majority of Lenders" means Lenders participating for at least 51%
(fifty-one per cent) in the Loan;
"Margin" means (i) until the Tranche A Stop Date 1.50% per
annum; and (ii) in the period thereafter, from time
to time, the percentage number in the column
opposite the Leverage Ratio achieved by the
Company, as follows:
Leverage Ratio Margin
-------------- ------
7.00 and up 1.60% p.a.
6.00 - 6.99 1.35% p.a.
5.00 - 5.99 1.10% p.a.
4.00 - 4.99 0.90% p.a.
3.00 - 3.99 0.70% p.a.
below 3.00 0.60% p.a.
as such Leverage Ratio is determined by the Agent
on each January 1, April 1, July 1 and October 1
upon receipt by the Agent of a certificate, duly
signed by the Chief Financial Officer of the
Company (and provided to the Agent simultaneously
with the
<PAGE>
24
quarterly management report referred to in Section
5.03(a)), setting forth the Leverage Ratio as
calculated by the Company over the calendar quarter
which is the subject of the quarterly management
report;
"Maturity Date" means December 31, 2007;
"Net Interest Expense" means (for the period of calculation) the interest
charges paid or accrued during such period under
the Financial Debt less the interest charges
received by or accrued to the Company;
"Net Working Capital" means the amount calculated as Current Assets
minus Current Liabilities;
"NLG" or
"Netherlands Guilders" means the current legal tender of the Netherlands;
"Participation Agreement" means an agreement among the Agent, an existing
Lender, the Company and any new Lender,
substantially in the form of SCHEDULE 5;
"Percentage Portion" means, save as otherwise provided herein, the
percentage portion with which a Lender is
participating in the
<PAGE>
25
Loan or remains participating in the Loan following
execution of a Participation Agreement in
accordance with the provisions of Section 7.01 and
as such Percentage Portion is set forth in the
Schedule to such Participation Agreement;
"Potential Event
of Default" means an event (i) which cannot or will not be
remedied and which, by the giving of notice and/or
the lapse of time, will constitute an Event of
Default, or (ii) which, in the absence of remedial
actions, will constitute an Event of Default by the
giving of notice and/or the lapse of time, except
for events that can and shall be remedied by the
Company in accordance with and within a period of
time that is in accordance with standard business
practice (unless it may not be reasonably expected
from the Agent to allow any such remedial period);
"Project A" means the refinancing of the Bridge Loan;
<PAGE>
26
"Project Accounts" means all of the Company's bank accounts,
including, without limitation, the bank account
under number 1010.69.928, and including all monies
and any deposits standing to the credit of the
Company made in or through such accounts;
"Project Agreements" means the agreements referred to in Sections
4.01(a) and 4.03(a) and each agreement or document
designated by the Agent and the Company to
constitute a Project Agreement and, in the
singular, means any one of such agreements;
"Project B" means the development and exploitation of enhanced
cable TV services (including expanded basic TV,
premium TV and interactive pay per view), data and
internet services and telephony services as further
described in the Agreed Base Case;
"Project C" means the refinancing of the Existing KTE Facility;
"Project D" means the acquisition of the cable networks of the
municipalities of Oirschot (including the cable
network
<PAGE>
27
in Oost-, West- and Middelbeers), Nuenen and Heeze-
Leende as well as the development and exploitation
of enhanced cable TV services (including expanded
basis TV, premium TV and interactive pay per view),
data and internet services and telephony services
as further described in the Agreed Base Case, as
amended;
"Projects" means Project A, Project B, Project C and project D
jointly;
"Security" means the security created by the Company to secure
all amounts owing by the Company to the Agent and
the Lenders under this Agreement, as detailed in
Sections 4.01(d) and 4.03(c);
"Shareholders' Equity" means (as of the date of calculation) the amount
paid up on the share capital of the Company;
"Subsidiary" means, of an entity, any other entity over fifty
per cent (50%) of whose share capital is owned,
directly or indirectly, by such entity or which is
otherwise effectively controlled by such entity;
<PAGE>
28
"Tranche A" means such part of the Loan as is equivalent to NLG
122,012,273 (one hundred and twenty-two million
twelve thousand and two hundred seventy-three
Netherlands Guilders) (for Project A) and NLG
65,000,000 (sixty-five million Netherlands
Guilders) (for Project C) (collectively the
"TRANCHE A AMOUNT") and which is, upon
disbursement, to be applied exclusively by the
Company to the financing of Project A and Project
C;
"Tranche A Stop Date" means April 29, 1998;
"Tranche B" means such part of the Loan as is equivalent to NLG
62,987,727 (sixty-two million nine hundred eighty-
seven thousand and seven hundred twenty-seven
Netherlands Guilders) (the "TRANCHE B AMOUNT") and
which is, upon disbursement, to be applied
exclusively by the Company to the financing of
Project B;
"Tranche B Stop Date" means December 31, 2000;
"Tranche C" means such part of the Loan as is equivalent to NLG
16,000,000 (sixteen million Netherlands Guilders)
(the
<PAGE>
29
"TRANCHE C AMOUNT") and which is, upon
disbursement, to be applied exclusively by the
Company to the financing of Project D;
"Tranche C Stop Date" means December 31, 1999;
"UPC" means United Pan-Europe Communications N.V.,
established at Amsterdam, the Netherlands;
"Working Capital Facility" means the working capital facility to be provided
by the Agent as lender to the Company as borrower;
SECTION 1.02. SINGULAR/PLURAL - PERSONS - REFERENCES - HEADINGS
(a) In this Agreement, unless the context otherwise requires, words denoting
the singular include the plural and vice versa, and words denoting persons
include corporations, partnerships, and other legal persons.
(b) In this Agreement, references to a specified Article, Section or Schedule
shall be construed as a reference to that specified Article, Section or
Schedule of this Agreement.
(c) The headings and the Table of Contents are inserted for convenience of
reference only and shall not affect the interpretation of this Agreement.
<PAGE>
30
ARTICLE II REPRESENTATIONS AND WARRANTIES
SECTION 2.01. PROJECT AND PROJECT COST
The Company represents and warrants that as of the date of this Agreement the
Projects conform in all material respects with the description thereof included
in the Agreed Base Case, taking into account any agreed Deviation (as defined in
Section 5.01(a)) or amendment of the Agreed Base Case as referred to in Section
5.02(e)(4) or as is agreed upon between the Company and the Agent.
<PAGE>
31
SECTION 2.02. INFORMATION PROVIDED BY THE COMPANY
The Company represents and warrants, as of the date of this Agreement, that the
Agreed Base Case and the Information Package were prepared after due and careful
inquiry, based upon historical financial information and upon the assumptions
set forth therein, which assumptions were reasonable when made and are
reasonable as of the date of this Agreement and (taken together) represent
projections and forecasts which are not in a material way inconsistent with the
Company's actual range of projections and forecasts of its financial position,
including the financial position of its Subsidiaries, taking into account any
agreed Deviation (as defined in Section 5.01(a)) or amendment of the Agreed Base
Case as referred to in Section 5.02(e)(4) or as is agreed upon between the
Company and the Agent.
SECTION 2.03. REPRESENTATIONS AS TO THIS AGREEMENT
The Company represents and warrants as follows:
(a) it has the corporate power to enter into this Agreement;
(b) this Agreement has been duly authorized and executed by the Company and
constitutes valid and legally binding obligations of the Company,
enforceable in accordance with its terms; and
(c) the entering into this Agreement and the borrowing contemplated thereby
and (when all the consents referred to in Section 4.01(c) have been
obtained) the compliance with
<PAGE>
32
its terms will not result in violation of the Company's Charter, nor will
it result, in any material respect, in violation of any provision
contained in any agreement or instrument to which the Company is a party
or by which the Company is bound or in any law, regulation, judgment or
decree applicable to the Company.
SECTION 2.04. ACKNOWLEDGEMENT AND WARRANTY
The Company acknowledges that it has made the representations referred to in
Sections 2.01, 2.02 and 2.03 with the intention of persuading the Agent and
Lenders to enter into this Agreement and that the Agent and Lenders have entered
into this Agreement on the basis of, and in full reliance on, each of such
representations. The Company warrants to the Agent and the Lenders that each of
such representations is true and correct in all material respects as of the date
of this Agreement and that none of them omits any matter the omission of which
makes any of such representations misleading.
SECTION 2.05 REPETITION OF REPRESENTATIONS AND WARRENTIES
In case of an amendment to or modification of this Agreement and/or any of the
Schedules hereto, including but not limited to the Agreed Base Case and the
Information Package, the Company shall be deemed to repeat the representations
and warranties as set forth in the above Sections 2.01 up to and including 2.04
(except with respect to the Information Package and in the case of Sections 2.01
and 2.02 taking into account any agreed Deviation (as defined in
<PAGE>
33
Section 5.01(a)) or amendment of the Agreed Base Case as referred to in Section
5.02(e)(4) or as may be agreed upon between the Company and the Agent) on and as
of the date of such amendment or modification, with reference to facts and
circumstances then existing, regardless whether such amendment or modification
will be recorded in an amendment agreement to this Agreement.
ARTICLE III LOAN
SECTION 3.01. AMOUNT AND CURRENCY
Subject to the terms and conditions of this Agreement, the Lenders agree to lend
to the Company and the Company agrees to borrow from the Lenders the aggregate
amount of up to NLG 266,000,000 (two hundred sixty-six million Netherlands
Guilders).
SECTION 3.02. DISBURSEMENTS
(a) The Loan shall be disbursed by the Lenders from time to time upon the
Company's request, in the form of SCHEDULE 6, irrevocable by the Company
and in substance satisfactory to the Agent, an original of which shall be
delivered to the Agent at least five (5) Business Days prior to the
proposed date of the Disbursement.
(b) Disbursements shall be made:
<PAGE>
34
(1) in respect of Tranche A: for amounts which are a multiple of NLG
5,000,000 (five million Netherlands Guilders) and with a minimum of
NLG 10,000,000 (ten million Netherlands Guilders);
(2) in respect of Tranche B and Tranche C: for amounts which are a
multiple of NLG 1,000,000 (one million Netherlands Guilders) and with
a minimum of NLG 5,000,000 (five million Netherlands Guilders).
SECTION 3.03. INTEREST
(a) Except as provided in Section 3.10, the Company shall pay interest to the
Agent, for distribution to the Lenders, as the case may be, on the
principal amount of each Disbursement under the Loan from time to time
outstanding during each Interest Period at a rate equal to the sum of the
Margin and the Interbank Rate for such Interest Period.
(b) Interest shall:
(1) accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period;
(2) be calculated on the basis of actual number of days elapsed and a
360-day year; and
<PAGE>
35
(3) be due and payable on each Interest Payment Date of a Disbursement.
(c) On each Interest Determination Date, the Agent shall determine the
Interbank Rate and the Margin applicable during the relevant Interest
Period and promptly give notice thereof to the Company and each Lender.
Each determination by the Agent of the Interbank Rate and the Margin
applicable to any Disbursement shall be final and conclusive and shall be
binding upon the Company and each Lender unless shown by the Company to
the satisfaction of the Agent that any such determination is based on
manifest error.
SECTION 3.04. SUSPENSION AND CANCELLATION
(a) From time to time while the Loan is being disbursed, the Agent may, by
notice to the Company, suspend or cancel the right of the Company to
further Disbursements if an Event of Default or a Potential Event of
Default shall have occurred and be continuing.
(b) Upon the giving of such notice, the right of the Company to further
Disbursements shall be suspended or cancelled as indicated in the notice.
The exercise by the Agent of the right of suspension shall not preclude
the Agent from exercising its right of cancellation as provided in this
Section, either for the same or another reason, and shall not limit any
other provision of this Agreement.
<PAGE>
36
(c) The rights of the Company to (further) Disbursements shall cease
automatically, without any notice being required, in respect of Tranche A:
at the Tranche A Stop Date and the Tranche A Amount, to the extent not
disbursed hereunder as per the Tranche A Stop Date, shall be cancelled at
the Tranche A Stop Date; in respect of Tranche B: at the Tranche B Stop
Date and the Tranche B Amount, to the extent not disbursed hereunder as
per the Tranche B Stop Date, shall be cancelled at the Tranche B Stop Date
and in respect of Tranche C: at the Tranche C Stop Date and the Tranche C
Amount, to the extent not disbursed hereunder as per the Tranche C Stop
Date, shall be cancelled at the Tranche C Stop Date.
(d) The Company may at any time cancel the undrawn portion of the Tranche A
Amount, the Tranche B Amount or the Tranche C Amount, in whole or in part,
but in any event in multiples of NLG 5,000,000 (five million Netherlands
Guilders) or the remaining balance upon full repayment of the Loan, and
subject to 10 (ten) Business Days irrevocable prior written notice by the
Company to the Agent; amounts so cancelled shall not be available for
subsequent disbursement.
SECTION 3.05. COMMITMENT FEE AND OTHER FEES
(a) The Company shall pay to the Agent for distribution among the Lenders a
commitment fee at the rate of 0.325% per annum on so much of the Loan as
shall not, from time to time, have been cancelled by the Agent or the
Company or disbursed to
<PAGE>
37
the Company. The commitment fee shall accrue from day to day as of the
date of execution of this Agreement and shall be prorated on the basis of
a 360-day year for the actual number of days in the relevant period. The
commitment fee shall be payable quarterly in arrears and for the first
time on March 31, 1998.
(b) The Company shall pay to the Agent an arrangement fee in an amount agreed
separately by the Company and the Agent.
(c) The Company shall also pay to the Agent an annual agency fee in an amount
agreed separately by the Company and the Agent.
SECTION 3.06. REPAYMENT
(a) The Loan as outstanding as at the Tranche B Stop Date shall be repaid on
the dates and in the amounts as set forth in SCHEDULE 7.
(b) If any repayment pursuant to Section 3.06(a) would require the prepayment
of a Disbursement in whole or in part before the last day of its Interest
Period, the Company shall reimburse the Lenders for any Breakage Cost,
without prejudice to the provisions in Section 3.07.
SECTION 3.07(A). VOLUNTARY PREPAYMENT
<PAGE>
38
(a) The Company shall have the right at any time, on not less than 10 (ten)
Business Days' notice to the Agent to prepay at the end of the relevant
Interest Period all or a part of the principal amount of a Disbursement
then outstanding; provided that, in either case, all accrued interest,
Breakage Costs (if any) and Increased Costs (if any) on the principal
amount of the Disbursement to be prepaid and all other amounts due
hereunder are paid at the same time; and provided further that, in the
case of partial prepayment, such prepayment:
(1) shall be in an amount of NLG 5,000,000 (five million Netherlands
Guilders), or multiples thereof;
(2) shall be applied (to prepay) pro rata the outstanding repayment
instalments of the Loan as referred to in Section 3.06; and
(3) shall be applied to (prepay) each Lender pro rata to its Percentage
Portion.
(b) Upon delivery of the notice described in subsection (a) above, the Company
shall be obligated to effect prepayment in accordance with the terms
thereof; any amount prepaid under this section 3.07(a) shall not be
available for subsequent disbursement.
(c) Any Breakage Costs incurred by the Lenders following a voluntary
prepayment shall be reimbursed by the Company to the Lenders on the date
of such prepayment.
<PAGE>
39
SECTION 3.07(B). MANDATORY PREPAYMENT
(a) As from the Tranche B Stop Date, the Company is required to apply 50%
(fifty per cent) of the Excess Cash Flow to the prepayment of the
principal amount of the Loan then outstanding.
(b) Such mandatory prepayment will take place on the maturity date of an
Interest Period of one or more Disbursements, the principal amount of
which is equal to or higher than the amount to be prepaid by the Company
or on March 31, whichever is the earlier following receipt by the Agent of
--
the certificate duly signed by the Chief Financial Officer of the Company
to be provided by the Company pursuant to Section 5.03(a)(6) and setting
forth the Disbursements so to be prepaid by the Company.
(c) Any mandatory prepayments shall be applied (to prepay) in inverse order
the outstanding repayment instalments of the Loan referred to in Section
3.06, and such prepayments shall be applied (to prepay) each Lender pro
rata to its Percentage Portion.
(d) Any amounts prepaid under this Section 3.07(b) shall not be available for
subsequent disbursement.
(e) Any Breakage Costs incurred by the Lenders as a result of a prepayment
under Sub-section (b) above, shall be reimbursed by the Company to the
Lenders on the date of such prepayment.
<PAGE>
40
SECTION 3.08. PAYMENTS
(a) Payments of principal, interest, fees, default interest under Section
3.10, Increased Costs and any other payments due to the Agent and/or the
Lenders under this Agreement shall be made in Netherlands Guilders, for
value on the due date, and into such bankaccount(s) as the Agent shall
from time to time designate; provided, however, that as of the date the
Netherlands Guilder shall have been replaced by the Euro and shall no
longer be the lawful currency of the Netherlands, all such payments shall
be made in Euro.
(b) Save as otherwise provided for in this Agreement, each payment received by
the Agent for the account of a Lender, shall be made available by the
Agent to that Lender, for value the same day by transfer of such amount to
such account as shall have been designated by that Lender.
(c) Amounts payable to the Agent, the Lenders or any of them under this
Agreement shall be paid on the day such amounts are due and payable,
provided that if such a day is not a Business Day such payment shall be
made the next succeeding Business Day, unless such next succeeding
Business Day falls within the next calendar month, in which case such
payment shall be made on the immediately preceding Business Day.
(d) Payments made by the Company to the Agent (for the benefit of the Lenders)
hereunder or under any other agreements to which
<PAGE>
41
the Lenders and the Agent are a party, shall be allocated and applied
against costs, expenses, fees, default interest, interest and principal,
in that order.
(e) Payment of any and all amounts due under this Agreement shall be made by
the Company without reference to any set-off, suspension or counterclaim
and shall be made without any deduction for any set-off, suspension or
counterclaim.
SECTION 3.09. INSUFFICIENT PAYMENTS
(a) If the Agent shall at any time receive less than the full amount then due
and payable to it or any of the Lenders under this Agreement, the Agent
shall have the right to allocate and apply such payment in any way or
manner and for such purpose or purposes under this Agreement as the Agent
in its sole discretion shall determine, notwithstanding any instruction
that the Company may give to the contrary.
(b) The obligation of the Company to make payments in Netherlands Guilders in
accordance with Section 3.08 shall not be deemed to have been discharged
or satisfied by any tender of (or recovery under judgement expressed in)
any currency other than Netherlands Guilders, except as provided in the
proviso of Section 3.08(a) or to the extent to which such tender (or
recovery) shall result in the effective payment of such aggregate amount
in Netherlands Guilders at the place specified pursuant to this Agreement
and, accordingly, the amount (if any) by which such tender (or recovery)
shall fall
<PAGE>
42
short of such aggregate amount shall be and remain due to the Agent or the
Lenders, as the case may be, as a separate obligation, unaffected by
judgement having been obtained (if such is the case) for any other amounts
due under or in respect of this Agreement.
SECTION 3.10. DEFAULT INTEREST
(a) If the Company fails to pay fully and timely any amount payable by it
under this Agreement, for whatever reason, the overdue amount shall bear
interest at the relevant Default Interest Rate, calculated in accordance
with this Section.
(b) Default interest shall
(1) accrue from day to day from the due date to the date of actual
payment, as well after as before judgement,
(2) be prorated on the basis of a 360-day year for the actual number of
days in the relevant Default Interest Period,
(3) be compounded at the end of each Default Interest Period, and
(4) be payable forthwith upon demand.
(c) The Default Interest Rate shall be the sum of:
<PAGE>
43
(1) 1 1/2% (one and one half of one per cent) per annum, and
(2) the Margin, and
(3) the rate of interest offered in the Amsterdam InterBank market for a
deposit in Netherlands Guilders of an amount comparable to the
overdue amount for successive periods of such duration (whether days,
weeks or months) as the Agent may determine;
provided, however, that, if the Agent determines that deposits in
Netherlands Guilders are not being offered in the Amsterdam interbank
market in such amounts or for such period, the Default Interest Rate
shall be determined by reference to the cost of funds to the Agent
from whatever sources it selects.
(d) Each determination by the Agent of the Default Interest Period and the
Default Interest Rate shall be final and conclusive and shall be binding
upon the Company and each Lender, except in case of manifest error.
<PAGE>
44
SECTION 3.11. TAX GROSS UP
The Company shall pay or cause to be paid all present and future taxes, duties,
fees and other charges of whatsoever nature, if any, now or at any time
hereafter levied or imposed by the Government of the Netherlands or by any
department, agency, political subdivision or taxing or other authority thereof
or therein or by any organization of which the Netherlands are a member, on or
in connection with the payment of any and all amounts due under this Agreement,
and all payments of principal, interest and other amounts due under this
Agreement shall be made without deduction for or on account of any such taxes,
duties, fees or other charges; provided, however, that in the event the Company
is prevented by operation of law or otherwise from paying or causing to be paid
such taxes, duties, fees or other charges, the principal or (as the case may
be), interest or other amounts due under this Agreement shall be increased to
such amount as may be necessary to yield and remit to the Agent or the Lenders,
as the case may be, the full amount such party would have received had such
taxes, duties, fees or other charges not been levied or imposed.
SECTION 3.12. UNWINDING COSTS
(a) The Agent shall notify the Company of any costs (including, without
limitation, Breakage Costs), expenses and losses incurred by the Agent or
(any of) the Lenders as a result of:
(1) any failure by the Company to pay any amount payable under this
Agreement on its due date;
<PAGE>
45
(2) any failure by the Company to borrow in accordance with a request for
disbursement made pursuant to Section 3.02;
(3) any prepayment of all or any portion of the Loan or any Disbursement
or any failure by the Company to make any prepayment in accordance
with a notice of prepayment pursuant to Section 3.07(a), or as
required under Section 3.07(b);
(4) any cancellation of all or any portion of the Loan pursuant to
Section 3.04;
(5) any acceleration of all or any portion of the Loan pursuant to
Section 6.01 or 6.02; or
(6) any other circumstance that causes the Agent and/or the Lenders to
unwind its/their funding or hedging arrangements in respect of the
Loan.
Forthwith upon receipt by the Company of such notice, the Company shall
pay to the Agent the net amount of any such costs, expenses, losses.
(b) For purposes of Section 3.12(a) above, "costs, expenses and losses
incurred by the Agent or (any of) the Lenders" shall include, without
limitation, any interest paid or payable by the Agent or (any of) the
Lenders to fund or carry any unpaid amount and any loss, premium, penalty
or expense that may be
<PAGE>
46
incurred in liquidating or employing deposits or derivative hedging
transactions with, or borrowings from, third parties in order to make,
maintain or fund a Disbursement or any portion thereof (but in the case of
a late payment, after taking into account any default interest received
under Section 3.10).
SECTION 3.13. INCREASED COSTS
(a) On each Interest Payment Date, the Company shall pay the amount, if any,
which the Agent shall notify to the Company as being the Increased Costs
accrued and unpaid prior to such Interest Payment Date.
(b) For the purposes of subsection (a) above, the term "Increased Costs" means
the net incremental cost (or reduction in rate of return on assets or
equity of a Lender or its holding company) to one or more of the Lenders
of making or maintaining its or their Percentage Portion of the Loan which
results from the introduction of any applicable law or any change in
applicable law or regulation or in the interpretation thereof by any
governmental or regulatory authority charged with the administration
thereof which imposes on such Lender(s) any condition regarding the making
or maintaining of its/their Percentage Portion of the Loan.
(c) A Lender intending to make a claim for Increased Costs shall endeavour to
(i) notify the Company through the Agent as promptly as practicable of the
introduction of any applicable
<PAGE>
47
law or any change in applicable law or regulation or in the interpretation
thereof by any governmental authority or regulatory authority charged with
the administration thereof that could result in the Company having to pay
Increased Costs pursuant to Sub-section (a) above and (ii) provide the
Company through the Agent with a certificate reasonably setting out the
details (including the cause) as to such Increased Costs, provided that
nothing herein shall require such Lender to disclose any confidential
information relating to its organisation or its affairs, and provided that
the amount to be reimbursed as "Increased Costs" shall commence to accrue
as of the date of such notice.
ARTICLE IV - CONDITIONS OF DISBURSEMENT
SECTION 4.01. CONDITIONS OF FIRST DISBURSEMENT
The obligation of the Lenders to make the first Disbursement under this
Agreement shall be subject to the performance by the Company of all its
obligations theretofore to be performed under this Agreement and to the
fulfilment, in a manner satisfactory to the Agent (acting reasonably), prior to
or concurrently with the making of such first Disbursement, of the following
further conditions:
(a) the following agreements, each in form and substance satisfactory to the
Agent, shall have been entered into between the respective parties thereto
(if they have not
<PAGE>
48
already been entered into), shall have become (or, as the case may be,
shall remain) unconditional and fully effective in accordance with their
respective terms (except for this Agreement having become unconditional
and fully effective, if that is a condition of any of such agreements) and
to the extent the Agent is not a party to any such agreement, it shall
have received a certified copy thereof:
(1) a Project Support Agreement among the Agent, the Initial Lender, the
Company and UPC, whereby UPC shall inter alia undertake the following
(or, where applicable, UPC shall procure the following):
(i) UPC shall irrevocably and in a manner satisfactory to the
Agent either make an equity contribution at par and for
ordinary share capital to the Company of NLG 95,000,000
(ninety-five million Netherlands Guilders) or cause such
equity contribution to be made by any of its Subsidiaries;
(ii) no change will be made to the Company's Charter nor shall
the Company be liquidated, without the prior written consent
of the Agent;
(iii) UPC will not reduce its direct or indirect voting rights
below 51% (fifty-one per cent) or discontinue to be a direct
or indirect shareholder of the Company without the prior
written consent of the Agent, such consent not
<PAGE>
49
to be unreasonably withheld, provided that the pledge and
grant of a security interest by Belmarken Holding N.V. in
its shareholding in Cable Networks Netherlands Holding B.V.
(the "INTEREST"), and (in certain circumstances) the
transfer of voting rights attached to the Interest, as a
part of a financing arrangement with The Toronto Dominion
Bank (acting for itself and on behalf of a syndicate of
banks) will be permitted;
(iv) UPC will not require or accept the payment of dividends,
capital distributions or any other distributions by or on
behalf of the Company which are violating Section 5.02;
(v) UPC and/or the company which shall, at any time, be the
direct shareholder of the Company will acknowledge and
accept the subordination referred to in Section 4.01(d)(ix);
(2) the General Services Agreement in form and substance reasonably
satisfactory to the Agent;
(b) the Charter of the Company shall be in form and substance satisfactory to
the Agent;
(c) there shall have been obtained all required and relevant governmental,
corporate, creditors', shareholders' and other licenses, approvals or
consents for:
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50
(1) the financing by the Lenders under this Agreement;
(2) the carrying on of the business of the Company as it is presently
carried on and is contemplated to be carried on;
(3) the carrying out of the Projects in accordance with the Agreed Base
Case;
(4) the due execution and delivery of, and performance under, this
Agreement, the Project Agreements, the Security and any documents in
implementation of any thereof; and
(5) the remittance to the Agent and the Lenders or their respective
assigns of all monies payable in respect of this Agreement and the
Security;
(d) the Security, consisting of the following:
(i) mortgage rights over all of the Company's land, buildings and
other immovable properties, including, without limitation, the
real property used by or necessary in connection with the
operation of the cable network of the Company;
(ii) mortgage rights over all the Company's leaseholds ("erfpacht")
and rights of building ("recht van opstal");
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51
(iii) a non-possessory pledge on all movable tangible assets of the
Company;
(iv) a non-disclosed pledge on all of the Company's rights and
proceeds under the General Business Agreements and the Project
Agreements;
(v) a non-disclosed pledge on the Company's rights and proceeds under
the insurance policies specified in Section 5.01(c)(1), except
for third party liability insurance;
(vi) a non-disclosed pledge on the Company's receivables;
(vii) a pledge on the Project Accounts;
(viii) a pledge on all shares in the capital of the Company, provided
that the right to vote and receive dividends will be retained by
the Company's shareholder until an Event of Default or Potential
Event of Default has occurred and is continuing;
(ix) subordination of all loans provided to the Company by UPC or any
of its Affiliates and Subsidiaries and subordination of all fees,
costs and other amounts payable to UPC or any of its Affiliates
and Subsidiaries, except that the management fees referred to in
Section 5.04(g) will not be
<PAGE>
52
subordinated, subject to the provisions of the Project Support
Agreement;
shall have been created and perfected in a manner satisfactory to the
Agent (acting reasonably).
(e) the Agent shall have received a legal opinion or opinions addressed to the
Agent and the Initial Lender, in form and substance satisfactory to the
Agent (acting reasonably), of counsel acceptable to the Agent (including,
without limitation, opinion statements to the effect that:
(1) the Company is duly incorporated and validly existing under the laws
of The Netherlands;
(2) the Company has the corporate power and authority to enter into this
Agreement, the Project Agreements, the General Business Agreements
and the Security and to exercise its rights and perform its
obligations thereunder;
(3) the Company has taken all required corporate action in connection
with the execution delivery, and performance of its obligations under
the documents referred to in (2);
(4) the Company has validly executed and delivered the documents referred
to in (2);
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53
(5) the Company's obligations thereunder are the legal valid and binding
obligations of the Company, enforceable in accordance with their
terms;
(6) the execution, delivery and performance by the Company of the
documents referred to in (2) does not conflict with, or result in a
breach of any provision of its Charter or the laws of the
Netherlands;
(7) no authorization, consent or approval of and no licence or order of
any court, governmental entity or body of the Netherlands is required
in connection with the execution and delivery of and the performance
by the Company of its obligations under the documents referred to in
(2) (except as shall have been obtained);
(8) no filings and registrations are necessary (except as have been
effected);
(9) each of the documents in respect of the Security creates a valid,
binding and enforceable security right as purported in such
documents;
(f) the Agent shall have been provided with the Insurance Report;
(g) the Agent shall have been provided with the certificate referred to in
Section 8.02;
(h) the Company shall have acquired legal or beneficial ownership of the KTE
Assets, the Combivisie Assets and the shares of
<PAGE>
54
KTSB, free and clear of any mortgages, pledges, attachments or limited
rights; except that it is acknowledged and accepted by the Agent that the
Company (or KTSB, as the case may be) may not have acquired the ownership
to the cable networks as such;
(i) UPC shall have fully paid up, or caused a Subsidiary to pay up, the share
capital referred to in subsection(a)(1) above;
(j) the Company shall have delivered to the Agent a notice in the form of
SCHEDULE 6, requesting a Disbursement on February 20, 1998, to repay in
full the Existing KTE Facility and the Bridge Loan.
SECTION 4.02. CONDITIONS FOR ANY DISBURSEMENT
(a) The obligation of the Lenders to make any Disbursement (including, for the
avoidance of doubt, the first Disbursement) shall also be subject to the
conditions that, on the date of the Company's request for such
Disbursement and on the date of such Disbursement:
(1) the representations and warranties confirmed or made in Article II
(except with respect to the Information Package) shall be true on and
as of such dates with the same effect as if such representations and
warranties had been made on and as of such dates (but in the case of
Section 2.03(c), without the words in parenthesis and in the case of
Sections 2.01 and 2.02 taking into
<PAGE>
55
account any agreed Deviation (as defined in Section 5.01(a)) or
amendment as referred to in Section 5.02(e)(4) or as may be agreed
upon between the Company and the Agent;
(2) no Event of Default and no Potential Event of Default shall have
occurred and be continuing;
(3) as a result of such Disbursement the Company shall not be in
violation of its Charter, nor will it result in any material respect
in violation of any provision contained in any agreement or
instrument to which the Company is a party (including this Agreement)
or by which the Company is bound, or any law, regulation, judgement
or decree applicable to the Company;
(4) nothing shall have occurred which might materially adversely affect
the carrying out of the Projects or the Company's business, its
economic or financial condition, or which is likely to materially
adversely affect the ability of the Company to perform any obligation
under the Financial Debt, or which is likely to adversely affect the
validity or enforceability of the Financial Debt, the Security or any
Project Agreement; nor shall the Company have incurred any material
loss or liability (except such liabilities as may be incurred by the
Company in accordance with the provisions of Section 5.02);
<PAGE>
56
(5) no actions, suits or proceedings before any court, tribunal or
governmental authority are pending or threatened against the Company
or any of its assets or revenues which may materially adversely
affect the Company's ability to carry out the Projects or its
business;
(6) the proceeds of such Disbursement shall be needed immediately by the
Company for the purposes of Project A, Project B, Project C or
Project D, as the case may be.
(b) The obligation of the Lenders to make any Disbursement (including, for
the avoidance of doubt, the first Disbursement) shall also be subject to
the condition that the Company shall have delivered to the Agent a
certificate, in the form of SCHEDULE 6 and in substance satisfactory to
the Agent, with respect to the conditions provided in subsection (a)
above, signed by an authorized representative of the Company, together
with such evidence as to the proposed utilization of the proceeds of the
relevant Disbursement and the utilization of the proceeds of any prior
Disbursement as the Agent shall reasonably require.
SECTION 4.03 CONDITIONS OF FIRST DISBURSEMENT UNDER TRANCHE C
The obligation of the Lenders to make the first Disbursement under Tranche C
shall be subject to the performance by the Company of all its obligations
theretofore to be performed under this Agreement
<PAGE>
57
and to the fulfilment, in a manner satisfactory to the Agent (acting
reasonably), prior to or concurrently with the making of such first Disbursement
under Tranche C, of the following further conditions:
(a) an amendment agreement to the Project Support Agreement dated February 20,
1998 among the Agent, the Initial Lender, the Company and UPC, in form and
substance satisfactory to the Agent, shall have been entered into between
the respective parties thereto and shall have become (or, as the case may
be, shall remain) unconditional and fully effective in accordance with its
terms (except for this Agreement having become unconditional and fully
effective);
(b) all required and relevant governmental, corporate, creditors',
shareholders' and other licenses, approvals or consents shall have been
obtained for:
(1) the financing by the Lenders under this Agreement;
(2) the carrying on of the business of the Company as it is presently
carried on and is contemplated to be carried on;
(3) the carrying out of Project D in accordance with the Agreed Base
Case;
(4) the due execution and delivery of, and performance under, this
Agreement, the Project Agreements, the
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58
Security and any documents in implementation of any thereof; and
(5) the remittance to the Agent and the Lenders or their respective
assigns of all monies payable in respect of this Agreement and the
Security;
(c) the Security, consisting of the rights as specified under Section 4.01(d),
shall have been created and perfected in a manner satisfactory to the
Agent (acting reasonably) with regard to any assets forming part of or
related to the cable networks of Oirschot (including the cable network in
Oost-, West- and Middelbeers), Nuenen and Heeze-Leende;
(d) the Agent shall have received a legal opinion or opinions addressed to
the Agent and Initial Lender, in form and substance and containing
statements as specified under Section 4.01(e);
(e) the Agent shall have been provided with the Insurance Report;
(f) the Company shall have acquired legal or beneficial ownership of the cable
networks of Oirschot (including the cable network in Oost-, West- and
Middelbeers), Nuenen and Heeze-Leende, free and clear of any mortgages,
pledges, attachments or limited rights; except that it is acknowledged and
accepted by the Agent that the Company may not have acquired the ownership
of the cable networks as such;
(g) UPC shall have fully paid up, or caused a Subsidiary to pay up, an
additional share capital of NLG 4,000,000 (four
<PAGE>
59
million Netherlands Guilders) in addition to the share capital referred to
in Section 4.01(a)(1);
(h) the Agent shall have been provided with evidence that letters have been
sent to the respective municipalities, as listed in SCHEDULE 10,
concerning the abandonment of any ownership rights of the cable networks
by these municipalities in favour of the Company;
(i) the Agent shall have been provided with evidence that all necessary
permits, governmental approvals and licenses are in full force and effect
and complied with by the Company."
(j) the Company shall have provided evidence that it has used its best effort
to have the municipalities of Oirschot, Nuenen and Heeze-Leende sign the
letters included in SCHEDULE 13 hereto;
ARTICLE V - PARTICULAR COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS
Unless the Agent shall otherwise consent (which consent shall not unreasonably
be withheld), the Company shall:
(a) carry out the Projects materially in accordance with the Agreed Base Case
and cause the financing specified in the Agreed Base Case to be applied
exclusively to the Projects,
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60
provided however, that the Company may deviate from the Agreed Base Case
(i) after due and careful review of the assumptions underlying the Agreed
Base Case, and (ii) such deviation has been reflected in a revised
financial model prepared by the Company, provided that the Company will
only be obligated to produce such a revised financial model if the
deviation is likely to result in a material risk that the Company will not
be able to comply with the financial covenants set forth in Section 5.04
or that the Company will not be able to meet its payment obligations under
the Financial Debt, thereby taking into account the interests of the
Lenders in the Projects (a "DEVIATION") and provided always that the
Company will inform the Agent of such Deviation in accordance with Section
5.03(a)(3).
(b) conduct its business with due diligence and efficiency and in accordance
with sound financial and business practices; and maintain such service and
repair equipment and network(s) and other properties as are necessary to
properly conduct the Company's business in accordance with its approved
maintenance programs and standard industry practice, so as to keep such
equipment and other properties and networks duly certified and in good
operating condition, ordinary wear and tear excepted;
(c) keep its equipment, network(s) and other properties insured:
(1) with financially sound and internationally reputable insurers,
acceptable to the Agent, against loss or damage in such manner and to
the same extent as shall
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61
be no less than is generally accepted with respect to property and
business of like character in the Netherlands, such insurance to
include:
(a) construction all risk insurance;
(b) material damage insurance;
(c) machinery breakdown insurance;
(d) business interruption insurance;
(e) third party liability insurance;
(f) environmental liability insurance;
(g) employers' liability insurance;
and such other insurance as the Insurance Advisor, after consultation
with the Company and the Agent, may deem necessary or advisable;
(2) with the Agent being named as loss payee and the Agent and the
Lenders being named as additional insured (as the Agent may require)
under such insurance policies, provided, however, that the loss payee
provisions will only be applicable in case of insurance proceeds in
excess of an amount to be agreed upon between the Company and the
Agent ultimately 3 (three) months after the date of this Agreement;
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62
(3) under such other conditions as the Agent may require; and
the Agent shall (at its own cost and expense) request advice on the
insurance mentioned in paragraph (1) hereof from the Insurance Advisor and
the Company shall comply or procure compliance with the recommendations
set forth in the Insurance Report;
(d) maintain books of account and other records adequate to reflect truly and
fairly the financial condition of the Company and the results of its
operations (including the progress of the Projects) in conformity with
Generally Accepted Accounting Principles;
(e) maintain as Auditors of the Company an internationally recognized firm of
independent public accountants; authorize, by letter in the form of
SCHEDULE 8, a copy of which shall be provided to the Agent, the Auditors
to communicate directly with the Agent at any time regarding the Company's
accounts and operations should an Event of Default or a Potential Event of
Default have occurred and be continuing;
(f) obtain, comply with and maintain in force (or, where appropriate, renew)
all governmental, corporate, creditors', shareholders' and other necessary
licenses, approvals or consents required for the purposes described in
Sections 4.01(c) and 4.03(b) and perform and observe all the conditions
and restrictions contained in, or imposed on the
<PAGE>
63
Company by, such licenses, approvals or consents, to the extent that
failure to do so should reasonably be expected to have a material and
adverse effect on the Company's ability to perform any of its obligations
under this Agreement, any of the Project Agreements or the Security;
(g) create, perfect and maintain (or, where appropriate, renew) the Security
in a manner satisfactory to the Agent and create, perfect and maintain
security rights for the benefit of the Lenders on any and all future
rights, assets or revenues not covered by the Security, to the extent
allowed by applicable law;
(h) pay all taxes (including stamp taxes), duties, fees or other charges
payable on, or in connection with, the execution, issue, delivery,
registration or authorisation of this Agreement, any Project Agreement,
the Security, and any other documents related to this Agreement, and, upon
notice from the Agent, reimburse the Agent and the Lenders or their
assigns for any such taxes, duties, fees or other charges paid by the
Agent and the Lenders or their assigns thereon;
(i) pay to the Initial Lender or as the Initial Lender may direct:
(1) the fees and expenses of the Initial Lender's technical and market
consultants incurred in connection with this Agreement, provided that
the fees and expenses of the market consultant(s) incurred up to and
including December 10, 1997 shall be borne by the Initial Lender;
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64
(2) the fees and expenses of the Initial Lender's legal counsel incurred
in connection with:
(A) the preparation of the financing contemplated hereby (except
for the costs of the legal due diligence performed by such
counsel up to and including December 10, 1997);
(B) the preparation, review, execution and, where appropriate,
registration of this Agreement, any Project Agreement, the
Security and any other documents related to this Agreement;
and any amendment or modification thereto including any
additional legal due diligence in relation to such amendment
or modification, or waiver thereunder;
(C) the giving of any legal opinions required by the Agent and
any Lender hereunder;
and
(3) reasonable attorneys' and other fees and expenses incurred by the
Agent and the Lenders in respect of the collection of any amount
owing to the Agent and the Lenders under this Agreement or the
Security through any process of law or with the assistance of
attorneys.
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65
(j) maintain the Project Accounts with the Agent and procure that any and all
receipts of and payments by the Company will flow through, and all cash
balances will be held in the Project Accounts;
(k) maintain and, where necessary, amend, replace, substitute or renew the
General Business Agreements, all of the foregoing so as to enable the
Company to comply with the Agreed Base Case (including any agreed
Deviation (as defined in Sub-section 5.01(a));
(l) if so requested by the Agent and if justified in view of a deteriorated
financial position of the Company, procure that in case an Event of
Default or a Potential Event of Default occurs, (i) the counterparties of
the Company under the Project Agreements, (ii) the counterparties of the
Company under any other agreements the Agent and the Company may select
and (iii) any license or permit issuing authorities the Agent and the
Company may select, will be requested to acknowledge and accept the
transfer of the Company's rights and obligations under such agreements,
licenses and/or permits, as the case may be, to the Agent or to a company
or entity designated by the Agent to carry on the Company's business and
to carry out the Projects;
(m) if so requested by the Agent within 45 days following receipt by the Agent
of the report mentioned in Section 5.03(a)(3), (i) discuss with the Agent
the nature and scope of any Deviation (as defined in Section 5.01(a)),
whereby the Agent shall be entitled to retain independent advice on such
Deviation and the assumptions underlying such Deviation from
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66
Arthur D. Little Inc. (or such other advisor as the Agent and the Company
may mutually agree) and (ii) if the Agent after such consultations
reasonably determines that the Deviation will result in a material risk
that the Company will not be able to comply with the financial covenants
set forth in Section 5.04 or that the Company will not be able to meet its
payment obligations under the Financial Debt, procure repayment of the
Loan in full, including interest accrued thereon (together with any other
amounts accrued or payable under this Agreement), and the Company will be
obligated to procure such repayment within 4 (four) months after the Agent
has made the determination set forth above, in which event the Company
shall also be obligated to reimburse the fees and expenses of the
independent advisor referred to above;
(n) the Company will procure compliance with and implementation of the
Interest Rate Hedging Policy and will, ultimately as per December 29,
2000, to the extent necessary, have entered into Interest Rate Hedging
Products, acceptable to the Agent, that will comply with the Interest Rate
Hedging Policy for such period.
(o) use its best efforts to secure that ultimately October 31, 1998, the
declarations of the municipalities as referred to in Section 4.03(h) will
have been obtained by the Company from the respective municipalities and
that the letters included in Schedule 13 shall have been signed by the
respective municipalities.
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67
SECTION 5.02. NEGATIVE COVENANTS
Unless the Agent shall otherwise agree, the Company shall not:
(a) declare or pay any dividend or make any distribution on its share capital,
or purchase, redeem or otherwise acquire any shares of capital of the
Company or any option over the same, if an Event of Default or Potential
Event of Default has occurred or is continuing;
(b) declare or pay any dividend or make any distribution on its share capital
(other than dividends or distributions payable in shares of capital of the
Company), or purchase, redeem or otherwise acquire any shares of capital
of the Company or any option over the same prior to the Tranche B Stop
Date; however, in any Financial Year after the Tranche B Stop Date the
Company may take such actions unless any provision of the Project Support
Agreement precludes the taking of such actions, and provided that, after
giving effect to such actions, the Company will not be in breach of any of
the financial covenants referred to in Section 5.04 in such Financial Year
and the subsequent Financial Year;
(c) except with the prior written consent of the Agent, such consent not to be
unreasonably withheld, incur capital expenditures or commitments for
capital expenditures for fixed and other non-current assets, other than
those required for carrying out the Projects and as provided in the Agreed
Base Case, unless such expenditures do not exceed the amount
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68
of NLG 2,500,000 (two million five hundred thousand Netherlands Guilders)
in any Financial Year;
(d) except with the prior written consent of the Agent, such consent not to be
unreasonably withheld, enter into any agreement other than this Agreement,
the Project Agreements and the Security, or any agreements entered into in
the normal course of business with a value not exceeding an aggregate
amount of NLG 1,000,000 (one million Netherlands Guilders), and provided
that upon entering into such agreement the Company will provide a
certified copy of such agreement to the Agent;
(e) incur, assume or permit to exist any indebtedness or provide any
guaranties except:
(1) those provided for in the Agreed Base Case, including the Loan, the
KTE Institutional Loans and the Working Capital Facility;
(2) subordinated long-term debt granted to it by UPC, provided that the
terms and conditions thereof shall have been approved by the Agent
which approval shall not unreasonably be withheld;
(3) indebtedness incurred by way of credit from a supplier of capital
goods, or under any instalment purchase or other similar arrangement,
not extending beyond 180 (one hundred and eighty) days or exceeding
at any one time outstanding the equivalent of NLG 2,500,000 (two
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69
million five hundred thousand Netherlands Guilders); and
(4) with the consent of the Agent, which consent may be withheld at its
sole discretion if and when the Leverage Ratio including the
additional indebtedness and/or the maximum exposure under any
additional guarantee provided shall not be equal to or lower than
3.00 until and including the Maturity Date and provided (i) the terms
and conditions thereof have been approved by the Agent and (ii) if so
required by the Agent, subject to an adjustment of the Agreed Base
Case acceptable to the Agent including such additional indebtedness;
for the purposes of this subsection, any credit from a supplier of capital
goods, or under any instalment purchase or other similar arrangement shall
be deemed to be indebtedness not incurred in the ordinary course of
business and shall be permitted only to the extent provided in paragraph
(3) above;
(f) create or permit to exist any lien on any property, revenues or other
assets, present or future, of the Company, except:
(1) the Security; and
(2) any tax or other statutory lien, provided that such lien shall be
discharged within thirty (30) days after the date it is created or
arises (unless contested in
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70
good faith by the Company and the Company has made proper reserves
whilst contesting such tax or other statutory lien, in which case it
shall be discharged within thirty (30) days after final
adjudication);
for the purposes of this subsection, the term "lien" shall mean any
mortgage, pledge, attachment or limited right of any kind, including,
without limitation, any designation of loss payees or beneficiaries or any
similar arrangement under any insurance policy;
(g) enter into any transaction with UPC or any of its Affiliates and
Subsidiaries, except in the ordinary course of business, on ordinary
commercial terms and on the basis of arm's-length arrangements;
(h) enter into any management contract or similar arrangement whereby its
business or operations are managed by any other person other than the
General Services Agreement;
(i) except with the prior written consent of the Agent, such consent not to be
unreasonably withheld, form or have any Subsidiary, or make or permit to
exist loans or advances to, or deposits with other persons or investments
in any person or enterprise;
(j) make changes, or permit changes to be made, to the nature of its present
and contemplated business or operations or change the nature or scope of
the Projects;
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71
(k) make changes, or permit changes to be made, to its capital except in
accordance with the Project Support Agreement;
(l) make changes, or permit changes to be made, to its Charter in any manner
which would be inconsistent with the provisions of this Agreement;
(m) terminate, amend or grant any waiver in respect of any provision of any of
the Project Agreements, provided that the Company may notify the Agent of
any desired or intended termination of or amendment to any of the Project
Agreements and that the Agent's approval to any such proposed termination
or amendment shall be deemed to have been given by the Agent if it has not
responded within thirty (30) days after receipt of such notification;
(n) make any prepayment (whether voluntarily or involuntarily) or repurchase
of any long-term debt (other than the Loan), or make any repayment of any
such debt pursuant to any provision of any agreement or note which
provides directly or indirectly for acceleration of repayment in time or
amount, unless in any such case it shall, if the Agent so requires,
simultaneously make a proportionate prepayment or repayment of the
principal amount of the then outstanding Disbursements in accordance with
the provisions of Section 3.07(a);
(o) sell, transfer, lease or otherwise dispose of all or an essential part of
its assets (whether in a single transaction or in a series of
transactions, related or otherwise);
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72
(p) undertake or permit any merger, consolidation, demerger ("splitsing") or
reorganization; or
(q) change its accounting policies and its cost capitalisation policies.
SECTION 5.03. FURNISHING OF INFORMATION
Unless the Agent shall otherwise agree, the Company shall:
(a) as soon as available, but, in any event, within forty-five (45) days after
the end of each quarter of each Financial Year, furnish to the Agent:
(1) two copies of the Financial Statements for such quarter in form
satisfactory to the Agent;
(2) a report on any factors materially and adversely affecting or which
might materially and adversely affect the Company's business and
operations or its financial condition;
(3) a report, in a form satisfactory to the Agent, on the implementation
and progress of the Projects, the implementation of the Agreed Base
Case, a comparison and an analysis of differences between the Agreed
Base Case and the actual business and operations of the Company;
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73
(4) a report, in a form satisfactory to the Agent, setting forth the
Company's calculation of and compliance with the financial covenants
referred to in Section 5.04;
(5) a statement of all financial transactions, if any, between the
Company and UPC and/or each of the Company's and UPC's Subsidiaries
and Affiliates to the extent such transactions have an aggregate
value in excess of NLG 2,000,000 (two million Netherlands Guilders);
and
(6) as of the Tranche B Stop Date, a calculation of Excess Cash Flow
provided that such calculation only needs to be delivered to the
Agent with the Financial Statements covering the fourth quarter of a
Financial Year.
All such reports and statements in the form of SCHEDULE 9 will be
certified by the Chief Financial Officer of the Company.
(b) as soon as available but, in any event, within 180 (one hundred and
eighty) days after the end of each Financial Year, furnish to the Agent:
(1) two copies of its Financial Statements for such Financial Year,
together with an unqualified audit report thereon from the Auditors,
all in form satisfactory to the Agent;
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74
(2) a management letter from the Auditors commenting, among others, on
the adequacy of the Company's financial control procedures and
accounting systems, together with a copy of any other communication
sent by the Auditors to the Company or to its management in relation
to the Company's financial, accounting and other systems and
accounts;
(3) a report by the Chief Financial Officer of the Company certifying
that the Company was in compliance with the financial covenants
contained in Section 5.04 as of the end of the relevant Financial
Year or, as the case may be, detailing any noncompliance; and
and within 30 (thirty) days after the end of each Financial Year a budget
for the next (then current) Financial Year, with specified monthly or
quarterly budgets;
(c) not later than 30 (thirty) days after the effective date of any new or
renewed insurance policy, submit to the Agent copies of such new insurance
policies or extension letters, as the case may be, and, in case of a new
insurance policy, a certificate from the Company's insurer or insurance
broker, indicating the properties insured, amounts and risks covered,
names of the loss payees, beneficiaries and assignees and additional
insured, the name of the insurer and any special features of the new or
renewed insurance policy, including a statement that such new or renewed
insurance is at least identical to the insurance so renewed and provided
that the Agent shall have the right to request advice as to such new or
renewed insurance from the Insurance Advisor and the
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75
advice so given by the Insurance Advisor will be binding on the Company
and the Company will comply or procure compliance with such advice;
(d) furnish promptly to the Agent such information as the Agent may from time
to time reasonably request, and permit representatives of the Agent to
visit any of the premises where the business of the Company is conducted
and to have access to its books of account and records, subject to advance
notice by the Agent of at least 2 (two) Business Days, which notice period
shall not apply if an Event of Default or a Potential Event of Default has
occurred and is continuing;
(e) promptly inform the Agent of any intended change in the nature or scope of
the Projects or the business or operations of the Company and of any event
or condition which should reasonably be expected to materially and
adversely affect the financial position of the Company, the carrying out
of the Projects or the carrying on of the Company's business or
operations;
(f) immediately upon the occurrence of any Event of Default or any Potential
Event of Default, give the Agent notice thereof by telefax specifying the
nature of such Event of Default or such Potential Event of Default and any
steps the Company is taking to remedy the same; and
(g) give to the Agent by telefax notice of the calling of any meeting of its
shareholders indicating the agenda thereof no
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76
later than at the time that it gives official notice of any such meeting
to the shareholders or directors, as the case may be and furnish promptly
to the Agent two copies of:
(1) all notices, reports and other communications of the Company to its
shareholders; and
(2) the minutes of all shareholders' meetings.
SECTION 5.04. FINANCIAL COVENANTS
Unless the Agent shall otherwise agree, the Company shall:
(a) maintain a maximum Leverage Ratio detailed in respect of each of the
---------
calculation periods referred to below in the column opposite such
calculation periods:
<TABLE>
<CAPTION>
Calculation Period: Leverage Ratio:
------------------ --------------
<S> <C>
Date of this Agreement
until December 31, 1998: 9.00
January 1, 1999 until
December 31, 1999: 9.00
January 1, 2000 until
December 31, 2000: 7.50
January 1, 2001 until
December 31, 2001: 5.50
January 1, 2002 until
December 31, 2002: 4.50
</TABLE>
<PAGE>
77
<TABLE>
<S> <C>
January 1, 2003 until
December 31, 2003 3.50
January 1, 2004 until the
Maturity Date: 3.00
</TABLE>
(b) maintain a Gearing Ratio of at least 35% (thirty-five per cent);
(c) maintain at least a Cash Interest Cover Ratio detailed in respect of each
of the calculation periods referred to below in the column opposite such
calculation periods:
<TABLE>
<CAPTION>
Calculation Period: CICR:
------------------ ----
<S> <C>
Date of this Agreement
until December 31, 1998: 1.25
January 1, 1999 until
December 31, 1999: 1.25
January 1, 2000 until
December 31, 2000: 1.75
</TABLE>
(d) maintain a Debt Service Coverage Ratio of at least 1.25 as of January 1,
2001;
(e) until the Tranche B Stop Date maintain an EBITDA performance exceeding 90%
(ninety per cent) of the projected EBITDA in the Agreed Base Case for the
2 (two) preceding consecutive calendar quarters;
<PAGE>
78
(f) as of the Tranche B Stop Date maintain an EBITDA performance (i) exceeding
90% (ninety per cent) of the projected EBITDA in the Agreed Base Case (for
the same period) and (ii) exceeding 95% (ninety-five per cent) of the
projected EBITDA in the Agreed Base Case as a rolling average for the last
four consecutive calendar quarters;
(g) refrain from paying to UPC or any of UPC's Affiliates or Subsidiaries in
respect of the Financial Years listed below any amounts in fees and
expenses under the General Services Agreement in excess of the amounts
listed opposite each respective Financial Year:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
2001 NLG 2,935,000
2002 NLG 2,949,000
2003 NLG 3,042,000
2004 NLG 3,134,000
2005 NLG 3,274,000
2006 and beyond NLG 3,297,000
</TABLE>
ARTICLE VI - EVENTS OF DEFAULT
SECTION 6.01. ACCELERATION IN EVENTS OF DEFAULT
If any one or more of the events specified in this Section shall have occurred
and be continuing, then the Agent, by notice to the
<PAGE>
79
Company, may declare the principal of, and all accrued interest on, the Loan
(together with any other amounts accrued or payable under this Agreement) to be,
and the same shall thereupon become, immediately due and payable (anything in
this Agreement to the contrary notwithstanding) without any further notice and
without any presentment, demand or protest of any kind, all of which are hereby
expressly waived by the Company:
(a) the Company shall have failed to pay any principal of, or interest on, the
Loan as required by this Agreement and such failure remains unremedied for
3 (three) Business Days after notice of such failure has been given by the
Agent to the Company;
(b) the Company shall have failed to perform any of its obligations
(1) under this Agreement (other than any obligation for the payment of
principal or interest under this Agreement),
(2) under any other agreement between the Company and the Agent or the
Lenders, or
(3) with respect to the Security,
and any such failure to perform shall have continued for a period of
thirty (30) days after notice thereof shall have been given to the Company
by the Agent (except that the above grace period of 30 (thirty) days shall
not be applicable in
<PAGE>
80
case of failure by the Company to perform any of its obligations under
Section 5.01(c);
(c) the Company, UPC or any other party shall have failed to perform any of
its obligations under any Project Agreement, such failure is likely to
adversely affect the Company's ability to perform any of its obligations
thereunder or under this Agreement, and any such failure to perform shall
have continued for a period of thirty (30) days after notice thereof shall
have been given to the Company by the Agent, or such longer period as
shall be consented to by the Agent;
(d) any representation or warranty confirmed or made in Article II or in
connection with the execution and delivery of this Agreement, or in
connection with any disbursement application under this Agreement, shall
be incorrect and such incorrectness, if capable of remedy, remains
unremedied for a period of 30 (thirty) Business Days after notice thereof
shall have been given to the Company by the Agent;
(e) all or any substantial part of the property or other assets of the Company
or of its share capital shall have been seized, attached in aid of
execution ("executoriaal beslag") or expropriated, or shall have been
placed under custody or control, which seizure, attachment, et cetera, has
not been discharged within 15 (fifteen) Business Days, or the Company is
dissolved or all or a substantial part of the Company's assets shall have
become lost or unfit for normal use;
<PAGE>
81
(f) the Company, UPC or any of the Company's Subsidiaries (i) submits a
request to be declared bankrupt or to be granted a suspension of payments
or (ii) is declared bankrupt and such bankruptcy has not been lifted
within 2 (two) months, or the Company, UPC or any of the Company's
Subsidiaries, as the case may be, has failed to lodge as soon as possible
with the competent court an appeal against the court decision to declare
it bankrupt;
(g) a default shall have occurred with respect to any indebtedness of the
Company in excess of NLG 1,000,000 (one million Netherlands Guilders)
(other than the Loan) or under any agreement pursuant to which there is
outstanding any indebtedness of the Company, and such default shall have
continued for more than any applicable period of grace;
(h) if any major damage and/or interruption of operations of the Company
occurs which is not covered or remedied in full by the proceeds of any
insurance and such damage or interruption should reasonably be expected to
have a material adverse effect on the ability of the Company to perform
any of its obligations under this Agreement or any other Project Agreement
and the Company has not prepaid, or secured in a manner satisfactory to
the Agent the prepayment of the Loan within 15 (fifteen) Business Days
following the occurrence of such major damage or interruption (and
provided that the Company shall have immediately notified the Agent of the
occurrence of such damage or interruption of operations);
<PAGE>
82
(i) if any material adverse event or change shall have occurred in the
economic or financial situation of the Company as a result of which the
ability of the Company to fulfil any of its obligations under this
Agreement, the Security or any Project Agreement is likely to be
materially impaired;
(j) this Agreement, the Security, or any Project Agreement, or any provision
thereof which is material in the context of this Agreement, is or becomes,
for any reason, invalid or unenforceable or at any time it is unlawful or
impossible for the Company to perform any of its material obligations
under this Agreement, the Security, or any Project Agreement or it is
unlawful or impossible for the Agent or the Lenders or any of them to
exercise any of their rights under this Agreement or the Security.
SECTION 6.02. AUTOMATIC ACCELERATION
<PAGE>
83
If the Company, UPC and/or any of UPC's Subsidiaries, which is also a direct or
indirect shareholder of the Company (the latter only to the extent this is
likely to have an adverse impact on the performance of the Company and UPC under
this Agreement and the Project Agreements) shall have become voluntarily or
involuntarily dissolved, or become bankrupt or shall have been granted a
suspension of payments, the principal of, and all accrued interest on, the Loan
(together with any other amounts accrued or payable under this Agreement) shall
thereupon become immediately due and payable (anything in this Agreement to the
contrary notwithstanding) without any presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Company.
ARTICLE VII- SYNDICATION AND AGENT
SECTION 7.01 SYNDICATION
(a) As long as, other than the Company, the Initial Lender is the sole other
party to this Agreement, any reference to the Agent, the Lenders, the
other Lenders, or any of them, shall be a reference to the Initial Lender
and this Agreement shall be construed accordingly.
(b) Each Lender shall have the right to request other lenders to become a
lending party to this Agreement with the effect that each such other
lender shall participate for a certain
<PAGE>
84
Percentage Portion in the Loan and the Disbursements (to be) made
thereunder, provided that:
(i) each such other lender shall be approved by the Company, such
approval not to be unreasonably withheld;
(ii) the minimum participation amount shall be 5% (five per cent) of the
Loan amount referred to in Section 3.01.
(c) Such other lender shall become a party to this Agreement by execution and
delivery by such party and the Initial Lender and the Lenders, as the case
may be, of a Participation Agreement specifying inter alia the percentage
for which such lender shall participate in the Disbursements made or to be
made under this Agreement, and countersigning thereof by the Company,
whereupon such lender shall be a party to this Agreement, with rights and
obligations vis-a-vis the other parties to this Agreement as set forth in
such Participation Agreement and, with respect to any Lender as referred
to in this Agreement, in this Agreement where applicable and relevant in
proportion to its Percentage Portion.
(d) Each of the Lenders shall participate in each Disbursement (to be) made
under this Agreement in the proportion of its Percentage Portion and each
(re)payment by the Company of principal, interest, fee and of any other
amount due by the Company to the Lenders under this Agreement shall be in
satisfaction to the obligations of the Lenders in proportion to such
participations, unless clearly stated otherwise.
<PAGE>
85
(e) Upon any such lender having become a lender party to this Agreement, any
reference to the Agent, the Lenders, and any of them, shall be a reference
to the Agent, the Lenders, and any of them.
(f) If a future lender requests that non-material changes be made to this
Agreement or to any of the agreements and documents listed in Sections
4.01 and 4.03 (or to any other document), as a condition to be fulfilled
upon becoming a party to this Agreement, the Company shall fully cooperate
in causing such changes to be made, with a view to facilitate syndication
and/or sub-participations.
(g) Each Lender will notify the Company, through the Agent, of any tax gross
up (as set forth in Section 3.11), unwinding costs (as set forth in
Section 3.12) or Increased Costs (as set forth in Section 3.13) and as to
the notification with respect to Increased Costs in accordance with
Section 3.13(c), if and when applicable and each Lender will designate a
different lending office or an Affiliate to hold its participation in the
Loan if such designation will avoid the need for, or reduce the amount of
compensation payable by the Company pursuant to this Agreement with
respect to such tax gross up, unwinding costs and Increased Costs,
provided that such designation will not, in the sole opinion of such
Lender, be disadvantageous to such Lender. The Company shall reimburse
such Lender for such tax gross up, unwinding costs and Increased Costs (as
to Increased Costs to the extent such reimbursement obligation exists
under Section 3.13(c)), as the case may be, provided that upon the Agent
and such Lender
<PAGE>
86
having received 20 (twenty) Business Days prior notice to that effect, the
Company may prepay to such Lender such Lender's Percentage Portion of all
Disbursements outstanding and may cancel such Lender's Percentage Portion
of the Loan not disbursed hereunder, such prepayment to include, for the
avoidance of doubt, accrued interest and all other amounts then due
pursuant to this Agreement.
(h) If by reason of the introduction of, or a change in any applicable law or
in the interpretation or application thereof by any governmental or other
authority charged with the administration thereof or by a court of
competent jurisdiction, it has or will become unlawful for any Lender to
maintain or give effect to its obligations hereunder (which shall include
the funding of its Percentage Portion), such Lender may notify the Company
through the Agent accordingly, in which event (i) the Company shall
immediately, or at such later date to be designated by the Company as is
permitted by the relevant law or regulation , repay all sums outstanding
under that Lender's Percentage Portion together with accrued interest
thereon and all other sums payable to that Lender, including without
limitation, any Breakage Cost resulting from such repayment, and (ii) the
Company shall hold such Lender harmless from liability with respect to any
penalty accrued against it as a result of the Company's failure to duly
and timely make the payments referred to under (i) above and shall
reimburse such Lender upon demand for any such penalty paid by it in
connection herewith together with any interest and expenses asserted in
connection therewith.
<PAGE>
87
SECTION 7.02 AGENT
(a) By becoming a party to this Agreement, each of such Lenders irrevocably
appoints the Agent to act as its agent under and in connection with this
Agreement and authorizes and directs the Agent to take such action as
agent in the name of each of the Lenders as specified in this Agreement,
together with all such actions and powers as are reasonably incidental
thereto.
(b) The Agent shall without delay forward any notice received from the Company
under this Agreement in its capacity as Agent to each of the other Lenders
and the Agent shall act as directed by and in accordance with the
resolutions adopted by the Majority of Lenders.
(c) As between the Agent and the Lenders, the Agent may consult with any
experts or counsel selected by it and shall not be liable for any action
taken or omitted to be taken by it in good faith in accordance with the
advice of such expert or counsel, or otherwise taken in good faith in a
manner not inconsistent with such advice.
(d) As between the Agent and the Lenders, the Agent excludes any liability for
any action taken or not taken by the Agent under or in connection with
this Agreement (i) with the consent or at the request of the Majority of
Lenders or (ii) in the absence of gross negligence of wilful misconduct of
the Agent. The Lenders shall, ratably in accordance with
<PAGE>
88
their respective Percentage Portions, indemnify the Agent against any
costs, expense (including counsel fees and disbursements), claim, demand,
action, loss or liability (except such as a result from the Agent's gross
negligence or wilful misconduct) that the Agent may suffer or incur under
or in connection with this Agreement or any action taken or omitted by the
Agent thereunder.
(e) The Agent may resign, subject to prior consultation with the Company, at
any time by given written notice thereof to the other Lenders and to the
Company. Upon any such notice of resignation, the Majority of Lenders may
with the consent of the Company, which shall not be unreasonably withheld,
appoint a successor Agent. If the Majority of Lenders fails to appoint a
successor Agent within 30 (thirty) days of the notice of resignation, the
Agent may, with the consent of the Company, which consent shall not be
unreasonably withheld, appoint a successor Agent itself. The resignation
of the Agent and the appointment of any successor Agent will both become
effective only upon the successor Agent notifying all parties that it
accepts its appointment. On giving the notification, the successor Agent
will succeed to the position of the Agent and the term "Agent" will mean
the successor Agent. Upon its resignation becoming effective, the retiring
Agent shall have no rights and obligations as Agent herunder, except to
the extent incurred prior to the date of appointment of a successor Agent.
The successor Agent and the Company and each of the Lenders shall have the
same rights and obligations amongst themselves as they would have if such
<PAGE>
89
successor Agent had been a party hereto as from the date hereof.
(f) The obligations and liabilities of each of the Lenders under this
Agreement are several and not joint and, accordingly, no Lender shall be
responsible for the obligations and liabilities under this Agreement of
any other Lender.
ARTICLE VIII - MISCELLANEOUS
SECTION 8.01. NOTICES
Any notice, application or other communication to be given or made under this
Agreement to the Agent or to the Company shall be in writing. Subject to the
provisions of Sections 3.02(a) and (c), 5.03(f) and (g), such notice,
application or other communication shall be deemed to have been duly given or
made when it shall be delivered by hand, airmail or telefax to the party to
which it is required or permitted to be given or made at such party's address
specified below or at such other address as such party shall have designated by
notice to the party giving or making such notice, application or other
communication.
For the Company:
CABLE NETWORK BRABANT HOLDING B.V.
Attn.: the Managing Director
<PAGE>
90
Professor Dr Dorgelolaan 28
5613 AM EINDHOVEN
The Netherlands
Alternative address for communications by telefax: [ ]
with a copy to:
UNITED PAN-EUROPE COMMUNICATIONS N.V.
Attn: Mr. Steven D. Butler
Vice President & Treasurer
Fred Roeskestraat 123
P.O. Box 74763
1070 BT AMSTERDAM
The Netherlands
Alternative address for communications by telefax: 00.31.20.578.9861
For the Bank:
RABOBANK INTERNATIONAL
Attn. Head of Project Finance
Croeselaan 18
3521 CB UTRECHT
P.O. Box 17100
3500 HG UTRECHT
The Netherlands
Alternative address for communications by telefax:
00.31.30.216.1949]
<PAGE>
91
SECTION 8.02. CERTIFICATE OF AUTHORITY
The Company shall furnish or cause to be furnished to the Agent evidence, in
form and substance satisfactory to the Agent, of the authority of the person or
persons who will, on behalf of the Company, sign the applications and
certifications provided for in this Agreement, or take any other action or
execute any other document required or permitted to be taken or executed by the
Company under this Agreement, and the authenticated specimen signature of each
such person.
SECTION 8.03. ENGLISH LANGUAGE
All documents to be furnished or communications to be given or made under this
Agreement shall be in the English language or, if in another language, shall be
accompanied by a translation into English certified by a representative of the
Company, which translation shall be the governing version between the Company
and the Agent.
<PAGE>
92
SECTION 8.04. FINANCIAL CALCULATIONS
All financial calculations to be made under, or for the purposes of, this
Agreement shall be determined in accordance with Generally Accepted Accounting
Principles and, except as otherwise required to conform to the provisions of
this Agreement, shall be calculated from the then most recently issued quarterly
Financial Statements which the Company is obligated to furnish to the Agent from
time to time, as provided in Section 5.03(a); provided, however, that if there
should occur any material adverse change in the financial condition of the
Company after the end of the period covered by the relevant Financial
Statements, then such material adverse change shall also be taken into account
in calculating the relevant figures and (c) the Agent is entitled to correct or
amend any calculations in case of manifest error.
SECTION 8.05. RIGHTS, REMEDIES AND WAIVERS
(a) The rights and remedies of the Agent or the Lenders in relation to any
misrepresentations or breach of warranty on the part of the Company shall
not be prejudiced by any investigation which may be made after the date of
this Agreement by or on behalf of the Agent or the Lenders into the
affairs of the Company, by the execution or the performance of this
Agreement or by any other act or thing which may be done by or on behalf
of the Agent or the Lenders in connection with this Agreement and which
might, apart from this Section, prejudice such rights or remedies.
<PAGE>
93
(b) No course of dealing or waiver by the Agent or the Lenders in connection
with any condition of Disbursement under this Agreement shall impair any
right, power or remedy of the Agent or the Lenders with respect to any
other condition of Disbursement, or be construed to be a waiver thereof;
nor shall the action of the Agent or the Lenders in respect of any
Disbursement affect or impair any right, power or remedy of the Agent or
the Lenders in respect of any other Disbursement.
(c) Unless otherwise notified to the Company by the Agent or the Lenders and
without prejudice to the generality of subsection (b) above, the right of
the Agent to require compliance with any condition under this Agreement
which may be waived by the Agent or the Lenders in respect of any
Disbursement is expressly preserved for the purposes of any subsequent
Disbursement.
(d) No course of dealing and no delay in exercising, or omission to exercise,
any right, power or remedy accruing to the Agent or the Lenders upon any
default under this Agreement or any other agreement shall impair any such
right, power or remedy or be construed to be a waiver thereof or an
acquiescence therein; nor shall the action of the Agent or the Lenders in
respect of any such default, or any acquiescence by it therein, affect or
impair any right, power or remedy of the Agent or the Lenders in respect
of any other default.
<PAGE>
94
SECTION 8.06. TERM OF AGREEMENT
This Agreement shall continue in force until all monies payable hereunder shall
have been fully paid in accordance with the provisions hereof.
SECTION 8.07. GOVERNING LAW AND JURISDICTION
(a) This Agreement shall be governed by the laws of the Netherlands.
(b) Any suit, action or proceeding against the Company with respect to this
Agreement may be brought in the court of Amsterdam and the Company, the
Agent and the Lenders hereby submit to the exclusive jurisdiction of the
court of Amsterdam for the purpose of any such suit, action or proceeding.
SECTION 8.08. SUCCESSORS AND ASSIGNS
This Agreement shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto, except that the Company may not assign or
otherwise transfer all or any part of its rights or obligations under this
Agreement without the prior consent of the Agent.
<PAGE>
95
SECTION 8.09. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
agreement.
SECTION 8.10. AMENDMENTS
This Agreement may be amended only by an instrument in writing signed by the
Company, the Agent and the Initial Lender or, as the case may be, the Lenders.
8.11. SEVERABILITY
In the event that one or more provisions of this Agreement would appear to be
non-binding, the other provisions of this Agreement will continue to be
effective. The Company and the Agent are obliged to replace the non-binding
provisions in such a manner that the new provisions differ as little as possible
from the non-binding clauses, taking into account the object and the purpose of
this agreement.
<PAGE>
96
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized
representatives, have caused this Agreement to be signed in their respective
names as of the date first above written.
/s/ Onno Zuidema
__________________________
Cable Network Brabant Holding B.V.
represented by:
/s/ M.J. de Goaijen
__________________________
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
(Agent)
represented by:
/s/ M.J. de Goaijen
____________________________
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
(Initial Lender)
represented by:
<PAGE>
EXHIBIT 10.7
SECOND AMENDMENT AGREEMENT
to
CREDIT FACILITY AGREEMENT
and to
PROJECT SUPPORT AGREEMENT
DATED 30 SEPTEMBER, 1998
<PAGE>
2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - INTRODUCTION.............................................. 4
ARTICLE II - AMENDMENTS TO CREDIT FACILITY AGREEMENT................... 5
ARTICLE III - AMENDMENTS TO PROJECT SUPPORT AGREEMENT................... 7
ARTICLE IV - MISCELLANEOUS............................................. 7
</TABLE>
<PAGE>
3
SECOND AMENDMENT AGREEMENT
THE UNDERSIGNED:
1. CABLE NETWORK BRABANT HOLDING B.V., a limited liability company organised
and existing under the laws of the Netherlands, with registered seat at
Eindhoven (hereinafter referred to as the "COMPANY");
and
2. UNITED PAN-EUROPE COMMUNICATIONS N.V., a corporation organised and
existing under the laws of the Netherlands with registered seat at
Amsterdam (hereinafter referred to as "UPC");
and
3. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., a cooperative
association organised and existing under the laws of the Netherlands with
registered seat at Amsterdam (hereinafter referred to as the "AGENT");
and
4. COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., a cooperative
association organised and existing under the laws of the Netherlands with
registered seat at Amsterdam (hereinafter referred to as the "INITIAL
LENDER");
<PAGE>
4
WHEREAS:
(A) the Company and the Agent, acting for itself in the various capacities as
referred to in the Credit Facility Agreement (including its capacity as
Initial Lender), are parties to a Credit Facility Agreement dated February
20, 1998 and amended on August 7, 1998 (including the amendment the
"CREDIT FACILITY AGREEMENT"), pursuant to which the Agent has agreed to
finance the Projects (as defined therein) up to an amount of NLG
266,000,000 (two hundred and sixty-six million Netherlands Guilders),
subject to the terms and conditions of the Credit Facility Agreement;
(B) the Company, UPC and the Agent, acting in the above capacities, are
parties to a Project Support Agreement dated February 20, 1998 and amended
on August 7, 1998 (including the amendment the "PROJECT SUPPORT
AGREEMENT");
(C) the Company, UPC and the Initial Lender, acting for itself and in its
capacity as Agent for the Lenders, desire to amend and supplement the
Credit Facility Agreement and the Project Support Agreement;
HAVE AGREED AS FOLLOWS:
ARTICLE I - INTRODUCTION
(a) Wherever used in this Second Amendment Agreement, unless
<PAGE>
5
the context shall otherwise require, the terms defined in the Credit
Facility Agreement, and not otherwise defined herein, shall have the same
meaning when used in this Second Amendment Agreement.
(b) The term "Agreement" as used in the Credit Facility Agreement and all
other instruments and agreements executed thereunder shall for all
purposes refer to the Credit Facility Agreement as amended by this Second
Amendment Agreement.
(c) References made in article II of this Second Amendment Agreement to
Sections and/or Articles refer to Sections and/or Articles of the Credit
Facility Agreement unless such Section and/or Article is followed by the
words "of/in/to this Second Amendment Agreement".
(d) References made in article III of this Second Amendment Agreement to
Sections and/or Articles refer to Sections and/or Articles of the Project
Support Agreement unless such Section and/or Article is followed by the
words "of/in/to this Second Amendment Agreement".
ARTICLE II - AMENDMENTS TO CREDIT FACILITY AGREEMENT
SECTION 1.01 DEFINITIONS:
(a) In the definition of "Business Day", in the fifth line, the reference to
the "interbank market in Amsterdam, the Netherlands", shall be replaced by
a reference to "the interbank markets in Amsterdam, the Netherlands and
<PAGE>
6
London, United Kingdom".
(b) In the definition of "Interbank Rate" or "AIBOR" the reference to "AIBOR
page (domestic)" in the fifth line shall be replaced by a reference to
--------
"AIBOR page (euro)."
----
(c) The definition of "Majority of Lenders" is amended as follows: "Majority
of Lenders" means Lenders participating for at least 66,67% in the Loan".
(d) The definition of "Projects": in this definition the reference to "project
D" shall be replaced by a reference to "Project D";
(e) The definition of "Working Capital Facility" shall be amended as follows:
"Working Capital Facility" means the working capital facility in the
amount of NLG 5,000,000 (five million Netherlands Guilders) to be
provided by the Agent as lender to the Company as borrower;"
SECTION 5.01(A)
In Section 5.01(a), the definition of a "DEVIATION" shall be deleted in the
fifteenth line and moved to the fifth line, to be inserted after the words
"Agreed Base Case".
SECTION 5.02(E)
At the opening of Section 5.02(e) the words "and the Company's Subsidiaries
shall not" shall be included, so that this sub-Section opens with the words "and
the Company's Subsidiaries shall not incur, assume or permit to exist ......".
<PAGE>
7
SECTION 5.02(J)
The first part of Section 5.02(j) shall be amended as follows: "make changes, or
permit changes to be made, to the nature or scope of its present and
--------
contemplated business or operations ......".
SECTION 5.02(Q)
In Section 5.02(q) the word "... and ..." shall be changed to "... or ...".
SECTION 6.01(F)
The first three lines of Section 6.01(f) shall be amended as follows:
"without prejudice to the provisions of Section 6.02 below, the Company,
UPC or any of the Company's Subsidiaries (i) submits a request to be
declared bankrupt or to be granted a suspension of payments, or takes any
analogous action in one or more other jurisdictions or (ii) is declared
bankrupt and .....".
SECTION 6.01(G)
In the second and fifth line of this subsection, the reference to "the Company"
shall be expanded to include "the Company or any of the Company's Subsidiaries
....".
<PAGE>
8
ARTICLE III - AMENDMENTS TO PROJECT SUPPORT AGREEMENT
SECTION 3.02
In Section 3.02, sub-Section (d) shall be renumbered into sub-Section (c).
SECTION 4.05
In sub-Section (a) of Section 4.05, the reference to Section 3.02(c) shall be
replaced by a reference to Section 3.02(b).
SECTION 5.02
After the word "Company" at the end of line 9, a comma shall be inserted.
ARTICLE IV - MISCELLANEOUS
(a) Except to the extent that any terms or conditions of the Credit Facility
Agreement or the Project Support Agreement are expressly amended by the
terms of this Second Amendment Agreement, all terms and conditions of the
Credit Facility Agreement and the Project Support Agreement and all other
instruments and agreements executed thereunder remain in full force and
effect.
(b) This Second Amendment Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
<PAGE>
9
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized
representatives, have caused this Second Amendment Agreement to be signed in
their respective names as of the date first above written.
/s/ Dennis Okhuijsen
__________________________
Cable Network Brabant Holding B.V.
represented by:
/s/ Dennis Okhuijsen
__________________________
United Pan-Europe Communications N.V.
represented by:
/s/ M.R. Wind
__________________________
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
(Agent)
represented by:
/s/ M.R. Wind
__________________________
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
(Initial Lender)
represented by:
For Acknowledgement:
MeesPierson Paribas
represented by: represented by:
/s/ M.R. Wind /s/ M.R. Wind
__________________________ ______________________________
<PAGE>
EXHIBIT 10.10
DATED 1998
-----------------------------------------------
MEDIARESEAUX MARNE (1)
As Parent and Original Borrower
and
PARIBAS (2)
As Arranger
and
THE BANKS AND FINANCIAL INSTITUTIONS (3)
REFERRED TO HEREIN
and
PARIBAS (4)
As Facility Agent
and
PARIBAS (5)
As Security Agent
-----------------------------------------------
FACILITY AGREEMENT
FOR A FRF 700,000,000
SECURED CREDIT FACILITY
-----------------------------------------------
Norton Rose
Paris
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Headings Page
<S> <C> <C>
1 Interpretation............................................................................. 1
2 The Facility............................................................................... 30
3 Conditions Precedent....................................................................... 32
4 Advances and Overdraft Utilisations........................................................ 34
5 Repayment and Prepayment................................................................... 40
6 Interest................................................................................... 43
7 Fees, Expenses and Stamp Taxes............................................................. 49
8 Payments and Taxes; Accounts............................................................... 51
9 Representations and Warranties............................................................. 56
10 Undertakings............................................................................... 65
11 Commercial and Financial Covenants......................................................... 83
12 Public Offering - Flotation................................................................ 86
13 Default.................................................................................... 86
14 Indemnities................................................................................ 95
15 Unlawfulness and increased costs; mitigation............................................... 96
16 Arranger, Facility Agent and Security Agent................................................ 99
17 Waivers, Remedies Cumulative............................................................... 107
18 Notices.................................................................................... 107
19 Changes to the Parties..................................................................... 108
20 Redistribution............................................................................. 111
21 Confidentiality............................................................................ 113
22 Miscellaneous.............................................................................. 114
23 Governing Law and Jurisdiction............................................................. 114
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SCHEDULES
1 The Banks And Their Commitments............................................................ 115
Part A - Tranche A Banks................................................................... 115
Part B - Tranche B Banks................................................................... 116
2 Conditions Precedent....................................................................... 117
Part A Conditions Precedent to the First Advance and Overdraft Utilisation................. 117
Part B - Conditions Precedent to Accession of Acceding Borrowers........................... 119
3 Form of Drawdown Notice.................................................................... 120
Part A - RCF Advances requested during the Tranche A Availability Period................... 120
Part B - Form of Rollover Notice........................................................... 123
4 Parent Security Documents.................................................................. 125
5 List of CSA Authorisations................................................................. 126
6 Accounts................................................................................... 127
Part A - Quarterly Management Account...................................................... 127
Part B - Monthly Management Account........................................................ 130
7 Compliance Certificates.................................................................... 132
Part A - Form of Financial Ratio Compliance Certificate to be issued by the President of the
Parent..................................................................................... 132
Part B - Form of Certificate to be issued by the Statutory Auditors of the Parent pursuant to
Clause 10.1(j)(ii) concerning Excess Cash Flow............................................. 135
8A Essential Principles and Documents required for approval of a Proposed Future Franchise
Agreement as a Permitted Future Franchise Agreement........................................ 136
Part A - Essential Principles of Permitted Future Franchise Agreements..................... 136
Part B - Certificate of Compliance with Essential Principles of Permitted Future Franchise
Agreements................................................................................. 139
Part C - Documents required to be delivered to the Facility Agent for approval of a Proposed
Future Franchise Agreement as a Permitted Future Franchise Agreement....................... 140
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
8B Essential Principles and Documents required for approval of a Proposed Future Radio and
Television Network Public Domain Occupation Agreement as a Permitted Future Radio and
Television Network Public Domain Occupation Agreement...................................... 142
Part A - Essential Principles of Permitted Future Radio and Television Network Public Domain
Occupation Agreements...................................................................... 142
Part B - Certificate of Compliance with Essential Principles of Permitted Future Radio and
Television Network Public Domain Occupation Franchise Agreements........................... 143
Part C - Documents required to be delivered to the Facility Agent for approval of a Proposed
Future Radio and Television Network Public Domain Occupation Agreement as a Permitted Future
Radio and Television Network Public Domain Occupation Agreement............................ 144
9 Addresses For Notices...................................................................... 146
10 1998 Business Plan......................................................................... 148
11 Interest Rate Protection Strategy.......................................................... 166
12 Acquired Company Negative Pledge Letter.................................................... 168
13 Substitution Certificate................................................................... 169
14 Existing Third-Party Trademarks............................................................ 171
15 Borrower Accession Notice.................................................................. 172
16 Form of Parent Guarantee................................................................... 174
</TABLE>
iii
<PAGE>
THIS FACILITY AGREEMEDEGREEST (the "AGREEMENT") is dated , 1998
and made BETWEEN:
(1) MEDIARESEAUX MARNE, a societe anonyme organised under the laws of France
with a share capital of FRF 144,000,000 whose registered office (siege
social) is at 12, rue Albert Einstein, 77420 Champs-sur-Marne, France and
which is registered at the Registry of Commerce and Companies of Meaux
under no 400 461 950 (as PARENT and as a INITIAL BORROWER);
(2) PARIBAS, a societe anonyme organised under the laws of France, with a share
capital of FRF 16,012,752,600, whose registered office (siege social) is at
3, rue d'Antin, 75002 Paris, France, and which is registered at the
Registry of Commerce and Companies of Paris under number 662 047 885, as
arranger of the facility to be provided under this Agreement (the
"ARRANGER");
(3) THE BANKS AND FINANCIAL INSTITUTIONS listed in Schedule 1 (Commitments)
(the "BANKS");
(4) PARIBAS, as Facility Agent for the Banks (in this capacity the "FACILITY
AGENT"); and
(5) PARIBAS, as Security Agent for the Banks (in this capacity, the "SECURITY
AGENT").
IT IS AGREED as follows:
1 INTERPRETATION
--------------
1.1 Purpose
This Agreement sets out the terms and conditions upon and subject to which
all of the Banks agree, according to their several obligations, to make
available to the Borrowers credit facilities in a maximum amount of FRF
700,000,000, divided into two tranches designated Tranche A and Tranche B
respectively, as follows:
(a) TRANCHE A FACILITY: a revolving credit facility in the maximum
principal amount of FRF 680,000,000 (six hundred and eighty million
French Francs) to be made available to the Borrowers by the Tranche A
Banks for the duration of the Tranche A Availability Period (as
defined below), to be converted thereafter into a five (5) year term
loan facility upon the commencement of the Repayment Period (as
defined below) and to be used
(i) to assist in the financing of the on-going capital expenditure
necessary for the construction, installation and operation by any
relevant Borrowers of networks consisting of :
(A) cable radio and television networks as permitted herein;
and/or
1
<PAGE>
(B) telecommunications networks (including telephone, high-speed
data transmission, Internet access, video, multi-media
services and related activities) in which signals are
broadcast by means of optical fibres, cables or other wired
means (and excluding, for the avoidance of doubt,
radioeletric (Hertzian) telecommunications networks and
satellite telecommunications networks except for
experimental purposes or as otherwise agreed) as permitted
herein,
(ii) to finance costs associated with the authorisation process for
the networks referred to in sub-paragraph (i), subject to the
provisions of Clauses 10.2(p)(ii) and 10.2(q)(ii) hereof,
(iii) to finance any relevant Borrower's working capital requirements
relating to the construction and the operation of the networks
referred to in sub-paragraph (i),
(iv) to reimburse bridge funding of an amount of FRF 6,062,737.53
advanced to the Parent by UPC;
(v) to finance Permitted Acquisitions; and
(vi) to pay the fees and associated costs incurred by the Parent in
relation to the negotiation, preparation and execution of this
Agreement;
(b) TRANCHE B FACILITY: an overdraft facility in the maximum principal
amount of FRF 20,000,000 (twenty million French Francs) to be made
available by the Tranche B Bank to the Parent for the duration of the
Tranche B Availability Period (as defined below), and to be used to
finance working capital requirements of the Parent.
1.2 European Monetary union
(a) Definitions
In this Clause 1.2 and in each other provision of the Facility
Documents to which an express reference is made to this Clause 1.2,
the following terms have the meanings set out below:
"COMMENCEMENT OF THE THIRD STAGE OF EMU" means the commencement of the
third stage of EMU or circumstances which (in the reasonable opinion
of the Majority Banks) have substantially the same effect and result
in substantially the same consequences as the third stage of EMU as
contemplated by the Treaty on European Union;
"EMU" means Economic and Monetary Union as contemplated in the Treaty
on European Union;
2
<PAGE>
"EMU LEGISLATION" means legislative measures of the European Council
for the introduction of, changeover to or operation of a single or
unified European currency (whether known as the Euro or otherwise),
including the implementation of the third stage of EMU;
"EURO" means the single currency of Participating Member States of the
European Union;
"EURO UNIT" means the currency unit of the Euro;
"NATIONAL CURRENCY UNIT" means the unit of currency (other than a Euro
Unit) of a Participating Member State, including (without limiting the
generality of the foregoing) the French Franc;
"PARTICIPATING MEMBER STATE" means each state so described in any EMU
legislation ; and
"TREATY ON EUROPEAN UNION" means the Treaty of Rome of 25th March
1957, as amended by the Single European Act 1986 and the Maastricht
Treaty (which was signed at Maastricht on 1st February 1992 and came
into force on 1st November 1993), as amended from time to time.
(b) Alternative Currencies during the Transition Period
If and to the extent that any EMU Legislation provides that following
the Commencement of the Third Stage of EMU an amount denominated
either in the Euro or in the National Currency Unit of a Participating
Member State and payable within that Participating Member State by
crediting an account of the creditor can be paid by the debtor either
in the Euro Unit or in the National Currency Unit, a Borrower shall be
entitled under the Facility Documents to pay or to repay any such
amount either in the Euro Unit or in such National Currency Unit.
(c) Advances and Overdraft Utilisations during the Transition Period
If any Advance or Overdraft Utilisation made (or to be made) on or
after the Commencement of the Third Stage of EMU would, but for this
provision, be capable of being made either in the Euro or in French
Francs, such Advance or Overdraft Utilisation shall be made in the
Euro.
(d) Banking Days
With effect on and from the Commencement of the Third Stage of EMU,
the definition of Banking Day in Clause 1.3 (Defined Terms) shall be
amended by the addition thereto (at the end) of the following:
3
<PAGE>
"(or, if payments hereunder are required to be made in the Euro, then
a day on which dealings in the Euro are carried on in such clearing or
settlement system reasonably determined by the Facility Agent to be
suitable for clearing or settlement of the Euro and previously
notified to a Borrower)."
(e) Payments to the Facility Agent
With effect from and on the Commencement of the Third Stage of EMU,
the first sentence of Clause 8.1 shall be amended by the insertion of
the following wording, after the wording "for this purpose" and Clause
8.2 shall be amended by the insertion of the following wording after
the words "may have notified to the Banks":
"; or where such amount is denominated in the Euro and payment thereof
is to be in the Euro, by payment in the Euro and in immediately
available, freely transferable, cleared funds to such account with
such bank in such principal financial centre as the Facility Agent
shall have reasonably specified for this purpose."
(f) Rounding and Other Consequential Changes
With effect on and from the Commencement of the Third Stage of EMU:
(i) without prejudice to Clause 1.2(b) and without prejudice and in
addition to any method of conversion or rounding prescribed by
EMU Legislation, each reference in any of the Facility Documents
to a fixed amount or fixed amounts in a National Currency unit
shall be replaced by a reference to such comparable and
convenient fixed amount or fixed amounts in the Euro Unit as the
Facility Agent may from time to time specify ; and
(ii) save as expressly provided in this Clause 1.2(f), each provision
of the Facility Documents shall be subject to such changes of
construction as the Facility Agent may from time to time
reasonably and in accordance with market practice specify to be
necessary to reflect the changeover in the Euro in Participating
Member States but not so as to change in any material respect the
obligations or liabilities of the parties hereunder without the
prior written consent of such party.
1.3 Defined Terms
In this Agreement, unless the context otherwise requires:
"ACCEDING BORROWER" means any Acquired Company which has become a party to
this Agreement as a Borrower pursuant to Clause 2.5 hereof and "ACCEDING
BORROWERS" shall be construed accordingly;
4
<PAGE>
"ACCEDING BORROWER SECURITY DOCUMENTS" means those security documents to be
entered into by any Acceding Borrower, referred to in Clause 10.1(ff)
hereof;
"ACCOUNTS" means at any time and from time to time:
(a) the latest audited annual accounts of the Parent (or, following any
Permitted Share Acquisition, the latest audited annual accounts of
each member of the Group and the latest audited consolidated annual
accounts of the Group);
(b) the latest unaudited half-yearly accounts of the Borrower (or,
following any Permitted Share Acquisition, the latest unaudited half-
yearly accounts of each member of the Group and the latest unaudited
consolidated half-yearly accounts of the Group);
(c) the Quarterly Management Accounts; and
(d) the Monthly Management Reports.
in each case delivered or required to be delivered to the Facility Agent
pursuant to this Agreement, or such of those accounts as applicable;
"ACQUIRED COMPANY" means a company the shares or other ownership interests
of which have been acquired by the Parent as a result of a Permitted Share
Acquisition;
"ACQUIRED COMPANY NEGATIVE PLEDGE LETTER" means a letter addressed to the
Security Agent, on behalf of the Senior Creditors, to be executed by an
Acquired Company, in the form attached hereto as Schedule 12 and "ACQUIRED
COMPANY NEGATIVE PLEDGE LETTERS" shall be construed accordingly;
"ACQUISITION" means the acquisition of any interest whatsoever in the share
capital (or equivalent), the business (fonds de commerce) or equivalent, or
the activity (including, without limitation, any franchise rights) or
assets constituting a separate business of any company or other entity;
"ADVANCE" means each borrowing made or to be made by a Borrower under the
Tranche A Facility, being either an RCF Advance or a Portion of a Term Loan
(as applicable) and "ADVANCES" shall be construed accordingly;
"AFFILIATE" means, in relation to a body corporate, another body corporate
which is controlled by, controls or is under common control with, such body
corporate, and "control" for such purpose has the meaning ascribed to
"controle" in Article 355-1 of the French Company Law;
"AGENT" means the Facility Agent or the Security Agent, as applicable;
5
<PAGE>
"ANNUAL OPERATING BUDGET" means a budget in respect of the Parent (or,
following any Permitted Share Acquisition, of the Group) for each financial
year containing the annual projected revenues and projected expenditure
required for operation and utilisation of the Cable Broadcasting and
Telecommunications Systems, and a projected profit and loss statement and
sources and uses of funds statement for such financial year;
"ANNUALISED EBITDA" means the EBITDA for the most recently ended financial
Quarterly Period, multiplied by four (4);
"ART" means the Autorite de Regulation des Telecommunications or any
successor entity;
"AUTHORISED OFFICER" means that officer or those officers of any Borrower
authorised to sign any of the Facility Documents or any Compliance
Certificates, Drawdown Notices and any other notices, requests or
confirmations referred to in this Agreement or relating to the Facility
granted pursuant to the Facility Documents;
"AVAILABILITY TEST" shall have the meaning set out in Clause 4.2(b);
"BANK" means each of the banks or other financial institutions listed in
Schedule 1 (The Banks and Their Commitments) and includes their successors
in title, assignees and substitutes, and "BANKS" shall be construed
accordingly;
"BANK DEBT" means, for purposes of calculation of the financial ratios
referred to in Clause 11 (Commercial and Financial Covenants) all debt
which is secured by the Security Documents other than the Interest Rate
Protection Agreements;
"BANKING DAY" means a day (not being a Saturday or Sunday) on which banks
are open for business in London and Paris.
"BENEFICIARIES" means the Arranger, the Facility Agent, the Security Agent,
the Banks and the Interest Rate Protection Banks;
"BORROWER ACCESSION NOTICE" means in respect of a proposed Acceding
Borrower, a notice substantially in the form of Schedule 15 with such
amendments as the Facility Agent may approve or reasonably require duly
completed and signed on behalf of the proposed Acceding Borrower and the
Parent;
"BORROWERS" means the Parent and any Acceding Borrower, and "BORROWER"
shall be construed accordingly;
"BORROWED MONEY" means any obligation for the payment or repayment of
money, whether as principal or as surety and whether present or future,
actual or contingent (including, for the avoidance of doubt, but without
double counting, any guarantees of such obligations) in respect of (i)
money borrowed or raised and debit balances at banks, (ii) any bond, note,
debenture, security or similar debt instrument, (iii) acceptance or
documentary credit facilities, (iv) receivables
6
<PAGE>
sold or discounted (otherwise than on a non-recourse basis), (v) payments
of assets or services acquired which provide for such payments to be
deferred for a period of 180 days or more after the relevant assets or
services were supplied, (vi) principal elements of rental payments under
credit-bail agreements or other finance leases, (vii) guarantees, bonds,
standby letters of credit or other instruments issued in connection with
the performance of contracts to the extent that the same are treated as
borrowings in accordance with the generally accepted principles and
practices used in the preparation of the most recent audited financial
statements of the Parent (or the Group, as the case may be) delivered to
the Facility Agent under this Agreement and (viii) any other transaction
having the commercial effect of a borrowing or raising of money entered
into for the purpose of financing a person's operational or capital
requirements provided that in making any calculation of Borrowed Money
under this Agreement no such obligations shall be taken into account more
than once;
"BUSINESS PLAN" means, as at the date of this Agreement, the business plan
submitted by the Parent to the Facility Agent dated 1998 (the "1998
BUSINESS PLAN"), annexed hereto as Schedule 10 and thereafter the Parent's
business plan and financial model covering the entire life of the Facility
as updated from time to time (including, without limiting the generality of
the foregoing, as such Business Plan is required to be updated pursuant to
Clause 10.1(k) hereof), provided that the format and method of calculation
employed in each such update will be on the same basis as in the 1998
Business Plan unless any change in format or the method of calculation is
first explained in reasonable detail in writing to, and thereafter approved
by, the Facility Agent (such approval by the Facility Agent not to be
unreasonably withheld);
"CABLE BROADCASTING LAW AUTHORISATION" means, as the case may be, a Local
Authority Approval, a CSA Authorisation or any other governmental or
administrative authorisation which is necessary to be obtained under the
Cable Broadcasting Laws;
"CABLE BROADCASTING LAWS" means Law no 86-1067 of 30th September, 1986 (as
amended from time to time) and any regulations implementing such Law,
applicable to the Parent (and, following any Permitted Share Acquisition,
to any other member of the Group), and/or the business carried on by the
Parent (and, following any Permitted Share Acquisition, any other member of
the Group);
"CABLE BROADCASTING AND TELECOMMUNICATIONS LAWS" means the Cable
Broadcasting Laws and the Telecommunications Laws respectively;
"CABLE BROADCASTING AND TELECOMMUNICATIONS LAW AUTHORISATIONS" means the
Cable Broadcasting Law Authorisations and the Telecommunications Law
Authorisations respectively;
7
<PAGE>
"CABLE BROADCASTING AND TELECOMMUNICATIONS SYSTEMS" means:
a) the cable radio and television networks constructed or which may be
constructed in the areas covered by the Franchise Agreements and/or
the Radio and Television Public Domain Occupation Agreements; and/or
b) the telecommunications networks (including telephone, high-speed data
transmission, Internet access, video, multi media services and related
activities) in which signals are broadcast by means of optical fibres,
cables or other wired means (and excluding, for the avoidance of
doubt, radioelectric (Hertzian) telecommunications networks and
satellite telecommunications networks except for experimental purposes
or as otherwise agreed) which may be constructed in the areas covered
by the Telephony Licence and the Telecommunications Public Domain
Occupation Agreements;
and operated or run by the Parent (and, following any Permitted Share
Acquisition, any other member of the Group) pursuant to the Cable
Broadcasting and Telecommunications Law Authorisations and includes any
part of any such systems (including all apparatus and equipment of every
description which the Parent (and, following any Permitted Share
Acquisition, any other member of the Group) is authorised to operate or run
under the Cable Broadcasting and Telecommunications Law Authorisations) and
all modifications, substitutions, replacements, renewals and extensions
made thereto;
"CABLE BROADCASTING SYSTEM REVENUES" means all amounts payable to or to the
order of the Parent (and, following any Permitted Share, any other member
of the Group) in connection with cable radio and television network
services operated by the Parent and/or any other member of the Group;
"CABLE BROADCASTING AND TELECOMMUNICATIONS SYSTEM REVENUES" means all
amounts payable to or to the order of the Parent (and, following any
Permitted Share Acquisition, any other member of the Group) in connection
with cable radio and television services and telecommunications services
offered through the Cable Broadcasting and Telecommunications Systems;
"CAHIER DES CHARGES" means the Cahier des Charges appended to the Telephony
Licence;
"CAPITALISATION" means, at any time, the sum of outstanding Bank Debt and
outstanding Shareholders' Contributions;
"COMMITMENT" in respect of each Bank means a Tranche A Commitment and the
Tranche B Commitment, as the case may be;
"CONSTRUCTION AGREEMENTS" means the contracts entered into prior to the
date hereof or which may be entered into from time to time by the Parent
(and, following any Permitted Share Acquisition, any other member of the
Group) with the Construction Companies for the construction of the Cable
Broadcasting and Telecommunications Systems;
8
<PAGE>
"CONSTRUCTION COMPANIES" means such companies as are designated from time
to time by the Parent (and, following any Permitted Share Acquisition, any
other member of the Group) for the purposes of cabling (cablage), civil
engineering (genie civil) and other construction services required in
connection with the construction of the Cable Broadcasting and
Telecommunications Systems;
"CONSTRUCTION MASTER RECEIVABLES ASSIGNMENT AGREEMENT" means the
Construction Master Receivables Assignment Agreement concluded or to be
concluded among the Parent, the Senior Creditors and the Security Agent,
relating to the security assignment by the Parent of certain receivables
vis a vis the Construction Companies arising under Construction Agreements
as security for the obligations of the Parent under the Facility Documents;
"CSA" means the Conseil Superieur de l'Audiovisuel or any successor entity;
"CSA AUTHORISATION" means an authorisation granted prior to the date hereof
or which may be granted from time to time after the date hereof pursuant to
the Cable Broadcasting Laws by the CSA, for the operation by the Parent
(and, following any Permitted Share Acquisition, any other member of the
Group) of a cable network for radio and television services;
"DEFAULT" means any Event of Default or any event or circumstance which
with (i) the giving of any notice, (ii) the lapse of any period of time or
(iii) the satisfaction of any other condition (or any combination of (i),
(ii) and (iii) above) will constitute an Event of Default;
"DRAWDOWN DATE" means the date, being a Banking Day, on which an RCF
Advance is or is to be drawn down;
"DRAWDOWN NOTICE" means a notice, substantially in the form of Schedule 3,
Part A (Form of Drawdown Notice), made by any Borrower to the Facility
Agent for an RCF Advance to be made under this Agreement, and indicating
compliance by such Borrower with the conditions set forth in Clause 3.1 or
3.2, as the case may be, issued by an Authorised Officer of such Borrower
(in the case of any Drawdown Notice by a Borrower other than the Parent,
countersigned by an Authorised Officer of the Parent);
"EBITDA" means, with respect to the Parent (or, following any Permitted
Share Acquisition, with respect to the Group as a whole on a consolidated
basis), operating revenues minus all operating expenses, but before
charging (i) interest expenses and commitment fees, (ii) income tax
expenses and (iii) depreciation, amortisation and other non-cash charges,
for the relevant financial period;
"ENCUMBRANCE" means any mortgage, pledge, lien, charge, assignment or
security interest of any kind under French or foreign law securing any
obligation of any person or any other type of preferential arrangement
(including without limitation title transfer and/or retention arrangements
having similar effect);
9
<PAGE>
"ENVIRONMENTAL CLAIM" means any claim, notice of violation, prosecution,
demand, action, official warning, abatement or other order (conditional or
otherwise), relating to Environmental Matters and any notification or order
requiring compliance with the terms of any Environmental Licence or
Environmental Law;
"ENVIRONMENTAL LAWS" includes all or any laws, statutes, regulations,
treaties, and judgements of any governmental authority or agency or any
regulatory body in any jurisdiction in which the Parent (and, following any
Permitted Share Acquisition, any other member of the Group) is formed or
carries on business or the European Union relating to Environmental Matters
in force and applicable to the Parent (and, following any Permitted Share
Acquisition, any other member of the Group) and/or construction,
installation and operation of Cable Broadcasting and Telecommunications
Systems and/or any other activities from time to time carried on by the
Parent (and, following any Permitted Share Acquisition, any other member of
the Group) and/or the occupation or use of any property owned, leased or
occupied by the Parent (and, following any Permitted Share Acquisition, any
other member of the Group);
"ENVIRONMENTAL LICENCE" means any permit, licence, authorisation, consent
or other approval required by any Environmental Law (but excluding, for the
avoidance of doubt, planning permission, listed building consent and
building regulation approvals) for the construction, installation and
operation of Cable Broadcasting and Telecommunications Systems;
"ENVIRONMENTAL MATTERS" means: (i) any generation, deposit, disposal,
keeping, treatment, transportation, transmission, handling or manufacture
of any waste or any Relevant Substance; (ii) nuisance, noise, defective
premises, health and safety at work or elsewhere; and (iii) the pollution,
conservation or protection of the environment (both natural and built) or
of man or any living organism supported by the environment (both natural
and built);
"ESSENTIAL PRINCIPLES OF PERMITTED FUTURE FRANCHISE AGREEMENTS" means those
principles set forth in Schedule 8A, Part A hereof and to be included in
any Permitted Future Franchise Agreement;
"ESSENTIAL PRINCIPLES OF PERMITTED FUTURE RADIO AND TELEVISION NETWORK
PUBLIC DOMAIN OCCUPATION AGREEMENTS" means those principles set forth in
Schedule 8B, Part A hereof and to be included either in Permitted Future
Radio and Television Network Public Domain Occupation Agreements and/or in
the Local Authority Direct Authorisation Approvals which give rise to such
Permitted Future Radio and Television Network Public Domain Occupation
Agreements;
"EURO-FRENCH FRANCS" means the lawful currency for the time being of France
which is freely available in the euro-currency market (and not the domestic
French franc market);
10
<PAGE>
"EVENT OF DEFAULT" means an event specified as such in Clause 13.1 (Events
of Default);
"EXCESS CASH FLOW" means, for any annual accounting period, EBITDA less,
with respect to the Parent (or, following any Permitted Share Acquisition,
with respect to the Group as a whole on a consolidated basis), (i) capital
expenditure, (ii) cash income taxes paid, and (iii) cash interest payments
and mandatory debt repayments, the total of which shall be increased or
decreased to reflect changes in working capital ;
"EXISTING FRANCHISE AGREEMENTS" means the agreements entered into by the
Parent prior to the date hereof with Local Authorities (relevant details of
which are set forth in Schedule 5), pursuant to Local Authority Public
Service Delegation Approvals, for the operation of cable radio and
television networks in the territory over which each such Local Authority
has jurisdiction, in respect of which :
(i) Local Authority Approval has been received by the Parent from the
relevant Local Authority pursuant to the Cable Broadcasting Laws;
and
(ii) any legal period for appeal from the relevant Local Authority
Approval has expired; and
(iii) an assignment by the Parent of its rights thereunder to payment of
any indemnities due to it by the relevant Local Authority has been
effected in favour of the Security Agent (as agent for the Senior
Creditors) by delivery of a bordereau, as set forth in the Local
Authority Master Receivables Assignment Agreement;
"EXISTING SHAREHOLDERS' AGREEMENT" means the agreement between certain
shareholders of the Parent a copy of which has been furnished for
inspection, but a copy of which has not been retained by the Arranger;
"EXISTING THIRD-PARTY TRADEMARKS" means the Third-Party Trademarks
described in Schedule 14;
"EXISTING THIRD-PARTY TRADEMARK PLEDGE AGREEMENT" means the Trademark
Pledge Agreements concluded or to be concluded between Mediareseaux S.A.,
as the owner of the Existing Third-Party Trademarks, the Senior Creditors
and the Security Agent, relating to the pledge by Mediareseaux S.A. of the
Existing Third-Party Trademarks;
"FACILITY DOCUMENTS" means this Agreement, the Fee Letter, the Interest
Rate Protection Agreements, the Security Documents, the Subordination
Agreement, and the Acquired Company Negative Pledge Letters and thereafter,
any other document designated as such by agreement between the Parent and
the Facility Agent;
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"FEE LETTER" means the letter signed on the date hereof between the Parent,
the Arranger and the Facility Agent with respect to arrangement,
underwriting, agency and syndication fees to be payable by the Parent to
the Arranger and the Facility Agent;
"FINAL MATURITY DATE" means 31st December, 2007;
"FINANCIAL INSTRUMENT ACCOUNTS PLEDGE AGREEMENT" means the Agreement for
the Pledge of Accounts of Financial Instruments concluded or to be
concluded between the Pledgors, the Account Holder (as both such terms are
defined therein), the Senior Creditors and the Security Agent;
"FINANCIAL RATIO COMPLIANCE CERTIFICATE" means a certificate substantially
in the form set out in Schedule 7, Part A, in relation to the compliance
(or otherwise) of the Parent (and, following any Permitted Share
Acquisition, of the Group as a whole) with the financial ratios set out in
Clause 11 (Commercial and Financial Covenants);
"FRANCE" means the Republic of France;
"FRANCHISE AGREEMENT" means any of :
(i) the Existing Franchise Agreements; and
(ii) the Permitted Future Franchise Agreements;
"FRF" OR "FRENCH FRANCS" means the lawful currency of France;
"FRENCH GAAP" means the accounting principles and practices generally
accepted in France from time to time;
"FRENCH COMPANY LAW" means Law n degress 66-537 of 24th July 1966, as
amended;
"GENERAL OPERATIONS ACCOUNT" has the meaning ascribed thereto in the Master
Accounts Balance and Cash Pledge Agreement;
"GOING CONCERN PLEDGE AGREEMENT" means the Going Concern Pledge Agreement
concluded or to be concluded between the Parent, the Senior Creditors and
the Security Agent, relating to the pledge by the Parent of its going
concern (fonds de commerce) as security for its obligations under the
Facility Documents;
"GROUP" means the Parent and any Acquired Company;
"INFORMATION MEMORANDUM" means the information memorandum to be prepared in
relation to the Parent and the Facility;
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"INSURANCE" means any or all of the contracts of insurance which may be
entered into with an Insurance Company insuring the interests of the Parent
(and, following any Permitted Share Acquisition, any other member of the
Group) which the Parent is required from time to time to procure and
maintain in order to meet the Minimum Insurance Requirements;
"INSURANCE COMPANIES" means such insurance company or companies of an
internationally recognised standing with which the Parent (and, following
any Permitted Share Acquisition, any other member of the Group) from time
to time maintains the Insurance;
"INSURANCE DELEGATION AGREEMENT" means the agreements concluded or to be
concluded with respect to the delegation by the Parent of the Insurance
Companies to the Security Agent by way of security for the obligations of
the Parent under the Facility Documents (it being specified that Insurance
covering liability to third parties (responsabilite civile) will not be the
subject of such delegation);
"INSURANCE REPORT" means the insurance report dated 7 July 1998 relating to
the Parent and the Cable Broadcasting and Telecommunications Systems
prepared by Agence Francaise de Courtage et Merle and addressed to the
Arranger;
"INTELLECTUAL PROPERTY RIGHTS" means any patent, trade mark, service mark,
registered design, trade name or copyright required or used to carry on the
business of constructing, installing or operating Cable Broadcasting and
Telecommunications Systems and which is carried on at the relevant time;
"INTERCONNECTION AGREEMENT" means any interconnection agreement signed
between the Parent (and, following any Permitted Share Acquisition, any
other member of the Group) and any telephone or telecommunications
operator, including (but not limited to) France Telecom;
"INTEREST PAYMENT DATE" means the last day of an Interest Period;
"INTEREST PAYMENTS" means payments of interest on the Advances and on the
Overdraft Utilisations made until the Final Maturity Date in accordance
with Clauses 6.1 and 6.7 hereof;
"INTEREST PERIOD" means, in relation to any Advance, each period for
calculation of interest in respect of such Advance ascertained in
accordance with Clause 6;
"INTEREST RATE PROTECTION AGREEMENTS" means any and all interest rate swap
and/or interest rate cap, floor, collar or option transactions and/or other
interest rate hedging or derivative agreements, arrangements or
confirmations entered into by the Parent with any of the Interest Rate
Protection Counterparties in accordance with Clause 10.1(y) and Schedule
11;
"INTEREST RATE PROTECTION BANKS" means Banks (or Subsidiaries or Affiliates
of Banks) which are Interest Rate Protection Counterparties;
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"INTEREST RATE PROTECTION COUNTERPARTIES" means the Interest Rate
Protection Banks which are parties to the Interest Rate Protection
Agreements provided that, if no Bank is able to enter into an Interest Rate
Protection Agreement at a rate consistent with the rates quoted by leading
banks for a similar risk, such term shall also include any other financial
institution acceptable to the Facility Agent (such acceptance not to be
unreasonably withheld);
"INTEREST RATE PROTECTION MASTER RECEIVABLES ASSIGNMENT AGREEMENT" means
the Interest Rate Protection Master Receivables Assignment Agreement
concluded or to be concluded among the Parent, the Senior Creditors and the
Security Agent, relating to the security assignment by the Parent of
certain receivables vis a vis the Interest Rate Protection Counterparties
arising under the Interest Rate Protection Agreements as security for the
obligations of the Parent under the Facility Documents;
"INTEREST RATE PROTECTION STRATEGY" means the interest rate protection
strategy agreed between the Parent and the Facility Agent pursuant to
Clause 10.1(y), as the same may subsequently be amended from time to time
by agreement between the Parent and the Facility Agent;
"IPO PROCEEDS" means the proceeds (net of equity sale expenses and fees,
and taking deferred proceeds and non-cash proceeds at their fair value) of
any Public Offering;
"LEGAL DUE DILIGENCE REPORT" means the legal due diligence report prepared
relating to the Parent and the Cable Broadcasting and Telecommunications
Systems prepared by Norton Rose, Paris and addressed to the Arranger;
"LIBOR" means:
(a) the rate per annum appearing on Telerate Page 3740 or any other
relevant Telerate Page, as appropriate, or any equivalent successor to
that page (as determined by the Facility Agent) (the "LIBOR TELERATE
SCREEN") at or about 11.00 a.m. (London time) on the Quotation Date
for the offering of deposits in Euro-French Francs in the London
interbank market for a period comparable to the corresponding Interest
Period; or
(b) if no such offered rate appears on Telerate Page 3740, or if the
Facility Agent determines that no rate for a period of comparable
duration to that Interest Period appears on the Telerate Screen at the
relevant time, the arithmetic mean (rounded upwards, if necessary, to
five decimal places) of the per annum rates, as supplied to the
Facility Agent at its request, quoted by each Reference Bank to
leading banks in the London interbank market at or about 11.00 a.m.
(London time) on the Quotation Date for the offering of deposits in
Euro-French Francs for a period comparable to the corresponding
Interest Period.
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For the purposes of this definition, "TELERATE PAGE 3740" means the display
designated as "Page 3740" on the Telerate Service or such other page as may
replace that page on that service, or such other service as may be
nominated by the British Bankers' Association or such other person as may
from time to time succeed to or replace British Bankers' Association as the
information vendor for the purposes of displaying British Bankers'
Association Interest Settlement Rates for deposits in Euro-French francs;
"LOCAL AUTHORITY" means the authorities or groups of authorities
responsible for establishing or authorising the establishment in their
geographical area, of cable networks for the distribution of radio and
television, as described in the Cable Broadcasting Laws;
"LOCAL AUTHORITY APPROVAL" means the approval (being either a Local
Authority Public Service Delegation Approval and/or a Local Authority
Direct Authorisation Approval) obtained or proposed to be obtained from
time to time after the date hereof, by the Parent (and, following any
Permitted Share Acquisition, any other member of the Group) from a Local
Authority in accordance with all relevant laws, including (without limiting
the generality of the foregoing) the Cable Broadcasting Laws and Law n
degrees 93-122 of 29th January 1993, relating to the construction of a
cable radio and television network by the Parent (and, following any
Permitted Share Acquisition, any other member of the Group) on the
territory of the Local Authority, including relevant decisions of the
relevant prefecture;
"LOCAL AUTHORITY DIRECT AUTHORISATION APPROVAL" means a Local Authority
Approval taking the form of an authorisation (autorisation d'etablissement)
by the Local Authority to the Parent (and, following any Permitted Share
Acquisition, any other member of the Group) to establish a cable radio and
television network for the Parent's (and, following any Permitted Share
Acquisition, any other member of the Group's) own account on the territory
of the Local Authority, and giving rise to the signature of a Radio and
Television Network Public Domain Occupation Agreement between the Parent
(and, following any Permitted Share Acquisition, any other member of the
Group) and the Local Authority;
"LOCAL AUTHORITY MASTER RECEIVABLES ASSIGNMENT AGREEMENT" means the Local
Authority Master Receivables Assignment Agreement concluded or to be
concluded among the Parent, the Senior Creditors and the Security Agent,
relating to the security assignment by the Parent of certain receivables
vis a vis the Local Authorities arising under Franchise Agreements as
security for the obligations of the Parent under the Facility Documents;
"LOCAL AUTHORITY PUBLIC SERVICE DELEGATION APPROVAL" means a Local
Authority Approval taking the form of a public service delegation
(delegation de service public) by the Local Authority to the Parent (and,
following any Permitted Share Acquisition, any other member of the Group)
for the Parent (and, following any Permitted Share Acquisition, any other
member of the Group) to establish a cable radio and television network on
the territory of the
15
<PAGE>
Local Authority for the account of the Local Authority, and giving rise to
the signature of a Franchise Agreement between the Parent (and, following
any Permitted Share Acquisition, any other member of the Group) and the
Local Authority;
"MAJORITY BANKS" means (i) at any time a Bank or Banks the aggregate of
whose participations, prior to the making of any Advance, in the
Commitments and thereafter, in the Advances and the Tranche B Commitment,
represent by value more than sixty-six and two-thirds per cent (66 2/3%) of
the aggregate of all those amounts at such time (the "RELEVANT AMOUNTS")
and (ii) more specifically in relation to the enforcement of any Security
Document, a Bank or Banks the aggregate of whose participations represent
by value more than seventy five per cent (75%) of the total of the Relevant
Amounts.
"MARGIN" means two per cent (2.00%) per annum (subject to adjustment under
Clause 6.11 (Margin adjustment));
"MARKETABLE SECURITIES" means any of the following:
(a) marketable obligations of or guaranteed by the French Government or
issued by an agency thereof and backed by the French Government;
(b) certificates of deposit and commercial paper (with a maturity of no
more than ninety (90) days in the case of deposits and twelve (12)
months for commercial paper) issued by any bank which is a Bank, or a
European authorised institution under the Second Council Directive
dated 15th December, 1989 (reference 89-646-CEE), authorised for
accepting such investments, provided that, in the case of an
institution other than a Bank, such institution's short term senior
debt immediately prior to the making of such an investment is not
rated less than A2 by Standard & Poor's Corporation and/or P2 by
Moody's Investors Services Inc.;
(c) commercial paper issued by bodies corporate (having a separate legal
personality and with limited liability) and which are incorporated in
France with not more than 187 days to maturity, provided that
immediately prior to the making of such an investment, the issuer (or
guarantor) of the commercial paper is rated for short term obligations
not less than A1 by Standard & Poor's Corporation and/or P1 by Moody's
Investors Services; and
(d) shares in a SICAV (societe d'investissement a capital variable) or a
FCP (fonds commun de placement) where such a SICAV or FCP is subject
to French law and is owned or managed by a bank or financial
institution having a rating of not less than A- (Standard & Poor's) or
A3 (Moody's);
(e) bonds issued by bodies corporate (having a separate legal personality
and with limited liability) and which are incorporated in France,
provided that immediately prior to the making of such an investment,
the issuer (or guarantor) of the bonds is rated for long-term
obligations not less than AA
16
<PAGE>
by Standard & Poor's Corporation and/or aa2 by Moody's Investors
Services; and
(f) shares issued by bodies corporate (having a separate legal personality
and with limited liability) and which are incorporated in France,
provided that immediately prior to the making of such investment, the
issuer (or guarantor) of the shares is rated for long-term obligations
not less than AA by Standard & Poor's Corporation and/or aa2 by
Moody's Investors Services and provided that the value of such shares
shall not exceed five (5) per cent of the value of such Marketable
Securities at the time of the relevant investment;
"MARKETABLE SECURITIES ACCOUNT" has the meaning ascribed thereto in the
Master Accounts Balance and Cash Pledge Agreement;
"MASTER ACCOUNTS BALANCE AND CASH PLEDGE AGREEMENT" means the Master
Accounts Balance and Cash Pledge Agreement concluded or to be concluded
among the Parent, the Senior Creditors and the Security Agent, relating to
pledges to be granted by the Parent over the Postal Subscription Payment
Account, the General Operations Account, the Marketable Securities Account,
the Overdraft Account and over the cash to be deposited in each Prepayment
Account as security for its obligations under the Facility Documents;
"MATERIAL ADVERSE CIRCUMSTANCE" means any event or circumstance which:
(a) is materially adverse, to:
(i) the ability of the Parent (or, following any Permitted Share
Acquisition, the members of the Group taken as a whole) to
perform its payment or other material obligations under any
Facility Document to which it is party; or
(ii) the business operations of the Parent (or, following any
Permitted Share Acquisition, the members of the Group taken as a
whole); or
(b) results in:
(i) any Facility Document (including, for the avoidance of doubt, any
Security Document) not being valid and legally binding on, and
enforceable substantially in accordance with its terms against,
any party thereto; or
(ii) (in the case of any Security Documents) not providing to the
Security Agent for itself and on behalf of the Beneficiaries
perfected and enforceable security over the assets purported to
be covered by that Security;
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<PAGE>
"MATERIAL CONTRACT" means any Shareholders' Agreement, the Franchise
Agreements, the Public Domain Occupation Agreements, the Construction
Agreements, and any Interconnection Agreement;
"MINIMUM INSURANCE REQUIREMENTS" means the maintenance of insurance cover
of a type (including, following the commencement of telephony services, the
maintenance of business interruption insurance) and level which a prudent
company in the same business as the Parent would effect;
"MONTH" means a period beginning in one calendar month and ending in the
next calendar month on the day numerically corresponding to the day of the
calendar month on which it started, provided that (i) if the period started
on the last Banking Day in a calendar month or if there is no such
numerically corresponding day, it shall end on the last Banking Day in such
next calendar month and (ii) if such numerically corresponding day is not a
Banking Day, the period shall end on the next following Banking Day in the
same calendar month but if there is no such Banking Day it shall end on the
preceding Banking Day and "months" and "monthly" shall be construed
accordingly;
"MONTHLY MANAGEMENT REPORTS" shall mean the reports to be delivered
pursuant to Clause 10.1(h) in the form and including the matters more fully
described in Schedule 6, Part B;
"OTHER REQUIRED AUTHORISATIONS AND CONTRACTS" means, on any date, any
authorisations, consents or approvals (other than the Cable Broadcasting
and Telecommunications Law Authorisations) required to be obtained by the
Parent (and, following any Permitted Share Acquisition, any other member of
the Group) from any governmental or administrative authority, and any
contracts (other than the Material Contracts) required to be concluded by
the Parent (and, following any Permitted Share Acquisition, any other
member of the Group), in each case if necessary on such date to construct,
maintain and operate the Cable Broadcasting and Telecommunications Systems;
"OVERDRAFT ACCOUNT" means a special overdraft account opened in the name of
the Parent with the Tranche B Bank for the purpose of Overdraft
Utilisations pursuant to the Tranche B Facility;
"OVERDRAFT UTILISATION" means a borrowing by way of overdraft made
available to and used by the Parent under the Tranche B Facility by the
debit by the Parent of the Overdraft Account in accordance with the
provisions of Clause 4.3 hereof.
"PARENT" means Mediareseaux Marne, a societe anonyme organised under the
laws of France with a share capital of FRF 144,000,000 whose registered
office (siege social) is at 12, rue Albert Einstein, 77420 Champs-sur-
Marne, France and which is registered at the Registry of Commerce and
Companies of Meaux under no 400 461 950;
"PARENT GUARANTEE" means a guarantee by the Parent of the obligations of
any Acceding Borrower hereunder in the form annexed hereto as Schedule 16;
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<PAGE>
"PARENT SECURITY DOCUMENTS" means each of the security documents identified
in Schedule 4 (Parent Security Documents), any Parent Guarantee required to
be executed by the Parent pursuant to Clause 3.2(a) hereof, any Acquired
Company Financial Instruments Pledge Agreement required to be executed by
the Parent pursuant to Clause 10.1(dd)(i) hereof and any Acquired Company
Subordinated Loan Pledge Agreement required to be executed by the Parent
pursuant to Clause 10.2(f)(i)(B)2) hereof;
"PERIODIC FINANCIAL RATIO TEST DATE" shall mean each Quarter Day unless and
until the following conditions are met:
(i) 25 per cent of the aggregate amounts outstanding under the
Tranche A Facility at the end of the Tranche A Availability
Period shall have been repaid by the Borrowers; and
(ii) the ratio of Bank Debt to Annualised EBITDA when calculated on
both such Quarter Day and on the immediately preceding Quarter
Day is less than 3.0:1; and thereafter (but only for so long as
such conditions continue to be met) shall mean every June 30th
and December 31st;
"PERMITTED ACQUISITION" means any Acquisition by the Parent in France
relating to companies involved in the construction, installation and
operation of
a) cable radio and television networks; and/or
b) telecommunications networks (including telephone, high-speed data
transmission, Internet access, video, multi media services and related
activities) in which signals are broadcast by means of optical fibres,
cables or other wired means (and excluding, for the avoidance of
doubt, radioelectric (Hertzian) telecommunications networks and
satellite telecommunications networks except for experimental purposes
or as otherwise agreed);
provided that such company benefits from a Cable Broadcasting Law
Authorisation and/or a Telecommunications Law Authorisation:
(i) in respect of which the Parent acquires either:
(A) all of the share capital (or equivalent) of such company
except the minimum number of shares which are required to be
held as a matter of law by members of the Board of Directors
or equivalent body of such company or in order to constitute
the legally required minimum number of shareholders (a
"PERMITTED SHARE ACQUISITION"); or
(B) all or a distinct line of the business (fonds de commerce)
or equivalent, or of the activity (including such Cable
Broadcasting Law Authorisation and/or
19
<PAGE>
Telecommunications Law Authorisation) or assets of such
company (a "PERMITTED ASSET ACQUISITION"); and
(ii) in respect of which either of the following conditions are
satisfied:
(A) the total purchase price paid or to be paid by the Parent is
not in excess of FRF 50,000,000 (fifty million French
Francs) ; or
(B) the total purchase price paid or to be paid by the Parent is
in excess of FRF 50,000,000 (fifty million French Francs)
and in respect of which the procedure set forth in Clause
10.1(k) hereof has been followed; and
(iii) which would not result in the aggregate purchase price paid by
the Parent for Acquisitions during the term of this Agreement
being in excess of FRF 120,000,000 (one hundred and twenty
million French Francs); and
(iv) the terms of which result in all then outstanding Borrowed Money
of the entity acquired (other than Permitted Borrowings) to be
repaid out of the proceeds of sale or otherwise discharged upon
the consummation of the Acquisition;
(v) the terms of which result any Encumbrance which may then be
outstanding on any of the assets or rights of such company
(other than Permitted Encumbrances) being fully released upon
the consummation of the Acquisition; and
(vi) is made at a time when no Default has occurred which is
continuing or which has not been waived at the time of the
proposed Acquisition;
"PERMITTED ASSET ACQUISITION" has the meaning ascribed thereto in the
definition of "PERMITTED ACQUISITION";
"PERMITTED BORROWINGS" means:
(a) any Borrowed Money arising hereunder or under the Security Documents;
(b) any borrowings which qualify as a Shareholders' Contribution;
(c) any Borrowed Money arising under the Interest Rate Protection
Arrangements concluded pursuant to the Interest Rate Protection
Strategy; and
(d) any finance leasing arrangements and/or vendor financing up to an
aggregate maximum amount of FRF 25,000,000;
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"PERMITTED DISPOSALS" means :
(a) disposals of assets by the Parent (and, following any Permitted Share
Acquisition, any member of the Group) on bona fide arm's length
commercial terms in the ordinary course of business;
(b) disposals by the Parent (and, following any Permitted Share
Acquisition, any member of the Group) of assets which are redundant,
obsolete or no longer useful in the ordinary course of such Borrower's
business (and in respect of which a certification to such effect is
made by the Parent to the Facility Agent in the Quarterly Management
Account delivered following such disposal);
(c) any disposals by the Parent (and, following any Permitted Share
Acquisition, any member of the Group) approved by the Facility Agent
(acting on the instructions of the Majority Banks); and
(d) on an annual basis, the sale of property or transfer or disposal of
other assets by the Parent (and, following any Permitted Share
Acquisition, any member of the Group) representing in aggregate up to
five (5) per cent of Cable Broadcasting and Telecommunications System
Revenues or (when positive) EBITDA where such disposal is within the
framework of the business of the Parent as exercised on the date
hereof or, in the event that such threshold of 5% is surpassed, then
any other sale of property or transfer or disposal of other assets
either:
(i) approved in advance by the Facility Agent acting upon instruction
of the Majority Banks; or
(ii) in respect of which the net proceeds of the sale are applied
forthwith after such sale to the acquisition of assets of a
similar nature of identical or greater value;
provided that nothing in this definition shall be read as permitting the
disposal of any assets which are the subject of security created by any
Security Document, except in accordance with, and as permitted by, the
terms of the relevant Security Document, without the consent of all the
Banks;
"PERMITTED DISTRIBUTIONS" means a payment of dividends in respect of Shares
of the Parent following the end of the Tranche A Availability Period where
all of the following conditions are satisfied:
(a) no Event of Default has occurred and is continuing unremedied or
unwaived or would occur as a result of such payment; and
(b) the Bank Debt to Annualised EBITDA Ratio referred to in Clause 11.5
has been less than 3.0:1 for the two immediately preceding Quarterly
Periods; and
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<PAGE>
(c) the Borrowers as a whole have fully complied with the obligations in
respect of mandatory prepayments of Excess Cash Flow pursuant to
Clause 5.5 hereof; and
(d) the Borrowers as a whole have repaid at least 25 per cent of the
aggregate amount of the Term Loans;
and further provided that
(a) any such payment of dividends by the Parent are made from excess cash,
not required to meet such Borrower's financial obligations over the
following six (6) month period; and
(b) the payment of any such dividend, when taken together with all such
other payments made by the Parent in any given financial year, does
not exceed the aggregate amount of the principal prepayments or
repayments made under the Facility during the same financial year;
"PERMITTED ENCUMBRANCES" means:
(a) any Encumbrance arising hereunder or under any of the Security
Documents;
(b) any Encumbrance to which the Facility Agent, acting on the
instructions of the Majority Banks, has at any time consented in
writing; and
(c) any Encumbrance arising in the ordinary course of business by
operation of law (including reversionary and repurchase rights in
favour of Local Authorities with respect to cable radio and television
systems arising under the terms of Franchise Agreements or of the
Cable Broadcasting Laws);
"PERMITTED FUTURE FRANCHISE AGREEMENT" has the meaning specified in Clause
10.2(p) (Permitted Future Franchise Agreement);
"PERMITTED FUTURE RADIO AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION
AGREEMENT" has the meaning specified in Clause 10.2(q) (Permitted Future
Radio and Television Network Public Domain Occupation Agreement);
"PERMITTED INVESTMENTS" means:
(a) the placing of cash on deposit in the General Operations Account; and
(b) the investing of cash balances in Marketable Securities which are
deposited in a Marketable Securities Account pledged in favour of the
Security Agent, acting on behalf of the Senior Creditors, pursuant to
the Master Accounts Balance and Cash Pledge Agreement; and
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<PAGE>
(c) any investments approved by the Facility Agent (acting on the
instructions of the Majority Banks);
"PERMITTED MERGER" means any transaction pursuant to which all of the
assets of an Acquired Company are transferred to the Parent and the
Acquired Company is dissolved, consisting of :
(a) a merger (fusion-absorption) of the Acquired Company into the Parent;
or
(b) contribution of the assets (apport d'actif) of the Acquired Company
into the Parent; or
(c) any other method which would result in the transfer of all of the
assets of the Acquired Company to the Parent and the dissolution of
the Acquired Company and which has been approved in advance by the
Facility Agent acting on the instructions of the Majority Banks;
and no later than twenty-five (25) Banking Days following the consummation
of which, the Parent has taken any action required pursuant to the Parent
Security Documents or otherwise reasonably requested by the Security Agent
in order to cause the assets so transferred to the Parent to be made
subject to the security created pursuant to the Parent Security Documents;
"PERMITTED SHARE ACQUISITION" has the meaning ascribed thereto in the
definition of "PERMITTED ACQUISITION";
"PORTION(S) OF A TERM LOAN" means a portion of a Term Loan as divided
and/or consolidated in accordance with Clause 4.2(h), or, failing any such
division or consolidation, the portion of a Term Loan deemed to be
constituted under Clause 4.2(h) ;
"POSTAL SUBSCRIPTION PAYMENT ACCOUNT" has the meaning ascribed thereto in
the Master Accounts Balance and Cash Pledge Agreement;
"POSTAL AND TELECOMMUNICATIONS CODE" means the Code des Postes et
Telecommunications as amended from time to time;
"PREPAYMENT ACCOUNT" has the meaning given to it in Clause 5.5(c)
(Mandatory prepayment);
"PRINCIPAL SHAREHOLDER" means UPC and any other person holding, directly or
indirectly, 33% or more of the Shares of the Parent;
"PRO-FORMA DEBT SERVICE" means at any given time, in respect of the
immediately following twelve (12) month period, the scheduled repayments of
the Tranche A Facility, plus projected interest on such Bank Debt, and the
relevant commitment fees referred to in Clause 7.1(c);
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<PAGE>
"PROGRAMMING AGREEMENTS" means the agreements concluded or which may be
concluded by the Parent (and, following any Permitted Share Acquisition,
any other member of the Group) with the providers of television programmes
for transmission over the Cable Broadcasting and Telecommunications
Systems;
"PROPOSED FUTURE FRANCHISE AGREEMENTS" means any franchise agreements
proposed to be entered into by the Parent (or, following any Permitted
Share Acquisition, by any other member of the Group) following the date
hereof with Local Authorities, pursuant to Local Authority Public Service
Delegation Approvals, for the operation of cable radio and television
networks in the territory over which each such Local Authority has
jurisdiction;
"PROPOSED FUTURE RADIO AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION
AGREEMENTS" means any public domain occupation agreements (conventions
d'occupation du domaine public) proposed to be entered into by the Parent
(or, following any Permitted Share Acquisition, by any other member of the
Group) following the date hereof with Local Authorities, pursuant to Local
Authority Direct Authorisation Approvals, for the occupation by the Parent
(or, following any Permitted Share Acquisition, by any other member of the
Group) of the public domain administered by such Local Authorities in order
for the Parent (or, following any Permitted Share Acquisition, any other
member of the Group) to establish cable radio and television networks in
such public domain;
"PUBLIC DOMAIN OCCUPATION AGREEMENTS" means the Radio and Television
Network Public Domain Occupation Agreements and the Telecommunications
Network Public Domain Occupation Agreements;
"PUBLIC OFFERING" means any rights issue, public placing, listing or other
primary or secondary public offering of shares or securities of the Parent
or of any other member of the Group;
"QUALIFYING BANK" means a person, being a bank or financial institution
(whether incorporated in France or elsewhere), which is eligible to have
payments made to it by any Borrower under this Agreement without any
deduction or withholding in respect of Taxes either (i) by virtue of a
double taxation treaty (assuming for this purpose only that a direction or
consent such as is referred to in Clause 8.11 has been given), or (ii) by
virtue of the fact that no such deduction or withholding is imposed in the
jurisdiction to which a Borrower is subject;
"QUARTER DAYS" means each of 31st March, 30th June, 30th September and 31st
December in any year;
"QUARTERLY MANAGEMENT ACCOUNTS" means the reports to be delivered pursuant
to Clause 10.1(g) in the form and including the matters more fully
described in Schedule 6, Part A;
24
<PAGE>
"QUARTERLY PERIOD" means each period of approximately three (3) months
commencing on the day after a Quarter Day and ending on the next following
Quarter Day;
"QUOTATION DATE" means, in relation to an Advance, the date on which
quotations would customarily be provided by leading banks in the London
Interbank Market for deposits in Euro-French Francs for delivery on the
first day of the period of the relevant Advance (being, on the date hereof,
two Banking Days prior to the commencement of the Interest Period in
respect of which the relevant rate is to be fixed;
"RADIO AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION AGREEMENTS" means
the public domain occupation agreements (conventions d'occupation du
domaine public) which may be entered into between the Parent (or, following
any Permitted Share Acquisition, any other member of the Group) and Local
Authorities pursuant to Local Authority Direct Authorisation Approvals, for
the occupation by the Parent (or, following any Permitted Share
Acquisition, by any other member of the Group) of the public domain
administered by such Local Authorities in order for the Parent (or,
following any Permitted Share Acquisition, any other member of the Group)
to establish cable radio and television networks in such public domain;
"RCF ADVANCE" means an Advance made during the Tranche A Availability
Period;
"REFERENCE BANKS" means the principal London offices of Paribas, Societe
Generale and National Westminster Bank or such other banks as may become
reference banks with respect to calculations of LIBOR pursuant to Clause
19.6 (Reference Banks);
"RELEVANT SUBSTANCE" means (i) any radioactive emissions, (ii) electricity
and any electrical or electromagnetic emissions and (iii) any substance
whatsoever (whether in a solid or liquid form or in the form of a gas or
vapour and whether alone or in combination with any other substance) which
is capable of causing harm to man or any other living organism supported by
the environment (both natural and built), or damaging the environment (both
natural and built) or public health or welfare;
"REPAYMENT PERIOD" means in respect of the Tranche A Facility, the period
from 1st January 2003 to the Final Maturity Date;
"REPORTS" means the Insurance Report and the Legal Due Diligence Report;
"REQUIRED PORTION OF IPO PROCEEDS" shall have the meaning set forth in
Clause 12.2 hereof;
"ROLLOVER NOTICE" means a notice substantially in the form of Schedule 3,
Part B;
25
<PAGE>
"SECURITY DOCUMENTS" means the Parent Security Documents, the Acquired
Company Negative Pledge Letters and the Acceding Borrower Security
Documents;
"SECURITY AND SUBORDINATION DOCUMENTS" means the Security Documents and the
Subordination Agreement;
"SENIOR CREDITORS" has the meaning given to such term in the Subordination
Agreement;
"SHAREHOLDER" means a holder at any time of Shares;
"SHAREHOLDERS' AGREEMENTS" means the Existing Shareholders' Agreement and
any other agreement entered into between any of the shareholders of the
Parent, and "SHAREHOLDERS' AGREEMENT" shall be construed accordingly;
"SHAREHOLDERS' CONTRIBUTIONS" means (i) paid-in equity in respect of
Shares, and (ii) funds made available to the Parent by Shareholders
pursuant to Subordinated Loans (but, for the avoidance of doubt, not
including accrued interest on such Subordinated Loans nor any equity
created by capitalisation of such accrued interest);
"SHARES" means the shares (actions) of the Parent;
"STATUTS" means the Articles of Association (statuts) of the Parent;
"STATUTORY AUDITORS" means the Parent's commissaires aux comptes, being
Barbier, Frinault & Associes on the date hereof and at any time thereafter
such leading firm of independent and internationally recognised accountants
appointed by the shareholders of the Parent's as its statutory auditors and
notified to the Facility Agent;
"SUBORDINATED CREDITORS" has the meaning given to such term in the
Subordination Agreement;
"SUBORDINATED LOAN" has the meaning given to such term in the Subordination
Agreement;
"SUBORDINATED LOAN PLEDGE AGREEMENT" means a Subordinated Loan Pledge
Agreement entered into between a Subordinated Creditor, the Senior
Creditors and the Security Agent, with respect to any Subordinated Loan, in
the form of Schedule 2 to the Subordination Agreement;
"SUBORDINATION AGREEMENT" means the Subordination Agreement concluded or to
be concluded among the Parent, the Facility Agent, the Security Agent, the
Senior Creditors and the Subordinated Creditors;
"SUBSCRIBER" means a person who has entered into an agreement (which has
not expired or been terminated) (a "SUBSCRIBER AGREEMENT") with the Parent
(or, following any Permitted Share Acquisition, any member of the Group) to
be
26
<PAGE>
provided with services by the Parent (or, following any Permitted Share
Acquisition, any member of the Group) through the operation of Cable
Broadcasting and Telecommunications Systems, where such Subscriber
Agreement generates revenue for the Parent or, as the case may be, any
member of the Group, whether through subscription or otherwise;
"SUBSIDIARY" of a person means any company or entity directly or indirectly
controlled by such person, for which purpose "control" means either
ownership of more than 50 per cent of the voting share capital (or
equivalent right of ownership) of such company or entity or power to direct
its policies and management whether by contract or otherwise or the right
to receive more than 50 per cent of any distributions (of whatever nature)
made in respect of the share capital or other ownership interests of such
company or entity;
"TAXES" includes all present and future taxes, levies, imposts, duties,
fees or charges of a similar nature together with interest thereon and
penalties in respect thereof and "TAXATION" shall be construed accordingly;
"TELECOMMUNICATIONS LAW AUTHORISATION" means, as the case may be, the
Telephony Licence and any other governmental or administrative
authorisation required, if necessary, to be obtained under the
Telecommunications Laws to implement and operate telecommunications
networks and services;
"TELECOMMUNICATIONS LAWS" means the Postal and Telecommunications Code,
French Law No 96-659 of 26th July 1996 (as amended from time to time),
Decree no 96-1175 of 27th December 1996, and all other laws, statutes,
regulations and judgements relating to telecommunications networks and
services;
"TELECOMMUNICATIONS NETWORK PUBLIC DOMAIN OCCUPATION AGREEMENTS" means the
public domain occupation agreements (conventions d'occupation du domaine
public) which may be entered into between the Parent (or, following any
Permitted Share Acquisition, any other member of the Group) and authorities
charged with the concession or administration of the non-road public domain
(autorites concessionnaires ou gestionnaires du domaine public non-routier)
pursuant to Article L. 45-1 of the Postal and Telecommunications Code, for
the occupation by the Parent (or, following any Permitted Share
Acquisition, by any other member of the Group) of such non-road public
domain in order for the Parent (or, following any Permitted Share
Acquisition, any other member of the Group) to establish telecommunications
networks in such non-road public domain;
"TELEPHONY LICENCE" means the decree (arrete) dated 17th June 1998 and the
Cahier des Charges referred to therein, delivered, pursuant to Articles L.
33-1, L 34-1 and L.34-1 of the Postal and Telecommunications Code, by the
Minister responsible for telecommunications (Ministre charge des
telecommunications), following investigation (instruction) by, decision 98-
268 of 17th April, 1998 and consultation with the relevant Local
Authorities, authorising the Parent to implement and operate (etablir et
exploiter) a telecommunications network open
27
<PAGE>
to the public and to provide telephony services to the public in the
departements of Seine-et-Marne, Seine-Saint-Denis and Val de Marne;
"TERM" means, in relation to an RCF Advance, the period for which such RCF
Advance is or is to be made or renewed, as specified in the Drawdown Notice
or Rollover Notice for such RCF Advance, or as otherwise determined in
accordance with the provisions hereof;
"TERM DATE" means, in relation to an RCF Advance, the last day of the Term
of such RCF Advance;
"TERM LOAN" has the meaning set forth in Clause 4.2(g);
"THIRD-PARTY TRADEMARKS" means trademarks owned by any Principal
Shareholder or by any Affiliate or Subsidiary thereof and used by the
Parent in its business;
"TMP" means the rate per annum published daily by the French Stock Exchange
Association (Societe des Bourses Francaises) on the Official List (Cote
Officielle), as the average overnight monetary market rate (taux moyen du
marche monetaire au jour le jour contre pensions) in the Paris interbank
market;
"TOTAL COMMITMENTS" means at any relevant time, the total of the Tranche A
Commitments and the Tranche B Commitment of all the Banks at such time;
"TOTAL FACILITY AMOUNT" means a maximum amount of FRF 700,000,000;
"TRANCHE A AVAILABILITY PERIOD" means the period from the date of this
Agreement up to and including 31st December, 2002 or such earlier date on
which the relevant Commitments have been cancelled in full pursuant to the
terms of this Agreement;
"TRANCHE A BANK" means any of the Banks the name and the address of which
is set forth in Part A of Schedule 1 hereof, and "TRANCHE A BANKS" means
all of such Banks;
"TRANCHE A COMMITMENT" means in relation to a Tranche A Bank the amount set
opposite its name in Part A of Schedule 1 in respect of the Tranche A
Facility, as amended by any relevant term of this Agreement;
"TRANCHE A FACILITY" means that part of the facility to be made available
to the Parent or any Acceding Borrower hereunder, which is referred to
herein as such;
"TRANCHE A FACILITY AMOUNT" means a maximum amount of FRF 680,000,000;
28
<PAGE>
"TRANCHE B AVAILABILITY PERIOD" means the period from the date of this
Agreement up to and including the Banking Day preceding 31st December 2007
or such earlier date on which the relevant Commitments (as set out in
Schedule 1 hereto) have been cancelled in full pursuant to the terms of
this Agreement;
"TRANCHE B BANK" means the Bank the name and the address of which is set
forth in Part B of Schedule 1 hereof;
"TRANCHE B COMMITMENT" means in relation to the Tranche B Bank the amount
set opposite its name in Part B of Schedule 1 in respect of the Tranche B
Facility (being the Tranche B Facility Amount) as amended by any relevant
term of this Agreement;
"TRANCHE B FACILITY" means that part of the facility to be made available
to the Parent hereunder, which is referred to herein as such;
"TRANCHE B FACILITY AMOUNT" means a maximum amount (including accrued
interest due on Overdraft Utilisations) of FRF 20,000,000;
"UPC" means United Pan-Europe Communications N.V., a limited liability
company (naamloze vennootschap) organised under the laws of the Netherlands
with a share capital of NLG 54,000,000, having its registered office at
Fred. Roeskestraat 123, 1076 EE Amsterdam, the Netherlands; and
"YEAR-TO-DATE EBITDA" means, on any Quarter Date, EBITDA for the financial
year (exercice social) in question accumulated from the beginning of such
financial year to such Quarter Date.
1.4 Construction
In this Agreement, unless the context otherwise requires:
(a) reference to Clauses and schedules are to be construed as references
to the Clauses of, and schedules to, this Agreement and references to
this Agreement include its schedules;
(b) reference to (or to any specified provision of) this Agreement or any
other document shall be construed as references to this Agreement,
that provision or that document as in force for the time being and as
from time to time amended in accordance with the terms thereof, or, as
the case may be, with the agreement of the relevant parties and (where
such consent is, by the terms of this Agreement or the relevant
document required to be obtained as a condition to such amendment
being permitted) the prior written consent of the Facility Agent, all
of the Banks or the Majority Banks (as the case may be);
29
<PAGE>
(c) reference to a "regulation" includes any regulation, rule, directive,
requirement, request or guideline (whether or not having the force of
law) of any agency, authority, central bank or government department
or any self-regulatory or other national or supra-national authority
which is applicable and in effect at the period contemplated;
(d) words importing the plural shall include the singular and vice versa;
(e) reference to a time of day are to Paris time;
(f) references to a person shall be construed as including references to
an individual, firm, company, corporation, unincorporated body of
persons or any State or any agency thereof and that person's
successors in title;
(g) reference to a document "in the agreed form" means in the form of a
Schedule to any Facility Document or otherwise a draft of such
document initialled by way of identification by the Facility Agent and
the Parent;
(h) references to any enactment shall be deemed to include reference to
such enactment as re-enacted, amended or extended;
(i) references to "business" in relation to a Borrower mean the
construction, installation, operation and utilisation of Cable
Broadcasting and Telecommunications Systems, and references to
"ordinary course of business" in relation to a Borrower shall be
similarly construed; and
(j) a reference to an Franchise Agreement, a Public Domain Occupation
Agreement, a Cable Broadcasting Law Authorisation, a
Telecommunications Law Authorisation or an Other Required
Authorisation or Contract, shall be deemed to be a reference to such
contract, permit, or authorisation as amended, supplemented,
superseded or varied from time to time as expressly permitted by and
in accordance with the provisions of Clause 10.2(n) (Amendments to
documents).
1.5 Bank Commitments
For the purpose of the definition of "Majority Banks" in Clause 1.3,
references to the Tranche A Commitment or the Tranche B Commitment of a
Bank shall, if the Total Commitments have, at any relevant time, been
reduced to zero, be deemed to be a reference to the Tranche A Commitment or
the Tranche B Commitment of that Bank immediately prior to such reduction
to zero.
2 THE FACILITY
------------
2.1 Tranche A Facility Amount
The Tranche A Banks, relying upon each of the representations and
warranties in Clause 9 hereof and in the Security and Subordination
Documents, agree:
30
<PAGE>
(a) to lend to the Borrowers by way of Advances during the Tranche A
Availability Period the principal sum of up to FRF 680,000,000; and
(b) thereafter to maintain the Term Loans;
upon and subject to the terms of this Agreement.
The obligation of each Tranche A Bank under this Agreement shall, subject
to the terms of this Agreement, be
(a) to contribute that proportion of each RCF Advance which, as at the
Drawdown Date of such RCF Advance, its Tranche A Commitment bears to
the Total Commitments; and
(b) following the end of the Tranche A Availability Period, to maintain
that proportion of the Term Loans which, at the end of the Tranche A
Availability Period, its Tranche A Commitment bears to the Total
Commitments.
2.2 Tranche B Facility Amount
The Tranche B Bank, relying on each of the representations and warranties
in Clause 9 hereof and in the Security and Subordination Documents, agrees
to make available to the Parent in the form of an overdraft on the
Overdraft Account, the Tranche B Facility Amount, upon and subject to the
terms of this Agreement.
2.3 Obligations several
The obligations of each Bank under this Agreement are several; the failure
of any Bank to perform such obligations shall not relieve any other Bank,
the Arranger, the Facility Agent, the Security Agent nor any other party of
any of their respective obligations or liabilities under any Facility
Document nor shall the Facility Agent, the Security Agent or the Arranger
be responsible for the obligations of any Bank or other Beneficiary (except
for its own obligations, if any, as a Bank) nor shall any Bank be
responsible for the obligations of any other Bank under this Agreement.
Notwithstanding the foregoing, the Facility Agent undertakes at any time,
in the event that a financial institution selected by the Facility Agent in
agreement with the Parent to be a Bank hereunder defaults, for any reason
whatsoever, in its obligations to any Borrower, to use its best efforts to
replace as soon as possible such defaulting financial institution by
another financial institution of similar repute, provided that any
additional costs for such Borrower and any costs incurred by the Facility
Agent in the replacement process shall be initially agreed upon between the
Facility Agent and the Parent. Any costs incurred by the Facility Agent in
the replacement process will be reimbursed by the Parent. No such
replacement will result in a waiver by any of the Facility Agent, any
Borrower or any other party hereto against the defaulting Bank.
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<PAGE>
2.4 Interests several
Notwithstanding any other term of this Agreement (but without prejudice to
the provisions of this Agreement relating to or requiring action by the
Majority Banks) the interest of the Facility Agent, the Security Agent, the
Arranger and the Banks are several and the amount due to the Facility Agent
(for its own account), to the Arranger, to the Security Agent and to each
Bank is a separate and independent debt. The Facility Agent, the Security
Agent, the Arranger and each Bank shall have the right to protect and
enforce its rights arising out of this Agreement and it shall not be
necessary for the Facility Agent, the Security Agent, the Arranger or any
Bank (as the case may be) to be joined as an additional party in any
proceedings for this purpose.
2.5 Accession of Additional Borrowers
The Parent may deliver to the Facility Agent at any time during the
Availability Period a Borrower Accession Notice duly completed and executed
by the Parent and the proposed Acceding Borrower. Upon, but not before the
Facility Agent notifying the Banks of receipt of the Borrower Accession
Notice and the documents referred to in Clause 3.2(a) hereof, the proposed
Acceding Borrower shall become an Acceding Borrower.
3 CONDITIONS PRECEDENT
--------------------
3.1 Conditions precedent to first Advance under the Tranche A Facility and to
first Overdraft Utilisation under the Tranche B Facility
The obligations of each Tranche A Bank to make its Tranche A Commitment
available to the Parent and the obligation of the Tranche B Bank to make
the Tranche B Commitment available shall be subject to the following
conditions:
(a) the Facility Agent shall have received the documents and evidence
specified in Schedule 2 Part A not later than three (3) Banking Days
before the earlier of the following two dates:
(i) the day on which the Drawdown Notice in respect of the first RCF
Advance is given; and
(ii) the day on which the first Overdraft Utilisation occurs;
(b) completion of an economic and commercial due diligence process
satisfactory to the Facility Agent, including such presentations by
the Parent to the Banks as are deemed necessary by the Facility Agent;
(c) satisfaction of the Facility Agent with the terms of the Material
Contracts concluded prior to the date hereof;
(d) satisfaction of the Facility Agent with the Interest Rate Protection
Strategy;
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<PAGE>
(e) satisfaction of the Facility Agent with the terms of the Insurance;
(f) the opening by the Parent of the General Operations Account and the
Overdraft Account and the creation of a pledge thereon in accordance
with the provisions of the Master Accounts Balance and Cash Pledge
Agreement;
(g) payment by the Parent of the amounts payable by it to the Facility
Agent in respect of fees and commissions pursuant to Clause 7.1 (a)
and (b) of this Agreement, at the times and in the amounts stated in
the Fee Letter.
3.2 Conditions precedent to first Advance to any Acceding Borrower
(a) At least three (3) Banking Days prior to any Acceding Borrower being
able to request an initial Advance under the Tranche A Facility, the
Parent shall procure that it or such Acceding Borrower delivers to the
Facility Agent in respect of such Acceding Borrower, the documents and
evidence specified in Schedule 2 Part B hereto.
(b) Upon confirmation by the Facility Agent to the Banks that it has
received all the documents referred to in Clause 3.2(a) above, the
relevant Acceding Borrower shall be entitled to request Advances under
the Tranche A Facility, as if it had been a party to this Agreement at
the date hereof. Delivery of a Borrower Accession Notice executed by
the Parent and the relevant Acceding Borrower shall constitute
confirmation by the Parent and such relevant Acceding Borrower that
the representations and warranties set out in Clause 9 hereof and to
be made by them on the date of the signing of the Borrower Accession
Notice are correct, as if made with reference to the facts and
circumstances then existing.
3.3 Conditions precedent to each RCF Advance under the Tranche A Facility and
each Overdraft Utilisation
The obligation of each Bank to contribute to any RCF Advance under the
Tranche A Facility and the obligation of the Tranche B Bank to permit any
Overdraft Utilisation is subject to the further conditions that at the time
of the giving of a Drawdown Notice (or Rollover Notice, as applicable) for,
and at the time of the making of, such RCF Advance, or at the time the
Overdraft Utilisation is effected, as the case may be:
(a) the representations and warranties deemed to be made pursuant to
Clause 9.2, being true and correct as of each such time as if each was
made with respect to the facts and circumstances existing at such
time;
(b) no Default shall have occurred and be continuing which has not been
remedied or expressly waived or would result from the making of such
RCF Advance or such Overdraft Utilisation; and
(c) no Material Adverse Circumstance has occurred and is continuing.
33
<PAGE>
3.4 Waiver of conditions precedent
The conditions specified in this Clause 3 are inserted solely for the
benefit of the Banks and may be waived on their behalf in whole or in part
and with or without conditions by the Facility Agent acting (i) on the
instructions of all of the Banks in respect of the first RCF Advance under
the Tranche A Facility, (ii) on the instructions of the Majority Banks in
respect of subsequent RCF Advances under the Tranche A Facility, and (iii)
on the instructions of the Tranche B Bank in respect of Overdraft
Utilisations without prejudicing the right of the Facility Agent acting on
such instructions to require fulfilment of such conditions in whole or in
part in respect of any other Advance.
4 ADVANCES AND OVERDRAFT UTILISATIONS
-----------------------------------
4.1 RCF Advances, Drawdown Notice and Rollover Notice
(a) Subject to the terms and conditions of this Agreement (including,
without limiting the generality of the foregoing, the satisfaction of
the conditions precedent described in Clauses 3.1, 3.2 and 3.3 and the
Availability Test and compliance with the covenants described in
Clauses 10 and 11), each Tranche A Bank severally agrees that it will
(i) during the Tranche A Availability Period, join in making RCF
Advances to any Borrower until the end of such Tranche A Availability
Period and (ii) at the end of the Tranche A Availability Period,
continue in ma king available Portions of the Term Loans to the
Borrowers.
(b) RCF Advances will be made to any Borrower following receipt by the
Facility Agent from such Borrower of a Drawdown Notice or a Rollover
Notice signed by an Authorised Officer of the relevant Borrower (and,
in the case of Drawdown Notices or Rollover Notices on behalf of a
Borrower other than the Parent, countersigned by an Authorised Officer
of the Parent) not later than 10:00 a.m. on the fifth Banking Day
before the proposed Drawdown Date, provided however, that where the
Parent requests an RCF Advance for the purpose of a Permitted
Acquisition in respect of which the Parent is to pay a purchase price
in excess of FRF 50,000,000, then such Drawdown Notice must be
received by the Facility Agent from the Parent not later than the
fifteenth Banking Day prior to the proposed Drawdown Date and in such
case the Drawdown Notice shall be accompanied by the information set
forth in Clause 10.1(k) hereof, and provided further that in the event
that an initial Drawdown Notice is effected by the Parent on the date
of signature hereof for purposes other than a Permitted Acquisition,
and subject to satisfaction of the conditions precedent referred to in
Clause 3.1 hereof, the Drawdown Date in respect of such initial
Drawdown Notice will be the second Business Day following the date of
signature hereof. Each such Drawdown Notice shall be effective on
actual receipt by the Facility Agent, and once given, shall, subject
as provided in Clause 6.13, be irrevocable. No Drawdown Notice may be
given in respect of an amount
34
<PAGE>
which is the subje ct of a notice received by the Facility Agent under
Clause 4.2(i).
(c) Upon receipt of a Drawdown Notice or a Rollover Notice complying
with the terms of this Agreement, the Facility Agent shall promptly
notify each Tranche A Bank of the request for an RCF Advance, the date
on which such RCF Advance is to be made, the Term thereof and the
amount of each Bank's participation in such RCF Advance. On the date
for the making of such RCF Advance, each of the Tranche A Banks shall
make available to the Facility Agent its portion of such RCF Advance.
(d) Subject to the terms and conditions of this Agreement, if a Borrower
wishes to draw an RCF Advance during the Tranche A Availability Period
on any day (the "RELEVANT DAY") of an amount of not more than the
amount of a RCF Advance which is due to be repaid on the Relevant Day
in accordance with Clause 5.1, such Borrower shall not be obliged to
serve a Drawdown Notice in relation to such new RCF Advance but may
serve a Rollover Notice signed by an Authorised Officer of the
relevant Borrower (and, in the case of Rollover Notices on behalf of a
Borrower other than the Parent, countersigned by an Authorised Officer
of the Parent) specifying the amount of the new RCF Advance and the
Term thereof. A Rollover Notice shall be effective on actual receipt
by the Facility Agent (which must be no later than 10:00 a.m. on the
fifth Banking Day before the Relevant Day) and, once given shall,
subject as provided in Clause 6.13 be irrevocable. No Rollover Notice
may be given in respect of an amount which is the subject of a notice
received by the Facility Agent under Clause 4.2(i).
4.2 Tranche A Facility; Terms and Amount of RCF Advances; Conversion to Term
Loans; Division and Consolidation of Term Loans into Portions of the Term
Loans
(a) RCF Advances may be made only on Banking Days during the Tranche A
Availability Period and an RCF Advance may be borrowed, at the
relevant Borrower's discretion, for a Term of one month or two, three
or six months or (with the prior agreement of all of the Banks) any
other period (but not less than one month), in any such case ending no
later than the last day of the Tranche A Availability Period.
(b) During the Tranche A Availability Period, the aggregate maximum amount
available at any time for Advances to be made pursuant to Drawdown
Notices (the "AVAILABLE AMOUNT") shall (subject to the following
paragraph) be limited to the result obtained by application of an
availability test (the "AVAILABILITY TEST"), consisting of multiplying
the Revenue Generating Units from time to time by the relevant
Availability Factor (but not greater than the maximum aggregate
Tranche A Commitment), where:
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<PAGE>
(i) "REVENUE GENERATING UNITS" means the Actual Recurring Revenue
at the end of the most recent month as set forth in the most
recent Monthly Management Reports delivered to the Facility
Agent pursuant to Clause 10.1(h), divided by FRF 150 ;
(ii) "ACTUAL RECURRING REVENUE" means the aggregate of all Cable
Broadcasting and Telecommunications System Revenues (excluding
non-recurring installation and connection revenues) for the most
recent month as set forth in the most recent Monthly Management
Reports; and
(iii) "AVAILABILITY FACTOR" shall mean the following figures in each
of the months during the Tranche A Availability Period:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
----- ----- ----- ----- -----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 8,500 6,500 4,750 4,150
- ------------------------------------------------------------------------------------------
February 8,500 6,400 4,700 4,050
- ------------------------------------------------------------------------------------------
March 8,500 6,150 4,650 4,000
- ------------------------------------------------------------------------------------------
April 8,500 6,100 4,650 3,900
- ------------------------------------------------------------------------------------------
May 8,500 5,950 4,600 3,800
- ------------------------------------------------------------------------------------------
June 9,000 8,500 5,750 4,600 3,750
- ------------------------------------------------------------------------------------------
July 9,000 8,400 5,600 4,500 3,650
- ------------------------------------------------------------------------------------------
August 9,000 8,250 5,450 4,450 3,600
- ------------------------------------------------------------------------------------------
September 9,000 8,000 5,250 4,400 3,500
- ------------------------------------------------------------------------------------------
October 8,500 7,600 5,100 4,350 3,450
- ------------------------------------------------------------------------------------------
November 8,500 7,150 4,950 4,300 3,350
- ------------------------------------------------------------------------------------------
December 8,500 6,650 4,750 4,250 3,300
- ------------------------------------------------------------------------------------------
</TABLE>
For the avoidance of doubt, it is expressly agreed that in the event
that an RCF Advance requested pursuant to a Drawdown Notice satisfies
the Availability Test, then (i) a Rollover Notice may subsequently be
given during the Tranche A Availability Period with respect to such
RCF Advance without the relevant Borrower being required independently
to satisfy the Availability Test with respect to the amount of the RCF
Advance which is the subject of such Rollover Notice; and (ii) one or
more additional Drawdown Requests may be made by a Borrower on the
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<PAGE>
date of such Rollover Notice provided that the aggregate amount to be
made available to such Borrower pursuant to such Rollover Notice and
such RCF Advance(s) satisfies the Availability Test on such date.
(c) Without prejudice to the foregoing provisions, Drawdown Notices in
respect of RCF Advances to be used for the purposes of financing of a
proposed Acquisition shall:
(i) not be permitted unless:
(A) the Acquisition qualifies as a Permitted Acquisition; and
(B) the Parent has, where relevant, provided together with such
Drawdown Notice the information referred to in Clause
10.1(k) hereof with respect to such proposed Acquisition;
(ii) specifically state that the RCF Advance is being requested for
the purposes of the proposed Acquisition; and
(III) be honoured only if the Parent would, immediately following the
consummation of the proposed Acquisition, satisfy the Availability Test on the
basis of the consolidated revenues of the Parent and the entity or business
which would result from the proposed Acquisition calculated in accordance with
French GAAP;
(d) Number and amount of RCF Advances
Each RCF Advance during the Tranche A Availability Period shall be of
(i) a minimum principal amount of FRF 20,000,000 or any larger sum
which is an integral multiple of FRF 5,000,000 or (ii) the remaining
amount available under the Tranche A Facility (as applicable).
(e) Number of RCF Advances Outstanding
No RCF Advance may be drawn if, as a result, there would be more than
ten (10) RCF Advances then outstanding.
(f) Termination of Tranche A Commitments
Any part of the Tranche A Commitments in respect of RCF Advances
remaining undrawn and uncancelled at the end of the Tranche A
Availability Period shall thereupon be automatically reduced to zero.
(g) Conversion to Term Loans
On the last day of the Tranche A Availability Period, all outstanding
RCF Advances made to each Borrower shall be deemed to be repaid and
the revolving credit facility then made available shall convert into a
term
37
<PAGE>
loan to such Borrower (each a "TERM LOAN" and collectively the
"TERM LOANS") the duration of which shall be the Repayment Period and
the aggregate principal amount of each of which shall be the aggregate
amount of all RCF Advances outstanding at such time.
(h) Division and Consolidation of Term Loans into Portions of the Term
Loans
Following the conversion referred to in Clause 4.2(g), any Borrower
may by notice received by the Facility Agent no later than 10:00 a.m.
on the fifth Business Day before the beginning of each Interest Period
in respect of its Term Loan made to it specify that such Term Loan
shall be divided into more than one Portion of its Term Loan, and
thereafter may, by notice received by the Facility Agent no later than
10:00 a.m. on the fifth Business Day before the beginning of each
Interest Period in respect of a Portion of its Term Loan specify that
such Portion of its Term Loan shall be divided into more than one
Portion of its Term Loan, or consolidate with any other Portion of its
Term Loan in respect of which the then current Interest Period ends on
the same day as the current Interest Period in respect of such Portion
of its Term Loan. In the event that no such division or consolidation
is requested, then the total amount of its Term Loan shall be deemed
to constitute one single Portion of such Term Loan. No more than five
(5) Portions of all of the Term Loans may be outstanding in respect of
all of the Term Loans; each such Portion of a Term Loan shall be
either (i) FRF 20,000,000 or (ii) any larger sum which is an integral
multiple of FRF 5,000,000 or (iii) (if the balance of a Term Loan is
less than FRF 5,000,000) the balance of such Term Loan.
(i) Cancellation of Tranche A Commitments
The Parent may at any time during the Tranche A Availability Period
only, by notice to the Facility Agent (effective only on actual
receipt, such notice to include an affirmation by an Authorised
Officer of the Parent that the viability of the then-existing Cable
Broadcasting and Telecommunications Systems will not be threatened
thereby), cancel without premium or penalty with effect from a date
not less than ten (10) Banking Days after the receipt by the Facility
Agent of such notice, the whole or any part (being either FRF
10,000,000 or an integral multiple thereof, or the remainder of the
Facility) of the total of the Tranche A Commitments of all of the
Tranche A Banks which is not then outstanding or requested in a
Drawdown Notice or Rollover Notice and in respect of which an RCF
Advance has not then been made. Any such notice of cancellation, once
given, shall be irrevocable and upon such cancellation taking effect
the Tranche A Commitment of each of the Banks shall be reduced
proportionally. No amounts so cancelled may subsequently be
reinstated.
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<PAGE>
4.3 Overdraft Utilisations under the Tranche B Facility
(a) Subject to the terms and conditions of this Agreement (including,
without limiting the generality of the foregoing, the satisfaction by
the Parent of the conditions precedent described in Clauses 3.1 and
3.3 and compliance with the covenants described in Clauses 10 and 11,
but, for the avoidance of doubt, without the Parent being required to
satisfy the Availability Test described in Clause 4.2(b), the Tranche
B Bank agrees with the Parent that it will during the Tranche B
Availability Period make the Tranche B Facility Amount available to
the Parent for Overdraft Utilisations in the manner described in the
following paragraph.
(b) Overdraft Utilisations will be effected by debit from the Overdraft
Account. Overdraft Utilisations may (subject to the previous
paragraph) be effected by the Parent at any time during the Tranche B
Availability Period and without the Parent being required to give
prior notification thereof to the Facility Agent, by the drawing of
cheques on the Overdraft Account or the making of bank transfers from
the Overdraft Account, in all cases up to an aggregate amount equal to
the Tranche B Facility Amount.
(c) The Parent may at any time during the Tranche B Availability Period
only, by notice to the Facility Agent (effective only on actual
receipt, such notice to include an affirmation by an Authorised
Officer of the Parent that the viability of the Cable Broadcasting and
Telecommunications Systems will not be threatened thereby), cancel
without premium or penalty with effect from a date not less than ten
(10) Banking Days after the receipt by the Facility Agent of such
notice, the whole or any part (being either FRF 2,000,000 or an
integral multiple thereof, or the remainder of the Facility) of the
total of the Tranche B Commitment which is not then the subject of an
Overdraft Utilisation. Any such notice of cancellation, once given,
shall be irrevocable and upon such cancellation taking effect the
Tranche B Commitment shall be reduced proportionally. No amounts so
cancelled may subsequently be reinstated.
4.4 Acceding Borrower Drawings
If, following a Permitted Acquisition, an Acquired Company becomes an
Acceding Borrower under this Agreement, then the Parent shall not be
permitted to on-lend any funds drawn down by the Parent under the Tranche A
Facility to such Acceding Borrower without the consent of the Majority
Banks. The Parent shall ensure that such funds as any Acceding Borrower may
require for the purposes set out in Clause 1.1 hereof shall be drawn down
by such Acceding Borrower direct from the Banks in accordance with the
terms of this Agreement; provided however, that an Acceding Borrower shall
not be entitled to request an Advance in accordance with the terms hereof,
if the Group failed and in continuing to fail to meet any of the financial
ratios set in Clause 11 hereof or the Available Test.
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<PAGE>
5 REPAYMENT AND PREPAYMENT
------------------------
5.1 Repayment of RCF Advances
A Borrower shall repay each RCF Advance in respect of which the Term Date
is prior to the last day of the Tranche A Availability Period, on such Term
Date. If an RCF Advance (the "NEW RCF ADVANCE") is to be made to any
Borrower on a day on which another RCF Advance made to the same Borrower
(the "MATURING RCF ADVANCE") is due to be repaid then, subject to the terms
of this Agreement and so long as the conditions referred to in Clause 3 and
Clause 4.2 shall have been satisfied in relation to the new RCF Advance and
a Rollover Notice has been given to the Facility Agent as provided in
Clause 4.1(d), (i) the maturing RCF Advance shall be deemed to have been
repaid on its Term Date either in whole (if the new RCF Advance is equal to
or greater than the maturing RCF Advance) or in part (if the new RCF
Advance is less than the maturing RCF Advance) and the Borrower in question
shall only be obliged to repay the principal amount by which the maturing
RCF Advance exceeds the new RCF Advance and (ii) to the extent that the
maturing RCF Advance is so deemed to have been repaid, the principal amount
of the new RCF Advance to be made on such date shall be deemed to have been
credited to the account of such Borrower by the Facility Agent on behalf of
the Banks in accordance with the terms of this Agreement and the Banks
shall only be obliged to make available to such Borrower pursuant to Clause
4.1(c) a principal amount (if any) equal to the amount by which the new RCF
Advance exceeds the maturing RCF Advance
5.2 Repayment of Term Loans
The Parent, and as the case may be, any Acceding Borrower shall procure
that, subject to the application of Clauses 5.4 and 5.5, each of the Term
Loans shall be repaid in quarterly instalments (the "REPAYMENT
INSTALMENTS") on each of the Quarter Days commencing on the Quarter Day
falling on 31st March, 2003, in accordance with the following amortisation
schedule:
<TABLE>
<CAPTION>
YEAR REPAYMENTS EXPRESSED AS A
PERCENTAGE OF THE TERM LOANS
<S> <C>
2003 10.00%
2004 20.00%
2005 25.00%
2006 25.00%
2007 20.00%
</TABLE>
5.3 Repayment of Overdraft Utilisation
The Parent agrees to repay to the Tranche B Bank in full any amounts
outstanding (including principal and interest accrued thereon) in respect
of Overdraft Utilisations on the Final Maturity Date.
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<PAGE>
5.4 Voluntary Prepayment of Term Loans during the Repayment Period
Subject to the receipt by the Facility Agent of irrevocable written notice
given by any Borrower at least ten (10) Banking Days prior thereto, any
Borrower or Borrowers may prepay, during the Repayment Period, any Portion
of such Borrower's Term Loan in whole or in part (being FRF 10,000,000 or
any larger sum which is an integral multiple of FRF 10,000,000) on the
following Interest Payment Date corresponding to such Portion of such
Borrower's Term Loan, without premium or penalty. Upon any notice of
prepayment being given, the available amounts outstanding in relation to
such Portion of the Term Loan in question shall be automatically cancelled.
5.5 Mandatory Prepayment
(a) Subject to paragraph (c) below, during the Repayment Period, on the
first Interest Payment Date following the delivery of the annual
Accounts to the Facility Agent in accordance with Clause 10.1(f) (the
"NEXT INTEREST PAYMENT DATE"), the Parent shall prepay or cause to be
prepaid an aggregate amount (the "EXCESS CASH FLOW MANDATORY
PREPAYMENT") of the Term Loans equal to fifty per cent (50%) of the
Excess Cash Flow for the financial year to which such annual Accounts
relate.
(b) Subject to paragraph (c) below, in the event of a Public Offering, an
amount equivalent to the Required Portion of the IPO Proceeds shall be
applied by the relevant Borrower on the Next Interest Payment Date, to
prepay outstanding Advances, in accordance with the provisions of
Clause 12.2 hereof ("IPO MANDATORY PREPAYMENT").
(c) If no Interest Payment Date falls within the first two months
following delivery of any annual Accounts referred to in paragraph (a)
above to the Facility Agent (in the case of an Excess Cash Flow
Mandatory Prepayment) or following the consummation of the Public
Offering (in the event of the IPO Mandatory Prepayment referred to in
paragraph (b) above), then the Parent and/or Acceding Borrower shall,
at its option, either:
(i) pay an amount equal to the Excess Cash Flow Mandatory Prepayment
or the IPO Mandatory Prepayment, as the case may be, plus any
amount required in accordance with the provisions of Clause
14.2(c) below, to the Facility Agent no later than five (5)
Banking Days following the delivery of such annual Accounts or
the consummation of the Public Offering, as the case may be, for
application in accordance with the provisions of paragraphs (a)
or (b) of this Clause 5.5; or
(ii) pay, no later than five (5) Banking Days following the date upon
which any such annual Accounts are published or the consummation
of the Public Offering, as the case may be, an amount equal to
the Excess Cash Flow Mandatory Prepayment or
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<PAGE>
the IPO Mandatory Prepayment, as the case may be, into a blocked
account to be opened at such time for such purposes by the Parent
or by the relevant Acceding Borrower with the Facility Agent,
which amounts shall be pledged in favour of the Security Agent in
accordance with the provisions of the Master Accounts Balance and
Cash Pledge Agreement or a similar agreement entered into by the
Acceding Borrower pursuant to Clause 10.1(ff) hereof (each such
account being referred to as a "PREPAYMENT ACCOUNT").
(d) The principal amount standing to the balance of any Prepayment Account
shall be applied in full in prepayment of outstanding Advances on the
Next Interest Payment Date.
(e) Each Prepayment Account shall bear interest at a commercial rate
agreed between the Facility Agent and the Parent or by the relevant
Acceding Borrower. Interest on such Prepayment Account shall accrue to
and, subject to the other terms of this Agreement, be payable to, the
Parent or by the relevant Acceding Borrower on the Next Interest
Payment Date and shall not form part of the Excess Cash Flow.
(f) The Parent or the relevant Acceding Borrower shall have no right to
withdraw or deal in any monies standing to the credit of any
Prepayment Account (other than interest accruing on such account in
accordance with paragraph (e) above) nor to assign, transfer or
otherwise dispose of the debt represented thereby without the prior
written consent of the Facility Agent .
5.6 Adjustment of Repayment Instalments
The amount of each voluntary prepayment of a Portion of a Borrower's Term
Loan made under Clause 5.4 (Voluntary prepayment during the Repayment
Period) and the amount of each mandatory prepayment made under any of
Clauses 5.5 (Mandatory Prepayment) or 13 (Default) shall be applied against
future Repayment Instalments specified in this Clause 5 as follows:
(a) in the case of all such prepayments other than IPO Mandatory
Prepayments, in inverse order of their maturity; and
(b) in the case of IPO Mandatory Prepayments, pro rata to the remaining
Repayment Instalments.
5.7 Prepayment due to Taxation or Increased Costs
If circumstances arise which would, or would with a giving of notice,
result in:
(a) any additional amounts becoming payable under Clause 8.7
(Grossing-up for Taxes); or
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<PAGE>
(b) any increased cost becoming payable under Clause 15.2 (Increased
Costs),
then, without prejudice to the obligations of each of the Borrowers under
those Clauses, any Borrower may prepay the whole (but not part) of the then
outstanding amount of the relevant Bank's participation in the then
outstanding Advances to such Borrower or (in the case of the Tranche B
Bank) the Parent may, if affected by such circumstances, prepay the whole
(but not part) of the Overdraft Utilisations made by it together with all
interest and other charges accrued on those participations and all other
amounts payable by it to such Beneficiary under the Facility Documents, on
giving not less than ten (10) Banking Days' prior written notice to such
Bank (through the Facility Agent).
5.8 General provisions relating to prepayment
(a) Any notice of prepayment given under this Agreement shall be
irrevocable, shall state the amount of the intended prepayment and the
date on which it will be made and the relevant Borrower shall be bound
to prepay in accordance with such notice. The Facility Agent shall
notify the Banks promptly of receipt of any such notice.
(b) Amounts repaid or prepaid in respect of any Portion of a Term Loan
under any provision of this Agreement may not be reborrowed hereunder.
(c) Any prepayment of any Advance under any provision of this Agreement
shall be made together with interest and fees and commission, if any,
accrued on the amount prepaid and any amount which becomes due and
payable as a result of that prepayment pursuant to Clause 14
(Indemnities).
6 INTEREST
--------
6.1 Interest on the Advances
Each Borrower shall pay interest on each Advance made to it under the
Tranche A Facility, in respect of each Interest Period relating thereto, on
each Interest Payment Date at the rate per annum determined by the Facility
Agent to be the aggregate of
(a) the Margin; and
(b) LIBOR for such Interest Period.
In the event that an Interest Period is longer than six (6) months, then
the relevant Borrower will pay interest accrued during the first six (6)
months of such Interest Period at the end of such six (6) months and shall
pay interest accrued on the remaining portion of the Interest Period on the
last day of such Interest Period.
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<PAGE>
6.2 Interest Periods
The Interest Period in relation to each RCF Advance shall be of a duration
equal to the Term of such RCF Advance. Interest Periods in respect of a
Portion of the Term Loans shall be of a duration determined in accordance
with Clauses 6.3 and 6.4.
6.3 Selection of Interest Periods for a Portion of the Term Loans
The relevant Borrower may by notice received by the Facility Agent not
later than 11:00 a.m. on the fifth Banking Day before the beginning of each
Interest Period in respect of a Portion of its Term Loan specify whether
such Interest Period shall have a duration of one month or two, three or
six months or (with the prior agreement of all of the Banks) any other
period of not less than one month.
6.4 Determination of Interest Periods for a Portion of a Term Loan
Every Interest Period in respect of a Portion of a Term Loan shall be of
the duration specified by the relevant Borrower pursuant to Clause 6.3 but
so that:
(a) the initial Interest Period in respect of a Portion of a Term Loan
will commence on the last day of the Tranche A Availability Period and
each subsequent Interest Period in respect of a Portion of a Term Loan
will commence forthwith upon the expiration of the previous Interest
Period in respect of such Portion of the Term Loans;
(b) Interest Periods in respect of an aggregate amount of a Portion of a
Term Loan at least equal to the amount of all Term Loans to be repaid
on any repayment date as referred to in Clause 5.2 shall end on such
date; and
(c) if the relevant Borrower fails to specify the duration of an Interest
Period in accordance with the provisions of Clause 6.3 such Interest
Period shall, subject to this Clause 6.4, have a duration of three (3)
months.
6.5 Restrictions on selection
(a) The relevant Borrower shall select the duration of Interest Periods
pursuant to Clauses 6.2 and 6.3 so as to ensure that no Advance shall
have an Interest Period expiring after the Final Maturity Date.
(b) If it appears to the Facility Agent that the requirements of
paragraph (a) above will not be met by the relevant Borrower's
selection of any Interest Period, the Facility Agent shall promptly so
inform such Borrower which shall promptly choose a period which
conforms with such requirements, or, at such Borrower's request, the
Facility Agent shall, on behalf of and after consultation with such
Borrower, select a different duration for such Interest Period.
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<PAGE>
6.6 Notification
The Facility Agent will notify the relevant Banks, the Security Agent and
the relevant Borrower of the duration of each Interest Period relating to
each Advance promptly after ascertaining the same.
6.7 Interest on Overdraft Utilisations
The Parent agrees to pay interest on each Overdraft Utilisation at such
rate determined by the Facility Agent to be the aggregate of (a) TMP and
(b) the Margin. Such interest will be calculated by reference to the
aggregate of cleared debit balances from time to time on the Overdraft
Account and will accrue from day to day on the basis of actual days elapsed
and a year of 360 days and will be debited to the Overdraft Account on the
last Banking Day for each Quarter Period.
6.8 Default interest
If any Borrower fails to pay any amount payable by it under this Agreement
on the due date therefor, such Borrower, on demand by the Facility Agent
from time to time, shall pay interest on a daily basis on such overdue
amount from the due date up to the date of actual payment, both before and
after judgement, at a rate determined by the Facility Agent to be one per
cent (1 %) per annum above the aggregate of (i) the Margin then applicable;
and (ii) TMP. Default interest payable by any Borrower under this
Agreement will be compounded annually. The payment of default interest will
not constitute a waiver of any right or remedy by any Beneficiary under the
Facility Documents.
6.9 Calculations
All interest and other payments of an annual nature under this Agreement or
to be calculated on an annual basis shall accrue from day to day and be
calculated on the basis of actual days elapsed and a 360 day year. In
calculating the actual number of days elapsed in a period which is one of a
series of consecutive periods with no interval between them or a period on
the last day of which any payment falls to be made in respect of such
period, the first day of such period shall be included but the last day
excluded.
6.10 Determination conclusive; notification
Each determination of a rate of interest by the Facility Agent under this
Agreement shall be promptly notified to the relevant Borrower and the
relevant Bank, together with a statement in reasonable detail of the manner
in which such determination was made, and shall, in the absence of manifest
error, be conclusive.
6.11 Margin adjustment
(a) The Margin will be two per cent (2.00%) per annum unless adjusted in
accordance with this Clause 6.11.
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<PAGE>
(b) The Parent will deliver to the Facility Agent (by no later than the
date it delivers to the Facility Agent the Quarterly Management
Accounts referred to in Clause 10.1(g)) a notice (a "MARGIN NOTICE")
specifying the ratio of Bank Debt to Annualised EBITDA as calculated
in accordance with Clause 11.5 (Bank Debt to Annualised EBITDA) as at
the date on which the Quarterly Management Accounts were prepared for
the purposes of calculating whether the Margin is to be adjusted in
accordance with this Clause 6.11.
(c) The Margin will be adjusted (upwards or downwards) to the percentage
rates per annum specified in Column 1 below set opposite the range
into which the ratio of Bank Debt to Annualised EBITDA, as shown in
the Margin Notice, falls :
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2
MARGIN BANK DEBT
to Annualised EBITDA
<S> <C>
2.00 per cent greater than 4.5:1
1.75 per cent 4.5:1 or less
1.50 per cent 4.0:1 or less
1.25 per cent 3.5:1 or less
1.00 per cent 3.0:1 or less
0.75 per cent 2.5:1 or less
</TABLE>
(d) The adjustment (if any) specified in paragraph (c) above will
(following submission by the relevant Borrower to the Facility Agent
of Quarterly Management Accounts) (the date of each such submission
being referred to as the "MARGIN TEST DATE") apply as the Margin with
respect to each Interest Period commencing after such Margin Test
Date, unless and until a subsequent adjustment to the Margin is
effected pursuant to the provisions of this Clause 6.11.
(e) If any Borrower fails to deliver a Margin Notice in accordance with
paragraph (b) above, then the Margin with effect from the last date
permitted for delivery of the relevant accounts under Clause 10.1(g)
will be as stated in paragraph (a) above.
6.12 Effective Global Rate ("Taux effectif global")
Each of the Borrowers acknowledges and agrees that the effective global
rate (taux effectif global) (the "EFFECTIVE GLOBAL RATE") of the facilities
to be made available to any Borrower hereunder cannot be calculated for the
entire duration thereof by reason, in particular, of the variability of the
applicable rate, and therefore that only the use of the facilities will
permit the determination of the Effective Global Rate and that the
Effective Global Rate provided hereafter is therefore purely illustrative
and shall not bind the parties in the future.
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<PAGE>
For the purpose of application of articles L 313-1, R 313-1 and R 313-2 of
the Consumer Code (Code de la Consommation), it is specified for indicative
purposes that :
(a) for a full utilisation of the Tranche A Facility during the Tranche A
Availability Period, and assuming that no Mandatory Prepayment will
occur according to Clause 5.5, for an Interest Period of three months,
taking into account the rate of three-month LIBOR on 25th June, 1998
of 3.5625% per year, the Effective Global Rate of the Tranche A
Facility would, at such date, be 6.01% per year and the periodic
interest rate (taux de periode) would be 1.5035%; and
(b) for a full utilisation of the Tranche B Facility during the Tranche B
Availability Period, and taking into account the rate of TMP on 25th
June 1998 of 3.375% per year, the Effective Global Rate of the Tranche
B Facility would, at such date, be 5.73% per year and the periodic
interest rate (taux de periode) would be 0.0157%.
Such indicative rates include LIBOR or TMP, as the case may be, plus the
Margin (calculated on the assumption that no adjustment will be made
pursuant to Clause 6.11 hereof) as well as any fees, costs and other
expenses due by any Borrower in respect of this Agreement which the
Consumer Code, as interpreted on the date hereof, require to be taken into
account.
6.13 Market disruption; non-availability
(a) If and whenever, at any time prior to the commencement of any Interest
Period in relation to the Tranche A Facility:
(i) the Facility Agent shall have determined (which determination
shall, in the absence of manifest error, be conclusive), that
adequate and fair means do not exist for ascertaining LIBOR
during such Interest Period; or
(ii) none or only one of the Relevant Reference Banks supplies the
Facility Agent with a quotation for calculating LIBOR; or
(iii) the Facility Agent shall have received notification from Banks
with participations in Advances aggregating not less than
forty-five per cent (45%) of the Advances that deposits in
Euro-French Francs are not available to such Banks in the
London Interbank Market in the ordinary course of business in
sufficient amounts to fund their contributions to the relevant
Advance for such Interest Period or that LIBOR does not
accurately reflect the cost to such Banks of obtaining such
deposits;
the Facility Agent shall forthwith give notice (a "TRANCHE A
DETERMINATION NOTICE") thereof to the relevant Borrowers and to each
of the Tranche A Banks. A Tranche A Determination Notice shall
contain
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<PAGE>
particulars of the relevant circumstances giving rise to its issue.
After the giving of any Tranche A Determination Notice the undrawn
amount of the Tranche A Commitments of all of the Banks shall not be
borrowed until notice to the contrary is given to the relevant
Borrowers by the Facility Agent (which notice shall be given promptly
after any substitute basis has been determined pursuant to Clause
6.13(b) hereof).
(b) Within five Banking Days after any Tranche A Determination Notice has
been given by the Facility Agent under Clause 6.13(a), (i) if a
Borrower so requires, each Borrower affected thereby and the Facility
Agent and each affected Bank shall enter into negotiations for a
period of not more than 10 days with a view to agreeing a substitute
basis for determining the rates of interest from time to time
applicable to the relevant Advances thereafter and any such substitute
basis that is agreed shall take effect in accordance with its terms;
and (ii) if no substitute basis has been agreed between the relevant
Borrowers, the Facility Agent and each affected Bank pursuant to sub-
paragraph (i) above, each affected Bank shall certify a substitute
basis for funding its contribution to the relevant Advance. Such
substitute basis may (without limitation) include alternative interest
periods, alternative currencies or alternative rates of interest but
shall include a margin above the cost of funds to such Bank equivalent
to the Margin for the relevant Interest Period determined in
accordance with Clause 6.11, and shall apply with respect to Interest
Periods beginning thereafter.
Each substitute basis so agreed in accordance with (i) or, failing
such agreement, certified in accordance with (ii) shall be binding
upon the relevant Borrowers, the Facility Agent and (in the case of
(i)) each Bank and (in the case of (ii)) each affected Bank and shall
take effect in accordance with its terms from the date on which
substituted basis is agreed, until such time, if any, as the
conditions giving rise to the issuance of a Tranche A Determination
Notice are no longer in effect, in which case the Facility Agent shall
so inform the relevant Borrowers and the interest rate shall be
determined in accordance with the provisions of Clauses 6.1 through
6.11 hereof.
(c) If and when, at any time during the Tranche B Availability Period, the
Facility Agent shall have determined (which determination shall, in
the absence of manifest error, be conclusive), that adequate and fair
means do not exist for ascertaining TMP, then the Facility Agent shall
forthwith give notice (a "TRANCHE B DETERMINATION NOTICE") thereof to
the Parent and to the Tranche B Bank. A Tranche B Determination Notice
shall contain particulars of the relevant circumstances giving rise to
its issue. After the giving of any Tranche B Determination Notice the
amount of the Tranche B Commitment shall not be the subject of any
Overdraft Utilisation until notice to the contrary is given to the
Parent by the Facility Agent (which notice shall be given promptly
after any substitute basis has been determined pursuant to Clause
6.13(d) hereof).
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<PAGE>
(d) Within five Banking Days after any Tranche B Determination Notice has
been given by the Facility Agent under Clause 6.13(c), (i) if the
Parent so requires, the Parent and the Facility Agent and the Tranche
B Bank shall enter into negotiations for a period of not more than 10
days with a view to agreeing a substitute basis for determining the
rates of interest from time to time applicable to the Overdraft
Utilisations and any such substitute basis that is agreed shall take
effect in accordance with its terms; and (ii) if no substitute basis
has been agreed between the Parent, the Facility Agent and the Tranche
B Bank pursuant to sub-paragraph (i) above, the Tranche B Bank shall
certify a substitute basis for funding its contribution to the
Overdraft Utilisations. Such substitute basis may (without limitation)
include alternative interest periods, alternative currencies or
alternative rates of interest but shall include a margin above the
cost of funds to the Tranche B Bank equivalent to the Margin
determined in accordance with Clause 6.11, and shall apply with
respect to the remaining duration of the Tranche B Availability
Period.
Each substitute basis so agreed in accordance with (i) or, failing
such agreement, certified in accordance with (ii) shall be binding
upon the Parent, the Facility Agent and the Tranche B Bank and shall
take effect in accordance with its terms from the date on which
substituted basis is agreed, until such time, if any, as the
conditions giving rise to the issuance of a Tranche B Determination
Notice are no longer in effect, in which case the Facility Agent shall
so inform the Parent and the interest rate shall be determined in
accordance with the provisions of Clause 6.7 hereof.
6.14 Reference Bank quotations
-------------------------
If any Reference Bank is unable or otherwise fails to furnish a quotation
for the purpose of calculating LIBOR, the interest rate applicable to the
Advances shall be determined, subject to Clause 6.13 (Market Disruption),
on the basis of the quotations furnished by the remaining Reference Banks.
7 FEES, EXPENSES AND STAMP TAXES
------------------------------
7.1 Fees
The Parent agrees to pay to the Facility Agent, whether or not the Parent
is entitled to request Advances or has made an Overdraft Utilisation
pursuant to Clause 4 hereof:
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(a) Arrangement and Underwriting Fees
---------------------------------
an arrangement and underwriting fee at the time and in the amount set
forth in the Fee Letter;
(b) Agency fee
----------
an agency fee at the time and in the amount set forth in the Fee
Letter; and
(c) Commitment fee
--------------
(i) during the Tranche A Availability Period, a commitment fee
payable in arrears on each Quarter Day following the date of
signature of this Agreement and on the last day of the Tranche A
Availability Period, for the account of each Bank and computed
from the date of this Agreement (calculated on the basis of the
actual number of days elapsed in a 360 day year) at the rate of
0.40 per cent per annum on the daily undrawn and uncancelled
amount of such Bank's Tranche A Commitment; and
(ii) during the Tranche B Availability Period, a commitment fee
payable in arrears on each Quarter Day following the date of
signature of this Agreement and on the last of the Tranche B
Availability Period, for the account of the Facility Agent and
computed from the date of this Agreement (calculated on the
basis of the actual number of days elapsed in a 360 day year) at
the rate of 0.40 per cent per annum on the daily unused and
uncancelled amount of the Facility Agent's Tranche B Commitment.
7.2 Expenses
The Parent agrees to pay to the Facility Agent within thirty (30) days from
the date on which the Facility Agent makes demand on the Parent for payment
of the same accompanied by reasonable supporting documentation:
(a) all reasonable out-of-pocket expenses (including legal and other
professional expenses) incurred by the Arranger in connection with the
negotiation, preparation (including reasonable due diligence),
syndication and execution of this Agreement and the Security and
Subordination Documents together with interest at the rate referred to
in Clause 6.8 from the date falling 30 days after the date of demand
for payment of such expenses to the date of payment (as well after as
before judgement), subject however, to the provisions of the Fee
Letter; and
(b) all reasonable out-of-pocket expenses (including legal and other
professional expenses) incurred by the Facility Agent, the Arranger
and the Security Agent in connection with the negotiation, preparation
(including reasonable due diligence) and execution of any amendment or
extension of
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or the granting of any waiver or consent under this Agreement or any
Security Document or the Subordination Agreement together with
interest at the rate referred to in Clause 6.8 from the date falling
30 days after the date of demand for payment of such expenses to the
date of payment (as well after as before judgement); and
(c) all reasonable out-of-pocket expenses (including legal, travel and
other professional expenses) incurred by the Facility Agent, the
Arranger, the Security Agent and the Banks or any of them in
connection with the enforcement of, or preservation of any rights
under, this Agreement or any Security Document or the Subordination
Agreement, or otherwise in respect of moneys owing under this
Agreement that are unpaid on the due date thereof, together with
interest at the rate referred to in Clause 6.8 from the date falling
30 days after the date of demand for payment of such expenses to the
date of payment (as well after as before judgement).
7.3 Value Added Tax
All fees and expenses payable pursuant to this Clause 7 shall be paid
together with Value Added Tax (if any) properly chargeable thereon.
7.4 Stamp and other duties
The Parent agrees (i) to pay all stamp, documentary, registration or other
like duties or Taxes (including any duties or Taxes payable by the
Beneficiaries) imposed on or in connection with the entry into, performance
or enforcement against the Parent (or following a Permitted Acquisition,
against any other members of the Group) of any of the Facility Documents
and (ii) to indemnify the Beneficiaries against any liability arising by
reason of any delay or omission by the Parent to pay such stamp or other
duties or Taxes.
8 PAYMENTS AND TAXES; ACCOUNTS
----------------------------
8.1 No set-off or counterclaim; distribution to the Banks
All payments to be made by any Borrower under this Agreement shall be made
in full, without any set-off (other than as provided for in Clause 5.1
hereof) or counterclaim whatsoever and free and clear of any deductions or
withholdings, in French Francs on the due date to the account of the
Facility Agent at such bank in Paris as the Facility Agent may from time to
time specify for this purpose. Save as otherwise expressly provided by
this Agreement such payments made in respect of the Tranche A Facility
shall be for the account of the Banks, and the Facility Agent shall
forthwith distribute such payments in like funds as are received by the
Facility Agent to the Banks rateably in accordance with their Commitments
(it being specified that no such Borrower shall incur any liability in
respect of such distribution by the Facility Agent). Any such payments made
in respect of the Tranche B Facility shall be credited directly to the
Overdraft Account.
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8.2 Payments by the Tranche A Banks
All sums to be advanced by the Tranche A Banks to any Borrower under this
Agreement shall be remitted in French Francs on the relevant date to the
account of the Facility Agent at such bank in Paris as the Facility Agent
may have notified to the Tranche A Banks and shall be paid by the Facility
Agent on such date in like funds as are received by the Facility Agent to
the General Operations Account.
8.3 Currency
All amounts payable under this Agreement shall be payable in French Francs.
8.4 Facility Agent may assume receipt
Where any sum is to be paid under this Agreement to the Facility Agent for
the account of another person, the Facility Agent may assume that the
payment will be made when due and may (but shall not be obliged to) make
such sum available to the person so entitled. If it proves to be the case
that such payment was not made to the Facility Agent, then the person to
whom such sum was so made available shall on request refund such sum to the
Facility Agent together with interest thereon sufficient to compensate the
Facility Agent for the cost of making available such sum up to the date of
such repayment and the person by whom such sum was payable shall indemnify
the Facility Agent for any and all loss or expense which the Facility Agent
may sustain or incur as a consequence of such sum not having been paid on
its due date.
8.5 Non-Banking Days
When any payment under this Agreement becomes due on a day which is not a
Banking Day, the due date for payment shall be extended to the next
following Banking Day unless such Banking Day falls in the next calendar
month in which case payment shall be made on the immediately preceding
Banking Day.
8.6 Certificates conclusive
Any certificate or determination of the Facility Agent, the Arranger, the
Security Agent or any Bank as to any rate of interest or any amount payable
under this Agreement shall include a statement in reasonable detail of the
manner in which such determination was made and shall, in the absence of
manifest error, be conclusive and binding on any Borrower and (in the case
of a certificate or determination by the Facility Agent, the Arranger or
the Security Agent) on the Banks.
8.7 Grossing-up for Taxes
Subject to Clause 8.8, if at any time any Borrower is required to make any
deduction or withholding in respect of Taxes from any payment due under
this Agreement for the account of any Beneficiary (or if the Facility Agent
is required to make any such deduction or withholding from a payment to any
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other Beneficiary), the sum due from such Borrower in respect of such
payment shall, subject to the Banks' compliance with Clause 8.11(b), be
increased to the extent necessary to ensure that, after the making of such
deduction or withholding, each Beneficiary receives on the due date for
such payment (and retains, free from any liability in respect of such
deduction or withholding) a net sum equal to the sum which it would have
received had no such deduction or withholding been required to be made and
the relevant Borrower shall indemnify each Beneficiary against any losses
or costs incurred by any of them in direct consequence of any failure of
such Borrower to make any such deduction or withholding or by reason of any
increased payment not being made on the due date for such payment. The
relevant Borrower shall promptly deliver to the Facility Agent copies of
(or, where required, originals of) any receipts, certificates or other
proof evidencing the amounts (if any) paid or payable in respect of any
deduction or withholding as aforesaid.
8.8 Qualifying Banks
If any Bank is not or ceases to be a Qualifying Bank then it shall promptly
notify the Borrowers upon becoming aware of the same and no Borrower shall
be obliged to pay such Bank under Clause 8.7 any amount in excess of the
amount it would have been obliged to pay if such Bank was or had not ceased
to be a Qualifying Bank provided that this Clause 8.8 shall not apply (and
the Borrowers shall be obliged to comply with their obligations under
Clause 8.7) if after today's date there shall have been any change in, or
in the interpretation or application of, any relevant law, directive,
treaty (including, without limitation, any applicable double tax treaty) or
regulation or practice of any applicable taxation authority and as a result
thereof the relevant Bank ceases to be a Qualifying Bank or any Borrower is
required to make deduction or withholding on account of tax irrespective of
whether the recipient of the relevant payment is or is not a Qualifying
Bank. Each Bank confirms to the relevant Borrower that it is a Qualifying
Bank.
8.9 Claw-back of Tax benefit
If following any such deduction or withholding as is referred to in Clause
8.7 from any payment by any Borrower, any Beneficiary shall receive or be
granted a credit against or remission for any taxes payable by it, the
relevant Beneficiary shall, subject to the relevant Borrower having made
any increased payment in accordance with Clause 8.7 and to the extent that
the Facility Agent, the Arranger, the Security Agent or such Bank can do so
without prejudicing the retention of the amount of such credit or remission
and without prejudice to the right of such Beneficiary to obtain any other
relief or allowance which may be available to it, reimburse the relevant
Borrower with such amount as such Beneficiary shall certify to be the
proportion of such credit or remission as will leave the Beneficiary (after
such reimbursement) in no worse position than it would have been in had
there been no such deduction or withholding from the payment by the
relevant Borrower as aforesaid. Such reimbursement shall be made forthwith
upon the Beneficiary certifying that the amount of such credit or remission
has been received by it provided that the relevant Beneficiary shall not
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unreasonably delay before so certifying. Nothing contained in this
Agreement shall oblige any Beneficiary to disclose to the relevant Borrower
or any other person any information regarding its tax affairs or tax
computations or interfere with the right of the Beneficiary to arrange its
tax affairs in whatever manner it thinks fit and, in particular, none of
the Beneficiaries shall be under any obligation to claim relief from its
corporate profits tax liability or similar tax liabilities in respect of
such tax in priority to any other claims, reliefs, credits or deductions
available to it. Without prejudice to the generality of the foregoing, no
Borrower shall by virtue of this Clause 8.9 be entitled to enquire about
any Beneficiary's tax affairs.
8.10 If grossing-up is illegal
(a) If any Borrower is, or becomes obliged, to make any deduction or
withholding on account of any Taxes or deductions of whatever nature
under Clause 8.7 (Grossing up for Taxes) and is prevented from making
any additional payments in full by applicable law such that the
relevant Beneficiary does not receive the full amount which it would
have received had payment not been made subject to such taxes or other
deduction, the relevant Beneficiary shall have the right by giving
notice to such Borrower through the Facility Agent, as the case may
be, to require such Borrower to prepay all or part of its
participation in each outstanding Advance (without prejudice to the
continuing obligation of such Borrower to make any such additional
payment, which it is prevented from making by applicable law, as soon
as payment becomes permitted by applicable law).
(b) If a Beneficiary notifies any Borrower through the Facility Agent that
it requires such Borrower to prepay all or part of its participation
in an outstanding Advance pursuant to paragraph (a) above then such
Borrower shall make prepayment of such amount in full as notified to
it by the Facility Agent on the earlier of (i) the last day of the
then current Interest Period for that Advance and (ii) the date
falling 60 days after the giving of such notice to such Borrower
subject, in any case, to a minimum prior notice of 10 Banking Days.
8.11 Certification to secure a Tax benefit
If, in order to make any payment due under this Agreement to the Facility
Agent, the Arranger, the Security Agent or any Bank without deduction or
withholding for or on account of Tax or to secure the benefit of any
reduced rate of such deduction or withholding, any Borrower requires a
direction from or the consent of a government or taxing authority:
(a) such Borrower agrees to use its reasonable endeavours to complete,
execute, arrange for any required certification of, and deliver to the
Agent, the Security Agent, the Arranger or such Bank or such
government or taxing authority as the Agent, the Security Agent, the
Arranger or such Bank reasonably directs, any form or document
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reasonably required of it, and to provide such information that the
Agent, the Security Agent, the Arranger, such Bank or such government
or taxing authority may reasonably require or request in order to
assist or enable the Agent, the Security Agent, the Arranger or such
Bank to secure that such a direction or consent is given to such
Borrower in respect of any payment. The relevant Borrower shall
perform its obligations under this sub-paragraph (a) promptly upon the
earlier of:
(i) being notified that the form, document or information is required
or requested; and
(ii) demand being made by the Facility Agent, the Security Agent, the
Arranger, such Bank or the relevant government or taxing
authority, as the case may be;
(b) the Facility Agent, the Security Agent, the Arranger and each such
Bank agrees to use its reasonable endeavours to complete, execute,
arrange for any required certification of, and deliver to the relevant
Borrower, or such government or taxing authority as such Borrower may
reasonably direct, any form or document reasonably required of it, and
to provide such information that such Borrower or such government or
taxing authority may reasonably require or request in order to assist
or enable such Borrower to secure that such a direction or consent is
given to it in respect of any payment. The obligations of the Agent,
the Security Agent, the Arranger and such Bank under this sub-
paragraph (b) shall be performed within 30 days of reasonable demand
by the relevant Borrower.
8.12 Bank accounts
Each Bank shall maintain, in accordance with its usual practices, an
account or accounts evidencing the amounts from time to time lent by, owing
to and paid to it under this Agreement. The Facility Agent shall maintain a
control account showing the Advances and other sums owing by each Borrower
under this Agreement and all payments in respect thereof made by the
relevant Borrower from time to time. The control account shall be prima
facie evidence as to the amount from time to time owing by any Borrower
under this Agreement.
8.13 Partial payments
Other than in the case of prepayment to a specific Bank, if, on any date on
which a payment is due to be made by any Borrower under this Agreement, the
amount received by the Facility Agent from such Borrower falls short of the
total amount of the payment due to be made by such Borrower on such date
then, without prejudice to any rights or remedies available to the Facility
Agent and the Banks under this Agreement, the Facility Agent or, as the
case may be, the Security Agent, shall apply the amount actually received
from the relevant Borrower in or towards discharge of the obligations of
such Borrower under this
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Agreement in the following order, notwithstanding any appropriation made,
or purported to be made, by such Borrower:
(a) first, in or towards payment to the Facility Agent, of any portion of
the arrangement and underwriting fee payable under Clause 7.1(a) which
shall have become due but remains unpaid;
(b) secondly, in or towards payment to the agency fee payable under Clause
7.1 (b) which shall have become due, but remains unpaid
(c) thirdly, in or towards payment to the Facility Agent, the Arranger,
the Security Agent and the Banks of any unpaid costs and expenses of
the Facility Agent, the Arranger, the Security Agent and the Banks due
to them on such date pursuant to the terms of this Agreement;
(d) fourthly, in or towards payment to the Banks, on a pro rata basis, of
any accrued commitment fee payable under Clause 7.1(c) which shall
have become due, but remains unpaid;
(e) fifthly, in or towards payment to the Banks, on a prorata basis, of
any default interest payable in accordance with Clause 6.8 of this
Agreement;
(f) sixthly, in or towards payment to the Banks, on a pro rata basis, of
any accrued interest in respect of the Tranche A Facility or Tranche B
Facility which shall have become due, but remains unpaid;
(g) seventhly, in or towards payment to the Banks, on a pro rata basis, of
any principal of the Tranche A Facility and/or the Tranche B Facility
which shall have become due, but remains unpaid; and
(h) eighthly, in or towards payment of any other sum which shall have
become due but remains unpaid (and, if more than one such sum so
remains unpaid, on a pro rata basis).
The order of application set out in this Clause 8.13 may be varied by the
Facility Agent if all Banks so direct.
9 REPRESENTATIONS AND WARRANTIES
------------------------------
9.1 Representations and warranties
------------------------------
Each Borrower represents and warrants in respect of itself (and the Parent,
following any Permitted Share Acquisition, represents and warrants in
respect of any other member of the Group, so that any reference to a
Borrower in this Clause 9.1 shall also be deemed to constitute a
representation and warranty by the Borrower with reference to any member of
the Group at such time), to each of the Banks, the Arranger, the Security
Agent and the Facility Agent that:
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(a) Due incorporation
it is duly incorporated and validly existing under the laws of France
and has power to carry on its business as it is now being and
hereafter proposed to be conducted and to own its property and other
assets;
(b) Power
it has all requisite power to enter into, execute and deliver the
Facility Documents to which it is at any time a party and to perform
its obligations under each such Facility Document, compliance has been
made with all necessary requirements and all necessary corporate,
shareholder or other action has been taken by it to authorise the
execution, delivery and performance of each of the Facility Documents
to which it is a party, and no limitation on its powers to borrow will
be exceeded as a result of borrowings under this Agreement;
(c) Binding obligations
this Agreement and each Facility Document to which it is a party
constitutes its valid and legally binding obligations enforceable in
accordance with its terms, subject, however to the effect of
bankruptcy, insolvency, reorganisation, moratorium or similar laws now
or hereafter in effect relating to or affecting the rights or remedies
of creditors generally;
(d) No conflict with other obligations
the execution and delivery of, the performance of its obligations
under, and compliance with the provisions of, this Agreement and the
Facility Documents to which it is a party do not (i) contravene any
existing applicable law, statute, rule or regulation or any judgement,
decree or permit to which it is subject, (ii) contravene or conflict
with any provision of its or their statuts or other constitutive
documents, (iii) breach any term of the Cable Broadcasting Law
Authorisations or the Telecommunications Law Authorisations, (iv)
conflict with or result in any breach of any of the terms of, or
constitute a default under any Material Contract, (v) conflict with or
result in any breach of any of the material terms of any of the Other
Required Authorisations and Contracts or (vi) result in the creation
or imposition of, or oblige it to create, any Encumbrance (other than
those created by the Security Documents) on it or any of its or their
undertakings, assets, rights or revenues, which in any of the
foregoing cases would constitute a Material Adverse Circumstance;
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(e) No litigation
no litigation, arbitration or administrative or regulatory proceedings
or investigations is taking place, pending or, to the knowledge of its
officers, is threatened against it which (if adversely determined)
would constitute a Material Adverse Circumstance;
(f) Accounts
(i) the Accounts most recently delivered to the Facility Agent
under Clauses 10.1(f), (g) and (h) have been prepared, save as
expressly disclosed in notes to or accompanying such Accounts,
in accordance with French GAAP and (in the case of audited
annual Accounts) present a true and fair view of, or (in the
case of unaudited Accounts) fairly present, its financial
position (and, where relevant, the consolidated financial
position of the Group) as at the date to which the same were
prepared;
(ii) It has disclosed all significant liabilities (contingent or
otherwise) and any unrealised or anticipated losses of which it
is aware;
(iii) All forecasts and projections contained in the Business Plan
and each Annual Operating Budget delivered to the Facility
Agent under Clause 10.1(j)(v) were arrived at after careful
consideration, were fair, were based on reasonable grounds,
represent its expectations for the period covered thereby on
the date thereof in light of events and circumstances at that
time, and, as at the date of their delivery to the Facility
Agent, were not misleading in any material respect;
(iv) Nothing has occurred since the date of the audited Accounts
most recently delivered to the Facility Agent pursuant to
Clause 10.1(f) which constitutes a Material Adverse
Circumstance (other than as fully disclosed to the Facility
Agent);
(g) No filing required
it is not necessary, due to its status or activity or any permits or
licences which it holds, to ensure the legality, validity,
enforceability or admissibility in evidence of any Facility Document
to which it is a party that any of them or any other instrument be
notarised, filed, recorded, registered or enrolled in any court or
public office in France (other than the Security Documents which by
their terms are required to be filed and/or registered as stated
therein), nor are stamp or registration duty or similar taxes or
charges payable in France in respect of any Facility Document (other
than such stamp and registration duty and similar taxes and charges as
are specified herein or in the Security and Subordination Documents);
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(h) No approval of Local Authorities required for security assignment
The assignment by way of security of receivables arising under the
Franchise Agreements pursuant to the Local Authority Master
Receivables Assignment Agreement will not entitle any Local Authority
to terminate any such Franchise Agreement pursuant to the terms of
such Franchise Agreement;
(i) Legal ownership
as of the date hereof or as may be reflected in the Accounts, it is
the legal owner of and has good and marketable title to all its or
their property and other material assets free from any Encumbrances
other than Permitted Encumbrances;
(j) No Material Adverse Circumstance
no Material Adverse Circumstance has occurred since the latest annual
audited Accounts provided to the Facility Agent;
(k) Compliance with Environmental Laws and Licences
it:
(i) complies and has at all times complied with all requirements of
Environmental Laws and Environmental Licences where failure to do
so would constitute a Material Adverse Circumstance; and
(ii) has obtained and maintains in full force and effect all
Environmental Licences, and there are no facts or circumstances
entitling any such Environmental Licences to be revoked,
suspended, amended, varied, withdrawn or not renewed where such
revocation, suspension, amendment, variation, withdrawal or non-
renewal would constitute a Material Adverse Circumstance;
(l) Environmental Claim
no Environmental Claim is pending or has been made or (to its
knowledge) threatened against it or its or their officers or any
occupier of any property owned or leased by it and it has no reason to
believe that it has or is likely to have any liability in relation to
Environmental Matters which will constitute a Material Adverse
Circumstance;
(m) Deposit of Relevant Substance
to the best of its knowledge, no Relevant Substance has been
deposited, disposed of, kept, treated, imported, exported,
transported, processed, manufactured, used, collected, sorted or
produced at any time, or is present in the environment (whether or not
on property owned, leased, occupied or controlled by the Borrower) in
circumstances which are
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likely to result in an Environmental Claim against it which would
constitute a Material Adverse Circumstance;
(n) Intellectual Property Rights
(i) the Intellectual Property Rights owned by it are free from any
Encumbrance (save for those created or to be created by or
pursuant to the Security Documents) and any other rights or
interests in favour of third parties;
(ii) the Intellectual Property Rights owned by it or (in the case of
the Third-Party Trademarks) licensed to it are all the
Intellectual Property Rights required by it in order to carry
on, maintain and operate in all material respects its business,
properties and assets and in carrying on its business it is not
infringing any Intellectual Property Rights of any third party
where any action taken by such third party in respect of any
such infringement would constitute a Material Adverse
Circumstance; and
(iii) no Intellectual Property Rights owned by or licensed to it are
being infringed, nor (to the best of its knowledge) is there
any threatened infringement of any such Intellectual Property
Rights which, in either case would constitute a Material
Adverse Circumstance;
(o) Copyright matters
it has obtained all consents and taken all other action required in
connection with the secondary transmission by it or them of any
broadcast television signals and it does not have knowledge, nor is it
aware of any claim, that it is or may be liable to any person for any
copyright infringement of any nature whatsoever as a result of the
operation of its business which liability would constitute a Material
Adverse Circumstance, provided that it has been notified by
ANGOA/AGICOA of a demand that it sign a contract authorising the
Parent to broadcast programmes, the intellectual property rights of
which are owned by the producers which ANGOA/AGICOA represent, that
the Parent has signed such contract but that such contract is of
limited duration.
(p) Material Contracts
(i) it has the corporate power and authority to enter into and
perform its obligations under the Material Contracts;
(ii) it has taken all necessary corporate action to authorise the
execution and performance of its obligations under the Material
Contracts;
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(iii) each Material Contract to which it is a party constitutes its
valid, legally binding and enforceable obligations subject,
however to the effect of bankruptcy, insolvency,
reorganisation, moratorium or similar laws now or hereafter in
effect relating to or affecting the rights or remedies of
creditors generally;
(iv) it is not (nor to the best of its knowledge, information and
belief on due enquiry is any other party thereto) in breach of
any of its obligations under any Material Contract, and no
Material Contract is the subject of any pending or, (to the
best of its knowledge, information and belief on due enquiry)
threatened, dispute, suspension, withdrawal, termination,
cancellation or revocation, whether in whole or in part, by any
competent authority and which, in the case of:
(A) a pending or (to the best of its knowledge) threatened
dispute; or
(B) a breach by a party other than the Borrower or any
other member of the Group;
constitutes or would constitute a Material Adverse
Circumstance;
(v) all Franchise Agreements and Public Domain Occupation
Agreements necessary to establish and operate its Cable
Broadcasting and Telecommunications Systems have been obtained
or effected and are in full force and effect;
(q) Cable Broadcasting and Telecommunications Law Authorisations
(i) it has the corporate power and authority to apply for and
perform its or their obligations under the Cable Broadcasting
and Telecommunications Law Authorisations;
(ii) it has taken all necessary corporate action to authorise the
execution and performance of its or their obligations under the
Cable Broadcasting and Telecommunications Law Authorisations;
(iii) its obligations under each Cable Broadcasting Law Authorisation
and each Telecommunications Law Authorisation constitute its
valid, legally binding and enforceable obligations subject,
however to the effect of bankruptcy, insolvency,
reorganisation, moratorium or similar laws now or hereafter in
effect relating to or affecting the rights or remedies of
creditors generally;
(iv) it is not in breach of any of its obligations under each Cable
Broadcasting Law Authorisation and each Telecommunications Law
Authorisation, and no Cable Broadcasting Law Authorisation or
Telecommunications Law Authorisation is the
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subject of any pending or (to its knowledge) threatened
dispute, suspension, withdrawal, termination, cancellation or
revocation, whether in whole or in part, by any competent
authority save to the extent that it has demonstrated to the
reasonable satisfaction of the Majority Banks that it has taken
steps to eliminate the risk of suspension, withdrawal,
termination, cancellation or revocation of any Cable
Broadcasting Law Authorisation in accordance with Clause
10.1(c);
(v) subject to Article 10.1(r) all Cable Broadcasting and
Telecommunications Law Authorisations necessary for the
operation of the Cable Broadcasting and Telecommunications
Systems have been obtained or effected and are in full force
and effect;
(r) Other Required Authorisations and Contracts
(i) each Other Required Authorisation or Contract constitutes its
valid and legally binding obligations subject, however to the
effect of bankruptcy, insolvency, reorganisation, moratorium or
similar laws now or hereafter in effect relating to or
affecting the rights or remedies of creditors generally;
(ii) it is not (nor to the best of the Borrower's knowledge,
information and belief on due enquiry is any other party
thereto) in breach of any of its or their obligations under any
Other Required Authorisation or Contract, and no Other Required
Authorisation or Contract is the subject of any pending or, (to
its knowledge) threatened dispute, suspension, withdrawal,
termination, cancellation or revocation, whether in whole or in
part, by any competent authority and which breach or dispute,
suspension, withdrawal, termination, cancellation or revocation
constitutes or would constitute a Material Adverse
Circumstance;
(iii) all Other Required Authorisations and Contracts have been
obtained or effected and are in full force and effect, other
than:
(A) those which are not now required or which it would be
premature to obtain or effect and where, in either case,
(x) the Borrower, on due enquiry, does not have any reason
to believe that it will not be able to obtain or effect
the same in good time or (y) the same will be in full
force and effect when required under applicable law or
contract; or
(B) where failure so to obtain or effect an Other Required
Authorisation or Contract does not or would not constitute
a Material Adverse Circumstance;
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(s) No withholding Taxes
(assuming the correctness of the confirmation set out in the last
sentence of Clause 8.8) under the law and practice at today's date all
amounts payable by it under the Facility Documents may be paid free
and clear of and without deduction for or on account of any Tax;
(t) Tax liabilities
(i) no claims are being asserted against it with respect to Taxes
which, if adversely determined, would constitute, a Material
Adverse Circumstance;
(ii) it is not overdue in the filing of any Tax returns required to be
filed by it and it has paid all Taxes shown to be due on any Tax
returns required to be filed by it or them or on any assessments
made against it or them for non-payment, or on or in any claim
for payment, where failure so to file or so to pay constitutes or
would constitute a Material Adverse Circumstance;
(u) Compliance with law
it is in compliance in all material respects with all applicable laws
(including, without limiting the generality of the foregoing, the
Cable Broadcasting and Telecommunications Laws but excluding, for
these purposes only, breaches of the Cable Broadcasting and
Telecommunications which have been expressly or impliedly waived by
the relevant regulatory authority), rules, regulations and orders of
any governmental or administrative authority (including, without
limiting the generality of the foregoing, each relevant Local
Authority, the CSA and the ART) having jurisdiction over it or any of
its assets;
(v) No Default
no Default has occurred and is continuing;
(w) Encumbrances:
(i) no Encumbrance exists over its assets which would cause a breach
of Clause 10.2(a) (Negative pledge) or of any relevant Acquired
Company Negative Pledge Letter;
(ii) neither the execution of the Facility Documents or the Material
Contracts to which it is a party nor the performance by it of its
obligations or the exercise of its rights thereunder results in,
or will result in, the existence of, or oblige it to create, any
Encumbrance in favour of any third party over the whole or any
part of its undertaking or assets, present or future (except
Permitted Encumbrances);
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(iii) any security conferred by it pursuant to the Security Documents
constitutes at all times a first priority security interest or
the sole security interest, as the case may be, of the type
therein described over the assets therein referred to, which
are not subject to any prior or pari passu Encumbrances (except
Permitted Encumbrances);
(x) Reports
So far as its President or Gerant is aware after due and careful
review and enquiry:
(A) all material factual information furnished by it or its
advisors to each of the firms which prepared the Reports
was true in all material respects at the date (if any)
ascribed thereto or (if none) the date the information was
given or, in the case of any other material factual
information furnished to each of the firms which prepared
any of the Reports, it is not aware that any such
information is not true in any material respect at the
date (if any) ascribed thereto or (if none) the date the
information was given; and
(B) all expressions of opinion or intention given by or on
behalf of it and all forecasts and projections furnished
by it to each such firm were arrived at after careful
consideration, were fair and were based on reasonable
grounds;
(y) Immunity
it will not be entitled to claim immunity from suit, execution,
attachment or other legal process in any proceedings taken in France
in relation to any Facility Document, and, to the extent that
notwithstanding the foregoing it becomes entitled to claim such
immunity, it hereby waives such immunity to the fullest extent
permitted by law;
(z) Consulting Agreements
there are no consulting agreements in force other than the agreement
entered into by the Parent as regards Mr. Lucien Thullemans, and such
agreement does not violate the provisions of Clause 10.2(m) hereof;
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(aa) Shareholders' Agreements
to the best of its knowledge, there are no Shareholders' Agreements in
effect the performance of the terms of which would constitute a breach
of the terms of any of the Facility Documents; and
(bb) Interconnection Agreements
each Interconnection Agreement (if any) to which it is a party is
compatible with the Business Plan.
9.2 Repetition
The representations and warranties set out in this Clause 9 shall survive
the execution of this Agreement and the making of each Advance or any
Overdraft Utilisation hereunder and (except in the case of 9.1(f)(iii)
(Accounts) (but only with respect to the Business Plan), 9.1(g) (No filing
required), 9.1(x) (Reports) and 9.1(s) (No withholding taxes)) shall be
deemed to be repeated on the date of delivery of each Drawdown Notice or
Rollover Notice hereunder and on each Drawdown Date as the case may be, on
the date of each Overdraft Utilisation and on each Interest Payment Date,
with reference to the facts and circumstances then subsisting, as if made
at each such time.
10 UNDERTAKINGS
------------
10.1 Positive Covenants
Each Borrower undertakes with each of the Banks, the Arranger, the Security
Agent and the Facility Agent that, from the date of this Agreement and so
long as (i) the Total Commitments have not been reduced to zero, or (ii)
any monies are owing under any of the Facility Documents or (iii) any part
of the Advances or the Overdraft Utilisations remains outstanding, it will
(and the Parent, following any Permitted Share Acquisition, undertakes that
it will, except where reference is expressly made to "the Parent only",
cause each member of the Group to):
(a) Notice of Default, etc.
promptly inform the Facility Agent of (1) any Default forthwith upon
becoming aware thereof (and will, if so requested by the Facility
Agent on any Periodic Financial Ratio Test Date, confirm to the
Facility Agent in writing that, save as otherwise stated in such
confirmation, no Default has occurred and is continuing), (2) any
lapse, suspension or termination of or refusal by any person to renew
or extend any Cable Broadcasting Law Authorisation, Telecommunications
Law Authorisation, Other Required Authorisation or Contract or
Material Contract or any breach of any Cable Broadcasting Law
Authorisation, Telecommunications Law Authorisation, Other Required
Authorisation or Contract or Material Contract where any such breach
would constitute a Material Adverse Circumstance, (3) (to the extent
known to it) the commencement of all
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proceedings and investigations by or before any governmental body and
all actions and proceedings in any court or before any arbitrator
where any such proceedings, investigations or actions would, if
adversely determined, constitute a Material Adverse Circumstance (4)
any application of which it becomes aware for any other authorisation
or franchise agreement with respect to cable radio and television or
telecommunications systems (including satellite master antennae
television systems and multi-point microwave distribution systems)
with respect to the territory covered by any of the Cable Broadcasting
Law Authorisations or any of the Telecommunications Law Authorisations
where any such application, if successful, would constitute a Material
Adverse Circumstance, (5) any breach of any Cable Broadcasting Laws or
Telecommunications Laws which would constitute a Material Adverse
Circumstance and (6) (to the extent known to it) any continuing breach
by any party of the terms of any of the Cable Broadcasting Law
Authorisations or the Telecommunications Law Authorisations;
(b) Consents and authorisations
obtain or cause to be obtained (i) every consent, authorisation (other
than a Cable Broadcasting Law Authorisation or a Telecommunications
Law Authorisation or a renewal or extension thereof) or approval of,
or registration with or declaration to, governmental or public bodies
or authorities or courts and (ii) every notarisation, filing,
recording, registration or enrolment in any court or public office in
France (in any such case) required by it to authorise, or in
connection with, the execution, delivery, validity, enforceability or
admissibility in evidence of the Facility Documents or the performance
by it or any Subordinated Creditor of their respective obligations
under this Agreement and the Facility Documents to which they are a
party;
(c) Cable Broadcasting and Telecommunications Law Authorisations
(i) obtain or cause to be obtained every Cable Broadcasting Law
Authorisation and every Telecommunications Law Authorisation
necessary for the construction and the operation of the Cable
Broadcasting and Telecommunications Systems and ensure that (A)
where there are any Subscribers subscribing for services covered
by a Cable Broadcasting Law Authorisation and/or a
Telecommunications Law Authorisation, such Cable Broadcasting Law
Authorisation and/or Telecommunications Law Authorisation is not
revoked, cancelled, suspended, withdrawn or terminated owing to
its action or omissions, or does not expire or otherwise cease to
be in full force and effect unless the same is, prior to or
contemporaneously with such event, renewed or replaced and (B)
such Cable Broadcasting Law Authorisation and/or
Telecommunications Law Authorisation is not modified and it does
not commit any breach of the terms or conditions thereof
(including, without limitation, any failure to
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meet the milestones referred to in any relevant Franchise
Agreement), where any such modification, breach or failure would
constitute a Material Adverse Circumstance;
(ii) apply to extend or renew each Cable Broadcasting Law
Authorisation and Telecommunications Law Authorisation no later
than 12 months before the date on which the same is scheduled to
expire and take all steps required by the Cable Broadcasting and
Telecommunications Laws and all other steps reasonably necessary
to effect the extension or renewal of the same for a period
extending at least 24 months (or, if the ratio of Bank Debt to
Annualised EBITDA on the preceding Periodic Financial Ratio Test
Date is less than 2.0:1, then 12 months) after the Final
Maturity Date;
(iii) in the event that, notwithstanding the foregoing, it receives
notification by the relevant French regulatory authorities
(including, without limitation, the Local Authorities, the CSA
or the ART) that such authorities have become aware of the
occurrence of an event or circumstances which could lead to the
revocation, suspension or withdrawal of any Cable Broadcasting
Law Authorisation and/or Telecommunications Law Authorisation
(whether in whole of in part), forthwith notify the Facility
Agent in writing and at its own cost and expense, take such
steps as are reasonable and necessary to mitigate the risk of
revocation, suspension or withdrawal (whether in whole or in
part) unless it can demonstrate to the reasonable satisfaction
of the Majority Banks that the relevant Cable Broadcasting Law
Authorisation and/or Telecommunications Law Authorisation is not
in danger of being revoked, suspended or withdrawn (whether in
whole or in part);
(d) Other Required Authorisations and Contracts
obtain or cause to be obtained every Other Required Authorisation or
Contract and ensure that (i) none of the Other Required Authorisations
and Contracts is revoked, cancelled, suspended, withdrawn or
terminated, or expires and is not renewed or otherwise ceases to be in
full force and effect and (ii) no Other Required Authorisation or
Contract is modified and it does not commits any breach of the terms
or conditions of any Other Required Authorisation or Contract which,
in the case of any of the actions or events referred to in either (i)
or (ii), would constitute a Material Adverse Circumstance;
(e) Business
engage in the business (in accordance with all laws and regulations
applicable to the Cable Broadcasting and Telecommunications Systems)
of constructing, installing, operating and utilising
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(i) the cable radio and television networks constructed or which may
be constructed in the areas covered by the Franchise Agreements
and/or the Radio and Television Public Domain Occupation
Agreements; and/or
(ii) the telecommunications networks (including telephone, high-speed
data transmission, Internet access, multi media services and
related activities) in which signals are broadcast by means of
optical fibres, cables or other wired means (and excluding, for
the avoidance of doubt, radioelectric (Hertzian)
telecommunications networks and satellite telecommunications
networks except for experimental purposes or as otherwise agreed)
which may be constructed in the areas covered by the Telephony
Licence and the Telecommunications Public Domain Occupation
Agreements;
and in no other activities save for any directly related business
reasonably considered to be financially beneficial to such business;
(f) Financial statements
prepare or procure the preparation of :
(i) annual audited financial statements (including at a minimum,
balance sheet, profit and loss account and a statement of sources
and uses of funds) (and, in the case of the Parent only,
following any Permitted Share Acquisition, such annual audited
financial statements for each member of the Group and
consolidated financial statements of the Group) in accordance
with French GAAP and cause such financial statements to be
certified without qualification by the Statutory Auditors and
deliver to the Facility Agent sufficient copies of the same for
distribution to all of the Banks as soon as practicable but not
later than 120 days after the end of the financial year to which
they relate;
(ii) semi-annual unaudited financial statements and (in the case of
the Parent only), following any Permitted Share Acquisition, such
semi-annual unaudited financial statements for each member of the
Group and consolidated financial statements of the Group) (on the
same basis used for the annual financial statements referred to
in (i) above) in respect of the first semester of each year, and
deliver to the Facility Agent sufficient copies of the same for
distribution to all of the Banks as soon as practicable but not
later than 60 days after the end of the semi-annual period to
which they relate;
in each such case presenting a true and fair view of its financial
position and the results of its operations (and, in the case of the
Parent only, of each company in the Group and the Group as a whole),
as at the end of and for the accounting period to which they relate;
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(g) Quarterly Management Accounts
in respect of each Quarterly Period, prepare unaudited Quarterly
Management Accounts with respect to it (and, in the case of the Parent
only, with respect to each company in the Group and on a consolidated
basis for the Group as a whole), in the form and containing the
information set forth in Schedule 6 part A hereto, and deliver to
Facility Agent sufficient copies of the same for distribution to all
of the Banks as soon as practicable but not later than 45 days after
the end of the Quarterly Period to which they relate;
(h) Monthly Management Reports
in respect of each calendar month, prepare unaudited Monthly
Management Reports with respect to it (and, in the case of the Parent
only, with respect to each company in the Group and on a consolidated
basis for the Group as a whole), in the form and containing the
information set forth in Schedule 6 part B hereto, and deliver to
Facility Agent sufficient copies of the same for distribution to all
of the Banks as soon as practicable but not later than 30 days after
the end of the calendar month to which they relate;
(i) Change in basis of Accounts
ensure that all Accounts delivered under Clause 10.1(f) are prepared
in accordance with French GAAP and in accordance with the accounting
principles and practices used in the preparation of the financial
statements for 1997 delivered to the Facility Agent and the 1998
Business Plan (the "ORIGINAL BASIS") consistently applied in respect
of each financial year unless to do so would be inconsistent with then
current French GAAP (the "NEW BASIS"). If the preparation of financial
statements on the Original Basis is contrary to the New Basis then it
shall promptly notify the Facility Agent in writing of the relevant
change and (at its option) shall either (1) prepare and deliver to the
Facility Agent financial statements on the New Basis only but shall
also prepare and deliver an audited reconciliation statement (a
"RECONCILIATION STATEMENT") showing those adjustments necessary in
order to reconcile the financial statements produced on the New Basis
to the Original Basis or (2) request the Facility Agent to enter into
good faith negotiations for such amendment (if any) as are necessary
to the covenants contained in Clause 11 (Commercial and Financial
Covenants) and any other provisions of this Agreement affected by such
change, in which event the Facility Agent will enter into such
negotiations for a period of not more than 28 days. If agreement is
reached between it and the Facility Agent (acting on the instructions
of the Majority Banks) within such period as to the amendment of any
such covenants or provisions, then the parties hereto will enter into
such documentation and take such other steps as are required to put
such amendments into effect following which each Borrower shall then
be obliged to produce financial statements on the
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New Basis only. If no such agreement is reached then it shall be
obliged to prepare and deliver audited financial statements on the New
Basis accompanied by a Reconciliation Statement.
Where any Borrower or the Parent is under an obligation to deliver
financial statements under Clause 10.1(f) on the New Basis but
accompanied by a Reconciliation Statement, Monthly Management Reports
and Quarterly Management Accounts shall also be delivered (at its
option) either on both bases or on the New Basis but accompanied by an
unaudited Reconciliation Statement.
All Accounts and Reconciliation Statements delivered pursuant to this
Clause 10.1 (i) shall be delivered within the relevant time period set
out in Clause 10.1(f), (g) and (h).
The provisions of this Clause 10.1(i) shall also apply, mutatis
mutandis, to the preparation and delivery of the Annual Operating
Budget and the Business Plan under Clause 10.1(j)(iv).
(j) Delivery of Reports and Compliance Certificates
deliver to the Facility Agent, for distribution to the Banks,
sufficient copies for all of the Banks of each of the following
documents, in each case at the time of issue thereof (or in the case
of the certificates referred to in (ii) and (iii) below, together with
the financial statements prepared in respect of each financial year
and Quarterly Management Accounts prepared in respect of each
Quarterly Period pursuant to Clause 10.1(g) in respect of the
financial period to which such certificate relates):
(i) every material document issued by it to its shareholders (in
their capacity as shareholder, in accordance with the provisions
of French company law and regulations) or issued by it to its
creditors generally;
(ii) in the case of the Parent only, at the same time as the annual
audited financial statements are delivered to the Facility Agent
pursuant to paragraph 10.1(f) above, a certificate of the
Statutory Auditors substantially in the form of Schedule 7, Part
B, setting out in reasonable detail computations establishing
the amount of Excess Cash Flow (if any) for the annual
accounting period to which the relevant annual audited financial
statements relate for the purposes of Clause 5.5 (Mandatory
prepayment);
(iii) in the case of the Parent only, at the same time as the
Quarterly Management Accounts are delivered to the Facility
Agent pursuant to paragraph 10.1(g) above, with respect to each
Periodic Financial Ratio Test Date which falls within the
Quarterly Period to which such Quarterly Management Accounts
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relate, a Financial Ratio Compliance Certificate in the form set
out in Schedule 7, Part A, signed by the President of the
Parent;
(iv) in the case of the Parent only, a copy of the Business Plan and
the Annual Operating Budget, as soon as reasonably practicable
following approval of the same by the relevant corporate or
financial bodies of the Parent;
(v) the Reports required to be delivered hereunder; and
(vi) such other information, data or documents as may reasonably be
requested by the Banks in order to make an assessment of work to
be carried out in respect of the Cable Broadcasting and
Telecommunications Systems, the timing thereof and generally to
assess any other relevant aspect of the Cable Broadcasting and
Telecommunications Systems;
(k) Delivery of Information with respect to Acquisitions
in the case of the Parent only, deliver to the Facility Agent
(together with the relevant Drawdown Notice referred to in Clause
4.1(b)), for distribution to the Banks, sufficient copies for all of
the Banks of each of the following documents, in respect of RCF
Advances requested for the purpose of a Permitted Acquisition, as
described in Clause 4.1(b) above, relating to any proposed Acquisition
in respect of which the Parent is to pay a purchase price in excess of
FRF 50,000,000 (fifty million French Francs):
(i) a revised Business Plan taking into account the proposed
Acquisition and which shows to the reasonable satisfaction of the
Majority Banks that:
(A) the proposed Acquisition constitutes a Permitted
Acquisition;
(B) the ability of each Borrower to meet its obligations
hereunder (including, without limiting the generality of the
foregoing, such Borrowers' payment obligations and the
obligations of compliance with the financial covenants set
out in Clause 11 hereof) is not prejudiced thereby; and
(C) the proposed Acquisition is otherwise compatible with the
financing made hereunder; and
(ii) the text of the agreement proposed to be entered into by the
Parent in respect of the planned Acquisition;
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(l) Financial Year End
maintain a financial year end of 31st December (and in the case of the
Parent only, ensure that each member of the Group maintains a
financial year end of 31st December);
(m) Authorised Officers
ensure that any new or replacement Authorised Officer has provided the
Facility Agent with evidence satisfactory to it of such new officer
prior to signing any Compliance Certificates, Drawdown Notices or any
other notices, requests or confirmations referred to in this Agreement
or relating to the Facility granted pursuant to this Agreement;
(n) Statutory Auditors
ensure that its commissaires aux comptes comply at all times with the
definition of "Statutory Auditors" set forth in Clause 1.3 hereof;
(o) Provision of further information
provide the Facility Agent :
(i) with a copy of each Material Contract entered into after the
date of this Agreement, other than;
(A) any Shareholders' Agreement (but without prejudice to the
application of Clause 9.1(aa)); and
(B) (to the extent that the terms of such Interconnection
Agreement contain, at the request of the other contracting
party, a requirement that the provisions thereof remain
confidential), any Interconnection Agreement (but without
prejudice to the application of Clause 9.1(bb));
(ii) as soon as the same are instituted or, to its knowledge,
threatened, details of any litigation, arbitration or
administrative or regulatory proceedings or investigations
involving it which, if adversely determined, would constitute a
Material Adverse Circumstance;
(iii) promptly, upon the earlier of (x) its becoming aware of the
same, or (y) its being notified of the same,:
(A) a copy of any agreements or arrangements entered into by
the Shareholders or the Parent or both which may
supplement, replace or amend or affect any of the
provisions of the Statuts; and
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(B) notification of the existence of any agreements or
arrangements entered into by the Shareholders which would
cause the representation made in Clause 9.1(aa) to become
false or misleading;
(iv) any material report, notice or other communication relating to
the Cable Broadcasting Law Authorisations, the Material Contracts
and the Other Required Authorisations and Agreements and such
financial and other information concerning any Borrower and its
affairs (including presentations) as the Facility Agent or any
Bank (acting through the Facility Agent) may reasonably require;
(p) Insurance
insure and keep insured all its properties and assets with insurance
companies or underwriters of repute in accordance with the Minimum
Insurance Requirements and (in the case of the Parent only) produce to
the Facility Agent (i) copies of each insurance contract entered into
by any member of the Group with an Insurance Company in order to
comply with the Minimum Insurance Requirments, (ii) each year, a
certificate from an insurance broker confirming compliance with the
Minimum Insurance Requirements and (iii) at the time of delivery of
the semi-annual accounts to be delivered in accordance with Clause
10.1(f)(ii) hereof, a report describing the occurrence of any
insurable event in an amount of FRF 10 million or greater and the
action taken to recover under the applicable insurance policy;
(q) Inspection
upon the occurrence of an Event of Default, permit representatives of
the Facility Agent or any of the Banks upon reasonable prior written
notice to it, after having made arrangements with it so to do and
after entering into a confidentiality undertaking if required by it
(a) visit and inspect its properties during normal business hours, (b)
inspect and make extracts from and copies of its books and records
other than records which it is prohibited by law from disclosing to
the Facility Agent and/or any relevant Bank and (c) discuss with its
principal officers and auditors its business, assets, liabilities,
financial position, results of operations and business prospects;
(r) Compliance with laws and regulations
comply with the terms and conditions of all laws (including Cable
Broadcasting Laws, Telecommunications Laws, the Cable Broadcasting and
Telecommunications Law Authorisations and the Other Necessary
Authorisations but excluding, for these purposes only, breaches of
Telecommunications and Cable Laws which have been expressly or
impliedly waived by the relevant regulatory authority) and the
Franchise Agreements (including any milestone requirements in respect
thereof),
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regulations, agreements, licences and concessions including, without
limitation, all Environmental Laws and all Environmental Licences if
the failure to comply therewith, would constitute a Material Adverse
Circumstance;
(s) Environmental matters
(i) (A) obtain all requisite Environmental Licences, (B) comply with
the terms and conditions of all Environmental Licences applicable
to it, and (C) comply with all other applicable Environmental
Laws, in each case where failure to do so constitutes, or would
constitute, a Material Adverse Circumstance; and
(ii) promptly upon receipt of the same, notify the Facility Agent and
the Security Agent of any claim, notice or other communication
served on it in respect of any alleged breach of or corrective or
remedial obligation or liability under any Environmental Law
which, if substantiated, constitutes, or would constitute, a
Material Adverse Circumstance;
(t) Relevant Substance
notify the Facility Agent forthwith upon becoming aware of any
Relevant Substance at or brought on to any property owned, leased or
occupied by it which is likely to give rise to an Environmental Claim
which would constitute a Material Adverse Circumstance and take or
procure the taking of all necessary action to deal with, remedy or
remove from such property or prevent the incursion of (as the case may
be) that Relevant Substance in order to prevent such an Environmental
Claim and in a manner that complies with all requirements of
Environmental Law;
(u) Pari passu status
insure that its obligations under any of the Facility Documents to
which it is a party rank and will at all times rank at least pari
passu in right and priority of payment and in point of security (save
by reason of and to the extent of the security afforded thereto by the
Security Documents) with all its other present and future unsecured
and unsubordinated obligations, other than obligations which are
mandatorily preferred by law applying to companies generally and not
by contract;
(v) Taxes
file or cause to be filed all tax returns required to be filed in all
jurisdictions in which it is situated or carries on business or is
otherwise subject to Taxation and pay or cause to be paid all Taxes
shown to be due and payable on such returns or any assessments made
against it within the period stipulated for such payment (other than
those being contested in good faith and where such payment may be
lawfully withheld);
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(w) Use of proceeds
use the Advances under the Tranche A Facility and (in the case of the
Parent only) the Overdraft Utilisations under the Tranche B Facility
exclusively for the purposes specified in Clause 1.1;
(x) Maintain Operating Capacity
maintain managerial, subscriber and technical services from time to
time sufficient to meet the projected demand from Subscribers for
cable radio and television or telecommunications services at that
time;
(y) Interest Rate Protection Strategy
comply at all times with the Interest Rate Protection Strategy
described in Schedule 11;
(z) Business Plan
use its reasonable endeavours to comply with the Business Plan;
(aa) Syndication
prior to any syndication of the Facility by the Arranger, provide
information and make any presentations which the Arranger reasonably
requests for the purposes of such syndication, such presentations to
include presentations by the representatives of UPC or any other
Principal Shareholder;
(bb) Third-Party Trademarks
(i) insure that French trademark n degree 95564675, currently owned
by United International Holdings, is :
(A) transferred to Mediareseaux SA and
(B) pledged in favour of the Security Agent, on behalf of the
Senior Creditors, pursuant to the Existing Third-Party
Trademark Pledge Agreement; no later than sixty (60) days
from the date hereof; and
(ii) insure that any agreement pursuant to which any rights to use any
Third-Party Trademark are licensed or otherwise granted to it
contains a provision to the effect that it shall continue to gave
the right to use such Third-Party Trademark at then-prevailing
market conditions for at least six months following any change in
control;
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(cc) Postal Subscription Payment Account and General Operations Account
ensure that any amounts standing to the credit of the Postal
Subscription Payment Account shall be transferred to the General
Operations Account in the manner required under the Master Accounts
Balance and Cash Pledge Agreement;
(dd) Actions required following Permitted Share Acquisition
in the case of the Parent only, following the consummation of any
Permitted Share Acquisition, take the following acts no later than ten
(10) Banking Days following the consummation of such Permitted Share
Acquisition:
(i) pledge and (to the fullest extent permitted by applicable law)
cause to be pledged in favour of the Security Agent, on behalf of
the Senior Creditors, all of the shareholder or other interests
in the relevant Acquired Company, as security for the obligations
of the Parent under the Facility Documents, pursuant to an
agreement substantially identical to the Financial Instruments
Accounts Pledge Agreement (an "ACQUIRED COMPANY FINANCIAL
INSTRUMENTS ACCOUNTS PLEDGE AGREEMENT"); and
(ii) cause the Acquired Company to execute an Acquired Company
Negative Pledge Letter;
(ee) Actions required following Permitted Asset Acquisition
in the case of the Parent only, no later than twenty (20) Banking Days
following the consummation of any Permitted Asset Acquisition, take
any actions required pursuant to the Parent Security Documents or
requested by the Security Agent in order to cause the assets so
transferred to the Parent to be made subject to the security created
pursuant to the Parent Security Documents;
(ff) Acceding Borrower Security Documents
in the case of any Acceding Borrower, provide (and the Parent
undertakes to take all action within its power to cause such Acceding
Borrower to provide) in favour of the Security Agent, on behalf of the
Senior Creditors, security over its own assets in form and substance
substantially identical to the Parent Security Documents
(collectively, the "ACCEDING BORROWER SECURITY DOCUMENTS"), as
security for any borrowings which the relevant Acceding Borrower may
request in accordance with the provisions of this Agreement;
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(gg) Dividends by Acquired Company to Parent
in the case of the Parent only, vote its shares in each Acquired
Company so as to cause the payment, on an annual basis, of such amount
of dividends by such Acquired Company to the Parent as is permitted by
law and as is necessary to meet the Parent's obligations hereunder;
(hh) Information Memorandum
as at the date of the Information Memorandum the factual information
provided by the Parent and UPC contained in the Information Memorandum
shall be true and accurate in all material respects and not misleading
in any material respect and such factual information will at such time
not omit any material facts; all reasonable enquiries shall have been
made by the Parent to verify such factual information; all opinions,
projections and forecasts to be contained therein and the assumptions
on which such opinions, projections and forecasts shall have been
based will be arrived at after due and careful consideration and
enquiry and represent the views of the Parent as at the date of the
Information Memorandum; there shall be no material facts or
circumstances which have not been disclosed to the Arranger prior to
the date of such Information Memorandum the omission of which could
make any material factual information contained in the Information
Memorandum inaccurate or misleading in any material respect as at the
date of the Information Memorandum or any of the opinions, projections
and forecasts contained in the Information Memorandum (and the
assumptions on which such opinions, projections and forecasts were
made) misleading in any material respect at the date of the
Information Memorandum; provided that for the avoidance of doubt, the
Parent makes no representation or warranty in relation to, nor assumes
any responsibility with respect to the origin, validity, accuracy or
completeness of information contained in the Information Memorandum
and derived from public sources; and
(ii) Postal Subscription Payment Account
no later than five (5) Business Days following the opening of the
Postal Subscription Payment Account, create a pledge over such account
in accordance with the provisions of the Master Accounts Balance and
Cash Pledge Agreement.
10.2 Negative Covenants
Each Borrower undertakes with each of the Banks, the Arranger, the Security
Agent and the Facility Agent that, from the date of this Agreement and so
long as (i) the Total Commitments have not been reduced to zero, or (ii)
any monies are owing under any of the Facility Documents or (iii) any part
of the Advances or the Overdraft Utilisations remains outstanding, it will
not (and the Parent, following any Permitted Share Acquisition, undertakes
that it will, except where
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reference is expressly made to "the Parent only", cause each member of the
Group not to):
(a) Negative Pledge
permit any Encumbrance (other than Permitted Encumbrances) to subsist,
arise or be created or extended over all or any part of its present or
future undertakings, assets, rights or revenues to secure or prefer
any of its present or future indebtedness or that of any other person;
(b) Disposals
sell, transfer, lease, lend or otherwise dispose of or cease to
exercise control over the whole or any part of its present or future
undertakings, assets, rights or revenues whether by one or a series of
transactions, related or not, other than Permitted Disposals;
(c) No Acquisition
effect any Acquisition other than Permitted Acquisitions,
(d) No merger
merge or consolidate with any other company or person other than
pursuant to a Permitted Merger,
(e) Borrowed money and other indebtedness
create, assume, incur or otherwise permit to be outstanding any
Borrowed Money other than Permitted Borrowings, or any indebtedness in
any form other than such Permitted Borrowings and trade payables in
the ordinary course of business;
(f) Loans and Guarantees
(i) make any loans or advances or grant any credit or financing,
except for :
(A) normal trade credit reasonably granted in the ordinary
course of its or their business; and
(B) in the case of the Parent only, intra-group loans made to
Acquired Companies which are not Acceding Borrowers,
provided that :
-------------
1) the aggregate principal amount of such loans may not at
any time exceed FRF 20,000,000 (twenty million Francs);
and
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2) simultaneously with the making of any loan, the Parent
shall grant to the Security Agent, on behalf of the
Senior Creditors, a pledge over its rights to payment
of amounts due by such Acquired Company under such
loans, as security for the obligations of the Parent
under the Facility Documents, pursuant to an agreement
substantially identical to the Subordinated Loan Pledge
Agreement the form of which is annexed to the
Subordination Agreement (an "ACQUIRED COMPANY
SUBORDINATED LOAN PLEDGE AGREEMENT"); or
(ii) give any guarantee, security or other backing for the benefit of
any third party (including any member of the Group or any
Shareholder) other than (in the case of the Parent only) a Parent
Guarantee;
(g) Capital expenditure
incur any capital expenditure other than in relation to the business
of constructing, installing, operating and utilising Cable
Broadcasting and Telecommunications Systems;
(h) Distributions
in the case of the Parent only, make or resolve to make any
distribution, dividend or other payment (in cash or in kind) to any
Shareholder or its or their Affiliates except for Permitted
Distributions;
(i) Investments
make any investment other than a Permitted Investment;
(j) Swaps and Hedging
unless otherwise agreed with the Facility Agent, enter into any
interest rate or currency swaps or other hedging arrangements except
pursuant to the Interest Rate Protection Strategy;
(k) Change of Business
make, or threaten to make, any change in the nature of its business,
interrupt such business, terminate such business, wind-up or proceed
with a voluntary winding up of any activity or business as conducted
at the date of this Agreement;
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(l) No Subsidiaries or shareholding in Affiliates
after the date hereof and until the Final Maturity Date or thereafter
while any amounts remain outstanding under the Tranche A Facility or
the Tranche B Facility, create or permit to be created any Subsidiary
or obtain or maintain shareholdings in any Affiliate, other than as a
result of Permitted Acquisitions;
(m) Management or consulting fees; other commercial arrangements with
Shareholders and Affiliates
(i) refrain from paying management, consulting or similar fees to any
Principal Shareholder or to any other entity, which in the
aggregate represent an amount in excess of 3% (three per cent) of
the Cable Broadcasting and Telecommunications Systems Revenues
per annum;
(ii) without prejudice to the application of the previous paragraph,
it shall not undertake any liabilities to, or enter into any
agreement with, any of the Shareholders or their Affiliates or
any other member of the Group other than on arm's length terms;
(n) Amendments to Documents
amend, supplement, supersede or waive, and procure that there shall
not be amended, supplemented, superseded or waived, any term of the
Franchise Agreements, the Public Domain Occupation Agreements, the
Cable Broadcasting and Telecommunications Law Authorisations, the
Other Required Authorisations, the Consulting Agreements or the
Insurance, in any such case in a manner likely to constitute a
Material Adverse Circumstance, without the prior written consent of
the Facility Agent (upon the instruction of the Majority Banks);
(o) Bank Accounts
maintain or operate bank accounts other than the Postal Subscription
Payment Account, the General Operations Account, the Marketable
Securities Accounts, the Overdraft Account and the Prepayment Accounts
and any other account with Paribas, provided however, that it shall
have four months from the date of signature hereof in which to close
any other accounts (except for the Postal Subscription Payment
Account) it may maintain which are not held with Paribas;
(p) Permitted Future Franchise Agreement
(i) it will not
(A) sign any Proposed Future Franchise Agreement unless and
until :
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1) such Proposed Future Franchise Agreement complies
with the Essential Principles of Permitted Future
Franchise Agreements set out in Schedule 8A, Part
A hereof and it has provided the Facility Agent
prior to the signature thereof with a certificate
of an Authorised Officer of the Parent in the form
set forth in Schedule 8A, Part B hereof to such
effect; and
2) the documents referred to in paragraph (a) of
Schedule 8A, Part C of this Agreement with respect
thereto have been delivered to the Facility Agent;
nor
(B) commence the construction of any cable radio and
television network pursuant to any Proposed Future
Franchise Agreement unless and until the documents
referred to in paragraphs (b) through (d) of Schedule
8A, Part C of this Agreement have been furnished to the
Facility Agent;
(any Proposed Future Franchise Agreement in respect of
which all of the foregoing conditions have been
satisfied being referred to in this Agreement as a
"PERMITTED FUTURE FRANCHISE AGREEMENT");
nor
(C) commence operation of such cable radio and television
network pursuant to the Permitted Future Franchise
Agreement unless it has provided to the Facility Agent
a copy of the CSA Authorisation for the operation of
such cable radio and television network;
(ii) incur any expenses whatsoever with respect to any Proposed
Future Franchise Agreement unless and until it becomes a
Permitted Future Franchise Agreement, except for reasonable
expenses relating to the obtaining of the relevant Local
Authority Approval and/or the negotiation of the relevant
Proposed Future Franchise Agreement, and any feasibility
studies carried out in connection with such Proposed Future
Franchise Agreement, up to a maximum aggregate amount which,
when taken together with the amounts referred to in Clause
10.2(q)(ii) below, does not exceed FRF 10,000,000 per
calendar year;
(q) Permitted Future Radio and Television Network Public Domain
Occupation Agreement
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(i) it will not:
(A) sign any Proposed Future Radio and Television Network Public
Domain Occupation Agreement unless and until :
1) such Proposed Future Radio and Television Network
Public Domain Occupation Agreement and/or the Local
Authority Direct Authorisation Approval to which it
relates complies with the Essential Principles of
Permitted Future Radio and Television Network Public
Domain Occupation Agreement set out in Schedule 8B,
Part A hereof and it has provided the Facility Agent
prior to the signature thereof with a certificate of an
Authorised Officer of the Parent in the form set forth
in Schedule 8B, Part B hereof to such effect; and
2) the documents referred to in paragraph (a) of Schedule
8B, Part C of this Agreement with respect thereto have
been delivered to the Facility Agent; nor
(B) commence the construction of any cable radio and television
network pursuant to any Proposed Future Radio and Television
Network Public Domain Occupation Agreement unless and until
the documents referred to in paragraphs (b) through (d) of
Schedule 8B, Part C of this Agreement have been furnished to
the Facility Agent;
(any Proposed Future Radio and Television Network Public
Domain Occupation Franchise Agreement in respect of which
all of the foregoing conditions have been satisfied being
referred to in this Agreement as a "PERMITTED FUTURE RADIO
AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION AGREEMENT
AGREEMENT"); nor
(C) commence operation of such cable radio and television
network pursuant to the Permitted Future Radio and
Television Network Public Domain Occupation Agreement unless
it has provided to the Facility Agent a copy of the CSA
Authorisation for the operation of such cable radio and
television network;
(ii) incur any expenses whatsoever with respect to any Proposed Future
Radio and Television Network Public Domain Occupation Agreement
unless and until it becomes a Permitted Future Radio and
Television Network Public Domain Occupation Agreement,
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except for reasonable expenses relating to the obtaining of the
relevant Local Authority Approval and/or the negotiation of the
relevant Proposed Future Radio and Television Network Public
Domain Occupation Agreement, and any feasibility studies carried
out in connection with such Proposed Future Radio and Television
Network Public Domain Occupation Agreement, up to a maximum
aggregate amount which, when taken together with the amounts
referred to in Clause 10.2(p)(ii)above, does not exceed FRF
10,000,000 per calendar year;
11 COMMERCIAL AND FINANCIAL COVENANTS
----------------------------------
11.1 Year-to-Date EBITDA to 1998 Business Plan Projection
The Parent shall ensure that the actual amount of Year-to-Date EBITDA will
on every Quarter Day up to 31st December 2002 be no less than the
following:
<TABLE>
<CAPTION>
Quarter Day Minimum Year-to-
Date EBITDA
<S> <C>
30th September 1998 FRF -12,000,000
31st December 1998 FRF -20,500,000
31st March 1999 FRF -8,050,000
30th June 1999 FRF -15,200,000
30th September 1999 FRF -20,650,000
31st December 1999 FRF -23,000,000
31st March 2000 FRF - 100,000
30th June 2000 FRF 4,160,000
30th September 2000 FRF 11,040,000
31st December 2000 FRF 22,080,000
31st March 2001 FRF 12,400,000
30th June 2001 FRF 27,600,000
30th September 2001 FRF 45,600,000
31st December 2001 FRF 67,600,000
</TABLE>
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<TABLE>
<S> <C>
31st March 2002 FRF 24,400,000
30th June 2002 FRF 51,600,000
30th September 2002 FRF 83,200,000
31st December 2002 FRF 119,200,000
</TABLE>
The Parent shall provide, in the Quarterly Management Accounts, evidence
satisfactory to the Facility Agent of the fulfilment of this covenant on
each Quarter Day during the Tranche A Availability Period.
11.2 Bank Debt to Capitalisation
The Parent will ensure that at all times until the Final Maturity Date,
total Bank Debt shall not exceed the following percentage of
Capitalisation:
<TABLE>
<CAPTION>
PERIOD PERCENTAGE
<S> <C>
from the date of this Agreement up to and including 50.0%
31st December, 1998
from 1st January, 1999 to 31st December, 1999 55.0%
from 1st January, 2000 to 31st January 2000 60.0%
from 1st January 2001 onwards 65.0%
</TABLE>
In the case where, after the date of this Agreement, and until all monies
outstanding to the Banks under the Facility have been paid in full by the
Parent, or any relevant Acceding Borrower, any Shareholder is obliged, or
of its own volition opts to increase its Shareholder Contribution by way of
a Subordinated Loan, such Subordinated Loan will be fully subordinated to
the rights of the Senior Creditors under the Facility Documents, as
required under the Subordination Agreement.
Interest (if any) which shall accrue on such Subordinated Loan, will not be
paid by the Parent to the Shareholder in question, but shall be capitalised
annually, except as otherwise expressly provided in the Subordination
Agreement. For the purpose of determining the ratio of Bank Debt to
Capitalisation set out above, accrued and capitalised interest on any
Subordinated Loan will not be taken into account.
11.3 Pro-forma Debt Service
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The Parent will ensure that on each Periodic Financial Ratio Test Date
falling within the periods set out below, the ratio of Annualised EBITDA to
Pro-Forma Debt Service shall be not less than the following:
<TABLE>
<CAPTION>
PERIOD ANNUALISED EBITDA TO PRO-FORMA
DEBT SERVICE
<S> <C>
from 1st January, 2001 to and
including 31st December, 2001 1.5:1
from 1st January, 2002 onwards 1.1:1
</TABLE>
11.4 Interest Coverage
The Parent will ensure that, on each Periodic Financial Ratio Test Date
falling within the periods set out below, the ratio of Annualised EBITDA to
Interest Payments shall be not less than the following ratios:
<TABLE>
<CAPTION>
PERIOD ANNUALISED EBITDA TO
INTEREST PAYMENTS
<S> <C>
from 1st January, 2000 to and 1.0:1
including 31st December, 2000
from 1st January, 2001 to and 2.0:1
including 31st December, 2001
from 1st January, 2002 to and 3.0:1
including 31st December, 2002
from 1st January, 2003 onwards 4.0:1
</TABLE>
11.5 Bank Debt to Annualised EBITDA
The Parent will ensure that, on each Periodic Financial Ratio Test Date
falling within the periods set out below, the ratio of Bank Debt to
Annualised EBITDA shall not exceed the following ratios:
<TABLE>
<CAPTION>
PERIOD BANK DEBT TO ANNUALISED EBITDA
<S> <C>
from 1st January, 2001 to and 8.0:1
including 31st December, 2001
from 1st January, 2002 to and 5.5:1
including 31st December, 2002
from 1st January, 2003 to and 3.5:1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
including 31st December, 2003
from 1st January, 2004 onwards 3.0:1
</TABLE>
12 PUBLIC OFFERING - FLOTATION
---------------------------
12.1 Condition for making a Public Offering
None of the Borrowers shall initiate, promote or undertake, or consent to
the initiation, promotion or undertaking of, any Public Offering if the
Public Offering would result in a violation of the provisions of Clause
13.1(w).
12.2 Application of proceeds of Public Offering
The portion of the IPO Proceeds necessary to reduce amounts outstanding
under the Facility so that the ratio of Bank Debt to Annualised EBITDA is
less than 4.0:1 (the "REQUIRED PORTION OF THE IPO PROCEEDS") shall be
applied first to repayment of amounts outstanding under the Tranche A
Facility in the manner referred to in Clause 5.5(b) above.
12.3 Public Offering by Subsidiaries or Affiliates of United Pan-European
Communications
For the avoidance of doubt, it is expressly recognised and agreed that the
Subordination Agreement contains provisions pursuant to which the UPC
Parties (as defined in the Subordination Agreement) agree that proceeds of
a Public Offering of a Subsidiary or Affiliate of UPC, a substantial
portion of the assets of which consist, directly or indirectly, in the
shares in the Parent or any relevant Acceding Borrower, will be applied in
the same manner as set forth in Clause 12.2 hereof.
13 DEFAULT
-------
13.1 Events of Default
Each of the events and circumstances set out in this Clause 13 is an Event
of Default (whether or not caused by any reason whatsoever outside the
control of the Parent or following a Permitted Acquisition, outside the
control of any other member of the Group or any other person).
(a) Non-payment
any Borrower fails to pay any sum due from it under this Agreement or
any Facility Document in the currency, at the time and in the manner
stipulated therein (unless the Facility Agent is satisfied that such
non-payment is due solely to administrative or technical delays in the
transmission of funds and payment is made within three (3) Banking
Days of its due date); or
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(b) Breach of obligation concerning Distributions
the Parent violates the covenant contained in Clause 10.2(h) hereof;
or
(c) Breach of other obligations
any Borrower or any other member of the Group commits any breach of or
omits to observe any of the obligations or undertakings expressed to
be assumed by it hereunder or under any of the Facility Documents
(other than failure to pay any sum when due) and any such breach or
omission which is capable of remedy is not remedied within thirty (30)
days of the Facility Agent giving notice of such default to such
Borrower requiring such default to be remedied; or
(d) Misrepresentation
any representation or warranty made or deemed to be made or repeated
by or in respect of any Borrower or any other member of the Group
herein or in or pursuant to any Facility Document or in any notice,
certificate or statement referred to in or delivered under any
Facility Document is or proves to have been incorrect or misleading in
any material respect on the date on which it was made or deemed to be
made or repeated and, in the event that the act or circumstance which
led to such representation or warranty being incorrect or misleading
is capable of remedy, such remedy shall not have been applied within
thirty (30) days of the Facility Agent giving notice of such act or
circumstance and requiring such default to be remedied; or
(e) Challenge to security
any Security Document is not or ceases to be effective or any Borrower
shall in any way challenge, or any proceedings shall in any way be
brought to challenge the prior status of the Encumbrances created by
the Security Documents or the validity or enforceability of the
Security Documents; or
(f) Cross-default
any Borrowed Money of the Parent or any member of the Group in an
aggregate amount of FRF 7,500,000 or greater (or its equivalent in
any other currency) is not paid when due (or within any applicable
grace period expressly contained in the agreement relating to such
Borrowed Money in its original terms) or any Borrowed Money of the
Parent or any member of the Group in an aggregate amount of FRF
7,500,000 or greater (or its equivalent in any other currency) becomes
(whether by declaration or automatically in accordance with the
relevant agreement or instrument constituting the same) due and
payable prior to the date when it would otherwise have become due or
any creditor of the Parent or any member of the Group becomes entitled
to declare any Borrowed Money
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of the Parent or any member of the Group in an aggregate amount of FRF
7,500,000 or greater (or its equivalent in any other currency) so due
and payable or to require cash collateralisation or security for any
Borrowed Money or any facility or commitment available to the Parent
or any member of the Group for any such Borrowed Money is withdrawn,
suspended or cancelled by reason of any default (however described) of
the Parent or any member of the Group; or
(g) Failure to Pay Taxes
The Parent or any member of the Group fails to pay on the relevant due
date any Taxes or social security contributions or other similar
contributions except where the Parent or such member of the Group has
reasonably contested such payment in good faith and the Parent has
notified the Facility Agent of the basis for such contestation; or
(h) Unlawfulness
it becomes unlawful at any time for any Borrower, any Subordinated
Creditor or any member of the Group to perform any of their respective
material (in the opinion of the Facility Agent upon instruction of the
Majority Banks) obligations under this Agreement or the Security and
Subordination Documents or any of the material (in the opinion of the
Facility Agent upon instruction of the Majority Banks) obligations of
any Borrower, any Subordinated Creditor or any member of the Group
under this Agreement or the Security and Subordination Documents
becomes unenforceable in any way or there ceases to be security over
the relevant property or assets of such Borrower as intended and
created by the Security Documents; or
(i) Legal process
any judgement or order made against the Parent or any member of the
Group ordering it to pay FRF 15 million or greater is not stayed
within thirty (30) days or a creditor attaches or takes possession of,
or a distress, execution, sequestration, diligence or other process is
levied or enforced upon or sued out against, any part of the
undertaking, assets, rights or revenues of the Parent or any member of
the Group having a value equal to such amounts in such circumstances
and is not discharged within thirty (30) days; or
(j) Insolvency - France
the Parent or any member of the Group (i) admits in writing its
inability to pay its debts generally as they become due; (ii) declares
to the court such inability (declaration de cessation des paiements);
(iii) applies for or takes any corporate action approving any
voluntary liquidation (liquidation volontaire); (iv) applies for the
appointment of a conciliator (conciliateur), within the meaning of
French law No. 84-148 of 1st
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March, 1984; (v) enters into an amicable settlement (accord amiable)
with its creditors; (vi) ceases its payments (cessation de paiements)
for the purposes of Article 3 of the French bankruptcy law No. 85-98
of 25th January, 1985; (vii) has a judgement issued in respect of its
judicial reorganisation (redressement judiciaire) and the
administrateur judiciaire named in connection with such proceedings
does not (or is deemed not to) opt to continue performance of this
Agreement; or (viii) has a judgement issued in respect of its judicial
liquidation (liquidation judiciaire) pursuant to French law No. 85-98
of 25th January, 1985, or pursuant to such law, for the transfer of
the whole or part of its business (cessation totale ou partielle de
l'entreprise); or
(k) Insolvency - the Netherlands
any Principal Shareholder is declared bankrupt (in staat van
faillissement verklaard) or enters into a preliminary or definitive
moratorium (in voorlopige of definitieve surseance van betaling gaan)
pursuant to the Dutch Bankruptcy Act (Faillissementswet); or
(l) Composition
any steps are taken or negotiations commenced, by the Parent, a
Principal Shareholder or any member of the Group or by their
respective creditors with a view to proposing any kind of composition,
compromise or arrangement involving such company and any group or
class of its creditors generally; or
(m) Winding-up
any petition is presented and is not discharged within 14 days or
other step is taken for the purpose of winding up the Parent, any
Principal Shareholder or any member of the Group or an order is made
or resolution passed for the purpose of the appointment of an
administrator of the Parent, any Principal Shareholder or any member
of the Group, or the Facility Agent reasonably believes that any such
petition or other step is imminent or an administration order is made
in relation to the Parent, any Principal Shareholder or any member of
the Group; or
(n) Analogous proceedings
there occurs, in relation to the Parent, any Principal Shareholder or
any member of the Group, in any country or territory in which any of
them carries on business or the jurisdiction of whose courts any part
of their respective assets is subject, any event which corresponds
with, or has an effect equivalent to, any of those mentioned in
Clauses 13.1(j) to 13.1(n); or
(o) Cessation of business
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the Parent or any member of the Group ceases, or threatens to cease,
to carry on all or a substantial part of its business; or
(p) Failure of subordination
(i) any Subordinated Creditor commits any breach of or omits to
observe any of the obligations or undertakings expressed to be
assumed by it under the Subordination Agreement and in respect
of any such breach or omission which, in the opinion of the
Facility Agent (acting on the instructions of the Majority
Banks) is capable of remedy, such action as the Facility Agent
may require shall not have been taken within thirty (30) days of
the Facility Agent notifying such Subordinated Creditor thereof
and of such required action; or
(ii) any representation or warranty made or deemed to be made or
repeated by or in respect of any Subordinated Creditor in or
pursuant to the Subordination Agreement is or proves to have
been incorrect or misleading in any material respect on the date
on which it was made or deemed to be made or repeated; or; or
(iii) any Subordinated Creditor is not or ceases to be bound by the
Subordination Agreement; or
(iv) any payment due from the Parent to a Subordinated Creditor under
a Subordinated Loan is not or ceases to be subordinated to the
amounts owing under the Facility Documents in accordance with
the terms of the Subordination Agreement; or
(v) any Subordinated Creditor or any liquidator, administrator or
administrative or other receiver (or similar officer) of any
Subordinated Creditor takes steps to contest the subordination
effected by the Subordination Agreement; or
(q) Security Documents:
(i) any Borrower or any Shareholder (a "SECURITY PROVIDER") commits
any breach of or omits to observe any of its obligations or
undertakings expressed to be assumed by it under any Security
Document and in respect of any such breach or omission which is
capable of remedy, such action as the Security Agent may require
shall not have been taken within 30 days of the Security Agent
notifying such Security Provider thereof of such required
action; or
(ii) any representation or warranty made or deemed to be made or
repeated by or in respect of any Security Provider in or
pursuant to any Security Document is or proves to have been
incorrect or
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<PAGE>
misleading in any material respect on the date on which it was
made or deemed to be made or repeated; or
(iii) any Security Provider is not or ceases to be bound by any
Security Document; or
(iv) any Security Document is not or ceases to constitute a valid
security interest over the relevant assets of the relevant
Security Provider in accordance with its terms; or
(v) any Security Provider or any liquidator, administrator or
administrative or other receiver (or similar officer) of any
Security Provider takes steps to contest any Security Document
and/or encumbrance effected by a Security Document; or
(r) Seizure
all or a material part of the undertakings, assets, rights or revenues
of or shares or other ownership interests in the Parent or any other
member of the Group are seized, nationalised, expropriated or
compulsorily acquired by or under the authority of any government; or
(s) Material Contracts
(i) any Material Contract is terminated, suspended, revoked,
superseded, varied or cancelled or otherwise ceases to be in
full force and effect unless services of a similar nature to
those provided pursuant to such Material Contract are at all
times provided to the Parent (or, following any Permitted Share
Acquisition, the relevant other member of the Group) on similar
commercial terms or on terms no less beneficial to the Parent or
such member of the Group and any such termination, suspension,
revocation, cancellation or cessation would constitute a
Material Adverse Circumstance; or
(ii) any alteration or variation is made to any term of any Material
Contract which would constitute a Material Adverse Circumstance;
or
(iii) any party breaches any term of or repudiates any of its
obligations under any of the Material Contracts where such
breach or repudiation would constitute a Material Adverse
Circumstance; or
(t) Cable Broadcasting Law Authorisations
Provided that a Cable Broadcasting Law Authorisation is still
required:
(i) The Parent (or, following any Permitted Share Acquisition, any
other member of the Group) fails to maintain or comply with a
Cable Broadcasting Law Authorisation; or
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(ii) Any Cable Broadcasting Law Authorisation is in whole or in part
terminated, suspended, withdrawn, cancelled, or revoked
(including, without limiting the generality of the foregoing,
declared illegal or unenforceable or nullified by a decision of
an administrative court) or does not remain in full force and
effect or otherwise expires and is not renewed prior to its
expiration; or
(iii) Any event occurs which is reasonably likely to give rise to such
revocation, termination, withdrawal, cancellation or suspension
of any Cable Broadcasting Law Authorisation (without
replacement) in circumstances where the Parent (and following a
Permitted Acquisition, any member of the Group) is unable to
demonstrate to the reasonable satisfaction of the Majority Banks
within thirty (30) days of such event occurring that such
termination, suspension, withdrawal, cancellation or revocation
will not occur unless the Parent (and following a Permitted
Acquisition, any member of the Group) has demonstrated to the
reasonable satisfaction of the Majority Banks that it is taking
steps (agreed with the Facility Agent in accordance with Clause
10.1(c)(iii) to mitigate the risk of revocation, termination,
withdrawal, cancellation or suspension of any Cable Broadcasting
Law Authorisation (whether in whole or in part); or
(iv) Any Cable Broadcasting Law Authorisation is amended,
supplemented, superseded;
and in the reasonable opinion of the Facility Agent (acting upon
instruction of the Majority Banks) this constitutes a Material Adverse
Circumstance; or
(u) Telecommunications Law Authorisations
(i) The Parent (or, following any Permitted Share Acquisition, any
other member of the Group) fails to maintain or comply with a
Telecommunications Law Authorisation; or
(ii) Any Telecommunications Law Authorisation is in whole or in part
terminated, suspended, withdrawn, cancelled, or revoked
(including, without limiting the generality of the foregoing,
declared illegal or unenforceable or nullified by a decision of
an administrative court) or does not remain in full force and
effect or otherwise expires and is not renewed prior to its
expiration (it being specified that such provision does not
apply to provisional authorisations (autorisations
experimentales); and it being further specified that no such
termination, suspension, withdrawal, cancellation or revocation
shall constitute an Event of Default to the extent that it is
the subject of an administrative appeal (recours administratif)
and such appeal has the effect of suspending the application
thereof (effet suspensif));
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(iii) Any event occurs which is reasonably likely to give rise to such
revocation, termination, withdrawal, cancellation or suspension
of any Telecommunications Law Authorisation (without
replacement) in circumstances where the Parent (and following a
Permitted Acquisition, any member of the Group) is unable to
demonstrate to the reasonable satisfaction of the Majority Banks
within thirty (30) days of such event occurring that such
termination, suspension, withdrawal, cancellation or revocation
will not occur unless the Parent (and following a Permitted
Acquisition, any member of the Group) has demonstrated to the
reasonable satisfaction of the Majority Banks that it is taking
steps (agreed with the Facility Agent in accordance with Clause
10.1(c)(iii) to mitigate the risk of revocation, termination,
withdrawal, cancellation or suspension of any Telecommunications
Law Authorisation (whether in whole or in part); or
(iv) Any Telecommunications Law Authorisation is amended,
supplemented, superseded and such amendment, supplement or
suppression constitutes a Material Adverse Circumstance; or
(v) Other Required Authorisations and Contracts
(i) The Parent (or, following any Permitted Share Acquisition, any
other member of the Group) fails to maintain or comply with any
Other Required Authorisation or Contract; or
(ii) any Other Required Authorisation or Contract is in whole or in
part terminated, modified, withdrawn, suspended or revoked or
does not remain in full force and effect or otherwise expires
and is not renewed prior to its expiration; or
(iii) any event occurs which is reasonably likely to give rise to the
revocation, termination or suspension of any Other Required
Authorisation or Contract (without replacement) in such
circumstance where the Parent (and following a Permitted
Acquisition, any member of the Group) is unable to demonstrate
to the reasonable satisfaction of the Majority Banks within 30
days of such event occurring that such termination, suspension
or revocation will not occur,
and in the reasonable opinion of the Facility Agent (acting upon
instruction of the Majority Banks) this constitutes a Material Adverse
Circumstance; or
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(w) Change in control of the Parent
UPC ceases to own, directly or indirectly, in aggregate an interest in
excess of 51 per cent in the Parent or ceases to control the
appointment of a controlling majority of members of the Board of
Directors (Conseil d'Administration) of the Parent, prior to such time
as the ratio of Bank Debt to Annualised EBITDA has been less than
3.0:1 as at the Quarter Days falling at the end of the two immediately
preceding Quarterly Periods; or
(x) Public announcement of abandonment.
the Parent, any Principal Shareholder or any member of the Group makes
a public announcement of the abandonment of the cable radio and
television networks and/or the telecommunications networks comprising
the Cable Broadcasting and Telecommunications Systems and (in the case
of any member of the Group other than the Parent), such announcement
constitutes a Material Adverse Circumstance; or
(y) Total Loss
the occurrence of an event resulting in a total loss or destruction or
damage beyond repair to a substantial portion of the Cable
Broadcasting and Telecommunications Systems, whether or not such total
loss is covered by the Insurance, and in the reasonable opinion of the
Facility Agent (acting upon instruction of the Majority Banks) this
constitutes a Material Adverse Circumstance; or
(z) Material Adverse Circumstance
any other event occurs or circumstances arise which constitute a
Material Adverse Circumstance.
13.2 Acceleration
At any time after the happening of any Event of Default, so long as the
same is continuing unremedied and unwaived, the Facility Agent may, and if
so requested by the Majority Banks shall, without prejudice to any other
rights of the Banks and without any need to first obtain a relevant
judgement, by written notice to the Parent (and following a Permitted
Acquisition, any member of the Group) declare that:
(a) an Event of Default has occurred;
(b) the obligation of each Bank to make its Commitment available is
terminated; and/or
(c) (subject, in the case of the Event of Default referred to in Clause
13.1(j), to the provisions of the French bankruptcy law No. 85-98 of
25th January, 1985), all RCF Advances or the Term Loan (as the case
may
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be), all Overdraft Utilisations and all interest and commitment fees
accrued and all other sums payable under this Agreement have become
due and payable.
Consequently, the Facility Agent (and/or, as the case may be, the Security
Agent) may, and shall, if so requested by the Majority Banks, without
prejudice to any other rights of the Banks and without any need to first
obtain a relevant judgement:
(i) reduce the Commitments to zero forthwith;
(ii) require that all RCF Advances or the Term Loan (as the case may
be), all Overdraft Utilisations and all interest and commitment
fees accrued and all other sums payable under this Agreement
which have become due and payable, be paid, immediately, or on
demand or otherwise in accordance with the terms of such notice;
and
(iii) shall exercise any of the rights granted to the Facility Agent,
the Security Agent or the Banks under the Security and
Subordination Documents.
14 INDEMNITIES
-----------
14.1 Currency indemnity
If any sum due from any Borrower under this Agreement or any order or
judgement given or made in relation hereto has to be converted from the
currency (the "FIRST CURRENCY") in which the same is payable under this
Agreement or under such order or judgement into another currency (the
"SECOND CURRENCY") for the purpose of (a) making or filing a claim or proof
against any Borrower, (b) obtaining an order or judgement in any court or
other tribunal or (c) enforcing any order or judgement given or made in
relation to this Agreement, each Borrower agrees to indemnify and hold
harmless the Facility Agent, the Arranger, the Security Agent, and each
Bank from and against any loss suffered as a result of any difference
between (i) the rate of exchange used for such purpose to convert the sum
in question from the first currency into the second currency and (ii) the
prevailing rate or rates of exchange on said date and in such amount at
which the first currency can be converted into the second currency upon
receipt of a sum paid to it in satisfaction, in whole or in part, of any
such order, judgement, claim or proof. Any amount due from any Borrower
under this Clause 14.1 shall be due as a separate debt and shall not be
affected by judgement being obtained for any other sums due under or in
respect of this Agreement and the term "RATE OF EXCHANGE" includes any
premium and costs of exchange payable in connection with the purchase of
the first currency with the second currency.
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14.2 Other indemnities
Each Borrower shall on demand indemnify each Beneficiary, without prejudice
to any of their other rights under this Agreement, against (i) in respect
of paragraphs (a),(b) and (d) below any losses (including loss of Margin if
any), (ii) in respect of paragraph (c) below, breakage costs and (iii) in
all cases, charges or expenses which such Beneficiary sustains or incurs as
a direct consequence of:
(a) the occurrence of any Default; or
(b) any default in payment by such Borrower of any sum under this
Agreement when due; or
(c) any repayment or prepayment of an Advance or payment of an overdue
amount being made by such Borrower otherwise than on its Interest
Payment Date; or
(d) (other than by reason of default by any Beneficiary) any Advance not
being made (or not being made in full) to such Borrower after a
Drawdown Notice or Rollover Notice has been given pursuant to Clause 4
(Advances).
A certificate of such Beneficiary as to the amount of any such loss or
expense made in good faith shall be prima facie evidence in the absence of
manifest error.
15 UNLAWFULNESS AND INCREASED COSTS; MITIGATION
--------------------------------------------
15.1 Unlawfulness
------------
If it is or becomes contrary to any law or regulation for any Bank to
contribute to Advances, to effect Overdraft Utilisations or to maintain its
Commitment, such Bank shall promptly, through the Facility Agent, notify
the relevant Borrower whereupon (a) such Bank's Commitment shall be reduced
to zero and (b) the relevant Borrower shall be obliged to prepay such
Bank's prorata portion of all outstanding Advances or Overdraft
Utilisations on the earlier of (i) the date falling 30 days after the date
of receipt by the relevant Borrower of the relevant notice pursuant to this
Clause or (ii) the latest date permitted by the relevant law or regulation.
Without prejudice to the reduction of such Bank's Commitment to zero or the
obligations of the relevant Borrower to make such repayment, the relevant
Borrower, the Facility Agent and such Bank shall negotiate for a period not
exceeding 14 days with a view to such Bank reinstating its Commitment
and/or funding or maintaining its Advances or Overdraft Utilisations in
whole or in part in a manner which is not unlawful.
15.2 Increased costs
---------------
If the result of any change in, or in the interpretation or application of,
or the introduction of any law or any regulation, directive, request or
requirement (whether or not having the force of law, but, if not having the
force of law, with
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which the relevant Beneficiary or, as the case may be, its holding company
habitually complies) including, without limitation, those relating to
Taxation, capital adequacy, liquidity, reserve assets, cash ratio deposits
and special deposits is to:
(a) subject any Beneficiary to Taxes or change the basis of Taxation of
any Beneficiary with respect to any payment under this Agreement
(other than Taxes or Taxation on the overall net income, profits or
gains of such Beneficiary imposed in the jurisdiction in which its
principal or lending office under this Agreement is located and other
than Taxes currently payable by such Beneficiary on amounts received
by it under this Agreement but only to the extent so payable at the
date hereof); and/or
(b) increase the cost to, or impose an additional cost on, any Beneficiary
or its holding company in making or keeping available all or part of
such Beneficiary's Commitment or maintaining or funding the Advances
made by such Beneficiary or otherwise in having entered into, or
performing or maintaining and/or funding its (or such Beneficiary's)
obligations under any Facility Document; and/or
(c) reduce the amount payable or the effective return to any Beneficiary
under this Agreement; and/or
(d) reduce any Beneficiary's or its holding company's rate of return on
its overall capital by reason of a change in the manner in which it is
required to allocate capital resources to such Beneficiary's
obligations under this Agreement; and/or
(e) require any Beneficiary or its holding company to make any additional
payment or forego (to a greater extent than at the date hereof) a
return calculated by reference to or on any amount received or
receivable by such Beneficiary under this Agreement; and/or
(f) require any Beneficiary or its holding company to incur or sustain a
loss (including a loss of future potential profits) additional to that
incurred or sustained at the date hereof by reason of being obliged to
deduct a greater part of such Beneficiary's Commitment or Advances or
Overdraft Utilisations from its capital for regulatory purposes, than
is required to be deducted at the date hereof
then and in each such case (but subject to Clauses 15.3 and 15.4):
(i) such Beneficiary shall notify the Parent through the Facility
Agent in writing of such event promptly upon its becoming aware
of the same; and
(ii) the Parent undertakes to pay on demand, made at any time, whether
or not such Beneficiary's Advances or Overdraft Utilisations have
been repaid, to the Facility Agent for the
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account of such Beneficiary the amount which such Beneficiary
specifies (in a certificate setting forth the basis of the
computation of such amount but not including any matters which
such Beneficiary or its holding company regards as confidential)
is required to compensate such Beneficiary and/or (if and to the
extent that such holding company has passed the cost of the same
on to such Beneficiary) its holding company for such liability to
Taxes, increased or additional cost, reduction, payment or
foregone return. Nothing in this Clause 15.2 shall oblige any
Beneficiary (or any holding company of such Beneficiary), the
Arranger, the Facility Agent or the Security Agent to disclose
any confidential information relating to the organisation of its
affairs.
For the purposes of this Clause 15.2, "HOLDING COMPANY" means, in
relation to a Beneficiary, the company or entity (if any) within the
consolidated supervision of which such Beneficiary is included.
15.3 Exceptions
----------
Nothing in Clause 15.2 shall entitle any Beneficiary to receive any amount
in respect of compensation for any such liability to Taxes, increased or
additional cost, reduction, payment, forgone return or loss to the extent
that the same:
(a) is the subject of an additional payment under Clause 8.7; or
(b) arises as a consequence of (or of any law or regulation implementing)
(i) the proposals for international convergence of capital measurement
and capital standards published by the Basle Committee on Banking
Regulations and Supervisory Practices in July 1988 and/or (ii) any
applicable directive of the European Union (in each case) unless it
results from any change in, or in the interpretation or application
of, such proposals or any such applicable directive (or any law or
regulation implementing the same) occurring after the date hereof; or
(c) arises as a result of a breach by such Beneficiary of any regulation,
request or requirement (which either (i) is in existence at the date
of this Agreement or (ii) which comes into effect after the date of
this Agreement and with which such Beneficiary would have complied if
such regulation, request or requirement was in effect on the date of
this Agreement) of any applicable central bank or other fiscal,
monetary or other authority (whether or not having the force of law).
For the purposes of this Clause the term "APPLICABLE DIRECTIVE" means
(exclusively) each of the Own Funds Directive (89/299/EEC of 17th April
1989) and the Solvency Ratio Directive (89/647/EEC of 18th December 1989).
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15.4 Mitigation
----------
If, in respect of any Beneficiary, circumstances arise which would, or
would upon the giving of notice, result in:
(a) any Borrower being required to make an increased payment to such
Beneficiary pursuant to Clause 8.7;
(b) the reduction of a Bank's Commitment to zero or a Borrower being
required to prepay such Bank's Advances or Overdraft Utilisations
pursuant to Clause 15.1 (Unlawfulness); or
(c) the Parent being required to make a payment to such Beneficiary to
compensate such Beneficiary for an increased cost, reduction, payment
or foregone return pursuant to Clause 15.2,
then, without in any way limiting, reducing or otherwise qualifying the
obligations of the Parent or the relevant Borrower under those Clauses,
such Beneficiary shall, in consultation with the Facility Agent, endeavour
to take such reasonable steps (and/or in the case of Clause 15.2 and where
such increased or additional cost, reduction, payment, return or loss is
that of its holding company, endeavour to procure that its holding company
takes reasonable steps) as may be open to it to mitigate or remove such
circumstances including (without limitation) the transfer of its rights and
obligations under this Agreement to another bank or financial institution
acceptable to the Parent or a change of lending office of such Beneficiary
to one acceptable to the Parent unless, in either case, to do so might (in
the opinion of such Beneficiary) be prejudicial to such Beneficiary or be
in conflict with such Beneficiary's general banking policies or involve
such Beneficiary in expense or an increased administration burden or
require it (or its holding company) to disclose any information as to its
banking policies or other matters which it regards, in its sole discretion,
as confidential or commercially sensitive.
Any costs and expenses incurred by the Facility Agent and any Beneficiary
pursuant to this Clause 15.4 shall be for the account of and paid by the
Parent or any relevant Acceding Borrower within ten (10) Banking Days after
receipt of a demand specifying the same in reasonable detail.
16 ARRANGER, FACILITY AGENT AND SECURITY AGENT
-------------------------------------------
16.1 Appointment of Agents
---------------------
Each Bank (including, for the avoidance of doubt, each Interest Rate
Protection Bank) appoints each Agent as its agent for the purposes of this
Agreement and authorises the relevant Agent in such capacity:
(a) to execute all documents as may be approved by the Majority Banks for
execution by the relevant Agent; and
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(b) to take such action on such Bank's behalf and to exercise such rights,
remedies, powers and discretions as are specifically delegated to the
relevant Agent by this Agreement or (as the case may be) the Security
and Subordination Documents, together with such powers and discretions
as are reasonably incidental thereto (but subject to any restrictions
or limitations specified in this Agreement). None of the Facility
Agent, the Security Agent or the Arranger shall, however, have any
duties, obligations or liabilities to the Banks beyond those expressly
stated in this Agreement and/or the Security and Subordination
Documents. Each Agent's and the Arranger's duties are solely of a
mechanical and administrative nature.
Notwithstanding that the Facility Agent and the Security Agent may from
time to time be the same entity, the Facility Agent and the Security Agent
have entered into this Agreement in their separate capacities as facility
agent for the Banks under and pursuant to this Agreement and the
Subordination Agreement and as security agent for the Beneficiaries to hold
the security created or to be created by the Security Documents on the
terms set out therein. However, where this Agreement provides for the
Facility Agent to communicate with or provide instructions to the Security
Agent, while the Facility Agent and the Security Agent are the same entity,
it will not be necessary for there to be any such formal communications or
instructions notwithstanding that this Agreement provides in certain cases
for the same to be in writing.
16.2 Agent's actions
---------------
Any action taken by the relevant Agent under or in relation to this
Agreement with requisite authority, or on the basis of appropriate
instructions, received from the Majority Banks (or as otherwise duly
authorised) shall be binding on all the Banks.
16.3 Facility Agent's duties
-----------------------
The Facility Agent shall:
(a) promptly notify each Bank of the contents of each notice, certificate
or other document received by the Facility Agent from the Parent or
any other member of the Group under or pursuant to this Agreement;
(b) consult with the Banks as to whether and, if so, how a discretion
vested in the Facility Agent is, either in any particular instance or
generally, to be exercised but so that this shall not prevent the
Facility Agent in exceptional circumstances where time does not permit
such consultation and urgent action is required, from exercising its
rights and powers, or from instructing the Security Agent to exercise
its rights and powers, to preserve the security constituted by the
Security Documents and the subordination created by the Subordination
Agreement so long as the Facility Agent promptly notifies the Banks
subsequently of such exercise; and
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(c) (subject to the other provisions of this Clause 16) take such action
or, as the case may be, refrain from taking such action with respect
to the exercise of any of its rights, remedies, powers and discretions
as Facility Agent or Security Agent, as the Majority Banks may
reasonably direct.
16.4 Agents' rights
--------------
Each of the Facility Agent and the Security Agent may:
(a) in the exercise of any right, remedy, power or discretion in relation
to any matter, or in any context, not expressly provided for by this
Agreement, act or, as the case may be, refrain from acting in
accordance with the instructions of the Majority Banks, and shall be
fully protected in so doing;
(b) unless and until it shall have received directions from the Majority
Banks, take such action, or refrain from taking such action in respect
of a Default of which the relevant Agent has actual knowledge as it
shall deem advisable in the best interests of the Banks (but shall not
be obliged to do so);
(c) refrain from acting in accordance with any instructions of the
Majority Banks to institute any legal proceedings arising out of or in
connection with this Agreement and/or the Security and Subordination
Documents until it has been indemnified and/or secured to its
satisfaction against any and all costs, expenses or liabilities
(including legal fees) which it would or might incur as a result;
(d) deem and treat (i) each Bank as the person entitled to the rights
appertaining to the Advances and the Overdraft Utilisations made by
such Bank for all purposes of this Agreement and the Security and
Subordination Documents and (ii) the office set opposite the name of
each Bank in part A and part B of schedule 1 as such Bank's lending
office unless and until a written notice of change of lending office
shall have been received by the Facility Agent; and the Facility Agent
may act upon any such notice unless and until the same is superseded
by a further such notice;
(e) rely as to matters of fact which might reasonably be expected to be
within the knowledge of any Borrower upon a certificate signed by an
Authorised Officer on behalf of such Borrower; and
(f) refrain from doing anything which would, or might in its opinion, be
contrary to any law or regulation of any jurisdiction and may do
anything which is in its opinion necessary or desirable to comply with
any such law or regulation.
16.5 No liability of Arranger, Facility Agent or Security Agent
----------------------------------------------------------
None of the Arranger, the Facility Agent or the Security Agent shall:
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(a) be obliged to request any certificate or opinion hereunder or under
any provision of the Security and Subordination Documents or to make
any enquiry as to the use of the proceeds of the Facility unless (in
the case of the Facility Agent) so required in writing by any Bank, in
which case the Facility Agent shall promptly make the appropriate
request to the relevant Borrower; or
(b) be obliged to make any enquiry as to any breach or default by any
Borrower in the performance or observance of any of the provisions of
this Agreement or as to the existence of a Default unless (in the case
of the Facility Agent) the Facility Agent has actual knowledge thereof
or has been notified in writing thereof by a Bank, in which case the
Facility Agent shall promptly notify the Banks of the relevant event
or circumstance; or
(c) be obliged to enquire whether or not any representation or warranty
made by any Borrower or any Shareholder pursuant to this Agreement or
any of the Security and Subordination Documents is true; or
(d) be obliged to do anything (including, without limitation, disclosing
any document or information) which would, or might in its opinion, be
contrary to any law or regulation or be a breach of any duty of
confidentiality or otherwise be actionable or render it liable to any
person; or
(e) be obliged to account to any Bank for any sum or the profit element of
any sum received by it for its own account; or
(f) be obliged to institute any legal proceedings arising out of or in
connection with, or otherwise take steps to enforce, this Agreement
and/or the Security and Subordination Documents other than on the
instructions of the Majority Banks; or
(g) be liable to any Bank for any action taken or omitted under or in
connection with this Agreement and/or the Security and Subordination
Documents unless caused by its gross negligence or wilful misconduct.
For the purposes of this Clause 16 neither the Facility Agent nor the
Security Agent shall be treated as having actual knowledge of any matter of
which the corporate finance or any other division outside the agency or
loan administration department of the person for the time being acting as
the Facility Agent or the Security Agent, as the case may be, may become
aware in the context of corporate finance, advisory or lending activities
from time to time undertaken by the Facility Agent or the Security Agent,
as the case may be, for the Parent any Shareholder or any other person
which may be a trade competitor of the Parent or any of the Shareholders or
any of their respective Subsidiaries or Affiliates or may otherwise have
commercial interests similar to those of the Parent or any of the
Shareholders or any of their respective Subsidiaries or Affiliates.
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16.6 Non-reliance on Arranger, Security Agent or Facility Agent
----------------------------------------------------------
Each Bank acknowledges, by virtue of its execution of this Agreement that
it has not relied on any statement, opinion, forecast or other
representation made by the Arranger, the Security Agent or the Facility
Agent to induce it to enter into this Agreement and that it has made and
will continue to make, without reliance on the Facility Agent, the Security
Agent or the Arranger and based on such documents as it considers
appropriate, its own appraisal of the creditworthiness of the Parent or any
Acceding Borrower, the other members of the Group and the Shareholders and
its own independent investigation of the financial condition, prospects and
affairs of the Parent or any Acceding Borrower, the other members of the
Group and the Shareholders in connection with the making and continuation
of the Facility under this Agreement. None of the Arranger, the Security
Agent or the Facility Agent shall have any duty or responsibility, either
initially or on a continuing basis, to provide any Bank with any credit or
other information with respect to the Parent or any Acceding Borrower, the
other members of the Group and/or Shareholders whether coming into its
possession before the making of any Advance or at any time or times
thereafter.
16.7 No Responsibility on Arranger, Facility Agent or Security Agent for
-------------------------------------------------------------------
Parent's, any Acceding Borrower's, any other Member of the Group's or any
-------------------------------------------------------------------------
Shareholder's performance
-------------------------
None of the Arranger, the Security Agent or the Facility Agent shall have
any responsibility or liability to any Bank:
(a) on account of the failure of the Parent, any Acceding Borrower, any
other member of the Group or any Shareholder to perform its
obligations under this Agreement or any other Facility Document; or
(b) for the financial condition of the Parent, any Acceding Borrower, any
other member of the Group or any Shareholder; or
(c) for the completeness or accuracy of any statements, representations or
warranties in this Agreement, any other Facility Document or the
Information Memorandum or any document delivered under this Agreement
or any other Facility Document; or
(d) for the execution, effectiveness, adequacy, genuineness, validity,
enforceability or admissibility in evidence of this Agreement or any
other Facility Document or of any certificate, report or other
document executed or delivered under this Agreement or any other
Facility Document; or
(e) otherwise in connection with the Facility or its negotiation or for
acting (or, as the case may be, refraining from acting) in accordance
with the instructions of the Majority Banks.
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16.8 Documents and professional advice
---------------------------------
The Arranger, the Facility Agent and the Security Agent shall be entitled
to rely on any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person
and shall be entitled to rely as to legal or other professional matters on
opinions and statements of any legal or other professional advisers
selected or approved by it (including those in the Arranger's or the
relevant Agent's employment).
16.9 Other dealings
--------------
The Arranger, the Facility Agent and the Security Agent may, without any
liability to account to the Banks, accept deposits from, lend money to,
and generally engage in any kind of banking or other business with, and
provide advisory or other services to, the Parent or any of its
Subsidiaries or Affiliates (including any Acceding Borrower) as if it were
not the Arranger, the Facility Agent or the Security Agent, as the case
may be.
16.10 Rights of Agent as Bank; no partnership
---------------------------------------
With respect to its own Commitment (if any) the Arranger, the Facility
Agent and the Security Agent shall have the same rights and powers under
this Agreement and the Security and Subordination Documents as any other
Bank and may exercise the same as though it were not performing the duties
and functions delegated to it under this Agreement and/or the Security and
Subordination Documents and the term "BANKS" shall, unless the context
clearly otherwise indicates, include each of the Facility Agent and the
Security Agent in its individual capacity as a Bank. This Agreement shall
not and shall not be construed so as to constitute a partnership between
the parties or any of them.
16.11 Amendments; waivers
-------------------
(a) Subject to Clause 16.11(b), the Facility Agent or (in the case of the
Security and Subordination Documents) the Security Agent may, with the
consent of the Majority Banks (or if and to the extent expressly
authorised by the other provisions of this Agreement) and, if so
instructed by the Majority Banks, shall (i) agree amendments or
modifications to this Agreement or any of the Security and
Subordination Documents with the relevant parties thereto and/or (ii)
vary or waive breaches of, or defaults under, or otherwise excuse
performance of, any provision of this Agreement or any of the Security
and Subordination Documents by any of the parties thereto. Any such
action so authorised and effected by the Facility Agent or the
Security Agent shall be documented in such manner as the relevant
Agent shall (with the approval of the Majority Banks) determine, shall
be promptly notified to the Banks by the relevant Agent and (without
prejudice to the generality of Clause 16.2) shall be binding on all
the Banks.
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(b) Except with the prior written consent of all the Banks, the Facility
Agent shall not have authority on behalf of the Banks (A) to agree
with the Parent any amendment or modification to this Agreement or to
grant waivers in respect of breaches or defaults or to vary or excuse
performance of or under this Agreement by any Borrower, if the effect
of such amendment, modification, waiver, variation or excuse would be
to (i) reduce the Margin, (ii) postpone the due date or reduce the
amount of any reduction in availability, any payment of principal,
interest, commitment fee or other amount payable by any Borrower under
this Agreement, (iii) change the currency in which any amount is
payable by any Borrower under this Agreement, (iv) increase any Bank's
Commitment, (v) extend the Tranche A Availability Period or the
Tranche B Availability Period, (vi) change the definition of "Majority
Banks" in Clause 1.2, (vii) change any provision of this Agreement
which expressly or implicitly requires the approval or consent of all
the Banks such that the relevant approval or consent may be given
otherwise than with the agreement of all the Banks, (viii) change the
order of distribution under Clause 8.13, (ix) change Clause 20.1, (x)
change this Clause 16.11 or (B) release the Parent or any Acceding
Borrower, or any Shareholder or any of their respective assets from
the security created by any of the Security Documents unless such
release is to permit the disposal or other dealing with such asset in
accordance with the terms of this Agreement and any relevant Security
Document.
(c) For the purposes of this Clause 16.11 it is expressly agreed and
acknowledged that the execution of any instrument pursuant to a
further assurance provision in the Security and Subordination
Documents shall not constitute an amendment or modification to, or
variation of, this Agreement or any of the Security Documents.
16.12 Reimbursement and indemnity by Banks
------------------------------------
Each Bank shall reimburse the Arranger and the relevant Agent (rateably in
accordance with such Bank's Commitment), to the extent that the Arranger
or the relevant Agent is not reimbursed by the Parent, for the costs,
charges and expenses incurred by the Arranger and the relevant Agent in
connection with the execution of this Agreement and the Security and
Subordination Documents and/or in contemplation of, or otherwise in
connection with, the enforcement or attempted enforcement of, or the
preservation or attempted preservation of any rights under, or in carrying
out its duties under, this Agreement and/or any of the Security and
Subordination Documents including (in each case) the fees and expenses of
legal or other professional advisers. Each Bank shall on demand indemnify
the relevant Agent (rateably in accordance with its Commitment) against
all liabilities, damages, costs and claims whatsoever incurred by the
relevant Agent in connection with this Agreement and the Security and
Subordination Documents or the performance of its duties under this
Agreement and the Security and Subordination Documents or any action taken
or omitted by the relevant Agent under this Agreement and/or any of the
Security and
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Subordination Documents, unless such liabilities, damages, costs or claims
arise from the relevant Agent's own gross negligence or wilful misconduct.
16.13 Retirement of Agents
--------------------
(a) Each of the Facility Agent and the Security Agent may retire from its
appointment as Agent having given to the Parent and any Acceding
Borrower and each of the Banks not less than 30 days' notice of its
intention to do so, provided that no such retirement shall take effect
unless there has been appointed by the Banks as a successor agent:
(i) a Bank nominated by the Majority Banks with the consent of the
Parent (not to be unreasonably withheld or delayed) or, failing
such a nomination,
(ii) any reputable and experienced bank or financial institution with
offices in Paris nominated by the relevant Agent with the consent
of the Parent (not to be unreasonably withheld or delayed);
provided that no such consent of the Parent shall be required if
an Event of Default has occurred and is continuing.
Any corporation into which the relevant Agent may be merged or
converted or any corporation with which the relevant Agent may be
consolidated or any corporation resulting from any merger, conversion,
amalgamation, consolidation or other reorganisation to which the
relevant Agent shall be a party shall, to the extent permitted by
applicable law, be the relevant successor Agent without the execution
or filing of any document or any further act on the part of any of the
parties to this Agreement, save that notice of any such merger,
conversion, amalgamation, consolidation or other reorganisation shall
forthwith be given to the Parent and any Acceding Borrower and the
Banks, it being agreed that this paragraph relates solely to the case
where the legal personality of the Agent has disappeared as a result
of such operation.
(b) Upon any such successor as aforesaid being appointed, the retiring
Agent shall be discharged from any further obligation under this
Agreement (but shall continue to have the benefit of this Clause 16 in
respect of any action it has taken or refrained from taking prior to
such discharge) and its successor and each of the other parties to
this Agreement shall have the same rights and obligations among
themselves as they would have had if such successor had been a party
to this Agreement in place of the retiring Agent. The retiring Agent
shall (at the expense of the Parent) provide its successor with copies
of such of its records as its successor reasonably requires to carry
out its functions under this Agreement.
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17 WAIVERS, REMEDIES CUMULATIVE
----------------------------
17.1 Waivers
No failure to exercise and no delay in exercising any right, power or
privilege under any Facility Document by any of the Beneficiaries shall
operate as a waiver of the same, nor shall any single or partial exercise
of any such right, power or privilege preclude any other or further
exercise of the same, or the exercise of any other right, power or
privilege. No waiver by any of the Beneficiaries shall be effective unless
it is in writing.
17.2 Remedies cumulative
The rights and remedies of each of the Beneficiaries in this Agreement may
be exercised as often as necessary and are cumulative and not exclusive of
any rights or remedies provided by law.
18 NOTICES
-------
18.1 Giving of notices
All notices or other communications under or in connection with this
Agreement shall be given in writing and, unless otherwise stated, may be
made by letter, telex or facsimile. Any such notice will be deemed to be
given as follows:
(a) if by letter, when delivered personally or on actual receipt;
(b) if by telex, when dispatched, but only if, at the time of
transmission, the correct answerback appears at the start and at the
end of the sender's copy of the notice; and
(c) if by facsimile, when dispatched, but only if, at the time of
transmission, an electronic receipt is issued indicating that the
facsimile has been received at the number specified in article 18.2
below;
provided, however, that any notice received on a date which is not a normal
business day in the place of receipt or following normal business hours in
such place, such notification shall be deemed given at the opening of
business on the following business day in the country of receipt of such
notice.
18.2 Addresses for notices
(a) The address, telex number and facsimile number of each party are as
set out in Schedule 9 hereto or any other notified by that party for
this purpose to the Facility Agent by not less than five (5) Banking
Days' notice.
(b) All notices from or to any Borrower shall be sent through the Facility
Agent with a copy to the Facility Agent, or in the case of the
Security Documents, the Security Agent.
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(c) The Facility Agent shall, promptly upon request from any party, give
to that party the address telex number or facsimile number of any
other party applicable at the time for the purposes of this Clause.
19 CHANGES TO THE PARTIES
----------------------
19.1 Transfers by Borrowers
No Borrower may assign, transfer, delegate or dispose of any of or any
interest in, its rights and/or obligations under the Facility Documents.
19.2 Transfers by Banks
(a) Subject to paragraph (b) below, a Bank (the "EXISTING BANK") may at
any time assign or transfer all or part of its rights and/or
obligations under the Facility Documents to a new Bank (the "NEW
BANK"), PROVIDED THAT any such assignment or transfer by a Bank of its
Commitment shall be in a minimum amount of FRF 30,000,000 or the
balance of its Commitment.
(b) The prior consent of the Parent is required for any such assignment or
transfer, unless (i) the New Bank is another Bank or an Affiliate of a
Bank, and such New Bank is a Qualifying Bank or (ii) an Event of
Default has occurred and is continuing. However, the prior consent of
the Parent must not be unreasonably withheld or delayed and will be
deemed to have been given if, within fifteen (15) Banking Days of
receipt by the Parent of an application for consent, it has not been
expressly refused.
(c) The Parent hereby acknowledges that following any such transfer and/or
assignment, the New Bank will be substituted for the rights and
obligations so transferred and assigned to it by the Existing Bank.
(d) A transfer of obligations will be effective only if the obligations
are transferred in accordance with Clause 19.3 (Procedure for
Transfers). On the transfer becoming effective in this manner the
Existing Bank shall be relieved of its obligations under the Facility
Documents to the extent that they are transferred to the New Bank.
(e) On each occasion an Existing Bank assigns and transfers any of its
rights and/or obligations under this Agreement, the New Bank shall, on
the date the assignment and transfer takes effect, pay to the Facility
Agent for its own account a fee of FRF 5,000.
(f) An Existing Bank is not responsible to a New Bank for:
(i) the execution, genuineness, validity, enforceability or
sufficiency of any Facility Document or any other document;
(ii) the collectability of amounts payable under any Facility
Document; or
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(iii) the accuracy of any statements (whether written or oral) made in
or in connection with any Facility Document.
(g) Each New Bank confirms to the Existing Bank and the other
Beneficiaries that it:
(i) has made its own independent investigation and assessment of the
financial condition and affairs of the Parent and/or any
relevant Acceding Borrower and its or their related entities in
connection with its participation in this Agreement and has not
relied on any information provided to it by the Existing Bank in
connection with any Facility Document; and
(ii) will continue to make its own independent appraisal of the
creditworthiness of the Parent and/or any relevant Acceding
Borrower and its or their related entities while any amount is
or may be outstanding under this Agreement or any Commitment is
in force.
(h) Nothing in any Facility Document obliges an Existing Bank to:
(i) accept a re-assignment and re-transfer from a New Bank of any of
the rights and/or obligations assigned and transferred under
this Clause; or
(ii) support any losses incurred by the New Bank by reason of the
non-performance by the Parent and/or any relevant Acceding
Borrower of its or their obligations under the Facility
Documents or otherwise.
(i) Any reference in this Agreement to a Bank includes a New Bank but
excludes a Bank if no amount is or may be owed to or by it under this
Agreement and its Commitment has been cancelled or reduced to nil.
(j) Each Borrower hereby agrees to consent to, sign, file, register and
notify all documents and take such action or do such things as the
Facility Agent may consider necessary, acting reasonably, to give
effect to each and any transfer and assignment by an Existing Bank to
a New Bank under this Agreement.
(k) If any Bank assigns its rights under this Agreement a written
instrument by which such rights are assigned must be notified to each
Borrower by huissier (bailiff) in accordance with the provisions of
Article 1690 of the Civil Code.
19.3 Procedure for transfers
(a) A transfer is effected if:
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(i) the Existing Bank and the New Bank deliver to the Facility Agent
a duly completed certificate, substantially in the form of
Schedule 13 (a "SUBSTITUTION CERTIFICATE"); and
(ii) the Facility Agent executes it, which the Facility Agent shall
promptly do.
(b) Each party (other than the Existing Bank and the New Bank) irrevocably
authorises the Facility Agent to execute any duly completed
Substitution Certificate on its behalf.
(c) To the extent that they are expressed to be the subject of the
transfer in the Substitution Certificate:
(i) the Existing Bank and the other Banks (the "EXISTING PARTIES")
will be released from their obligations to each other (the
"DISCHARGED OBLIGATIONS");
(ii) the New Bank and the existing Parties will assume obligations
towards each other which differ from the Discharged Obligations
only insofar as they are owed to or assumed by the New Bank
instead of the Existing Bank;
(iii) the rights of the Existing Bank against the existing Parties and
vice versa (the "DISCHARGED RIGHTS") will be cancelled; and
(iv) the New Bank and the existing Parties will acquire rights
against each other which differ from the Discharged Rights only
insofar as they are exercisable by or against the New Bank
instead of the Existing Bank,
all on the date of execution of the Substitution Certificate by the
Facility Agent or, if later, the date specified in the Substitution
Certificate.
19.4 Register
The Facility Agent shall keep a register of all the Beneficiaries and shall
supply any other party to a Facility Document (at that party's expense)
with a copy of the register on request.
19.5 Increased costs
If:
(a) any assignment or transfer of all or any part of the rights and
obligations of a Bank pursuant to this Clause 19; or
(b) a change in the Facility Office (as defined below) of a Bank or the
Facility Agent;
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results in amounts becoming due at that time under Clauses 8.7 (Grossing-up
for Taxes), 15.2 (Increased costs) or 7 (Fees, expenses and stamp taxes),
then unless such assignment or transfer or change in the Facility Office
arises as a consequence of Clause 15.4 (Mitigation) the transferee, New
Bank, Bank or Facility Agent, as the case may be, shall be entitled to
receive those amounts only to the extent that the transferor, Existing Bank
or Bank, as the case may be, would have been entitled had there been no
assignment and transfer or change in the Facility Office.
19.6 Reference Banks
The Facility Agent may with the consent of the Parent (such consent not to
be unreasonably withheld or delayed and to be deemed to have been given if
the Facility Agent has not received within thirty (30) days of any request
for consent being given to the Parent written notice from the Parent
refusing such consent and specifying the reasons for such refusal) nominate
additional Banks or Affiliates thereof to become Reference Banks and such
Banks or Affiliates shall become Reference Banks upon their indicating to
the Facility Agent that they are prepared to act as such. The Facility
Agent will give the Parent written notice of such Banks or Affiliates
having become a Reference Bank as soon as practical thereafter. If a
Reference Bank, (or the Bank of which a Reference Bank is an Affiliate, in
the case of any Reference Bank which is not itself a Bank) transfers the
whole of its rights and obligations under this Agreement as a Bank or
ceases to be one of the Banks or in such other circumstances as the
Majority Banks determine, the Facility Agent, subject to agreement by the
Parent (such agreement not to be unreasonably withheld or delayed) will
appoint another Bank to replace such Bank or Affiliate as a Reference Bank.
19.7 Change of Facility Office
Each Bank shall participate in this Agreement through the office set forth
in Schedule 1 hereto (a "FACILITY OFFICE"), but each Bank may change its
Facility Office with respect to any Advance from time to time (subject
however to the provisions of Clause 19.4 hereof and provided that such
change must not prejudice in any manner whatsoever, the security provided
pursuant to the Security Documents), on giving not less than ten (10)
Banking Days' prior notice to the Facility Agent.
20 REDISTRIBUTION
--------------
20.1 Redistribution
(a) If at any time the proportion which any Tranche A Bank (the "RECEIVING
PARTY") has received or recovered (whether by set-off or otherwise) on
account of any sum due from any Borrower under this Agreement is
greater (the amount of the excess being herein referred to as the
"EXCESS AMOUNT") than the proportion received or recovered by the
Tranche A Bank receiving or recovering the smallest proportion (which
shall include a nil receipt) in relation to the sum then due to the
latter Tranche
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A Bank from the relevant Borrower under this Agreement, then the
receiving party shall promptly notify the Facility Agent thereof and:
(i) the receiving party shall promptly and in any event within ten
(10) days of receipt or recovery of the excess amount pay to
the Facility Agent an amount equal to the excess amount;
(ii) the excess amount shall be treated as having been paid to or
recovered by the receiving party for the account of the
Facility Agent for payment to the Tranche A Banks as provided
in paragraph (iii) below, and the obligations of the relevant
Borrower to the receiving party shall only be reduced or
discharged by the receipt or recovery by the receiving party of
such excess amount to the extent of the receiving party's
entitlement to payment by the Facility Agent pursuant to
paragraph (iii) below; and
(iii) the parties to this Agreement shall treat such payment as if it
were a payment by the relevant Borrower to the Facility Agent
for payment to the Facility Agent on account of a sum owed to
the Tranche A Banks and shall pay the same to the Tranche A
Banks (including the receiving party) pro rata to their
respective entitlements in such sum,
PROVIDED THAT where a receiving party is subsequently required to
repay to the relevant Borrower any amount received or recovered by it
and dealt with under paragraphs (i), (ii) and (iii) above, each
Tranche A Bank shall promptly repay to the Facility Agent for payment
to the Facility Agent for the receiving party the portion of such
amount distributed to it, together with interest on it at a rate
sufficient to reimburse the receiving party for any interest which it
has been required to pay to the relevant Borrower in respect of such
portion of such amount.
(b) Where a receiving party has recovered any amount as a consequence of
the satisfaction or enforcement of a judgement obtained in any legal
action or proceedings to which it is a party, this Clause 20.1 shall
not apply so as to benefit any Tranche A Bank which (being entitled so
to do) did not join with the receiving party in such action or
proceedings, unless the receiving party did not give prior notice of
its involvement in such action or proceedings to the Facility Agent
for disclosure to the Banks.
(c) Each Tranche A Bank shall promptly give notice to the Facility Agent
of:
(i) the institution by such Tranche A Bank (as the case may be) of
any legal action or proceedings under this Agreement or in
connection with this Agreement prior to such institution; and
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(ii) the receipt or recovery by such Tranche A Bank (as the case may
be) of any amount received or recovered by it otherwise than
through the Facility Agent.
Upon receipt of any such notice, the Facility Agent will as soon as
practicable thereafter notify the Facility Agent and all the other Tranche
A Banks.
21 CONFIDENTIALITY
---------------
Each Beneficiary may only disclose a copy of any Facility Document or any
information which that Beneficiary has acquired under or in connection with
any Facility Document:
(a) to any person to whom it is proposing to enter into, or has entered
into, any kind of assignment, transfer, substitution, participation or
other similar arrangement;
(b) to its auditors, accountants, legal counsel and tax advisers and to
any other professional advisers appointed to act in connection with
the administration of the Facility Documents or the enforcement of, or
realisation of any security provided under, any of the Facility
Documents PROVIDED THAT such information is disclosed only to such
person if and to the extent necessary for his activities and each such
person will be informed of the confidential nature of the information
and the provisions of this Agreement;
(c) to any other third party where the Parent (and following a Permitted
Acquisition, any other member of the Group) has previously agreed in
writing that disclosure may be made to that third party;
(d) to any banking or other regulatory or examining authorities (whether
governmental or otherwise) where such disclosure is requested by them
and with whose requests that Beneficiary has to comply (or with whose
requests banks in the relevant jurisdiction are accustomed to
complying);
(e) pursuant to subpoena or other legal process, or in connection with any
action, suit or proceeding relating to any of the Facility Documents:
and
(f) pursuant to any law or regulation having the force of law,
provided in the case of (a) above that the relevant recipient agrees to
preserve the confidentiality of any confidential information relating to
any Borrower received by it and to make no use of such information
otherwise than in connection with the relevant assignment, transfer,
substitution, participation or other similar arrangement.
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22 MISCELLANEOUS
-------------
22.1 Severability
If any provision of any Facility Document is prohibited or unenforceable in
any jurisdiction, such prohibition or unenforceability shall not invalidate
the remaining provisions of such Facility Document.
22.2 Internal accounts as evidence
Internal accounts maintained by the Facility Agent and the Security Agent
or each Bank in connection herewith shall constitute prima facie evidence
of sums owing to such Bank under this Agreement.
22.3 Language
(a) This Agreement is made in both the French and English languages. In
the event of any discrepancies between the French version and the
English version of this Agreement, the French version of this
Agreement shall prevail.
(b) Any notice given under or in connection with any Facility Document
shall be in English with a French translation or in French with an
English translation; for the avoidance of doubt, in the event of any
dispute, the French versions shall prevail.
(c) All other documents provided under or in connection with any Facility
Document shall be:
(i) if the document is originally produced in English, in English; or
(ii) if the document is originally produced in French, in French
accompanied by an English translation and, in this case, the
French version shall prevail unless the document is a statutory
or other official document.
23 GOVERNING LAW AND JURISDICTION
------------------------------
This Agreement shall be governed by and construed in accordance with French
law and any disputes arising in connection with any Facility Document shall
be submitted to the exclusive jurisdiction of the Commercial Court
(Tribunal de Commerce) of Paris, without prejudice to the rights of the
Arranger, the Facility Agent, the Security Agent or the Banks to bring an
action against any Borrower before any other competent jurisdiction.
Signed in Paris, on 1998, in five (5) copies in the French
language and in five (5) copies in the English language.
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SCHEDULE 1
THE BANKS AND THEIR COMMITMENTS
PART A
Tranche A Banks
Name Address Tranche A Commitments
Paribas 3, rue d'Antin FRF 680,000,000
75002 Paris
France
TOTAL TRANCHE A FRF 680,000,000
COMMITMENTS
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PART B
TRANCHE B BANKS
Name Address Tranche B Commitment
Paribas 3, rue d'Antin FRF 20,000,000
75002 Paris
France
TOTAL TRANCHE B FRF 20,000,000
COMMITMENTS
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SCHEDULE 2
Part A
Conditions Precedent to the First Advance and Overdraft Utilisation
1 A certified copy of the Statuts and original "Extrait K-bis" of the Parent.
2 Certified copies of:
(a) all Cable Broadcasting Law Authorisations;
(b) any Telecommunications Authorisations; and
(c) all Material Contracts.
3 The Facility Documents (other than the Security and Subordination
Documents) duly executed by all the parties thereto.
4 The Parent Security Documents identified in Schedule 4 duly executed by all
the parties thereto (and where appropriate perfected).
5 The Subordination Agreement, duly executed by all the parties thereto.
6 A certified copy of a resolution of the Board of Directors of the Parent
and of the appropriate corporate body of any other party to the Facility
Documents other than the Beneficiaries approving the transactions and
matters contemplated by this Agreement and the other Facility Documents and
authorising an Authorised Officer of the Parent (or an authorised officer
of any such other entity, as the case may be) to execute on its behalf all
the Facility Documents to which it is a party.
7 A certified copy of (and of all applications for) any and all approvals,
consents, licences, exemptions and other requirements of governmental and
other authorities required for the entering into or performance of the
Facility Documents by each party thereto other than the Beneficiaries.
8 A specimen of the signature of each person (each being an Authorised
Officer of the Parent) authorised to execute any of the Facility Documents
on behalf of the Parent and any other party to the Facility Documents other
than the Beneficiaries and/or to sign all notices, certificates and other
documents or communications to be delivered by the Parent and any other
party to the Facility Documents other than the Beneficiaries.
9 A legal opinion in form and substance satisfactory to the Facility Agent,
addressed to the Facility Agent, the Security Agent, the Arranger and the
Banks, of Norton Rose, legal advisers to the Banks, as to such matters
relating to the Facility Documents as the Facility Agent may require.
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10 A legal opinion of Jeantet & Associes, French legal advisers to the Parent,
in the form previously agreed between the Facility Agent and the Borrower,
addressed to the Facility Agent, the Security Agent, the Arranger and the
Banks.
11 A legal opinion of internal counsel to UPC, in the form previously agreed
between the Facility Agent and the Parent, addressed to the Facility Agent,
the Security Agent, the Arranger and the Banks.
12 The latest annual audited Accounts of the Parent for 1997.
13 The 1998 Business Plan and the 1998 Annual Operating Budget.
14 A letter from the Parent, addressed to the Facility Agent and the Banks,
explaining the accounting policies and principles used by the Parent in
1998 Business Plan and confirming that they comply with the principles used
for the 1997 Accounts referred to in paragraph 12 above
15 Tax opinion of Mr. G.F. Winkelman, the internal tax advisors to the Parent,
in the agreed from, addressed to the Facility Agent, the Security Agent,
the Arranger and the Banks, confirming that the Parent has paid all
applicable taxes.
16 A copy of the Insurance Report from insurance consultants appointed by the
Facility Agent in relation to the adequacy of insurance cover in effect for
the Parent's businesses (and confirming, inter alia, that insurances
satisfactory to the Banks are in place against such risks, in such amounts,
with such insurers and upon such terms which are consistent with the
Insurance Report and as are satisfactory to the Banks) accompanied by
written confirmation from the insurance consultants that it can be relied
upon by the Security Agent, the Facility Agent, the Banks.
17 A certificate or certificates from the relevant banque depositaire and/or
the Statutory Auditors confirming that a minimum of FRF 144,000,000 in cash
has been subscribed in equity in the Parent by the Shareholders.
18 A certificate of the President of the Parent certifying that the Parent's
assets are not subject to any material retention of title arrangements
(other than as permitted under Clause 10.2(a) (Negative Pledge)).
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PART B
Conditions Precedent to Accession of Acceding Borrowers
1 A certified copy of the constitutive documents (modified as necessary to
reflect the terms of the Facility Documents) and original registration
certificate (Extrait K-bis or equivalent) of the Acceding Borrower.
2 The Borrower Accession Notice signed by the Acceding Borrower, the Parent
and the Facility Agent.
3 A Parent Guarantee in respect of the Acceding Borrower executed by an
Authorised Officer of the Parent.
4 If so requested by the Facility Agent, the Acceding Borrower Security
Documents referred to in Clause 10.1(ff), duly executed by all the parties
thereto (and where appropriate perfected).
5 A certified copy of the resolution of the Board of Directors of the
Acceding Borrower approving the transaction and matters contemplated by the
Borrower Accession Notice and by this Agreement and authorising an
Authorised Officer of the Acceding Borrower to execute on its behalf the
Borrower Accession Notice and the Acceding Borrower Security Documents.
6 A certified copy of (and of all applications for) any and all approvals,
consents, licences, exemptions and other requirements of governmental and
other authorities required for the entering into or performance of the
Facility Documents by the Acceding Borrower.
7 A specimen signature of each person (each being an Authorised Officer of
the Acceding Borrower) authorised to execute the documents referred to
above and/or to sign all notices, certificates and other documents or
communications to be delivered by the Acceding Borrower.
8 The latest annual audited Accounts of the Acceding Borrower, at the time of
its accession to this Agreement.
9 A legal opinion of independent French legal advisers covering the points
dealt with in the legal opinion referred to in paragraph 10 of Part 1 of
this Schedule 2, with respect to the Acceding Borrower.
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SCHEDULE 3
Part A
Form of Drawdown Notice
RCF ADVANCES REQUESTED DURING THE TRANCHE A AVAILABILITY PERIOD
Paribas
3, rue d'Antin
75002 Paris
France
Attention : Gabriel Lefebvre
Ref: 384 DOM " Coordination des
Financements Structures"
Tel: 01. 42. 98. 18. 58
Fax : 01. 42. 98. 43. 17
Copy : Benoit Dauga
Ref: 378 D - "GCEI"
Tel : 01. 42. 98. 57. 24
Fax: 01. 42. 98. 04. 61
.19.
FRF 700,000,000 SECURED CREDIT FACILITY
---------------------------------------
Agreement dated 1998 (THE "AGREEMENT")
---------------------------------------
We refer to the above Agreement and hereby give you notice that we wish to
draw a RCF Advance of FRF . on . 19 .[to be used in relation to the proposed
acquisition of .] and select a Term of such Advance of . months. The funds
should be credited to the General Operations Account referred to in the
Agreement.
[WHERE ADVANCE TO BE USED FOR THE PURPOSES OF A PERMITTED ACQUISITION:
The RCF Advance will be used for the purposes of DESCRIPTION OF PROPOSED
ACQUISITION (the "PROPOSED ACQUISITION"). The Proposed Acquisition qualifies as
a Permitted Acquisition pursuant to the Agreement. [WHERE PURCHASE PRICE IS
GREATER THAN FRF 50,000,000). Information with respect to the Proposed
Acquisition described in Clause 10.1(k) of the Agreement, is attached to this
Drawdown Notice.]]
We confirm that:
(a) no Default or Event of Default, which has not been remedied, or waived
by the Facility Agent, has occurred and is continuing or will result
from the making of such Advance;
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(b) the representations and warranties contained in Clause 9 of the Agreement
which are deemed to be repeated pursuant to Clause 9.2 thereof (and so that
the representation and warranty in Clause 9.1(f) refers for this purpose to
the audited financial statements of [Parent] [relevant Acceding Borrower
and the Group as a whole] in respect of the financial year ended on .19.)
are true and correct at the date hereof as if made with respect to the
facts and circumstances existing at such date;
(c) the [Parent and all members of the Group are] [relevant Acceding Borrower
is in compliance with all aspects of the Franchise Agreements and (except
as compliance therewith has been expressly or impliedly waived by the
relevant authority) the Cable Broadcasting and Telecommunications Laws
Authorisations;
(d) the borrowing to be effected by such RCF Advance will be within our
corporate objects, has been validly authorised by appropriate corporate
action and will not cause any limit on our borrowings (whether imposed by
statute, regulation, agreement or otherwise) to be exceeded;
(e) no Material Adverse Circumstance has occurred and is continuing;
(f) the amount of Bank Debt is currently FRF. and there are at the date hereof
Shareholder Contributions is an amount of FRF., [WHERE SHAREHOLDER
CONTRIBUTIONS HAVE BEEN INCREASED SINCE THE MOST RECENT DRAWDOWN NOTICE :
as evidenced by the receipt attached hereto issued by the banque
depositaire, showing that any such amounts have effectively been paid]. The
ratio of Bank Debt to Capitalisation will, following the making of the
Advance, therefore be . :1, in full compliance with the provisions of the
Facility Agreement; and
(g) on the basis of [ALL DRAWDOWN NOTICES OTHER THAN THE FIRST DRAWDOWN NOTICE
: the Monthly Management Reports] [FIRST DRAWDOWN NOTICE : internally
prepared [name month] financial statements and subscriber information
certified by an Authorised Officer of the Parent and made available to the
Facility Agent],[WHERE PURPOSE OF ADVANCE IS TO FINANCE A PROPOSED
ACQUISITION: and on the basis of the consolidated revenues of the Parent
and the entity or business which would result from the Proposed
Acquisition], the result (the "AVAILABILITY TEST RESULT") of the
calculation of the Availability Test is FRF . and the aggregate amounts
previously drawn under the Facility and not reimbursed (the "OUTSTANDING
DRAWINGS") are FRF. .
The amount remaining available for drawing under the Facility (Availability
Test Result minus Outstanding Drawings) is therefore FRF ., and the
drawing made hereby is therefore not in excess of such amount.
121
<PAGE>
Words and expressions defined in the Agreement shall have the same meanings
where used herein.
For and on behalf of
.
...............................................
Authorised Officer
[IN THE CASE OF DRAWDOWN NOTICES BY BORROWERS OTHER THAN
THE PARENT :
For and on behalf of
MEDIARESEAUX MARNE
...............................................
Authorised Officer
122
<PAGE>
SCHEDULE 3
PART B
Form of Rollover Notice
Paribas
3, rue d'Antin
75002 Paris
France
Attention : Gabriel Lefebvre
Ref: 384 DOM " Coordination des
Financements Structures"
Tel: 01. 42. 98. 18. 58
Fax : 01. 42. 98. 43. 17
Copy : Benoit Dauga
Ref: 378 D - "GCEI"
Tel : 01. 42. 98. 57. 24
Fax: 01. 42. 98. 04. 61
.19.
FRF 700,000,000 SECURED CREDIT FACILITY
---------------------------------------
Agreement dated . 1998 (THE "AGREEMENT")
We refer to the above Agreement and hereby give you notice that we wish to
draw a RCF Advance of FRF[ ] on [ ] under and select a
Term for such RCF Advance of [ ] months. The funds should be applied in
repayment [in part] of the RCF Advance of FRF [ ] which falls due to be
repaid on the same day in accordance with Clause 5.1 of the Agreement [and the
balance of [ ] credited to the General Operations Account referred to in the
Agreement.
We confirm that:
(a) no Default or Event of Default, which has not been remedied, or waived
by the Facility Agent, has occurred and is continuing or will result
from the making of such Advance;
(b) the representations and warranties contained in Clause 9 of the
Agreement which are deemed to be repeated pursuant to Clause 9.2
thereof (and so that the representation and warranty in Clause 9.1(f)
refers for this purpose to the audited financial statements of the
[Parent] [relevant Acceding Borrower and the Group as a whole] in
respect of the financial year ended on .19.) are true and correct at
the date hereof as if made with respect to the facts and circumstances
existing at such date;
123
<PAGE>
(c) the Parent and all members of the Group are relevant Acceding Borrower
is in compliance with all aspects of the Franchise Agreements and
(except as compliance therewith has been expressly or impliedly waived
by the relevant authority) the Cable and Telecommunications
Authorisations;
(d) the borrowing to be effected by such RCF Advance will be within our
corporate objects, has been validly authorised by appropriate
corporate action and will not cause any limit on our borrowings
(whether imposed by statute, regulation, agreement or otherwise) to be
exceeded; and
(e) no Material Adverse Circumstance has occurred and is continuing.
Words and expressions defined in the Agreement shall have the same meanings
when used herein.
For and on behalf of .
...........................................
Authorised Officer
[IN THE CASE OF DRAWDOWN NOTICES BY BORROWERS OTHER THAN
THE PARENT :
For and on behalf of .
MEDIARESEAUX MARNE
...............................................
Authorised Officer
124
<PAGE>
SCHEDULE 4
PARENT SECURITY DOCUMENTS
1 Financial Instruments Accounts Pledge Agreement
2 Going Concern Pledge Agreement.
3 Local Authority Master Receivables Assignment Agreement.
4 Master Accounts Balance and Cash Pledge Agreement and any agreement for the
pledge of the balance of an account (nantissement de solde de compte) or of
the cash deposited in an account (nantissement d'especes) required to be
concluded thereunder.
5 Insurance Delegation Agreement.
6 Interest Rate Protection Master Receivables Assignment Agreement.
7 Construction Master Receivables Assignment Agreement.
8 Trademark Pledge Agreements
125
<PAGE>
SCHEDULE 5
List of Existing Franchise Agreements
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
<S> <C> <C> <C>
NAME OF LOCAL DATE OF DATE OF LOCAL DATE OF CSA
AUTHORITY FRANCHISE AUTHORITY AUTHORISATION
AGREEMENT APPROVAL
Syndicat Mixte de 24th May 1995, 24th May 1995, 16th September
Videocommunication de amended on amended 0n 29th 1997, amending the
l'Est Parisien 3rd July 1996 March, 1996, 3rd authorisation dated
July, 1996 and 27th December 12th
October, 1997 1995
Commune de Rosny- 25 July 1996 31st May 1996 8th September 1997
sous-Bois
</TABLE>
126
<PAGE>
SCHEDULE 6
ACCOUNTS
PART A
QUARTERLY MANAGEMENT ACCOUNTS
127
<PAGE>
BALANCE SHEET END.....
BILAN A FIN..........
<TABLE>
<CAPTION>
--------------------------------------------------
Year to date / Bilan a Year to date budget/
fin... Bilan budgete a fin...
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intangibles nets Immobilisations incorporelles nettes
Tangible nets Immobilisations corporelles nettes
Financial assets Autres immobilisations financieres
Liquidity Disponibilites
Trade debtors Creances Clients et comptes rattaches
Debtors Autres creances
Prepaid expenses Charges constarees d'avance
Vat receivable TVA a recevoir
Inter cie accounts receivable Comptes courants inter-co a recevoir
Inventory Stocks
Other Autres
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Capital Capital social
Retained earnings Report a nonveau
Other provisions Provisions pour risque et changes
Loans from particip. Compte courant associe
Bank loan Emprunts et dettes financieres
Trade creditors Dettes Foumisseurs et comptes rattaches
Int cie payment Comptes courants inter-co a payer
Int cie interest paid Interets courus
Deferred revenue Produits constates d avance
Ace liabilities Dettes fiscales et sociales
Subscribers deposit Depots de garantie
Sundry creditors Autres dentes
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
in thousands FRF en milliers de FF
</TABLE>
CASH FLOW STATEMENT END..........
ETAT DE L'ORIGINE DE L'UTILISATION DES FONDS A FIN.....
<TABLE>
<CAPTION>
Relevant quarter/ Year to date / Chiffres
Dernier trimestre cumules depuis le debut
acheve de l'exercice social
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income/(loss) Resultat net
Depreciation Dotations aux amortissements
Amortisation Dotations aux provisions
Subscribers deposit Depots de garantie decodeurs
Equity increase Augmentation de capital ou apports
Bank loans Augmentation des dettes financieres
Inter cie current accounts Comptes courants inter-co
Increase/decrease working capital Variation du fonds de roulement
- ------------------------------------------------------------------------------------------------------------------------------------
Total sources Total Ressources
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditure Acquisition d'elements de l'actif immobilise
Interest on bank loans Interets bancaires
Repayment bank loans Remboursement dettes financieres
- ------------------------------------------------------------------------------------------------------------------------------------
Total Uses Total Emplois
- ------------------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash Ressources/(Emplois)
Cash balance Tresorerie
Difference in cash Variation de tresorerie
- ------------------------------------------------------------------------------------------------------------------------------------
in thousands FRF en milliers de FF
<CAPTION>
Budget relevant Budget year to date /
quarter/ Budget pour Budget - chiffres
le dernier trimestre cumules depuis le debut
acheve de l'exercice social
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net income/(loss)
Depreciation
Amortisation
Subscribers deposit
Equity increase
Bank loans
Inter cie current accounts
Increase/decrease working capital
- ---------------------------------------------------------------------------------------
Total sources
- ---------------------------------------------------------------------------------------
Capital expenditure
Interest on bank loans
Repayment bank loans
- ---------------------------------------------------------------------------------------
Total Uses
- ---------------------------------------------------------------------------------------
Increase/(decrease) in cash
Cash balance
Difference in cash
- ---------------------------------------------------------------------------------------
</TABLE>
Those accounts will be modified in accordance with the Facility Agent following
the introduction of additional business lines (telephony, Internet,....) to
provide substantially the same level of information for each business line.
Ces comptes seront modifes en accord avee l'Agent du Credit a la suite de l'
introduction de nouveaux services (telephone, Internet...) afin de foumir
substantiellement le meme niveau d'information pour chaque type de service.
<PAGE>
REVENUE STATEMENT END....
COMPTE DE REVENUS A FIN......
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Relevant quarter/ Year to date/ Budget relevant Budget year to
Dernier trimestre Chiffres cumules quarter/Budget date/Budget -
acheve depuis le debut de pour le dernier chiffres cumules
l'exercise social trimestre acheve depuis le debut de
l'exercise social
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic accueil Basic "bouquet d'accueil"
EBS "bouquet" Basic etendu: 1 bouquet
thematique
EBS more than 1 "bouquet" Basic etendu: plus d'l
bouquet thematique
Premium Options
Pay per view Paiement a la seance (evenements)
Other Autres
- -----------------------------------------------------------------------------------------------------------------------------------
Actual Recurring Revenues Revenu Periodique Reel
- -----------------------------------------------------------------------------------------------------------------------------------
Installation Frais d'ouverture de ligne
TOTAL REVENUE Revenus totaux
- -----------------------------------------------------------------------------------------------------------------------------------
in thousands FRF en milliers de FF
</TABLE>
INCOME STATEMENT END...................
COMPTE DE RESULTAT A FIN..............
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Relevant quarter/ Year to date/ Budget relevant Budget year to
Dernier trimestre Chiffres cumules quarter/Budget date/Budget -
acheve depuis le debut de pour le dernier chiffres cumules
l'exercise social trimestre acheve depuis le debut de
l'exercise social
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues Revenus
Direct costs Couts de programmes
Operating expenses Couts operationnels
G/A expenses Couts de marketing
& administratifs
Franchise expenses Redevances liees aux
conventions
Management fee Commision de gestion
ou de consultation
- -----------------------------------------------------------------------------------------------------------------------------------
EBITDA Excedent Brut d'Exploitation
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation/amort. Dotations aux amort.
et provisions
Financial income Produits financiers
Financial expense Charges financieres
Income/loss before tax Resultat net avant impots
sur les societes
- -----------------------------------------------------------------------------------------------------------------------------------
in thousands FRF en milliers de FF
</TABLE>
Those accounts will be modified in accordance with the Facility Agent following
the introduction of additional business lines (telephony, Internet,...) to
provide substantially the same level of information for each business lines.
Ces comptes seront modifies en accord avec l'Agent du Credit a la suite
l'introduction de nouveaux services (telephone, Internet...) afin de fournir
substantiellement le meme niveu d'information pour chaque type de service.
129
<PAGE>
SCHEDULE 6
Accounts
Part B
Monthly Management Reports
130
<PAGE>
STATISTICS / STATISTIQUES
<TABLE>
<CAPTION>
---------------------------------------------------------
janvier fevrier mars avril mai juin
---------------------------------------------------------
January February March April May June
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes serviceable Logements commercialisables
SUBSCRIBERS ABONNES
- ----------- -------
Basic accueil Basic "bouquet d'accueil"
EBS "1 bouquet" Basic etendu : 1 bouquet thematique
EBS more than 1 "bouquet" Basic etendu : plus d'1 bouquet thematique
Premium Options
Pay per view events Paiements a la senace (evenements)
PENETRATION TAUX DE PENETRATION (*)
- ----------- -----------------------
Basic accueil Basic "bouquet d'accueil"
EBS "1 bouquet" Basic etendu: 1 bouquet thematique
and more than 1 "bouquet" et plus d'1 bouquet thematique
Premium Options
Chum Resiliations
Revenues Revenus
- -------- --------
Basic accueil Basic "bouquet d'accueil"
EBS "1 bouquet" Basic etendu : 1 bouquet thematique
EBS more than 1 "bouquet" Basic etendu : plus d'1 bouquet thematique
Premium Options
Pay per view Paiements a la seance (evenements)
Other Autres
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL RECURRING REVENUES REVENU PERIODIQUE REEL
- ------------------------------------------------------------------------------------------------------------------------------------
Installation Frais d'ouverture de ligne
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES TOTAL REVENUS
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue Generating Units Unite Generant un Revenu
Availability Factor Facteur de Disponibilite
Availability Test Result Resultat du Test de Disponibilite
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------
juillet aout septembre octobre novembre decembre
-----------------------------------------------------------------------
July August September October November December
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes serviceable Logements commercialisables
SUBSCRIBERS ABONNES
- ----------- -------
Basic accueil Basic "bouquet d'accueil"
EBS "1 bouquet" Basic etendu : 1 bouquet thematique
EBS more than 1 "bouquet" Basic etendu : plus d'1 bouquet thematique
Premium Options
Pay per view events Paiements a la senace (evenements)
PENETRATION TAUX DE PENETRATION (*)
- ----------- -----------------------
Basic accueil Basic "bouquet d'accueil"
EBS "1 bouquet" Basic etendu: 1 bouquet thematique
and more than 1 "bouquet" et plus d'1 bouquet thematique
Premium Options
Chum Resiliations
Revenues Revenus
- -------- --------
Basic accueil Basic "bouquet d'accueil"
EBS "1 bouquet" Basic etendu : 1 bouquet thematique
EBS more than 1 "bouquet" Basic etendu : plus d'1 bouquet thematique
Premium Options
Pay per view Paiements a la seance (evenements)
Other Autres
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL RECURRING REVENUES REVENU PERIODIQUE REEL
- ------------------------------------------------------------------------------------------------------------------------------------
Installation Frais d'ouverture de ligne
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES TOTAL REVENUS
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue Generating Units Unite Generant un Revenu
Availability Factor Facteur de Disponibilite
Availability Test Result Resultat du Test de Disponibilite
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Those accounts will be modified in accordance with the Facility Agent following
the introduction of additional business lines (telephony, Internet,...) to
provide sudstantially the same level of information for each business line.
Ces comptes seront modifies en accord avec 1'Agent du Credit a la suite de 1'
introduction de nouveaux services (telephone, Internet...) afin de fourmir
substantiellement le meme niveau d'information pour chaque type de service.
(*) definition des taux de penetration: Basic "bouquet d'accueil" = Abonnes
Basic "bouquet d'accueil" / logements
commercialisables
Basic etendu = Abonnes Basic Etendu (1
bouquet et plus de 1 bouquet) /
logements commercialisable.
Options = Abonnes Options / logements
commercialisables.
(*) definition of penetration rates: Basic accueil = Basic Accueil
Subscribers / Homes serviceable
EBS = EBS (1 "bouquet" and more than 1
"bouquer") Subscribers / Homes
serviceable
Premium = Premium subscribers / Homes
serviceable
<PAGE>
SCHEDULE 7 -
COMPLIANCE CERTIFICATES
PART A
FORM OF FINANCIAL RATIO COMPLIANCE CERTIFICATE TO BE ISSUED BY
THE PRESIDENT OF THE PARENT
Paribas
3, rue d'Antin
75002 Paris
France
[DATE]
Attention: .
Dear Sirs,
MEDIARESEAUX MARNE S.A.
FRF 700,000,000 SECURED CREDIT FACILITY
FACILITY AGREEMENT DATED 1998)
(THE "AGREEMENT")
We refer to the Agreement and, in particular Clause 10.1(j)(iii) thereof. Terms
defined in the Agreement shall have the same meaning when used in this
Certificate.
We confirm the following:
1 As at the date of the Quarterly Management Accounts, supplied to the
Facility Agent along with this Certificate, on . [the latest Periodic Financial
Ratio Test Date], each of the financial ratios in accordance the has complied
(when applicable) with each of the financial ratios in accordance with Clause 11
of the Facility Agreement as follows:
(a) EBITDA to 1998 Business Plan Projection:
----------------------------------------
The Group as a whole, on a consolidated basis, has an actual amount of
the Year-to-Date EBITDA of FRF .
The minimum Year-to-Date EBITDA required under Clause 11.1 of the
Facility Agreement for this Quarterly Period is an amount of [to be
inserted].
This ratio has therefore, been complied with.
132
<PAGE>
(b) Bank Debt to Capitalisation:
----------------------------
The Group as a whole, on a consolidated basis, has an amount of Bank
Debt of FRF . and Shareholders' Contributions of FRF .
Consequently, the ratio of Bank Debt to Capitalisation is . %.
The maximum percentage permitted under Clause 11.2 of the Facility
Agreement for this Quarterly Period is an amount of [to be inserted].
This ratio has therefore, been complied with.
(c) Pro-Forma Debt Service:
-----------------------
The Group as a whole, on a consolidated basis, has an amount of
Annualised EBITDA of FRF . and Pro-Forma Debt Service of FRF .
Consequently, the ratio of Annualised EBITDA to Pro-Forma Debt Service
is . : 1.
The maximum ratio permitted under Clause 11.3 of the Facility
Agreement for this Quarterly Period is an amount of [to be inserted].
This ratio has therefore, been complied with.
(d) Interest Coverage
-----------------
The Group as a whole, on a consolidated basis, has made Interest
Payments in an amount of FRF . and therefore, the ratio of Annualised
EBITDA (see paragraph (c) above) to Interest Payments is . :1.
The minimum ratio required under Clause 11.4 of the Facility Agreement
for this Quarterly Period is an amount of [to be inserted].
This ratio has therefore, been complied with.
(e) Bank Debt to Annualised EBITDA:
------------------------------
The Group as a whole, on a consolidated basis, has a ratio of Bank
Debt (see paragraph (b) above) to Annualised EBITDA (see paragraph (c)
above ) of . :1.
The maximum ratio permitted under Clause 11.5 of the Facility
Agreement for this Quarterly Period is an amount of [to be inserted].
This ratio has therefore, been complied with.
2 The Quarterly Management Accounts submitted to the Facility Agent on this
Periodic Ratio Test Date along with this Certificate, fairly present the
consolidated financial position of the Parent.
3 The above-mentioned Quarterly Management Accounts have been prepared in
accordance with the French Accounting Principles consistently applied
(except
133
<PAGE>
to the extent previously disclosed and reconciled in those Quarterly
Management Accounts).
4 [No Default is outstanding]
or
[A Default has occurred and is continuing in relation to Clause .
Consequently, the following remedial action is being taken: [List action
taken or to be taken]
This Certificate is for the information of, and can only be relied on by, the
Facility Agent and the Banks and is not to be relied on by any other person or
referred to, in whole or in part, without our prior written consent.
Yours faithfully,
134
<PAGE>
SCHEDULE 7
PART B
FORM OF CERTIFICATE TO BE ISSUED BY THE STATUTORY AUDITORS OF THE PARENT
PURSUANT TO CLAUSE 10.1(J)(II) CONCERNING EXCESS CASH FLOW
Paribas
3, rue d'Antin
75002 Paris
France
[DATE]
Attention:
Dear Sirs,
MEDIARESEAUX MARNE S.A.
FRF 700,000,000 SECURED CREDIT FACILITY
FACILITY AGREEMENT DATED . 1998
(THE "AGREEMENT")]
We refer to the Agreement and in particular, to Clause 10.1(j)(ii) thereof.
Terms defined in the Agreement shall have the same meaning when used in this
Certificate.
We confirm that for the purposes of Clause 5.4 of the Facility Agreement
(Mandatory Prepayment), the Parent Group has an Excess Cash Flow amounting to
FRF . for the latest annual accounting period to which the annual audited
Accounts (delivered pursuant to Clause 10.1(f) of the Agreement) relate.
This Certificate is for the information of, and can only be relied on by, the
Facility Agent and the Banks and is not to be relied on by any other person or
referred to, in whole or in part, without our prior written consent.
Yours faithfully,
135
<PAGE>
SCHEDULE 8A
ESSENTIAL PRINCIPLES AND DOCUMENTS REQUIRED FOR APPROVAL OF A PROPOSED FUTURE
FRANCHISE AGREEMENT
AS A PERMITTED FUTURE FRANCHISE AGREEMENT
PART A
ESSENTIAL PRINCIPLES OF PERMITTED FUTURE FRANCHISE AGREEMENTS
Any Proposed Future Franchise Agreement must comply with the following
Essential Principles in order to qualify as an Permitted Future Franchise
Agreement:
1. The normal expiration date of the Proposed Future Franchise Agreement
should not be earlier than five years following the Final Maturity Date
(as such term is defined in the Facility Agreement).
2. The Proposed Future Franchise Agreement should be exclusive to the
extent permitted by French law as concerns the transmission of radio and
television by means of a cable network covering the entire territory
within the jurisdiction of a Local Authority.
3. The franchise fees payable to the Local Authority under such Proposed
Future Franchise Agreement should not exceed the higher of 5% of Cable
Broadcasting System Revenues related to such Proposed Future Franchise
Agreement or FRF30 per home per year in the territory covered by the
Proposed Future Franchise Agreement ("FRANCHISE HOMES"). However,
approval of a figure greater than such 5% of Cable Broadcasting System
Revenues or FRF30 per Franchise Home per year, but not more than 10% of
Cable Broadcasting System Revenues or FRF60 per Franchise Home per year
may (notwithstanding the introductory paragraph of Clause 10.2 of the
Facility Agreement) be given by the Facility Agent without prior
consultation of the Majority Banks. The Parent shall furnish the
Facility Agent in writing with the justification for such different
figure, and the Facility Agent shall inform the Parent of its decision
within two Banking Days. Approval of the Facility Agent to such higher
figure shall not be unreasonably withheld.
4. Early termination of the Proposed Future Franchise Agreement by the
Local Authority without cause (motif d'interet general) should be
permitted only upon the giving of at least three months' notice by the
Local Authority to the relevant member of the Group.
136
<PAGE>
5. The indemnity payable to relevant member of the Group at the end of the
Proposed Future Franchise Agreement by the Local Authority should be
based:
(a) in the event of early termination of the Proposed Future Franchise
Agreement by the Local Authority without cause (motif d'interet
general), on (i) the net book value of the assets that are subject
to reversionary rights in favour of the Local Authority (biens de
retour), (ii) the fair market value of the assets subject to a
purchase option (biens de reprise) if the Local Authority chooses
to exercise its purchase option over such biens de reprise, (iii)
the value of the relevant member of the Group's possible
accumulated losses, determined as a function of its income
statements (la valeur des pertes possibles cumulees determinees a
partir de ses comptes d'exploitation) and (iv) the value of its
client list at the date of termination (la valeur du fichier des
abonnes a la date de cessation des relations contractuelles)
resulting from such termination (or any other method which is more
protective of the relevant member of the Group); and
(b) upon normal expiration of the Proposed Future Franchise Agreement,
on (i) the net book value of those assets that are biens de retour
which have not been fully amortised and which had been approved as
modernisation investments by the Local Authority and (ii) the fair
market value of the assets subject to a purchase option (biens de
reprise) if the Local Authority chooses to exercise its purchase
option over such biens de reprise (or any other method which is
more protective of the relevant member of the Group).
6. The Proposed Future Franchise Agreement should provide the relevant
member of the Group with the opportunity of limiting coverage of the
cable network to those areas where the implantation of such a cable
network is economically sound (on the basis of objective criteria such
as household density, cost of construction per home passed, or a
"coverage map").
7. The relevant member of the Group should not be required under the
Proposed Future Franchise Agreement to provide services other than cable
radio and television services without the consent of the relevant member
of the Group.
8. The Proposed Future Franchise Agreement should not prevent the relevant
member of the Group from terminating the Proposed Future Franchise
Agreement should the CSA refrain from granting the authorisation to
operate (exploiter) the cable network, and the Proposed Future Franchise
Agreement should not in such case require the relevant member of the
Group to pay any additional amounts to the relevant Local Authority.
9. The Proposed Future Franchise Agreement should not limit the ability of
the relevant member of the Group to use the infrastructure in the
geographical
137
<PAGE>
area covered by the Proposed Future Franchise Agreement to service
neighbouring geographical areas, including in the event of expiration
or termination of the Franchise Agreement.
10. The Proposed Future Franchise Agreement should not limit the ability of
the relevant member of the Group to develop telecommunications services
(including telephone, high-speed data transmission, video, Internet
access multi-media services and other related services).
138
<PAGE>
SCHEDULE 8A
PART B
CERTIFICATE OF COMPLIANCE WITH ESSENTIAL PRINCIPLES OF PERMITTED FUTURE
FRANCHISE AGREEMENTS
Paribas
3, rue d'Antin
75002 Paris
France
[DATE]
Attention: .
Dear Sirs,
MEDIARESEAUX MARNE S.A.
FRF 700,000,000 SECURED CREDIT FACILITY
FACILITY AGREEMENT DATED . 1998)
(THE "AGREEMENT")
We refer to the Agreement and, in particular Clause 10.2(p)(i)(A)(1) and
Schedule 8A Part A thereof. Terms defined in the Agreement shall have the same
meaning when used in this Certificate.
We hereby confirm that we [we anticipate signing] [ ., an Acquired Company,
anticipates signing a Franchise Agreement with . as Local Authority, and that
such Franchise Agreement complies with the Essential Principles of Permitted
Future Franchise Agreements contained in Schedule 8A, Part A of the Agreement.
Yours faithfully,
Mediareseaux Marne S.A.
by
.
Authorised Officer
139
<PAGE>
SCHEDULE 8A
PART C
DOCUMENTS REQUIRED TO BE DELIVERED TO THE FACILITY AGENT FOR APPROVAL OF
A PROPOSED FUTURE FRANCHISE AGREEMENT
AS A PERMITTED FUTURE FRANCHISE AGREEMENT
The following is a list of documents a copy of which the Parent must
furnish to the Facility Agent before any Proposed Future Franchise
Agreement relating to the Cable Broadcasting and Telecommunications Systems
may qualify as a Permitted Future Franchise Agreement:
(a) The relevant Local Authority Public Service Delegation Approval
required pursuant to the Cable Broadcasting and Telecommunications
Laws, approving the Proposed Future Franchise Agreement, together with
evidence that a copy of the text of the Local Authority Public Service
Delegation Approval has been transmitted to the relevant prefecture as
required by law for the purposes of a controle de legalite.
(b) The signed Proposed Future Franchise Agreement, together with evidence
that a copy of such signed Proposed Future Franchise Agreement has
been transmitted to the relevant prefecture as required by law for the
purposes of a controle de legalite.
(c) One or more of the following documents:
(i) a certification to the effect that the relevant member of the
Group has been informed by the Local Authority that the
prefecture has not requested any further information or
documents with respect to the Local Authority Public Service
Delegation Approval and has not received a request by any third
party for a recours administratif within the time limits
required by law; or
(ii) a certification to the effect that relevant member of the Group
has been informed by the Local Authority that the prefecture has
requested further information or documents with respect to the
Local Authority Public Service Delegation Approval, and that
such further information or documents have been provided; and/or
that the Local Authority has received a request by any third
party for a recours administratif but that the Local Authority
has decided not to revoke the Local Authority Public Service
Delegation Approval; or
(iii) a certification to the effect that relevant member of the Group
has been informed by the Local Authority that such further
information has been requested and/or that such a request for a
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recours administratif has been made but that the Parent has
concluded that it is likely that such further information will
result in a favourable decision by the prefecture and/or that
such recours administratif will not result in a revocation by
the Local Authority of its decision. In such case, the Facility
Agent shall transmit such certification, together with any
documents in support of such conclusion provided by the Borrower
to the Banks. The Banks shall be entitled to review such
materials for a period not in excess of thirty (30) days and the
request by the prefecture for further information and/or the
request for a recours administratif shall not bar the Proposed
Future Franchise Agreement from becoming a Permitted Future
Franchise Agreement so long as the Majority Banks consent
thereto (such consent not to be unreasonably withheld).
(d) Where relevant, one or more of the following documents:
(i) a certification of the Parent to the effect that the relevant
prefecture or any third party (tiers) with standing (interet a
agir) has filed such an appeal with the administrative court and
that such appeal has been denied by the administrative court,
such certification to be accompanied by a copy of the decision of
the administrative court; or
(ii) a certification of the Parent to the effect that the relevant
prefecture or any third party (tiers) with standing (interet a
agir) has filed such an appeal with the administrative court
(tribunal administratif), but that the Parent has concluded that
such appeal is without legal foundation. In such case, the
Facility Agent shall transmit such certification, together with
any documents in support of such conclusion provided by the
Parent (including, if so requested by the Facility Agent, a legal
opinion of external counsel to the Borrower provided at the
expense of the Parent) to the Banks. The Banks shall review such
materials for a period not in excess of thirty (30) days and the
Proposed Future Franchise Agreement shall qualify as a Permitted
Future Franchise Agreement if the Majority Banks determine (such
determination not to be unreasonably withheld) that such appeal
is without legal foundation.
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SCHEDULE 8B
ESSENTIAL PRINCIPLES AND DOCUMENTS REQUIRED FOR APPROVAL OF A PROPOSED FUTURE
RADIO AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION AGREEMENT
AS A PERMITTED FUTURE RADIO AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION
AGREEMENT
PART A
ESSENTIAL PRINCIPLES OF PERMITTED FUTURE RADIO AND TELEVISION NETWORK PUBLIC
DOMAIN OCCUPATION AGREEMENTS
Any Proposed Future Radio and Television Network Public Domain Occupation
Agreement or the Local Authority Direct Authorisation Approval to which it
relates must comply with the following Essential Principles in order to
qualify as an Approved Future Radio and Television Network Public Domain
Occupation Agreement:
1. The normal expiration date of the Proposed Future Radio and Television
Network Public Domain Occupation Agreement should not be earlier than
five years following the Final Maturity Date (as such term is defined in
the Facility Agreement).
2. Early termination of the Proposed Radio and Television Network Public
Domain Occupation Agreement by the Local Authority without cause (motif
d'interet general) should be permitted only upon the giving of at least
three months' notice by the Local Authority to the relevant member of
the Group.
3. The Proposed Future Radio and Television Network Public Domain
Occupation Agreement should not limit the ability of the relevant member
of the Group to use the infrastructure in the geographical area covered
by the Proposed Future Radio and Television Network Public Domain
Occupation Agreement to service neighbouring geographical areas, during
the term of the Radio and Television Network Public Domain Occupation
Agreement.
4. The Proposed Future Radio and Television Network Public Domain
Occupation Agreement should not limit the ability of the relevant member
of the Group to develop telecommunications services (including
telephone, high-speed data transmission, video, Internet access, multi-
media services and related activities).
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SCHEDULE 8B
PART B
CERTIFICATE OF COMPLIANCE WITH ESSENTIAL PRINCIPLES OF PERMITTED FUTURE RADIO
AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION AGREEMENTS
PARIBAS
3, rue d'Antin
75002 Paris
France
[DATE]
Attention: .
Dear Sirs,
MEDIARESEAUX MARNE S.A.
FRF 700,000,000 SECURED CREDIT FACILITY
FACILITY AGREEMENT DATED 1998)
(THE "AGREEMENT")
We refer to the Agreement and, in particular Clause 10.2(q)(i)(A)(1) and
Schedule 8B Part A thereof. Terms defined in the Agreement shall have the same
meaning when used in this Certificate.
We hereby confirm that [we anticipate signing] [ ., an Acquired Company,
anticipates signing a Radio and Television Network Public Domain Occupation
Agreement with . as Local Authority, and that such Radio and Television Network
Public Domain Occupation Agreement complies with the Essential Principles of
Permitted Future Radio and Television Network Public Domain Occupation
Agreements contained in Schedule 8B, Part A of the Agreement.
Yours faithfully,
Mediareseaux Marne S.A.
by
.
Authorised Officer
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SCHEDULE 8B
PART C
DOCUMENTS REQUIRED TO BE DELIVERED TO THE FACILITY AGENT FOR APPROVAL OF
A PROPOSED FUTURE RADIO AND TELEVISION PUBLIC DOMAIN OCCUPATION AGREEMENT AS A
PERMITTED FUTURE RADIO AND TELEVISION NETWORK PUBLIC DOMAIN OCCUPATION
AGREEMENT
The following is a list of documents a copy of which the Parent must
furnish to the Facility Agent before any Proposed Future Radio and
Television Network Public Domain Occupation Agreement relating to the Cable
Broadcasting and Telecommunications Systems may qualify as a Permitted
Future Radio and Television Network Public Domain Occupation Agreement:
(a) The relevant Local Authority Direct Authorisation Approval required
pursuant to the Cable Broadcasting and Telecommunications Laws,
approving the Proposed Future Radio and Television Network Public
Domain Occupation Agreement.
(b) The signed Proposed Future Radio and Television Network Public Domain
Occupation Agreement, together with evidence that copies of the text
of the Local Authority Public Service Delegation Approval and such
signed Proposed Future Radio and Television Network Public Domain
Occupation Agreement have been transmitted to the relevant prefecture
as required by law for the purposes of a controle de legalite.
(c) One of more of the following documents:
(i) a certification to the effect that the relevant member of the
Group has been informed by the Local Authority that the
prefecture has not requested any further information or
documents with respect to the Local Authority Direct
Authorisation Approval and has not received a request by any
third party for a recours administratif within the time limits
required by law; or
(ii) a certification to the effect that the relevant member of the
Group has been informed by the Local Authority that the
prefecture has requested further information or documents with
respect to the Local Authority Direct Authorisation Approval,
and that such further information or documents have been
provided; and/or that the Local Authority has received a request
by any third party for a recours administratif but that the
Local Authority has decided not to revoke the Local Authority
Direct Authorisation Approval; or
(iii) a certification to the effect that the relevant member of the
Group has been informed by the Local Authority that such further
information has been requested and/or that such a request for a
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<PAGE>
recours administratif has been made but that the Parent has
concluded that it is likely that such further information will
result in a favourable decision by the prefecture and/or that
such recours administratif will not result in a revocation by
the Local Authority of its decision. In such case, the Facility
Agent shall transmit such certification, together with any
documents in support of such conclusion provided by the Borrower
to the Banks. The Banks shall be entitled to review such
materials for a period not in excess of thirty (30) days and the
request by the prefecture for further information and/or the
request for a recours administratif shall not bar the Proposed
Future Radio and Television Network Public Domain Occupation
Agreement from becoming a Permitted Future Radio and Television
Network Public Domain Occupation Agreement so long as the
Majority Banks consent thereto (such consent not to be
unreasonably withheld).
(d) Where relevant, one or more of the following documents:
(i) a certification of the Parent to the effect that the relevant
prefecture or any third party (tiers) with standing (interet a
agir) has filed such an appeal with the administrative court and
that such appeal has been denied by the administrative court,
such certification to be accompanied by a copy of the decision
of the administrative court; or
(ii) a certification of the Parent to the effect that the relevant
prefecture or any third party (tiers) with standing (interet a
agir) has filed such an appeal with the administrative court
(tribunal administratif), but that the Parent has concluded that
such appeal is without legal foundation. In such case, the
Facility Agent shall transmit such certification, together with
any documents in support of such conclusion provided by the
Parent (including, if so requested by the Facility Agent, a
legal opinion of external counsel to the Borrower provided at
the expense of the Borrower) to the Banks. The Banks shall
review such materials for a period not in excess of thirty (30)
days and the Proposed Future Radio and Television Network Public
Domain Occupation Agreement shall qualify as a Permitted Future
Radio and Television Network Public Domain Occupation Agreement
if the Majority Banks determine (such determination not to be
unreasonably withheld) that such appeal is without legal
foundation.
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SCHEDULE 9
ADDRESSES FOR NOTICES
THE PARENT: 12, rue Albert Einstein
77420 Champs-sur-Marne
France
Attention: President of the Board of Directors
Copy : Financial and Administrative Director
Facsimile: (33) (0) 1.64.61.14.05
with copies to:
---------------
United Pan-Europe Communications
Fred. Reoskestraat 123
PO Box 74763
1070 BT Amsterdam
Attention : Chief Financial Officer
Fax no: 00 (31) 20778 9861
THE FACILITY AGENT: 3, rue d'Antin
75002 Paris
Attention: Gabriel Lefebvre
Facsimile: (33) (0) 1 42 98 43 17
Reference: 384 DOM "Coordination des Financements
Structures"
Copy: Guillaume Plassard
Facsimile: (33) (0) 1 42 98 09 79
Reference: 401 Media/Telecom/Finance Group
THE SECURITY AGENT: 3, rue d'Antin
75002 Paris
Attention: Gabriel Lefebvre
Facsimile: (33) (0) 1 42 98 43 17
Reference: 384 DOM "Coordination des Financements
Structures"
Copy: Guillaume Plassard
Facsimile: (33) (0) 1 42 98 09 79
146
<PAGE>
Reference: 401 Media/Telecom/Finance Group
THE ARRANGER: 3, rue d'Antin
75002 Paris
Attention: Gabriel Lefebvre
Facsimile: (33) (0) 1 42 98 43 17
Reference: 384 DOM "Coordination des Financements
Structures"
Copy: Guillaume Plassard
Facsimile: (33) (0) 1 42 98 09 79
Reference: 401 Media/Telecom/Finance Group
THE BANKS: 3, rue d'Antin
75002 Paris
Attention: Gabriel Lefebvre
Facsimile: (33) (0) 1 42 98 43 17
Reference: 384 DOM "Coordination des
Financements Structures"
Copy: Guillaume Plassard
Facsimile: (33) (0) 1 42 98 09 79
Reference: 401 Media/Telecom/Finance Group
THE ACCEDING BORROWERS Details to be provided to the Facility Agent by
(IF ANY): the Parent or by the relevant Acceding Borrower at
the time of the signature of the Borrower
Accession Notice.
147
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SCHEDULE 10
1998 BUSINESS PLAN
148
<PAGE>
SCHEDULE 11
INTEREST RATE PROTECTION STRATEGY
The Parent will conclude or cause to be concluded by any Acceding Borrowers,
Interest Rate Protection Agreements as follows :
i) The covenant of the Parent to comply with the present Interest Rate
Protection Strategy will commence on the date at which the aggregate amount
of the Advances first reaches FRF 200,000,000. The Parent and any Acceding
Borrower shall fulfil such requirement, and provide evidence thereof to the
Facility Agent, within ten (10) Banking Days from such date.
ii) The covenant of the Parent to comply with the present Interest Rate
Protection Strategy will cease to be in effect as from the date the amount
of the Advances has become less than FRF 200,000,000.
iii) Reference Rate : 3 month or 6 month LIBOR
Strike Price : no more than 8% per annum
iv) Type of instrument : cap or collar
v) Minimum fraction of outstanding to be covered as follows:
Outstanding Amount Amount to be covered
- ------------------ --------------------
Less than FRF 200,000,000 Nil
Greater than or equal to FRF 200,000,000 but less FRF 100,000,000
than FRF 250,000,000
Greater than or equal to FRF 250,000,000 but less FRF 125,000,000
than FRF 300,000,000
Greater than or equal to FRF 300,000,000 but less FRF 150,000,000
than FRF 350,000,000
Greater than or equal to FRF 350,000,000 but less FRF 175,000,000
than FRF 400,000,000
Greater than or equal to FRF 400,000,000 but less FRF 200,000,000
than FRF 450,000,000
Greater than or equal to FRF 450,000,000 but less FRF 225,000,000
than FRF 500,000,000
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Greater than or equal to FRF 500,000,000 but less FRF 250,000,000
than FRF 550,000,000
Greater than or equal to FRF 550,000,000 but less FRF 275,000,000
than FRF 600,000,000
Greater than or equal to FRF 600,000,000 but less FRF 300,000,000
than FRF 650,000,000
Greater than or equal to FRF 650,000,000 but less FRF 325,000,000
than FRF 700,000,000
FRF 700,000,000 FRF 350,000,000
vi) Minimum duration of Interest Rate Protection Agreements : 4 years as from
the date of signature, or, if less, a duration equal to the time remaining
to run between the date of signature of the Interest Rate Protection
Agreements, and the date at which the amount of the Advances shall become
less than FRF 200,000,000 according to the repayment schedule (Clause 5.2
of the Agreement)
vii) Transactions will be concluded pursuant to the master agreements sponsored
by the Association Francaise des Banques.
viii) The Parent shall provide the Facility Agent with proof of the signature of
each Interest Rate Protection Agreement.
167
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SCHEDULE 12
ACQUIRED COMPANY NEGATIVE PLEDGE LETTER
LETTERHEAD OF ACQUIRED COMPANY
PARIBAS
3, rue d'Antin
75002 Paris
France
[DATE]
Attention: .
Dear Sirs,
MEDIARESEAUX MARNE S.A.
FRF 700,000,000 SECURED CREDIT FACILITY
FACILITY AGREEMENT DATED . 1998)
(the "AGREEMENT")
We refer to the Agreement and, in particular Clause 10.1(ff) thereof. Terms
defined in the Agreement shall have the same meaning when used in this
Certificate.
We hereby undertake that, from the date hereof and so long as any monies are
owing under any of the Facility Documents, any part of the Advances remains
outstanding, or any Overdraft Utilisation remains outstanding, without the prior
written consent of the Facility Agent acting on the instructions of the Majority
Banks, we will not permit any Encumbrance (other than Permitted Encumbrances and
Encumbrances required to be granted to the Security Agent on behalf of the
Senior Creditors pursuant to the Facility) to subsist, arise or be created or
extended over all or any part of our present or future undertakings, assets,
rights or revenues to secure or prefer any of our present or future indebtedness
or that of any other person.
Yours sincerely,
.
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SCHEDULE 13
SUBSTITUTION CERTIFICATE
To: PARIBAS as Facility Agent
From: [THE EXISTING BANK] and [THE NEW BANK] Date: [ ]
MEDIARESEAUX MARNE - FRF 700,000,000, SECURED CREDIT AGREEMENT DATED [DATE]
We refer to Clause 19.3 (Procedure for transfers).
1 We [ (the "EXISTING BANK") and [ ] (the "NEW BANK")
agree to the Existing Bank transferring to the New Bank all the Existing
Bank's rights and obligations referred to in the Schedule to this
Substitution Certificate, in accordance with Clause 19.3 (Procedure for
transfers).
2 The specified date for the purposes of Clause 19.3 is [date of transfer].
3 The Facility Office and address for notices of the New Bank for the purposes
of Clause 18 (Notices) are set out in the Schedule.
4 The New Bank hereby appoints the Facility Agent and the Security Agent to act
as its agent on its behalf, which appointment the Facility Agent and the
Security Agent accept, with respect to the Facility Documents and the
Security Documents, to hold the benefit of the same and confirms it is bound
by the Facility Documents and the Security Documents to which the Banks are
party.
5 This Substitution Certificate, by which we assign our rights to the New Bank,
shall be notified to the Parent and to any Acceding Borrower by huissier
(bailiff) in accordance with the provisions of Article 1690 of the Civil
Code.
6 This Substitution Certificate is governed by French law.
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THE SCHEDULE
RIGHTS AND OBLIGATIONS TO BE TRANSFERRED
[Details of the rights and obligations of the Existing Bank to be transferred,
including under the Subordination Agreement].
[Existing Bank] [New Bank]
By: By:
Date: Date:
[NEW BANK]
[Facility Office Address for notices]
[FACILITY AGENT]
[for and on behalf of itself as Facility Agent and on behalf of each party to
the Facility Agreement and the Parent and the relevant Acceding Borrower]
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SCHEDULE 14
EXISTING THIRD-PARTY TRADEMARKS
Trademark Owner Registration number Date of registration
with French with French
National Industrial National Industrial
Property Institute Property Institute
Mediareseaux Mediareseaux SA 955635357 05 05 1995
Marne
MR Mediareseaux Mediareseaux SA 96609366 15-03-1996
(semi-figurative)
171
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SCHEDULE 15
BORROWER ACCESSION NOTICE
-------------------------
To: Paribas as Facility Agent
From: name of Acceding Borrower and Mediareseaux Marne
Date: [ ]
We refer to the Agreement for a FRF700,000,000 Secured Credit Facility entered
into between Mediareseaux Marne and the Banks and Financial Institutions listed
in Schedule 1 to such Agreement (as from time to time amended, varied, extended,
restated, refinanced or replaced, hereinafter referred to as the "FACILITY
AGREEMENT").
We refer to Clause 2.5 of the Facility Agreement. Words and expressions defined
in the Facility Agreement have the same meanings when used in this deed.
We hereby give you notice that Name of Acceding Borrower of address shall become
a Borrower and hereby agrees to be bound by all the terms of the Facility
Agreement as Borrower in accordance with Clause 2.5 of the Facility Agreement,
as if it had been a party thereto at the date of the signature of the Facility
Agreement.
The address for notices of name of Acceding Borrower for the purposes of Clause
19.1 of the Facility Agreement is:
[
]
This Notice is governed by French law.
[NAME OF ACCEDING BORROWER] MEDIARESEAUX MARNE
Authorised Signatory
[Appropriate execution Clause]
By: By:
172
<PAGE>
By:
PARIBAS
Signed for and on behalf of
Banque Paribas
by: [Denis de Paillerets]
by: [Guillaume Plassard]
173
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SCHEDULE 16
FORM OF PARENT GUARANTEE
------------------------
GUARANTEE
---------
BETWEEN THE UNDERSIGNED:
(1) THE BANKS, as such term is defined in the Facility Agreement (including any
entity which becomes a Bank hereafter pursuant to the provisions of the
Facility Agreement), represented by Paribas, in its capacity as Security
Agent (hereinafter the "BENEFICIARIES");
(2) PARIBAS, a societe anonyme with directorate and supervisory board organised
under the laws of France, with a registered capital of FRF 5,761,476,600,
located at 3, rue d'Antin, 75002 Paris, France, duly registered in the
Registry of Commerce and Companies of Paris under no 662 047 885, acting
in its own name and as a mandataire (hereinafter the "SECURITY AGENT") and
(3) MEDIARESEAUX MARNE, a societe anonyme organised under the laws of France,
with a share capital of FRF 144,000,000, whose registered office is 12, rue
Albert Einstein, 77420 Champs-sur-Marne, France, and which is registered at
the Registry of Commerce and Companies of Meaux under no 400 461 950
(hereinafter the "GUARANTOR").
WHEREAS:
(A) Pursuant to a facility agreement dated 1998 (the "FACILITY
AGREEMENT") between inter alia, Paribas as Facility Agent, Paribas as
Security Agent, the Banks named therein, and the Guarantor as Parent and
Original Borrower, the Banks have agreed to make available to the Guarantor
and to Acceding Borrowers a loan facility for a maximum principal amount of
FRF 700,000,000 (seven hundred million French francs).
(B) Pursuant to the terms of the Facility Agreement, the Guarantor has promised
to guarantee to the Beneficiaries the payment of any sum due by any
Acceding Borrower (as such term is defined in the Facility Agreement)
authorised to use all or part of the credit facility made available
pursuant to the terms of the Facility Agreement.
(C) [ACCEDING BORROWER] a FORM OF COMPANY, organised under the laws of France,
with a registered capital of FRF . , located at . , France, duly registered
in the Registry of Commerce and Companies of under no . (hereinafter the
"DEBTOR") wishes to accede to the Facility Agreement as an Acceding
Borrower in order to benefit from all or part of the credit facility made
available pursuant to the Facility Agreement. As such right is subject to
the granting of a guarantee by the Guarantor in favour of the
Beneficiaries, represented by the Security Agent, the parties have
concluded this agreement.
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NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1 GUARANTEE
---------
1.1 The Guarantor hereby expressly guarantees on an in solidum basis (caution
solidaire) the payment of all amounts which are or become due by the Debtor
to the Banks pursuant to the Facility Agreement (hereinafter the
"GUARANTEED LIABILITIES") up to an aggregate principal amount of six
hundred and eighty million French francs (FRF 680,000,000) plus interests,
commissions, costs and accessory amounts of any kind.
1.2 In consequence thereof, and waiving any right it may have pursuant to
Articles 2021 and 2026 of the Civil Code (renonciation aux benefices de
discussion et de division), the Guarantor undertakes unconditionally and
irrevocably to pay immediately to the Security Agent, in its capacity as
agent of the Beneficiaries, on simple written demand of the Security Agent,
all Guaranteed Liabilities which may become due for any reason whatsoever.
1.3 In the event that the Guarantor becomes entitled to be subrogated to the
rights, privileges or security of the Beneficiaries, or in the event that
the Guarantor becomes substituted in respect of the Beneficiaries by virtue
of any such subrogation, the Guarantor agrees to refrain from exercising
any action or right as against the Debtor until the Beneficiaries have
received full payment of the Guaranteed Liabilities.
1.4 The Guarantor shall not be entitled to benefit from any legal or judicial
postponement which may be claimed by the Debtor.
1.5 Any amount paid by the Guarantor hereunder shall be paid without set-off
against any amounts which may be otherwise due by the Beneficiaries and net
of any present or future taxes, duties, withholdings or deductions
whatsoever which may be made, withheld or deducted by or on behalf of any
French or foreign tax authorities.
2 REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR
-----------------------------------------------
2.1 The Guarantor expressly represents and warrants that the signature of this
guarantee agreement has been duly authorised by resolutions adopted on by
its board of directors, pursuant to Article 98 and Articles 101 et seq of
the law no 66-537 24th July 1966.
3 TERM
----
The obligations resulting from this Guarantee Agreement shall remain in
force for as long as (i) the Facility Documents remain in force and
applicable or (ii) any amount remains due and payable in respect of the
Guaranteed Liabilities.
Consequently, the Guarantor shall not be released from its obligations
hereunder until such time as (i) none of the Facility Documents remains in
force, and (ii) no amount remains due in respect of the Guaranteed
Liabilities.
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4 GOVERNING LAW AND JURISDICTION
------------------------------
4.1 This Agreement is governed by French law as to its validity, construction
and enforcement.
4.2 The parties hereby irrevocably consent to the exclusive jurisdiction of the
Commercial Court of Paris (Tribunal de Commerce de Paris) in connection
with any action or proceeding arising out of this Guarantee Agreement or
any documents or instruments delivered pursuant to this Agreement.
Signed in Paris in three (3) copies on:
THE BANKS )
Beneficiaries )
Represented by : )
PARIBAS )
Represented by:
Denis de Paillerets )
Guillaume Plassard )
PARIBAS )
Security Agent )
Represented by:
Denis de Paillerets )
Guillaume Plassard )
MEDIARESEAUX MARNE )*
Guarantor )
Represented by : )
Patrick Drahi )
President )
(*) Insert the handwritten mention: "Good for in solidum guarantee for the
sum of FRF 680,000,000 and any interest, commissions, fees and accessories,
as described more fully above."
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SIGNATURE
THE BORROWER:
- ------------
Signed for and on behalf of )
MEDIARESEAUX MARNE )
by: Patrick Drahi
THE ARRANGER:
- ------------
Signed for and on behalf of )
PARIBAS )
by: Denis de Paillerets
by: Guillaume Plassard
THE FACILITY AGENT
- ------------------
Signed for and on behalf of )
PARIBAS )
by: Denis de Paillerets
by: Guillaume Plassard
THE SECURITY AGENT
- ------------------
Signed for and on behalf of )
PARIBAS )
by: Denis de Paillerets
by: Guillaume Plassard
THE BANKS
PARIBAS )
by: Denis de Paillerets
by: Guillaume Plassard
177
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EXHIBIT 10.11
PROMISSORY NOTE
Made and signed in Tel Aviv, Israel on November 9, 1998
FOR VALUE RECEIVED, the undersigned, Cable Network Zuid - Oost Brabant Holdings
B.V. (the "Company"), a corporation organized under the laws of The Netherlands,
will pay to the order of DIC Loans Ltd., a corporation organized under the laws
of the State of Israel, the principal amount of US $90,000,000 (the "Original
Amount"), together with the Interest (as defined herein) and the Additional
Amount (as defined herein) in accordance with the terms and provisions hereof.
1. Definitions. For all purposes of this Promissory Note:
(A) The "Additional Amount" means an amount equal to 6% of the Original
Amount.
(B) "Business Day" means any day on which trading in Dollars is carried
out in The First International Bank of Israel Ltd. and on which banks
in Israel, in the United States of America and in The Netherlands are
generally open to the public for the conduct of commercial banking
transactions.
(C) "Dollars" of "US $" means United States dollars, the lawful currency
of the United States of America.
(E) The "Commencement Date" means the 9 day of each of November, February,
May and August in each calendar year.
(F) "Holder" means the Holder of this Promissory Note who is the Payee
hereunder or any Person to whom this Note has been negotiated.
(G) The "Interest" means the unpaid amount of interest from time to time
due pursuant to Section 2 hereof.
(H) An "Interest Period" means a period of three consecutive months in
which the Original Amount is outstanding beginning on any Commencement
Date and ending on the day immediately preceding the subsequent
Commencement Date.
(I) The "Maturity Date" means November __, 2000 or, if such date is not a
Business Day, the first Business Day immediately thereafter.
(J) A "Prepayment Date" means the first Business Day immediately
succeeding the end of any Interest Period.
(K) The "Promissory Note" means this Promissory Note.
<PAGE>
2. Interest. The Original Amount will bear interest at the rate of 8% per
annum. Such interest shall be computed in respect of any Interest Period for
the number of days elapsed during which the Original Amount shall be
outstanding in such Interest Period (on the basis of 360 days in a year). The
interest accrued in respect of any Interest Period shall be added to and
become an integral part of the Original Amount for the purpose of computing
such interest in respect of any subsequent Interest Period.
3. Payment on Maturity. The Company shall pay the Original Amount together with
the Interest and Additional Amount in one lump sum (the "Payable Amount") on
the Maturity date.
4. Prepayment. Notwithstanding Section 3 hereof to the contrary, the Company may
prepay this Promissory Note, in whole but not in part, before the Maturity
Date on any Prepayment Date but not on any other day, provided that a written
notice of prepayment shall have been given by the Company to Holder pursuant
to Section 7 hereof at least three consecutive months before the Prepayment
Date. In the event of such prepayment, the Company shall pay to the Holder
the Payable Amount on the Prepayment Date.
5. Overdue Amounts. If the Company fails to pay in full any amount payable by
the Company hereunder on the due date (an "Overdue Amount"), the Company will
pay on the date it pays such Overdue Amount interest on the Overdue Amount at
the rate of 13% per annum for the actual number of days during the period
from and including such due date to but excluding the date of actual
payment of the Overdue Amount.
6. Value Added Tax. If and to the extent that any Value Added Tax is applicable
under law in respect of any of the amounts payable hereunder, such amount
shall be paid together with the Value Added Tax applicable in respect
thereof.
7. Payment Account; Address for Prepayment Notices. Until the date that is three
(3) Business Days after any other address or bank account details are
notified in writing by Holder from time to time to the Company at the
Company's address specified below its signature, all payments due hereunder
from the Company shall be made, and a written notice of the Company's
intention to make prepayment pursuant to Section 4 hereof shall be given to
Holder, by the Company to the bank account or at the address, respectively,
as follows;
<PAGE>
The bank account for making Payments due hereunder:
The First International Bank of Israel Ltd.
Tel-Aviv Main Branch
9 Ahad Ha'am Street
Tel-Aviv, Israel
Account No. 438952
The address for giving a notice of intent to make prepayment:
Tel-Aviv Main Branch
9 Ahad Ha'am Street
Tel-Aviv, Israel
Attention: the Branch Manager
Notwithstanding the foregoing to the contrary, no change of bank account
shall be permitted if it would result in the Company having to pay any
increased cost with respect to its obligations under this Promissory Note.
8. Security. Pursuant to a Pledge Agreement dated the date hereof (the "Pledge
Agreement") between Tishdoret Achzakot Ltd., a corporation organized under
the laws of the State of Israel ("Pledgor"), which is an affiliate of the
Company, and The First International Bank of Israel Ltd. ("Pledgee") signed
by the parties thereto concurrently with the signing of this Promissory Note
by the Company, all payments due under this Promissory Note are secured by a
fixed pledge of 7,046,241 Ordinary Shares, par value NIS 1.00 per share, of
Tevel Israel International Communications Ltd., a corporation organized
under the laws of the State of Israel, owned by Pledgor, and a floating
charge over all assets of Pledgor.
9. Payments Generally; Tax Gross Up. All payments to be paid hereunder shall be
made to Holder in Dollars, free and clear of any taxes, deductions,
withholdings and charges and without any set off or counterclaim, by
depositing such payments in freely transferable and immediately available
funds to the bank account referred to in Section 7 hereof. Notwithstanding
the foregoing to the contrary, if the Company is required by any taxing
authority of any jurisdiction to deduct or withhold any amount in respect of
any payment payable under this Promissory Note, then the amount of the
relevent payment under this Promissory Note be increased as is necessary to
yield and remit to such bank account the full amount of the respective
payment due under this Promissory Note after provision for payment of such
deduction or withholding.
<PAGE>
10. Governing Law. This Promissory Note shall be governed by, and construed in
accordance with the laws of, the State of Israel without reference to any
conflict of law principles thereof.
Signature of the Company:
CABLE NETWORK ZUID-OOST BRABANT HOLDING B.V.:
By: /s/ Mark L. Schnoder
-------------------------------
Name: Mark L. Schnoder
-----------------------------
Title: Attorney-in-fact
----------------------------
Address of the Company:
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: General Counsel
4
<PAGE>
EXHIBIT 10.12
OPTION AGREEMENT
This Option Agreement (this "AGREEMENT"), dated as of November 5, 1998, is
between United Pan-Europe Communications N.V., a company organized under the
laws of The Netherlands (together with its successors and assigns, the
"COMPANY"), DIC Communication and Technology Ltd., a corporation organized and
existing under the laws the State of Israel ("DIC"), and PEC Israel Economic
Corporation, a corporation organized and existing under the laws of the State of
Maine, United States of America ("PEC"). DIC and PEC, collectively, are
hereafter referred to as "DPC".
RECITALS
A. Simultaneous with the execution and delivery hereof, DIC Loans (as
defined below) has loaned to a subsidiary of the Company US $90,000,000 (the
"LOAN"), which Loan is evidenced by the Note (as defined below) and secured by,
and subject to the terms of, the Pledge (as defined below).
B. The parties are entering into this Agreement as a condition to the
Loan.
AGREEMENT
In consideration of the foregoing, the parties agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement, the following
-----------
terms have the following meanings:
"ADDITIONAL AMOUNT" has the meaning set forth in the Note.
"ADDITIONAL SHARES" has the meaning set forth in Section 2(l)(i).
"ADMINISTRATIVE OFFICE" has the meaning set forth in Section 2(a).
"AFFILIATE" means, with respect to any Person, any entity that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with such Person. For purposes of this definition, the
term "CONTROL" means the ownership of fifty percent (50%) or more of the voting
interests of such Person.
"AGREEMENT" means this Option Agreement as amended, modified, restated and
replaced from time to time.
"BORROWER" has the meaning set forth in Section 1 of the Funding Agreement.
"BUSINESS DAY" means any day on which banks in each of Tel Aviv, Israel,
Amsterdam, The Netherlands and New York, New York, United States of America are
generally open to the public for the conduct of commercial banking transactions.
<PAGE>
"CLOSING" and "CLOSING DATE" have the meanings set forth in Section 3(a).
"COMPANY REPRESENTATIVES" has the meaning set forth in Section 10(a).
"COMPANY'S VALUE" has the meaning set forth in Section 2(f).
"DIC/PEC CABLE" means DIC and PEC Cable TV Ltd., a corporation organized
under the laws of the State of Israel and all the interests in which are owned
directly or indirectly by DPC.
"DIC LOANS" means DIC Loans Ltd., a corporation organized and existing
under the laws of the State of Israel and a wholly owned subsidiary of Discount.
"DISCOUNT" means Discount Investment Corporation Ltd., a corporation
organized under the laws of the State of Israel.
"DOLLARS" or "US $" means United States dollars, the lawful currency of the
United States of America.
"DPC REPRESENTATIVES" has the meaning set forth in Section 10(a).
"DUE DILIGENCE PERIOD" has the meaning set forth in Section 2(g).
"DUTCH GUILDERS" means the lawful currency of The Netherlands.
"ENCUMBRANCE" means any debt, charge, attachment, lien, claim or any other
third party right.
"EXCHANGE AGREEMENT" means an Exchange Agreement to be executed and
delivered at the Closing by UIH Europe, and each Person receiving Ordinary
Shares in connection with the exercise of the Option by Holder, substantially in
the form attached hereto as Exhibit B.
"EXERCISE DATE" means the date the Company receives or is deemed to receive
an Option Exercise Notice in accordance with the terms of this Agreement.
<PAGE>
"EXERCISE PERIOD" means the period beginning on the date hereof and ending
on the earlier of:
(i) the date seven (7) Business Days after DPC receives the IPO
Notice if the IPO is consummated as set forth in the IPO Notice;
(ii) the time six (6) hours after DPC receives either a Higher IPO
Price Notice or a Lower IPO Price Notice if the IPO is consummated at the
price set forth in such Higher IPO Price Notice or Lower IPO Price Notice,
as the case may be;
(iii) the date seven (7) Business Days after DPC receives the QPP
Notice if the Qualifying Private Placement is consummated as set forth in
the QPP Notice;
(iv) the date two (2) Business Days after DPC receives either a
Higher QPP Price Notice or a Lower QPP Price Notice if the Qualifying
Private Placement is consummated at the price set forth in such Higher QPP
Price Notice or Lower QPP Price Notice, as the case may be;
(v) the date upon which the definitive agreement for the
Restructuring is executed if the Restructuring is consummated;
(vi) the date seven (7) Business Days after DPC receives a
Reorganization Notice if the Reorganization Event is consummated as set
forth in the Reorganization Notice;
(vii) the date twenty (20) Business Days prior to the Prepayment Date
set forth in the Prepayment Notice received by DPC if the Prepayment is
consummated as set forth in the Prepayment Notice; and
(viii) the date that is two years after the date hereof if the Option
Exercise Notice is not, or is not deemed to be, delivered in connection
with a Potential Termination Event.
"FAIR MARKET VALUE OF THE COMPANY" means the greater of:
(i) the sum of (A) the price at which the entire common equity of
the Company, as a going concern, could be sold in an arms' length
transaction to an unaffiliated bona fide third party purchaser in an
orderly sale determined in accordance with Section 2(f), plus (B) the
aggregate exercise or conversion price payable to the Company upon the
exercise or conversion of all outstanding warrants, rights and options to
purchase, and securities convertible into, share capital of the Company;
and
(ii) the sum of (A) an equity value of US $850,000,000 (which value
takes into account the proceeds that the Company has received and will
receive in connection with the contribution by UIHI and/or its subsidiaries
of any interest in Monor Communications Group Inc., Monor Telefon Tasarsag
Rt., Tara Television Ltd., Tara Television Global Ltd.,
<PAGE>
Iberian Programming Services, and any of such entities' successors and the
amount of US$63,000,000 in cash received by the Company pursuant to the
Promissory Note dated March 16, 1998 given by the Company in favor of UIH
Europe), plus (B) an amount equal to 8% per annum interest thereon from May
28, 1998 through the Valuation Date computed in the same manner as Interest
is computed on the Note, plus (C) the amount of proceeds received by the
Company as a contribution or other payment for common equity from May 28,
1998 through the Valuation Date in cash or other assets from any
shareholder of the Company (excluding the proceeds referred to in part (A)
of this clause (ii) that may be received by the Company after May 28,
1998), minus (D) the Net Borrowing Adjustment plus (E) the aggregate
exercise or conversion price payable to the Company upon the exercise or
conversion of all warrants, rights and options to purchase, and securities
convertible into, share capital of the Company issued by the Company from
May 28, 1998 through the Valuation Date, as such sum shall be determined
and certified in writing to DPC by the Company's independent public
accountants.
"FMV SHARE PRICE" means the value attributed to each Ordinary Share
included in the Option Shares, determined in accordance with Section 2(e).
"FULLY DILUTED ORDINARY SHARES" has the meaning set forth in Section
2(l)(i).
"FUNDING AGREEMENT" means the Funding Agreement dated as of August 24, 1998
between the Company, DIC and PEC.
"GAAP" has the meaning set forth in Section 4(e).
"HIGHER IPO PRICE NOTICE" has the meaning set forth in Section 2(b)(i)(B).
"HIGHER QPP PRICE NOTICE" has the meaning set forth in Section 2(b)(ii).
"HOLDER" means DPC, and all successors and permitted assigns of DPC.
"INDEBTEDNESS" has the meaning set forth in Section 2(k).
"INFORMATION" has the meaning set forth in Section 10(a).
"INTEREST" has the meaning set forth in Section 1 of the Note.
"IPO" means an underwritten public offering by the Company of Ordinary
Shares (or depository receipts with respect thereto) registered under the United
States Securities Act of 1933, as amended, together with the listing or quoting
of Ordinary Shares or such depository receipts on a Securities Exchange, or a
similar public offering by the Company, together with the listing on a regulated
stock exchange, of Ordinary Shares in London, Amsterdam or such other location
as the Company determines to be appropriate.
"IPO NOTICE" has the meaning set forth in Section 2(b)(i)(A).
<PAGE>
"LOWER IPO PRICE NOTICE" has the meaning set forth in Section 2(b)(i)(B).
"LOWER QPP PRICE NOTICE" has the meaning set forth in Section 2(b)(ii).
An event is deemed to have a "MATERIAL ADVERSE EFFECT" if it would cause
the valuation of the common equity of the Company, determined in a manner
consistent with Section 2(f), to be reduced by 10% from such valuation if such
event had not occurred.
"MATURITY DATE" has the meaning set forth in the Note.
"NET BORROWING ADJUSTMENT" has the meaning set forth in Section 2(k).
"NOTE" means the promissory note dated the date hereof issued by the
Borrower pursuant to the Funding Agreement.
"NON-FMV SHARES" has the meaning set forth in Section 7(c).
"OPTION" has the meaning set forth in Section 2(a).
"OPTION EXERCISE NOTICE" has the meaning set forth in Section 2(a).
"OPTION SHARES" means the total number of the fully paid and nonassessable
Ordinary Shares to be issued and delivered to Holder by the Company at the
Closing, which shall be calculated in accordance with Section 2(d).
"ORDINARY SHARES" means the ordinary shares of the Company with a par value
of one Dutch Guilder each, together with any other ordinary shares of the
Company that may be issued by the Company in substitution therefor.
"PERSON" means any natural person, company, corporation, partnership, joint
venture, trust, association, investment company, fund, unincorporated entity of
any kind or governmental agency or authority.
"PLEDGE" means the Pledge Agreement dated the date hereof between Tishdoret
Achzakot Ltd., a corporation organized under the laws of the State of Israel,
and The First International Bank of Israel Ltd., a financial institution
organized under the laws of the State of Israel, and FIBI-On Ltd., a financial
institution organized under the laws of the State of Israel.
"PLEDGE RELEASE" has the meaning set forth in Section 3(a)(ii)(A)(ii).
"POTENTIAL TERMINATION EVENT" means any IPO, Qualifying Private Placement,
Reorganization Event, the Restructuring, or the prepayment of the Note in full.
"PREPAYMENT NOTICE" has the meaning set forth in Section 2(b)(v).
<PAGE>
"PURCHASE PRICE" means an amount, in immediately available Dollar funds,
equal to the (i) the Original Amount (as defined in the Note) plus (ii) the
unpaid and outstanding Interest (as defined in the Note) thereon from and after
the date hereof through the Closing Date at a rate of 8% per annum computed in
the same manner as set forth in the Note.
"QPP NOTICE" has the meaning set forth in Section 2(b)(ii).
"QUALIFYING PRIVATE PLACEMENT" means the private sale of Ordinary Shares by
the Company to one or more investors (who shall be unaffiliated bona fide third
party purchasers) in one or a series of related bona fide transactions pursuant
to which the Company receives aggregate gross sales proceeds of at least US
$100,000,000.
"REGISTRATION RIGHTS AGREEMENT" means a Registration Rights Agreement to be
executed and delivered at the Closing by the Company, and each Person receiving
Ordinary Shares in connection with the exercise of the Option by Holder,
substantially in the form attached hereto as Exhibit C.
"REGISTRATION STATEMENT" means the principal documents required under
applicable law to be filed with the SEC for the purpose of effecting a public
offering of securities.
"REORGANIZATION EVENT" has the meaning set forth in Section 8.
"REORGANIZATION NOTICE" has the meaning set forth in Section 2(b)(iv).
"RESTRUCTURING" means the exchange of all or part of the ownership
interests of DIC/PEC Cable and its Affiliates in Tevel Israel International
Communications Ltd. and its successors and assigns, for ownership interests in
the Company.
"RESTRUCTURING VALUATION DATE" has the meaning set forth in Section
2(e)(iii).
"SEC" means the competent authority regulating under applicable law
offerings of securities to the public in the jurisdiction where such offerings
are effected.
"SECURITIES EXCHANGE" means the New York Stock Exchange, the American Stock
Exchange or the Nasdaq Stock Market in the United States of America.
"SHAREHOLDERS' AGREEMENT" means a Shareholders' Agreement concerning the
Company to be executed and delivered at the Closing by UIH Europe and each
Person receiving Ordinary Shares in connection with the exercise of the Option
by Holder, a copy of which is attached hereto as Exhibit D.
"SURRENDER COSTS" has the meaning set forth in Section 3(c)(iv).
"TERMINATION NOTICE" has the meaning set forth in Section 2(b).
<PAGE>
"TRANSFER" has the meaning set forth in Section 6(a).
"UIH EUROPE" means UIH Europe, Inc., a corporation organized and existing
under the laws of the State of Delaware, United States of America, and its
successors and permitted assigns.
"UIHI" means United International Holdings, Inc., a corporation organized
and existing under the laws of the State of Delaware, United States of America,
and its successors and assigns.
"VALUATION DATE" means the last day of the month immediately preceding the
month in which an Option Exercise Notice is delivered to the Company in
connection with a Reorganization Event, the prepayment of the Note in full or
otherwise pursuant to Section 2(c).
"WHOLLY OWNED SUBSIDIARY" means, with respect to any Person, all of the
equity interests of, and voting power in, another Person which are beneficially
owned, directly or indirectly, by the first Person.
"20% CLOSING" and "20% CLOSING DATE" have the meanings set forth in Section
3(b)(ii).
"20% EXERCISE NOTICE" has the meaning set forth in Section 2(l)(ii).
"20% OPTION" has the meaning set forth in Section 2(l)(i).
SECTION 2. OPTIONS.
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(a) Grant of Option. In consideration for arranging the Loan and subject
to the terms and conditions of this Agreement, the Company hereby grants to DPC
the right to acquire upon issue Ordinary Shares (the "OPTION"). The Option may
be exercised in whole, but not in part, at any time during the Exercise Period
by delivery, in accordance with the terms of this Section 2, of a written notice
in the form of Exhibit A (an "OPTION EXERCISE NOTICE"), duly completed and
executed, to the Company at its administrative office at Fred. Roeskestraat 123,
1076 EE Amsterdam, The Netherlands (or such other place as the Company has
specified by not less than ten (10) Business Day's prior written notice to
Holder, the "ADMINISTRATIVE OFFICE"), and compliance with the terms of Section
3(a). Except as otherwise expressly set forth herein, delivery of an Option
Exercise Notice is irrevocable and will unconditionally obligate Holder and the
Company to satisfy each of the Closing obligations set forth in Section 3(a).
Any failure by Holder to duly deliver an Option Exercise Notice within the
applicable Exercise Period will result in the termination of the Option as
specified in Section 2(j).
(b) Exercise in Connection with a Potential Termination Event.
(i) Exercise in Connection with an IPO.
(A) If the Company shall at any time propose to effect an IPO
for cash (other than an offering relating to a Reorganization Event or
an employee benefit
<PAGE>
plan), the Company shall provide prompt written notice thereof to
Holder in accordance with clause (B) of Section 2(b)(i). As soon as
practicable after initial anticipated minimum and maximum offering
prices per Ordinary Share in connection with such IPO have been
established by the Company, but not sooner than ten (10) Business Days
after the date that a Registration Statement with respect to such IPO
is first filed with the SEC, the Company shall provide written notice
to Holder (the "IPO Notice") setting forth (i) the initial anticipated
minimum and maximum offering prices per Ordinary Share (which prices
may differ from the proposed minimum and maximum offering prices in
the offering), (ii) the anticipated date of consummating such IPO, and
(iii) a brief description of Holder's rights under this Section 2. If
Holder desires to exercise the Option in connection with the IPO,
Holder shall deliver to the Company, on or before the date seven (7)
Business Days after Holder receives the IPO Notice, an Option Exercise
Notice. If the Company has received such Option Exercise Notice and
the actual offering price to the public per Ordinary Share in such
offering will exceed the anticipated maximum offering price per
Ordinary Share set forth in the IPO Notice, the Company shall provide
to Holder prompt written notice of such proposed offering price to the
public (a "HIGHER IPO PRICE NOTICE"). If the Company has not received
such Option Exercise Notice and the actual offering price to the
public per Ordinary Share in such offering will be less than the
anticipated minimum offering price per Ordinary Share set forth in the
IPO Notice, the Company shall provide to Holder prompt written notice
of such proposed offering price to the public (a "LOWER IPO PRICE
NOTICE"). Upon Holder's receipt of a Higher IPO Price Notice, Holder's
previous Option Exercise Notice shall be revoked, and, if Holder
intends to exercise the Option, Holder shall deliver to the Company,
within six (6) hours after Holder receives the Higher IPO Price
Notice, an Option Exercise Notice. Upon Holder's receipt of a Lower
IPO Price Notice, if Holder intends to exercise the Option, Holder
shall deliver to the Company, within six (6) hours after Holder
receives the Lower IPO Price Notice, an Option Exercise Notice. For
the purpose of determining whether either of the foregoing six (6)
hour periods have run, there shall be excluded any period (i) from
10:00 p.m. of any day through 8:00 a.m. of the following day, (ii)
from 5:00 p.m. of any Friday through 8:00 a.m. of the following Sunday
and (iii) from 5:00 p.m. on the eve of any official public holiday in
Israel through 8:00 a.m. on the next business day in Israel (in each
such case, Israel time). Holder shall be entitled, by notice given to
the Company, (i) to revoke an Option Exercise Notice given in response
to an IPO Notice if the Company ceases to actively pursue completion
of the IPO or if the IPO is not consummated within one hundred eighty
(180) calendar days after receipt by the Company of such Option
Exercise Notice, and (ii) to revoke an Option Exercise Notice given in
response to a Higher or Lower IPO Price Notice if the IPO is not
consummated within ten (10) Business Days of the receipt by the
Company of such Option Exercise Notice. Any such revocation by Holder
may be effected within seven (7) Business Days after the earlier of
the date the Company gives written notice to Holder that it has ceased
actively to pursue completion of the IPO, the expiration of such one
hundred eighty (180) calendar day period or such non consummation
after a Higher or Lower IPO Price Notice.
<PAGE>
(B) If the Company decides to pursue an IPO, it shall give
prompt notice of such decision to Holder. Thereafter, the Company
shall provide timely information to Holder as to progress toward an
IPO, including the anticipated timing of delivery of any IPO Notice
and the anticipated size and pricing of the IPO. To the extent
practicable and appropriate in the circumstances, the Company shall
provide Holder with drafts of disclosure documents to be used in the
IPO. Holder recognizes that any such drafts will necessarily be
preliminary in nature and that no representation or warranty can or
will be made or deemed to have been made by the Company in connection
therewith. At the request of the Company, Holder shall return to the
Company all drafts (and copies thereof originating with Holder,
including those provided to its advisors) of such documents and other
information delivered to Holder pursuant to this clause (B) of Section
2(b)(i).
(C) After the Company has given to Holder preliminary notice of
an IPO pursuant to clause (B) of Section 2(b)(i), Holder shall furnish
to the Company such information relating to Holder and its ownership
and intentions in respect of the Option as the Company shall
reasonably request and shall cooperate fully with any reasonable
request made by the Company to enable the Company to comply with its
disclosure obligations in respect of the IPO. The Company will
deliver to Holder any prospectus or other public documents filed with
applicable regulatory or listing authorities in connection with the
IPO within three (3) Business Days of making such filing.
(ii) Exercise in Connection with a Qualifying Private Placement.
(A) If the Company shall at any time propose to enter into a
definitive agreement for a Qualifying Private Placement, the Company
shall provide prompt written notice of such proposal (a "QPP NOTICE"),
in any event, not less than, ten (10) Business Days before the
anticipated execution and delivery of such agreement by the parties
thereto, to Holder of the Company's intention to do so, of the
anticipated purchase price per Ordinary Share in and the anticipated
date of consummating such Qualifying Private Placement, and of
Holder's rights under this Section 2. If Holder desires to exercise
the Option in connection with the Qualifying Private Placement, Holder
shall deliver to the Company, on or before the date seven (7) Business
Days after Holder receives the QPP Notice, an Option Exercise Notice.
If the Company has received such Option Exercise Notice and the
purchase price per Ordinary Share in such Qualifying Private Placement
will exceed the purchase price per Ordinary Share set forth in the QPP
Notice, the Company shall provide to Holder prompt written notice of
such higher purchase price per Ordinary Share (a "HIGHER QPP PRICE
NOTICE"). If the Company has not received such Option Exercise Notice
and the purchase price per Ordinary Share in such Qualifying Private
Placement will be less than the purchase price per Ordinary Share set
forth in the QPP Notice, the Company shall provide to Holder prompt
written notice of such lower purchase price per Ordinary Share (the
"LOWER QPP PRICE NOTICE"). Upon Holder's receipt of a
<PAGE>
Higher QPP Price Notice, Holder's previous Option Exercise Notice
shall be revoked, and, if Holder intends to exercise the Option,
Holder shall deliver to the Company, on or before two (2) Business
Days after Holder received the Higher QPP Price Notice, an Option
Exercise Notice. Upon Holder's receipt of the Lower QPP Price Notice,
if Holder intends to exercise the Option, Holder shall deliver to the
Company, on or before two (2) Business Days after Holder receives the
Lower QPP Price Notice, an Option Exercise Notice. The Company shall
give Holder prompt notice if the Qualifying Private Placement is not
consummated in accordance with the terms disclosed to Holder in the
QPP Notice, as modified by the Higher QPP Price Notice or Lower QPP
Price Notice, as the case may be. Holder shall be entitled, by notice
given to the Company, to revoke an Option Exercise Notice given in
response to a QPP Notice or a Higher or Lower QPP Price Notice if the
Qualifying Private Placement is not consummated in accordance with
such terms within the period determined therefor in the definitive
agreement relating to the Qualifying Private Placement. Any such
revocation by Holder may be effected within ten (10) Business Days of
its receipt of notice from the Company of such non-consummation.
(B) If the Company decides to pursue a Qualifying Private
Placement, it shall give prompt notice of such decision to Holder.
Thereafter, the Company shall provide timely information to Holder as
to progress toward completion of a Qualifying Private Placement,
including the anticipated timing of delivery of any QPP Notice and the
anticipated size of, and purchase price per Ordinary Share in the
Qualifying Private Placement. To the extent practicable and
appropriate in the circumstances, the Company shall provide Holder
with the disclosure documents, if any, and drafts of definitive
agreements to be used in the Qualifying Private Placement. Holder
recognizes that no representation or warranty can or will be made or
deemed to have been made by the Company in connection therewith. At
the request of the Company, Holder shall return to the Company all
drafts (and copies thereof originating with Holder, including those
provided to its advisors) of such documents and other information
delivered to Holder pursuant to this clause (B) of Section 2(b)(ii).
(C) After the Company has given to Holder preliminary notice
of a Qualifying Private Placement pursuant to clause (ii)(B) of
Section 2(b), Holder shall furnish to the Company such information
relating to Holder and its ownership and intentions in respect of the
Option as the Company shall reasonably request and shall cooperate
fully with any reasonable request made by the Company to enable the
Company to comply with its disclosure obligations in respect of the
Qualifying Private Placement and negotiation of a definitive agreement
in connection therewith. The Company will deliver to Holder any
offering memorandum used in connection with the Qualifying Private
Placement within three (3) Business Days of its first delivery to any
potential investor.
(iii) Exercise in Connection with the Restructuring. If Holder
intends to exercise the Option in connection with the Restructuring, Holder
shall deliver to the Company, on or
<PAGE>
before the execution of the definitive agreement therefor by the parties
thereto, an Option Exercise Notice. The Company shall give Holder prompt
notice if the definitive agreement relating to the Restructuring is not
consummated in accordance with its terms. Holder shall be entitled, by
notice given to the Company, to revoke an Option Exercise Notice given in
connection with the Restructuring if the Restructuring is not consummated
in accordance with such terms within the period determined therefor in the
definitive agreement relating to the Restructuring. Any such revocation by
Holder shall be effected within ten (10) Business Days of its receipt of
notice from the Company of notice of such non-consummation.
(iv) Exercise in Connection with a Reorganization Event.
(A) If the Company shall at any time propose to enter into a
definitive agreement for a Reorganization Event, the Company shall
provide prompt written notice of such proposal (a "REORGANIZATION
NOTICE"), in any event, not less than, ten (10) Business Days before
the anticipated execution and delivery of such agreement by the
parties thereto, to Holder of the Company's intention to do so, of the
anticipated terms per Ordinary Share in, and the anticipated date of
consummating such Reorganization, and of Holder's rights under this
Section 2. If Holder desires to exercise the Option in connection
with the Reorganization Event, Holder shall deliver to the Company, on
or before the date seven (7) Business Days after Holder receives the
Reorganization Notice, an Option Exercise Notice. The Company shall
give Holder prompt notice if the Reorganization Event is not
consummated in accordance with the terms disclosed to Holder in the
Reorganization Notice. Holder shall be entitled, by notice given to
the Company, to revoke an Option Exercise Notice given in response to
a Reorganization Notice if the Reorganization Event is not consummated
in accordance with such terms within the period determined therefor in
the definitive agreement relating to the Reorganization Event. Any
such revocation by Holder shall be effected within ten (10) Business
Days of its receipt of notice from the Company of notice of such non-
consummation.
(B) If the Company decides to pursue a Reorganization Event, it
shall give prompt notice of such decision to Holder. Thereafter, the
Company shall provide timely information to Holder as to progress
toward completion of a Reorganization Event, including the anticipated
time of delivery of any Reorganization Notice and the anticipated
terms of the Reorganization Event. To the extent practicable and
appropriate in the circumstances, the Company shall provide Holder
with the disclosure documents, if any, and drafts of definitive
agreements to be used in the Reorganization Event. Holder recognizes
that no representation or warranty can or will be made or deemed to
have been made by the Company in connection therewith. At the request
of the Company, Holder shall return to the Company all drafts (and
copies thereof originating with Holder, including those provided to
its advisors) of such documents and other information delivered to
Holder pursuant to this clause (B) of Section 2(b)(iv).
<PAGE>
(v) Exercise in Connection with a Prepayment of the Note in Full. If
the Borrower shall at any time propose to prepay the Note in full, the
Company shall provide prompt written notice of such proposal (a "PREPAYMENT
NOTICE"), in any event, not less than, ninety (90) Business Days before the
date on which the Note is anticipated to be prepaid in full, to Holder of
the Borrower's intention to do so and of Holder's rights under this Section
2. If Holder desires to exercise the Option in connection with such
prepayment, Holder shall deliver to the Company, on or before the date
twenty (20) Business Days prior to the Prepayment Date specified in the
Prepayment Notice, an Option Exercise Notice. The Company shall give
Holder prompt notice if the Note is not prepaid in full as specified in the
Prepayment Notice. Holder shall be entitled, by notice given to the
Company, to revoke an Option Exercise Notice given in response to a
Prepayment Notice in the event of such failure to prepay the Note. Any
such revocation by Holder shall be effected within ten (10) Business Days
of its receipt of notice from the Company of such failure.
(c) Exercise Not in Connection with a Potential Termination Event. If
Holder desires to exercise the Option but has not received an IPO Notice, a QPP
Notice, a Reorganization Notice or a Prepayment Notice, Holder shall deliver to
the Company an Option Exercise Notice. Holder may only deliver an Option
Exercise Notice pursuant to this Section 2(c) once and only after Holder shall
have given the Company written notice of Holder's intention to deliver an Option
Exercise Notice at least five (5) Business Days prior to doing so. If the
Company gives an IPO Notice, a QPP Notice or a Reorganization Notice or a
definitive agreement with respect to the Restructuring is executed by the
parties thereto after delivery of an Option Exercise Notice by Holder pursuant
to this Section 2(c) but prior to final determination of Fair Market Value of
the Company in accordance with Section 2(f), the Option shall be deemed to have
been exercised in connection with such IPO Notice, QPP Notice, Reorganization
Notice or definitive agreement, as the case may be, unless Holder gives notice
to the Company to the contrary within seven (7) Business Days of the Company
giving the applicable notice hereunder, or not later than upon the execution by
Holder of the definitive agreement relating to the Restructuring, as the case
may be. If the Holder gives notice to the contrary, Holder will be deemed not
to have given any notice of exercise of the Option. If Holder does not so give
notice to the contrary, Holder shall be deemed to have given notice of exercise
of the Option in connection with such new circumstance, Holder and the Company
will follow the procedures applicable to such an exercise as specified herein,
and for the purpose of the first two sentences of this Section 2(c) the notices
actually delivered by Holder shall be treated as if not given. In case that the
exercise of the Option in connection with a Potential Termination Event will be
revoked in accordance with the applicable provisions of the Agreement, the
Option may thereafter be exercised by Holder pursuant to this Section 2(c).
(d) Determination of Number of Option Shares. The number of Ordinary
Shares to be issued to Holder as Option Shares at the Closing shall be
determined as follows:
(i) if the definitive agreement for the Restructuring has been
executed and delivered by the parties thereto prior to the Closing Date,
the total number of Option Shares shall be equal to (A) the total Purchase
Price divided by (B) the product derived from multiplying the FMV Share
Price by 0.8; or
<PAGE>
(ii) if the definitive agreement for the Restructuring has not been
executed and delivered by the parties thereto prior to the Closing Date,
the total number of Option Shares shall be equal to (A) the total Purchase
Price divided by (B) the product derived from multiplying the FMV Share
Price by 0.9.
If the number of Option Shares delivered at the Closing is determined in
accordance with clause (i) of this Section 2(d) and the definitive agreement for
the Restructuring is thereafter terminated without the Restructuring having been
consummated for any reason other than a breach by the Company of its obligations
under such definitive agreement, the number of Option Shares deliverable at the
Closing shall be retroactively adjusted and Holder shall return to the Company
for cancellation certificates representing Option Shares received by Holder at
the Closing to the extent the total number of Option Shares received exceeds the
number that would have been determined in accordance with clause (ii) of this
Section 2(d).
(e) FMV Share Price. For purposes of this Agreement, "FMV SHARE PRICE" as
of the Valuation Date shall be the price per Ordinary Share determined as
follows (if more than one of the following clauses (i), (ii) and (iii) is
applicable, the FMV Share Price shall be determined first in accordance with
clause (i), if it is applicable; second, in accordance with clause (ii), if it
is applicable and clause (i) is not applicable, and third, in accordance with
clause (iii), if it is applicable and neither clause (i) nor clause (ii) is
applicable):
(i) if the Option has been exercised in connection with an IPO or
the Company has consummated an IPO prior to the Closing Date, then the FMV
Share Price shall be the offering price to the public per Ordinary Share in
the IPO;
(ii) if either the Option has been exercised in connection with a
Qualifying Private Placement or the Company has consummated a Qualifying
Private Placement prior to the Closing Date, then the FMV Share Price shall
be the purchase price per Ordinary Share in such Qualifying Private
Placement;
(iii) if the Option has been exercised in connection with the
Restructuring or the Option has been exercised otherwise and the
Restructuring has been consummated prior to the Closing Date, then the FMV
Share Price shall be calculated by dividing the value of the Company as
agreed in connection with the Restructuring by the number of Ordinary
Shares outstanding on the date as of which such value is determined (the
"RESTRUCTURING VALUATION DATE"). For this purpose, there shall be added to
the value of the Company as so determined the aggregate exercise or
conversion price of all outstanding warrants, rights and options to
purchase, and securities convertible into share capital of the Company, to
the extent not included in the valuation, and to the number of Ordinary
Shares outstanding the number of shares issuable upon exercise and
conversion of all outstanding warrants, rights and options to purchase, and
securities convertible into, share capital of the Company. The Option
Shares and any Ordinary Shares owned by or held for the account of the
Company or any Wholly Owned Subsidiary of the Company shall not be deemed
outstanding for the purpose of any such computation; or
<PAGE>
(iv) if the FMV Share Price has not been determined pursuant to
clause (i), (ii) or (iii) of this Section 2(e), then the FMV Share Price
shall be calculated by dividing the Fair Market Value of the Company as of
the Valuation Date by the number of Ordinary Shares outstanding on the
Valuation Date plus the number of Ordinary Shares issuable upon the
exercise or conversion of all outstanding warrants, rights and options to
purchase, and securities convertible into, share capital of the Company.
The Option Shares and any Ordinary Shares owned by or held for the account
of the Company or any wholly-owned subsidiary of the Company shall not be
deemed outstanding for the purpose of any such computation.
In connection with any determination of the FMV Share Price requiring
determination of the Fair Market Value of the Company, the Company shall provide
Holder a calculation of the amount described in paragraph (ii) of the definition
of Fair Market Value of the Company, certified by the Company's independent
public accountants, promptly after the applicable Option Exercise Notice is
given by Holder.
(f) Fair Market Value Determination. For purposes of clause (iv) of
Section 2(e), the amount set forth in paragraph (i) of the definition of Fair
Market Value of the Company (the "COMPANY'S VALUE") as of the Valuation Date
shall be determined in accordance with this Section 2(f). Upon receipt of the
Option Exercise Notice, each of Holder and the Company shall negotiate in good
faith regarding the Company's Value as of the Valuation Date. If the parties
agree upon the Company's Value as of the Valuation Date, such agreed value shall
be the Company's Value. If the parties are unable to agree on the Company's
Value by the date that is ten (10) Business Days after receipt by the Company of
the Option Exercise Notice, the Company and Holder shall each appoint an
internationally recognized investment banking firm (a "QUALIFIED APPRAISER")
within ten (10) Business Days after such date. If either Holder or the Company
fails to comply with its obligation to so appoint a Qualified Appraiser and
notice thereof is given to the non-complying party by the other party hereunder,
the non-complying party shall have a period of ten (10) Business Days to appoint
a Qualified Appraiser. If the non-complying party fails to appoint a Qualified
Appraiser within such ten (10) Business Day period, the Company's Value shall be
determined by the single Qualified Appraiser properly appointed by the other
party hereunder. If two Qualified Appraisers are so appointed, they shall be
instructed to select within ten (10) Business Days and to notify the Company and
Holder promptly thereafter of their selection of a third Qualified Appraiser to
be engaged by the Company if the lower determination of the Company's Value is
less than 90% of the higher determination as specified below. Upon reasonable
notice, the Company will afford each such Qualified Appraiser and its
representatives full access during normal business hours to the properties,
books and records of the Company and its subsidiaries and will cause its
officers and employees and the officers and employees of its subsidiaries to
provide additional financial and operating data and other information as the
Qualified Appraisers and their representatives may reasonably request. Each of
the two Qualified Appraisers shall be instructed to deliver to Holder and the
Company its written determination of the Company's Value as of the Valuation
Date within 30 days after its retention. If the lower determination is not less
than 90% of the higher determination, the Company's Value will be the average of
such two determinations. If the lower determination is less than 90% of the
higher determination, then the third Qualified Appraiser selected by the two
Qualified Appraisers shall be retained by the Company and such third
<PAGE>
Qualified Appraiser will determine the Company's Value as of the Valuation Date,
taking into consideration as it deems reasonably appropriate the determinations
by the other two Qualified Appraisers. Such third Qualified Appraiser shall be
instructed to deliver to Holder and the Company its written determination of the
Company's Value as of the Valuation Date within 30 days after its retention and
the actual Company's Value will be the average of the two closest determinations
or, if there are not two closest determinations, the average of all three
determinations. The fees and expenses of the Qualified Appraiser appointed by
Holder shall be paid by Holder, the fees and expenses of the Qualified Appraiser
appointed by the Company shall be paid by the Company and the fees and expenses
of the third Qualified Appraiser shall be paid by the Company unless the Option
Exercise Notice is revoked by Holder under clause (i)(C) of Section 2(h), in
which case the fees and expenses of all Qualified Appraisers shall be paid by
Holder.
(g) Due Diligence. Upon reasonable notice at any time during the Exercise
Period, (including during the Due Diligence Period referred to below) the
Company will afford Holder and its representatives full access during normal
business hours to the properties, books and records of the Company and its
subsidiaries and will cause its officers and employees and the officers and
employees of its subsidiaries to provide Holder and its representatives with
such financial and operating data and other information as Holder and its
representatives may reasonably request. Upon delivery of an Option Exercise
Notice pursuant to Section 2(c), Holder and its representatives shall have a
period of ten (10) Business Days following delivery of such Option Exercise
Notice (the "DUE DILIGENCE PERIOD") to conduct any additional review of the
books and records of the Company and its subsidiaries and any other additional
reasonable due diligence investigation of the Company and its subsidiaries as
Holder in good faith deems appropriate with a view to determine whether it
intends to revoke its Option Exercise Notice pursuant to clause (i)(A) of
Section 2(h).
(h) Revocation of Option Exercise Notice.
(i) An Option Exercise Notice delivered pursuant to Section 2(c) may
be revoked by Holder only in any one of the following circumstances:
(A) Holder advises the Company in writing on or before the last
day of the Due Diligence Period that it does not intend to proceed
with the purchase of the Option Shares based on the results of its due
diligence review and of the specific reasons therefor;
(B) the discovery after the delivery of such Option Exercise
Notice by Holder to the Company and before the Closing Date of any
event or circumstance that was not disclosed to Holder prior to such
period, which event or circumstance would have a Material Adverse
Effect;
(C) the amount determined in accordance with paragraph (i) of
the definition of Fair Market Value is less than 90% or is more than
120% of the amount determined in accordance with paragraph (ii) of the
definition of Fair Market Value.
<PAGE>
(ii) An Option Exercise Notice delivered other than pursuant to
Section 2(c) may be revoked by Holder only in any one of the following
circumstances:
(A) the discovery after the delivery of such Option Exercise
Notice by Holder to the Company and before the Closing Date of any
event or circumstance that was not disclosed to Holder prior to such
period, which event or circumstance would have a Material Adverse
Effect;
(B) if the applicable Potential Termination Event is not
consummated and appropriate notice is given to the Company as provided
with respect to such Potential Termination Event.
(i) Effect of Revocation of Option Exercise Notice. If an Option Exercise
Notice is revoked other than pursuant to clause (ii)(B) of Section 2(h), Holder
shall be entitled to exercise the Option not more than one additional time
beginning not sooner than three (3) months after the date of such revocation, if
otherwise within the Exercise Period. If an Option Exercise Notice is revoked
pursuant to clause (ii)(B) of Section 2(h), Holder shall be entitled to exercise
the Option under Section 2(c) beginning immediately after such revocation.
(j) Termination of Option. The Option will terminate and have no further
force or effect, except for the obligations and rights arising hereunder in
respect of the Option prior to such termination, at the time immediately after
the earlier of:
(i) the closing of the sale of Ordinary Shares in an IPO or, if
later, eight hours after a Lower or Higher IPO Price Notice has been
received by Holder;
(ii) the closing of the sale of Ordinary Shares in a Qualifying
Private Placement or, if later, two (2) Business Days after a Lower or
Higher QPP Price Notice has been received by Holder;
(iii) the closing of the Restructuring;
(iv) the prepayment in full of the Note;
(v) the closing of a Reorganization Event; and
(vi) the failure of Holder to exercise the Option within the
applicable Exercise Period.
(k) Net Borrowing Adjustment Determination. The Net Borrowing Adjustment
shall be the positive or negative number calculated by reference to the change
in outstanding consolidated indebtedness of the Company for borrowed money
(including guarantees of indebtedness for borrowed money of persons other than
consolidated subsidiaries of the Company) ("INDEBTEDNESS") occurring between May
28, 1998 and the Valuation Date plus or minus certain other amounts as specified
below. The Net Borrowing Adjustment shall be equal to: (i) the amount of the
<PAGE>
Indebtedness at the Valuation Date minus (ii) the Indebtedness at May 28, 1998,
minus (iii) the aggregate gross purchase price (before depreciation or
amortization) of assets (other than cash, cash equivalents or other short term
investments) acquired by the Company (other than for the issuance of common
equity) between May 28, 1998 and the Valuation Date determined in accordance
with GAAP, plus (iv) the amount of net proceeds of the sale or other disposition
of assets (other than cash, cash equivalents or other short terms investments)
by the Company, net of any costs (including any transfer and income taxes)
incurred by the Company in connection with the sale or disposition (other than
sales or dispositions of assets the proceeds of which were received by the
Company not more than 120 days prior to the Valuation Date and which proceeds
have not yet been reinvested or used to reduce Indebtedness), plus (v) the
aggregate amount, if any, of dividends (other than stock dividends or their
equivalent) paid by the Company between May 28, 1998 and the Valuation Date to
the holders of its common equity.
(l) Right to Acquire Additional Shares.
(i) Grant of 20% Option. If (A) the Option has been duly exercised
hereunder; (B) the definitive agreement for the Restructuring has been
executed and delivered by all parties thereto; and (C) the total ownership
of Ordinary Shares by Holder (including Holder's Affiliates, successors and
assigns) after giving effect to the issuances of Ordinary Shares upon
exercise of the Option and the closing of the Restructuring would be less
than 20% of the sum of (i) the Ordinary Shares outstanding immediately
after such closing of the Restructuring plus (ii) the Ordinary Shares
issuable upon the exercise or conversion of all warrants, rights and
options to purchase, and securities convertible into, Ordinary Shares then
outstanding (any Ordinary Shares owned by or held for the account of the
Company or any Wholly Owned Subsidiary of the Company shall not be deemed
outstanding for the purpose of any such computation) (the "FULLY DILUTED
ORDINARY SHARES"), then Holder shall have the right (the "20% OPTION") to
purchase from the Company up to such number of additional Ordinary Shares
(the "ADDITIONAL SHARES") as would result in Holder (including Holder's
Affiliates, assigns and successors) owning 20% of the sum of the Fully
Diluted Ordinary Shares and the number of Additional Shares issuable upon
exercise of the 20% Option. The price per Ordinary Share for the
Additional Shares shall equal the FMV Share Price determined in accordance
with clause (iii) of Section 2(e), without any discount. The 20% Option
will expire and have no further force and effect unless exercised on or
before to the date that is two years after the date hereof.
(ii) Exercise of the 20% Option. If Holder intends to exercise the
20% Option, Holder shall deliver, on or before the date that the definitive
agreement for the Restructuring is executed and delivered by all parties
thereto, a written notice in the form attached hereto as Exhibit C (the
"20% EXERCISE NOTICE") duly completed and executed, to the Company at its
Administrative Office and in compliance with the terms of Section 3(b).
Except as set forth in clause (iii) of this Section 2(l), once delivered to
the Company, the 20% Exercise Notice shall be irrevocable and shall
unconditionally obligate Holder and the Company to satisfy each of the
closing obligations set forth in Section 3(b). If the Restructuring
closes, the 20% Option will also close.
<PAGE>
(iii) Revocation of 20% Option. Holder may revoke its exercise of
the 20% Option prior to the 20% Closing if the definitive agreement for the
Restructuring has not been consummated for any reason other than the breach
thereof by Holder or any party Affiliated with Holder or DPC. Likewise,
the Company may terminate its obligation under the 20% Option
notwithstanding its prior exercise, if the definitive agreement for the
Restructuring has not been consummated for any reason other than the breach
thereof by the Company or any of its Affiliates.
SECTION 3 CLOSINGS.
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(a) Closing of the Option.
(i) The closing of the purchase of the Option Shares by Holder (the
"CLOSING") shall occur at the Administrative Office of the Company on the
date (the "CLOSING DATE") that shall be determined as follows (but in any
event at least three (3) Business Days prior to the Maturity Date) or, if
later, the date that is twenty (20) Business Days after the Fair Market
Value of the Company has been determined in accordance with Section 2(f):
(A) If the Option Exercise Notice is delivered by Holder
pursuant to Section 2(b) and the Potential Termination Event is an IPO
or a Qualifying Private Placement, the Closing shall occur
concurrently with the closing of such IPO or Qualifying Private
Placement, as applicable.
(B) If the Option Exercise Notice is delivered by Holder
pursuant to Section 2(b) and the Potential Termination Event is the
Restructuring, the Closing shall occur concurrently with the closing
of the Restructuring.
(C) If the Option Exercise Notice is delivered by Holder
pursuant to Section 2(b) and the Potential Termination Event is a
Reorganization Event, the Closing shall occur concurrently with the
closing of the Reorganization Event.
(D) If the Option Exercise Notice is delivered by Holder
pursuant to Section 2(b) and the Potential Termination Event is the
prepayment of the Note in full, the Closing shall occur on or before
the date that is three (3) Business Days prior to the date of such
prepayment.
(E) If the Option Exercise Notice is delivered by Holder
pursuant to Section 2(c), the Closing shall occur on the date that is
twenty (20) Business Days after the Fair Market Value of the Company
has been determined in accordance with Section 2(f).
<PAGE>
(ii) Obligations of Holder at the Closing. At the Closing, Holder
shall:
(A) pay to the Company an amount equal to the Purchase Price
plus the sum of the Additional Amount due under the Note, either (i)
in immediately available Dollar funds, such payment to be made in
accordance with the written payment instructions delivered to Holder
by the Company (which instructions shall be given to Holder not less
that three (3) Business Days prior to the Closing Date); or if the
Company so elects in its discretion, (ii) by delivering and
surrendering, or causing to be delivered and surrendered, to the
Company the Note together with the full and unconditional release of
the Pledge (the "PLEDGE RELEASE"); and
(B) execute and deliver, and cause to be executed and
delivered by each Person receiving Option Shares in connection with
the exercise of the Option, the Exchange Agreement, the Registration
Rights Agreement and the Shareholders' Agreement.
(iii) Obligations of the Company at the Closing. At the Closing, the
Company shall:
(A) issue the Option Shares in accordance with applicable law,
and deliver duly executed share certificates of the Company
representing the Option Shares, to and in the name of the appropriate
recipient(s) thereof, which Option Shares shall upon the issuance
thereof be duly authorized, fully paid, non-assessable and free and
clear of all Encumbrances created by or originating with the Company
or its Affiliates;
(B) deliver the Exchange Agreement and the Shareholders'
Agreement, each duly executed by UIH Europe, and the Registration
Rights Agreement, duly executed by the Company;
(C) deliver an opinion of counsel to the Company, reasonably
acceptable to Holder, stating that the Option Shares have been duly
authorized and validly issued, that the share certificates of the
Company representing the Option Shares have been duly authorized and
executed by the Company, and that the Exchange Agreement, the
Shareholders' Agreement and the Registration Rights Agreement have
been duly authorized, executed and delivered and constitute binding
obligations of UIH Europe or the Company, as the case may be, in
accordance with their terms; and
(D) deliver to Holder a certificate of a responsible officer
of the Company, reasonably acceptable to Holder, to the effect that
the representations and warranties set forth in Section 4 are accurate
and correct also as of the Closing (except as otherwise disclosed in
writing by the Company to Holder prior to the Closing Date); that all
approvals, consents and authorizations of any third party required for
the
<PAGE>
consummation by the Company of the transactions contemplated hereby
have been obtained; and that none of the disclosures about the Company
and its subsidiaries contained in the filings made by UIHI with the
United States Securities and Exchange Commission after February 28,
1998, when all such disclosures are read together in their entirety,
contains any untrue statement or a material fact, or omits to state
any material fact necessary to make the statements contained there, in
light of the circumstances under which made, not misleading (except as
otherwise disclosed in writing by the Company to Holder prior to
delivery of the Option Exercise Notice).
(b) Closing of the 20% Option.
(i) The closing of the purchase of the Additional Shares by Holder
(the "20% CLOSING") shall occur at its Administrative Office on the date
(the "20% CLOSING DATE") the Restructuring closes and not otherwise.
(ii) Obligations of Holder at the 20% Closing. At the 20% Closing,
Holder shall:
(A) pay to the Company an amount, in immediately available
Dollar funds, equal to the FMV Share Price determined in accordance
with clause (iii) of Section 2(e) times the aggregate number of
Additional Shares being purchased, such payment to be made in
accordance with the written payment instructions delivered to Holder
by the Company (which instructions shall be given to Holder not less
that three (3) Business Days prior to the 20% Closing Date); and
(B) execute and deliver, and cause to be executed and
delivered by each Person receiving Additional Shares in connection
with the exercise of the 20% Option, the Exchange Agreement, the
Shareholders' Agreement and the Registration Rights Agreement.
(iii) Obligations of the Company at the 20% Closing. At the 20%
Closing, the Company shall:
(A) issue the Additional Shares receivable in respect of the
20% Exercise Notice in accordance with applicable law, and deliver
duly executed share certificates of the Company representing the
Additional Shares, to and in the name of the appropriate recipient(s)
thereof, which Additional Shares shall upon the issuance thereof be
duly authorized, fully paid, non-assessable and free and clear of all
Encumbrances created by or originating with the Company or its
Affiliates; and
(B) deliver an opinion of counsel to the Company, reasonably
acceptable to Holder, stating that the Additional Shares have been
duly authorized and validly issued, that the share certificates of the
Company representing the Additional Shares have been duly authorized
and executed by the Company, and that the Exchange Agreement, the
Shareholders' Agreement and the Registration Rights Agreement
<PAGE>
have been duly authorized, executed and delivered and constitute
binding obligations of UIH Europe or the Company, as the case may be,
in accordance with their terms.
(c) Obligations in connection with the Closings.
(i) The Company, on the one hand, and Holder, on the other hand,
shall each bear half of any and all documentary, stamp or similar taxes
payable or to become payable in respect of the issue or delivery of the
Option Shares and the Additional Shares to Holder hereunder.
(ii) If the Closing Date determined in accordance with clause (i) of
Section 3(a) will occur after the Maturity Date, DPC shall at their sole
effort, cost and expense arrange for an extension of such maturity date to
(A) a date consistent with the Company being able to use the payment of the
Purchase Price for repayment of the Note, or(B) the date that is 180 days
after revocation of the subject Exercise Notice by Holder, as applicable.
(iii) If the Company elects to require that the amount due from
Holder under clause (a)(ii) of this Section 3 shall be paid by delivery of
the Note in accordance with clause (a)(ii)(A)(ii) of this Section 3, the
Company shall provide written notice of such election to Holder prior to
the Closing Date determined in accordance with clause (i) of Section 3(a).
If such Closing Date is to occur prior to the date that is twenty-five (25)
Business Days after the date such notice was received by Holder and Holder
is not in possession of the Note, the Closing shall occur in escrow on the
Closing Date by executing and depositing in escrow with counsel to the
Company all agreements, share certificates and other documents and
instruments to be executed and delivered by the parties at the Closing
(other than the Note and the Pledge Release), and all such agreements,
share certificates and other documents and instruments shall be held in
escrow by such counsel to the Company subject only to satisfaction of
Holder's binding and irrevocable obligation to deliver the Note and the
Pledge Release on or prior to the last day of such twenty-five (25)
Business Day period.
(iv) Certain Expenses.
----------------
(A) Surrender Costs. If the Company elects to require that the
---------------
amount due from Holder under clause (a)(ii) of this Section 3 shall be paid
by delivery of the Note in accordance with clause (a)(ii)(A)(ii) of this
Section 3, and the exercise of the Option is made or deemed made pursuant
to Section 2(b) hereof, the Company shall reimburse to Holder at the
Closing an amount equal to the cost actually incurred by Holder to acquire
the Note for such purpose (the "SURRENDER COSTS"), such amount to be
calculated in accordance with Schedule 3(c) hereof. The Company shall not
be obligated to reimburse Holder or any other Person for all or any part of
the Surrender Costs if the Option is exercised or deemed to have been
exercised not in connection with a Potential Termination Event.
(B) Finance Costs. If Holder desires to satisfy its obligation
-------------
to pay the amount due therefrom under clause (a)(ii) of this Section 3 by
delivering the Note and the Pledge Release pursuant to clause
(a)(ii)(A)(ii) of this Section 3, Holder shall provide
<PAGE>
written notice thereof to the Company not less than ten (10) Business Days
prior to the Closing. If the Company thereafter notifies Holder in writing
not less than five (5) Business Days prior to the Closing that such amount
must be paid in cash pursuant to clause (a)(ii)(A)(i) of this Section 3,
the Company shall reimburse to Holder at the Closing an amount equal to the
cost actually and reasonably incurred by Holder to finance the payment of
such amount in cash. Holder will attempt to advise the Company in advance
of the amount of such finance costs.
(v) Should a notice of payment in cash be given by the Company in
the event referred to and in accordance with clause (c)(iv)(B) of this
Section 3, the Company shall make the necessary arrangements so that the
Note will be repaid in full at the Closing from the proceeds of the payment
in cash made by Holder to the Company at the Closing. For such purpose, and
without derogating from the generality of the foregoing, the Company shall
establish or cause to be established a special bank account to be used
solely for receiving Holder's payment in cash and repaying the Note
therefrom. Such bank account and the identity of the Person in whose name
it is maintained shall be specified in the Company's notice of payment in
cash. At the Closing (A) the amount due from Holder under clause (a)(ii) of
this Section 3 will be paid in immediately available Dollar funds to such
bank account, and (B) the Company shall deliver to Holder a certified copy
of irrevocable written instruction of the Person in whose name such bank
account is maintained to the bank with which it is maintained to transfer
from such bank account on the Closing Date, in immediately available Dollar
funds, the amount necessary to repay in full the Note on such date.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Company hereby represents
------------------------------
and warrants to DPC as follows:
(a) Organization, Standing and Qualification. The Company (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation; (ii) has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted; and (iii) is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in all jurisdictions in which it is required to be so qualified or
licensed except where the failure to be so licensed or qualified would not have
a Material Adverse Effect on the Company.
(b) Capitalization. All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. The obligation of the Company to issue the Option Shares and the
Additional Shares under the terms of this Agreement has been duly authorized by
the Company, and upon the proper exercise of the Option in accordance with its
terms and, if applicable, the 20% Option, upon payment of the Purchase Price and
any purchase price for the Additional Shares, upon compliance by Holder with the
other terms and conditions set forth in Section 3 and upon issuance of the
Option Shares and the Additional Shares, the Option Shares and the Additional
Shares will be validly issued, fully paid, non-assessable and free and clear of
Encumbrances created by or originating with the Company or its Affiliates.
<PAGE>
(c) Authorization and Validity of Agreements. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. All corporate proceedings on the part of the Company necessary
to approve this Agreement and to consummate the transactions contemplated hereby
have been taken.
(d) No Conflict with Other Instruments; No Approvals Required. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not
violate any provision of law applicable to the Company, and will not violate the
articles of association or other governing documents of the Company or any
material agreement to which the Company is a party or by which the Company or
any of its assets or properties is bound. Except as set forth on Schedule 4(d),
there are no approvals, consents or authorizations of any third party required
for the Company to consummate the transactions contemplated hereby.
(e) Financial Statements. Except as otherwise stated in the notes thereto,
the financial statements of the Company have been prepared in conformity with
generally accepted accounting principles for the Netherlands ("GAAP") applied on
a consistent basis and fairly present the financial position, results of
operations and changes in financial position of the Company as of the dates and
for the periods indicated. Except as reflected in such financial statements and
the notes thereto, the Company has no liabilities that are, individually or in
the aggregate, material to the Company other than ordinary course liabilities
incurred since the last date of such financial statements.
(f) Disclosure. None of the representations or warranties made by the
Company herein or in any Schedule delivered pursuant hereto, and none of the
disclosures about the Company and its subsidiaries contained in the filings made
by UIHI with the United States Securities and Exchange Commission after February
28, 1998, when all such documents are read together in their entirety, contains
any untrue statement of a material fact, or omits to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
SECTION 5. COVENANTS.
---------
(a) Financial Information, etc. The Company will deliver, or will cause to
be delivered, to Holder copies of the following financial statements, reports
and information:
(i) promptly when available and in any event within 75 days after the
close of each fiscal year of the Company, a balance sheet at the close of
such fiscal year, and related statements of earnings, shareholders' equity
and cash flows for such fiscal year, together with supporting notes
thereto, of the Company (with comparable information at the close of and
for the prior fiscal year) prepared in accordance with GAAP consistently
applied and audited by Arthur Andersen & Co. or comparable firm of
independent public accountants, such financial statements to include also
the adjustments in the information presented therein as required for
<PAGE>
purpose of reconciling any difference between the GAAP and the generally
accepted accounting principles applied in the United States of America; and
(ii) promptly when available, and in any event within 35 days after
the close of each fiscal quarter of each fiscal year, a balance sheet at
the close of such fiscal quarter and related statements of earnings and
cash flows for such fiscal quarter and for the period commencing at the
close of the previous fiscal year and ending with the close of such fiscal
quarter (with comparable information at the close of and for the
corresponding fiscal quarter of the prior fiscal year and for the
corresponding portion of such prior fiscal year) prepared in accordance
with GAAP consistently applied, and certified by the chief financial
officer and the principal accounting officer of the Company.
(b) Reporting by UIHI. The Company will deliver, or cause to be delivered,
to Holder copies of all reports filed by UIHI with the United States Securities
and Exchange Commission, and all press releases of UIHI referring to the Company
or any of its subsidiaries within five (5) Business Days after they have been
filed or released.
(c) Reporting by the Company. The Company will notify Holder in writing of
the occurrence or discovery of any event or circumstance with respect to the
Company or any of its subsidiaries that would reasonably be expected to have a
Material Adverse Effect, as soon as practicable after such occurrence or
discovery, if not already disclosed in any filing or press release of UIHI
delivered to Holder.
SECTION 6. RESTRICTIONS ON TRANSFER AND ASSIGNMENT.
---------------------------------------
(a) Transfer Restrictions. Neither the Option, the 20% Option, any
interest in either or in the Option Shares or Additional Shares may be sold,
assigned, pledged, hypothecated, encumbered or in any other manner transferred
or disposed of (each a "TRANSFER"), in whole or in part, except as provided in
this Section 6 or, in the case of the Option Shares and the Additional Shares,
the Shareholders' Agreement. Any Transfer of, or agreement to Transfer, the
Option, the 20% Option, any Option Shares, any Additional Shares or any interest
in any thereof in violation of this Section 6 shall be null and void and of no
effect on the Company.
(b) Affiliate Transfers. DPC may Transfer the Option or the 20% Option, in
whole or in part, to any Affiliate of DIC or PEC provided that (i) such assignee
agrees in writing to be bound by and subject to the terms and conditions hereof;
(ii) Holder and such assignee have provided the Company with opinions of counsel
reasonably satisfactory to the Company stating that such Transfer complies with
all applicable securities laws; (iii) Holder provides written notice thereof to
the Company at least ten (10) Business Days prior to such Transfer and (iv)
Holder pays any value added, sales, transfer or other tax imposed by any
governmental authority and any additional expenses incurred by the Company in
connection with such Transfer. If at any time Holder ceases to be an Affiliate
of DIC, PEC or both, and appropriate actions shall not have been completed
within a twenty (20) Business Day period such that Holder is again an Affiliate
of DIC, PEC or both, then the Option and the 20% Option shall terminate and the
Company shall have no obligation
<PAGE>
hereunder. The Option and the 20% Option may not be exercised at any time during
the period Holder is not an Affiliate of DIC, PEC or both.
(c) No Transfers to Note Holder. Notwithstanding any other provision of
this Agreement to the contrary, Holder may not Transfer the Option, the 20%
Option, the Option Shares or the Additional Shares, or any interest in any of
the foregoing, to the holder of the Note at any time or the majority shareholder
of the holder of the Note at any time other than on the Closing Date and solely
for the purpose of payment of the Purchase Price pursuant to Section
3(a)(ii)(A)(ii).
SECTION 7. ANTI-DILUTION PROVISIONS
------------------------
(a) General. The number of Option Shares and Additional Shares that shall
be issued upon proper exercise of the Option and the 20% Option respectively
upon compliance by Holder with Section 2 and 3 hereof will be subject to change
or adjustment if any of the following events or circumstances occurs
(b) Stock Dividends, Splits, Combinations, Reclassifications, etc. If at
any time following the Valuation Date but prior to the Closing, there shall
occur (i) any declaration of or distribution on the Ordinary Shares payable in
shares of the Company's capital stock (whether Ordinary Shares or any other
class of capital stock), (ii) the subdivision of Ordinary Shares into a greater
number of shares, (iii) the combination of the outstanding Ordinary Shares into
a smaller number of shares or (iv) the issuance of any shares of the Company's
capital stock by reclassification of the Ordinary Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the number of Ordinary Shares to be
issued to Holder as Option Shares and Additional Shares, as the case may be,
shall be adjusted such that Holder thereafter shall receive the aggregate number
and kind of shares which Holder would have been entitled to receive by virtue of
such dividend, distribution, subdivision, combination or reclassification if the
Option Shares and Additional Shares, as the case may be, had been issued to
Holder immediately prior to such action.
(c) Issuance at less than Fair Market Value Price. If the Company, at any
time after the Valuation Date and before the Closing Date, issues any Ordinary
Shares at a price per share less than the FMV Share Price (other than pursuant
to warrants, options or rights to purchase, or securities convertible into,
Ordinary Shares outstanding on the Valuation Date) or any warrants, options or
rights to purchase, or securities convertible into, Ordinary Shares at a price
per share less than the FMV Share Price (excluding (i) warrants, options or
rights to purchase, or securities convertible into, Ordinary Shares with respect
to which provision is made for Holder to receive comparable securities, and (ii)
issuances that are primarily compensatory in nature for services rendered or to
be rendered to the Company or any of its subsidiaries) (such Ordinary Shares or
Ordinary Shares issuable upon exercise or conversion of such securities, "NON-
FMV SHARES") then, in addition to the Option Shares and Additional Shares, as
the case may be, Holder shall be offered the right to purchase, at such price, a
number of Non-FMV Shares equal to (a) the total number of Non-FMV Shares issued
during such period, multiplied by (b) a fraction the numerator of which is the
total number of Option Shares plus the total number of Additional Shares and the
denominator of which is the total number of Ordinary Shares outstanding on the
Valuation Date.
<PAGE>
(d) Distribution of Evidences of Indebtedness. If the Company, at any time
after the Valuation Date and before the Closing Date, shall make a distribution
to all holders of Ordinary Shares evidencing its indebtedness or assets
excluding dividends paid on or distributions of the Company's capital stock for
which the number of Option Shares and Additional Shares purchasable hereunder
shall have been adjusted pursuant to Section 7(b), then Holder shall be entitled
to receive an equal distribution, pro rata with the other holders of Ordinary
Shares based on the proportion that the sum of total number of Option Shares
plus the total number of Additional Shares bears to the total number of Ordinary
Shares outstanding on the Valuation Date.
SECTION 8. REORGANIZATION EVENT.
--------------------
(a) "REORGANIZATION EVENT" means (i) any consolidation or merger of the
Company with or into another entity (including any individual, partnership,
joint venture, corporation, trust or group thereof), or (ii) any sale, lease,
transfer or conveyance of all or substantially all of the property and assets of
the Company. The term Reorganization Event shall not include any transaction
referred to in Section 7.
(b) In case of any Reorganization Event, the Company shall, as a condition
precedent to such transaction, cause effective provision to be made so that
Holder shall have the right in connection therewith, by exercising the Option
(and the 20% Option, if applicable), to purchase the kind and amount of shares
and other securities and property receivable upon such Reorganization Event by a
holder of the number of Ordinary Shares that would have been received
immediately prior to the consummation of such Reorganization Event upon proper
exercise of this Option (and the 20% Option, if applicable). Any such
provision shall include provision for adjustments in respect of such shares and
other securities and property that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Option. The Company shall
as soon as reasonably practicable after the determination has been made to
proceed with the Reorganization Event and in any event not less than 10 Business
Days before the occurrence of the Reorganization Event, cause to be mailed to
Holder a notice describing in reasonable detail such Reorganization Event and
informing Holder of the terms and conditions applicable to Holder's exercise of
this Option.
SECTION 9. INDEMNIFICATION.
---------------
(a) Indemnification by Holder. Holder hereby agrees to fully indemnify the
Company for any loss or damage incurred by the Company as a consequence of
Holder's failure to timely satisfy all obligations of Holder under this
Agreement. In addition, if Holder fails to perform its obligations hereunder on
or before the Closing Date, the Company shall have the right to elect, by
providing written notice hereunder to Holder, either (i) to terminate the Option
and all rights of Holder hereunder; or (ii) to require Holder to fully perform
each of its obligations hereunder including, without limitation, payment in full
of the Purchase Price and other amounts due hereunder.
<PAGE>
(b) Indemnification by the Company. The Company hereby agrees to fully
indemnify Holder for any loss or damage incurred by Holder as a consequence of
the Company's failure to timely satisfy all obligations of the Company under
this Agreement. In addition, if the Company fails to perform its obligations
hereunder on or before the Closing Date, Holder shall have the right to elect,
by providing written notice hereunder to the Company, either (i) to require the
Company to fully perform each of its obligations hereunder including, without
limitation, the issuance and delivery of the Option Shares or the Additional
Shares, as applicable, or (ii) revoke the exercise of the Option or the 20%
Option, as applicable.
SECTION 10. MISCELLANEOUS PROVISIONS.
------------------------
(a) Confidentiality Agreement.
(i) All information with respect to the business and operation of
the Company (whether written or oral) furnished (whether before or after
the date hereof) by the Company or any of the Company's directors,
officers, employees, affiliates, representatives (including, without
limitation, financial advisors, attorneys and accountants) or agents
(collectively, the "COMPANY REPRESENTATIVES") to DPC or any of DPC's
directors, officers, employees, affiliates, representatives (including,
without limitation, financial advisors, attorneys and accountants) or
agents (collectively, the "DPC REPRESENTATIVES") pursuant to this Agreement
or in connection with the transactions contemplated hereby or that reflects
any such information is hereinafter referred to as the "INFORMATION". The
term Information will not, however, include information which (A) is or
becomes publicly available other than as a result of a disclosure by DPC or
the DPC Representatives, (B) is or becomes available to DPC from a source
(other than the Company or the Company Representatives) which, to the best
of DPC's knowledge after due inquiry, is not prohibited from disclosing
such information to DPC by a legal, contractual or fiduciary obligation to
the Company, or (C) was known to DPC or the DPC Representatives prior to
disclosure by the Company or the Company Representatives.
(ii) DPC hereby agrees that DPC and the DPC Representatives (A) will
keep the Information confidential and will not (except as required by
applicable law, regulation or legal process, and only after compliance with
Section 10(a)(iii) below), without the Company's prior written consent,
disclose any Information in any manner whatsoever (other than to the DPC
Representatives as specified below), and (B) will not use any Information
other than to make a determination as to whether to exercise the Option or
the 20% Option hereunder and with respect to related matters in connection
therewith. DPC and the DPC Representatives will provide information only to
the DPC Representatives (A) who need to know the Information for the
purpose of evaluating an exercise of the Option or the 20% Option, (B) who
are informed by DPC of the confidential nature of the Information and (C)
who agree to act in accordance with the terms of this Section 10(a). DPC
will cause the DPC Representatives to observe the terms of this Section
10(a), and DPC will be responsible for any breach of this Agreement by any
of the DPC Representatives as if they were party hereto. DPC agrees that it
and the DPC Representatives will not use the Information in any other
manner whatsoever, including but not limited to use by DPC or its
subsidiaries or other
<PAGE>
affiliated organizations: (A) to compete or assist in competing against the
Company; (B) to contact, either directly or indirectly, any existing or
potential customers, suppliers or employees of the Company in any matter
related to the Company's business or operations; (C) in connection with any
other business activity in which DPC or the DPC Representatives are
currently engaged or in which DPC or the DPC Representatives may hereafter
be engaged; (D) in any other manner detrimental to the Company or UIHI; or
(E) in connection with the acquisition (other than from UIHI) of any
securities of UIHI.
(iii) If DPC or any of the DPC Representatives are requested pursuant
to, or required by, applicable law, regulation or legal process to disclose
any of the Information, DPC will, if permitted by applicable law,
regulation or legal process, exercise all reasonable efforts to notify the
Company promptly so that the Company may seek a protective order or other
appropriate remedy or, in the Company's sole discretion, waive compliance
with the terms of this Section 10(a). In the event that no such protective
order or other remedy is obtained, or that the Company waives compliance
with the terms of this Agreement, the Company will furnish only that
portion of the Information which it is advised by counsel is legally
required and will exercise all reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded the Information.
(b) Governing Law. This Agreement shall be deemed to be a contract made
under the laws of The Netherlands and for all purposes shall be construed in
accordance with such laws.
(c) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile, with confirmation of receipt, to the
parties at the following address or at such other address for a party as shall
be specified by notice hereunder:
if to the Company, to it at:
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention:
Telephone:
Facsimile No.:
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
Attention: W. Dean Salter, Esq.
Telephone: +1 303 861 7000
Facsimile No.: + 1 303 866 0200
<PAGE>
if to Holder, to:
DIC Communication and Technology Ltd.
14 Beth Hashoeva Lane, Tel-Aviv 65814, Israel
Telephone: +972 3 567 2700
Facsimile No.: +972 3 560 2327
Attention: Managing Director
and
PEC Israel Economic Corporation
511 Fifth Avenue, New York, New York 10017, U.S.A.
Telephone: +1 212 687 2400
Facsimile No.: +1 212 599 6281
Attention: President
with a copy to:
Discount Investment Corporation Ltd.
14 Beth Hashoeva Lane, Tel-Aviv 65814, Israel
Telephone: +972 3 567 2700
Facsimile No.: +972 3 560 2327
Attention: Managing Director
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other parties hereto, it being
understood that all parties hereto need not sign the same counterpart.
(e) Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits and
Schedules delivered pursuant hereto, (i) constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
hereto with respect to the subject matter hereof; (ii) are not intended to
confer upon any other person any rights or remedies hereunder; and (iii) shall
not be Transferred, except as otherwise specifically provided herein.
<PAGE>
(f) No Waiver. No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed to be a
waiver of, or acquiescence in, any breach of any representation, warranty or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right.
(g) References to DPC. References herein to DPC shall refer to DIC and PEC
individually or collectively, as the context may require. Whenever DPC is
required to perform obligations hereunder, such obligations may be performed by
either DIC or PEC or both, but each such obligation must be performed in its
entirety.
<PAGE>
This Agreement is executed by the parties on the date first written above.
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By: /s/ Mark L. Schneider
------------------------
Name: Mark L. Schneider
-----------------
Title: Attorney-in-Fact
-----------------
DIC COMMUNICATION AND TECHNOLOGY LTD.
By: /s/ Jon Boock /s/ Shlomo Cohen
-------------------------------------------
Name: Jon Boock Shlomo Cohen
-------------------------------------
Title: Director Legal Counsel
-------------------------------------
PEC ISRAEL ECONOMIC CORPORATION
By: /s/ James I. Edelson
------------------------
Name: James I. Edelson
-----------------
Title: Executive Vice President
-------------------------
<PAGE>
EXHIBIT A
FORM OF OPTION EXERCISE NOTICE
United Pan-Europe Communications N.V. [Address]
Gentlemen:
Reference is made to that certain Option Agreement dated ________, 1998 (the
"Agreement"), between United Pan-Europe Communications N.V., a company organized
under the laws of The Netherlands (the "Company"), DIC Communication and
Technology Ltd., a corporation organized and existing under the laws of Israel
("DIC"), and PEC Israel Economic Corporation, a corporation organized and
existing under the laws of Maine, U.S.A. ("PEC"). All capitalized terms used
and not otherwise defined herein shall have the meaning set forth in the
Agreement. In accordance with the provisions of Section 2(a) of the Agreement,
we hereby jointly exercise the Option and agree to purchase the Option Shares on
the Closing Date in accordance with, and subject to, the Agreement. The Option
Shares [and the Additional Shares] shall be issued to Holder and its Affiliates
as follows:
Please provide us on or before the third (3rd) Business Day prior to the Closing
Date with written instructions regarding the transfer to the Company's account
of the Purchase Price and other sums due from us under the Agreement.
[DIC COMMUNICATIONS AND TECHNOLOGY LTD.]
By: _________________________________
Title: ___________________________
Date: ________________________________
[PEC ISRAEL ECONOMIC CORPORATION]
By: _________________________________
Title: ___________________________
Date: ________________________________
<PAGE>
Schedule 3(c)
Surrender Costs
---------------
<PAGE>
EXHIBIT 10.13
[EXHIBIT C
TO
OPTION AGREEMENT]
FORM OF
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT C
FORM OF
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of _________, by and between
United Pan-Europe Communications, N.V., a company organized and existing under
the laws of The Netherlands (the "COMPANY"), [DIC Communication and Technology
Ltd. ("DIC")] and [PEC Israel Economic Corporation ("PEC")]. [DIC] and [PEC]
are referred to herein each as a "SHAREHOLDER" and collectively as the
"SHAREHOLDERS."
RECITALS
A. This Agreement is made pursuant to the Option Agreement, dated
November __, 1998 (the "OPTION AGREEMENT"), among the Company, DIC and PEC.
B. Subject to the terms of this Agreement, the Company has agreed to
register, list or otherwise qualify the resale of the Ordinary Shares in the
U.S. or European markets where the Company's Ordinary Shares are then tradeable
where an exemption from registration, listing or qualification requirements is
unavailable.
AGREEMENT
SECTION 1 DEFINITIONS. For purposes of this Agreement, the following
-----------
terms have the following meanings:
"AFFILIATE" means, with respect to any Person, any entity that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with such Person. For purposes of this definition, the
term "CONTROL" means ownership of fifty percent (50%) or more of the voting
interests of such Person.
"AGREEMENT" means this Registration Rights Agreement as amended, modified,
restated and replaced from time to time in accordance with the provisions
hereof.
"APPLICABLE EXCHANGE" means the primary U.S. or European securities market
or exchange on which the Company's publicly trading securities are listed or
qualified.
"COMMISSION" means the U.S. Securities and Exchange Commission or any other
U.S. federal agency at the time administering the Securities Act, or comparable
regulatory authority in the case of listing or qualification of the Registrable
Securities for sale through the Applicable Exchange.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended,
or any successor U.S. Federal statute, and the rules and regulations of the
Commission thereunder.
<PAGE>
"IPO" means an underwritten public offering by the Company of Ordinary
Shares (or depositary receipts with respect thereto) registered under the U.S.
Securities Act of 1933, as amended, together with the listing or quoting of
Ordinary Shares or such depositary receipts on a securities exchange, or a
similar public offering and listing by the Company of Ordinary Shares in London,
Amsterdam or such other location as the Company determines to be appropriate.
"ORDINARY SHARES" means the ordinary shares of the Company with a par value
of one Dutch Guilder each, together with any other ordinary shares of the
Company that may be issued by the Company in substitution therefor.
"PERSON" means any natural person, company, corporation, partnership, joint
venture, trust, association, investment company, fund, unincorporated entity of
any kind or governmental authority.
"REGISTRABLE SECURITIES" means the Ordinary Shares of the Company acquired
by the Shareholder pursuant to the Option Agreement, and any other equity
securities issued upon conversion thereof or that may be issued or distributed
in respect thereof by way of stock dividend or stock split or other
distribution, recapitalization, merger, consolidation or reclassification or
other reorganization or otherwise. A Registrable Security shall cease to be a
Registrable Security when: (A) a Registration Statement shall have become
effective under the applicable Securities Law and such security shall have been
disposed of in accordance therewith; (B) such security shall have been otherwise
transferred and new certificates for such security not bearing a legend
restricting further transfer shall have been delivered by the Company; (C) such
security shall have ceased to be outstanding; or (D) if all Registrable
Securities outstanding at any given time constitute no more than five percent
(5%) of the aggregate number of Ordinary Shares then outstanding and such
securities may be sold during any three-month period pursuant to the exemption
of Rule 144 under the Securities Act.
"REGISTRATION EXPENSES" has the meaning set forth in Section 8.
"REGISTRATION STATEMENT" means a registration statement, listing
particulars or similar document with respect to the sale of Registrable
Securities on the Applicable Exchange as required by the applicable Securities
Law.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended, or any
successor U.S. Federal statute, and the rules and regulations of the Commission
thereunder.
"SECURITIES LAWS" means the Exchange Act, the Securities Act or any other
relevant securities law applicable for the sale of securities through the
Applicable Exchange.
"U.S." means the United States of America.
SECTION 2 DEMAND REGISTRATION.
-------------------
(a) At any time following an IPO by the Company, upon the written
request of Shareholders holding an aggregate of 33% of the outstanding
Registrable Securities requesting that the Company effect the registration,
listing or qualification under the applicable Securities
2
<PAGE>
Law of all or part of the Registrable Securities owned by such Shareholders and
specifying the intended method of disposition thereof, but subject to the
limitations set forth herein, the Company will promptly (but in no event more
than five business days after the receipt of such request) give written notice
of such requested registration, listing or qualification to all other
Shareholders, and the Company shall prepare and file with the Commission as
promptly as practicable, but in any event no later than 75 days after sending
such notice, and use its best efforts to cause to become effective as promptly
thereafter as practicable, a Registration Statement under the Securities Law
registering the offering and sale of:
(i) the Registrable Securities which the Company
has been so requested to register by the Shareholders; and
(ii) all other Registrable Securities which the
Company has been requested to register by any other Shareholders by
written request given to the Company within 30 days after the giving
of such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered (a "DEMAND REGISTRATION"); provided that (A) the Company shall not be
obligated to file a Registration Statement pursuant to this Section 2(a) with
respect to more than two registrations, and (B) the Company shall not be
obligated to file a Registration Statement pursuant to this Section 2(a) unless
the aggregate amount of Registrable Securities that any Shareholders seek to
register pursuant to such Section constitutes, in each instance, at least 33% of
all Ordinary Shares of the Company acquired by the Shareholders (or any such
Shareholders' predecessor with respect to such Option Shares) pursuant to the
Option Agreement.
(b) If in accordance with Section 10 a requested registration
pursuant to this Section 2 is to be in the form of an underwritten offering
through underwriters, the Company shall designate as managing underwriters one
or more appropriate investment banking firms that are reasonably satisfactory to
Shareholders holding a majority of the Registrable Securities to be included in
such registration. If a requested registration pursuant to this Section 2
involves an underwritten offering and the managing underwriter advises the
Company in writing that, in its opinion, the number of securities requested to
be included in such registration (including securities of the Company which are
not Registrable Securities) exceeds the number which can be sold in such
offering without a significant adverse effect on the price, timing or
distribution of the Registrable Securities offered, the Company will include in
such registration only the Registrable Securities requested to be included in
such registration. In the event that the number of Registrable Securities
requested to be included in such registration exceeds the number which, in the
opinion of such managing underwriter, can be sold, then the Company will include
in such registration only the number of Registrable Securities which, in the
opinion of the managing underwriter, can be sold, such number to be allocated
pro rata among all requesting Shareholders on the basis of the relative number
of shares of Registrable Securities requested to be sold by each such holder
(provided that any shares thereby allocated to any such holder that exceed such
holder's request shall be reallocated among the remaining requesting holders of
Registrable Securities in like manner). In the event that the number of
Registrable Securities
3
<PAGE>
requested to be included in such registration is less than the number which, in
the opinion of the managing underwriter, can be sold, the Company may include in
such registration the securities the Company or any other holder of the
Company's securities proposes to sell up to the number of securities that, in
the opinion of the managing underwriter, can be sold without an adverse effect
on the price, timing or distribution of the Registrable Securities offered.
(c) The Company shall be entitled to postpone for a reasonable
period of time (not to exceed 120 days, which may not thereafter be extended)
the filing of any Registration Statement otherwise required to be prepared and
filed by it pursuant to Section 2(a) if, at the time it receives a request for
such registration, the Supervisory Board of the Company determines in good faith
that such offering will materially interfere with a pending or contemplated
financing, merger, sale of assets, recapitalization or other similar corporate
action of the Company, in which case the Company shall have furnished to holders
of Registrable Securities requesting such registration an officers' certificate
to that effect; provided that the Company shall not exercise the right to
postpone registration pursuant to this Section 2(c) more than once in any 12-
month period. After such period of postponement the Company shall effect such
registration as promptly as practicable without further request from the holders
of Registrable Securities, unless such request has been withdrawn. If the
request is so withdrawn by all holders of Registrable Securities requesting
registration, the Company shall be deemed to have not filed a Registration
Statement for purposes of Section 2(a)(A).
SECTION 3 PIGGY-BACK REGISTRATION.
-----------------------
(a) If the Company shall at any time following the IPO propose to
file a Registration Statement for an offering of equity securities of the
Company, by the Company or for resale by holders of the Company's securities
other than Registrable Securities (the "REQUESTING HOLDERS"), the Company shall
provide prompt written notice of such proposal, in any event, not less than 15
days before the anticipated date of the first filing of such Registration
Statement, to all Shareholders of its intention to do so and of such
Shareholders' rights under this Section 3. In the event that the Registration
Statement for the IPO will include also equity securities of the Company to be
sold by any holder of the Company's securities other than Registrable
Securities, the Shareholders' rights under this Section 3 shall apply with
respect to the IPO as well. The Company shall use its best efforts to include
such number of Registrable Securities in such Registration Statement which the
Company has been so requested to register by any Requesting Holder (a "PIGGY-
BACK REGISTRATION"), which request shall be made to the Company within 15 days
after such Shareholders receive notice from the Company of such proposed
registration; provided, that (i) if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to each Shareholder
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration, and (ii) if such registration
involves an underwritten offering, all holders of Registrable Securities
requesting to be included in the registration must sell their Registrable
Securities to the underwriters on the same terms and conditions as apply to the
Requesting Holders, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in
secondary offerings. Any Shareholder requesting pursuant to this Section 3 to be
included in a registration
4
<PAGE>
may elect, in writing prior to the effective date of the Registration Statement
filed in connection with such registration, not to register such securities in
connection with such registration.
(b) If a registration pursuant to this Section 3 involves an
underwritten offering as to which any Shareholder has requested a Piggy-back
Registration and the managing underwriter reasonably and in good faith advises
the Company in writing that, in its opinion, the number of securities to be
included in such registration exceeds the number which can be sold in such
offering without an adverse effect on the price, timing or distribution of such
offering, then (i) first, the number of securities which the Company's security
holders other than the Requesting Holders requested to be included in such
registration shall be reduced as necessary pro rata in proportion to the
relative number of securities requested by each such holder to be included until
the number of securities to be included in such registration no longer exceeds
the number which can be sold in such offering, (ii) second, the number of
securities which (A) the Requesting Holders requested to be included in such
registration in the case of a registration instigated by Requesting Holders or
(B) the Company plans to include in such registration in the case of a
registration instigated by the Company shall be reduced as applicable until the
number of securities to be included in such registration no longer exceeds the
number which can be sold in such offering.
SECTION 4 SUSPENSION OF REGISTRATION OBLIGATION. The Company shall not be
-------------------------------------
required to register the sale of Registrable Securities under this Agreement for
any applicable Shareholder if there is available for such transaction an
appropriate exemption from registration under the applicable Securities Law such
that the Registrable Securities can be sold on the Applicable Exchange without
limitation (other than volume restrictions).
SECTION 5 HOLD-BACK AGREEMENTS. Each Shareholder agrees in connection
--------------------
with any registration effected by the Company (other than an offering relating
to (i) a business combination that is to be filed on Form S-4 under the
Securities Act (or any successor form thereto) or other comparable Securities
Law or (ii) an employee benefit plan) of the Company's securities not to effect
any public sale or distribution of securities of the Company the same as or
similar to those being registered, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale exempt from
registration except as part of such registration, during the 14-day period prior
to, and during the 90-day period (or, with respect to a Piggy-back Registration,
such longer period of up to 120 days as may be requested by such managing
underwriter) beginning on, the effective date of the related Registration
Statement, to the same extent requested by the managing underwriters and
applicable to other holders of the Company's securities subject to similar
agreements or having similar holdings of securities of the Company. Each
Shareholder agrees to execute an undertaking in accordance with the foregoing in
the form reasonably requested by the managing underwriters.
SECTION 6 RESTRICTIONS ON TRANSFER OF SHARES OF REGISTRABLE SECURITIES.
------------------------------------------------------------
(a) The Shareholders may not offer to sell, sell or otherwise transfer
Registrable Securities unless such sale or transfer (i) has been registered
under the Securities Laws or (ii) is pursuant to an exemption from registration
under the Securities Laws and the Company has received an opinion of counsel
reasonably acceptable to the Company as the applicability of such exemption.
5
<PAGE>
(b) Shareholders acknowledge and agree that certificates evidencing the
Registrable Securities shall bear any restrictive legend required by the
Applicable Exchange as well as the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
'SECURITIES ACT') AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE SECURITIES ACT
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT."
SECTION 7 REGISTRATION.
------------
(a) Whenever any Registrable Securities are to be registered
pursuant to Section 2 or 3 of this Agreement, the Company will use its best
efforts to effect the registration and the sale of such Registrable Securities
under the Securities Laws in accordance with the intended method of disposition
thereof. The Company shall deliver to the applicable holders a sufficient number
of prospectuses to sell the Registrable Securities as contemplated by the
Registration Statement. If required or appropriate, the Company shall enter into
the necessary agreements with a Transfer Agent with respect to such securities.
(b) The Company may require each Shareholder requesting a
registration pursuant to Section 2 or 3 to furnish to the Company such
information regarding the distribution of such securities and such other
information relating to such Shareholder and its ownership of Registrable
Securities as the Company may from time to time reasonably request in writing.
Each such Shareholder agrees to furnish such information to the Company and to
cooperate with the Company as necessary to enable the Company to comply with the
provisions of this Agreement.
(c) Upon receipt of any notice from the Company at any time when a
prospectus relating to the registration is required to be delivered under the
Securities Laws, of the occurrence of any event as a result of which the
prospectus included in such registration statement (as then in effect) contains
an untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, Shareholder selling Registrable Securities
will forthwith discontinue disposition of the Registrable Securities until
receipt of copies of a supplemented or amended prospectus or until such
Shareholders are advised in writing (the "ADVICE") by the Company that the use
of the prospectus may be resumed, and have received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus and,
if so directed by the Company, such Shareholders will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
6
<PAGE>
SECTION 8 REGISTRATION EXPENSES. Except as otherwise agreed in accordance
---------------------
with Section 2(a), all expenses incident to the Company's performance of or
compliance with this Agreement including, without limitation, all Commission and
securities exchange registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), rating agency fees, printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of the Company's officers and employees performing legal
or accounting duties), the fees and expenses incurred in connection with the
listing of the securities to be registered, if any, on each securities exchange
on which similar securities issued by the Company are then listed, the fees and
disbursement of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or "COLD COMFORT"
letters required by or incident to such performance), Securities Laws liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of the Transfer Agent and the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration
(all such expenses being herein called "REGISTRATION EXPENSES") will be borne by
the Company; provided that Registration Expenses shall not include, and the
Company shall not be responsible for any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities or any other
expenses incurred by Shareholder in connection with such registration, which
shall be paid by Shareholder requesting such registration.
SECTION 9 TERM. This Agreement shall terminate at such time as all
----
Registrable Securities have been sold pursuant to an effective Registration
Statement under the Securities Laws or may be publicly sold without registration
in the jurisdiction of the Applicable Exchange.
SECTION 10 UNDERWRITTEN OFFERINGS.
----------------------
(a) Shareholders may request that any registration pursuant to
Section 2 of Registrable Securities be an underwritten registration. In the
event such a registration is an underwritten offering, the Company will enter
into an underwriting agreement with the managing underwriter or underwriters for
such offering (which managing underwriter or underwriters shall be an
appropriate investment banking firm or firms designated by the Company and
reasonably satisfactory to Shareholders holding a majority of the Registrable
Securities to be included in such registration, such agreement to contain such
terms (including representations and warranties of, and indemnifications by, the
Company) as are customarily contained in agreements of such type. Shareholders
selling Registrable Securities in such offering shall be party to such
underwriting agreement.
(b) No Person may participate in any registration hereunder that is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
SECTION 11 INDEMNIFICATION.
---------------
7
<PAGE>
(a) In connection with any offering of Registrable Securities
pursuant to Section 2 or 3, the Company agrees to indemnify, to the fullest
extent permitted by law, each Shareholder whose Registrable Securities are sold
in such offering, each of their officers and directors and each Person who
controls such Shareholder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses (including attorney's fees)
arising out of or based upon any untrue or alleged untrue statement of material
fact contained in any Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto under which such
Registrable Securities were registered under the Securities Act (the
"REGISTRATION MATERIALS") or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof, except insofar as such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Materials in reliance upon and in conformity with any
written information furnished in writing to the Company by such Shareholder for
purposes of inclusion thereof, or reliance thereon, in the Registration
Materials.
(b) Each Shareholder whose Registrable Securities are sold in any
offering pursuant to Section 2 or 3, severally but not jointly agrees to
indemnify, to the fullest extent permitted by law, the Company, the other
Shareholders whose Registrable Securities are sold in such offering, their
respective officers and directors and each other Person, if any, who controls
the Company or such other Shareholders (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses (including
attorney's fees) caused by any untrue or alleged untrue statement of a material
fact contained in any Registration Materials or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such Registration Materials in reliance upon and in
conformity with any written information furnished in writing for such purpose to
the Company by the Shareholder. In no event shall the liability of any
Shareholder hereunder be in an amount greater than the dollar amount of the
proceeds received by such Shareholder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action threatened or commenced against it in respect
of which indemnity may be sought hereunder. In case of any notice under this
indemnity agreement with respect to any loss, liability, claim, damage or
expense with respect to any claim made against an indemnified Person, the
indemnifying party shall be entitled to participate at its own expense in the
defense and such defense shall be conducted by counsel chosen by the
indemnifying party and reasonably acceptable to the indemnified party. The
indemnified party may select at its own expense co-counsel to participate in
such defense under the local counsel chosen by the indemnifying party. In no
event shall an indemnifying party be liable for the fees and expenses of more
than one counsel for an indemnified party (in addition to local counsel) in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
(d) If the indemnification provided for in this Section 11 is
unavailable to any indemnified party under paragraphs (a) or (b) hereof in
respect of any losses, claims, damages,
8
<PAGE>
liabilities or expenses referred to therein, then an indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Shareholders on the one hand and the Company
on the other hand from the offering of the Registrable Securities, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Shareholders
on the one hand and the Company on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Shareholders on the one hand and the
Company on the other hand shall be deemed to be in the same proportion as the
total proceeds from the offering received by the Shareholders bear to the total
proceeds from the offering received by the Company. The relative fault of the
Shareholders on the one hand and the Company on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact related to information supplied by the Shareholders on the one
hand or by the Company on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The respective obligations of the Shareholders to
contribute pursuant to this Section 11(d) are several and not joint, and the
obligation of each Shareholder shall bear the same proportion to the total
obligations of the Shareholders pursuant to this Section 11(d) as the number of
Registrable Securities sold by such Shareholder hereunder bears to the total
number of Registrable Securities sold by the Shareholders hereunder. In no event
shall the liability of any Shareholder pursuant to this Section 11 (d) be in an
amount greater than the dollar amount of the proceeds received by such
Shareholder upon the sale of the Registrable Securities giving rise to such
contribution obligation.
(e) The Shareholders and the Company agree that it would not be
just and equitable if contributions pursuant to this Section 11 were determined
by a pro rata allocation of any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. No person guilty of fraudulent misrepresentation shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
SECTION 12 TRANSFEREES. Any Person acquiring from the Shareholder or any
-----------
transferee thereof any Registrable Securities, may elect, within 30 days of the
date of the transfer to it of such Registrable Securities, to sign the signature
page attached hereto as Annex A and delivering an executed original copy of such
signature page to the Company and thereby become a party to this Agreement and
be deemed a Shareholder under this Agreement. Each such Shareholder shall be
bound by the terms of this Agreement and shall hold such Registrable Securities
with all the rights conferred, and subject to all obligations and restrictions
imposed, hereby.
9
<PAGE>
SECTION 13 MISCELLANEOUS.
-------------
(a) This Agreement contains the entire understanding of the parties
hereto with respect to its subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument duly executed by
the Company and Shareholders holding a majority of the Registrable Securities;
provided that, in the case of any waiver, such waiver shall be effective if
executed by each Shareholder affected by such waiver. Each Shareholder shall be
bound by an amendment or waiver authorized by this Section 13(a), whether or not
any Registrable Securities shall have been marked to indicate such consent.
(b) All covenants and agreements in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto whether so
expressed or not.
(c) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(d) This Agreement may be executed in two or more counterparts, any
one of which need not contain the signatures of more than one party, but all
such counterparts taken together will constitute one and the same Agreement.
(e) The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
(f) The interpretation and construction of this Agreement and all
matters relating hereto, shall be governed by the law of The Netherlands.
(g) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, by
facsimile or mailed by certified or registered mail, return receipt requested
and postage prepaid, or by courier guaranteeing overnight delivery as follows:
(i) If to any Shareholder, at the most current address given
by such Shareholder to the Company; and
(ii) If to the Company, at:
United Pan-Europe Communications, N.V.
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
10
<PAGE>
Attention: General Counsel
Facsimile No.: +31 (20) 778-9871
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: W. Dean Salter, Esq.
Facsimile No.: +1 (303) 866-0200
All such notices and communications shall be deemed to have been duly
given: one business day after being delivered by hand, if personally delivered;
four business days after being deposited in the mail for delivery via airmail,
airmail postage prepaid, if mailed; and one business day after being
transmitted, if delivered by facsimile transmission.
11
<PAGE>
IN WITNESS WHEREOF, the parties have duly signed this Agreement as of the day
and year first above written.
The Company:
-----------
UNITED PAN-EUROPE COMMUNICATIONS, N.V.
By:_____________________________________
Name:____________________
Title:___________________
Shareholders:
------------
[DIC COMMUNICATION AND TECHNOLOGY LTD.]
By:______________________________________
Name:____________________
Title:___________________
[PEC ISRAEL ECONOMIC CORPORATION]
By:______________________________________
Name:____________________
Title:___________________
12
<PAGE>
EXHIBIT 10.14
[EXHIBIT D
TO
OPTION AGREEMENT]
FORM OF
SHAREHOLDERS' AGREEMENT
<PAGE>
EXHIBIT D
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement ("AGREEMENT"), dated as of November __, 1998, is
between and among [UIH Europe, Inc., a corporation organized and existing under
the laws of Delaware, U.S.A.] ("UIH"), [HOLDER] ("HOLDER"), and United Pan-
Europe Communications N.V., a company organized and existing under the laws of
The Netherlands (together with its successors and assigns, the "COMPANY").
Holder and UIH (and their respective permitted assigns), are sometimes referred
to individually as a "SHAREHOLDER" and collectively as the "SHAREHOLDERS". The
Shareholders and the Company are sometimes referred to individually as a
"PARTY" and collectively as the "PARTIES."
WHEREAS, as of the date hereof the authorized capital stock of the Company
consists of _____ Ordinary Shares (as defined below), of which _____ are issued
and outstanding;
WHEREAS, as of the date hereof the Shareholders together own the number and
percentage of outstanding Ordinary Shares set forth below:
- --------------------------------------------------------------------------------
Number of Percentage
Record Holder Ordinary Shares Outstanding
------------- --------------- -----------
- --------------------------------------------------------------------------------
UIH [ ] [ ]
- --------------------------------------------------------------------------------
Holder [ ] [ ]
- --------------------------------------------------------------------------------
WHEREAS, the Shareholders wish to regulate their relationship as shareholders
of the Company.
NOW, THEREFORE, the Parties hereto agree as follows:
ARTICLE I
Definitions
-----------
In addition to the other terms defined in this Agreement, the following
terms shall have the meanings given to them below:
"AFFILIATE" shall mean, with respect to any Person, any entity that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such Person. For purposes of
this definition, the term "control" means the ownership of fifty percent (50%)
or more of the Voting Interests of such Person.
"AGREEMENT" shall mean this Shareholders' Agreement between UIH, Holder and
the Company, as the same may be amended, modified, restated or replaced from
time to time.
"APPLICABLE EXCHANGE" means the primary U.S. or European securities market
or exchange on which the Company's publicly trading securities are listed or
qualified.
<PAGE>
"APPROVED SALE" shall have the meaning set forth in Section 3.4.
"BUSINESS DAY" shall mean any day on which banks in each of Tel Aviv,
Israel, Amsterdam, The Netherlands and New York, New York, United States of
America are generally open to the public for the conduct of commercial banking
transactions.
"COMPETITOR" shall mean any Person that is materially engaged, directly or
indirectly through Affiliates, in the business of providing video, voice or
data services to commercial and residential customers in any of the countries
where the Company is or intends in the next 12 months to be materially engaged,
directly or indirectly through its controlled Affiliates, in such business at
any given time.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
4.1(a).
"CONTROLLING INTEREST" shall mean fifty percent (50%) or more of all issued
and outstanding Ordinary Shares at any given time.
"DIC" shall mean DIC Communication and Technology Ltd., a corporation
organized and existing under the laws of the State of Israel.
"DOLLARS" or "US $" means United States dollars, the lawful currency of the
United States of America.
"DPC GROUP" shall mean DIC, PEC and their respective Affiliates.
"DPC NOMINEE" shall have the meaning set forth in Section 2.2.
"ENCUMBRANCE" shall mean any debt, charge, attachment, lien, claim or any
other third party right.
"EQUITY PERCENTAGE" shall mean, as to each Shareholder, the percentage of
the total outstanding Ordinary Shares owned by such Shareholder, including all
Ordinary Shares owned by all Affiliates of such Shareholder.
"GAAP" shall mean generally accepted accounting principles as applied in
The Netherlands.
"GOVERNING DOCUMENTS" shall mean the charter, articles of association, by-
laws and similar governing documents of any Person on the date hereof and as
hereafter amended from time to time.
"HOLDER'S PUT SHARES" shall have the meaning set forth in Section 3.3(a).
2
<PAGE>
"IDB" shall mean IDB Development Corporation Ltd., a corporation organized
and existing under the laws of the State of Israel and the current owner of a
majority of the issued and outstanding Voting Interests of each of DIC and PEC.
"LAW" shall mean any statute, ordinance, code or other law, rule,
regulation, order, technical or other standard, requirement or procedure
enacted, adopted, promulgated, applied, enforced or followed by any court,
governmental agency or competent authority of any country, including any
political subdivision thereof.
"MINORITY INTEREST" shall have the meaning set forth in Section 3.5(a).
"NEGOTIATION PERIOD" shall have the meaning set forth in Section 3.5(a).
"OFFER NOTICE" shall have the meaning set forth in Section 3.2(a).
"OFFERED SHARES" shall have the meaning set forth in Section 3.2(a).
"OPTION AGREEMENT" shall mean the Option Agreement dated as of November __,
1998 among the Company, DIC and PEC.
"ORDINARY SHARES" shall mean the ordinary shares of the Company with a par
value of one Dutch Guilder each, together with any other shares of the Company
that may be issued by the Company in substitution therefor.
"PEC" shall mean PEC Israel Economic Corporation, a corporation organized
and existing under the laws of the State of Maine, United States of America.
"PERSON" shall mean any natural person, company, corporation, partnership,
joint venture, trust, association, investment company, fund, unincorporated
entity of any kind, or governmental agency or authority.
"PROHIBITED PERSON" shall mean, with respect to a proposed Transfer of
Ordinary Shares, any Person who, in the reasonable opinion of the Supervisory
Board, could cause the Company to be in breach of or default under or otherwise
lose material rights with respect to any of the Company's or its Affiliate's
licenses, permits, concessions or other approvals upon the consummation of such
Transfer of Ordinary Shares to such Person, taking into consideration such
Person's existing ownership or control of Ordinary Shares, if any.
"PROPOSED TRANSFEREE" shall have the meaning set forth in Section 3.2(a).
"PURCHASE NOTICE" shall have the meaning set forth in Section 3.2(a).
"PUBLIC OFFERING" shall mean an underwritten public offering by the Company
of Ordinary Shares (or depositary receipts with respect thereto) registered
under the United States Securities
3
<PAGE>
Act of 1933, as amended, together with the listing or quoting of Ordinary
Shares or such depositary receipts on a Securities Exchange, or a similar
public offering by the Company, together with the listing on a regulated stock
exchange, of Ordinary Shares in London, Amsterdam or such other location as the
Company determines to be appropriate.
"QUALIFIED COURIER" shall have the meaning set forth in Section 6.1.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement of even date herewith between and among the Company and Holder.
"SALE OF THE COMPANY" shall have the meaning set forth in Section 3.4.
"SECURITIES EXCHANGE" shall mean the New York Stock Exchange, the American
Stock Exchange or the Nasdaq Stock Market in the United States of America.
"SIGNIFICANT INTEREST" shall mean the direct or indirect ownership of, or
voting rights with respect to, individually or together with any group, (i)
thirty three percent (33%) or more of the issued and outstanding Ordinary
Shares at any time prior to an IPO, and (ii), twenty five percent (25%) or more
of the issued and outstanding Ordinary Shares at any time following an IPO.
"STRATEGIC PARTNER" shall mean an investor in the Company that is
materially engaged in business operations in one or more of the areas of
business conducted by the Company and will participate actively in the
operation and management of the Company or any significant Subsidiary of the
Company.
"SUBSIDIARY OF THE COMPANY" means any Person that is controlled, directly
or indirectly, by the Company. For purposes of this definition, "control"
shall mean (i) the contractual authority to appoint or cause the election of
thirty three percent (33%) or more of the members of the board of directors of
such Person or individuals performing similar functions, and (ii) the ownership
of, or ability to direct the voting with respect to, directly or indirectly,
thirty three percent (33%) or more of the voting securities or similar equity
interests of such Person.
"SUPERVISORY BOARD" shall mean the Supervisory Board of the Company as
appointed from time to time in accordance with the Company's Governing
Documents.
"TAG ALONG NOTICE" shall have the meaning set forth in Section 3.3.
"THIRD PARTY SALE" shall have the meaning set forth in Section 3.3.
"TRANSFER" shall mean to transfer, sell, assign, give, or in any other way
dispose of any Shares. "TRANSFER" shall also mean to pledge, create or permit
to exist a security interest in or lien on, or in any other way Encumber,
directly or indirectly, any Shares (excluding a pledge to secure debt from
banks or other institutional lenders or trustees for holders of public debt,
provided that such pledgee agrees in writing that any execution or realization
against such pledge
4
<PAGE>
will be subject to the provisions of Article III of this Agreement). "TRANSFER"
shall also have the meaning set forth in Section 3.10.
"UIH GROUP" shall mean UIH and any Affiliate, successor or permitted assign
of UIH.
"UIH PARTIES" shall have the meaning set forth in Section 3.2(a).
"VOTING INTERESTS" shall mean the aggregate number of votes exercisable by
holders of shares of capital stock of, or other equity interests in, any Person
in connection with the election of members of such Person's board of directors,
supervisory board or similar governing body and the adoption of resolutions of
shareholders or other equity holders.
ARTICLE II
Supervisory Board; Shareholder Voting
-------------------------------------
2.1 Supervisory Board. The Supervisory Board shall consist of at least
-----------------
three members, who shall not be executive officers of the Company. The number
of members of the Board may be increased or decreased (but not below three) in
accordance with the Company's Articles of Association.
2.2 Appointment of DPC Nominee. During the period (the "Applicable
--------------------------
Period") beginning on the date hereof and ending on the date that the DPC Group
ceases to own in the aggregate at least fifty percent (50%) of the number of
Ordinary Shares owned by it on the date hereof (adjusted for any stock splits,
distributions of Ordinary Shares, and similar events resulting in an increase
or decrease in the DPC Group's Ordinary Shares), the member or members of the
DPC Group then owning Ordinary Shares (collectively, the "DPC HOLDER") shall be
entitled to appoint (i) the number of Supervisory Board members that
corresponds to the DPC Holder's Equity Percentage (rounded to the nearest whole
number), but in any event not less than one member; and (ii) the number of
members of each committee of the Supervisory Board (rounded to the nearest
whole number) that corresponds to the DPC Holder's Equity Percentage, but in
any event not less than one member. In each such case, the appointment shall
be on the basis of a binding nomination submitted by the DPC Holder (the "DPC
NOMINEE(S)") to the Company. Each DPC Nominee shall, subject to Section 2.5,
hold office until it is vacated or until such DPC Nominee's successor is duly
appointed and qualified.
2.3 Vacancy. During any period in which the DPC Group is entitled to
-------
appoint one or more of the members of the Supervisory Board or any committee of
the Supervisory Board pursuant to Section 2.2, whenever any DPC Nominee ceases
to be a member of the Supervisory Board or committee thereof, due to the
resignation, death, disability or removal (subject to Section 2.4) or any other
reason, such vacancy shall be filled by another nominee of the DPC Holder, and
the person so nominated and appointed shall become a DPC Nominee and shall hold
such office until it is vacated or until such Nominee's successor is duly
appointed and qualified.
5
<PAGE>
2.4 Removal. During any period in which the DPC Group is entitled to
-------
appoint one or more of the members of the Supervisory Board or any committee
thereof pursuant to Section 2.2, no DPC Nominee may be removed as a member of
the Supervisory Board or committee, as applicable, without the express written
consent of the DPC Holder. If the DPC Holder notifies the members of the UIH
Group in writing of the DPC Holder's desire to remove any DPC Nominee from the
Supervisory Board or committee, as applicable, the Parties shall cause a
meeting of the Company's shareholders to be held as soon as practicable
thereafter, and at such meeting the Shareholders shall vote, or cause to be
voted, all of their respective Ordinary Shares in favor of the removal of such
DPC Nominee. The term of the DPC Nominee so removed shall terminate forthwith
and there shall be a vacancy on the Supervisory Board or committee, as
applicable, to be filled in accordance with Section 2.3.
2.5 Resignation. At such time as the DPC Group ceases to be entitled to
-----------
appoint a member of the Supervisory Board pursuant to Section 2.2, the DPC
Holder shall, at the request of UIH, take all such action as is necessary to
cause each DPC Nominee then in office to resign as a member of the Supervisory
Board and each committee thereof, as applicable.
2.6 Articles of Association. During the term hereof, the Company's
-----------------------
Articles of Association may not be amended in such a way as would prejudice the
DPC Holder's rights hereunder without the prior written consent of the DPC
Holder, which consent will not be unreasonably withheld. The DPC Holder hereby
agrees that amendments to the Company's Articles of Incorporation required in
order for the Company to be able to issue Ordinary Shares in the circumstances
described in subparagraphs (a) through (e) of Section 1 of Schedule 1 of this
Agreement will not prejudice Holder's rights hereunder. This Section 2.6 will
terminate and have no further effect upon the completion of a Public Offering.
2.7 Voting.
------
(a) Attendance at Shareholder Meetings. Each Shareholder agrees to
----------------------------------
cause all of its Ordinary Shares to be represented at each duly convened
shareholder meeting, in person or by proxy, for the purpose of obtaining a
quorum for such meeting.
(b) Voting. Whenever any DPC Nominee is to be appointed as a member
------
of the Supervisory Board or any committee thereof, as applicable, pursuant to
this Article II, the Parties shall cause a meeting of the Company's
shareholders to be held as soon as practicable thereafter, and at such meeting
the Shareholders shall vote, or cause to be voted, all of their respective
Ordinary Shares in favor of such appointment in accordance with the terms of
this Article II. At each meeting of the shareholders of the Company voting on
the appointment of members of the Supervisory Board or any committee thereof,
the Shareholders shall vote or cause to be voted, all of their respective
Ordinary Shares in favor of each nominee of UIH to be appointed as a member of
the Supervisory Board or committee thereof, as applicable, proposed to be
appointed by UIH at such meeting. In addition, to the maximum extent permitted
by applicable laws, each Shareholder will cause each member of the Supervisory
Board appointed
6
<PAGE>
by such Shareholder to vote at Supervisory Board meetings as may be required to
implement the provisions of this Article II.
2.8 DPC Group Action. Each notice, appointment, or other action required
----------------
or permitted to be given, made or taken, as applicable, by the DPC Group or the
members of the DPC Group under this Article II shall be effective only if
given, made or taken jointly, which shall be deemed to have occurred if UIH
receives written notice thereof signed by holders of a majority of the Ordinary
Shares held by the DPC Group in accordance with this Article II and Section
6.1. Neither UIH nor the Company shall have any obligation to take any action
hereunder other than pursuant to a written notice of the DPC Group that
complies with the requirements of this Section 2.8.
ARTICLE III
Transfers of Ordinary Shares
----------------------------
3.1 Non-Conforming Transfers Null and Void. If a Shareholder desires to
--------------------------------------
Transfer all or any of such Shareholder's Ordinary Shares or any interest
therein to any Person other than (i) any Transfer, in the case of a member of
the UIH Group, to another member of the UIH Group and, in the case of a member
of the DPC Group, to another member of the DPC Group, in either case, in
compliance with the requirements of Section 3.6, or (ii) any Transfer effected
by means of a Registration Statement (as defined in the Registration Rights
Agreement) and in accordance with the Registration Rights Agreement, or (iii)
sales on the Applicable Exchange following a Public Offering where the identity
of the purchaser is not known, provided that such sales do not exceed the same
periodical volume limitations set forth in Rule 144 promulgated under the
United States Securities Act of 1933, as amended, then such Shareholder must
first comply with each of the procedures set forth in this Article III
applicable to such Shareholder. Any Transfer or purported Transfer by a
Shareholder of Ordinary Shares or any interest therein that does not comply
with this Article III shall be null and void and shall have no effect on the
Company.
3.2 Right of First Refusal.
----------------------
(a) Offer. If Holder desires to Transfer any Ordinary Shares or any
-----
interest therein (the "OFFERED SHARES") in any manner other than as permitted
under Section 3.1 above, Holder must first provide each of UIH and the Company
(referred to collectively for purposes of this Section 3.2 and Section 3.6 as
the "UIH PARTIES") with written notice (the "OFFER NOTICE") stating that Holder
is proposing to sell the Offered Shares to a Person (the "PROPOSED TRANSFEREE")
pursuant to a bona fide agreement between Holder and the Proposed Transferee.
The Offer Notice shall identify the name of the Proposed Transferee (including
any Person that, to Holder's knowledge or belief, controls such Proposed
Transferee), the number of Ordinary Shares or other interests therein to be
sold, the purchase price, which shall consist solely of cash consideration, the
terms of payment, the date by which the closing of the sale must occur, which
date shall not be less than 90 nor more than 150 days after delivery of the
Offer Notice, and each other material term applicable to such proposed
Transfer. The UIH Parties shall have the
7
<PAGE>
opportunity thereafter, by sending written notice (the "PURCHASE NOTICE") to
Holder on or before the date that is 30 days following the date that each of
the UIH Parties received the Offer Notice, stating that one or more of the UIH
Parties or any designee of such UIH Parties has elected to purchase all, but
not less than all, of the Offered Shares on the same terms and conditions set
forth in the Offer Notice.
(b) Election to Purchase; Closing. If a Purchase Notice is timely
-----------------------------
delivered to Holder by more than one of the UIH Parties, then the Offered
Shares shall be allocated among them and their designees equally unless
otherwise notified in writing to Holder by all such UIH Parties. Each of the
Parties agrees to use all commercially reasonable efforts to promptly make such
filings and obtain such regulatory approvals as are required to allow the UIH
Parties (or their designees, as the case may be) to purchase the Offered
Shares. The closing of the sale of the Offered Shares to the UIH Parties or
their designees pursuant to this Section 3.2(b) shall occur at 11:00 a.m.
Amsterdam time at the principal offices of the Company on or before the later
of (i) the date that is ten (10) Business Days prior to the closing date set
forth in the Offer Notice, or (ii) the date that is ten (10) Business Days
after all such regulatory approvals for the sale have been obtained and all
applicable waiting periods have expired; provided, however, that if such
regulatory approvals or waiting periods have not been obtained or expired, as
applicable, or for any other reason (except due to Holder's fault) the closing
of such sale does not occur on or before the date that is 150 days after the
date of delivery of the Purchase Notice, Holder shall be free to sell all (but
not less than all) of the Offered Shares as set forth in Section 3.2(c). The
sale to the UIH Parties (or their designees, as the case may be) shall be
effected by the Holder's delivery to the UIH Parties (or their designees, as
the case may be) of a certificate or certificates evidencing the Offered Shares
to be purchased thereby, which Offered Shares shall be free and clear of any
Encumbrances, together with an executed contract for Transfer of such Shares to
the UIH Parties (or their designees, as the case may be), and the delivery to
the Holder by the UIH Parties (or their designees, as the case may be) of the
purchase price therefor in immediately available and freely transferable funds
in the currency included in the Offer Notice, or the equivalent thereof in
Dollars at such time, at the election of the UIH Parties.
(c) Sale Upon Election Not to Purchase. If none of the UIH Parties
----------------------------------
delivers a Purchase Notice in accordance with Section 3.2(a), then all (but not
less than all) of the Offered Shares may be sold by the Holder to the Proposed
Transferee in accordance with the terms set forth in the Offer Notice. In
connection with such sale, each of the Parties shall use all commercially
reasonable efforts to promptly make such filings and obtain such regulatory
approvals as are required to allow the Proposed Transferee to purchase the
Offered Shares. The closing of the sale of the Offered Shares to the Proposed
Transferee may occur no later than on the closing date set forth in the Offer
Notice. Such sale shall be to the Proposed Transferee only and shall be (i) for
all of the Ordinary Shares included in the Offer Notice, (ii) at the same or
higher aggregate price as the price set forth in the Offer Notice, (iii) on
payment terms (including any deferred payment terms) no more favorable to the
Proposed Transferee than the terms set forth in the Offer Notice, and (iv)
subject to each of the other terms and conditions set forth in the Offer
Notice. If the Transfer of the Offered Shares to the Proposed Transferee is
not completed in accordance with each of the terms as required under the
preceding sentence, the
8
<PAGE>
Offered Shares may not be Transferred unless first offered to the UIH Parties
pursuant to this Section 3.2., and any Offered Shares that are not so
Transferred shall continue to be subject to the requirements of this Section
3.2.
3.3 Tag Along Rights.
----------------
(a) If UIH agrees to Transfer any of its Ordinary Shares or any
interest therein in a bona fide transaction with an unaffiliated third party (a
"THIRD PARTY SALE"), UIH shall deliver written notice thereof (the "TAG ALONG
NOTICE") to Holder. The Tag Along Notice shall identify the name of the
proposed purchaser (including any Person that, to UIH's knowledge or belief,
controls such purchaser), the number of Ordinary Shares or other interests
therein to be sold, the purchase price; the terms of payment, the date by which
the closing of the Third Party Sale must occur, which date shall not be less
than thirty (30) nor more than 150 days after delivery of the Tag Along Notice
(plus any additional time required to obtain any necessary governmental and
regulatory approvals), and each other material term applicable to such Third
Party Sale. Holder shall have the right, but not the obligation, to
participate in such Third Party Sale on the same terms and conditions as UIH by
giving written notice of such participation by Holder to UIH not less than
fifteen (15) Business Days after the date that UIH delivers the Tag Along
Notice to Holder. The total number of Ordinary Shares that Holder shall be
entitled to sell in connection with such Third Party Sale ("HOLDER'S PUT
SHARES") shall, subject to Section 3.3(b), be equal to the product of (i) the
total number of Ordinary Shares sold in the Third Party Sale, multiplied by
(ii) a fraction the numerator of which is the total number of Ordinary Shares
then owned by Holder and the denominator of which is the aggregate number of
Ordinary Shares then owned by Holder and UIH. In the event that Holder duly
exercises its right to participate in the Third Party Sale, UIH shall cause
Holder's Put Shares to be purchased from Holder accordingly. No Person shall
have any rights or obligations under this Section if the Third Party Sale is
not completed.
(b) If any Third Party Sale involves a Transfer by UIH of a
Controlling Interest, then Holder shall be entitled to sell in connection with
such Third Party Sale all of the Ordinary Shares owned by Holder on the date
hereof (adjusted for stock splits, distributions to shareholders of Ordinary
Shares and similar actions by the Company resulting in an increase or decrease
of Holder's Ordinary Shares), and the provisions of Section 3.3(a) shall apply
with respect thereto mutatis mutandis.
3.4 Drag Along Rights. If UIH proposes at any time to Transfer all of the
-----------------
Company's Ordinary Shares or assets in a bona fide transaction with an
unaffiliated third party (an "APPROVED SALE") whether by means of a merger, or
consolidation, sale of Ordinary Shares sale of assets, or otherwise (each, a
"SALE OF THE COMPANY"), Holder shall consent to and raise no objections against
such Approved Sale, provided that except as otherwise set forth hereinafter in
this Section 3.4 all material terms and conditions applicable to UIH in
connection with the Approved Sale apply also mutatis mutandis to Holder. If
the Approved Sale is structured as a merger or consolidation of the Company, or
a sale of all or substantially all of the Company's assets, then Holder shall
waive all of Holder's dissenter's rights, appraisal rights or similar rights
9
<PAGE>
in connection with such merger, consolidation or asset sale to the same extent
that such rights shall be waived by UIH. If the Approved Sale is structured as
a sale of Ordinary Shares, then Holder shall agree to sell its Ordinary Shares
on the terms and conditions of sale applicable to UIH. Holder shall take all
necessary and desirable actions reasonably requested by UIH in connection with
the consummation of the Approved Sale, including the execution of such
agreements and such instruments and other actions reasonably necessary to (a)
provide the representations, warranties, indemnities, covenants, conditions,
escrow agreements and other provisions and agreements relating to Holder's
title to and interest in Ordinary Shares of Holder to be sold in connection
with the Approved Sale, and (b) effectuate the allocation and distribution of
the aggregate consideration upon consummation of the Approved Sale. UIH agrees
not to exercise its rights under this Section 3.4 unless it has determined in
good faith that the terms and conditions of the Approved Sale are fair and
reasonable to the Shareholders and obtains an appropriate fairness opinion with
respect to such sale, addressed to the DPC Holder and to UIH.
3.5 Sale of Minority Interest.
-------------------------
(a) If during any 12-month period UIH proposes to Transfer a number of
its Ordinary Shares that represents less than a Controlling Interest (the
"MINORITY INTEREST") but more than 5% of its Ordinary Shares other than to an
Affiliate of UIH or a Strategic Partner, UIH shall promptly give written notice
thereof (a "TRANSFER NOTICE") to the DPC Holder. The DPC Holder shall have the
exclusive right for a period of 30 days following delivery of the Transfer
Notice (the "NEGOTIATION PERIOD"), to negotiate in good faith with UIH
regarding the Transfer of the Minority Interest to the DPC Holder. If UIH and
the DPC Holder are able to agree in writing on the terms and conditions of sale
of the Minority Interest to the DPC Holder during the Negotiation Period, the
closing of the Transfer shall occur in accordance with the terms of such
agreement.
(b) If UIH and the DPC Holder are unable to agree upon the terms and
conditions of Transfer of the Minority Interest to the DPC Holder prior to the
expiration of the Negotiation Period, UIH may sell the Minority Interest to an
unaffiliated third party purchaser in a bona fide transaction provided that (i)
the purchase price is greater than that set forth in a written offer to
purchase the Minority Interest received from the DPC Holder during the
Negotiation Period and none of the other terms and conditions of sale are less
favorable to UIH than those set forth in such offer, and (ii) the sale of the
Minority Interest to the third party purchaser is completed on or before 150
days after the expiration of the Negotiation Period. UIH agrees to use all
commercially reasonable efforts to make such regulatory filings and obtain such
regulatory approvals as promptly as possible. If the sale of the Minority
Interest does not occur in accordance with this Section 3.5(b), UIH shall be
required to repeat the procedures set forth in this Section 3.5 prior to
selling a Minority Interest to any other Person other than an Affiliate of UIH
or a Strategic Partner.
(c) This Section 3.5 shall be effective only during the Applicable
Period and not otherwise.
10
<PAGE>
3.6 Acknowledgment and Acceptance of the Shareholders' Agreement by
---------------------------------------------------------------
Proposed Transferees. No Transfer of Ordinary Shares by any Shareholder (or
--------------------
its respective successors and permitted assigns) to any Affiliate of such
Shareholder or to any other Person (other than Transferees receiving Ordianry
Shares under Section 3.1(ii) or 3.1(iii)) shall be valid unless the proposed
transferee has first agreed in writing addressed to the other Parties to hold
such Ordinary Shares subject to and to be bound by all of the terms, conditions
and restrictions of this Agreement applicable to the transferring Shareholder
immediately prior to such Transfer. Each of UIH and Holder shall remain liable
hereunder for any failure by such Shareholder's direct or indirect Affiliate
Transferee to comply with the terms hereof.
3.7 Cooperation. The Parties agree that they shall, and that they shall
-----------
cause their respective Affiliates to, take all such commercially reasonable
actions as may in the reasonable opinion of one of the Parties be necessary or
appropriate to effect a Transfer which is or shall be permitted by the terms of
this Agreement, including, without limitation, granting such permissions or
voting in support of such resolutions, as may under the terms of any relevant
Governing Documents, be requisite to consummate any such Transfer.
3.8 Pre-emptive Rights. The DPC Group shall have the pre-emptive rights
------------------
set forth in Schedule 1 hereto. The Shareholders will not vote or cause to be
voted their respective Ordinary Shares in favor of any amendment of the
Company's Governing Documents or other resolution of the Company's shareholders
restricting or excluding, or authorizing any other corporate body of the
Company to restrict or exclude, such pre-emptive rights other than with respect
to any issuance identified in subparagraphs (a) through (e) of Section 1 of
Schedule 1 hereto, in each case as determined to be in the best interests of
the Company by the Supervisory Board.
3.9 Certain Restrictions.
--------------------
(a) No Transfers Related to Acquisition of Significant Interest.
-----------------------------------------------------------
Holder shall not, and, to the maximum extent permitted under applicable law,
will use its best efforts to ensure that each of its Affiliates that owns
Ordinary Shares does not, Transfer any of Holder's or such Affiliate's Ordinary
Shares to any Person or group, in any single transaction or series of
transactions, or enter into any voting or similar agreement with any Person or
group, if, to Holder's knowledge or belief, such Person or group is seeking to
obtain, or has obtained, directly or indirectly, a Significant Interest in the
Company unless such interest has been or is being acquired with the consent of
UIH or the Company. Holder shall be presumed to have knowledge of a Person's
intent to acquire a Significant Interest in the Company if UIH or the Company
provides Holder with written notice thereof supported by reasonable evidence of
such attempt.
(b) No Transfer to Prohibited Persons. Each Shareholder shall not,
---------------------------------
and to the maximum extent permitted under applicable law, will use its best
efforts to ensure that each of its Affiliate that owns Ordinary Shares does
not, sell, assign or otherwise Transfer its or their Ordinary Shares to any
Prohibited Person.
11
<PAGE>
(c) No Transfer of Rights. Notwithstanding any other provision hereof
---------------------
to the contrary, neither Holder nor any Affiliate of Holder may assign its
rights under Article II or Section 3.5 hereof to any Person, in connection with
a Transfer of Ordinary Shares or otherwise, other than to a member of the DPC
Group in connection with a Transfer of Ordinary Shares to such Affiliate of
Holder permitted hereunder. No Transferee of Ordinary Shares pursuant to
Section 3.1 (ii) or (iii) shall receive any rights under this Agreement.
3.10 Change of Control. Any event or circumstance that results in a change
-----------------
of control of any Shareholder, other than DIC and PEC, that was a member of the
DPC Group when such Shareholder obtained any Ordinary Shares, shall be deemed
to be a Transfer of Ordinary Shares to a non-Affiliate of Holder subject to the
terms and conditions of this Agreement. For purposes of this Section 3.10, a
"change of control" of a member of the DPC Group Shareholder shall have
occurred when, for any reason, more than fifty percent (50%) of the Voting
Interests of such member of the DPC Group are no longer owned, directly or
indirectly, by IDB.
ARTICLE IV
Certain Business Arrangements
-----------------------------
4.1 Confidential Information.
------------------------
(a) No Shareholder shall, without the prior written consent of the
Supervisory Board of the Company in compliance with its legal obligations under
applicable Dutch laws, disclose to third parties or use for any commercial
purpose any proprietary or confidential information (other than information
that enters (i) the public domain through no fault of the disclosing party or
any of its Affiliates or their respective officers, directors, employees or
agents, or (ii) was in the possession of the disclosing party prior to the
disclosure thereof by the Company or any of its subsidiaries to such party, or
(iii) was obtained by the disclosing party from any third party through no
breach of a confidentiality obligation of such third party to the Company or
any of its subsidiaries) developed by or belonging to the Company or any
Subsidiary of the Company ("CONFIDENTIAL INFORMATION"). Each Shareholder shall
use its best efforts to cause its partners, directors, officers, employees,
representatives and agents to comply with the foregoing. Notwithstanding the
foregoing, for the purpose of any proposed disposition of Ordinary Shares, a
Shareholder may disclose Confidential Information to any Person whom the
Shareholder believes has expressed a bona fide interest in acquiring part or
all of its Ordinary Shares, if:
(i) each recipient first signs a non-disclosure agreement
containing terms and conditions customary for such purpose
in The Netherlands and the U.S.A. under similar
circumstances;
(ii) such Shareholder discloses only such Confidential
Information as is reasonably required to enable the proposed
purchaser to evaluate an acquisition of Ordinary Shares; and
12
<PAGE>
(iii) neither the Person to whom such information is proposed to
be disclosed nor any Affiliate thereof is a Competitor.
(b) In addition to the foregoing, Confidential Information may be
disclosed (x) to banks and other financial institutions and trustees for
holders of public debt in connection with existing or proposed credit
facilities to be provided to or on behalf of any member of the UIH Group, the
DPC Group or the Company or any of their Affiliates (so long as such banks or
other financial institutions or trustees shall have signed a confidentiality
agreement in customary form) and (y) to the extent necessary or reasonably
believed advisable for any such Person or its Affiliates to comply with
applicable securities laws and regulations, other applicable laws and stock
exchange requirements.
4.2 Financial Information and Auditors. The Company shall deliver to the
----------------------------------
Shareholders the following financial information at the following times:
(a) Quarterly Financial Statements. Within 35 days after the close of
------------------------------
each quarterly accounting period of the Company ending after the date hereof,
the consolidated balance sheet of the Company and its subsidiaries as at the
end of such quarterly period and the related statements of income,
shareholders' equity and cash flow for such quarterly period and (if different)
for that portion of the fiscal year that has elapsed with the last day of such
quarterly period, in each such case setting forth comparative figures for the
corresponding periods in the prior fiscal year, all of which shall be prepared
in accordance with GAAP.
(b) Annual Financial Statements. Within 70 days after the close of
---------------------------
each fiscal year of the Company, the consolidated balance sheet of the Company
and its subsidiaries as of the end of such fiscal year and the related
statements of income, shareholders' equity and cash flow for such fiscal year,
in each case setting forth comparative figures for the preceding fiscal year,
all of which shall be prepared in accordance with GAAP and audited by the
Company's external auditors, and shall include also the adjustments in the
information presented therein as required for purpose of reconciling any
differences between the GAAP and generally accepted accounting principles
applied in the United States of America.
(c) Other Financial Information. Such additional financial
---------------------------
information and data as shall be reasonably requested by any Shareholder to
assist such Shareholder, its Affiliates or associated companies in preparing
financial statements or other documents in accordance with the requirements of
any applicable Law or of relevant regulatory authorities. The requesting
Shareholder shall reimburse the Company for any additional or incremental cost
incurred by the Company (e.g., in addition to costs already incurred by the
Company to produce or prepare such information) producing and preparing such
information and data to such Shareholder.
ARTICLE V
Termination
-----------
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5.1 Termination.
-----------
(a) This Agreement may be terminated at any time by mutual written
agreement of UIH and the DPC Holder.
(b) This Agreement shall terminate automatically as to all Parties
upon any liquidation or dissolution of the Company.
ARTICLE VI
Miscellaneous; Effectiveness of Agreement
-----------------------------------------
6.1 Notices. Any notices, requests or other communications required or
-------
permitted to be given to any Party hereunder shall be in writing and shall be
delivered (i) by hand delivery, (ii) by Federal Express or another reputable
international courier (a "QUALIFIED COURIER"), or (iii) by telecopy, confirmed
by Qualified Courier, in each case to such Party at its address or telecopy
number set forth below or such other address or telecopy number as such Party
may hereafter specify by five (5) Business Days' prior notice to the other
Parties as provided herein:
(a) if to the Company, to:
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attn: General Counsel
(b) if to UIH, any member of the UIH Group, or any permitted
Transferee of UIH, to:
UIH Europe, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237, U.S.A.
Attn: President
with a copy (which does not constitute notice) to:
United International Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237, U.S.A.
Attn: President
and
14
<PAGE>
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203, U.S.A.
Attn: W. Dean Salter
(c) if to Holder, any member of the DPC Group, or any permitted
Transferee of Holder, to:
The DPC Holder at such time
c/o Discount Investment Corporation Ltd.
14 Beth Hashoeva Lane
Tel Aviv 65814, Israel
Telephone: +972 3 5672700
Facsimile No.: +972 3 5602327
Attention: Managing Director
with a copy (which does not constitute notice) to:
DIC Communication and Technology Ltd.
14 Beth Hashoeva Lane
Tel Aviv 65814, Israel
Telephone: +972 3 5672700
Facsimile No.: +972 3 5602327
Attention: Managing Director
and
PEC Israel Economic Corporation
511 Fifth Avenue
New York, New York 10017, U.S.A.
Telephone: +1 212 6872400
Facsimile No.: +1 212 5996281
Attention: President
All notices, requests or other communications shall be deemed delivered (i) on
the first Business Day immediately following the date of (a) delivery if hand
delivered, or (b) confirmation of delivery by telecopy transmission if sent by
telecopy transmission, provided that delivery by Qualified Courier is effected
within five Business Days thereafter or, (ii) on the third business day after
being deposited with such Qualified Courier for overnight (or its nearest
equivalent) delivery, if sent by Qualified Courier. Rejection or other refusal
to accept or the inability to deliver because of changed address of which no
notice was given as herein required shall be deemed to be receipt of the
notice, request or other communication.
6.2 Amendments; No Waivers.
----------------------
15
<PAGE>
(a) Any provision of this Agreement may be amended or waived at any
time if, and only if, such amendment or waiver is in writing and is executed by
all Parties hereto.
(b) No failure or delay by any Party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof or the exercise of any other right, power or
privilege preclude other or further exercise thereafter of any right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
be exclusive of any rights or remedies provided by law or by any other
agreement between the Parties.
6.3 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the Parties with respect to the subject matter hereof and supersedes
all prior agreements, understandings and negotiations, both written and oral,
between the Parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by any Party. In the event of
any conflict between this Agreement and any provision of the Company's
Governing Documents, the terms of this Agreement shall control to the maximum
extent permitted under applicable laws.
6.4 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of The Netherlands.
6.5 Dispute Resolution. Any dispute arising under or in connection with
------------------
this Agreement shall be settled by the competent courts in Amsterdam, The
Netherlands.
6.6 Successors and Assigns. The provisions of this Agreement are
----------------------
covenanted indivisibly and shall be binding upon and inure to the benefit of
the Parties hereto and their respective successors and assigns; provided,
however, that except as otherwise provided in this Agreement, no Party may
transfer any of its rights or obligations under this Agreement without the
prior written consent of the other Parties hereto.
6.7 Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
6.8 Severability. If any one or more provisions of this Agreement shall,
------------
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
16
<PAGE>
6.9 Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
6.10 Representations and Warranties.
------------------------------
Each Party hereto represents and warrants to the other Parties that:
(a) it is a corporation duly incorporated and validly existing under
the laws of the jurisdiction referred to in the introduction to this Agreement,
with the power to own its assets and to conduct its business in the manner
presently conducted;
(b) it has full corporate power and capacity and has obtained all
corporate and other approvals necessary to enter into this Agreement and all
further documents required to be entered into pursuant hereto, as well as to
perform its obligations hereunder and thereunder as and when due;
(c) this Agreement constitutes its binding and valid obligations,
enforceable in accordance with its terms;
(d) neither its execution of this Agreement nor its consummation of
the transactions contemplated hereby will constitute a violation of, or be in
conflict with, or constitute or create a default under its Governing Documents
or any agreement binding on it; and
(e) no Law is in effect on the date hereof which restrains or
prohibits it entering into this Agreement and the further documents required to
be entered into pursuant hereto, or consummating the transactions contemplated
hereby or thereby, nor is there (to its knowledge) pending or threatened any
action, suit, proceeding or investigation by any Person which questions or
might jeopardize the validity of this Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be duly executed by their respective duly authorized officers, all as of the
date and year first above written.
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
[UIH EUROPE, INC.]
By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
[HOLDER]
By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
18
<PAGE>
SCHEDULE 1
DPC GROUP PRE-EMPTIVE RIGHTS
This Schedule 1 is a part of the Shareholders' Agreement (the "AGREEMENT"),
dated as of [_________], between and among [UIH Europe, Inc., a corporation
organized and existing under the laws of Delaware, U.S.A.] ("UIH"), [HOLDER]
("HOLDER"), and United Pan-Europe Communications N.V., a company organized and
existing under the laws of The Netherlands. Terms used but not otherwise
defined in this Schedule have the meanings given to such terms in the
Agreement.
The following provisions define the pre-emptive rights of the DPC Group
Shareholders, their successors and permitted assigns referenced in Section 3.8
of the Agreement:
1. Each shareholder of the Company that is, at the time of any issue of
shares of capital stock by the Company or any grant of rights or issue of
securities carrying the right to subscribe for or otherwise acquire shares of
capital stock of the Company (each, an "ISSUANCE"), a member of the DPC Group
or a permitted assign thereof (a "DPC GROUP SHAREHOLDER") shall, with respect
to such Issuance, have a right (a "PRE-EMPTIVE RIGHT") to acquire or receive a
pro rata share of such Issuance in the same ratio that the aggregate amount of
Ordinary Shares then held by such DPC Group Shareholder bears to the total
outstanding Ordinary Shares at such time, and on the same terms and conditions
afforded to other Persons. Notwithstanding the foregoing, such DPC Group
Shareholders shall not have any Pre-emptive Right in respect of:
(a) any Issuance for a non-cash contribution to the Company (and for
this purpose, any contribution in the form of a debt instrument shall be deemed
to be a cash contribution);
(b) any Issuance, directly or indirectly through trusts or similar
entities, to employees of the Company or of a Subsidiary of the Company;
(c) any Issuance to a Strategic Partner; or
(d) any Issuance in connection with a Public Offering;
(e) any Issuance as compensation for services rendered or to be
rendered to the Company or any Subsidiary of the Company.
2. Notwithstanding the foregoing, any Ordinary Shares acquired by a DPC
Group Shareholder from a Transferor that did not have the contractual right to
Transfer Pre-emptive Rights (or rights substantially similar thereto) to such
DPC Group Shareholder in connection with such Transfer shall not be included in
the calculation of the number of Ordinary Shares owned by such DPC Group
Shareholder for purposes of Section 1 above.
19
<PAGE>
3. Each of the Pre-emptive Rights set forth in Section 1 above shall
terminate immediately upon the sale of Ordinary Shares by the Company
pursuant to a Public Offering.
4. A notice of any Issuance in respect of which there is a Pre-emptive
Right of the DPC Group Shareholders, identifying the period during, and the
terms and conditions on, which such right can be exercised, shall be sent by the
Company to the DPC Group Shareholders at such time in accordance with Section
6.1 of the Agreement. Such Pre-emptive Right may be exercised during the period
set forth in the notice, which shall not be less than two weeks after the date
such notice is delivered to such DPC Group Shareholders in accordance with
Section 6.1 of the Agreement.
20
<PAGE>
EXHIBIT 10.16
================================================================================
PURCHASE AGREEMENT
BETWEEN
BINAN INVESTMENTS B.V.
UA-UII, INC.
AND
UA-UII MANAGEMENT, INC.
NOVEMBER 6, 1998
CONCERNING UNITED INTERNATIONAL INVESTMENTS
================================================================================
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated November 6, 1998, is
between BINAN INVESTMENTS B.V. ("Binan"), a company organized under the laws of
The Netherlands, UA-UII, INC. ("UA"), a Colorado corporation, and UA-UII
MANAGEMENT, INC. a Colorado corporation ("UAM").
RECITALS
A. Binan and UA are the sole general partners of United International
Investments (the "Partnership"), a Colorado general partnership, originally
formed pursuant to a partnership agreement entered into as of June 18, 1992,
between United International Holdings, Inc. ("UIHI"), a Delaware corporation,
and UA-UII, Inc., a Colorado corporation formerly known as UA-Israel, Inc. (such
agreement, as amended to date, is referred to herein as the "Partnership
Agreement"). Binan is the successor to UIHI's interest in the Partnership.
Binan is the managing partner of the Partnership.
B. United Pan-Europe Communications N.V. (formerly known as United and
Philips Communications B.V. ("UPC") and UAM are the sole general partners of UII
Management ("UII Management"), a Colorado general partnership, originally formed
pursuant to the UIIM Partnership Agreement, entered into as of December 28, 1992
and effective as of April 8, 1992, as amended between UPC (as successor to
United International Management, Inc.) and UAM (such agreement, as amended to
date, is referred to herein as the "UIIM Partnership Agreement"). UPC is the
managing partner of the UII Management.
C. The Partnership owns interests, directly or indirectly, in, among
other things, (i) UCT Netherlands B.V. ("UCTN"), Tishdoret Achzakot Ltd., Tevel
Israel International Communications Ltd. ("Tevel"), its subsidiaries and I.C.P.
Israel Cable Programming Ltd. (collectively with UCNT and Tevel, the "Israel
Interests"); (ii) Melita Partnership and Melita Cable TV plc ("Melita" and
collectively with the Melita Partnership, the "Malta Interests"); and (iii) UII-
Ireland Limited Liability Company, a Utah limited liability company ("UII
Ireland LLC"), UII-Ireland Ltd., a Colorado limited partnership ("UII Ireland
LP"), and its subsidiary companies including Princes Holdings, Ltd. ("PHL"), a
corporation organized under the laws of Ireland, (collectively the "Ireland
Interests").
D. PHL owes I(Pounds)4,975,000 in principal and I(Pounds)1,696,843 in
interest to UII Ireland LP (the "Shareholder Loans") as of September 30, 1998.
(The Shareholder Loans accrue interest at a per diem amount of I(Pounds)1146.)
Binan's indirect pro-rata portion of the Shareholder Loans as of September 30,
1998 is I(Pounds)3,983,909 (the "Binan Shareholder Loans"). (The Binan
Shareholder Loans accrue interest at a per diem amount of I(Pounds)624.)
1
<PAGE>
E. Riordan Communications Limited ("RCL") owns a 10% limited partnership
interest in UII Ireland LP (the "Riordan Interest") and Binan owns a .88889%
interest in UII Ireland LLC (collectively with the Riordan Interest, the "Binan
Ireland Interests"). (The Binan Ireland Interests and the Ireland Interests are
referred to collectively as the "Combined Ireland Interests.") RCL's indirect
pro-rata portion of the Shareholders Loans as of September 30, 1998 is
I(Pounds)448,566 (the "Riordan Shareholders Loans"). (The Riordan Shareholder
Loans accrue interest at a per diem amount of I(Pounds)87.)
F. Prior to the Closing, Binan shall acquire from RCL, the Riordan
Interest and all rights to the Riordan Shareholder Loans.
G. UPC (as successor to UIHI), and PHL were parties to the Management
Services Agreement dated June 19, 1992 (the "PHL Management Agreement") pursuant
to which PHL owes a receivable to UPC of I(Pounds)1,066,667 as set forth on the
UII Liquidation and Settlement Sheet attached as Exhibit A (the "PHL
Receivable").
H. Pursuant to the terms and conditions of this Agreement, (1) the
parties desire to cause UII to distribute to UA the Ireland Interests, including
the Shareholder Loans, (2) Binan desires to acquire UA's partnership interest in
the Partnership (the "UA Partnership Interest") (3) Binan desires to acquire
UAM's partnership interest in UII Management (the "UIIM Interest"), and (4) UA
desires to acquire the Binan Ireland Interests and all rights to the PHL
Receivable.
I. Charts illustrating the transactions contemplated by this Agreement
are attached as Exhibit B.
AGREEMENT
Each of Binan, UA and UAM agree as follows:
ARTICLE I
PURCHASE AND SALE
1.01 The Closing. Subject to the satisfaction of the conditions set forth
-----------
in this Agreement, the closing (the "Closing") of the transactions described in
this Agreement shall take place at 10:00 a.m. local time at the offices of Holme
Roberts & Owen LLP, Fourth Floor, Mellier House, 26a Albemarle Street, London,
England, on the later of November 5, 1998 or the third Business Day after all of
the conditions set forth in Articles V and VI have been satisfied or waived, or
such other time, date and place as UA and Binan may agree in writing. (The date
of the Closing being referred to herein as the "Closing Date," and the term
"Business Day" means any day that the national banks in the United States of
America, England and The Netherlands are open for business.)
1.02 Actions at Closing. At the Closing the following shall occur:
------------------
2
<PAGE>
(a) The Partnership shall distribute to UA the Ireland Interests,
including the Shareholder Loans.
(b) Transfers to Binan of UA Partnership Interest, Assumptions.
----------------------------------------------------------
Pursuant and subject to the terms and conditions of this Agreement, the UA
Partnership Interest shall be transferred to Binan or a subsidiary designated in
accordance with Section 12.06 (the "Subsidiary"), and Binan or the Subsidiary
shall assume all liabilities and obligations that relate to the UA Partnership
Interest arising before, on or after the date of Closing, excluding (i) UA's
liabilities and obligations, if any, for Taxes (as defined in Section 8.02) that
UA may be or become liable for in connection with the sale of the UA Partnership
Interest, (ii) any liability or obligation relating to or arising out of any
action taken or any agreement or other document or instrument executed by UA
that creates any obligation or liability for the Partnership or otherwise that
relates to the UA Partnership Interest or that creates any claim or charge
against such interests, other than those actions taken with the actual knowledge
and acquiescence (express or implicit) of Binan, (iii) any such liability or
obligation attributable to the Ireland Interests, and (iv) any liability arising
under Section 8.03 hereof.
(c) Transfers to Binan of UIIM Interest, Assumptions. Pursuant and
------------------------------------------------
subject to the terms and conditions of this Agreement, the UIIM Interest shall
be transferred to Binan or a affiliate designated in accordance with Section
12.06 (the "Affiliate"), and Binan or the Affiliate shall assume all liabilities
and obligations that relate to the UIIM Interest arising before, on or after the
date of Closing, excluding (i) UA's liabilities and obligations, if any, for
Taxes (as defined in Section 8.02) that UA may be or become liable for in
connection with the sale of the UIIM Interest, (ii) any liability or obligation
relating to or arising out of any action taken or any agreement or other
document or instrument executed by UA that creates any obligation or liability
for UII Management or otherwise that relates to the UIIM Interest or that
creates any claim or charge against such interests, other than those actions
taken with the actual knowledge and acquiescence (express or implicit) of Binan,
and (iii) any liability arising under Section 8.03 hereof.
(d) Transfers to UA, Assumptions. Pursuant and subject to the terms
----------------------------
and conditions of this Agreement, the Binan Ireland Interests shall be
transferred to UA and UA shall, assume all liabilities and obligations of Binan
as a general partner of the Partnership and otherwise, to the extent that they
relate to the Combined Ireland Interests arising before, on or after the date of
Closing, excluding (i) Binan's liabilities and obligations, if any, for Taxes
(as defined in Section 8.02), and (ii) any liability or obligation relating to
or arising out of any action taken or any agreement or other document or
instrument executed by Binan that creates any obligation or liability for the
Partnership or otherwise relates to the Combined Ireland Interests or that
creates any claim or charge against the Partnership or any of its assets or the
Combined Ireland Interests, other than those taken with the actual knowledge and
acquiescence (express or implicit) of UA and (iii) any liability arising under
Section 8.02 hereof.
(e) Payment. Binan will pay to UA the sum of $71 million (i) plus
-------
the additional amounts set forth on the UII Liquidation and Settlement Sheet
attached as Exhibit A,
3
<PAGE>
which includes amounts related to UAM's pro rata share of management fees with
respect to the Israel Interests and the Malta Interests and UA's pro rata
portion of dividends received by UPC with respect to the Israel Interests, and
(ii) minus the credits set forth on Exhibit A which includes the amount of the
Binan Shareholder Loans and Riordan Shareholder Loans, including all accrued
interest as of the Closing Date (collectively, the "Adjusted Purchase Price"),
by wire transfer to an account previously designated by UA. UA hereby consents
to the transfer of the Riordan Interest to Binan as described in Recital E. The
amounts set forth in Recital C with respect to the Shareholder Loans, the Binan
Shareholder Loans and the Riordan Shareholder Loans have been confirmed by the
appropriate parties pursuant to the Acknowledgment to be delivered pursuant to
Sections 7.01(g) and 7.02(j).
(f) Other Deliveries. The parties shall make the deliveries
----------------
described in Article VII.
1.03 Post-Closing Adjustments.
------------------------
(a) Not less than 60 days after the Closing, Binan shall notify UA
(the "Adjustment Notice") of its good faith determination of any necessary
adjustment to the calculation of the Adjusted Purchase Price relating to cash of
the Partnership and UII Management, dividends made with respect to the Israel
Interests and management fees received with respect to the Israel or Malta
Interests and shall provide a reasonably detailed calculation of the Adjusted
Purchase Price. Promptly following the receipt of the Adjustment Notice, UA
shall verify such calculation of the Adjusted Purchase Price and Binan shall
provide complete access to the records necessary to complete such calculation to
UA and its accountants for the purpose of such verification. Not later than 15
days after receipt of the Adjustment Notice. UA shall notify Binan in writing
(the "Response Notice") as to whether it agrees with the calculation in the
Adjustment Notice. If UA fails to provide such Response Notice within 15 days
of receipt of the Adjustment Notice, the calculations set forth in the
Adjustment Notice shall be final and binding on both parties. If UA agrees with
the calculation in the Adjustment Notice, or if UA fails to deliver a Response
Notice within 15 days after receipt of the Adjustment Notice, Binan shall
promptly make any payments required as a result of the calculations in the
Adjustment Notice. If UA disagrees, it shall include in the Response Notice a
reasonably detailed calculation of the amount of any necessary adjustment to the
calculation of the Adjusted Purchase Price it asserts existed at Closing. The
Parties shall promptly attempt to reconcile their respective determinations as
to the amount of the Adjusted Purchase Price. If the parties are unable to
agree upon the amount of the Adjusted Purchase Price within 20 days after
receipt of the Response Notice, either party may refer the matter to Arthur
Andersen, LLP or another independent certified public accountant acceptable to
the parties, who shall promptly determine the amount of the Adjusted Purchase
Price, and whose decision shall be final and binding upon both parties who will
share equally the cost for Arthur Andersen or the other independent accountant.
Any amounts required to be paid pursuant to this Section 1.03(a) shall be paid
within 10 days following the date that the accountants communicate the amount of
Adjusted Purchase Price as of Closing to the parties.
4
<PAGE>
(b) Promptly after the first anniversary of the Closing the parties
will determine whether there has occurred since the Closing any transaction (a
"Valuation Transaction") with respect to UII Ireland LLC, UII Ireland LP, or
PHL, or with respect to any similarly situated property in Ireland (such as
CableLink in Dublin) (an "Ireland Entity") excluding any Valuation Transaction
to which UIHI or any of its affiliates or principals is a direct or indirect
party, but including, without limitation, (a) a sale or contract for the sale of
any equity or instruments convertible into equity or carrying the right to
acquire equity of an Ireland Entity, (b) the sale or contract for the sale of
material assets of any Ireland Entity, (c) an equity financing or (d) any other
transaction or contract to enter into a transaction, any of which would indicate
a value for a 25% indirect interest in PHL (the "PHL Equity") as of the Closing
greater than $20.5 million provided that, if the Valuation Transaction is a
-------- ----
contract entered into within one year of the Closing, such transaction must
close within 18 months of the Closing to be the basis for any adjustment, and
that reapplication for licenses in Ireland by PHL or any straight debt financing
by an Ireland Entity shall not be a Valuation Transaction. If such a Valuation
Transaction has occurred, UA shall pay to Binan an amount equal to the
difference between (i) the indicated value of the PHL Equity based upon the
Valuation Transaction and (ii) $20.5 million, up to a maximum of $6.5 million.
If no such Valuation Transaction occurs with respect to an Ireland Entity or if
the implied value of the PHL Equity based upon a Valuation Transaction is lower
than $20.5 million, no payment will be due to Binan or from Binan or any of its
affiliates to UA or any of its affiliates. UA and Binan shall apply the
valuation methodology used in such Valuation Transaction to the extent it is
known and the valuation shall be discounted at 15 percent per annum from the
date of the Valuation Transaction to the Closing Date. If the parties are
unable to agree upon the indicated value of the PHL Equity based upon a
Valuation Transaction, Goldman Sachs or another internationally recognized
investment banking firm approved in their reasonable discretion by Binan and UA
will be retained to determine the indicated value of the PHL Equity based upon
its analysis of the Valuation Transaction. Such determination shall be binding
on both parties who will share equally the cost for Goldman Sachs or the other
investment banker. UA will promptly advise Binan of any Valuation Transaction of
which it has knowledge and will provide, to the extent available to UA,
appropriate documentation and other information to Binan and any investment
banker that is necessary or advisable to assist in establishing the indicated
value of a Valuation Transaction.
(c) Litigation. If the pending lawsuit entitled Princes Holdings
----------
Ltd. and others vs. Minister for Public Enterprise and others is settled or
concluded otherwise within one year from the Closing Date with a net cash award
in favor of PHL, UA will make a payment to Binan equal to 25% of such award net
of 25% of the legal fees incurred by PHL or its subsidiaries in connection with
the lawsuit after Closing.
5
<PAGE>
ARTICLE II
UA'S REPRESENTATIONS AND WARRANTIES
UA and UAM represent and warrant to Binan as follows:
2.01 Organization, Power and Authorization. Each of UA and UAM is a
-------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado. Each of UA and UAM has full corporate power and
authority to enter into this Agreement, to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by each of UA and UAM have been duly and validly
authorized by all necessary corporate action on the part of UA and UAM,
respectively. This Agreement is a valid and binding agreement of each of UA and
UAM and is enforceable against each of them in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization or
similar laws of general applicability relating to or affecting enforcement of
creditors' rights and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of the court before
which any proceeding therefor may be brought. Any assignment, agreement,
certificate or other document that UA or UAM executes and delivers in connection
with this Agreement, when so executed and delivered, will be a valid and binding
obligation of UA or UAM, as the case may be, enforceable against UA or UAM, as
the case may be, in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization or similar laws of general
applicability relating to or affecting enforcement of creditors' rights and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
2.02 No Violation. Each of UA's and UAM's execution and delivery of this
------------
Agreement, its performance of their respective obligations hereunder and the
consummation of the transactions contemplated hereby will not violate any
provision of law and will not, with or without the giving of notice or the
passage of time, conflict with or result in any breach of any of the terms or
conditions of, or constitute a default under (a) any of the governing documents
of UA or UAM, respectively, or (b) except for the transfer restrictions
contained in the Partnership Agreement or the UIIM Partnership Agreement and
restrictions contained in the PHL financings with the Bank of Ireland, any
agreement, contract or other instrument by which either UA or UAM is bound.
2.03 The Partnership Interest. UA owns, both of record and beneficially,
------------------------
the UA Partnership Interest free from any pledge, lien, charge, security
interest, option, right of first refusal or other encumbrance, restriction or
claim, of any person claiming through UA, except for the transfer restrictions
contained in the Partnership Agreement and restrictions contained in the PHL
financings with the Bank of Ireland. UA has not taken any action that would
result in the imposition of any pledge, lien, charge, security interest or other
encumbrance, restriction or claim upon the UA Partnership Interests.
6
<PAGE>
2.04 The UIIM Interest. UAM owns, both of record and beneficially, the
-----------------
UIIM Interest free from any pledge, lien, charge, security interest, option,
right of first refusal or other encumbrance, restriction or claim, of any person
claiming through UAM, except for the transfer restrictions contained in the UIIM
Partnership Agreement. UAM has not taken any action that would result in the
imposition of any pledge, lien, charge, security interest or other encumbrance,
restriction or claim upon the UIIM Interests.
2.05 No Actions Binding the Interest. Neither UA or UAM has taken any
-------------------------------
action nor executed any agreement or other document or instrument that creates
any obligation or liability, contingent or otherwise, or that creates any claim
or charge, contingent or otherwise, against the UA Partnership Interest or the
UIIM Interest, respectively, except for actions taken with the actual knowledge
and acquiescence (express or implicit) of Binan.
2.06 Brokers and Other Liabilities. Neither UA or UAM has employed or
-----------------------------
retained any broker, agent or finder, or agreed to pay any fee, commission or
similar payment to any such person, on account of this Agreement or the
transactions contemplated hereby with respect to which any of Binan, its
affiliates or the Partnership or UII Management would be liable.
2.07 Consents and Approvals. UA has obtained or filed, or prior to the
----------------------
Closing shall obtain or file, all consents, approvals and notices, governmental
or otherwise, necessary for UA's execution, delivery and performance of this
Agreement as it relates to the Combined Ireland Interests, except with respect
to Binan's acquisition of the Riordan Interests.
2.08 Litigation. There are no actions, proceedings, claims or
----------
investigations pending or, to the best knowledge of UA or UAM, threatened by or
before any court or administrative agency to which UA, UAM or any of their
affiliates is a party that questions the validity of this Agreement or any other
agreement or document to be executed in connection with this Agreement or seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
ARTICLE III
BINAN'S REPRESENTATIONS AND WARRANTIES
Binan represents and warrants to UA that:
3.01 Organization, Corporate Power and Authorization. Each of Binan and
-----------------------------------------------
the Subsidiary is a company duly organized and validly existing under the laws
of The Netherlands. Each of Binan and the Subsidiary has full corporate power
and authority to enter into this Agreement, to perform its obligations under
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by each of Binan and the Subsidiary have been duly
and validly authorized by all necessary company action on the part of Binan and
the Subsidiary, respectively. This Agreement is a valid and binding agreement of
each of Binan and
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the Subsidiary and is enforceable against each of them in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws of general applicability relating to or affecting
enforcement of creditors' rights and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. Any assignment,
agreement, certificate or other document that Binan or the Subsidiary executes
and delivers in connection with this Agreement, when so executed and delivered,
will be a valid and binding obligation of Binan or the Subsidiary, as the case
may be, enforceable against Binan or the Subsidiary, as the case may be, in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws of general applicability relating to
or affecting enforcement of creditors' rights and except that the availability
of equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
3.02 No Violation. Binan's execution and delivery of this Agreement, its
------------
performance by Binan and the Subsidiary, and the consummation of the
transactions contemplated hereby will not violate any provision of law, and will
not, with or without the giving of notice or the passage of time, conflict with
or result in any breach of any of the terms or conditions of, or constitute a
default under (a) any of the governing documents of Binan or the Subsidiary or
(b) any agreement, contract or other instrument by which Binan or the Subsidiary
is bound.
3.03 The Partnership Interest. Binan is a general partner of the
------------------------
Partnership and owns, both of record and beneficially, its interest in the
Partnership and the Binan Ireland Interests free from any pledge, lien, charge,
security interest, option, right of first refusal or other encumbrance,
restriction or claim, except for the transfer restrictions contained in the
Partnership Agreement. Binan has not taken any action that would result in the
imposition of any pledge, lien, charge, security interest or other encumbrance,
restriction or claim upon the Combined Ireland Interests.
3.04 No Actions Binding the Partnership. Binan has neither taken any
----------------------------------
action nor executed any agreement or other document or instrument that creates
any obligation or liability, contingent or otherwise, for the Partnership or the
Combined Ireland Interests or that creates any claim or charge, contingent or
otherwise, against the Partnership or any of the Combined Ireland Interests,
except for actions taken with the actual knowledge and acquiescence (express or
implicit) of UA, or taken in the ordinary course of business in accordance with
the Partnership Agreement.
3.05 Consents and Approvals. Binan has obtained or filed, or prior to the
----------------------
Closing shall obtain or file, all consents, approvals and notifications,
governmental or otherwise, necessary for the execution, delivery and performance
of this Agreement by Binan or the Subsidiary, and the consummation of the
transactions contemplated hereby with respect to the Malta Interests and the
Israel Interests.
8
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3.06 Litigation. There are no actions, proceedings, claims or
----------
investigations pending or, to the best knowledge of Binan, threatened by or
before any court or administrative agency to which Binan or its affiliates is a
party that questions the validity of this Agreement or any other agreement or
document to be executed in connection with this Agreement or seeks to restrain
or enjoin the consummation of the transactions contemplated by this Agreement.
3.07 Brokers and Other Liabilities. Binan has not employed or retained any
-----------------------------
broker, agent or finder, or agreed to pay any fee, commission or similar payment
to any such person, on account of this Agreement or the transactions
contemplated hereby with respect to which any of UA, its affiliates or the
Partnership would be liable.
3.08 Combined Ireland Interests. Except as disclosed to or otherwise known
--------------------------
by UA:
(a) Ownership. To Binan's knowledge, other than the Subscription and
---------
Shareholders Agreement among Independent Newspapers, PLC, United International
Holdings, Inc., PHL and Independent Wireless Cable Limited dated April 9, 1992,
as amended by Amendment No. 1 dated June 18, 1992 (the "Subscription
Agreement"), the PHL Management Agreement, and undertakings with respect to PHL
financings with the Bank of Ireland, and the Partnership Agreement and the
agreement forming UII Ireland LLC, there are no other written agreements,
commitments or understandings relating to the ownership of the Combined Ireland
Interests or management or control of the Combined Ireland Interests.
(b) Governmental Permits. To Binan's knowledge, all franchises,
--------------------
licenses, authorizations, permits and similar rights obtained from any
governmental authority with respect to the Combined Ireland Interests
("Governmental Permits") are currently in full force and effect and are issued
and maintained in all material respects according to all applicable statutes,
ordinances, codes, laws, rules, regulation or other requirements enacted by any
governmental authority ("Laws"). To Binan's knowledge, there is no legal
action, governmental proceeding or investigation pending to terminate, suspend
or modify any Governmental Permit.
(c) Compliance with Law. To Binan's knowledge, the conduct of the
-------------------
business related to the Combined Ireland Interests as it is currently conducted
does not violate any laws, which violation, individually or in the aggregate,
would have a material adverse effect on the Combined Ireland Interests. Binan
has not received any notice claiming a violation by Binan or any of the Combined
Ireland Interests of any Law.
(d) Undisclosed Liabilities. Except as disclosed by, or reserved
-----------------------
against in, financial statements of the applicable entities, for the year ended
December 31, 1997, to Binan's knowledge, neither UII Ireland LLC or UII Ireland
LP or PHL has any liability or obligation which is or would be material to the
business results of operations or financial condition of either of them
respectively, nor to Binan's knowledge does any aspect of the business of either
of them form a basis for any claim by a third party which, if asserted, could
result in a liability not disclosed by or reserved against in such financial
statements.
9
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(e) Legal Proceedings. Except as is known to UA, to Binan's
-----------------
knowledge there is no judgment or order outstanding, or any action, suit,
complaint, proceeding or investigation by or before any governmental authority
or any arbitrator, pending or threatened, involving or affecting the Ireland
Interests which, if adversely determined, could materially and adversely affect
the financial condition or operations of the Combined Ireland Interests.
3.09 Management Fees and Dividends. UAM's pro rata portion of the
-----------------------------
estimated management fees set forth on the UII Liquidation and Settlement Sheet
attached as Exhibit B were calculated based upon the provisions of the
Consulting Agreement, dated as of August 29, 1991, between UIIM and Tevel and
the Amended and Restated Management Agreement, dated as of December 28, 1992,
between UIIM and Melita and unaudited quarterly financial information and are
subject to adjustment as set forth in Section 1.03(a). UAM's pro rata portion
of dividends made to UPC with respect to the Israel Interests is $2,419,143.
Other than the amounts set forth in the preceding sentences or as contemplated
to be paid pursuant to Section 1.03(a), there are no other receivables or cash
in the Partnership and UIIM.
ARTICLE IV
COVENANTS PENDING THE CLOSING
Pending the Closing (a) neither UA, UAM nor Binan shall, without the other
party's prior written consent, take any action that would result (i) in any of
its representations and warranties contained in this Agreement not being true,
correct and complete in all material respects or (ii) in any of its covenants
contained in this Agreement being breached in any material respect; (b) UA, UAM
and Binan shall each promptly advise the other party of any act or event of
which it becomes aware that has the effect of making incorrect any of its
representations or warranties or rendering unperformable any of such covenants;
(c) UA and UAM shall use commercially reasonable efforts to fulfill the
conditions set forth in Article V, Binan shall use commercially reasonable
efforts to fulfill the conditions set forth in Article VI and each party shall
each use commercially reasonable efforts to cause its respective representations
and warranties to remain true and correct in all material respects as of the
Closing Date; (d) UA, UAM or Binan shall not take any action nor execute any
agreement or other document or instrument that creates any obligation or
liability for the Partnership, UII Management or that creates any claim or
charge against the Combined Ireland Interests or the Malta Interests or Israel
Interests, except for actions duly authorized by the Management Committee of the
Partnership or UII Management or by the written consent or approval of both
Binan and UA or as provided in a letter agreement between UA and Binan dated
August 31, 1998; and (e) Binan hereby agrees to, and agrees to cause its or its
affiliates' representatives on the boards (or equivalent) of the companies
comprising the Ireland Interests to, recuse itself and themselves from all
deliberations by PHL or its subsidiaries and waives all rights to consent or
approve with respect to (i) the reapplication for telecommunications licenses in
Ireland, including the required business plans or (ii) the preparation and
submission of a bid for CableLink. Neither PHL, UA, UAM nor their respective
affiliates shall be obligated to share any information with Binan or its
affiliates or
10
<PAGE>
representatives, including John Riordan, with respect to the matters described
in the preceding sentence. On or prior to execution of this Agreement, John
Riordan shall have resigned as chairman and CEO of PHL. Notices of Recusal
relating to the foregoing shall have been delivered to PHL by Binan's
representatives on the Board and Management Committee of PHL. The second and
third paragraphs of the letter dated August 31, 1998 shall survive execution of
this Agreement.
Pending the Closing, UA, UAM and Binan shall cooperate with one another and
use their commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary to obtain the
consents referred to in Sections 2.06 and 3.05. In furtherance of the foregoing,
UA, UAM and Binan shall furnish to one another such information and assistance
as the other may reasonably request in connection with obtaining such consents.
ARTICLE V
CONDITIONS PRECEDENT TO BINAN'S OBLIGATION TO CLOSE
Binan's obligation to effect the Closing is subject to the fulfillment to
Binan's reasonable satisfaction on or before the Closing Date of the following
conditions, any of which Binan may waive in writing:
5.01 Representations and Warranties True on the Closing Date. Each of
-------------------------------------------------------
UA's and UAM's representations and warranties contained in Article II of this
Agreement shall be true and correct in all material respects on the date of this
Agreement and as of the Closing Date with the same force and effect as if they
had been made as of the Closing Date.
5.02 Performance. UA and UAM shall have performed and complied in all
-----------
material respects with all agreements, covenants and conditions contained in
this Agreement required to be performed or complied with by each of them on or
before the Closing Date.
5.03 Consents and Approvals. UA and UAM shall have obtained all consents
----------------------
and approvals and filed all the notices, governmental or otherwise, necessary
for each of UA's and UAM's execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, excluding the
consents, approvals and notices described in Section 2.06; and Binan shall have
obtained the consents described in Section 3.05.
5.04 No Adverse Order. No order, decree, judgment or other judicial or
----------------
administrative action or rule shall have been issued or be pending to restrain,
enjoin or prevent the indirect transfer of the Malta Interests or the Israel
Interests or direct transfer of the UA Partnership Interest or UIIM Interest.
5.05 Financing. Binan and its affiliates shall have obtained on terms and
---------
conditions satisfactory to them all of the financing necessary to consummate the
transactions contemplated hereby, and such financing shall have been advanced.
11
<PAGE>
5.06 Release of Guarantee. UPC shall have been released from all
--------------------
guarantees of indebtedness of PHL and its subsidiaries (the "Guarantee Release")
and UPC and its affiliates shall be released from all obligations arising under
the Subscription Agreement (the "Subscription Release").
5.07 No Material Damage. There shall not have occurred any material
------------------
casualty with respect to the Israel Interests or Malta Interests.
ARTICLE VI
CONDITIONS PRECEDENT TO UA'S OBLIGATION TO CLOSE
UA's and UAM's obligation to effect the Closing is subject to the
fulfillment to UA's reasonable satisfaction on or before the Closing Date of the
following conditions, any of which UA may waive in writing:
6.01 Representations and Warranties True on the Closing Date. Binan's
-------------------------------------------------------
representations and warranties contained in Article III of this Agreement shall
be true and correct in all material respects on the date of this Agreement and
as of the Closing Date with the same force and effect as if they had been made
as of the Closing Date.
6.02 Performance. Binan shall have performed and complied in all material
-----------
respects with all agreements, covenants and conditions contained in this
Agreement required to be performed or complied with by it on or before the
Closing Date.
6.03 No Adverse Order. No order, decree, judgment or other judicial or
----------------
administrative action or rule shall have been issued or be pending to restrain,
enjoin or prevent the transfer of the Combined Ireland Interests to UA.
6.04 Consents and Approvals. Binan shall have obtained all consents and
----------------------
approvals and filed all notices, governmental or otherwise necessary for the
execution, delivery and performance of this Agreement by Binan and the
consummation of the transactions contemplated hereby, other than the consents,
approvals and notices referred to in Section 3.05, and UA shall have obtained
the consents in Section 2.06.
6.05 No Material Damage. There shall not have occurred any material
------------------
casualty with respect to the Combined Ireland Interests.
12
<PAGE>
ARTICLE VII
DELIVERIES AT THE CLOSING
7.01 UA's and UAM's Deliveries. UA and UAM shall deliver, or cause to
-------------------------
be delivered, the following items to Binan, at the Closing (all documents shall
be reasonably acceptable in form and substance to Binan):
(a) One or more documents assigning to Binan, the Subsidiary or the
Affiliate, as the case may be, all of the UA Partnership Interest and UIIM
Interest.
(b) A certificate of each of UA and UAM, dated the Closing Date, as
to the matters specified in Sections 5.01 and 5.02.
(c) An opinion of counsel for UA and UAM, dated the Closing Date,
substantially in the form of Exhibit C attached hereto.
(d) A release from UA and UAM, substantially in the form of Exhibit
D attached hereto.
(e) Resignations, effective as of the Closing Date, of UA's
officers, representatives or affiliates from the Management Committee of the
Partnership and from the boards (or equivalent) of the companies comprising the
Israel Interests and the Malta Interests. Resignations, effective as of the
Closing Date, of UAM's officers, representatives or affiliates from the
Management Committee of UII Management.
(f) The Guarantee Release and the Subscription Release.
(g) Acknowledgment of the Shareholders Loans owed to UII Ireland LP
by PHL.
7.02 Binan's Deliveries. Binan shall deliver, or cause to be
------------------
delivered, the following items to UA at the Closing (all documents shall be
reasonably acceptable in form and substance to UA):
(a) One or more assignments of the Combined Ireland Interests.
(b) Copies of assignments evidencing the acquisition of the Riordan
Interests by Binan.
(c) A certificate of Binan, dated the Closing Date, as to the
matters specified in Sections 6.01 and 6.02.
(d) Opinions of counsel for Binan, dated the Closing Date,
substantially in the forms of Exhibit E and Exhibit F attached hereto.
13
<PAGE>
(e) A release from Binan, substantially in the form of Exhibit D
attached hereto.
(f) Resignations effective as of the Closing Date of Binan's
officers, representatives or affiliates from the boards (or equivalent) of the
entities comprising the Ireland Interests.
(g) Funds to UA in the amount of $71,000,000, as adjusted pursuant
to Section 1.02(e), by wire transfer.
(h) An assignment by UPC of the PHL Receivable.
(i) The books and records including minute books and tax returns of
UII Ireland LLC and UII Ireland LP.
(j) Acknowledgment of the Shareholders Loans owed to UII Ireland LP
by PHL.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.01 Survival. To the extent required to give them their proper and
--------
intended effect, the provisions of this Agreement, including UA's, UAM's and
Binan's representations and warranties, shall survive for one year following the
Closing, and this Agreement shall not be deemed merged into any documents
delivered pursuant to the Closing; except that (a) the representations contained
------
in Sections 2.03 and 3.03 shall survive without limit; (b) Sections 8.02, 8.03
and 8.04 shall not terminate at the time provided above if, prior to such time,
a Claim Notice (as defined in Section 8.04) has been given to Binan or UA and
UAM, as applicable; and (c) other provisions of this Agreement, for which some
other period of survival is expressed, shall survive for such expressed period.
8.02 Indemnification by Binan. Binan hereby agrees that it shall
------------------------
indemnify, defend and hold harmless UA, UAM, its partners and affiliates, and
its successors and assigns (the "UA Indemnified Parties") from, against and in
respect of any damages, claims, losses, charges, actions, suits, proceedings,
deficiencies, interest, penalties, and reasonable costs and expenses (including
reasonable attorneys' fees, removal costs, remediation costs, closure costs,
fines, penalties and expenses of investigation and ongoing monitoring)
(collectively, the "Losses") imposed on, sustained, incurred or suffered by or
asserted against any of the UA Indemnified Parties, directly or indirectly,
relating to or arising out of (a) the failure of any representation or warranty
made herein by Binan to be true and correct in all material respects on the date
of this Agreement and at the Closing Date, (b) any breach by Binan of any of its
covenants herein, (c) any liability or obligation relating to or arising out of
any action taken or any agreement or other document or instrument executed by
Binan either that creates any obligation or liability for the Partnership or for
the Combined Ireland Interests or that creates any claim or charge against
14
<PAGE>
the Partnership or any of its assets or the Combined Ireland Interests other
than those actions taken with the actual knowledge and acquiescence (express or
implicit) of UA or UAM, respectively (d) any acts or omissions to the act
occurring on or after the Closing that relate to the Israel Interests or the
Malta Interests or (e) any liability or obligation assumed pursuant to Sections
1.02(b) and (c). For avoidance of doubt and notwithstanding the foregoing, Binan
shall have no obligation to indemnify UA or UAM for any tax, levy, impost, duty
or other charge of similar nature, including, any penalty or interest payable in
connection with any failure to pay or any delay in paying any of the same
(collectively, "Taxes") that UA or UAM may be or become liable for in connection
with the sale of the UA Partnership Interest or the UIIM Interest.
8.03 Indemnification by UA. UA and UAM, jointly and severally, hereby
---------------------
agree that they shall indemnify, defend and hold harmless Binan, its affiliates,
and its successors and assigns (the "Binan Indemnified Parties" and,
collectively with the UA Indemnified Parties, the "Indemnified Parties") from,
against and in respect of any Losses imposed on, sustained, incurred or suffered
by or asserted against any of the Binan Indemnified Parties, directly or
indirectly, relating to or arising out of (a) the failure of any representation
or warranty made herein by UA or UAM to be true and correct in all material
respects on the date of this Agreement and at the Closing Date, (b) any breach
by UA or UAM of any of its covenants herein, (c) any liability or obligation
relating to or arising out of any action taken or any agreement or other
document or instrument executed by UA or UAM either that creates any obligation
or liability for the Partnership, UII Management or the Malta Interests and the
Israel Interests or that creates any claim or charge against the Partnership or
the Malta Interests and the Israel Interests or the UIIM Interest, other than
those actions taken with the actual knowledge and acquiescence (express or
implicit) of Binan, (d) any acts or omissions to act occurring on or after the
Closing that relate to the Combined Ireland Interests or (e) any liability or
obligation assumed pursuant to Section 1.02(d). For the avoidance of doubt and
notwithstanding the foregoing, UA and UAM shall have no obligation to indemnify
Binan for any Taxes that Binan may be or become liable for in connection with
the transfer of the Combined Ireland Interests or the UA Partnership Interest or
the UIIM Interest.
8.04 Indemnification Procedures. With respect to third-party claims,
--------------------------
all claims for indemnification by any Indemnified Party hereunder shall be
asserted and resolved as set forth in this Section 8.04. In the event that any
written claim or demand for which Binan or UA or UAM, as the case may be (an
"Indemnifying Party"), would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a third
party, such Indemnified Party shall promptly, but in no event more than 15 days
following such Indemnified Party's receipt of such claim or demand, notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim or demand) (the "Claim Notice").
The Indemnifying Party shall have 45 days from the personal delivery or mailing
of the Claim Notice (the "Notice Period") to notify the Indemnified Party (a)
whether or not the Indemnifying Party disputes the liability of the Indemnifying
Party to the Indemnified Party hereunder with respect to such claim or demand
and (b) whether or not it desires to defend the Indemnified Party against such
claim or demand. All costs and expenses incurred by the
15
<PAGE>
Indemnifying Party in defending such claim or demand shall be a liability of,
and shall be paid by, the Indemnifying Party. Except as hereinafter provided, in
the event that the Indemnifying Party notifies the Indemnified party within the
Notice Period that it desires to defend the Indemnified Party against such claim
or demand, the Indemnifying Party shall have the right to defend the Indemnified
Party by appropriate proceedings and shall have the sole power to direct and
control such defense. If any Indemnified Party desires to participate in any
such defense, it may do so at its sole cost and expense, provided that, if the
Indemnifying Party proposes that the same counsel represent both the
Indemnifying Party and the Indemnified Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them, then the Indemnified Party shall have the right to
retain its own counsel at the cost and expense of the Indemnifying Party. The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, settle, compromise or offer to settle or compromise any such
claim or demand on a basis that would result in the imposition of a consent
order, injunction or decree that would restrict the future activity or conduct
of the Indemnified Party or any subsidiary or affiliate thereof or that would
impose criminal liability or injunctive relief. If the Indemnifying Party elects
not to defend the Indemnified Party against such claim or demand, whether by not
giving the Indemnified Party timely notice as provided above or otherwise, then
the amount of any such claim or demand or, if the same be contested by the
Indemnified Party, then that portion thereof as to which such defense is
unsuccessful (and the reasonable costs and expenses pertaining to such defense,
which shall be payable as incurred), shall be the liability of the Indemnifying
Party hereunder. To the extent the Indemnifying Party shall direct, control or
participate in the defense or settlement of any third-party claim or demand, the
Indemnified Party will give the Indemnifying Party and its counsel access to,
during normal business hours, the relevant business records and other documents,
and shall permit them to consult with the employees and counsel of the
Indemnified Party. The Indemnified Party shall use its commercially reasonable
efforts in the defense of all such claims.
ARTICLE IX
CONFIDENTIAL INFORMATION; COMPETITION
9.01 General. Any information or document that either party to this
-------
Agreement provides to the other (if such information or document was designated
"confidential" at the time it was given to the other party or should reasonably
have been understood to be confidential), with the exception of publicly
available information (other than information that becomes publicly available by
a party's breach of this Agreement) and information that the other party already
is aware of itself or becomes aware of independently of the other party or that
relates to the interest distributed to the disclosing party after the Closing,
shall be treated as confidential and proprietary and shall not be disclosed to
any third party without the consent of both UA and Binan. Each of the parties is
permitted to disclose confidential information to such of its employees,
officers, agents and legal, accounting financial and other advisors as may be
appropriate, provided that in such case the disclosing party shall use
reasonable efforts to prevent the publication or disclosure of such confidential
information by any such person. This section
16
<PAGE>
shall not limit the ability of Binan or UA or their affiliates to make such
disclosures as they may consider necessary or appropriate pursuant to
requirements under U.S. securities laws or other applicable laws, or necessary
to secure third-party consents.
9.02 Public Announcements. Neither UA, UAM nor Binan shall issue any
--------------------
press release or make any other public disclosure relating to the transactions
contemplated by this Agreement without the prior consent of the other and
without consulting the other about the content and timing of such release or
announcement. The foregoing, however, shall not limit either party's ability to
make such public announcements or disclosures as it may consider necessary or
appropriate pursuant to the reporting requirements under U.S. or foreign
securities laws or other applicable law or necessary to secure third-party
consents, on the condition that the party making an announcement or disclosure
shall give the other party reasonable notice before making it.
9.03 Effect of Failure to Close. The obligations under Sections 9.01
--------------------------
and 9.02 shall continue for a period of three years after the date of this
Agreement.
9.04 No Non-compete. Following the Closing, none of the parties nor
--------------
any affiliate of the parties (including PHL) nor Independent Newspapers PLC
shall be limited as to holding interests or conducting activities that might
compete with the other with respect to the interest distributed or sold,
notwithstanding any provision of the Partnership Agreement or other document
related to the Partnership, including the Subscription Agreement.
ARTICLE X
TERMINATION
10.01 Termination. This Agreement may be terminated prior to the
-----------
Closing: (a) by mutual consent of UA and Binan, (b) by UA if Binan materially
breaches a representation, warranty or covenant given in this Agreement, UA has
given Binan notice of such breach and such breach shall not have been cured in
all material respects or waived on or before the 30th day following the date on
which such notice is given, (c) by Binan if UA or UAM materially breaches a
representation, warranty or covenant given in this Agreement, Binan has given UA
notice of such breach and such breach shall not have been cured in all material
respects or waived on or before the 30th day following the date on which such
notice is given, (d) by either Binan or UA if the conditions in Section 5.05 are
not satisfied on or before year-end 1998, (e) by Binan if the conditions in
Article V are not satisfied on or before December 31, 1998, or such later date
as UA and Binan may otherwise agree in writing, or (f) by UA if the conditions
in Article VI are not satisfied on or before December 31, 1998, or such later
agreed date. The party terminating this Agreement upon the occurrence of any of
the foregoing events shall effect the termination by giving notice of the
termination and the grounds for it to the other party.
17
<PAGE>
10.02 Survival. The provisions of Article IX shall remain in full force
--------
for the period set forth in Section 9.03 despite the termination of this
Agreement, and nothing in this Article X shall relieve UA, UAM or Binan from
liability to the other for any breach under this Agreement.
10.03 Partial Closing. Notwithstanding Section 10.01, if Closing does not
---------------
occur on or before December 31, 1998 (the "Termination Date") (as extended by
the parties) due to a material breach by Binan of any representation, warranty
or covenant given in this Agreement, the failure to secure any of the consents
described in Section 3.05 (Israel/Malta consents) or the failure to secure the
financing described in Section 5.05 (UIH financing), UA may elect to purchase
the Combined Ireland Interests for $20.5 million subject to the terms and
conditions of this Agreement relating to the Combined Ireland Interests.
Notwithstanding Section 10.01, if Closing does not occur on or before the
Termination Date (as extended by the parties) due to a material breach by UA or
UAM of any representation, warranty or covenant given in this Agreement or the
failure to secure any of the consents described in Section 2.06 (Ireland
consents), Binan may elect to purchase the Israel Interests and Malta Interests
for $91.5 million subject to the terms and conditions of this Agreement relating
to the Israel Interests and the Malta Interests (in either case, a "Partial
Transaction"). The parties agree to structure the Partial Transaction in the
most tax efficient manner acceptable to both parties. The parties will use
commercially reasonable efforts to close the Partial Transaction as soon as
possible after the Termination Date. The parties will continue to hold the
Interests not sold in the Partial Transaction in accordance with the terms of
the Partnership Agreement, including provisions relating to noncompetition,
subject to the Letter Agreement dated August 31, 1998.
ARTICLE XI
NOTICES
All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been duly given on the date and at the time
of delivery, if delivered personally to the party to whom notice is given at the
address specified below, or on the date of delivery or attempted delivery shown
on the return receipt, if mailed to the party to whom notice is to be given by
first class mail, registered or certified, return receipt requested, postage
prepaid and properly addressed as specified below, or on the date and at the
time shown on the facsimile, if telecopied to the number specified below and
receipt of such telecopy is acknowledged on the sending facsimile device:
To UA or UAM:
------------
UA-UII, Inc.
c/o Tele-Communications International, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
USA
Attention: Chief Financial Officer
Fax: +1 (303) 488-5651
18
<PAGE>
With copies to:
--------------
UA-UII, Inc.
c/o Tele-Communications International, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
USA
Attention: General Counsel
Fax: +1 (303) 488-3217
To Binan:
--------
Binan Investments B.V.
c/o United Pan-Europe Communications N.V.
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: Ton van Voskuijlen
Fax: +(31) 20 578 9861
With copies to:
--------------
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
USA
Attention: W. Dean Salter
Fax: +1 (303) 866-0200
and
Holme Roberts & Owen LLP
Mellier House, 4th Floor
26a Albemarle Street
London, England W1X 3FA
Attention: Paul G. Thompson
Fax: +(44) 171 499 7769
Either Binan or UA may change its address for the giving of notice by giving
notice hereunder.
19
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.01 Further Assurances. At or after the Closing, each party shall, if
------------------
requested by the other, make, execute and deliver to the other, or any
Subsidiary or Affiliate designated pursuant to Section 12.06, such additional
assignments, consents and other documents and instruments of transfer as may be
necessary or proper to transfer to the receiving party, or any such Subsidiary
or Affiliate, all of the assigning party's rights and interests in the assets,
to be acquired.
12.02 Governing Law; Consent to Jurisdiction.
--------------------------------------
(a) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Colorado without giving effect to
the conflicts of laws provisions thereof.
(b) Any proceeding by a party hereto to enforce this Agreement may
be brought in the District Court in and for the City and County of Denver, State
of Colorado, or the United States District Court for the District of Colorado or
in any other court of competent jurisdiction in any other jurisdiction where a
party hereto or any of its property may be found. Each party hereto irrevocably
consents to venue and jurisdiction of any such court in respect of any such
proceeding and to service of process under Sections 13-1-124(1)(a) and 13-1-125,
Colorado Revised Statutes (1973), as amended, in respect of any such proceeding.
12.03 Headings. The article and section headings in this Agreement are for
--------
convenience only and shall not be used in its interpretation or considered part
of this Agreement.
12.04 Counterparts. This Agreement may be executed in any number of
------------
counterparts or counterpart signature pages, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.05 Amendments. No provision of this Agreement shall be amended or
----------
modified except by an instrument in writing signed by Binan and UA and
designated as an amendment.
12.06 Assignment. Neither Binan, UA or UAM shall assign any of its rights
----------
under this Agreement or delegate its obligations hereunder unless it obtains the
prior written consent of the other party, except that either party may, upon
notice to the other given one Business Day prior to the Closing, assign in whole
or in part its rights to purchase under this Agreement to one or more
Subsidiaries (as defined below) of UPC. and Tele-Communications International,
Inc. ("TINTA"), respectively. For purposes of this Agreement, a "Subsidiary"
----------
means any company or partnership in which Binan or TINTA owns, directly or
indirectly, 100% of the share capital or partnership interests. For avoidance of
doubt, neither party may delegate any of its obligations hereunder without the
prior written consent of the other, provided that upon assignment by a party of
its rights under this Agreement the assigning party and the assignee shall be
jointly and severally liable for the assignor's obligations hereunder.
20
<PAGE>
Notwithstanding the preceding paragraph, Binan shall have the right to
assign in whole or in part its right to acquire the UIIM Interest under this
Agreement to one or more of its affiliates including subsidiaries of UPC
provided that upon assignment by Binan of its rights to acquire the UIIM
Interest, Binan and the assignee shall be jointly and severally liable for the
assignor's obligations hereunder..
12.07 Binding Effect. This Agreement and the covenants set forth herein
--------------
shall be binding upon and shall inure to the benefit of Binan, UA and UAM and
their respective successors and permitted assigns.
12.08 Time of the Essence. Time is of the essence for purposes of this
-------------------
Agreement. If any of the conditions or obligations in this Agreement are not
timely met by Binan, UA or UAM, then Binan, UA or UAM, respectively, shall be
deemed to be in default hereunder.
12.09 The Term Including. The term "including" whenever used in this
------------------
Agreement shall be deemed to mean "including without limitation."
12.10 Entire Agreement. This Agreement and the August 31 letter
----------------
between the parties embody the entire agreement between the parties concerning
the subject matter hereof and replaces and supersedes any prior and
contemporaneous negotiations, agreements and understandings among the parties
relating to such subject matter.
UA, UAM, UPC and Binan agree that the execution, delivery and
performance of this Agreement shall constitute a waiver of the transfer
restrictions contained in Article X of the Partnership Agreement and Sections
12.1 and 12.2 of the UII Management Partnership Agreement..
12.11 No Waiver. The failure or delay of UA, UAM or Binan at any time
---------
or from time to time to exercise any right under or enforce any provision of
this Agreement shall not be construed as implying a waiver of such provision or
of the right of that party to exercise or enforce it subsequently. No single
or partial exercise of any right under this Agreement shall preclude the further
or full exercise of the right. No waiver of any default on any one occasion
shall constitute a waiver of any subsequent or other default.
12.12 Expenses. UA, UAM and Binan shall each pay its own expenses and
--------
those of its advisors incurred in connection with this Agreement and the
transactions contemplated hereby. UA shall pay any fees or stamp duties or
similar expenses relating to transfer of the Combined Ireland Interests to UA.
Binan shall pay any fees or stamp duties or similar expenses relating to
transfer of the UA Partnership Interest, the Malta Interests or the Israel
Interests or the UIIM Interest.
21
<PAGE>
EXECUTED as of the date of this Agreement.
UA-UII, INC. BINAN INVESTMENTS B.V.
By: /s/ Stephen M. Brett By: /s/ A.H.E. van Voskuijlen
--------------------- ---------------------------
Title:Vice President Title: Attorney-in-Fact
UA-UII MANAGEMENT, INC.
By: /s/ Stephen M. Brett
---------------------
Title: Vice President
For purposes of the waiver in Section 12.10 only:
UNITED PAN-EUROPE COMMUNICATIONS N.V., a company
formed under the laws of the Netherlands
By: /s/ A.H.E. van Voskuijlen
---------------------------
Title: Attorney-in-Fact
<PAGE>
EXHIBIT A UII Liquidation and Settlement Sheet.............................. A-1
EXHIBIT B Transaction Charts............................ (intentionally omitted)
EXHIBIT C Form of Opinion of UA's Counsel............... (intentionally omitted)
EXHIBIT D Form of Mutual Release............................................ D-1
EXHIBIT E Form of Opinion of Binan's Counsel............. intentionally omitted)
EXHIBIT F Form of Opinion of Binan's Colorado Counsel... (intentionally omitted)
<PAGE>
EXHIBIT A
UII Liquidation and Settlement Sheet
A-1
<PAGE>
UII Liquidation and Settlement
Estimate of Net Payment
<TABLE>
<CAPTION>
UPC Settlement with TINTA USD
----------------------
<S> <C>
Amount Payable to UA per Agreement 71,000,000
Add:
Management Fees UIIM
Received (Schedule sent) 424,884
Estimated 1998 (see below) 819,357
Dividends - Israel Interests
Received (Schedule sent) 2,419,143
Third Qtr.-Settlement Item
----------------------
Total Adjusted Payable 74,663,384
----------------------
UPC's Indirect Pro Rata Share of
of Loans and interest due from PHL 6,685,943
----------------------
Total due UPC 6,685,943
----------------------
Net Settlement Amount 67,977,441
======================
PHL Receivable 1,490,799
Net Payable to UPC from Princes (paid on 10/21/98) 1,322,544
Estimated Management Fees WH Tax
Gross 15% Net 50%
---
------------
Tevel
1st Quarter 615,031 (92,255) 522,776 261,388
2nd Quarter 615,000 (92,250) 522,750 261,375
3rd Quarter 500,000 (75,000) 425,000 212,500 Estimated (to be confirmed)
-------------------------
Subtotal 1,470,526 735,263
Melita 168,188 84,094
------------
Total 819,357
============
USD Conversion of Loans (as of Nov. 6)
UPC Loan 3,070,000
UPC Interest 913,909
Additional Interest (624/day for 37 days) 23,088 Period from September 30 to November 6
Riordan loan 317,500
Riordan Interest 131,066
Additional Interest (87/day for 37 days) 3,219 Period from September 30 toNovember 6
-----------------
Total 4,458,782
Exchange rate 1.4995
-----------------
6,685,943
=================
Per dium interest amount I(pound) 711/USD1,066
</TABLE>
<PAGE>
EXHIBIT D
Form of Mutual Release
----------------------
MUTUAL RELEASE
This MUTUAL RELEASE (this "Release"), dated as of November __, 1998, is
being given pursuant to the Purchase Agreement, dated November ___, 1998 (the
"Purchase Agreement"), between Binan Investments B.V.("Binan"), a company
organized under the laws of The Netherlands, and UA-UII, Inc. ("UA"), a Colorado
corporation. Capitalized terms used herein without definition have the meanings
assigned to them in the Purchase Agreement.
The parties hereto agree as follows:
1. UA's Release. For good and valuable consideration, the sufficiency of
------------
which consideration is hereby acknowledged, UA, or UA-UII Management, Inc. ("UA-
UIIM"), each for itself, any of its shareholders, affiliates, officers,
directors, agents, insurers, successors and assigns, hereby fully and forever
releases and discharges, with immediate effect, Binan and its shareholders,
affiliates, successors, all past and present employees, officers, directors,
agents, insurers and assigns from any and all claims, demands, obligations,
actions, liabilities, losses, costs, expenses and damages of every kind and
nature whatsoever (collectively, "Claims"), including, without limitation,
reasonable attorneys' fees, in law or equity, whether known or unknown, whether
fixed or contingent, which UA or UA-UIIM may now have, or claim at any future
time to have, based in whole or in part upon any act or omission on or before
the date hereof, without regard to the present, actual knowledge of such acts or
omissions, arising from or based upon or in any way related to Partnership
Agreement, the UII Management Partnership Agreement and any transaction,
document, agreement or instrument related thereto; except for the rights and
------
obligations created by this Release, the Purchase Agreement, the August 31, 1998
Letter Agreement or Sections 4.6 (Comply With Law), 4.8 (Confidentiality),
15.8(a) (Use of Names) of the Partnership Agreement or for Claims under the
first sentence of Section 4.7 (Exculpation) of the Partnership Agreement
resulting from willful misconduct or gross negligence, or Sections 5.6 (Comply
with Law), 5.8 (Confidentiality),15.8 (Use of Names) of the UII Management
Partnership Agreement or for Claims under the first sentence of Section 5.7
(Exculpation) of the UII Management Partnership Agreement resulting from willful
misconduct or gross negligence.
2. Binan's Release. For good and valuable consideration, the sufficiency
---------------
of which consideration is hereby acknowledged, Binan, UPC, UIHI and United
International Management, Inc. (now known as UIH Europe, Inc.) each for itself,
any of its shareholders, affiliates (including PHL), officers, directors,
agents, insurers, successors and assigns, hereby fully and forever releases and
discharges, with immediate effect, UA and its shareholders, affiliates,
successors, all past and present employees, officers, directors, agents,
insurers and assigns from any and all Claims, including, without limitation,
reasonable attorneys' fees, in law or equity, whether known or unknown, whether
fixed or contingent, which Binan may now have, or claim at any future time to
have, based in whole or in part upon any act or omission
<PAGE>
on or before the date hereof, without regard to the present, actual knowledge of
such acts or omissions, arising from or based upon or in any way related to the
Partnership Agreement, the Reimbursement Agreement, UIIM Partnership Agreement,
the PHL Management Agreement (including fees or expense reimbursements due from
PHL or relating thereto) and any transaction, document, agreement or instrument
related thereto; except for the rights and obligations created by this Release,
------
the Purchase Agreement or Sections 4.6 (Comply With Law), 4.8 (Confidentiality),
15.8(a) (Use of Names) of the Partnership Agreement or for Claims under the
first sentence of Section 4.7 (Exculpation) of the Partnership Agreement
resulting from willful misconduct or gross negligence, or Sections 5.6 (Comply
with Law), 5.8 (Confidentiality), 15.8 (Use of Names) of the UII Management
Partnership Agreement or for Claims under the first sentence of Section 5.7
(Exculpation) of the UII Management Partnership Agreement resulting from willful
misconduct or gross negligence. UIH acknowledges that the Management Services
Agreement dated June 19, 1992 between UIH and PHL expired on June 17, 1997.
3. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Colorado without giving
effect to the conflict of laws provisions thereof.
<PAGE>
EXECUTED as of the date of this Release.
UA-UII, INC.
By:___________________________________
Title:
BINAN INVESTMENTS B.V.
By:___________________________________
Title:
UA-UII MANAGEMENT, INC.
By:___________________________________
Title:
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By:___________________________________
Title:
UNITED INTERNATIONAL HOLDINGS, INC.
By:___________________________________
Title:
UIH EUROPE, INC.
By:___________________________________
Title:
<PAGE>
RIORDAN COMMUNICATIONS LIMITED
By:___________________________________
Title
______________________________________
John Riordan
<PAGE>
EXHIBIT 10.18
CONSENT AGREEMENT
This Agreement is made on the 27th day of September 1997
BETWEEN:
1. United and Philips Communications B.V., with offices at Fred. Roeskestraat
123, 1076 EE, Amsterdam ("UPC");
2. US West International B.V. with offices at Vestdijk 18, 5611 CC Eindhoven
("US West");
3. Philips Media B.V., with offices at Groenewoudseweg 1, 5600 MD Eindhoven,
The Netherlands ("Philips Media");
4. United International Holdings, Inc. with offices at 4643 South Ulster
Street, Suite 1300, Denver, Colorado U.S.A. ("UIH"); and
5. Joint Venture, Inc. with offices at 4643 South Ulster Street, Suite 1300,
Denver, Colorado, U.S.A. ("JVI")
hereinafter the "Parties", and each a "Party".
WITNESSETH:
WHEREAS, Philips Media's ultimate parent company, Philips Electronics N.V.
("Philips") and JVI's ultimate parent company, UIH, concluded a letter of intent
in February 1997 pursuant to which Philips will transfer its indirect, wholly-
owned, interest in UPC in such a manner that UIH will acquire 100% ownership and
control over all the shares of UPC (the "Philips Transaction");
WHEREAS, Philips and UIH have held discussions regarding the structuring of this
transaction, which have resulted in two alternatives: (i) Philips will receive
cash plus a possible deferred consideration ("Alternative I") or (ii) Philips
will receive cash plus preferred stock plus a possible deferred consideration
("Alternative I") or (ii) Philips will receive cash plus preferred stock plus a
possible deferred consideration ("Alternative II");
WHEREAS, UPC on behalf of Philips Media has requested that US West consents to
the Philips Transaction insofar as it concerns the indirect change of control
over A2000 Holding N.V. ("A2000").
NOW, THEREFORE, the parties hereto agree as follows:
A. Philips, UIH, JVI and UPC represent and warrant that:
(1) if the Philips Transaction is completed using Alternative I, JVI will
own or control the voting rights of 100% of the issued share capital
of UPC and that neither Philips nor any other third party will have
any rights to acquire any
<PAGE>
existing or new shares of UPC as a result of Alternative I;
(2) if the Philips Transaction is completed using Alternative II,
(i) JVI will own or control the voting rights of 100% of the issued
share capital of UPC and the Preferred Stock of UPC will either
be:
(a) held by Philips or one of its subsidiaries, or with third
parties who have acquired such shares in a Rule 144A
offering; and
(b) the voting of the Preferred Stock will be exercised via a
special purpose foundation ("Stichting") to be incorporated
for the sole purpose of administering and voting the
Preferred Stock, and that UIH will control the board of the
Stichting;
(ii) if Philips (or one of its subsidiaries) still owns the Preferred
Stock by December 1, 1997, the Philips voting rights vis-a-vis
UPC are reinstated on a 50/50 basis and if Philips (or one of its
subsidiaries) still owns the Preferred Stock on September 1, 1998
then Philips has the right to convert the Preferred Stock into
common stock of UPC, such that the original shareholder
relationship as it is in effect prior the date hereof between
Philips and UIH, will be restored;
(3) they will obtain the necessary consent from the Municipality of
Amsterdam to the Philips Transaction.
B. UIH, JVI and UPC represent and warrant that:
(1) JVI is wholly owned by UIH;
(2) JVI owns or controls the voting rights of 50% of the shares of UPC;
(3) UPC will and JVI will and UIH will procure that JVI will use its
voting rights to cause UPC to continue to adhere to the rights and
obligations of UPC under the joint venture agreement dated February
13, 1996 entered into between US West and UPC (the "A2000 Joint
Venture Agreement").
C. UIH and JVI represent and warrant that they have no current intention to
change the control of the Board of the Stichting, nor that they have any
obligation to change this control in the future and that they will comply
with the consent provisions in the A2000 Joint Venture Agreement should
they intend to do so.
D. Philips Media represents and warrants that:
(1) Philips Media is wholly owned by Philips;
(2) Philips Media Networks B.V. is wholly owned by Philips Media;
2
<PAGE>
(2) Philips Media Networks B.V. owns or controls the voting rights of 50%
of the shares of UPC.
E. US West and UPC agree that Clause 9.2(b) "Permitted Transfers to
Affiliates" of the A2000 Joint Venture Agreement shall be deleted upon
closing of the Philips Transaction and replaced by the following wording:
"9.2(b) UPC shall be entitled at any time to transfer all (but not less
than all) of its Joint Venture Interest to a legal entity incorporated in
an OECD Member Country, which is a subsidiary of United International
Holdings, Inc. or its successor company and in which United International
Holdings, Inc. or its successor company owns consolidated capital and
voting interests of more than 50%;"
F. On the basis that:
(1) the above representations and warranties are correct as at the date
hereof and will be correct when repeated at the closing of the Philips
Transaction;
(2) notice of which Alternative is to be used by UPC is given to US West at
least five (5) business days prior to the closing of the Philips
Transaction and such route is the one which is used;
US West consents to the transfer of Philips Media's interest in A2000 to
JVI as described in this Agreement, such consent only to take effect upon
the closing of the Philips Transaction using either Alternative I, or
Alternative II (whether or not the deferred consideration is given).
Nothing in this Agreement shall be construed as a consent from US West to
the granting of any pledge, encumbrance or other security interest over any
shares in A2000 Holding N.V.
G. This Agreement shall be governed by and construed in accordance with the
laws of The Netherlands.
H. Any dispute arising out of or in connection with this Agreement, including
any question regarding its existence, validity or termination, shall be
referred to and finally resolved by arbitration under the Rules of
Arbitration of the Nederlands Arbitrage Institut ("NAI"), which rules are
deemed to be incorporated by reference into this clause. Such dispute
shall be resolved by one arbitrator nominated by agreement of the Parties
within 30 days after the submission of a request for arbitration is
delivered to the NAI, or if the Parties cannot agree, the nomination of the
arbitrator shall be made in accordance with the Rules. The proceedings
shall, unless otherwise agreed between the Parties, be held in Amsterdam.
The English language shall be the official language for all purposes. The
Arbitrator shall be authorised to resolve the Parties' dispute. The
decision of the sole arbitrator shall be final and binding and shall be
enforceable in any court of competent jurisdiction and the Parties hereby
waive the objections to or claims of immunity in respect of such
enforcement.
3
<PAGE>
IN WITNESS WHEREOF this Agreement was duly executed by the Parties in four
counterparts on the date first above written
for and on behalf of
US WEST INTERNATIONAL B.V.
/s/ MICHAEL CZWORNOG
- --------------------
By: Michael Czwornog
Title:
for and on behalf of
UNITED AND PHILIPS COMMUNICATIONS B.V.
/s/ A.H.E. VAN VOSKUIJLEN /s/ D. MILLER-JONES
- -------------------------- --------------------
By: A.H.E. van Voskuijlen D. Miller-Jones
Title: Senior Managing Directors
for and on behalf of
PHILIP MEDIA B.V.
/s/ E. COUTINHO
- --------------------------
By: E. Coutinho
Title: Attorney-in-fact
4
<PAGE>
EXHIBIT 10.20
TAX LIABILITY AGREEMENT
This Tax Liability Agreement ("Agreement") has been made by and between UNITED
AND PHILIPS COMMUNICATIONS B.V., a private company with limited liability
organized under the laws of The Netherlands ("UPC"), PHILIPS COORDINATION
CENTER, N.V., a private company with limited liability organized under the laws
of Belgium ("PCC"); PHILIPS MEDIA B.V., a private company with limited liability
organized under the laws of The Netherlands ("Philips Media"); PHILIPS MEDIA
NETWORKS, B.V., a private company with limited liability organized under the
laws of The Netherlands and a wholly-owned subsidiary of Philips Media ("Philips
Networks"); UNITED INTERNATIONAL HOLDINGS, INC., a corporation organized under
the laws of the State of Delaware in the United States of America ("UIHI"); and
JOINT VENTURE INC., a corporation organized under the laws of the State of
Delaware and a wholly-owned subsidiary of UIHI ("JVI"), effective as of October
7, 1997.
WITNESSETH
WHEREAS, in connection with the establishment of UPC pursuant to the
Contribution and Joint Venture Agreement entered into by Philips Media and UIHI
on October 13, 1994 ("CJV Agreement"), Radio Public N.V. ("Radio Public"), a
lower tier Belgium subsidiary of Philips Electronics N.V. ("Philips N.V."),
demerged into (i) a new company also named Radio Public ("RP"), and (ii) a new
company named Philips Estate, N.V., a private company with limited liability
owned by Philips N.V., and thereafter all shares of RP were contributed to UPC;
and
WHEREAS, the said demerger was recognized as a tax-free transaction on May 16,
1995 by the Rulings Commission in Belgium according to the procedure set forth
in Article 345, section 1.1. of the Belgium Income Tax Code ("I.T.C.") (such
recognition being referred to hereafter as the "Consent"); and
WHEREAS, the application for the Consent submitted on December 23, 1994 to the
Rulings Commission stated that (i) PCC subscribed, on October 27, 1994, to a BEF
3,863,750,000 bearer bond issued by Telekabel Satelliten Fernsehnetz
Betriebsgesellshaft GmbH (Wien) ("Telekabel") in order to finance Telekabel's
take over of certain Austrian cable interests, and that (ii) the participation
in PCC held by Radio Public would be transferred in part to RP (13,750 shares)
and in part to Philips Estate (13,950 shares); and
WHEREAS, Article 2.1.(c)(iv) of the CJV Agreement provides that any tax
liability without limitation arising solely as a result of the demerger of Radio
Public will be borne by Philips Media; and
WHEREAS, JVI, UIHI and UPC, as the case may be, wish to acquire, and Philips
Media wishes to sell, all interests acquired by Philips Media or its subsidiary,
Philips Networks, in UPC and in UIHI in connection with the formation of UPC
and, to facilitate that desire, Philips Media, Philips Networks, UIHI and JVI
have agreed to cause UPC to purchase the ordinary shares of UPC and the ordinary
shares of UIHI held by Philips Networks, and JVI will purchase the "PIK
<PAGE>
Notes" held by Philips Media (the "Purchase Transaction"), pursuant to the terms
and conditions of a Securities Purchase and Conversion Agreement dated October
7, 1997 ("SPC Agreement"); and
WHEREAS, UIHI has elected to proceed with the Purchase Transaction; and
WHEREAS, in connection with the Purchase Transaction, Philips Media, Philips
Networks, UIHI, JVI, UPC and PCC have agreed to complete the actions required to
cause the shares in PCC owned by RP to be sold to a company controlled by
Philips N.V. and to cause PCC to sell the bearer bond issued by Telekabel (all
of such actions or similar actions being referred to collectively hereafter as
the "Demerger Related Actions".
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS.
AGREEMENT
1. Retention of All Demerger and Demerger Related Tax Liabilities by Philips
-------------------------------------------------------------------------
Media. Notwithstanding any actions which Philips Media, Philips Networks, UPC,
- -----
UIHI, JVI or any other entities may take (a) to effect the Purchase Transaction
pursuant to the SPC Agreement and (b) to carry out the Demerger Related Actions,
if any such Demerger Related Actions actually occur, the provisions of Article
2.1.(c)(iv) of the CJV Agreement shall continue in effect and, in accordance
therewith and with provisions of this Agreement, any and all tax liabilities,
without limitation, arising as a result of the demerger of Radio Public and any
tax liabilities without limitation arising as a result of any Demerger Related
Actions shall be the liability of and shall be borne exclusively by Philips
Media, and Philips Media shall hold harmless and indemnify RP, UPC, PCC, JVI
and UIHI from and against any and all losses, costs, claims or damages that
arise in relation to any such tax liabilities.
2. Allocation of All Bearer Bond Capital Gain Tax Liability to UPC. Any tax
---------------------------------------------------------------
liability arising for PCC from the sale of the Telekabel bearer bond and which
is attributable to and imposed on proceeds received by PCC in excess of the
bonds par value shall be borne solely by and shall be the sole liability of UPC
and UPC shall hold harmless and indemnify PCC from and against any and all
losses, costs, claims or damages that arise in relation to such tax liability.
Any tax liability or tax benefit arising for PCC from the sale of the Telekabel
bearer bond shall be the sole liability or the sole benefit of PCC provided the
proceeds received by PCC from the sale thereof are less than or equal to the par
value of the Telekabel bearer bond.
3. Allocation of All Bearer Bond Interest Tax Liability to UPC. Any tax
-----------------------------------------------------------
liability arising for PCC in relation to the interest rate applied to the bearer
bond issued by Telekabel shall be the sole liability of and shall be borne
solely by UPC and UPC shall hold harmless and indemnify PCC from and against any
and all losses, costs, claims and damages that arise in relation to such tax
liability.
4. Notice and Cooperation. PCC, Philips Networks or Philips Media shall
----------------------
immediately notify UPC of any discussions with or claims by the Belgium Tax
Administration which may
-2-
<PAGE>
result in the assessment of tax to PCC and the allocation of tax liability to
UPC under paragraphs two and three of this Agreement. PCC, Philips Networks and
Philips Media shall cooperate with UPC to defend UPC's interests against the
assessment of any such tax. All costs incurred by PCC, Philips Networks and
Philips Media with respect to such cooperation shall be borne by UPC. UPC, JVI
or UIHI shall immediately notify Philips Media of any discussions with or claims
by the Belgium Tax Administration which may result in the assessment of tax to
UPC and the allocation of tax liability to RP or an entity related to Philips
Media under paragraph one of this Agreement. UPC, JVI and UIHI shall cooperate
with Philips Media to defend its interests or a related entity's interests,
against the assessment of any such tax. All costs incurred by UPC, JVI and UIHI
with respect to such cooperation shall be borne by Philips Media.
All notices under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered in person or by mail or overnight courier,
postage prepaid, or sent by telex, telegram or telecopier (confirmed by mail
with postage prepaid), as follows:
(a) if to Philips Media, to it at:
Philips Media B.V.
P.O. Box 218
5600 MD Eindhoven
The Netherlands
Attention: Corporate Legal Department
(b) if to UPC, to it at:
United and Philips Communications B.V.
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: Senior Managing Director
5. Governing Law and Dispute Resolution. This Agreement shall be governed by
------------------------------------
and construed in accordance with the laws of the State of Colorado and any
disputes arising under or in relation to this Agreement shall be finally settled
by three arbitrators [at a location in the United States as agreed to between
UIHI and Philips Media B.V, in accordance with the International Arbitration
Rules of the American Arbitration Association (the "Rules"). The arbitration
shall be conducted in English and the arbitrators shall be appointed by
agreement of the parties hereto that are parties to the arbitration or, if those
parties cannot agree on three arbitrators by the date set for such agreement in
the Rules, shall be appointed in accordance with the Rules.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly signed this Agreement as of the
date first written above.
UNITED AND PHILIPS COMMUNICATIONS B.V.
By /s/ Mark L. Schneider
----------------------------------------------------
Name
Title
By /s/ D. Miller-Jones
----------------------------------------------------
Name
Title
PHILIPS COORDINATION CENTER, N.V.
By /s/ J.K. van Vliet /s/ J. van Haren
----------------------- ---------------------
Name J.K. van Vliet J. van Haren
Title Director Director
PHILIPS MEDIA B.V.
By /s/ R.J.A. de Lange /s/ M. Sevenans
----------------------- ---------------------
Name R.J.A. de Lange M. Sevenans
Title Director Director
PHILIPS MEDIA NETWORKS, B.V.
By /s/ R.J.A. de Lange /s/ M. Sevenans
----------------------- -------------------
Name R.J.A. de Lange M. Sevenans
Title Director Director
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<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
By /s/ Mark L. Schneider
--------------------------------------------
Name
Title
JOINT VENTURE, INC.
By /s/ Mark L. Schneider
--------------------------------------------
Name
Title
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<PAGE>
EXHIBIT 10.23
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UNITED PAN-EUROPE COMMUNICATIONS N.V.
PHANTOM STOCK OPTION PLAN
(EFFECTIVE MARCH 20, 1998)
================================================================================
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UNITED PAN-EUROPE COMMUNICATIONS N.V.
PHANTOM STOCK OPTION PLAN
ARTICLE I
INTRODUCTION
1.1 ESTABLISHMENT. United Pan-Europe Communications N.V., a Netherlands
corporation ("UPC"), hereby establishes the United Pan-Europe Communications
N.V. Phantom Stock Option Plan (the "Plan") for certain key employees of the
Company (as defined in Article II) and certain consultants to the Company. The
Plan permits the grant of phantom stock options to certain key employees of, and
consultants to, the Company.
1.2 PURPOSES. The purposes of the Plan are to provide those who are
selected for participation in the Plan with added incentives to continue in the
long-term service of the Company and to create in such persons a more direct
interest in the future success of the operations of the Company by relating
incentive compensation to increases in shareholder value, so that the income of
those participating in the Plan is more closely aligned with the income of the
Company's shareholders. The Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees and consultants.
1.3 EFFECTIVE DATE. The effective date of the Plan shall be March 20,
1998 (the "Effective Date"). This Plan, each amendment to the Plan, and each
phantom stock option granted hereunder is conditioned on and shall be of no
force or effect until approval of the Plan by the holders of the shares of
voting stock of the Company unless the Company, on the advice of counsel,
determines that shareholder approval is not necessary.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "AFFILIATED CORPORATION" means any corporation or other entity
that is affiliated with UPC through stock ownership or otherwise and is
designated as an "Affiliated Corporation" by the Board;
(b) "BOARD" means the Supervisory Board of UPC.
(c) "CODE" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
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(d) "COMMITTEE" means a committee consisting of members of the Board
who are empowered hereunder to take actions in the administration of the Plan.
During all periods when the Company is subject to the reporting requirements of
the Securities Exchange Act of 1934 (the "1934 Act"), the Committee shall be so
constituted at all times as to permit the Plan to comply with Rule 16b-3 or any
successor rule promulgated under the 1934 Act. Members of the Committee and any
subcommittee or special committee shall be appointed from time to time by the
Board, shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board. The Committee shall recommend to the Board the
Eligible Employees and Eligible Consultants who shall be granted Options and the
terms and conditions thereof.
(e) "COMPANY" means UPC and the Affiliated Corporations.
(f) "DISABLED" or "DISABILITY" shall have the meaning given to such
terms in Section 22(e)(3) of the Code.
(g) "ELIGIBLE CONSULTANTS" means those consultants and other
individuals who provide services to the Company and whose judgment, initiative
and effort are important to the Company for the management and growth of its
business. Eligible Consultants do not include the Company's directors who are
not employees of the Company.
(h) "ELIGIBLE EMPLOYEES" means those employees (including, without
limitation, officers and directors who are also employees) of the Company or any
subsidiary or division thereof, whose judgment, initiative and efforts are
important to the Company for the management and growth of its business.
(i) "FAIR MARKET VALUE" of a Share of Stock shall be the last
reported sale price of the Stock on the NASDAQ National Market System on the day
the determination is to be made, or if no sale took place on such day, the
average of the closing bid and asked prices of the Stock on the NASDAQ National
Market System on such day, or if the market is closed on such day, the last day
prior to the date of determination on which the market was open for the
transaction of business, as reported by NASDAQ. If, however, the Stock should be
listed or admitted for trading on a national securities exchange, the Fair
Market Value of a Share of the Stock shall be the last sales price, or if no
sales took place, the average of the closing bid and asked prices on the day the
determination is to be made, or if the market is closed on such day, the last
day prior to the date of determination on which the market was open for the
transaction of business, as reported in the principal consolidated transaction
reporting system for the principal national securities exchange on which the
Stock is listed or admitted for trading. If the Stock is not Publicly Traded,
the Fair Market Value of the Stock for purposes of the grant of Options under
the Plan shall be determined by the Committee in accordance with Article VIII.
(j) "OPTION" means a right to elect to receive, for a stated period
of time, cash equal to the excess of the Fair Market Value of Stock over the
Option Price.
(k) "OPTION CERTIFICATE" shall have the meaning given to such term in
Section 6.2 hereof.
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(l) "OPTION HOLDER" means a Participant who has been granted one or
more Options under the Plan.
(m) "OPTION PRICE" means the base price for determining the increase
in value of a Share of Stock, determined in accordance with subsection 6.2(b).
(n) "PUBLICLY TRADED" means listing or trading on the NASDAQ National
Market System or a national securities exchange.
(o) "SHARE" means a share of Stock.
(p) "STOCK" means the ordinary shares of stock of UPC.
(q) "UIH" means United International Holdings, Inc..
(r) "UPC" means United Pan-Europe Communications N.V. and any
successor thereto.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the definition
of any term herein in the singular shall also include the plural.
ARTICLE III
PLAN ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
determine the form or forms of the Option Certificates, and other agreements
with Option Holders that shall evidence the particular provisions, terms,
conditions, rights and duties of UPC and the Option Holders with respect to
Options granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein. The Committee may from time to time adopt
such rules and regulations for carrying out the purposes of the Plan as it may
deem proper and in the best interests of the Company. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan or in
any agreement entered into hereunder in the manner and to the extent it shall
deem expedient and it shall be the sole and final judge of such expediency. No
member of the Committee shall be liable for any action or determination made in
good faith. The determinations, interpretations and other actions of the
Committee pursuant to the provisions of the Plan shall be binding and conclusive
for all purposes and on all persons.
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ARTICLE IV
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. The number of Shares that may be subject to Options
shall not exceed 1,600,000, subject to the provisions regarding changes in
capital described below. The maximum number of Shares with respect to which a
Participant may receive Options under the Plan in any calendar year is 500,000
Shares. This authorization may be increased from time to time by approval of
the Board and by the stockholders of UPC if, in the opinion of counsel for UPC,
stockholder approval is required. Shares of Stock with respect to which Options
are exercised shall be applied to reduce the maximum number of Shares remaining
available for use under the Plan. Any Shares of Stock that are subject to an
Option that expires or for any reason is terminated unexercised shall
automatically become available for use under the Plan.
4.2 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If UPC shall at any
time increase or decrease the number of its outstanding Shares or change in any
way the rights and privileges of such Shares by means of the payment of a stock
dividend or any other distribution upon such Shares payable in Stock, or through
a stock split, subdivision, consolidation, combination, reclassification or
recapitalization involving the Stock, then in relation to the Stock that is
affected by one or more of the above events, the numbers, rights and privileges
of the following shall be increased, decreased or changed in like manner as if
they had been issued and outstanding, fully paid and nonassessable at the time
of such occurrence: (i) the Shares as to which Options may be granted under the
Plan and (ii) the Shares then included in each outstanding Option granted
hereunder. Upon any occurrence described in this Section 4.2, the total Option
Price under each then outstanding Option shall remain unchanged but shall be
apportioned ratably over the increased or decreased number of Shares subject to
the Option.
4.3 ADJUSTMENTS FOR CERTAIN DISTRIBUTIONS OF PROPERTY. If UPC shall at
any time distribute with respect to its Stock assets or securities of other
persons (excluding cash dividends or distributions payable out of capital
surplus and dividends or other distributions referred to in section 4.2), then
the Option Price of outstanding Options shall be adjusted to reflect the fair
market value of the assets or securities distributed, the Company shall provide
for the delivery upon exercise of such Options of cash in an amount equal to the
fair market value of the assets or securities distributed or a combination of
such actions shall be taken, all as determined by the Committee in its
discretion. Fair market value of the assets or securities distributed for this
purpose shall be as determined by the Committee; provided however, that if UPC
is not Publicly Traded and the assets or securities represent an operating
business, the fair market value shall be determined in accordance with Article
VIII.
4.4 CERTAIN ISSUANCES OF CAPITAL STOCK. If any person, including without
limitation United International Holdings, Inc., acquires, whether by purchase,
capital contribution or otherwise, any shares of the capital stock of UPC at a
price less than NLG 18.00 per share, and if the Committee shall in its
discretion determine that such acquisition equitably requires an adjustment in
the number of Shares subject to an Option, an adjustment in the Option Price, or
the taking of any
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<PAGE>
other action by the Committee, such adjustments shall be made or other action
taken by the Committee and shall be effective for all purposes of the Plan and
each outstanding Option.
4.5 DETERMINATION BY THE COMMITTEE, ETC. Adjustments under this Article
IV shall be made by the Committee, whose determinations with regard thereto
shall be final and binding upon all parties thereto.
ARTICLE V
PARTICIPATION
In accordance with the provisions of the Plan, the Committee shall, in its
sole discretion, select Option Holders from among Eligible Employees and
Eligible Consultants to whom Options will be granted and shall specify the
number of Shares subject to each Option and such other terms and conditions of
each Option as the Committee may determine to be necessary or desirable and
consistent with the terms of the Plan. Eligible Employees shall be selected
from the employees of the Company who are performing services in the management,
operation and growth of the Company, and contribute, or are expected to
contribute, to the achievement of long-term corporate objectives. Eligible
Consultants shall be selected from the consultants and other individuals who
provide services to the Company with respect to the operation and growth of the
Company and who contribute, or are expected to contribute, to the achievement of
long-term corporate objectives. Eligible Employees and Eligible Consultants may
be granted from time-to-time one or more Options. The grant of each such Option
shall be separately approved by the Committee, and receipt of one such Option
shall not result in automatic receipt of any other Option. Upon determination
by the Committee that an Option is to be granted to an Eligible Employee or
Eligible Consultant, written notice shall be given to such person, specifying
the terms, conditions, rights and duties related thereto.
ARTICLE VI
OPTIONS
6.1 GRANT OF OPTIONS. Coincident with or following designation for
participation in the Plan, Eligible Employees and Eligible Consultants may be
granted one or more Options. An Option shall be considered as having been
granted on the date specified in the grant resolution of the Committee.
6.2 OPTION CERTIFICATES. Each Option granted under the Plan shall be
evidenced by a written certificate or agreement (an "Option Certificate"). An
Option Certificate shall be issued by UPC in the name of the Participant to whom
the Option is granted (the "Option Holder") and in such form as may be approved
by the Committee. The Option Certificate shall incorporate and conform to the
conditions set forth in this Section 6.2 as well as such other terms and
conditions that are not inconsistent as the Committee may consider appropriate
in each case.
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<PAGE>
(a) NUMBER OF SHARES. Each Option Certificate shall state that it
covers a specified number of Shares of Stock, as determined by the Committee.
(b) OPTION PRICE. The base price for determining the increase in
value of a Share of Stock shall be determined in each case by the Committee and
set forth in the Option Certificate.
(c) DURATION OF OPTIONS; RESTRICTIONS ON EXERCISE. Each Option
Certificate shall state the period of time, determined by the Committee, within
which the Option may be exercised by the Option Holder (the "Option Period").
The Option Period must end, in all cases, not more than ten years from the date
the Option is granted. Each Option Certificate shall provide that the Option
shall become exercisable (vest) in increments if the Option Holder is
continuously employed by UPC or an Affiliated Corporation from the date of grant
through the following vesting dates: 1/48th of the number of Shares subject to
the Option shall vest on the same date of the month as the date of grant,
commencing with the month next following the month in which the Option was
granted. If the vesting formula results in a fractional share, the vested
increment shall be rounded down to the next whole share. The Option shall be
fully vested on the fourth anniversary of the date of grant. However, the
Committee, with the approval of the Board, may establish different vesting
schedules for specified Option grants. Except as set forth in Article VII, the
Option shall not be exercisable as to any Shares for which the continuous
employment requirement is not satisfied, regardless of the circumstances under
which the Option Holder's employment by the Company is terminated. The number
of Shares as to which the Option may be exercised is cumulative, so that once
the Option is exercisable as to any Shares it shall continue to be exercisable
as to such Shares until expiration or termination of the Option.
(d) TERMINATION OF SERVICES, DEATH, DISABILITY, ETC. The Committee
may specify the period, if any, after which an Option may be exercised following
termination of the Option Holder's services. The effect of this subsection
6.2(d) shall be limited to determining the consequences of a termination and
nothing in this subsection 6.2(d) shall restrict or otherwise interfere with the
Company's discretion with respect to the termination of any individual's
services. If the Committee does not otherwise specify, the following shall
apply:
(i) If the employment or consulting relationship of an Option
Holder by or with the Company terminates for any reason other than death or
Disability within six months after the date the Option is granted or if the
employment or consulting relationship of the Option Holder by or with the
Company is terminated within the Option Period for cause, as determined by the
Company, the Option shall thereafter be void for all purposes. As used in this
subsection 6.2(d), "cause" shall mean a gross violation, as determined by the
Company, of the Company's established policies and procedures.
(ii) If the employment or consulting relationship of the Option
Holder terminates because the Option Holder becomes Disabled within the Option
Period, the Option may be exercised by the Option Holder (or, in the case of his
death after becoming Disabled, by those entitled to do so under his will or by
the laws of descent and distribution) within one year following such termination
(if otherwise within the Option Period), but not thereafter. In any such case,
the
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Option may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date of termination because of Disability.
(iii) If the Option Holder dies within the Option Period, while
employed by the Company, while a consultant to the Company, or within the three-
month period referred to in (iv) below, the Option may be exercised by those
entitled to do so under his will or by the laws of descent and distribution
within one year following his death (if otherwise within the Option Period), but
not thereafter. In any such case the Option may be exercised only as to the
Shares as to which the Option had become exercisable on or before the date of
the Option Holder's death.
(iv) If the employment or consulting relationship of the Option
Holder by or with the Company terminates within the Option Period for any reason
other than for cause, Disability or death, and such termination occurs more than
six months after the Option is granted, the Option may be exercised by the
Option Holder within three months following the date of such termination (if
otherwise within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date of termination.
(e) CONSIDERATION FOR GRANT OF OPTION. As consideration for the grant
of the Option, the Option Holder agrees to remain in the employment of the
Company, at the pleasure of the Company, for a continuous period of at least six
months after the date the Option is granted, at the salary rate or other
compensation in effect on the date of such agreement or at such changed rate as
may be fixed, from time to time, by the Company. Nothing in this paragraph shall
limit or impair the Company's right to terminate the employment of any employee.
The Committee may require each Eligible Consultant who is granted an Option to
agree to comply with all of the terms and conditions or specified terms and
conditions of the agreement between the Eligible Consultant and the Company.
(f) EXERCISE. The method for exercising each Option granted hereunder
shall be by delivery to UPC of written notice specifying the number of Shares
with respect to which the Option is exercised. The Option shall be exercised on
the date UPC receives the notice of exercise. Within 30 days after the date of
receipt of the notice, UPC shall deliver to the Option Holder a cash payment
(net of the amount required to be withheld under applicable federal, state, and
local tax laws) for an amount equal to the Fair Market Value of the Shares of
Stock on the date of exercise over the Option Price for the Shares. If Options
on less than all Shares evidenced by an Option Certificate are exercised, UPC
shall deliver a new Option Certificate evidencing the Option on the remaining
Shares upon delivery of the Option Certificate for the Option being exercised.
ARTICLE VII
CORPORATE REORGANIZATION; CHANGE IN CONTROL
7.1 REORGANIZATION. Upon the occurrence of any of the following events,
all Options then outstanding shall become exercisable in full, regardless of
whether all conditions of exercise
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relating to length of service have been satisfied: (a) the merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger, or reorganization in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding shares of Stock); or (b) the sale or conveyance of the
property of the Company as an entirety or substantially as an entirety (other
than a sale or conveyance in which the Company continues as holding company of
an entity or entities that conduct the business or business formerly conducted
by the Company); or (c) the dissolution or liquidation of the Company.
7.2 CHANGE IN CONTROL.
(a) FULL VESTING. If a Change in Control (as defined below) occurs,
all Options shall become exercisable in full, regardless of whether all
conditions of exercise relating to length of service have been satisfied.
(b) PUBLICLY TRADED. If the Stock is Publicly Traded, a "Change in
Control" is deemed to have occurred if (i) a person (as such term is used in
Section 13(d) of the Exchange Act) becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act) of shares of the Company having 30% or more
of the total number of votes that may be cast for the election of directors of
the Company without the prior approval of at least a majority of the members of
the Board unaffiliated with such person or (ii) individuals who constitute the
directors of the Company at the beginning of a 24-month period cease to
constitute at least 2/3 of all directors at any time during such period, unless
the election of any new or replacement directors was approved by a vote of at
least a majority of the members of the Board in office immediately prior to such
period and of the new and replacement directors so approved. Notwithstanding
anything to the contrary in this Section 7.2, no Option will become exercisable
by virtue of the occurrence of a Change in Control if the Option Holder of that
Option or any group of which that Option Holder is a member is the person whose
acquisition constituted the Change in Control.
(c) NOT PUBLICLY TRADED. If the Stock is not Publicly Traded, a
"Change in Control" is defined as (i) the sale of stock having 50% or more of
the voting control or economic value of the Company, or (ii) merger of the
Company with another entity pursuant to which Shares of Stock are surrendered in
exchange for other stock of another entity or (iii) 50 percent or more of the
capital stock of the Company is acquired without the consent of a majority of
the members of the Board who are unaffiliated with the acquiror. Upon a Change
in Control, the Options will, if the Company so chooses, be acquired by the
Company immediately for the same value per Share as established in the Change in
Control. In the case of a merger where the Company is not the surviving entity,
the Company may require the outstanding Options to be exchanged for new options.
(d) CHANGE IN CONTROL OF UIH. A "Change in Control" shall occur for
purposes of this Plan if there is a change in control of UIH, as defined in the
United International Holdings, Inc. 1993 Stock Option Plan, and, following the
Change in Control of UIH, the Option Holder's employment is terminated for Good
Reason. For purposes of this Plan, "Good Reason" shall mean:
(i) the assignment to the Option Holder of any duties inconsistent in
any respect with the Option Holder's position (including status, offices,
and titles), authority, duties or
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responsibilities, or any other action by the Company that results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and that is remedied by the Company promptly
after receipt of notice thereof given by the Option Holder;
(ii) any failure by the Company to comply with any of the provisions
of any employment agreement between the Option Holder and the Company,
other than an isolated, insubstantial and inadvertent failure not occurring
in bad faith and that is remedied by the Company promptly after receipt of
notice thereof given by the Option Holder;
(iii) any purported termination by the Company of the Option Holder's
employment otherwise than as expressly permitted by any employment
agreement between the Option Holder and the Company; or
(iv) any failure by UIH to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of UIH to assume expressly
and agree to perform any employment agreement between the Option Holder and
UIH in the same manner and to the same extent that UIH would be required to
perform it if not such succession had taken place.
7.3 PAYMENT FOR OUTSTANDING OPTIONS. Upon the occurrence of the events
described in Section 7.1 or 7.2, each outstanding Option shall be deemed to be
exercised on the date of the occurrence. UPC or its successor shall deliver to
each Option Holder an amount in cash equal to the excess of the Fair Market
Value of the Stock on the date of the occurrence over the Option Price. All
payments shall be subject to the withholding of applicable federal, state, and
local taxes. Upon payment for the outstanding Options, all outstanding Options
shall automatically terminate and be of no further force or effect whatever
without the necessity for any additional notice or other action by the Board of
UPC. For this purpose, the date of the occurrence shall be as follows:
(a) In the case of a merger or consolidation of the Company, or the
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, the date of the closing of the transaction.
(b) In the case of the liquidation or dissolution of the Company, the
date on which the Board adopts resolutions to dissolve or liquidate the Company.
(c) In the case of a change in ownership of the Company's stock under
Section 7.2, the date on which the last shares that cause the Change in Control
are purchased.
(d) In the case of a change in the membership of the Board, the date
of the shareholders meeting at which the new directors were elected.
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ARTICLE VIII
SPECIAL RULES FOR VALUATION OF STOCK
If the Stock is not Publicly Traded, Fair Market Value shall be determined
by the Board in good faith. For this purpose, Fair Market Value is the price at
which a willing seller, under no obligation to sell, would sell and the price at
which a willing buyer, under no obligation to buy, would buy.
(a) The value of UPC shall be established by a significant
transaction (i.e., sale of stock, merger, or other transaction that would
establish a fair market value for UPC) if such a transaction has occurred within
three months prior to the date as of which Fair Market Value is established.
(b) If section (a) is not applicable, it is contemplated that Fair
Market Value will be determined according to the formula (x) minus (y), with
such modifications as the Board in good faith deems appropriate to reflect
accurately current market conditions, provided however, the methodology used to
determine fair market value shall be consistent with the methodology used to
establish the initial exercise price of Options granted under the Plan, where:
(x) is equal to ten times the trailing twelve months EBITDA (earnings
before interest, taxes, depreciation, and amortization) of each operating
company less the net liabilities of each operating company, multiplied by
UPC's ownership percentage in the operating company; provided that the
Board shall have the discretion to vary the multiplier; however, it is
expected that the multiplier shall not be less than eight or more than
twelve; and
(y) is equal to the net liabilities of UPC (excluding any liabilities
of the operating companies that were included in the calculation of (x)).
(c) The following provisions will apply as appropriate to the fair
market value calculation set forth in section (b) above.
(i) "Net liabilities" equal total long-term liabilities, less
net-working capital surplus, or plus net working capital deficit of the
entity.
(ii) With respect to any fair market valuation determined in
accordance with section (b) above, the value of any operating company will
be the value established by a transaction involving such operating company
as described in section (a) above.
(iii) For any operating company which has been in operation for
less than 36 months at the time of the valuation, or in the event that the
Board believes that the methodology used in section (b) does not fairly
reflect the value of any operating company, then a professional advisor or
qualified appraiser may be engaged to determine the value of
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such operating company by employing standard and customary methodologies,
which may include a discounted cash flow analysis.
(iv) Fair Market Value will be determined no more frequently
than once every six months, and the most recent prior valuation shall be
deemed to be the Fair Market Value. If there has been an event which in the
opinion of the Board is likely to have a material effect on the Fair Market
Value, then a new valuation may be carried out.
ARTICLE IX
EMPLOYMENT; TRANSFERABILITY
9.1 EMPLOYMENT. Nothing contained in the Plan or in any Option granted
under the Plan shall confer upon any Option Holder any right with respect to the
continuation of his employment by, or consulting relationship with, the Company,
or interfere in any way with the right of the Company, subject to the terms of
any separate employment agreement or other contract to the contrary, at any time
to terminate such services or to increase or decrease the compensation of the
Option Holder from the rate in existence at the time of the grant of an Option.
Whether an authorized leave of absence, or absence in military or government
service, shall constitute a termination of service shall be determined by the
Committee at the time.
9.2 OTHER EMPLOYEE BENEFITS. The amount of any compensation received or
deemed to be received by an Option Holder as a result of the exercise of an
Option shall not constitute "earnings" or "compensation" with respect to which
any other employee benefits of such employee are determined, including without
limitation benefits under any pension, profit sharing, 401(k), life insurance or
salary continuation plan.
9.3 NONTRANSFERABILITY. No right or interest of any Option Holder in an
Option granted pursuant to the Plan, shall be assignable or transferable during
the lifetime of the Option Holder, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an Option Holder's death, an Option Holder's rights
and interests in Options shall, to the extent provided in Article VI be
transferable by will or the laws of descent and distribution.
ARTICLE X
MISCELLANEOUS
10.1 EXPIRATION. The Plan shall terminate whenever the Board adopts a
resolution to that effect. If not sooner terminated by the Board, the Plan
shall terminate and expire on June 1, 2003. After termination, no additional
Options shall be granted under the Plan, but the Company shall continue to
recognize Options previously granted.
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10.2 AMENDMENTS, ETC. The Board may from time to time amend, modify,
suspend or terminate the Plan. Nevertheless, no such amendment, modification,
suspension or termination shall, without the consent of the Option Holder, alter
a material term of any Option previously granted under the Plan.
10.3 SECTION HEADINGS. The section headings are included herein only for
convenience, and they shall have no effect on the interpretation of the Plan.
10.4 SEVERABILITY. If any article, section, subsection or specific
provision is found to be illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and the Plan
shall be construed and enforced as if such illegal and invalid provision had
never been set forth in the Plan.
Dated: To be effective March 20, 1998.
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By: _________________________________________
12
<PAGE>
EXHIBIT 10.24
AMENDED STOCK OPTION PLAN
The following represents the amended stock option plan (the "Plan") of United
Pan-Europe Communications N.V., a company incorporated under the laws of the
Netherlands, having its corporate seat at Fred. Roeskestraat 123, Amsterdam, the
Netherlands (the "Company"), as it was adopted on June 13, 1996 and amended on
March 18, 1998 for grants as from that date.
ARTICLE 1. - Definitions
-----------
For the purposes of this Plan,
(i) "Affiliated Company" means a company in which the Company directly or
indirectly owns an at least one third of the shares of stock or other
capital interest of that company.
(ii) "Board of Management" means the board of management of the Company.
(iii) "Certificate" means a right to be issued by the Foundation
representing the economic ownership of one Share ("certificaat van
aandeel").
(iv) "Employee" means any member of the Board of Management in their
capacity as beneficiaries under the Plan and any employee of a Group
Company.
(v) "Foundation" means the Foundation for the Administration of the UPC
Stock Option Plan, the current Articles of Association and conditions
of administration are attached hereto as Appendix A.
(vi) "Group Company" means the Company or one of its Affiliated Companies.
(vii) "Option" means a right to subscribe for Certificates and/or Shares, as
the case may be, pursuant to this Plan.
(viii) "Option Date" means in relation to any Options, the date on which the
Options are, were or are to be granted.
(ix) "Right" means one Share or one Certificate, as the case may be, issued
or to be issued under an Option.
(x) "Shares" means the ordinary shares in the capital of the Company.
(xi) "Supervisory Board" means the supervisory board of the Company.
(xii) "Value Calculation Date" shall mean either the date an Employee offers
the Shares for sale to the Foundation or, if earlier, the effective
date of termination of employment, except in case the employment is
terminated because of permanent disability, retirement, early
retirement or death of the Employee concerned, in which case the date
shall be one year after the effective date of termination of
employment, in the latter case unless the Rights are offered to the
Foundation more than 30 days in advance of such date, in which case
the exercise date shall be the Value Calculation Date.
<PAGE>
ARTICLE 2. - Granting of Options
-------------------
2.1 The Options to be granted to an Employee will be approved by the
Supervisory Board, on the recommendation of the Board of Management.
2.2 The total number of Rights with respect to which Options may be granted
pursuant to this Plan shall be 4,000,000 with a par value of Dfl. 1.00. Rights
issued or issuable upon exercise of Options shall be applied to reduce the
maximum number of Rights available for use under the Plan. Rights underlying
expired or terminated and unexercised Options are available for reissue for
grant of Options under this Plan.
2.3 In case any of the events mentioned in Article 4.2 occurs, the
Supervisory Board will adjust the maximum number of Rights accordingly.
ARTICLE 3. - Modification of Option Terms
----------------------------
The Supervisory Board shall have the discretion and authority to grant
Options with such modified terms as the Board of Management recommends as
necessary or appropriate in order to comply with the laws of the country in
which the Employee resides or is employed or for whatever reason.
ARTICLE 4. - Option price
------------
4.1 The price to be paid to acquire the Rights ("the Option Price") will
equal the fair market price of the Shares at the date of the grant, to be
determined in accordance with article 8.4.
4.2 If after the Option date one of the following events occurs:
* a split of the Shares in Shares with a lower par value;
* a repayment of capital on the Shares;
* the issue of shares in the capital of the Company with a preference
right;
* the issue of shares in the capital of the Company out of the retained
earnings or the capital surplus account
then the Option Price and/or the number of the Rights with respect to
which Options have been granted will be adjusted if reasonably necessary, in
such a way that the fair market value of the Options immediately after the
above-mentioned occasions is equal to the fair market value of the Options
immediately before such occasion.
The Company will inform the Employee in writing of any adjustment of the
Option Price and/or the number of the Shares with respect to which Options have
been granted.
ARTICLE 5. - Exercise and non-transferability
--------------------------------
5.1 Options may only be exercised by the Employee, or in the event that the
Employee shall become permanently disabled or has deceased, by the administrator
of the Employee's estate or his or her heirs (hereinafter jointly and severally
referred to as the "Legal Successors").
5.2 Options may be exercised in full or in part.
<PAGE>
5.3 As long as the Shares of the Company are not listed at a stock exchange,
Options will be exercised via written notice from the Employee or the Legal
Successors to the Foundation. Once the Shares of the Company are so listed,
Options will be exercised via written notice from the Employee or the Legal
Successors to the Company. Any such notice will state the number of Rights to be
acquired pursuant to such exercise.
5.4 An Option granted to an Employee shall not be transferable by the
Employee other than by will or the laws of descent and distribution. An Option
granted to an Employee shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process.
5.5 Options are granted unconditionally and may be exercised immediately
after they have been granted. The right to exercise Options remains valid for a
period of five years after the Option Date.
ARTICLE 6. - Delivery of Rights and related matters
--------------------------------------
6.1 Within seven days after the exercise of an Option, the Company (if the
Shares are listed on a stock exchange) or the Foundation (if the Shares are not
so listed) will transfer the number of Rights in respect of which the Option is
exercised against payment in full of the Option Price.
6.2 As long as the Shares of the Company are not publicly traded, the
Employee and the Legal Successors shall not bear any transaction costs related
to the obtaining, purchase and/or sale of Rights. Thereafter, the Employee and
the Legal Successors shall not bear any transaction costs related to the
obtaining, purchase and/or sale of Certificates, nor the obtaining of Shares in
exchange for Certificates.
ARTICLE 7. - Consequences of termination of employment
-----------------------------------------
7.1 If the Employee is no longer employed by a Group Company because of
retirement, early retirement, permanent disability or death, the unexercised
Options (if any) will expire one year after the date of such termination, or 5
years after the Option Date concerned, whichever is earlier; it being understood
that in the case of the death of an employee, the expiration shall never be
earlier than 6 months after the date of death.
7.2 In the event the Employee is dismissed by the Company because of a so-
called "urgent reason" ("dringende redenen") under Dutch law, or because of
documented and material non-performance by the Employee, then all Options shall
expire immediately and without notice. Furthermore, any Rights acquired by the
Employee by the exercise of Options that would, if not exercised, have expired
pursuant to the first sentence of this Article 7.2. shall immediately be sold
and transferred to the Foundation in consideration of the original Option Price
as determined in Article 4.1. Upon the grant of an Option, the Employee
concerned will irrevocably authorise the Company to execute the required
(notarial) deed in his or her name. Any costs relating to the sale and transfer
of Rights to be so transferred shall be for the account of the Company.
7.3 In the event the Employee is no longer employed within a Group Company
for a reason other than those referred to in article 7.1 or 7.2 (or in case in a
dispute it is determined that the Company's claim on the application of Article
7.2 was not justified), the following shall apply:
<PAGE>
(i) the following parts of the total number (including Options already
exercised) of Options granted to such Employee shall (if not exercised
already) automatically expire without notice or compensation:
a) during the first month as from the Option Date in which such event
occurs: 100 per cent of the Options granted;
b) during the second month as from the Option Date in which such event
occurs; 47/48th of the Options granted;
c) for each following month the number under b) will be reduced with
1/48th.
(ii) any Rights acquired by the Employee by the exercise of Options that
would, if not exercised, have expired pursuant to Article 7.3.(i) shall
immediately be sold and transferred to the Foundation in consideration of
the original Option Price as determined in Article 4.1. Upon the grant of
an Option, the Employee concerned will irrevocably authorise the Company to
execute the required (notarial) deed in his or her name. Any costs relating
to the sale and transfer of Rights to be so transferred shall be for the
account of the Company.
(iii) any Options, not expired pursuant to Article 7.3.(i), if any, will
expire 30 days after the termination of the employment, or 5 years after
the Option Date, whichever is earlier.
7.4 Unless the Shares are listed on a stock exchange, in case the Employee is
no longer employed within a Group Company for whatever reason, the Employee or
his or her Legal Successors is/are obliged to sell to the Foundation within one
month after termination of the employment, or in case of Rights acquired or to
be acquired after the termination of the employment, within one month after the
acquisition of the Rights, all Rights (if any) acquired pursuant to the Options,
with exception of those Rights (if any) which the Employee sold before the
termination of his employment.
7.5 The sale price for all Rights to be transferred, other than those referred
to under Article 7.2 and 7.3.(ii) will be equal to the fair market value of the
Rights concerned at the Value Calculation Date determined in accordance with
Article 8.4.
7.6 For the benefit of the Employee concerned, upon the recommendation of the
Board of Management, the Supervisory Board may decide to deviate from the
provisions under Article 7.
ARTICLE 8. - Sale of Rights by the Employee
------------------------------
8.1 All sections of Article 8 will only apply after one or more Options have
been exercised and if the Shares are not listed on a stock exchange. Section 8.2
also applies in case the Shares have been listed on a stock exchange.
8.2 Rights obtained by an Employee based on the exercise of an Option, which if
the Employee would terminate his or her employment with the Company or one of
the Affiliated Companies, would have to be sold to the Foundation pursuant to
Article 7.3.(ii), can not be sold or encumbered by the Employee as long as
Article 7.3 would remain applicable in respect of those Rights. Once the Shares
of the Company are listed on a stock exchange, the Foundation shall only be
obliged to exchange such number of Certificates into Shares as would become
available to the Employee for sale in consideration for fair market value.
<PAGE>
8.3 If the Employee wants to sell Rights acquired pursuant to Options, the
Employee has to offer these Rights to the Foundation at a price equal to the
fair market value at the Value Calculation Date. The Foundation shall have the
obligation to purchase the Rights for that price from the Employee within one
month after the Value Calculation Date.
8.4 The fair market value as referred to in this Article shall be determined
by the Supervisory Board based on a recommendation from the Board of Management.
The Supervisory Board will, from time to time, provide the Board of Management
with instructions as to how and when to prepare its recommendation. It is
anticipated that those instructions will include the manner in which a
professional advisor may be engaged by the Supervisory Board in order to verify
the valuation and the manner in which a disagreement between an Employee and the
Company regarding the fair market value will be settled, including an objective
mechanism involving a professional advisor not involved in the first
determination verifying whether or not the determination of the fair market
value by the Supervisory Board is reasonable.
To avoid excessive administration, the fair market value under this
Article 8 will be established no more frequently than once every six months
using the then current valuation methodology, and the most recent prior
valuation shall be deemed to be the fair market value at the Value Calculation
Date. If there has been an event which in the opinion of the Board of Management
is likely to have a material effect on the fair market value then a new
valuation may be carried out.
ARTICLE 9. - Taxes and social security premiums
----------------------------------
9.1 Any tax or social security premiums payable by the Employee or his Legal
Successors with respect to the granting, maintaining or the exercising of the
Options or the sale of the Shares is for the account of the Employee or his
Legal Successors, respectively.
9.2 If (part of) the Options are not exercised, any tax and/or social security
premiums paid will not be refunded or compensated by the Company.
ARTICLE 10. - Merger and take-over
--------------------
10.1 In case of change of control (or ownership) of 50 percent or more of the
Shares of the Company or merger of the Company with another enterprise to which
the Shares in the Company have to be surrendered in exchange for the issue of
other shares or in case of 50 percent or more of the Shares in the Company are
taken over, the Options granted or Rights held pursuant to Options granted will,
if the Company so chooses, be acquired by the Foundation immediately for the
same value per Right as that sale, merger or exchange.
Furthermore, should an Employee be dismissed after the event of such a
change of control, other than for "urgent reasons" ("dringende redenen"),
Articles 7.2 and 7.3 shall not be applicable to such Employee for any Options
still held by such Employee, it also being understood that the Employee
concerned shall have a one year period from the effective date of termination of
the employment (or five years from the Option Date, whichever comes earlier) to
exercise the Options concerned.
10.2 In the case of a merger in which the Company is not the surviving entity,
the Foundation may require holders of Options and/or Rights to exchange their
Options and/or Rights for new options and/or certificates in a foundation for
the administration of the new merged entity's stock
<PAGE>
option plan, provided always that such new rights will be at least equivalent in
value to the Options and/or Rights.
ARTICLE 11. - Employment
----------
Neither the grant of the Options nor this Plan itself or any provision
therein can be interpreted as an obligation of the Company or an Affiliated
Company to employ the Employee for a certain period of time or to guarantee him
a certain salary or position.
ARTICLE 12. - Insider trading rules
---------------------
By accepting the Options, the Employee agrees to adhere to the Insider
Trading rules of Netherlands "Modelcode Voorkoming Misbruik van Voorwetenschap"
(The Netherlands Model Code for Avoidance of Insider Trading) or similar
regulations to be issued by the Company, which will be based on these rules.
ARTICLE 13. - Notices
-------
13.1 Notices pursuant to this Plan to be submitted by the Company to the
Employee, shall be deemed to be addressed correctly if they have been sent to
the address of the Employee as known by the personnel department of the Group
Company concerned.
13.2 Notices pursuant to this Plan to be submitted by the Employee to the
Company, shall be deemed to be addressed correctly if they have been sent to the
address of the Company as known with the Chamber of Commerce in Eindhoven, with
a copy to the Controller of the Company at Fred. Roeskestraat 123, 1076 EE
Amsterdam, The Netherlands.
ARTICLE 14. - Choice of law and jurisdiction
------------------------------
This Plan will be governed by Dutch law. With the exception of disputes
referred to in Article 8.4., all disputes arising in connection with this Plan
shall be brought before the competent court in the district of Amsterdam.
<PAGE>
EXHIBIT 23.1
As independent public auditors, we hereby consent to the use in this
Registration Statement of our report, dated April 29, 1998 on United Pan-Europe
Communications N.V. for the years ended December 31, 1997 and 1996 included in
this Registration Statement, and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN
Amstelveen, The Netherlands
November 24, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated September 11, 1998, on our audits of the financial statements
of N.V. Telekabel Beheer as of December 31, 1995, 1996 and 1997 and for the
period from August 22, 1995 until December 31, 1995 and for the years ended
December 31, 1996 and 1997. We also consent to the reference to our firm under
the caption "Experts".
PricewaterhouseCoopers N.V.
Arnhem, November 23, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark L. Schneider and J. Timothy Bryan, and each
of them, his or her attorneys-in-fact, with full power of substitution, for him
or her in any and all capacities, to sign (1) a registration statement to be
filed with the Securities and Exchange Commission (the "Commission") on Form
S-1 in connection with the registration by United Pan-Europe Communications
N.V., a corporation organized under the laws of The Netherlands (the "Company"),
of its Ordinary Shares, either as Ordinary Shares or in the form of American
Depository Receipts (together, the "Shares") and initial public offering of such
Shares, and (ii) all amendments (including post-effective amendments) thereto;
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission; and to sign all documents in connection with the
qualification and sale of the Shares with Blue Sky authorities and with the
listing of the shares on the Amsterdam Stock Exchange; granting unto said
attorneys-in-fact full power and authority to perform any other act on behalf of
the undersigned required to be done in the premises, hereby ratifying and
confirming all that said attorneys-in-fact may lawfully do or cause to be done
by virtue hereof.
Date: Oct. 30, 1998 /s/ Gene W. Schneider
-------- ----------------------------------------------------
Gene W. Schneider, Chairman of the Supervisory Board
Date: Oct. 30, 1998 /s/ Michael T. Fries
-------- ----------------------------------------------------
Michael T. Fries, Supervisory Board Member
Date: , 1998
-------- ----------------------------------------------------
Richard De Lange, Supervisory Board Member
Date: Oct. 23, 1998 /s/ Mark L. Schneider
-------- ----------------------------------------------------
Mark L. Schneider, Chairman of the Management Board
Date: Oct. 23, 1998 /s/ J. Timothy Bryan
-------- ----------------------------------------------------
J. Timothy Bryan, Management Board Member and
Principal Financial Officer
Date: Oct. 27, 1998 /s/ John F. Riordan
-------- ----------------------------------------------------
John F. Riordan, Management Board Member
Date: Oct. 27, 1998 /s/ Anton H.E. v Voskuijlen
-------- ----------------------------------------------------
Anton H.E. v Voskuijlen, Management Board Member
Date: Nov. 2, 1998 /s/ Nimrod J. Kovacs
-------- ----------------------------------------------------
Nimrod J. Kovacs, Management Board Member
Date: Oct. 23, 1998 /s/ Ray D. Samuelson
-------- ----------------------------------------------------
Ray D. Samuelson, Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> DUTCH GUILDERS
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<EXCHANGE-RATE> 2.02 1.89
<CASH> 121,535 53,605
<SECURITIES> 66,809 58,025
<RECEIVABLES> 52,855 66,192
<ALLOWANCES> 9,363 10,161
<INVENTORY> 13,040 22,140
<CURRENT-ASSETS> 184,207 145,517
<PP&E> 491,005 591,984
<DEPRECIATION> 7,312 64,915
<TOTAL-ASSETS> 1,919,815 1,849,968
<CURRENT-LIABILITIES> 439,361 502,082
<BONDS> 0 0
0 0
0 0
<COMMON> 54,000 54,000
<OTHER-SE> 474,927 313,234
<TOTAL-LIABILITY-AND-EQUITY> 1,919,815 1,849,968
<SALES> 0 0
<TOTAL-REVENUES> 337,155 305,237
<CGS> 0 0
<TOTAL-COSTS> 111,919 97,472
<OTHER-EXPENSES> 114,024 132,466
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 43,801 67,410
<INCOME-PRETAX> (154,084) (125,260)
<INCOME-TAX> 1,649 413
<INCOME-CONTINUING> (152,435) (124,847)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (165,966) (171,852)
<EPS-PRIMARY> (3.09) (3.59)
<EPS-DILUTED> (3.09) (3.59)
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT OF SUPERVISORY BOARD NOMINEE
The undersigned has agreed to serve as a member of the Supervisory Board of
United Pan-Europe Communications N.V. ("UPC") following the completion of UPC's
initial public offering and hereby consents to all references to her name in the
Registration Statement to be filed on Form S-1 by UPC.
November 23, 1998
/s/ Ellen P. Spangler
--------------------------
Ellen P. Spangler
